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United States Court of Appeals,

Fifth Circuit.

No. 95-60447.

Pat TATUM, as trustee for Oxford Insurance Agency, Inc. Profit

Sharing Plan and Trust; Waller Funeral Home; Patricia M. Miller;

Winn Walcott, M.D.; Bernie L. Smith, Jr.; Lucille J. Smith,

Plaintiffs-Appellants,

v.

LEGG MASON WOOD WALKER, INC., Legg Mason Howard Weil Division,

formerly Howard, Weil, Labouisse, Friedrichs, Inc.; J.C. Bradford

and Company; Howard, Weil, Labouisse, Friedrichs, Inc.,

Defendants-Appellees,

and

Institutional Financial Services, Inc., doing business as Bernie

L. Smith & Associates; Bernie L. Smith, Defendants.

May 20, 1996.

Appeal from the United States District Court for the Northern

District of Mississippi.

Before WISDOM, EMILIO M. GARZA and PARKER, Circuit Judges.

PER CURIAM:

Defendant Bernie L. Smith III ("Smith") ran a financial

advising and planning business. Plaintiffs Pat Tatum, Waller

Funeral Home, Patricia M. Miller, Dr. Winn Walcott, and Smith's

parents—Bernie L. Smith, Jr., and Lucille J. Smith—invested funds

with Smith's business. Smith originally invested these funds in

stock and mutual funds. Then he began speculating in the

commodities market. Smith became affiliated with Defendant Howard,

Weil, Labouisse, Friedrichs, Inc., ("Howard Weil") a commodities

brokerage firm. When his commodities accounts performed poorly,

Smith attempted to cover his losses by liquidating Plaintiffs'
 

1The Commodities Futures Trading Commission ("CFTC")

regulates the commodity markets. Both Howard Weil and J.C.

Bradford are Futures Commission Merchants, and are thus subject

to the provisions of the Commodities Exchange Act and the

regulations of the CFTC. 

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stock and mutual fund investments without Plaintiffs' knowledge or

permission. Smith later moved his commodities accounts to

Defendant J.C. Bradford & Company ("J.C. Bradford").1 Smith

continued to raid Plaintiffs' funds in order to cover his losses.

Smith was eventually convicted of five counts of mail fraud and was

sentenced to forty-two months' imprisonment. Plaintiffs filed suit

against Smith, Smith's business, Howard Weil, and J.C. Bradford,

alleging federal claims under the Commodities Exchange Act, the

Securities Exchange Act, and the civil RICO Act. Plaintiffs also

alleged state law claims under the Mississippi Securities Act and

the common law of negligence and respondeat superior. Howard Weil

and J.C. Bradford filed motions for summary judgment, which the

district court granted. Upon motion of the Plaintiffs, the

district court certified its summary judgment order as a final

judgment, pursuant to Rule 54(b) of the Federal Rules of Civil

Procedure. Plaintiffs timely filed their notice of appeal,

challenging only the dismissal of their Commodities Exchange Act

claims for strict liability, their Commodities Exchange Act claims

for "aiding and abetting" liability, and their Mississippi common

law claims for negligence and respondeat superior. We review a

district court's grant of summary judgment de novo, applying the

same standards as the district court. Lindsey v. Sears Roebuck and

Co., 16 F.3d 616, 617-18 (5th Cir.1994).
 

2In interpreting the "in connection with" requirement of the

Commodities Exchange Act, courts generally look to

interpretations of the "in connection with" requirement of §

10(b) of the Securities Exchange Act. Kearney, 701 F.Supp. at

424. 

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Plaintiffs first assert that the district court erred in

dismissing their claims under the Commodities Exchange Act. A

Futures Commission Merchant is strictly liable for the Commodities

Exchange Act violations of its brokers if such violations occur

within the scope of employment. 7 U.S.C. § 4; Stewart v. GNP

Commodities, Inc., 851 F.Supp. 283, 285 (N.D.Ill.1994), aff'd in

part and vacated in part sub nom., Cunningham v. Waters Tan & Co.,

65 F.3d 1351 (7th Cir.1995). A plaintiff establishes a commodities

violation for fraud by a commodities broker only if such fraud is

perpetrated "in connection with" an order for the sale of a

commodity on behalf of the plaintiff. 7 U.S.C. § 6b(a); Kearney

v. Prudential-Bache Securities, Inc., 701 F.Supp. 416, 421

(S.D.N.Y.1988).2 Plaintiffs in this case never intended to

purchase commodities. Smith liquidated their securities

investments to cover his losses in the commodities market without

Plaintiffs' knowledge or permission. Plaintiffs were never parties

to an order for the sale of a commodity, and thus they do not

satisfy the "in connection with" requirement of § 6b(a). See

Crummere v. Smith Barney, Harris Upham & Co., Inc., 624 F.Supp.

751, 755 (S.D.N.Y.1985) (holding that plaintiff had not established

the "in connection with" requirement under § 10b where the

misrepresentations alleged were unrelated to the actual securities

traded). Smith's actions may give rise to a common law claim for
 

3In order to recover damages from a secondary party in an

action for "aiding and abetting" liability under the Commodities

Exchange Act, a plaintiff must first prove that a primary party

committed a commodities violation. See Abbott v. Equity Group,

Inc., 2 F.3d 613, 621 (5th Cir.1993) (stating elements of cause

of action for "aiding and abetting" liability under the

Securities Exchange Act). Because we hold that Plaintiffs have

not stated a claim against Smith under the Commodities Exchange

Act, we must also necessarily hold that Plaintiffs have not

stated a claim against Howard Weil and J.C. Bradford for "aiding

and abetting" liability. 

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conversion, but Plaintiffs do not thereby state a claim for relief

under the Commodities Exchange Act.3 The district court did not

err in granting summary judgment for Howard Weil and J.C. Bradford

on Plaintiffs' claims under the Commodities Exchange Act.

Plaintiffs next assert that the district court erred in

dismissing their claims against Howard Weil and J.C. Bradford under

the Mississippi common law doctrines of respondeat superior and

negligence. Under Mississippi law, a broker-dealer may be held

vicariously liable under the doctrine of respondeat superior for

the tortious acts of a representative who converts investors' funds

for his own use only if the representative was acting within the

scope of his representative status. FSC Securities Corp. v.

McCormack, 630 So.2d 979, 985-86 (Miss.1994). Plaintiffs have

presented no evidence to establish that Smith was acting within the

scope of his representative status when he converted their

securities investments. As indicated above, Smith converted

Plaintiffs' investments without their knowledge or permission.

Smith never held himself out to Plaintiffs as a representative of

Howard Weil or J.C. Bradford. Nor is there any evidence that

Plaintiffs thought that Smith was acting as a representative of
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Howard Weil or J.C. Bradford in connection with their investments.

Accordingly, Plaintiffs have not presented a genuine issue of

disputed fact with regard to their common law claims against Howard

Weil and J.C. Bradford under the doctrine of respondeat superior.

Under Mississippi law, a broker-dealer operating a

non-discretionary account has no duty to determine the suitability

of a customer's trades or to prevent the customer from losing

money. Puckett v. Rufenacht, Bromagen & Hertz, Inc., 587 So.2d

273, 279 (Miss.1991). Smith's accounts with both Howard Weil and

with J.C. Bradford were non-discretionary accounts. Since Howard

Weil and J.C. Bradford owed no duty to Smith, they necessarily owed

no duty to Plaintiffs. Accordingly, Plaintiffs do not state a

cause of action against Howard Weil or J.C. Bradford for

negligence. Accordingly, the district court did not err in

granting summary judgment for Howard Weil and J.C. Bradford on

Plaintiffs' claims brought under Mississippi common law.

Based on the foregoing, we AFFIRM.