Welo v. AdvisorNet Fin., Inc.
| Decision Date | 06 October 2020 |
| Docket Number | Case No. 3:19-cv-00277 |
| Parties | Susan L. Welo, Plaintiff, v. AdvisorNet Financial, Inc., Defendant. |
| Court | U.S. District Court — District of North Dakota |
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS
Before the Court is Defendant AdvisorNet Financial, Inc.'s ("AdvisorNet") Motion to Dismiss filed on March 10, 2020. Doc. No. 13. AdvisorNet seeks to dismiss Plaintiff Susan L. Welo's Complaint pursuant to Federal Rule of Civil Procedure 12(c). On March 31, 2020, Welo filed a response in opposition to AdvisorNet's motion. Doc. No. 14. AdvisorNet filed a reply on April 20, 2020. Doc. No. 20. For the reasons below, the motion is granted in part and denied in part.
From 1989 to 2016, Welo worked for a variety of firms as a licensed securities agent. Id. ¶ 2. Under her business model, Welo traveled throughout North Dakota to assist investment clients while her office staff handled administrative tasks. Id. ¶¶ 7, 8.
In February 2015, Cetera Advisor Networks LLC ("Cetera") hired Welo as a registered General Securities Representative.1 Id. ¶¶ 2, 7. AdvisorNet was the transition team, which transferred Welo's files to Cetera.2 Id. ¶ 8. Welo alleges that during this transition, AdvisorNet representatives instructed her staff to obtain blank signed client forms and place them into client files. Id. Welo further alleges these actions were taken without her knowledge or approval. Id.
During Welo's employment with Cetera, AdvisorNet served as her Office of Supervisory Jurisdiction ("OSJ"). Id. ¶ 3. As OSJ, AdvisorNet assumed responsibility to supervise Welo's advisors and administrative staff. Id. ¶ 9. To ensure Welo's advisors and staff conducted business properly, AdvisorNet had the duty to maintain an ongoing presence in her office. Id. ¶ 10. Specifically, AdvisorNet had the duty to review customer files and general office operations to ensure Welo's staff followed proper business practices. Id. AdvisorNet also had the duty to ensure Welo's advisors and administrative staff followed Cetera's internal policies, along with all federal, state, and Financial Industry Regulatory Authority ("FINRA") rules and regulations. Id. ¶ 9. For serving as OSJ, Cetera paid AdvisorNet a percentage of Welo's gross commissions. Id. Welo, a busy traveling securities representative at the time, relied on AdvisorNet to diligently and skillfully complete its supervisory and compliance duties. Id. ¶ 10. Welo claims that AdvisorNet neglected, and ultimately failed, in its supervisory and compliance duties over her office. Id. ¶ 11.
In August 2016, Cetera's internal review of Welo's office revealed blank signed client forms in client files. Id. Cetera also discovered that, without Welo's knowledge or consent, one of her assistants allegedly signed Welo's name on customer account paperwork. Id. Cetera further learned Welo's office allegedly failed to comply with Cetera's data protection and communication policies. Id. Welo claims any alleged failed compliance with Cetera's data protection and communication policies occurred "on AdvisorNet's watch." Id. The allegations "shocked" Welo because Cetera's internal review occurred within the time period covered by a previous clean AdvisorNet audit.3 Doc. No. 1-2, ¶ 13.
These results prompted Cetera to terminate Welo and file a U-5 form with FINRA, alleging violations of securities industry rules, regulations, and standards of conduct. Id. ¶ 14. According to Welo, the filing of the U-5 form is a "scarlet letter" for a securities representative and all but ensuresthe representative will never work in the securities industry again. Id. Welo claims AdvisorNet was responsible for preventing these alleged violations. Id.
After Cetera terminated Welo, she lost her entire book of business, which at that time was valued at $1,170,000. Id. ¶¶ 15, 16. Welo alleges AdvisorNet's compliance and supervisory failures destroyed her career and her primary source of income. Id. ¶ 15. Through FINRA arbitration, Welo and Cetera settled, on confidential terms, the disputes regarding Cetera's handling of her termination. Id. ¶ 17. AdvisorNet was not a party to the arbitration, settlement agreement, or release. Id.
On November 15, 2019, Welo filed her Complaint in Cass County District Court. Doc. No. 1-2. Welo's complaint pleads four causes of action: (1) negligence, (2) breach of contract, (3) unjust enrichment, and (4) declaratory judgment. AdvisorNet removed the case to federal court on December 16, 2019. Doc. No. 1. AdvisorNet then filed answer on January 15, 2020. Doc. No. 5.
Rule 8(a)(2) of the Federal Rules of Civil Procedure requires a pleading contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Rule 12(c) establishes that "[a]fter the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings." Fed. R. Civ. P. 12(c). "Judgment on the pleadings is appropriate where no material issue of fact remains to be resolved and the movant is entitled to judgment as a matter of law." Faibisch v. Univ. of Minn., 304 F.3d 797, 803 (8th Cir. 2002) (citation omitted). When presented with a motion for judgment on the pleadings, a district court must "accept as true all factual allegations set out in the complaint" and "construe the complaint in the light most favorable to the plaintiff, drawing all inferences in [her] favor." Wishnatsky v. Rovner, 433 F.3d 608, 610 (8th Cir. 2006). The standard for judgment on the pleadings is the same as that for failure to state a claim under Rule 12(b)(6). Ashley Cnty. v. Pfizer, Inc., 552 F.3d 659, 665 (8th Cir. 2009).
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint is facially plausible where its factual content "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678. A court must "review the plausibility of the plaintiff's claim as a whole, not the plausibility of each individual allegation." Whitney v. Guys, Inc., 700 F.3d 1118, 1128 (8th Cir. 2012) (citation omitted).
When considering a motion for judgment on the pleadings under Rule 12(c), courts generally must ignore materials outside the pleadings, but they may consider "some materials that are part of the public record or do not contradict the complaint," as well as materials that are "necessarily embraced by the pleadings." Greenman v. Jessen, 787 F.3d 882, 887 (8th Cir. 2015) (quoting Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999)). "Documents necessarily embraced by the pleadings include documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading." Ashanti v. City of Golden Valley, 666 F.3d 1148, 1151 (8th Cir. 2012) (citation and internal quotation marks omitted).
This action is based on diversity jurisdiction. Therefore, the Court will apply North Dakota substantive law. See Rose v. Midland Nat'l Life Ins. Co., 954 F.3d 1117, 1119 (8th Cir. 2020).
AdvisorNet makes four primary arguments in its motion to dismiss. First, AdvisorNet argues that the Court should dismiss Welo's negligence claim because Welo failed to allege that AdvisorNet is a broker-dealer and owes a duty to Welo. Second, AdvisorNet asserts that Welo's breach of contract claim should be dismissed because Welo failed to plead facts that establish a contract. Third, AdvisorNet argues that the Court should dismiss Welo's unjust enrichment claim because Welo has an adequate remedy at law for the exact harm alleged because Welo filed and settled a previouslawsuit with Cetera. Lastly, AdvisorNet argues that each of Welo's claims should fail because Welo has not alleged facts that support the existence of an agency relationship between AdvisorNet and any individuals with an alleged supervisory duty.
As an initial matter, the Court notes that Welo filed the Affidavit of Susan Lavon Welo (Doc. No. 15) and the Affidavit of Brayden K. Harwood (Doc. No. 16), with Attached Exhibit A,4 in support of her response brief. Meanwhile, AdvisorNet attached a printout from the website BrokerCheck as Exhibit D to its reply. Doc. No. 20-4, p. 2. The Court has not considered the affidavits or its attachment in its analysis. For purposes of deciding this motion, the Court finds that the two affidavits and attachment are not embraced by the pleadings. See Fernandez v. St. Louis Cty., No. 4:19-CV-01638-SNLJ, 2020 WL 2526557, at *1 (E.D. Mo. May 18, 2020) ().
The analysis differs, however, for AdvisorNet's Exhibit D, a printout from the website BrokerCheck. Courts outside of the Eighth Circuit have recognized BrokerCheck as a public record. See Buscetto v. Fin. Indus. Regulatory Auth., No. CIV.A. 11-6308 JAP, 2012 WL 1623874, at *3 (); see also Duncan v. Vantage Corp., No. CV 18-288 (MN), 2019 WL 1349497, at *4 (D. Del. Mar. 26, 2019); Lobaito v. Fin. Indus. Regulatory Auth., Inc., No. 13 CIV. 6011 GBD HBP, 2014 WL 4470423, at *4 (S.D.N.Y. Sept. 9, 2014), aff'd sub nom. Lobaito, Jr. v. Fin. Indus. Regulatory Auth., Inc., 599 F. App'x 400 (2d Cir. 2015). The Court finds this authority persuasive. Accordingly, the Court concludes BrokerCheck is a public record and will consider the printout for the purpose of deciding this motion. See Greenman, 787 F.3d at 887 (quoting Porous Media Corp., 186 F.3d at 1079).
Welo's first claim...
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