Court Opinion

ID: 1018197
Source: CourtListenerOpinion
Date Created: 2013-07-04 22:16:29.339642+00
Date Added: 2024-06-11T10:32:30.541792
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 05-1003

JOHNNY’S ENTERPRISES, INCORPORATED,         d/b/a
Johnny’s Truck and Auto Center,

                                               Plaintiff - Appellant,

           versus

PRUDENTIAL SECURITIES INCORPORATED,

                                                Defendant - Appellee,

           and

SM&E   ADMINISTRATORS,   INCORPORATED;  THE
DELTAGROUP; AMERICAN PRIME ASSETS; YAMAGATA
ENTERPRISES,

                                                          Defendants.

Appeal from the United States District Court for the District of
South Carolina, at Charleston. David C. Norton, District Judge.
(CA-03-2287-2-18)

Argued:   December 1, 2005                 Decided:   January 12, 2006

Before LUTTIG and MICHAEL, Circuit Judges, and HAMILTON, Senior
Circuit Judge.

Affirmed by unpublished per curiam opinion.
ARGUED: Jeffrey Abram Schwartz, JUSTIN O’TOOLE LUCEY, P.A., Mount
Pleasant, South Carolina, for Appellant.    Phyllis Walker Ewing,
MOORE & VAN ALLEN, P.L.L.C., Charleston, South Carolina, for
Appellee.   ON BRIEF: Justin Lucey, JUSTIN O’TOOLE LUCEY, P.A.,
Mount Pleasant, South Carolina, for Appellant.         Wm. Howell
Morrison, MOORE & VAN ALLEN, P.L.L.C., Charleston, South Carolina,
for Appellee.

Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).

                               -2-
PER CURIAM:

     Appellant,     Johnny’s   Enterprises,   Inc.,   sued   appellee,

Prudential Securities, for breach of fiduciary duty, aiding and

abetting breach of fiduciary duty, and unfair trade practices. The

district court granted summary judgment to Prudential, and Johnny’s

appealed.   We affirm.

                                  I.

     Johnny’s Enterprises is a used car dealer in Moncks Corner,

South Carolina. In March 2001, Johnny’s signed a contract with the

Deltagroup* that allowed Johnny’s to sell the Deltagroup’s vehicle

service contracts to car buyers.        J.A. 46. The vehicle service

contracts provided car buyers with warranty coverage for some

repairs.      Id.   Under the contract between the Deltagroup and

Johnny’s, Johnny’s would remit the money from the service contract

sales to the Deltagroup.   Id.   According to a second contract known

as “the Addendum,” the Deltagroup would deposit the money from

Johnny’s service-contract sales (less some administrative fees)

into a money-market account with Prudential Securities. Id. at 48.

The Deltagroup would pay claims made by the car buyers under the

vehicle service contracts with the money in the Prudential account.

     *
      Several of the Deltagroup’s affiliates played a part in the
events at issue. The differences between them are inconsequential
for this appeal. For the sake of simplicity, all of the affiliates
are referred to as the Deltagroup.

                                  -3-
Id. at 46.        Each year, the Deltagroup would also distribute to

Johnny’s any profits generated from the Prudential account -- that

is, any money not spent paying claims.               Id. at 48.

      On   July    10,    2001,   an   agent   of    one   of     the    Deltagroup’s

affiliates signed the documents to open the Prudential account

intended to hold the money from service contract sales made by

Johnny’s.    Id. at 92.        In late 2002, the Deltagroup encountered

financial trouble.         As a result, the Deltagroup ordered Prudential

to transfer the money from the Johnny’s service-contract sales to

a   consolidated     account      containing   money       from    several    of   the

Deltagroup’s clients.          Id. at 117.          On December 30, 2002, the

Deltagroup ordered Prudential to transfer what remained of that

money from the consolidated account at Prudential to a bank account

at Wells Fargo.          Id. at 128.    By spring of 2003, the Deltagroup

could no longer pay service-contract claims regularly, and the

Deltagroup affiliate responsible for paying claims ultimately filed

for bankruptcy in the Cayman Islands.               Id. at 579.

      In May 2003, Johnny’s learned that the money in the Prudential

account had been transferred and that the Deltagroup could no

longer be relied upon to pay claims.                   Id. at 416.           With the

Deltagroup unable to pay claims, Johnny’s paid for repairs to the

cars of service-contract purchasers.                Id. at 419.         Johnny’s sued

the Deltagroup and its involved affiliates on a number of theories.

Id. at 14-19.        Johnny’s also sued Prudential for its role in

                                        -4-
transferring the money intended to pay claims under the service

contracts Johnny’s sold.          Against Prudential, Johnny’s asserted

claims of breach of fiduciary duty, aiding and abetting breach of

fiduciary duty, and unfair trade practices.                 Id. at 18-19.        This

appeal concerns only the claims against Prudential.

                                      II.

     The district court granted summary judgment to Prudential. It

held that there was “no theory under which Prudential owes a

fiduciary duty to” Johnny’s.            Id. at 580.              Specifically, it

concluded that state banking law’s “special account” doctrine did

not give rise to a fiduciary duty because Prudential is not a bank

and Johnny’s was not a depositor.                  Id. at 580-82.          It also

concluded that no duty arose from a trust or bailment relationship

between    Prudential      and   Johnny’s    because   no    such    relationship

existed    and   that   Prudential    owed    Johnny’s      no    duty   under   the

Investment Advisors Act.         Id. at 582-85.

     The district court also held that South Carolina had not

adopted a cause of action for aiding and abetting breach of

fiduciary duty, and accordingly the court dismissed those claims

against Prudential.        Id. at 586-89.      Finally, the district court

concluded that no liability could attach to Prudential under the

South Carolina Unfair Trade Practices Act because Prudential was

required    by   statute    to   transfer    the    money    in    question   as   a

                                      -5-
“securities intermediary” taking direction from an “entitlement

holder” -- namely, an agent from the Deltagroup listed as a

fiduciary on the account.   Id. at 591.

                               III.

     At the summary judgment stage, we view the facts in the light

most favorable to the non-moving party, which in this case is

Johnny’s. We review the district court’s grant of summary judgment

de novo.   See Dawkins v. Witt, 318 F.3d 606, 610 (4th Cir. 2003).
     Having thoroughly reviewed the district court’s opinion and

the parties’ briefs and submissions on appeal and having heard

argument in this case, we conclude that the district court did not

err in its grant of summary judgment to Prudential.   There is no

legal or factual basis upon which to conclude that Prudential owed

a fiduciary duty to Johnny’s. We therefore affirm on the reasoning

of the district court.
                                                          AFFIRMED

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