Summary
In Hartmann, this Court affirmed a trial court's determination that the defendant-financial advisor's internal policy manual was not discoverable.
Summary of this case from Browning v. Henry Ford Hosp. (In re Estate of Hill)Opinion
Docket No. 121313.
Decided January 9, 1992; approved for publication April 22, 1992, at 9:10 A.M.
Neithercut, Klapp, Shegos, Dillard Banas (by Kittredge R. Klapp,) for the plaintiff.
Hertz, Schram Saretsky, P.C. (by Bradley J. Schram and Gary M. Saretsky,) for the defendants.
Before: MacKENZIE, P.J., and SAWYER and JANSEN, JJ.
Plaintiff appeals from an order of the circuit court granting summary disposition in favor of defendants pursuant to MCR 2.116(C)(8) and (10). We affirm.
This dispute is premised on plaintiff's dissatisfaction with financial services rendered her now deceased father, Joseph Walker, by defendant Shearson Lehman Hutton, Inc., and its agent, defendant William J. Konchal. Plaintiff alleged various counts, including claims of negligent estate planning, that the decedent was sold securities unsuitable for his investment purposes, that defendants engaged in excessive trading in the decedent's account, and violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq.
Plaintiff first argues that the trial court erred in refusing to enforce her discovery request for a policy and procedures manual utilized by Shearson for its employees. Generally, any document that is relevant and not privileged is freely discoverable upon request. Eyde v Eyde, 172 Mich. App. 49, 55; 431 N.W.2d 459 (1988). The circuit court's decision to grant or deny a discovery request is reviewed for an abuse of discretion. Id. at 54.
In the case at bar, defendants do not allege that the document sought to be discovered is protected by privilege, and, therefore, we must determine whether the document was relevant to the litigation. Plaintiff, however, offers no explanation of the perceived relevancy of Shearson's policy and procedures manual beyond the bold assertion that the document is indispensable to preparation of her case in light of the fact that the major witness to the events, Walker, is now deceased. Plaintiff claims that the document would shed light on the customary scope of defendant's investment advice and trade practices and whether it is customary for an investment advisor to consider the capital gains tax consequences of investment recommendations.
We fail to see, however, how the manual would be relevant to any of these purposes. As for Walker being deceased, the policy and procedures manual would not bear out, or be relevant to, the actual facts of the transactions between Walker and defendants. As for the customary scope of defendant's investment advice and trade practice, the relevant inquiry is not what Shearson directs its employees to do, but what this employee did in handling Walker's account and whether those activities constituted either a violation of the various statutes relied upon by plaintiff or negligence in the handling of Walker's account. As noted above, the manual will shed no light on what Konchal actually did, or did not do, in the handling of this account.
As for plaintiff's claim that discovery would aid in determining whether it is customary for an investment advisor to consider the capital gains tax consequences of his recommendations, this again is not relevant to the litigation. It matters not whether it is customary for Shearson's agents, because of the requirements of its policy and procedures manual, to advise investors regarding the capital gains tax consequences of investment advice. What is relevant is whether a stockbroker has an obligation to advise an investor regarding the tax consequences of recommended investment options and, if such a duty does exist, whether Konchal complied with that duty in handling Walker's account. Because plaintiff makes no showing of how the manual would shed light on either the question of a stockbroker's duty to his customer or what Konchal actually did in the handling of Walker's account, the contents of the manual are not relevant to this litigation and plaintiff is merely engaging in a fishing expedition.
While Michigan does encourage wide discovery, Eyde, supra, the trial court must also protect the interests of the opposing party so as not to be subjected to excessive, abusive, or irrelevant discovery requests. In the case at bar, if the manual does have some relevance to this litigation, plaintiff has not demonstrated to our satisfaction what that relevance is, and, therefore, we cannot conclude that the trial court abused its discretion in refusing to compel discovery of the document.
Plaintiff also argues on appeal that the trial court erred in granting defendants' motion for summary disposition. We disagree. First, we conclude that the trial court correctly determined that there was no genuine issue of material fact concerning count I of the complaint, plaintiff's claim of negligent estate planning. The trial court determined, after reviewing the deposition testimony and affidavit of Konchal, that there was no evidence to support the claim that Konchal ever gave estate planning advice to Walker and that plaintiff failed to produce any affidavits or other documentary evidence in support of her claim. A genuine issue of material fact does not exist in the absence of contradictory evidence brought forth by the nonmoving party. The nonmoving party may not merely rely on the allegations or denials contained in the pleadings. McCart v J Walter Thompson USA, Inc, 437 Mich. 109, 115; 469 N.W.2d 284 (1991).
Plaintiff's claim in her brief that defendant Konchal admitted in his affidavit that he had engaged in estate planning misrepresents Konchal's statement in that affidavit. Paragraph 7 of the affidavit states that the "only arguable `estate planning' advice" that Konchal gave Walker was to confirm Walker's preexisting understanding concerning the effect of holding property with another person as joint tenants with rights of survivorship and what happens to the title to the property upon the death of one of the joint tenants. This is not an admission of estate planning by Konchal as plaintiff states. Merely informing a person of the effects and ramifications of the manner in which property is titled does not constitute estate planning. A professional engages in estate planning where he advises his client to title property in a certain manner in order to achieve a desired result. Konchal's affidavit makes no mention of advising Walker how to title the property to achieve a particular result, or that a particular result should be achieved, but merely confirmed Walker's understanding of the meaning of holding property as joint tenants with rights of survivorship.
Turning to count II of the complaint, that defendant Konchal had recommended an unsuitable investment for Walker in light of his investment objectives, we again conclude that summary disposition was appropriate. First, plaintiff argues that the cause of action for selling unsuitable securities may be found in the provisions of MCL 451.604(a) (1)(M); MSA 19.776(204)(a)(1)(M), which authorizes the revocation of the registration of a broker for recommending to a customer the purchase, sale, or exchange of a security without reasonable grounds to believe that the recommendation is suitable for the customer on the basis of the customer's circumstances as known by the broker. However, § 204(h) specifically states that a violation of § 204 does not subject a registrant to civil liability to a customer, except to the extent that the violation is contrary to some other provision of the Uniform Securities Act, MCL 451.501 et seq.; MSA 19.776(101) et seq. Thus by the explicit terms of the statute, plaintiff's reliance on § 204 to establish a cause of action for selling unsuitable securities is frivolous.
Plaintiff also argues that the claim of selling unsuitable securities also can be based on violations of the rules promulgated by the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD). We disagree. With regard to this issue, we are persuaded by the reasoning of Judge (now Justice) BOYLE in Kirkland v E F Hutton Co, Inc, 564 F. Supp. 427, 443 (ED Mich, 1983), who held that there is no private cause of action by a customer against a broker for violations of the NASD and NYSE rules.
Further, it appears that plaintiff also relies upon the Securities and Exchange Act of 1934 in support of her claim that the defendants had recommended unsuitable investments. However, we need not determine whether a cause of action for selling unsuitable securities is created under the Securities and Exchange Act of 1934, or the rules promulgated thereunder, because Congress has vested the federal courts with exclusive jurisdiction to resolve claims arising under the 1934 act. 15 U.S.C. § 78aa; Emrich v Touche Ross Co, 846 F.2d 1190, 1197 (CA 9, 1988).
Finally, with respect to plaintiff's unsuitability claim, to the extent that plaintiff argues that she is stating a negligence claim and is merely relying on the above statutes and rules to establish the standard of conduct required of a stockbroker, we would agree that those restrictions on stockbrokers would be probative of the issue, see Kirkland, supra at 443, but nevertheless agree with defendants that there exists no genuine issue of material fact concerning any such claim of negligence with respect to defendant Konchal selling unsuitable securities to the decedent. Specifically, plaintiff has produced no evidence to support a claim that Konchal recommended a sale or purchase that was unsuitable for the investment aims of the decedent. In fact, plaintiff, in her deposition, testified that she had no knowledge whether defendant Konchal had recommended to Walker that he engage in the securities transactions that did occur. Furthermore, Konchal's affidavit does not disclose that he recommended any particular course of action to Walker, but that he merely had executed the "unequivocal directive" of Walker to engage in the transactions. Accordingly, even assuming that a stockbroker's recommendation that a client engage in a securities transaction that is unsuitable for the investment goals of the client gives rise to a common-law negligence action, plaintiff has produced no facts supporting the conclusion that Konchal had affirmatively recommended that Walker engage in the complained-of transactions. Further, at least with respect to the subsequent reinvestment, there has been no claim that the transaction was unsuitable. Therefore, the trial court correctly granted summary disposition of this count.
Konchal's affidavit is not clear regarding whether Konchal gave advice concerning the mutual funds in which Walker should invest the proceeds from the sales of the Gerber and American Brands stocks. Konchal's affidavit was clear only that Walker directed him to sell the Gerber and American Brands stocks and that he wished to make mutual fund investments. This, however, does not change the result of our analysis. First, plaintiff has still failed to show that Konchal affirmatively recommended a particular purchase to Walker and that that recommendation was unsuitable for Walker's investment goals, and, in any event, a reading of plaintiff's brief on appeal indicates that plaintiff merely claims that the sale of the Gerber and American Brands stock was unsuitable for Walker, not that the subsequent reinvestment of the proceeds of that sale was unsuitable.
Turning to the claim of excessive trading, or "churning," we again agree with defendants that summary disposition was appropriate. To establish churning, it is necessary to show that the stockbroker has control of the account and that there has been excessive trading in it. Booth v Peavey Co Commodity Services, 430 F.2d 132, 133 (CA 8, 1970). In the case at bar, plaintiff has produced no facts to support a conclusion that Konchal controlled Walker's account. In fact, as discussed above, the only facts of record indicate that Walker approached Konchal with a specific investment plan in mind, to sell the stockholdings Walker had accumulated over the years and to reinvest the proceeds in other investment vehicles. Furthermore, while it is true that Walker, over the period of several months, did change his investment portfolio, the total number of trades involved were relatively few. Accordingly, we conclude that there is no genuine issue of material fact.
Finally, plaintiff argues that the trial court erred in granting summary disposition in favor of defendants of plaintiff's claim under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. We disagree. The record is utterly devoid of any evidence that would support a conclusion that defendants engaged in securities fraud or otherwise committed acts that could give rise to a RICO claim. Plaintiff's RICO claim is so lacking in merit that it requires neither reversal nor discussion.
Affirmed. Defendants may tax costs.