Court Opinion

ID: 9857
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:49:20+00
Date Added: 2024-06-11T11:05:04.719087
License: Public Domain

UNITED STATES COURT OF APPEALS
                       For the Fifth Circuit

                           No. 95-60680
                         Summary Calendar

                 EDWIN E. MEEK AND HELEN R. MEEK,

                                            Plaintiffs-Appellants,

                              VERSUS

 HOWARD, WEIL, LABOUISSE, FRIEDRICHS, INC., BRADFORD & CO, INC.,
     J.C. BRADFORD & CO., L.P., W. HARRY FRAZIER, III, and
                       BERNIE L. SMITH, III

                                             Defendants-Appellees.

          Appeal from the United States District Court
            For the Northern District of Mississippi
                        (3:93-CV-127-B-D)

                          June 25, 1996

Before REYNALDO G. GARZA, KING and EMILIO M. GARZA, Circuit Judges.
PER CURIAM:*
     Edwin and Helen Meek ("the Meeks") sued Appellees, alleging
securities fraud, commodities fraud, and various causes of action
under Mississippi state law. Appellees moved for summary judgement

     *
      Pursuant to Local Rule 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in Local Rule 47.5.4.
on the securities and commodities fraud claims. The district court
granted summary judgment on the securities and commodities fraud
claims, and then dismissed the remaining state law claims without
prejudice on the ground that they were not properly before the
court in the absence of any viable federal claim.                The Meeks appeal
from the summary judgment.        For the reasons given below, we AFFIRM
the district court's judgment.
                                        I.
                                    FACTS
      Bernie Smith ("Smith") was an investment advisor in Oxford,
Mississippi from 1986 to 1993.          The Meeks were clients of Smith who
invested a substantial amount of money in the securities market
through Smith.     Smith also traded securities for a number of other
clients.   Smith had a second set of clients for whom he invested in
commodities futures.       The Meeks, however, were strictly securities
clients;   they    never    asked   Smith         to   invest    their       money    in
commodities futures.
      Appellees Howard, Weil, Labouisse, Friedrichs, Inc. ("Howard
Weil"), and J.C. Bradford and Co. ("Bradford") are brokerage firms
that handle transactions in the commodities markets.                          Appellee
Harry Frazier is an investment advisor in Clarksdale, Mississippi
who   allegedly   solicited     commodities        trading      from       Smith   while
Frazier was working for Howard, Weil and Bradford.                     Smith traded
commodities through Howard, Weil from 1987 to 1989, and through
Bradford   from    1989    to   1993.        He   entered    into      a    guaranteed
introducing broker ("GIB") agreement with Howard, Weil in April
1988, which was terminated in March 1989.               He then entered into a
GIB agreement with Bradford in March 1989, which was terminated in
January 1993.     As a GIB, Smith solicited or accepted orders for the
purchase or sale of commodities, but did not accept money for

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Appellees.    In addition to soliciting orders from other investors,
Smith traded in commodities for his own accounts with Appellees.
     When Smith lost large sums of his own money in the commodities
market, he covered his losses by stealing money from the investors
whose securities investments he handled.                 He liquidated their
investments without their authority, and used the money to invest
in the commodities market on his own account.             In June 1993, Smith
pled guilty to five counts of mail fraud, and was sentenced to
forty-two months in prison.
     The   Meeks   filed    this    suit    against    Appellees   and   Smith,
alleging   violations      of   the   Commodity       Exchange   Act   and   the
Securities Exchange Act of 1934, as well as several state law
causes of action.    Appellees moved for summary judgment, basically
arguing that they were not liable for Smith's malfeasance because
they neither knew about it nor had anything to do with it.                   The
district court granted summary judgment for Appellees on the
Commodity Exchange Act and Securities Exchange Act claims, and then
dismissed the remaining state law claims without prejudice because
there was no viable federal claim.              The Meeks appeal from the
summary judgment.
                                      II.
                                   DISCUSSION
                                       A.
                            Standard of Review
     We review the district court's granting of summary judgement
de novo.     Bodenheimer v. PPG Indus., Inc., 5 F.3d 955, 956 (5th
Cir. 1993).     Summary judgment is appropriate if there is "no
genuine issue as to any material facts and . . . the moving party
is entitled to judgment as a matter or law."                 Fed. R. Civ. P.
56(c). The threshold inquiry, therefore, is whether there are "any

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genuine factual issues that properly can be resolved only by a
finder of fact because they may reasonably be resolved in favor of
either party."    Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250
(1986).   Of course, "the substantive law will identify which facts
are material."    Id. at 248.   All of the evidence must be viewed in
the light most favorable to the motion's opponent.    Bodenheimer, 5
F.3d at 956.
                                   B.
               The Meeks' Commodity Exchange Act Claims
     The district court did not err in granting summary judgment on
the Meeks' Commodity Exchange Act ("CEA") claims.     The Meeks sued
under the anti-fraud provision of the CEA, which states:
     It shall be unlawful (1) for any member of a contract
     market or for any correspondent, agent or employee of any
     member, in or in connection with any order to make, or
     the making of, any contract of sale of any commodity . .
     . for or on behalf of any other person . . . to cheat or
     defraud or attempt to cheat or defraud such other person.
     . . .

7 U.S.C. § 6b(a).    This Court recently discussed the requirements

for bringing a cause of action under the anti-fraud provision in

Tatum v. Legg Mason Wood Walker, Inc., 83 F.3d 121, 122-23 (5th

Cir. 1996)(per curiam), a case that involved the same defendants

and the same fraudulent scheme that is the subject of this action.

In Tatum, this Court stated:

     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.     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

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     for the sale of a commodity, and thus they do not satisfy
     the "in connection with" requirement of § 6b(a). Smith's
     action may give rise to a common law claim for
     conversion, but Plaintiffs did not thereby state a claim
     for relief under the Commodity Exchange Act.          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.

Id. (internal citations omitted).

     Like the plaintiffs in Tatum, the Meeks never intended to

purchase commodities, and were never parties to an order for the

sale of a commodity.      Therefore, they do not satisfy the "in

connection with" requirement of Section 6b(a). Because they do not

satisfy that requirement, the district court correctly granted

summary judgment dismissing their claims under the CEA.

                                    C.

                The Meeks' Securities Fraud Claims

     The district court did not err in granting summary judgment

dismissing the Meeks' securities fraud claims. The Meeks sought to

hold Appellees vicariously liable for Smith's violations of the

Securities   Exchange   Act   of   1934   and   Securities   and   Exchange

Commission Rule 10b-5.    They claim that Appellees are liable under

Section 20(a) of the 1934 Act, 15 U.S.C. § 74t(a), which imposes

vicarious liability on "controlling persons," and under common law

respondeat superior and agency theories.        Our review of the record

convinces us that summary judgment was proper because the Meeks

failed to submit any evidence that the Appellees had the power to

control Smith's handling of the Meeks' securities accounts.

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       The Meeks did not create an issue of material fact as to

whether Appellees were liable under Section 20(a) of the 1934 Act.

Section 20(a) provides—

       Every person who, directly or indirectly, controls any
       person liable under any provision of this chapter or of
       any rule or regulation thereunder shall also be liable
       jointly and severally with and to the same extent as such
       controlled person is liable, unless the controlling
       person acted in good faith and did not directly or
       indirectly induce the act or acts constituting the
       violation or cause of action.

This Court has not decided the exact showing that a plaintiff must

make in order to hold a defendant liable under Section 20(a).              See

Abbott v. Equity Group, Inc., 2 F.3d 613, 619-20 (5th Cir. 1993),

cert. denied, 114 S. Ct. 1219 (1994).            We do not need to decide it

now, however, because we have held that a plaintiff must at least

show that the defendant had an ability to control the specific

transaction or activity upon which the primary violation is based.

Id. at 620.    In this case, the Meeks failed to present evidence

that   Appellees   had   the   power       to   control   Smith's   securities

dealings.    At best, the evidence arguably shows that Appellees had

influence over Smith's commodities trading; it did not show that

Appellees had anything to do with Smith's handling of the Meeks'

securities investments, or any power to control his handling of

those investments. Therefore, summary judgment was proper on their

Section 20(a) claim.

       The Meeks also contend that Appellees are liable for Smith's

1934 Act violations under common law agency principles, including

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respondeat superior.   In order to recover under agency principles,

the Meeks must show that Smith acted within the scope of his

authority as an agent in defrauding them.    Paul F. Newton & Co. v.

Texas Commerce Bank, 630 F.2d 1111, 1119 (5th Cir. 1980).       Our

review of the record leads us to conclude that the Meeks presented

no evidence that Smith acted within his authority in defrauding the

Meeks.   At best, the evidence showed that Smith had the authority

to solicit commodities transaction for Appellees.        Appellees,

however, had no connection with Smith's handling of the Meeks'

securities investments; their relationship with him was strictly

limited to commodities trading. Because there was no evidence that

Smith acted within the scope of his authority as Appellee's agent

in defrauding the Meeks, summary judgment was proper on the Meeks'

1934 Act claims.

                               III.

                            CONCLUSION

     While we sympathize with the Meeks' plight—they were defrauded

out of a large sum of money, and the person who defrauded will

probably be unable to repay them—there is simply no evidence that

Appellees are liable under either the Commodity Exchange Act or the

1934 Act for Smith's fraudulent conduct.    Therefore, we AFFIRM the

judgment of the district court.

AFFIRMED.

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