Court Opinion

ID: 9742257
Source: CourtListenerOpinion
Date Created: 2023-08-26 21:09:21.151518+00
Date Added: 2024-06-11T07:24:30.150518
License: Public Domain

BROWN, J.
¶ 24. (dissenting). The key issue in this case is whether First Union's branch office was a proper place to serve process on First Union. Everyone agrees that process is effectively served when left with someone apparently in charge of a managing agent's office. The only question here then is whether McGrath, the branch manager, was such an agent. The majority voids Richards' default judgment against First Union because "the scant evidence in the record" makes it impossible to ascertain McGrath's precise job description and authority. See majority op., ¶¶ 18-22. The court errs manifestly in two respects. First, Richards has no duty to prove McGrath is a managing agent. Rather, First Union must prove McGrath is not such a person. Second, securities regulations confer certain duties on branch managers as a matter of law. These legally derived powers and responsibilities bring McGrath within the definition of "managing agent," irrespective of whether the factual record hears out his exercise of those functions. Moreover, what sparse evidence the record does contain tends to support McGrath's authority as a managing agent. For these reasons, I respectfully dissent.
*546¶ 25. The dearth of factual information in the record makes it particularly important to place the burden of proof on the proper party. We review independently which party bears the burden of proof and whether that party has met its burden; these issues present legal questions. Long v. Ardestani, 2001 WI App 46, ¶ 36, 241 Wis. 2d 498, 624 N.W.2d 405; Wolfe v. Wolfe, 2000 WI App 93, ¶ 14, 234 Wis. 2d 449, 610 N.W.2d 222. Generally, the party invoking the judicial process in favor of its position bears this burden, Wolfe, 234 Wis. 2d 449, ¶ 15, and that rule certainly applies to this case. According to Haselow v. Gauthier, 212 Wis. 2d 580, 585, 587, 569 N.W.2d 97 (Ct. App. 1997), the party seeking to vacate a default judgment has the burden of proving lack of effective service. See also Emery v. Emery, 124 Wis. 2d 613, 622-23, 369 N.W.2d 728 (1985).
¶ 26. In order for First Union to properly meet its obligation to prove ineffective service, it must offer more than McGrath's conclusory declaration that he does not qualify as a managing agent. His bald assertion does not substitute for evidence, as the majority suggests, just because the record is otherwise lacking. To the contrary, First Union must present facts that sufficiently demonstrate why his position as branch manager does not make him a managing agent. Without this showing, First Union cannot prove that the branch office where McGrath works was the wrong place to serve process.
¶ 27. The "scant evidence in the record" convincingly demonstrates First Union's failure to meet its burden. For that reason alone, Richards should prevail. At the very least, if the majority has concerns about the lack of factual information, it should remand the case back to the circuit court to make the proper findings. Instead, it improperly shifts the burden to Richards.
*547¶ 28. Despite the fact that Richards has no duty to establish McGrath's status as a managing agent for First Union, securities regulations and facts of record support the inference that a branch manager is a managing agent. Securities and Exchange Commission regulations designate certain individuals, including branch managers, as "principals." For purposes of SEC, General Rules and Regulations, Securities Exchange Act of 1934, 17 C.F.R. § 240.17a-3(h)(2), "principal means any individual registered with a national registered securities association as a principal or branch manager of a member, broker or dealer or any other person who has been delegated supervisory responsibility over associated persons by the member, broker or dealer."
¶ 29. Securities and Exchange Commission, General Rules and Regulations, Securities Exchange Act of 1934, 17 C.F.R. § 240.17a-3 mentions several functions performed by principals that suggest a high degree of "general control, authority, judgment, and discretion . . . either on an overall or part basis." See Carroll v. Wisconsin Power & Light Co., 273 Wis. 490, 494, 79 N.W.2d 1 (1956) (defining "managing agent"). Federal law requires all brokers and dealers in securities to keep certain documents. Sec. 240.17a-3(a). These documents include:
[a] record listing each principal of a member, broker or dealer responsible for establishing policies and procedures that are reasonably designed to ensure compliance with any applicable federal requirements or rules of a self-regulatory organization of which the member, broker or dealer is a member that require acceptance or approval of a record by a principal. *548documenting that the member, broker or dealer has complied with, or adopted policies and procedures reasonably designed to establish compliance with, applicable federal requirements and rules of a self-regulatory organization of which the member, broker or dealer is a member which require that advertisements, sales literature, or any other communications with the public by a member, broker or dealer or its associated persons be approved by a principal.
*547Sec. 240.17a-3(a)(22) (emphases added). They also include records
*548Sec. 240.17a-3(a)(20) (emphases added). Federal regulations further require
[a]n account record including the customer's or owner's name, tax identification number, address, telephone number, date of birth, employment status (including occupation and whether the customer is an associated person of a member, broker or dealer), annual income, net worth (excluding value of primary residence), and the account's investment objectives .... The account record shall indicate whether it has been signed by the associated person responsible for the account, if any, and approved or accepted by a principal of the member, broker or dealer.
Sec. 240.17a-3(a)(17)(i)(A) (emphases added).
¶ 30. Wisconsin securities regulations also suggest that branch managers have a broad degree of general authority over their particular branches. Wisconsin Admin. Code § DFI-Sec 4.04(7) (c) requires every branch office, upon opening, to file certain information, including the name of the supervisor at that office. Like the federal regulations, Wis. Admin. Code § DFI-Sec. 4.05(2) also requires a complete set of written supervisory procedures to be kept at every branch office, along with a system for implementing them. These procedures and implementation system are designed to prevent and detect any violations of Wisconsin securities *549statutes. See § DFI-Sec 4.05(2); Wis. Stat. ch. 551 (entitled "WISCONSIN UNIFORM SECURITIES LAW"). The procedures further require designation of supervisory employees "reasonable in relation to the number of [the broker-dealer's] licensed agents." § DFI-Sec. 4.05(2). The fact that compliance procedures must designate supervisory employees suggests that these individuals bear the responsibility for ensuring that the broker-dealer follows the procedures.
¶ 31. These various regulations plainly reveal that principals, including branch managers, have the authority, and often the duty, to approve accounts, to implement measures that comply with applicable securities regulations, and to approve advertisements, sales literature, and other communications to the public. These functions make a branch manager of a securities broker or dealer far different from the plant manager in Carroll. That individual's functions were limited to physical operation and maintenance of the plant, essentially making sure that machinery ran properly. Carroll, 273 Wis. at 494. A branch manager's duties, by contrast, reveal a broad degree of supervisory and policy making authority as well as the power to act for the company in a representative capacity vis-á-vis the public. Cf. also Black's Law Dictionary 1230-31 (8th ed. 2004) (defining a principal as "[o]ne who authorizes another to act... as an agent" or "who has primary responsibility on an obligation.").
¶ 32. The majority admits that the responsibilities required by applicable securities regulations impose fiduciary duties on principals. Yet, it questions "whether the carrying out of such fiduciary obligations can be equated with the general supervisory authority over the business affairs of a corporation required for a 'managing agent' under Carroll." Majority op., ¶ 21. I *550am confident that the very nature of the duties just described speaks for itself. Moreover, I do not see how a branch manager could have such fiduciary duties without holding a general supervisory and policymaking role. Cf. Modern Materials, Inc. v. Advanced Tooling Specialists, Inc., 206 Wis. 2d 435, 557 N.W.2d 835 (Ct. App. 1996) (describing when an employee owes a fiduciary duty to the employing company). In Modern Materials, we recognized that "whether an employee is vested with policy-making authority or has the ability to make decisions which bind the company" is "the controlling question" on the determination of fiduciary capacity. Id. at 443-44 (emphasis added).
¶ 33. Despite the scant information in the record, it does contain evidence that McGrath, acting in his capacity as branch manager, exercised some of the authority applicable securities regulations delegate to principals. The record contains, for example, an agreement between Richards and First Union's predecessor, Blunt Ellis & Loewi. The form contains a signature line marked "branch approval" with a box reserved for the branch office manager's signature. The fact that the branch manager signed the form is consistent with federal regulations that confer upon branch managers and other principals the authority to approve accounts.
¶ 34. Moreover, as the above discussion indicates, someone at each branch office has the responsibility to ensure compliance with securities regulations. Consistent with that mandate, McGrath admits in his affidavit, "I am the person in charge of the Brookfield Branch office ... I was also the person in charge of the Brook-field Branch office during the entire year of 2002." It simply is not reasonable to assume without solid evidence to the contrary that someone other than "the *551person in charge" of the branch office has the ultimate responsibility of ensuring the branch's compliance with the law.
¶ 35. First Union should not be allowed to defeat the default judgment in Richards' favor. Securities regulations expressly recognize branch managers as principals endowed with certain authority. The functions enumerated in these laws are consistent with the broad general authority of a managing agent. First Union essentially argues that although McGrath has the title "branch manager," he does not have any of the legally imposed fiduciary duties that securities regulations assign to a "branch manager." Perhaps First Union uses different terminology to describe various positions within its structure than that used in the securities regulations and has assigned a role equivalent to "branch manager" to someone other than McGrath. However, I do not see how this court can accept such a position without some factual basis. If we are not going to send the case back to the circuit court for appropriate fact finding in this regard, we should affirm. Because the majority instead misallocates the burden of proof to Richards, I must dissent.