Court Opinion

ID: 3208128
Source: CourtListenerOpinion
Date Created: 2016-05-31 20:01:14.594289+00
Date Added: 2024-06-11T14:29:06.078173
License: Public Domain

Case: 15-12911     Date Filed: 05/27/2016   Page: 1 of 15

                                                             [DO NOT PUBLISH]

               IN THE UNITED STATES COURT OF APPEALS

                        FOR THE ELEVENTH CIRCUIT
                          ________________________

                                 No. 15-12911
                             Non-Argument Calendar
                           ________________________

                       D.C. Docket No. 7:12-cv-00144-HL

MARTHA F. OWENS,
Individually and as the Executrix of the
Estate of Andrew T. Fuller, et al.,

                                                  Plaintiffs -
                                                  Counter Defendants,

DONALD ABNER POPE, JR.,
REFUSE MATERIALS INC.,

                                                  Plaintiffs - Appellants,

versus

STIFEL NICOLAUS AND COMPANY INC.,

                                                   Defendant -
                                                   Counter Claimant -
                                                   Appellee,

ANTHONY JOHN FISHER,

                                                  Defendant - Appellee.
               Case: 15-12911    Date Filed: 05/27/2016    Page: 2 of 15

                            ________________________

                    Appeal from the United States District Court
                        for the Middle District of Georgia
                          ________________________

                                   (May 27, 2016)

Before HULL, MARCUS and BLACK, Circuit Judges.

PER CURIAM:

        Plaintiffs Donald Pope and Refuse Materials, Inc. (RMI) appeal the district

court’s order granting summary judgment in favor of Defendant Stifel, Nicolaus &

Co. (SNC) on Pope and RMI’s claims for fraud and negligence arising out of two

failed investments made by RMI and solicited by Defendant Anthony Fisher, a

former SNC employee. The district court held that SNC cannot be held liable for

Fisher’s alleged fraud under an agency theory and that SNC is not liable for

negligence because it owed no duty to non-clients Pope and RMI. Pope and RMI

contend that there is a genuine issue of fact as to Fisher’s actual or apparent

authority to solicit the failed investments and that SNC owed a duty of reasonable

care to clients and non-clients alike. After review, we affirm in part and reverse in

part.

                                      I. FACTS

        In April 2009, SNC, a securities broker-dealer firm, hired Anthony Fisher to

serve as a financial advisor. Pope and RMI allege that SNC did so negligently by

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missing several “red flags” in Fisher’s employment history. They further allege

that Fisher’s conduct during his SNC employment raised additional “red flags”

regarding his compliance with securities regulations and with SNC policy.

       In May 2011, Fisher recommended that SNC add Cardiac Network, Inc.

(CNI), a medical technology company, to SNC’s portfolio of promoted

investments. After a brief inquiry, SNC declined. Nevertheless, in June or July

2011, Fisher contacted RMI through Pope to solicit RMI’s investment in CNI.

Fisher contacted Pope and RMI in his capacity as an SNC financial advisor,

identifying himself as an SNC employee and using his SNC e-mail address and

phone number. At some point, Fisher insinuated to Pope and RMI that he would

be on the board of CNI, but Fisher never explained his direct relationship with

CNI.

       After a few conversations, RMI agreed to invest $270,000 in CNI in return

for a convertible promissory note that in six months would pay 10% interest and

27,000 shares of CNI stock. RMI made this investment in August 2011. Under

the terms of a contemporaneously executed securities purchase agreement, RMI’s

investment was not “effected by or through a broker-dealer in a public offering.”

At some point during the consummation of this investment, Pope asked Fisher

whether RMI needed to set up an SNC account, and Fisher replied that it was not

necessary at that time.

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      In October 2011, Fisher began calling Pope daily from his SNC office to

solicit a second investment in CNI. In November 2011, RMI invested $75,000 in

return for a second convertible promissory note that in six months would pay 10%

interest and 15,000 shares of CNI stock. As with the first investment, a

contemporaneously executed securities purchase agreement disclaims the

involvement of a broker-dealer in a public offering.

      CNI never repaid the promissory note and never gave RMI the promised

shares of stock. Pope and RMI allege that RMI’s CNI investment was one of

many fraudulently solicited investments in a “pump and dump” scheme

perpetuated by Fisher and others. In February 2012, SNC fired Fisher for engaging

in private transactions outside the firm, also known as “selling away.”

                          II. PROCEDURAL HISTORY

      In September 2012, Martha F. Owens, individually and on behalf of the

estate of Andrew T. Fuller, Susan Rockett, Pope, and RMI sued SNC in Georgia

state court alleging counts for fraud and negligence and demanding punitive

damages. In October 2012, SNC invoked diversity jurisdiction under 28 U.S.C.

§ 1331 and removed the action to the United States District Court for the Middle

District of Georgia. In August 2013, the plaintiffs added Fisher as an individual

defendant. Fisher failed to appear in this action, and a clerk’s default was entered

on December 23, 2013.

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      In December 2013, SNC moved for summary judgment as to all of Pope and

RMI’s claims. Among other things, SNC argued that Pope and RMI’s fraud claims

failed as a matter of law because there was no genuine issue of material fact

regarding whether Fisher was acting within his actual or apparent authority. As to

Pope and RMI’s negligence claims, SNC argued that it owed no duty to either

Pope or RMI because they were not and are not SNC clients. In June 2014, the

district court granted summary judgment in favor of SNC on all of Pope and RMI’s

claims.

      In November 2014, the surviving claims of Owens and Rockett went to trial.

Before the jury rendered a verdict, Owens, Rockett, and SNC reached a settlement.

On December 9, 2014, the district court entered final judgment in favor of SNC as

to Pope and RMI’s claims, giving finality to its June 2014 order granting summary

judgment. The next day, Pope and RMI appealed the district court’s grant of

summary judgment. Because the district court had not yet entered a final default

judgment as to Pope and RMI’s claims against Fisher, this Court dismissed the

appeal for want of jurisdiction.

      On June 26, 2015, the district court entered a final default judgment in favor

of Pope and RMI and against Fisher. On June 29, 2015, Pope and RMI again

appealed the district court’s judgment in favor of SNC. As decided in a November

2015 order of this Court, we have jurisdiction to hear this appeal.

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                          III. STANDARD OF REVIEW

      We review de novo a district court’s order granting summary judgment,

viewing all facts and reasonable inferences in the light most favorable to the non-

moving party. Hill v. Cundiff, 797 F.3d 948, 967 (11th Cir. 2015). “Summary

judgment is appropriate only if there is no genuine issue of material fact and the

moving party is entitled to judgment as a matter of law.” Id. (quoting Hallmark

Devs., Inc. v. Fulton Cty., Ga., 466 F.3d 1276, 1283 (11th Cir. 2006)); see also

Fed. R. Civ. P. 56(a).

                                 IV. DISCUSSION

      According to the district court, Pope and RMI’s fraud claims failed as a

matter of law because there was no genuine issue of fact regarding whether Fisher

was acting with actual or apparent authority when he defrauded RMI. Likewise,

Pope and RMI’s negligence claims failed as a matter of law because SNC owes no

duty to non-clients. We agree with the district court as to the latter conclusion but

disagree as to the former conclusion.

      Before discussing the district court’s conclusions, we first note that the

district court’s judgment as to Pope’s individual claims must be affirmed on

alternate grounds— there is no genuine issue of fact regarding whether Pope

suffered harm. RMI, not Pope, made each of the failed investments. Pope’s

involvement in the investments was solely as an officer and part-owner of RMI.

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Because Pope suffered no compensable harm in his individual capacity, his

individual claims fail as a matter of law. We now proceed to discuss the district

court’s conclusions as to RMI’s claims.

A. Fraud

      The parties agree that Fisher is the only individual at SNC with whom Pope

spoke regarding CNI. RMI nevertheless seeks to hold SNC liable for Fisher’s

misrepresentations under an agency theory.

      In Georgia, “[t]he relationship of principal and agent arises whenever one

person, expressly or by implication, authorizes another to act for him or

subsequently ratifies the acts of another in his behalf.” O.C.G.A. § 10-6-1. “The

agent shall act within the authority granted to him, reasonably interpreted; if he

shall exceed or violate his instructions, he does it at his own risk, the principal

having the privilege of affirming or dissenting, as his interest may dictate.”

O.C.G.A. § 10-6-21. A principal may also be held liable for the actions of an agent

with apparent authority. “Apparent authority is that which the principal’s conduct

leads a third party reasonably to believe the agent has; it creates an estoppel

allowing third parties to bind a principal to the agent’s acts on account of the

principal’s conduct, reasonably construed by third parties acting in innocent

reliance thereon.” Morris v. Williams, 448 S.E.2d 267, 269 (Ga. App. 1994).

Apparent authority is measured by the conduct of the principal, not the agent. See

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Thompson v. General Motors Acceptance Corp., 389 S.E.2d 20, 22 (Ga. App.

1989).

      The district court concluded that Fisher lacked actual authority to solicit

RMI’s investment in CNI because SNC had declined to promote CNI and SNC

policy prohibits “selling away.” RMI contends that SNC’s acquiescence in

Fisher’s abnormal conduct indicates that Fisher had actual authority to promote

CNI. We disagree. SNC identified clear and unrefuted record evidence showing

that Fisher lacked authority to promote CNI within SNC and lacked authority to

sell away. RMI’s conjecture to the contrary does not create a genuine issue of fact

as to Fisher’s actual authority.

      As to apparent authority, before the district court, RMI asserted that, by

hiring Fisher as a broker and providing him with an SNC email address, phone

number, and office, SNC vested Fisher with apparent authority to solicit and

facilitate the CNI investment. The district court concluded that RMI’s decision to

invest in CNI was not motivated by any representation by SNC and held that

Fisher therefore lacked apparent authority to solicit and facilitate the investment.

Although we disagree that the district court’s finding of fact answers the question

of apparent authority, we believe this issue to be controlled by indistinguishable

Georgia law.

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       In Hobbs v. Principal Financial Group, Inc., 497 S.E.2d 243 (Ga. Ct. App.

1998), the Georgia Court of Appeals considered the agency question under

remarkably similar facts. The plaintiffs sued an insurance broker for fraud, breach

of contract, negligent hiring, and negligent supervision. Hobbs, 497 S.E.2d at 244.

The plaintiffs alleged that an agent for the insurance broker fraudulently induced

them to invest in a non-existent investment fund that the agent claimed the

insurance broker managed. Id. at 243–44. To support their theory of apparent

authority, the plaintiffs noted that the insurance broker provided the agent with

business cards identifying him as the broker’s agent “along with brochures and

annual reports describing investment opportunities which could be purchased from

[the insurance broker].” Id. at 244. Citing O.C.G.A. § 51-2-2, 1 the court held that

the agent’s “acts in fraudulently inducing [the plaintiffs] to invest money in a

nonexistent fund which he falsely represented to be [the insurance broker’s] fund

were personal acts for his own benefit, involved no participation by [the insurance

broker], and were of no benefit to [the insurance broker].” Hobbs, 497 S.E.2d at

245. On these facts, the court declined to hold the insurance broker liable for the

agent’s torts. Id.

       1
          Section 51-2-2 provides that “[e]very person shall be liable for torts committed by his
wife, his child, or his servant by his command or in the prosecution and within the scope of his
business, whether the same are committed by negligence or voluntarily.”

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      In some cases, Georgia courts have held a principal liable for the fraud of its

agent under an apparent authority theory. See, e.g., Jester v. Hill, 288 S.E.2d 870,

874 (Ga. Ct. App. 1982) (permitting apparent authority claim regarding an

insurance agent’s misrepresentations that the insured had coverage); Arrington &

Blount Ford, Inc. v. Jinks, 270 S.E.2d 27, 30 (Ga. Ct. App. 1980) (permitting

apparent authority claim regarding a car salesman’s theft and sale to plaintiff of the

dealership’s car). This case, however, is indistinguishable from Hobbs. As in

Hobbs, RMI relies upon Fisher’s employment status and the trappings of his

employment to create a genuine issue of material fact on apparent authority. See

Hobbs, 497 S.E.2d at 244. As in Hobbs, SNC did not receive any benefit from and

did not directly participate in the alleged fraud. See id. at 245. As in Hobbs,

Fisher’s alleged conduct was solely for his personal benefit. See id. Therefore, as

in Hobbs, SNC cannot be held liable for Fisher’s tortious conduct. Summary

judgment was appropriate as to RMI’s fraud claim.

B. Negligence

      The parties agree that neither Pope nor RMI ever formalized a broker-client

relationship with SNC. Finding that Pope and RMI “failed to establish that SNC

owes a duty to exercise any degree of care toward non-clients,” the district court

concluded that Pope and RMI’s negligence claims failed as a matter of law. This

was error.

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       In support of its “no duty” holding, the district court cited several Georgia

cases discussing professional liability: Badische Corp. v. Caylor, 356 S.E.2d 198

(Ga. 1987); Glisson v. Freeman, 532 S.E.2d 442 (Ga. Ct. App. 2000); and Minor v.

E.F. Hutton & Co., 409 S.E.2d 262 (Ga. Ct. App. 1991). 2 On appeal, SNC cites

additional cases describing the same: McKenna, Long & Aldridge, LLP v. Keller,

598 S.E.2d 892 (Ga. Ct. App. 2004); Martha H. West Trust v. Market Value of

Atlanta, Inc., 584 S.E.2d 688 (Ga. Ct. App. 2003); and Legacy Homes, Inc. v. Cole,

421 S.E.2d 127 (Ga. Ct. App. 1992). None, however, stand for the broad

proposition that a professional owes a duty of care only to clients. Rather, the

cases either define the duty of care in a professional liability case or limit the scope

of professional negligence.3

       2
         The district court also cited Drury v. Harris Ventures, Inc., 691 S.E.2d 356 (Ga. App.
2010) for the proposition that summary judgment is appropriate where an agent was on a private
enterprise. Drury affirmed summary judgment in favor of a defendant upon concluding that the
evidence was “plain, palpable, and undisputed” that the employer exercised reasonable care in
hiring the offending employee. Id. at 359. Drury therefore does not support the district court’s
holding as to RMI’s negligent hiring claim.
       3
          See Badische Corp., 356 S.E.2d at 200 (“[P]rofessional liability for negligence,
including the liability of accountants, extends to those persons, or the limited class of persons
who the professional is actually aware will rely upon the information he prepared.”); McKenna,
Long & Aldridge, LLP, 598 S.E.2d at 894–95 (“[I]f an attorney owes no legal duty sounding in
negligence to an adversary to investigate a client’s claim prior to filing suit or to avoid filing a
potentially frivolous suit, certainly the attorney owed no duty to investigate before merely
sending a demand letter on behalf of a client.” (citation omitted)); Martha H. West Trust, 584
S.E.2d at 691 (reciting the rule in Badische); Glisson, 532 S.E.2d at 449 (describing a broker’s
duty to its client); Minor, 409 S.E.2d at 264 (describing a broker’s duty to its client); Legacy
Homes, Inc., 421 S.E.2d at 128 (“It is generally held that an attorney-client relationship must be
demonstrated before a plaintiff may recover in a legal malpractice suit.” (quoting Guillebeau v.
Jenkins, 355 S.E.2d 453, 457 (Ga. Ct. App. 1987))).
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       Notwithstanding the relatively narrow scope of professional negligence,

other theories of tort liability remain. Neither the lawyer who runs a red light nor

the accounting firm that fails to warn of a slippery floor could escape general tort

liability by arguing that the plaintiff was not a client. RMI’s negligence claim

against SNC is not that SNC negligently gave RMI bad investment advice. 4

Rather, RMI claims that SNC negligently hired, supervised, and retained Fisher, a

fraudster who used his employment with SNC to gain RMI’s trust and thereby

perpetuate his scheme. The availability of this tort theory does not necessarily

require a broker-client relationship.

       In Georgia, “a defendant employer has the duty to exercise ordinary care not

to hire or retain an employee the employer knew or should have known posed a

risk of harm to others where it is reasonably foreseeable from the employee’s

‘tendencies’ or propensities that the employee could cause the type of harm

sustained by the plaintiff.” Munroe v. Universal Health Servs., 596 S.E.2d 604,

606 (Ga. 2004). That is precisely what RMI argues here. RMI’s negligence theory

is that SNC breached its duty of care by hiring and retaining Fisher, whom SNC

knew or should have known posed a risk of defrauding others and that Fisher in

fact caused RMI the type of harm that SNC could reasonably have foreseen. There

       4
         To the extent RMI makes such a claim, the district court is correct that SNC owed no
professional liability duty to non-clients Pope and RMI. As discussed above, SNC cannot be
held liable for Fisher’s negligence under an agency theory either.
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is no basis in Georgia law or in logic to limit the scope of that duty to existing

clients.

       For example, in Underberg v. Southern Alarm, Inc., an alarm company hired

a convicted violent felon as a door-to-door salesman. 643 S.E.2d 374, 375 (Ga.

App. 2007). The salesman kidnapped a prospective customer, who sued the alarm

company. Id. Notwithstanding the fact that the kidnapping victim never became a

customer of the defendant, the court held that “a jury could find that [the employer]

owed a heightened duty to ascertain whether individuals it hired, even briefly, to

enter homes of unsuspecting persons for the purpose of selling security systems

were suited for this purpose.” Id. at 377. Rather than find no duty, Underberg

admits of the possibility of a heightened duty where an employee will be

interacting with prospective customers.

       This case is analogous. Fisher was hired to solicit new clients and service

the accounts of old clients. A jury could find it foreseeable that a financial advisor

with “red flags” in his employment and investment management history would use

his position to identify, build relationships with, and exploit marks, irrespective of

whether the marks ever formalize a client relationship with the brokerage.

Therefore, RMI’s negligent hiring, retention, and supervision claim should have

survived summary judgment.

C. Punitive Damages

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      Upon concluding that Pope and RMI’s underlying tort claims failed as a

matter of law, the district court held that Pope and RMI’s claims for punitive

damages must likewise fail. Because we reverse the order of the district court as to

RMI’s negligence claim, the district court’s reasoning no longer applies. We

nevertheless affirm on alternate grounds the district court’s order as to the punitive

damages claim. The Georgia punitive damages statute, O.C.G.A. § 51-12-5.1(b),

imposes a strict state of mind requirement upon plaintiffs:

      Punitive damages cannot be imposed . . . without a finding of some form of
      culpable conduct, and negligence, even gross negligence, is not sufficient to
      support an award of punitive damages . . . . There must be aggravating
      circumstances or outrage, such as spite, malice, or a fraudulent or evil
      motive on the part of the defendant, or such a conscious and deliberate
      disregard of the interests of others that the conduct may be called wilful or
      wanton.
Comcast Corp. v. Warren, 650 S.E.2d 307, 311 (Ga. Ct. App. 2007)”). RMI fails

to proffer summary judgment evidence indicating SNC’s alleged misconduct was

spiteful, malicious, fraudulent, evil, conscious, or deliberate. Absent evidence

creating a genuine issue of fact as to the material state-of-mind element, we affirm

the district court’s order as to the punitive damages claim.

                                 V. CONCLUSION

      For the reasons stated above, the district court’s order granting summary

judgment in favor of SNC is affirmed as to Pope’s claims and as to RMI’s fraud

and punitive damages claims but reversed as to RMI’s negligence claim.

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AFFIRMED IN PART, REVERSED IN PART.

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