Williams v. Bear Stearns & Co.

• Decision Date: 23 December 1998
• Docket Number: No. 97-2405., No. 97-2404
• Citation: 725 So.2d 397
• Parties: Donna Lee WILLIAMS, etc., Appellant, v. BEAR STEARNS & CO., etc., et al., Appellees.
• Court: Florida District Court of Appeals

725 So.2d 397

Donna Lee WILLIAMS, etc., Appellant, v. BEAR STEARNS & CO., etc., et al., Appellees.

Nos. 97-2404, 97-2405.

District Court of Appeal of Florida, Fifth District.

December 23, 1998.

Peter N. Smith and Leon Handley and Ronald L. Harrop of Gurney & Handley, P.A., Orlando, for Appellant.

Peter Carr and Bernard H. Dempsey, Jr., of Dempsey & Sasso, Orlando, and Gary G. Staab and, Scott S. Balber of Morgan, Lewis & Bockius, New York, for Appellees Charles Ramsey and Frank R. Ramirez.

Michael R. Levin and Suzanne M. Barto of Rumberger, Kirk & Caldwell, P.A., Orlando, for Appellee Franklin Resources Incorporated.

No Appearance for Appellee Bear Stearns & Co., Inc.

GOSHORN, J.

In this consolidated appeal, Donna Lee Williams ("Appellant"), in her capacity as the insurance commissioner for the State of Delaware and the appointed receiver for National Heritage Life Insurance Company ("NHL"), appeals several orders disposing of NHL's claims against Appellees Charles Ramsey, Frank Ramirez, and Franklin Resources, Inc. ("Franklin"). We affirm in part and reverse in part.

NHL, an Orlando-based insurance company, hired various entities to manage its investment portfolio in the early 1990s, beginning with Bear Stearns and Company, Inc. ("Bear Stearns") in 1991. While Bear Stearns was its advisor, NHL first acquired in its portfolio investments known as "collateralized mortgage obligations" or "CMOs."¹ During 1992, NHL sought investment advice from MMAR Group, for whom Ramsey and Ramirez worked. Allegedly, Ramsey and Ramirez recommended CMOs for NHL and made certain representations about the safety of those investments. Those CMOs eventually resulted in extensive losses for NHL.

In August 1992, Ramsey introduced NHL to Franklin, which purported to have expertise in CMO investing. Apparently no full-fledged advisor-client relationship between NHL and Franklin ever developed; representatives of both Franklin and NHL acknowledged that although the parties were working toward a formal advisor-client relationship, eventually Franklin declined to take NHL on as a client. However, Franklin presented proposals to NHL in an effort to induce NHL to hire Franklin as its investment advisor, and allegedly NHL invested $60 million in assets on Franklin's advice during the negotiation period, during which NHL viewed Franklin as its "interim advisor," and suffered substantial losses.

NHL eventually became insolvent and Appellant was appointed its receiver. On January 26, 1996, Appellant filed a complaint against Bear Stearns, MMAR, Ramsey, Ramirez, Franklin, and others seeking to hold the defendants liable for acts and omissions which allegedly led to losses of over $50 million in NHL's portfolio. The complaint alleged, inter alia, that MMAR, Ramsey, and Ramirez compounded the problems that had been created by Bear Stearns's management of the portfolio, and that Franklin had recommended CMOs which resulted in losses to NHL. The crux of the allegations was that each investment firm had misrepresented or failed to mention the nature and riskiness of CMO investments and their suitability (or lack thereof) for a life insurance company such as NHL. The complaint alleged counts for breach of fiduciary duty, negligence, common law fraud, negligent misrepresentation, unjust enrichment, breach of warranty, and violation of the Florida Securities Act,² and demanded an accounting.

Franklin moved to dismiss the counts against it, alleging that the tort claims were barred by the economic loss rule, that Appellant had not adequately pled fraud, that the unjust enrichment count failed to state a cause of action, and that the Florida Securities Act claim was time-barred. Ramsey and Ramirez filed a similar motion to dismiss. On September 26, 1996, the lower court entered an order dismissing the common law tort claims as barred by the economic loss rule, finding that the fraud claims were not pled with the requisite particularity, finding that the warranty claims failed to state a cause of action, and ruling that no claim for unjust enrichment could lie due to the availability of adequate legal remedies. Appellant was given 20 days to file an amended complaint. On November 8, 1996, the court entered an order correcting the September 26 order; the amended order dismissed the breach of fiduciary duty, negligence, negligent misrepresentation, unjust enrichment, and accounting claims with prejudice and the common law fraud claims without prejudice. The November order also allowed Appellant to file an amended complaint repleading her claims for fraud in the inducement, breach of contract, breach of warranty, and violations of the Florida Securities Act.

On November 21, 1996, Appellant filed her amended complaint alleging counts against Ramsey and Ramirez for fraud in the inducement and violations of the Florida Securities Act and counts against Franklin for fraud in the inducement, breach of contract, beach of oral warranty, breach of written warranty, estoppel, promissory estoppel, and violation of the Florida Securities Act. Franklin filed a motion for summary judgment which was granted by the court on January 9, 1997 as to all except the Florida Securities Act claims. Franklin then moved to dismiss the remaining count based on pleading deficiencies and the statute of limitations. Ramsey and Ramirez moved to dismiss the fraud claims for failure to plead with particularity and the Florida Securities Act claims for untimeliness. On July 31, 1997, the court dismissed with prejudice all of the counts in the amended complaint except for the breach of contract claims against Bear Stearns, MMAR Group, PaineWebber, and Salomon Brothers. This appeal was instituted from the various orders disposing of the claims against Ramsey, Ramirez, and Franklin.

I. ECONOMIC LOSS RULE

First, Appellant argues that the court erred in dismissing her tort claims—specifically negligent misrepresentation and breach of fiduciary duty—in her original complaint under the economic loss rule. Appellant is correct that the economic loss rule does not apply to the claims against Franklin, Ramsey and Ramirez because those three defendants did not have a contractual relationship with NHL.³ See, e.g., Pearson v. Ford Motor Co., 694 So.2d 61, 69 (Fla. 1st DCA 1997) ("The economic loss doctrine precludes parties to a contract to recover economic damages resulting from a breach of contract."); Southland Constr. Inc. v. Richeson Corp., 642 So.2d 5 (Fla. 5th DCA 1994) (economic loss rule does not bar tort claims where there is no contract between the parties). Accordingly, we find that the lower court erred in dismissing Appellant's tort claims under the economic loss rule.

II. UNJUST ENRICHMENT

We also agree with Appellant that her unjust enrichment claims were improperly dismissed. Although Appellees argue that Appellant has adequate legal remedies and therefore no equitable relief can be granted, this notion does not apply to unjust enrichment claims:

The [defendants] contend that Counts III (unjust enrichment) and VI (promissory estoppel) are barred because an adequate remedy exists at law. There is no dispute that under Florida law, the general rule is that if the complaint on its face shows that adequate legal remedies exist, equitable remedies are not available. See e.g. H.L. McNorton v. Pan American Bank of Orlando, 387 So.2d 393, 399 (Fla. 5th DCA 1980). However, this doctrine does not apply to claims for unjust enrichment. Id. [ThunderWave v. Carnival Corp., 954 F.Supp. 1562] at 1565-1566. It is only upon a showing that an express contract exists that the unjust enrichment or promissory estoppel count fails. See id. Until an express contract is proven, a motion to dismiss a claim for promissory estoppel or unjust enrichment on these grounds is premature.

Mobil Oil Corp. v. Dade County Esoil Management Co., Inc., 982 F.Supp. 873, 880 (S.D.Fla.1997). In the instant case, there is no dispute that there was a contract between NHL and MMAR; however, NHL did not have a contract with Ramsey, Ramirez, or Franklin. Hence, the unjust enrichment claims were improperly dismissed as to Ramsey and Ramirez. However, because no commission or fee was ever paid to Franklin and therefore there is no benefit for Franklin to unjustly retain, we affirm the dismissal of the unjust enrichment claims against Franklin.

III. SUMMARY JUDGMENT FOR FRANKLIN

Appellant next challenges the summary judgment that was granted for Franklin on the fraud, breach of contract, breach of oral warranty, breach of written warranty, estoppel and promissory estoppel counts in her amended complaint. We affirm in part and reverse in part.

We agree with Franklin that Appellant's contract-based claims, including breach of warranty, are foreclosed by the lack of privity between NHL and Franklin. See TWM & SM v. American Med. Systems, Inc., 886 F.Supp. 842, 844 (N.D.Fla.1995) ("The law of Florida is that to recover for the breach of a warranty, either express or implied, the plaintiff must be in privity of contract with the defendant."); Spolski Gen. Contractor, Inc. v. Jettr-Aire Corp. Aviation Management of Cent. Florida, Inc., 637 So.2d 968 (Fla. 5th DCA 1994) (finding summary judgment properly granted on warranty claims where there was no contract or privity between parties). However, we reject Franklin's contention that Appellant did not adequately plead fraud. Appellant is correct that a fraud claim can be based on misrepresentations as to past experience, see Eastern Cement v. Halliburton Co., 600 So.2d 469 (Fla. 4th DCA 1992), or promises of future action where at the time the statement was made the maker had no intent to perform. Thor Bear, Inc. v. Crocker Mizner Park, Inc., 648 So.2d 168 (Fla. 4th DCA 1994). The discussions between NHL and Franklin, as well as the letters sent by Franklin to NHL, could give rise to extracontractual liability. We agree with Appellant that the issue of reasonable...