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holding that consequences arising from Plaintiff's "calculated and deliberate decisions" regarding litigation tactics did not warrant Rule 60(b) relief
Summary of this case from Sewraz v. GuiceOpinion
Civ. A. No. 1:89-0516.
October 9, 1991.
Michael Froble, Katz, Kantor Perkins, Bluefield, W. Va., for plaintiff.
Ben B. White, III, White's Law Offices, Princeton, W. Va., for defendant.
MEMORANDUM OPINION AND ORDER
This matter is before the Court via Plaintiff's Motion to Reconsider pursuant to Rule 60(b) of the Federal Rules of Civil Procedure. Having carefully reviewed the papers presented by the parties, the Court is prepared to issue its ruling herein.
I. Summary of the Case
On April 11, 1988, Plaintiff's decedent, Jackie Lynn Dowell, was a guest passenger in a 1979 Chevrolet Camaro owned by Douglas Shinault and operated by Johnny Randolph Shinault. The automobile wrecked on U.S. Route 460 near Bluefield, West Virginia and resulted in the death of Jackie Lynn Dowell. The Plaintiff brought a wrongful death action against the Shinaults in the Circuit Court of Mercer County, West Virginia on September 8, 1988. Later in December 1988, Plaintiff settled with the Allstate Insurance Company, the Shinaults' insurance carrier, for $100,000.00 which was the policy limits on the Shinault vehicle.
On the day of the wreck, the Plaintiff was insured by Defendant State Farm. This insurance policy contained liability limits of $50,000.00 per person, $100,000.00 per accident and underinsured motorist coverage limits of $50,000.00 per person and $100,000.00 per accident. Early in 1989 the Plaintiff filed an action in the Circuit Court of Mercer County to recover $50,000.00 from State Farm pursuant to the underinsured motorist coverage provisions of the insurance policy. State Farm removed the action to this Court on May 9, 1989. Subsequent to the removal, the parties respectively moved for judgment on the pleadings.
The Court granted State Farm's motion for judgment on the pleadings on March 6, 1990 and denied Plaintiff's motion on the same date. The Court ruled that the Plaintiff did not meet the definition of an underinsured motorist under West Virginia Code § 33-6-31(b). Upon granting judgment on the pleadings in favor of State Farm, the Court entered a judgment order on the same date and dismissed the case with prejudice.
About five months later on August 1, 1990, the Plaintiff filed a motion for the Court to reconsider its March 6 decision in light of a July 20, 1990 West Virginia Supreme Court of Appeals opinion in the matter of State Automobile Mutual Insurance Co. v. Youler, ___ W. Va. ___, 396 S.E.2d 737 (W.Va. 1990). Plaintiff later supplemented his motion to reconsider on December 20, 1990 with a letter calling to the Court's attention the December 1990 West Virginia high court opinions in Pristavec v. Westfield Insurance Co., ___ W. Va. ___, 400 S.E.2d 575 (W.Va. 1990) and Brown v. Crum, ___ W. Va. ___, 400 S.E.2d 596 (W.Va. 1990). State Farm responded to Plaintiff's motion by filing a brief with the Court on August 14, 1990. Originally, the Plaintiff asked the Court to grant leave to certify questions of law to the West Virginia Supreme Court of Appeals. However, in providing the Court with copies of the Pristavec and Crum opinions, the Plaintiff, we believe effectively retracted its request for certification and now seeks reversal of the Court's March 6, 1990 Order. For reasons stated below, Plaintiff's Motion to Reconsider is hereby ORDERED DENIED.
II. Discussion A.
Plaintiff moves under Rule 60(b) of the Federal Rules of Civil Procedure for the Court to reconsider and, ostensibly, set aside its earlier order granting State Farm's motion for judgment on the pleadings. A Rule 60(b) motion for relief from a judgment is not a substitution for an appeal. Ackermann v. United States, 340 U.S. 193, 71 S.Ct. 209, 95 L.Ed. 207 (1950); Flett v. W.A. Alexander Co., 302 F.2d 321 (7th Cir.), cert. den., 371 U.S. 841, 83 S.Ct. 71, 9 L.Ed.2d 77 (1962). To come under the purview of Rule 60(b), the Plaintiff at bar must make a showing that his motion was filed within a reasonable time, that he has a meritorious defense or legal position in spite of an earlier ruling by the Court or jury verdict, that there is a lack of unfair prejudice to State Farm and that exceptional circumstances exist. Werner v. Carbo, 731 F.2d 204, 207 (4th Cir. 1984). Once such a showing is made, he must then satisfy one or more of Rule 60(b)'s six grounds for relief from judgment. Id. The Court finds that the Plaintiff filed his motion in a reasonable period of time inasmuch as the filing was triggered by Youler, supra, which was released approximately four and one-half months after the Court's adverse ruling to the Plaintiff. The Court also finds that Plaintiff's arguments on brief in support of his motion for judgment on the pleadings are of some merit though not entirely persuasive. Additionally, the Court is of' the belief that State Farm is neither unduly nor unfairly prejudiced by this post judgment motion given that this protracted proceeding and added expenses related thereto do not constitute prejudice within the meaning of Rule 60(b). Werner, 731 F.2d at 207. Lastly, exceptional circumstances appear to surround this motion as the highest court in West Virginia has addressed issues of insurance law relating to underinsured motorist coverage since our March 1990 judgment order.
Notwithstanding all of this, the Plaintiff in his papers neglects to inform the Court which ground(s) for relief he asserts as set forth in subsections (1)-(6) of Rule 60(b). We surmise from Plaintiff's papers that his motion lies within the scope of subsections (5) and (6) as his tendering of the Youler, Pristavec and Brown opinions is tantamount to arguing that there has been a change in law.
Rule 60(b) provides in pertinent part: "On motion and upon such terms as are just, the Court may relieve a party or a party's legal representative from a final judgment, order or proceeding for the following reasons: . . . . (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment."
B.
As the judgment entered by this Court in favor of State Farm has not been released or discharged or appear to have prospective application, see generally Twelve John Does v. District of Columbia, 841 F.2d 1133 (D.C. Cir. 1988), the only possible Rule 60(b)(5) ground Plaintiff's motion may rest upon is that a prior judgment upon which the Court based its judgment has been reversed or vacated. Appellate courts have adopted a narrow construction of this provision of Rule 60(b)(5) and limit its application to cases in which the present judgment is founded on the prior judgment in the sense of res judicata or collateral estoppel. Schwartz v. United States, 129 F.R.D. 117 (D.Md. 1990). Thus, it is well settled that a change of law after a judgment has become final is not a sufficient basis for vacating the judgment. Berryhill v. United States, 199 F.2d 217, 219 (6th Cir. 1952); Title v. United States, 263 F.2d 28, 31 (9th Cir.), cert. den. 359 U.S. 989, 79 S.Ct. 1118, 3 L.Ed.2d 978 (1959); Lubben v. Selective Service System Local Board No. 27, 453 F.2d 645, 650 (1st Cir. 1972); DeFilippis v. United States, 567 F.2d 341, 343 (7th Cir. 1977). Under these authorities, Plaintiff is not entitled to relief from our March 6, 1990 judgment order pursuant to Rule 60(b)(5). More importantly, however, the Court believes that Youler, Pristavec and Brown, supra, do not represent a change of law within the meaning of Rule 60(b)(5).In Youler the West Virginia Supreme Court of Appeals held that West Virginia Code § 33-6-31(b) contemplated recovery up to underinsured motorist coverage limits from one's insurer of full compensation for damages not compensated by a negligent tortfeasor who, at the time of the accident, owned or operated an underinsured motor vehicle. Youler, 396 S.E.2d at 748. The high court accordingly determined that the amount of a tortfeasor's motor vehicle liability insurance coverage available to the injured person was to be set off against the total amount of damages sustained by the injured person instead of the limits of underinsured motorist coverage. Id at 749. In so holding, the Supreme Court of Appeals rejected arguments by Defendant State Automobile Mutual Insurance Company that the 1988 amendments to § 33-6-31(b), which precluded setoffs of liability insurance coverage against underinsured motorist coverage limits, indicate a change in the law such that prior to 1988 the statute permitted insurers to setoff an insured's underinsured motorist coverage with the tortfeasor's liability insurance. Id. at 750. Writing for the Court, Justice McHugh responded to the insurer's argument as follows:
We disagree. In light of the clear "all sums . . . as damages" language in the statute prior to 1988, this Court believes that the 1988 additions in this regard to the statute constitute only a clarification of the legislature's original intent to preclude the type of setoff proposed by State Auto here.Id. (emphasis added).
In Pristavec the state high court held that underinsured motorist coverage is activated under West Virginia Code § 33-6-31(b) when the amount of a tortfeasor's motor vehicle liability insurance actually available to the injured person in question is less than the total amount of damages sustained by the injured person, regardless of the comparison between liability insurance limits actually available and the underinsured motorist coverage limits. Pristavec, 400 S.E.2d at 582. The Pristavec court arrived at its holding via statutory construction of § 33-6-31(b). Specifically, the Court analyzed § 33-6-31(b) in its entirety, focused on the spirit of the statute rather than its letter, and recognized its remedial character, citing Perkins v. Doe, ___ W. Va. ___, 350 S.E.2d 711 (1986), in which a liberal construction of the statute would be necessary to effectuate its purpose. Id., 400 S.E.2d at 581-582. Through this exercise, the high court justices, save one, ascertained that the legislature intended an expansive definition of the term "underinsured motor vehicle" that is consistent with the preeminent public policy of the underinsured motorist statute: to provide full compensation, not to exceed coverage limits, to an injured person for his or her damages not compensated by a negligent tortfeasor. Id.
Chief Justice Richard Neely dissented. See Pristavec, 400 S.E.2d at 583.
Finally in Brown the West Virginia Supreme Court of Appeals reemphasized its holdings in Youler and Pristavec, to wit, § 33-6-31(b) precludes offsets of amounts paid by a tortfeasor's insurer against the underinsured motorist policy limits of an insurance carrier. The Court further remarked:
This preclusion of offsets was the public policy of this state prior to the 1988 amendments which explicitly added such [offset] language to W.Va. Code § 33-6-31(b). Consequently, the 1988 amendments are to be applied retroactively to govern the resolution of the present controversy.Brown, 400 S.E.2d at 599 (emphasis added).
Overall, we find that in the trilogy of cases discussed above the West Virginia Supreme Court of Appeals has not changed insurance law as it relates to underinsured motorist coverage but has simply provided clarity through a critical analysis of legislative intent and state public policy. Such clarification by the high court, we believe, does not give rise to a change of law. Only the original legislative intent of § 33-6-31(b) has been judicially ascertained and recognized. While these three decisions clearly affect the manner in which attorneys practice insurance law as it relates to underinsured motorist coverage, we do not believe that this constitutes a change of law within the meaning of Rule 60(b)(5).
As an afterthought, the Court notes Publication No. 8 of the West Virginia Trial Lawyers Association ALERT dated December 18, 1990 wherein the editors at the bottom of page two opine:
"The decisions referenced above (in Pristavec and Brown) provide a much needed clarification regarding applicability of underinsured motorist coverage in automobile insurance policies." (emphasis added)
C.
Rule 60(b)(6) of the Federal Rules of Civil Procedure is the "catchall" provision of the rule in that a district court may grant relief for any reason other than the enumerated reasons found in subsections (1)-(5) that justifies relief from the operation of a judgment. Fed.R.Civ.P. 60(b)(6); Tomlin v. McDaniel, 865 F.2d 209, 211 (9th Cir. 1989). A motion filed pursuant to Rule 60(b)(6) may be granted in cases of "extreme hardship" where relief would not be available under any of the other provisions of Rule 60(b). Schwartz, supra, 129 F.R.D. at 122.It is well established that a change in decisional law is not grounds for relief from judgment under Rule 60(b)(6). Travelers Indemnity Co. v. Sarkisian, 794 F.2d 754 (2nd Cir. 1986), citing Ackermann, supra, and Loucke v. United States, 21 F.R.D. 305 (S.D.N.Y. 1957). Thus, Plaintiff's apparent change of law argument necessarily fails. But having determined that Youler, Pristavec and Brown have clarified rather than changed the law at issue, we turn to consider whether extreme hardship exists in the case at bar which would warrant Rule 60(b) relief.
Plaintiff's motion was originally intended for this Court to certify questions of law to the West Virginia Supreme Court of Appeals. Plaintiff's filing of the motion shortly after the release of Youler was the first mention of or request for certification. The movant decided not to move for certification before entry of judgment on the pleadings on March 6, 1990. The movant also decided not to appeal this Court's decision. Had he appealed the judgment to the United States Court of Appeals for the Fourth Circuit, certification may have been possible. When a party makes free and conscious choices regarding the conduct of litigation, such a party cannot obtain relief under Rule 60(b)(6). Ackermann, 340 U.S. at 198, 71 S.Ct. at 211. The Plaintiff made calculated and deliberate decisions not to move for certification before entry of judgment or appeal the judgment thereafter. Hence, we do not find extreme hardship that would compel granting relief inasmuch as the Plaintiff knowingly and voluntarily passed over the means to protect his interest in litigation and possibly achieve his desired outcome.
Our decision here not to grant relief under Rule 60(b)(6) is in step with the interest in finality of judgments. Furthermore, principles of fairness among litigants prohibits allowing a nonappealing party to benefit from the efforts of those who choose to press their cases through the appellate and certification processes. Cf. Watson v. Symons Corp., 121 F.R.D. 351, 355 (N.D.Ill. 1988).
IT IS SO ORDERED.
fact and that the moving party is entitled to summary judgment as a matter of law. Fed.R.Civ.P. 56(c). The United States Supreme Court has held that his language "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a sufficient showing to establish the existence of an essential element to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).
Summary judgment can be granted only if everything in the record demonstrates that no genuine issue of material fact exists. The district court, therefore, must not "resolve factual disputes by weighing conflicting evidence. . . . since it is the province of the jury to assess the probative value of the evidence." Kennett-Murray Corp. v. Bone, 622 F.2d 887, 892 (5th Cir. 1980). Summary judgment is improper merely where the court believes it unlikely that the opposing party will prevail at trial. National Screen Service Corp. v. Poster Exchange, Inc., 305 F.2d 647, 651 (5th Cir. 1962).
The party moving for summary judgment bears the responsibility of informing the district court of the basis for its motion and identifying those portions of the record in the case which it believes demonstrate the absence of a genuine issue of fact. Celotex, 477 U.S. at 323, 106 S.Ct. at 2552. However, the movant need not support the motion with materials that negate the opponent's claim. As to issues on which the non-moving party has the burden of proof at trial, the moving party need only point to an absence of evidence to support the non-moving party's claim; the non-moving party must then designate "specific facts showing that there is a genuine issue for trial." Id. at 324, 106 S.Ct. at 2553.
A. Rule 10b-5
After Plaintiff filed her Complaint and after Defendants moved for Summary Judgment, the United States Supreme Court held in Lampf, Pleva, Lipkind, Prupis Petigrow v. Gilbertson, ___ U.S. ___, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991), that all litigation instituted pursuant to Rule 10b-5 "must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation." Lampf, ___ U.S. at ___, 111 S.Ct. at 2782. The alleged misrepresentations of Defendant Jones, and through Jones, Defendant Distributors, occurred no later than January 7, 1987, and Plaintiff's Complaint was filed approximately five months beyond the three-year period which followed the alleged misrepresentations. Accordingly, Plaintiff confesses the Motions for Summary Judgment of Defendants Distributors and Jones as to the Rule 10b-5 claim.
B. The Mississippi Statutory Securities Claims 1. Causes of Action Under Miss. Code Ann. § 75-71-501 and Miss. Code Ann. § 75-71-717
Miss. Code Ann. § 75-71-501 creates a cause of action for fraud or deceit in connection with securities transactions. ( See Shivangi v. Dean Witter Reynolds, Inc., 107 F.R.D. 313, 322 (S.D.Miss. 1985)). Miss. Code Ann. § 75-71-501 provides as follows:
It is unlawful for any person, in connection with the offer, sale or purchase of any security, directly or indirectly,
(1) To employ any device, scheme or artifice to defraud;
(2) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or
(3) To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.
Miss. Code Ann. § 75-71-501, however, does not set forth a limitations period within which actions must be brought. Defendants Distributors and Jones therefore argue that the similarity between Miss. Code Ann. § 75-71-501 and Rule 10b-5 means that the reasoning of Lampf applies to bar Plaintiff's claim under Miss. Code Ann. § 75-71-501, because the claim was not brought within three years of the date of the alleged violation. Plaintiff concedes that Miss. Code Ann. § 75-71-501 is substantively identical to Rule 10b-5. Id.
The Court finds that Lampf\ does not bar Plaintiff's claim under Miss. Code Ann. § 75-71-501. Rather than borrowing from Lampf to create a limitations period for Miss. Code Ann. § 75-71-501, the Court finds that the more appropriate limitations period is set forth in Miss. Code Ann. § 75-71-725. Miss. Code Ann. § 75-71-725 provides that
[n]o action shall be maintained to enforce any liability created under section 75-71-717(2) [sic] unless brought within two (2) years after the discovery of the untrue statement or omission, or after such discovery should have been made by the exercise of reasonable diligence, or, if the action is to enforce a liability created under section 75-71-717(1) [sic] unless brought within two (2) years after the violation upon which it is based.
The similarity between Miss. Code Ann. § 75-71-501 and Rule 10b-5 of the Securities Act of 1934 does not mean that a court can apply a federal judicially-created statute of limitations to a state statute.
Having determined that Miss. Code Ann. § 75-71-725 is the most applicable limitations period, the Court finds, for the reasons discussed in Section Two below, that a genuine issue of material fact remains concerning whether the exercise of reasonable diligence would have discovered a violation.
Furthermore, the Court finds that Miss. Code Ann. § 75-71-717(a)(2) creates an independent cause of action and need not be construed, as Defendant contends, in conjunction with Miss. Code Ann. § 75-71-501. Miss. Code Ann. § 75-71-717(a)(2) provides in pertinent part that any person who
offers or sells a security by the use of any written or oral communication which contains any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading (the buyer not knowing of the untruth or omission), and who does not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the untruth or omission, is liable to the person buying the security from him, who may sue either at law or in equity to recover the consideration paid for the security. . . . (Emphasis added).
Under Miss. Code Ann. § 75-71-717(a)(2), a person who misrepresents or fraudulently sells a security is liable to the purchaser of the security. Miss. Code Ann. § 75-71-725, moreover, provides a statute of limitations for "liability created under section 75-71-717(2) [sic]." The language of these two statutes clearly demonstrates that a claim may be brought solely pursuant to Miss. Code Ann. § 75-71-717.
2. Justifiable Reliance
Defendants Distributors and Jones contend that it was unreasonable for Plaintiff to rely on Jones's oral representations and allegedly ignore the High Income Trust prospectus of Distributors. There is respected authority for their proposition. See Zobrist v. Coal-X, Inc., 708 F.2d 1511, 1518 (10th Cir. 1983) (after applying relevant factors in determining justifiable reliance, the Court found that information contained in a prospectus should be imputed to investors alleging 10b-5 violations); Platsis v. E.F. Hutton Co., 642 F. Supp. 1277, 1299 (W.D.Mich. 1986) (unreasonable to rely on oral representations). The Tenth Circuit in Zobrist reviewed Rule 10b-5 litigation and listed the following factors courts have used to determine whether a plaintiff "justifiably relied" on a defendant's representations: (1) the sophistication and expertise of the plaintiff in financial and securities matters; (2) the existence of long-standing business or personal relationships; (3) access to the relevant information; (4) the existence of a fiduciary relationship; (5) concealment of the fraud; (6) the opportunity to detect the fraud; (7) whether the plaintiff initiated the stock transaction or sought to expedite the transaction; (8) the generality or specificity of the misrepresentations. The Fifth Circuit has used most, if not all, of these factors in Rule 10b-5 litigation. See G.A. Thompson Company, Inc. v. Partridge, 636 F.2d 945, 955 (5th Cir. 1981).
Plaintiff urges that Miss. Code Ann. § 75-71-717(a)(2) contains no requirement of reasonable reliance. The Court finds that both Miss. Code Ann. § 75-71-717(a)(2) and Miss. Code Ann. § 75-71-501 contain an implicit requirement of reasonable reliance consistent with federal Rule 10b-5. However, applying the factors listed in Zobrist and G.A. Thompson Company, Inc. by analogy to securities claims under Miss. Code Ann. § 75-71-717(a)(2) and Miss. Code Ann. § 75-71-501, the Court finds that there is sufficient evidence to support a finding that Plaintiff justifiably relied on Defendant Jones's representations. In particular, Defendant Jones's admission that he did not know whether the High Income Trust contained so-called "junk bonds" demonstrates that the Prospectus may not have fully and adequately disclosed relevant information, in light of Plaintiff's relative lack of financial sophistication, and demonstrates that Plaintiff may have been justified in relying on Jones' representations. There remains, therefore, a genuine issue of material fact as to whether Plaintiff's claim is barred under the two-year statute of limitations in Miss. Code Ann. § 75-71-725, which provides that actions under Miss. Code Ann. § 75-71-717(a)(2), and by implication, Miss. Code Ann. § 75-71-501, must be brought within two years after the exercise of "reasonable diligence" would have discovered an alleged violation.
3. Proximate Cause
Finally, Defendants Distributors and Jones argue that the alleged misrepresentations did not proximately cause Plaintiff's loss. To recover under Rule 10b-5, a plaintiff must satisfy a two-pronged causation standard: First, the plaintiff must prove "transaction causation" by showing that the defendant's representations caused the plaintiff to make the investment. Bruschi v. Brown, 876 F.2d 1526, 1530 (11th Cir. 1989). Second, the plaintiff must prove "loss causation" by showing that the representations "touched upon" the reasons for the loss or caused the loss itself in some reasonably direct way. Huddleston v. Herman MacLean, 640 F.2d 534, 549 (5th Cir. 1981); Bruschi at 1530. Defendants argue that application of the causation standard of Rule 10b-5 to Plaintiff's claim under the Mississippi Securities Act bars Plaintiff's claim because there was no loss causation. Defendants argue that market forces, and not any alleged misrepresentations, caused Plaintiff's loss.
The Court agrees with Defendants that the causation standard of Rule 10b-5 applies to claims under the Mississippi Securities Act, but finds that there is sufficient evidence to indicate that the alleged misrepresentations may have caused Plaintiff's loss. The Bruschi court noted that there is loss causation where a defendant induces a plaintiff to enter into a risky investment, and the plaintiff suffers a loss resulting from the risky nature of the investment itself. Bruschi at 1531. See also Huddleston at 549. Here, there is evidence that Defendants induced Plaintiff to invest by misrepresenting the risky nature of the High Income Trust, and that Plaintiff suffered a loss because of the Trust's relative volatility. While the Court recognizes that securities laws are not designed to be an "insurance plan" for the cost of securities purchased in reliance upon material misstatements or omissions ( Huddleston at 549), there is a factual issue in the case before the Court as to whether Defendants caused Plaintiff's loss by misrepresenting the intrinsic worth, and inherent riskiness, of the High Income Trust.
Therefore, Defendants' Motions for Summary Judgment are denied as to Plaintiff's claims pursuant to Miss. Code Ann. § 75-71-717(a)(2) and Miss. Code Ann. § 75-71-501. C. Common Law Fraud 1. Justifiable Reliance
Regarding Plaintiff's allegation of fraud, Defendants Distributors and Jones argue that Plaintiff did not justifiably rely on Defendants' oral representations. As discussed above, because of the difficulty that a relatively unsophisticated investor would have in comprehending the nature of an investment about which even a stockbroker is confused, the Court finds that Defendants' argument is without merit.
2. Proximate Cause
Defendants further argue that proximate cause is lacking. Again, because there is evidence that the risky nature of the High Income Trust caused Plaintiff's loss, the Court finds that this argument is similarly without merit, and denies Defendants' Motion for Summary Judgment as to the common law fraud claim.
D. Breach of Fiduciary Duties 1. Existence of a Fiduciary Relationship
Defendants Distributors and Jones contend that no fiduciary relationship existed with Plaintiff. The Court disagrees. The existence of a fiduciary relationship is a question of fact ( See Southern Mortgage Company v. O'Dom, 699 F. Supp. 1227, 1231 (S.D.Miss. 1988), and there is authority to support the proposition that a fiduciary relationship exists between a securities broker and his customer. Magnum Corp. v. Lehman Bros. Kuhn Loeb, Inc., 794 F.2d 198, 200 (5th Cir. 1986); Romano v. Merrill Lynch, Pierce, Fenner Smith, 834 F.2d 523, 530 (5th Cir. 1987) (dicta). The Court finds that a fiduciary relationship may have existed between Defendant Jones, and through Jones, Defendant Distributors, and Plaintiff.
Defendant Mutual argues that no fiduciary relationship existed between it and Plaintiff because Mutual was not involved with Plaintiff's investment in the High Income Trust. Mutual contends that its involvement with the Plaintiff was limited to the preparation of an Estate Profile that analyzed Plaintiff's insurance needs. However, the Court believes that there is a genuine issue of material fact as to whether the Estate Profile was prepared in connection with Plaintiff's investment in the High Income Trust, and additionally, whether Jones, as the General Agent of Mutual in Mississippi, was acting on behalf of Mutual when he recommended that Plaintiff invest in the High Income Trust.
2. Scope of Fiduciary Duties
Defendants Distributors and Jones contend that, if they owed Plaintiff fiduciary duties, they satisfied their fiduciary duties by disclosing information in the Prospectus in compliance with federal securities laws. This Court held in Shivangi v. Dean Witter Reynolds, Inc., 107 F.R.D. 313, 322 (S.D. Miss. 1985), that common law principles of fiduciary duties impose no greater duties with regard to disclosure of information upon sellers of mutual funds than do federal securities laws. In the present case, however, because of the uncertainty concerning the nature of the High Income Trust, there remains a jury question as to whether Defendants Distributors and Jones complied with federal securities laws through the Prospectus. Moreover, as previously discussed, there is evidence to support a finding that the representations proximately caused Plaintiff's loss.
Therefore, the Court denies Defendants' Motions for Summary Judgment as to breach of fiduciary duties.
E. Breach of Contract
Plaintiff contends in her Complaint that Distributors, through Jones, "breached the terms of its agreement" with Plaintiff to render advice and make investments suitable to Plaintiff's needs. Defendants Distributors and Jones argue that no written contract existed between Defendants and Plaintiff and, alternatively, argue that an action based on an alleged oral contract is barred under Miss. Code Ann. § 15-1-29.
A party seeking relief for breach of a written contract must prove the existence of the contract and the right to relief thereunder. Bunge Corporation v. Biglane, 418 F. Supp. 1159, 1165 (S.D.Miss. 1976); Bradley v. Howell, 161 Miss. 346, 133 So. 660, 661 (1931). Plaintiff offers her application for investment in the High Income Trust as evidence of a written contract with Distributors.
The Court finds that the application for investment is too indefinite and incomplete to constitute a written contract. Specifically, the application for investment does not explicitly state the duties or obligations of Distributors and Jones to the Plaintiff, does not state any rate of commission to be earned by Distributors and Jones and does not state Plaintiff's expected rate of return. Moreover, there is no evidence of bargained-for detriment or consideration. The Court simply cannot determine the respective obligations of the parties from the application for investment alone. Corbin on Contracts, Section 95 (1963).
Even if the Court were to find that an oral contract existed between the Plaintiff and the Defendants, a claim for breach of such an oral contract would be barred, as the Plaintiff impliedly concedes, under Miss. Code Ann. § 15-1-29. Miss. Code Ann. § 15-1-29 provides in pertinent part that actions
on any unwritten contract, express or implied, shall be commenced within three (3) years next after the cause of such action accrued, and not after. . . .
Here, Plaintiff's January 7, 1987 investment in the High Income Trust is the latest date on which an alleged oral contract could be deemed to have existed, and Plaintiff filed the action before this Court more than five months after the expiration of the three-year statute of limitations period.
The Court therefore grants the Motions of Defendants Distributors and Jones for Summary Judgment as to Plaintiff's breach of contract claim.
F. Negligence
Defendants Distributors and Jones urge that they did not breach any duties owed to the Plaintiff, and were therefore not negligent, because they were in compliance with applicable federal securities laws. Defendants essentially reiterate their argument put forth in response to Plaintiff's fraud claim, and contend that there can be no common law duty greater than the duties imposed on a seller of securities by federal statute. The Court rejects such an argument for the reasons articulated earlier, and notes, furthermore, that there are specific written rules in the securities industry that impose duties on brokers who recommend investments in securities. The Fifth Circuit has stated that these rules, such as the "suitability rule," are "excellent tools against which to assess in part the reasonableness or excessiveness of a broker's handling of an investor's account." Miley v. Oppenheimer Co., Inc., 637 F.2d 318, 333 (5th Cir. 1981).
Furthermore, Defendants Distributors and Jones contend that their alleged negligence, if any, did not proximately cause Plaintiff's loss. Again, the Court refers to its earlier discussion regarding loss causation and purportedly supervening market forces, and finds that Defendants' contention is without merit.
Defendant Mutual also moves for Summary Judgment in regard to Plaintiff's allegation of negligence. Mutual contends that it was not involved, through the preparation of the Estate Profile or in any other way, in planning or attempting to recommend investment in the High Income Trust, and can therefore not be negligent for any loss suffered from the High Income Trust. The Court believes, however, that there is a genuine issue of material fact as to whether Defendant Jones was acting as an agent of Mutual when Plaintiff invested in the High Income Trust. Additionally, the Court believes that Jones' status as the General Agent of Mutual, when coupled with the temporal linkage between the preparation of the Estate Profile and Plaintiff's investment in the High Income Trust, raises a genuine issue as to the duty Mutual owed Plaintiff, and if such a duty arose, whether Mutual breached that duty.
The alternative contention of Defendant Mutual that its actions did not proximately cause Plaintiff's loss is, for the reasons discussed earlier, without merit.
Therefore, the Court denies Defendants' Motions for Summary Judgment regarding Plaintiff's negligence claims.
G. Punitive Damages
Plaintiff asks for punitive damages against all Defendants. Because the case before the Court contains causes of action which, if proven, could include findings of gross negligence or reckless disregard for Plaintiff's rights, the Court denies Defendants' Motions for Summary Judgment as to Plaintiff's claims for punitive damages.
Accordingly, the Summary Judgment Motions of Defendants Distributors and Jones are granted as to Plaintiff's claim under Rule 10b-5 of the Securities Act of 1934 and Plaintiff's claim for breach of contract. The Summary Judgment Motions of Defendants Distributors and Jones are denied as to Plaintiff's claims under the Mississippi Securities Act, and to Plaintiff's claims for common law fraud, breach of fiduciary duties, negligence, and punitive damages.
The Summary Judgment Motions of Defendant Mutual are denied as to Plaintiff's claim for breach of fiduciary duties, negligence, and punitive damages.
SO ORDERED.