Opinion
No. 3:97-CV-1544-L.
September 7, 2000.
MEMORANDUM OPINION AND ORDER
Before the court is Defendant's Motion for Summary Judgment as to Plaintiffs' Fourth Amended Complaint, filed June 2, 2000; and Defendant's Motion to Strike Plaintiffs' Brief in Opposition to Defendant Rochdale's Objections to Plaintiffs' Summary Judgment Evidence, and Brief in Support Thereof ("Motion to Strike"), filed August 4, 2000. After careful consideration of the motions, responses, reply, the record evidence, and the applicable law, the court grants Defendant's Motion for Summary Judgment, and denies as moot Defendant's Motion to Strike. I. Factual and Procedural Background
In its Reply to Plaintiffs' Response In Opposition to Rochdale's Second Motion for Summary Judgment and Objections to Plaintiffs' Summary Judgment Evidence, filed July 10, 2000, Defendant requests that the court either strike or unfile Plaintiffs' response on the basis that it was untimely filed. On July 19, 2000, the court issued an agreed order granting Plaintiffs' motion for a one-day extension in time to file briefs and summary judgment evidence in response to Defendant's motion for summary judgment. In light of that order, Defendant's request to strike Plaintiffs response to Defendant's summary judgment motion is denied as moot. On July 28, 2000, Plaintiffs filed their brief in opposition to Rochdale's objections to Plaintiffs' summary judgment evidence. The court finds that Plaintiffs' brief in opposition is inappropriate for two reasons. First, in filing the brief, Plaintiffs attempt to file a surreply without leave of court. As a general rule, the court does not allow a party to file a surreply, unless compelling reasons exist. Second, the court does not consider inadmissible evidence in determining a motion for summary judgment. Therefore, Defendant's objections to Plaintiffs' evidence and Plaintiffs' response to those objections are moot.
The court states only those facts which are necessary for the resolution of the summary judgment motion. The facts stated for disposition of this motion are stated in the light most favorable to Plaintiffs, the nonmoving parties; however, undisputed or disputed facts which are immaterial or irrelevant will not be considered by the court. Statements which merely express beliefs, conjectures, opinions, conclusions, arguments or assumptions will not be considered by the court.
Plaintiffs Marjorie Smith, individually and as independent executrix for the Estate of John Tom Smith, and Joseph Dauper ("Dauper") (collectively "Plaintiffs") seek to recover retirement funds they lost when Roger E. Turner ("Turner"), an investment advisor, failed to forward a certain portion of those funds to Defendant Rochdale Investment Management, Inc. ("Rochdale" or "Defendant"), a registered investment advisory firm, for money management.
The remaining Plaintiffs in this litigation, namely, Doris Stevenson, Starla McKelvey, Robert and Maureen Garbarino, Franklin and Mary Engle, James and Willie Worley, Worley Field Services, Joe and Cathy Cook, Cook Pest Control, Inc. and Beulah Dickerson, do not assert any claims or factual allegations against Rochdale; however, these Plaintiffs contend that they have an interest by assignment in Marjorie Smith's and Joseph Dauper's claims against Rochdale.
Some time in early 1991, John Tom Smith ("Smith") sought the advice of a financial planner in preparation for his upcoming retirement. A friend of Smith's recommended Turner, who was at that time, and at all times relevant to this action, a registered representative of Royal Alliance Associates, Inc. ("Royal Alliance"). Soon thereafter, Turner began providing Smith with financial planning advice. Upon Turner's recommendation, Smith opened an account with Royal Alliance where a series of mutual funds and other investment securities were purchased on his behalf. In 1992, Smith retired from Oryx Energy, and received retirement funds totaling $500,397.25.
At all times relevant to this action, Royal Alliance was a licensed securities broker-dealer and registered in the State of Texas as a registered investment adviser pursuant to the Investment Advisers Act of 1940.
In December 1991, Dauper received a lump sum distribution of approximately $341,246 of his 401(k) and retirement funds from his former employer, BP America. Some time during that same month, at the urging of John and Marjorie Smith, Dauper met Turner. Shortly thereafter, Turner began providing Dauper with financial planning advice. Upon Turner's recommendation, Dauper opened an account with Royal Alliance where a series of mutual funds and other investment securities were purchased on Dauper's behalf.
Effective October 1, 1992, Royal Alliance and Rochdale entered into an Investment Advisor Relationship Agreement under the Royal Advisory Services Program ("RASP Agreement"). Under the RASP Agreement, Royal Alliance agreed to refer clients of certain Advisory Registered Representatives to Rochdale in return for a percentage of the advisory fees paid by each client to Rochdale. Rochdale customarily manages its clients' assets for a percentage fee based on assets under management, and its fee is typically split with the referring broker on a fully disclosed basis.
In 1993, Turner referred Dauper and Smith to Rochdale. By this time, Dauper had been entrusting assets and funds to Turner for investments through Royal Alliance for more than a year and a half Similarly, Smith had been entrusting funds to Turner for investments through Royal Alliance for more than two years. Dauper and Smith each decided to open an investment account with Rochdale, and executed Rochdale Investment Advisory Agreements ("Rochdale Agreement(s)") on or about June 25, 1993 and August 13, 1993, respectively. Under the Rochdale Agreements, potential clients may fund their Rochdale accounts by either wiring the requisite funds directly to Pershing, Division of DLJ ("Pershing"), Rochdale's clearing firm, or by submitting a check to Rochdale made payable to Pershing.
In 1993, it was the usual and customary practice of Rochdale not to execute a potential customer's Investment Advisory Agreement unless and until it received confirmation from Pershing that Pershing had received funds from the potential customer, or Rochdale received a check from the customer made payable to Pershing. Rochdale would assign an account number to potential new accounts so that Pershing would have an account into which to deposit any cash or securities it received from a prospective Rochdale customer. Upon notification of receipt of funds or securities, Rochdale would activate the customer's account and execute the Investment Advisory Agreement. In August 1993, Pershing opened account numbers 3TN-002963 in the name of "Delaware Charter Guarantee and Trust TTEE FBO John Tom Smith," and 3TN-002971 in the name of "Delaware Charter Guarantee and Trust TTEE FBO Joseph Dauper."
See D'Alessandro Aff. at p. 2.
In September and October 1993, pursuant to written instructions from Turner, Smith and Dauper liquidated prior investments and wired the proceeds — which they intended to use to fund the Rochdale accounts — directly into an account at Riverside National Bank in the name of R.E. Turner Company. Once the money reached this bank account, Turner misappropriated the funds, using part of it to pay his personal expenses and the rest to pay back prior investors. Neither Pershing nor Rochdale ever received any funds from or for the benefit of Dauper or Smith for deposit to any account at Rochdale. Prior to 1997, no one, including Turner, Dauper and Smith, ever informed Rochdale that Plaintiffs had sent money intended for a Rochdale account to a bank account controlled by Turner. Rochdale never executed the Rochdale Agreements signed by Dauper and Smith. Turner was subsequently convicted for securities fraud arising from his dealings with Plaintiffs, and is now serving time in federal prison.
Plaintiffs filed suit against Rochdale and several other defendants, all of whom, with the exception of Rochdale, have been subsequently dismissed from this litigation. In their Fourth Amended Complaint ("Complaint"), Plaintiffs assert causes of action against Rochdale for breach of fiduciary duty; participation in breach of fiduciary duty; vicarious liability for Turner's continuing fraud based on agency, joint venture and negligent supervision of a controlled person; negligence; aiding and abetting and controlling person liability under the Texas Securities Act and federal securities laws; breach of contract and promissory estoppel; violation of the Texas Deceptive Trade Practices Act; and attorney's fees pursuant to the Texas Securities Act and Texas Deceptive Trade Practices Act. Defendant now moves for summary judgment on all of Plaintiffs' claims.
II. Summary Judgment Standard
Summary judgment shall be rendered when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Ragas v. Tennessee Gas Pipeline Company, 136 F.3d 455, 458 (5th Cir. 1998). A dispute regarding a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary judgment, the court is required to view all inferences drawn from the factual record in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986); Ragas, 136 F.3d at 458.
Once the moving party has made an initial showing that there is no evidence to support the nonmoving party's case, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at 586. Mere conclusory allegations are not competent summary judgment evidence, and thus are insufficient to defeat a motion for summary judgment. Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996). Unsubstantiated assertions, improbable inferences, and unsupported speculation are not competent summary judgment evidence. See Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir.), cert. denied, 513 U.S. 871 (1994). The party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his claim. Ragas, 136 F.3d at 458. Rule 56 does not impose a duty on the court to "sift through the record in search of evidence" to support the nonmovant's opposition to the motion for summary judgment. Id., see also Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915-16 n. 7 (5th Cir.), cert. denied, 506 U.S. 832 (1992). "Only disputes over facts that might affect the outcome of the suit under the governing laws will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248. Disputed fact issues which are "irrelevant and unnecessary" will not be considered by a court in ruling on a summary judgment motion. Id. If the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to its case and on which it will bear the burden of proof at trial, summary judgment must be granted. Celotex, 477 U.S. at 322-23.
III. Analysis A. Breach of Fiduciary Duty
Plaintiffs contend that Rochdale owed Dauper and Smith a fiduciary duty to properly monitor and supervise their investments pursuant to the Investment Advisory Agreements signed by them. Alternatively, Plaintiffs contend that Rochdale is liable for its participation in Turner's breach of fiduciary duty. In its motion for summary judgment, Rochdale contends that it is entitled to judgment as a matter of law on Plaintiffs' claim for breach of fiduciary duty because it did not assume the duty of a fiduciary to Dauper and Smith, and because no "special relationship" existed by which a fiduciary relationship arose between the parties.
Whether a fiduciary duty exists is a question of law for the court's determination. Fuqua v. Taylor, 683 S.W.2d 735, 737 (Tex.App. — Dallas 1984, writ ref'd n.r.e.). The facts that give rise to a fiduciary duty, however, are to be determined by the fact finder. See id. at 737-38. A fiduciary relationship exists when the parties are under a duty to act for or give advice for the benefit of another upon matters within the scope of the relation. Texas Bank Trust Co. v. Moore, 595 S.W.2d 502, 507 (Tex. 1980); see also Fisher v. Roper, 727 S.W.2d 78, 81 (Tex.App. — San Antonio 1987, writ ref'd n.r.e.). It exists where a special confidence is reposed in another who in equity and good conscience is bound to act in good faith and with due regard for the interest of the one reposing confidence. See Moore, 595 S.W.2d at 507. A fiduciary duty arises from formal fiduciary relationships such as attorney-client, partnership, trustee-cestui que trust, see id. at 507, or from moral, social, domestic or purely personal relationships where one party places implicit trust and reliance on another. See Crim Truck Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992); see also Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962). The mere fact that one subjectively trusts another does not, alone, indicate that he reposed confidence in the other in the sense demanded by fiduciary relations. Doe v. Boys Clubs of Greater Dallas, Inc., 868 S.W.2d 942, 955 (Tex.App. — Amarillo 1994, writ granted), aff'd, 907 S.W.2d 472 (Tex. 1995). This is true because something apart from the transaction itself is necessary to show the nature of the relationship of the parties during the transaction. Id. To establish a fiduciary relationship, the evidence must show that the dealings between the parties have continued for such a period of time that one party is justified in relying on the other to act in his or her best interest. See O'Shea v. Coronado Transmission Co., 656 S.W.2d 557, 563 (Tex.App.-Corpus Christi 1983, writ ref'd n.r.e.).
Plaintiffs contend that the Rochdale Agreements executed by Dauper and Smith establish Rochdale's fiduciary duty in this case. According to Plaintiffs, Dauper and Smith appointed Rochdale to act as their attorney-in-fact and authorized it to handle their Rochdale accounts on a fully discretionary basis. As such, Plaintiffs contend that a fiduciary relationship existed between Plaintiffs and Rochdale as a matter of law. While it agrees with Plaintiffs that the appointment of an attorney-in-fact creates an agency relationship, and that an agency creates a fiduciary relationship as a matter of law, see Sassen v. Tanglegrove Townhouse Condominium Ass's, 877 S.W.2d 489, 492 (Tex.App. — Texarkana 1994, writ denied), the court finds that the intended agency relationship between Rochdale and Dauper and Smith was never consummated.
Agency is a consensual relationship, and the agency relationship does not come into existence until the agent consents to act on behalf of and subject to, the control of the principal, who has manifested consent that the agent shall so act. See Hand v. Dean Witter Reynolds, Inc., 889 S.W.2d 483, 493 (Tex.App.-Houston [14th Dist.] 1994, writ denied). Therefore, there must be a meeting of the minds between the parties in establishing an agency relationship, and consent of both principal and agent is necessary to create the agency. See Carr v. Hunt, 651 S.W.2d 875, 879 (Tex.App.-Dallas 1983, writ ref'd n.r.e.). Although such consent may be implied rather than express, the intention of the parties must find expression either in words or conduct between them. Id. If a party refuses to act as an agent for the principal, no relationship between the parties arises, and the agent has no duty to act for the principal. See Hand, 889 S.W.2d at 493.
In this case, pursuant to the written terms of the Rochdale Agreements, Dauper and Smith appointed Rochdale agent and attorney-in-fact in connection with the management of their investment accounts. It is undisputed that under the written terms of the Rochdale Agreements, Rochdale would not become responsible for managing Dauper's and Smith's investment accounts until it accepted the agreements in writing. The undisputed summary judgment evidence shows that neither of the Rochdale Agreements signed by Dauper and Smith was executed by Rochdale. Plaintiffs also present no competent summary judgment evidence that Rochdale otherwise consented, either expressly or impliedly, to act as attorney-in-fact for Dauper and Smith in connection with any Rochdale account. As such, Plaintiffs have failed to present a genuine issue of material fact that a fiduciary relationship arose based on that provision of the Rochdale Agreements wherein Dauper and Smith appointed Rochdale their agent and attorney-in-fact in connection with the management of their investment accounts.
See Def. App. at pp. 25, 44. Plaintiffs contend that Rochdale accepted the agreements when it directed its clearing firm to open discretionary Rochdale accounts for Dauper and Smith. Rochdale, however, has presented uncontroverted evidence that it was the usual and customary practice of the company to assign an account number to a potential new account so that Pershing would have an account into which to deposit any cash or securities it received from a prospective Rochdale customer. See D'Alessandro Aff. at p. 2. That Rochdale opened discretionary accounts for Dauper and Smith is insufficient to create a genuine issue of material fact concerning whether Rochdale accepted the Rochdale Agreements signed by Dauper and Smith.
Even if it could be said that Rochdale consented to the agency relationship, it would not be liable for breach of a fiduciary duty. Agents are only fiduciaries with respect to matters within the scope of their agency. See Hand, 889 S.W.2d at 492 n. 5. Here, pursuant to the written terms of the Rochdale Agreements. Dauper and Smith authorized Rochdale to "direct and manage the investment and reinvestment of the assets in the Account, the proceeds thereof and any additions thereto on a fully discretionary basis." See Def. App. at pp. 25, 44. Rochdale's power-of-attorney would have, therefore, been limited to managing those assets contained within a Rochdale account. Although Plaintiffs contend that Rochdale "5 management of the Dauper and Smith accounts included ensuring that the accounts were initially funded, no such duty is imposed under the written terms of the Rochdale Agreements. Rather, those agreements state that management of the accounts included the purchase and sale of securities or options, clearance and settlement of securities or options transactions, and transfer, receipt and delivery of securities, options or cash. See Def. App. at pp. 26, 45. Because the Dauper and Smith accounts were never initially funded, Rochdale never made any financial transactions in connection with those accounts. Therefore, it did not breach any fiduciary duty associated with the management of those accounts.
Plaintiffs also contend that a fiduciary relationship arose based on the discretionary trading authority provision contained in the Rochdale Agreements. This argument, however, fails for two reasons. First, as Defendant never executed the Rochdale Agreements, it had no authority to engage in discretionary trading on behalf of Dauper and Smith. Second, Plaintiffs present no competent summary judgment evidence that their Rochdale accounts were ever funded, or that any trading activity — let alone continuous discretionary trading — ever occurred in the investment accounts. Moreover, there is no evidence that Defendant made any investments on Plaintiffs' behalf. Plaintiffs have failed to raise a genuine issue of material fact as to the existence of a fiduciary relationship based on Defendant's ongoing discretionary trading authority.
Plaintiffs contend that Rochdale's meetings with Dauper and Smith, its sales presentations and dissemination of written materials to them gave rise to a fiduciary duty based on a special relationship. The court disagrees.
Sometime in early 1993, Turner suggested that Plaintiffs meet with a representative of Rochdale to discuss hiring the company to manage their respective financial investments. It is undisputed that Dauper and Smith had a long term relationship of trust and confidence with Turner, and that they often acted upon his recommendation. Dauper states that he met with Rochdale's representative, Thomas Seitz, once on June 25, 1993. This meeting is the only evidence in the record of any communication between Rochdale and Dauper. There is no evidence in the record that a meeting ever occurred between Rochdale and Smith, although Plaintiffs' aver that Rochdale was introduced to Smith through his daughter, who attended a luncheon sponsored by Rochdale for Turner's clients. Further, the record is devoid of any further contact between Dauper and Rochdale after June 25, 1993. Based on this evidence, the court concludes that there was no continuing personal relationship between the parties upon which Dauper and Smith could be justified in relying on Rochdale to act in their best interests. Because Plaintiffs have failed to raise a genuine issue of material fact that either a formal or informal fiduciary relationship existed between Plaintiffs and Defendant, Rochdale is entitled to judgment as a matter of law on Plaintiffs' claim for breach of fiduciary duty.
Even if Rochdale was a fiduciary to Dauper and Smith, Rochdale would nevertheless be entitled to judgment as a matter of law on this claim, as Plaintiffs have failed to present a genuine issue of material fact that Rochdale's alleged breach of duty was a proximate cause of Plaintiffs' injuries. As previously stated, Turner misappropriated funds that Dauper and Smith entrusted to him. Turner was neither Rochdale's employee nor agent, and there is no evidence that Rochdale had any supervisory control over Turner. Because Plaintiffs have failed to produce any evidence that Rochdale's acts or omissions caused the loss of funds wire-transferred by Dauper and Smith into Turner's bank account at Riverside National Bank, Plaintiffs' claim against Rochdale for breach of fiduciary duty must be dismissed.
In the alternative, Plaintiffs assert a claim against Rochdale for participatory breach of fiduciary duty based on Turner's breach of fiduciary duty to Dauper and Smith. Under Texas law, "where a third party knowingly participates in the breach of duty of a fiduciary, such third party becomes a joint tortfeasor with the fiduciary and is liable as such." Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509, 514 (Tex. 1942). Plaintiffs contend that Rochdale participated in Turner's breach of fiduciary duty by expressly agreeing that it would never contact the Plaintiffs directly concerning their accounts at Rochdale; by directly promoting the Rochdale Cash Account transactions; by accepting the Investment Advisory Agreements of Dauper and Smith and assigning account numbers to their respective accounts; by failing to investigate the location of funds it knew that Plaintiffs intended to transfer to it; and by returning Plaintiffs' original contracts to Turner without notifying Plaintiffs and subsequently denying any relationship existed with Plaintiffs. The record is devoid of any evidence that Rochdale in any way knowingly participated in Turner's misappropriation of Plaintiffs' investment funds. Because Plaintiffs have failed to raise a genuine issue of material fact that Rochdale knowingly participated in, or had knowledge of, Turner's theft of Dauper's and Smith's investment funds, Rochdale is entitled to judgment as a matter of law on Plaintiffs' claim for participatory breach of fiduciary duty.
Pl. Br. in Opp'n to Def. Rochdale's Second Mot. for Summ. J. at p. 22. While Plaintiffs state that Rochdale expressly agreed that it would never contact Plaintiffs directly concerning their accounts at Rochdale, nowhere in the deposition testimony cited by Plaintiffs does the witness testify that Rochdale made any agreement with Turner that it would not contact Dauper and Smith directly. This is not the first time that Plaintiffs have misstated the record in this case. For example, Plaintiffs assert that Royal Alliance's designated witness testified under oath that Roger Turner was never designated as an RRA and that Roger Turner was never allowed to participate in the Royal Advisory Services Program. Pl.'s Br, in Opp'n to Def. Rochdale's Mot. for Summ. J. at p. 4. Upon a painstaking review of the record, the court finds that this statement is incorrect and overstates the testimony of the witness. In truth, what the witness said was that he did not believe that Turner ever participated in the Royal Advisory Services Program. Pl.'s App. in Opp'n to Def.'s Mot. for Summ. J. at p. 97. There is no testimony from the witness that Turner was never designated as an RRA or that he was never allowed to participate in the Royal Advisory Services Program.
Similarly, Plaintiffs assert that Royal Alliance further testified that it was Rochdale's responsibility to supervise Turner's advisory activities with respect to Rochdale accounts and that Royal Alliance made no attempt to supervise those activities. Pl.'s Br. in Opp'n to Def. Rochdale's Mot. for Summ. J. at p. 4. This statement, however, is also incorrect. In response to a question posed by Plaintiffs' counsel, specifically, "[w]hat if anything would you expect Rochdale to do in supervising the conduct of Royal Alliance's registered representatives," the witness testified as follows: "I guess I would expect Rochdale to do anything that legally they are required to do by any regulatory authority that they are governed by as investment manager. Specifically, I'm not altogether familiar with all of those requirements." Pl.'s App. in Opp'n to Def.'s Mot. for Summ. J. at p. 97.
In another instance, Plaintiffs assert that Rochdale acknowledged that in order to open the Rochdale accounts, it probably received Plaintiffs' executed account transfer forms. Pl. Br. in Opp'n to Def.'s Mot. for Summ. J. at p. 8. In closely scrutinizing the record, the court finds that this was not the testimony given by a Rochdale employee when questioned on the issue of customer account transfer forms. In response to a question posed by Plaintiffs' counsel, specifically, "Do you know what Mr. Seitz was referring to when he said everything was set up to transfer $100,000 of their assets under Rochdale's management," Francis McCaffrey responded "No." Plaintiffs counsel then asked, "[w]ould that generally include the customer account transfer form?", to which Ms. McCaffrey responded, "I don't know. Generally." Pl. App. in Opp'n to Def.'s Mot. for Summ. J. at pp. 247-48. These are only a few of the many instances in which Plaintiffs have been less than candid, or have outright misled the court. Such tactics unnecessarily delay the disposition of a case and unnecessarily require the court to expend scarce judicial resources.
B. Vicarious Liability
Plaintiffs contend that Rochdale is vicariously liable for Turner's breach of fiduciary duty and continuing fraud based on control, joint venture, and agency. Defendant contends that it is entitled to summary judgment on Plaintiffs' theory of vicarious liability because Turner was never Rochdale's agent; Turner did not have authority to act on Rochdale's behalf; Rochdale did not lead Plaintiffs to believe that Turner had any authority to act on Rochdale's behalf; and Rochdale never exercised control over or entered into a joint venture with Turner.
While Plaintiffs contend in their response to Defendant's motion for summary judgment that Defendant is vicariously liable for Turner's breach of fiduciary duty based on negligent retention and negligent entrustment, such allegations are not pled in their Complaint and are not before the court. In any event, Plaintiffs have presented no evidence that Turner was ever Rochdale's employee, which is a necessary element for a claim based negligent retention/entrustment.
As previously stated, agency is the consensual relationship between two parties where one, the agent, acts on behalf of the other, the principal, and is subject to the principal's control. See Hand, 889 S.W.2d at 493. Agency will not be presumed, and the party asserting the relationship has the burden of proving its existence. See Johnson v. Owens, 629 S.W.2d 873, 875 (Tex.App.-Fort Worth 1982, writ ref'd n.r.e.). To establish agency, Plaintiffs must establish that the principal has both the right to assign the agent's task and control the means and details of the process by which the agent will accomplish that task. See id. The essential element of an agency relationship is the right of control. In re Carolin Paxson Adver., Inc., 938 F.2d 595, 598 (5th Cir. 1991) (citing Texas law). Absent proof of the right to control, only an independent contractor relationship is established. Id.
In its motion for summary judgment, Rochdale produced competent summary judgment evidence showing that it did not have an agency relationship with Turner, Annable Turner Company, R.E. Turner Company or any of Turner's other owned or controlled entities. In his affidavit, Garrett R. D'Alessandro, Executive Vice President, Chief Operating Officer and Senior Investment Analyst of Rochdale, stated that Rochdale never employed Turner and that Rochdale never had any supervisory authority, control over, or right to control Turner or any of his other owned or controlled entities. Plaintiffs, however, contend that they have raised genuine issues of material fact regarding Turner's apparent authority to act as Rochdale's agent based on the duties expressly delegated by it to Turner in the Compensation Disclosure form attached to Plaintiffs' Rochdale Agreements ("Compensation Disclosure"). The court disagrees.
D'Alessandro Aff. at p. 4.
D'Alessandro Aff. at p. 4.
In order to find apparent authority, there must be evidence of a pattern of conduct by the alleged principal that would lead a reasonable person to believe that the alleged agent had authority to act in favor of the principal. See Ames v. Great Southern Bank, 672 S.W.2d 447, 450 (Tex. 1984). The principal must knowingly permit the agent to hold himself out as having authority or the principal's conduct must clothe the agent with the indicia of authority. Id. Plaintiffs rely on the Compensation Disclosure to establish apparent authority in this case. The Compensation Disclosure signed by Dauper and Smith states:
Rochdale offers its private account management services through independent brokers and financial planners who are not employees of Rochdale Investment Management, Inc. These professional advisers are responsible for researching money management services, assisting clients with financial planning and investment objective-setting, coordinating communications between the client and the manager and monitoring performance and service to insure that clients' needs are being met. Advisers are compensated for fulfilling these responsibilities out of Rochdale's fee, which is somewhat higher than if an adviser's services were not involved.
The adviser named below will generally receive 50% of Rochdale's management fee on a continuous basis.
Pl.'s App. at pp. 355, 362.
Other than the Compensation Disclosure, Plaintiffs present no evidence describing the nature of Turner's relationship with Rochdale, or that Rochdale knowingly permitted Turner to hold himself out as having authority to act on Rochdale's behalf. The Compensation Disclosure makes it unequivocally clear that Turner was an independent broker, and not an employee of Rochdale. Based on this characterization, the court concludes that Turner's relationship with Rochdale was more akin to that of an independent contractor than Rochdale's agent. The court, however, need not address this issue, as neither of the parties discusses this point. In this case, Plaintiffs set forth no competent summary judgment evidence that Turner was acting on behalf of Rochdale or that he was subject to Rochdale's control. There is no evidence that Rochdale had the right to assign tasks to Turner and to control the means and details of the process by which Turner would accomplish any tasks. The evidence contains no contract of employment and no description of control by Rochdale of Turner's work. Plaintiffs have failed to raise a genuine issue of material fact that an agency relationship existed between Rochdale and Turner.
Plaintiffs also contend that Rochdale is vicariously liable for Turner's conduct based on its joint venture or partnership with Turner. A joint venture is based upon an agreement, either express or implied, and must consist of following four elements: 1) a community of interest in the venture, 2) an agreement to share profits, 3) an agreement to share losses, and 4) a mutual right of control or management of the enterprise. Shwiff v. Priest, 650 S.W.2d 894, 898 (Tex.App. — San Antonio 1983, writ ref'd n.r.e.). Plaintiffs present no evidence to raise a genuine issue of material fact that Rochdale and Turner entered into a joint venture or partnership in this case. Since Plaintiffs have failed to raise a genuine issue of material fact to support their claim of vicarious liability based on Turner's breach of fiduciary duty and continuing fraud, it must be dismissed.
C. Negligence Per Se
In their Complaint, Plaintiffs assert a negligence per se claim against Defendant based on its alleged violation of certain National Association of Securities Dealers' ("NASD") Rules. Defendant contends that this claim fails as a matter of law because Plaintiffs have failed to establish that it owed a legal duty to Dauper and Smith. The court agrees.
The common law doctrine of negligence consists of three elements: 1) a legal duty owed by one person to another; 2) breach of that duty; and 3) damages proximately caused by the breach. See Greater Houston Transp. Co. v. Phillips, 801 S.W.2d 523, 525 (Tex. 1990). The threshold inquiry in a negligence case is duty. Id. The existence of a duty is a question of law to be determined by the court based on the specific facts of the case. Id.; see also Mitchell v. Missouri-Kansas-Texas R.R., 786 S.W.2d 659, 662 (Tex.), cert. denied, 498 U.S. 896 (1990).
Negligence per se is a tort concept whereby a legislatively-imposed standard of conduct is adopted by the civil courts as defining the conduct of a reasonably prudent person. See Carter v. William Sommerville Son, Inc., 584 S.W.2d 274, 278 (Tex. 1979). An unexcused violation of a statute constitutes negligence per se if that statute was designed to prevent injury to the class of persons to which the injured plaintiff belongs. See Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 549 (Tex. 1985). When the legislature fixes a standard of reasonable care through the enactment of a statute, the trier of fact must determine only if the tortfeasor committed the act proscribed by the statute and if the act proximately caused the injury. See Moughon v. Wolf 576 S.W.2d 603, 604-605 (Tex. 1978); see also Borden, Inc. v. Price, 939 S.W.2d 247, 250 (Tex.App.-Amarillo 1997, writ denied).
In this case, Plaintiffs contend that Defendant violated certain NASD Rules in connection with its oversight of Turner and Dauper and Smith's customer accounts. Although Plaintiffs cite a number of NASD rules allegedly violated by Rochdale, they only present evidence concerning an alleged violation of Rule 2230 — failure to give notice of the opening of Plaintiffs' accounts and account balance. While a violation of this rule may be evidence of the standard of care, it does not constitute negligence per se. See Lange v. H. Hentz Co., 418 F. Supp. 1376, 1384 (N.D. Tex. 1977). Further, the court finds that it was not reasonably foreseeable that a violation of this rule would result in Turner's misappropriation of funds that were never placed in a Rochdale account. Moreover, even if Rochdale's acts constituted negligence per se, there is no competent summary judgment evidence that a violation of the NASD rules was a proximate cause of Plaintiffs' injuries. Because Plaintiffs have failed to present a genuine issue of material fact that Defendant's alleged violation of the NASD Rules constituted negligence per Se, Plaintiffs' claim on this theory must be dismissed.
Assuming arguendo that Rochdale had a duty in this case to inform Plaintiffs that it never received the funds necessary to open their Rochdale accounts, Plaintiffs have nevertheless failed to present a genuine issue of material fact that Rochdale's negligence was a proximate cause of Plaintiffs' injuries. In Texas, there is no general duty to protect the public from an independent third party's criminal acts unless the criminal conduct is foreseeable. Prather v. Brandt, 981 S.W.2d 801, 809 (Tex. 1998). Relying on Nixon v. Mr. Property Management, 690 S.W.2d 546, 550 (Tex. 1985), Plaintiffs contend that it should have been reasonably foreseeable that an unregistered financial adviser illegally conducting fee-based financial services in Texas while openly promoting his own unregistered securities would use his association with Rochdale to take advantage of unsophisticated investors. The court, however, finds Nixon distinguishable.
In Nixon, a minor was abducted her from a sidewalk outside of her apartment complex, taken to a vacant apartment in another apartment complex located across the street, and raped. A Dallas City Ordinance required property owners to keep doors and windows of a vacant structure securely closed to prevent unauthorized entry. The court stated that a reasonable interpretation of the ordinance is that it was designed to deter criminal activity by reducing the conspicuous opportunities for criminal conduct. Because the ordinance imposed a duty of care on property owners, the unexcused violation of the ordinance constituted negligence as a matter of law. With respect to whether the property owner's negligence was the proximate cause of the minor's injuries, the court determined that genuine issues of material facts existed on the foreseeability of the crime based on evidence of prior crimes at the apartment complex, including assaultive crimes, and that vagrants frequented the area. In this case, the NASD Rules are promulgated by the governing board of the National Association of Securities Dealers, and do not impose a legal duty to perform some affirmative act or refrain from performing some act. Therefore, there was no violation of a statute or ordinance that imposed a legal duty upon Rochdale.
While Plaintiffs contend that Rochdale was negligent in processing their executed customer account transfer forms to fund their accounts, there is no evidence that Rochdale ever received such transfer forms to fund the accounts. Moreover, Turner had a long term relationship with Dauper and Smith, and had been providing them with financial advice well before he ever referred them to Rochdale. Even had Rochdale informed Dauper and Smith that it never received their funds, the court finds Turner's misappropriation of their funds too remote to be considered foreseeable. As such, Plaintiffs' negligence claim must be dismissed.
D. Control Person and Aider Liability
Plaintiffs assert claims against Defendant for violation of state and federal securities laws, contending that it directly and indirectly controlled Turner at all pertinent times because Rochdale possessed, directly or indirectly, the power to influence and exercised it to direct the actions conducted by or attributable to Turner. Plaintiffs further contend that Rochdale materially aided Turner with reckless disregard for the truth and the law. Defendant contends that because Turner was not a "seller, buyer or issuer of a security" in the context of his, Dauper's and Smith's dealings with Rochdale, Rochdale cannot be liable under the Texas Securities Act. The court agrees.
The Texas Securities Act provides:
(1) A person who directly or indirectly controls a seller, buyer or issuer of a security is liable under Section 33A, 33B, or 33C jointly and severally with the seller, buyer, or issuer, and to the same extent as if he were the seller, buyer, or issuer, unless the controlling person sustains the burden of proof that he did not know and in the exercise of reasonable care could not have known, of the existence of facts by reason of which liability is alleged to exist.
(2) A person who directly or indirectly with intent to deceive or defraud or with reckless disregard for the truth or the law materially aids a seller, buyer or issuer of a security is liable under Section 33A, 33B, or 33C jointly and severally with the seller, buyer, or issuer, and to the same extent as if he were the seller, buyer or issuer.
Tex. Rev. Civ. Stat. Ann. art. 581-33(F)(1)(2).
For aider liability to attach, Turner had to be liable for a violation of the Texas Securities Act and Defendant had to have been aware of the violation but had to have recklessly disregarded the fact of the violation. While Plaintiffs assert in conclusory fashion that Rochdale was a control person or aider or abettor of Turner and materially aided him in connection with his misappropriation of Dauper's and Smith's monies, they present no evidence that would raise a genuine issue of material fact on this issue. It is undisputed that Turner was an independent broker. It is also undisputed that Turner was a thief a cheat, and a crook; however, the record is completely absent of any evidence that Rochdale knew that Turner was a thief a cheat and a crook, or that Rochdale in anyway knew about his illegal conduct, participated in it, condoned it or encouraged it. Plaintiffs present no evidence that Defendant exercised control over Turner's operations or that Defendant had the power to control the specific transaction or activity upon which the primary violation is predicated. Because Plaintiffs have failed to raise a genuine issue of material fact as to control person or aider liability, Defendant is entitled to summary judgment on this claim.
E. Breach of Contract/Promissory Estoppel
Plaintiffs contend that Rochdale breached its contract or alternatively advances a theory based on promissory estoppel. To establish a claim for breach of contract, Plaintiff must show that a contract existed. Rochdale contends that no contract existed because it never formally accepted the Rochdale Agreement executed by Plaintiffs. Plaintiffs contend Rochdale took actions which establish acceptance, namely, that Rochdale executed a new account form and formally opened Plaintiffs' accounts at Pershing after receiving the investment agreements.
The specific terms of the investment agreements state that Rochdale would become responsible for managing the accounts upon its written acceptance thereof, and that agreements are valid upon acceptance by Rochdale. It is undisputed that the agreements were not signed by a representative of Rochdale. Defendant states that it was the usual and customary practice of Rochdale, when a potential customer executed and sent to Rochdale an Investment Advisory Agreement, to hold and not execute the Investment Advisory Agreement unless and until Rochdale received confirmation from Pershing that Pershing had received funds or securities from the potential customer, or Rochdale received a check from the perspective customer made payable to Pershing. Prior to receipt of funds, Rochdale would request Pershing to assign an account number to a potential new account so that Pershing would have an account into which to deposit any cash or securities it received from such prospective Rochdale customers. Upon notification of receipt of funds or securities, Rochdale would activate the customer's account and execute the Advisory Agreement. Although Plaintiffs contend that Smith provided Seitz with his agreement, Seitz did not immediately sign the document when he received it, which reinforces Defendant's contention that Rochdale did not accept investment agreements until notification or confirmation by Pershing that a prospective client's funds were received.
D'Alessandro Aff. at p. 2.
It is undisputed that neither Pershing nor Rochdale received any funds from or for the benefit of Dauper or Smith for deposit into any Rochdale account. Plaintiffs contend that Rochdale's opening of Dauper and Smith's accounts indicate that they accepted their agreements. Even accepting as true that Rochdale sent Pershing the information necessary to open an account in Plaintiffs' names, that does not establish that Defendant accepted the investment advisory agreements. Other than their allegation that the accounts were opened for Smith and Dauper, Plaintiffs present no other evidence of any actions affirmatively taken by Defendant which indicates their acceptance of the agreements. There is no evidence that Rochdale undertook active management of the accounts. It is undisputed that Rochdale never sent any written confirmation, quarterly reports, or monthly statements regarding the accounts. Based on the undisputed facts, no reasonable juror could conclude that a contract existed between Plaintiffs and Rochdale. Because Plaintiffs have presented no genuine issue of material fact that a contract existed between Rochdale and Plaintiffs, their claim for breach of contract must be dismissed.
In the alternative, Plaintiff asserts a claim under a theory of promissory estoppel. To establish a claim for promissory estoppel, Plaintiffs must establish 1) a promise, 2) foreseeability of reliance thereon by the promisor, and 3) substantial reliance by the promisee to his detriment. English v. Fischer, 660 S.W.2d 524, (Tex. 1983). Promissory estoppel does not create a contract where none existed before, but only prevents a party from insisting upon his strict legal rights when it would be unjust to allow him to enforce them. Moore Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 936 (Tex. 1972).
Plaintiffs contend that they relied upon Rochdale's promise to monitor and supervise their IRA funds and the promises of Rochdale's agent, Turner. As previously discussed, Turner was not an agent for Rochdale, and therefore had no authority to bind Rochdale to statements he made. Even assuming that Thomas Seitz, as a representative for Rochdale, promised that he would see that all was done to open Plaintiffs' accounts, there is no evidence that Mr. Seitz informed Plaintiffs specifically on how the accounts would be funded. There is no evidence that Plaintiffs undertook any acts in reliance on statements or promises by a Rochdale representative on how to fund the accounts. Plaintiffs have failed to present a genuine issue of material fact with respect to their claim of promissory estoppel, and Defendant is entitled to summary judgment on this claim.
F. Plaintiff's Claim for Violation of Texas Deceptive Trade Practices Act
Plaintiffs assert a claim against Defendant under the Texas Deceptive Trade Practices Act ("DTPA"). Plaintiffs contend that Rochdale committed false, misleading, and/or deceptive acts, breached express and implied warranties to Plaintiffs, and participated in unconscionable actions. Although Plaintiffs make these conclusory assertions, there is simply no evidence in the record to support them, and Plaintiff has failed to raise a genuine issue of material fact on their claim under the DTPA. Because Plaintiffs have failed to raise a genuine issue of material fact on this claim, Defendant is entitled to judgment as a matter of law.
G. Remaining Issues
Defendants contend that all of Plaintiffs' claims are barred by the applicable statute of limitations. Since the court has already determined that summary judgment should be granted on the merits in favor of Defendants, the court finds it unnecessary to address the issue of limitations. Plaintiffs seek attorney's fees pursuant to the Texas Securities Act, the Securities Exchange Act of 1934, Chapter 38 of the Civil Practice and Remedies Code, and the Texas Deceptive Trade Practices Act. As the court has granted Defendant summary judgment on all claims, Plaintiffs' claim for attorney's fees is dismissed.
H. Miscellaneous Matters
On June 2, 2000, Defendant filed its Motion to Strike Plaintiffs' Expert Witnesses. In light of the court's ruling on Defendant's summary judgment motion, Defendant's Motion to Strike Plaintiffs' Expert Witnesses is denied as moot. For the same reason, the court denies as moot Plaintiffs' and Defendant's respective motions in limine.
IV. Conclusion
For the reasons previously stated, Plaintiffs have not raised a genuine issue of material fact with respect to any claims asserted by them. Accordingly, Defendant is entitled to judgment as a matter of law. Defendant's Motion for Summary Judgment as to Plaintiffs Fourth Amended Complaint is, therefore, granted. This action is hereby dismissed with prejudice against Rochdale, and all costs of court are taxed against Plaintiffs. Judgment will be entered by separate document.
It is so ordered this 7th day of September, 2000.