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Milliner v. Mutual Securities, Inc.

United States District Court, N.D. California

June 27, 2016

CHARLOTTE B. MILLINER, et al., Plaintiffs,
v.
MUTUAL SECURITIES, INC., Defendant.

          ORDER GRANTING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT

          THELTON E. HENDERSON, United States District Judge

         On April 18, 2016, Plaintiffs filed a Motion for Partial Summary Judgment Re: Existence of Contractual Duty to Determine Suitability. Dkt. No. 30 (“Mot.”). Defendant Mutual Securities Inc. (“MSI”) timely opposed the motion, and Plaintiffs timely replied in support thereof. Opp’n to Pls.’ Mot. for Partial Summ. J. (“Opp’n”) (Dkt. No. 32); Reply in Supp. of Mot. for Partial Summ. J. (“Reply”) (Dkt. No. 33).

         On May 18, 2016, this Court requested clarification from the parties on the breadth of Plaintiffs’ motion. Order Re: May 23, 2016 Hr’g (“Clarification Order”) (Dkt. No. 34). On the basis of Plaintiffs’ response to the Clarification Order, the Court vacated oral argument on Plaintiffs’ motion for partial summary judgment pursuant to Civil L.R. 7-1(b). Id.; see also Dkt. No. 36. Having carefully considered the parties’ written arguments, the Court hereby GRANTS Plaintiffs’ motion, for the reasons set forth below.

         BACKGROUND

         This class action is related to another class action separately filed in this Court: Milliner v. Bock Evans Financial Counsel, Ltd., No. 15-cv-1763 TEH (the “Bock Evans Class Action”).[1] The Bock Evans Class Action was brought by the same Plaintiffs as the present class action, to challenge the “‘one size fits all’ investment approach implemented by their investment advisor, Defendant Bock Evans Financial Counsel, Ltd. (‘BEFC’).” Mot. at 2. Plaintiffs brought the present class action against Defendant MSI because of MSI’s relationship with BEFC; namely, because “BEFC required that clients hire Defendant MSI as their custodial and supervising broker-dealer.” Id. According to Plaintiffs, “[o]ne reason that BEFC requires clients to use MSI is because [Thomas] Bock and [Mary] Evans, the principal executive officers of BEFC, are also licensed with and registered principals of MSI.” Id. And Plaintiffs now allege that “the value of the BEFC portfolios under MSI’s supervision have gone from $60 million to $4.17 million in just a few years, a drop of roughly $55.83 million, or 93%.” Id.

         The crux of Plaintiffs’ class action claims against MSI, and the heart of the present motion, is a “Brokerage Agreement” that MSI required Plaintiffs to enter into as clients of BEFC. Plaintiffs explain:

MSI . . . requires that clients enter into a Brokerage Agreement describing the “features and policies associated with the account, ” and the “various services” that MSI “agree[s] to provide.” Through this Brokerage Agreement, MSI expressly promises that: “As your broker/dealer, we will: determine the suitability of any investment recommendations and advice.”

Id. Plaintiffs now move for partial summary judgment regarding whether the quoted language from the Brokerage Agreement (the “suitability clause”) created a duty for MSI: “Plaintiffs seek a ruling from this Court establishing that Defendant MSI owed Plaintiffs a contractual duty to ‘determine the suitability of any investment recommendations and advice, ’ in accordance with the express terms of their Brokerage Agreement.” Id. at 1 (emphasis in original).

         LEGAL STANDARD

         Under Federal Rule of Civil Procedure (“Rule”) 56, summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Rule 56 provides for “partial summary judgment” where the movant seeks resolution of only portions of certain claims or defenses. Id. Material facts are those that “might affect the outcome of the suit.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id.

         The party seeking summary judgment bears the initial burden of “informing the district court of the basis for its motion, and identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, ’ which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

         DISCUSSION

         After reviewing the parties’ briefing, it was unclear to the Court whether the issue to be decided is as narrow as suggested by Plaintiffs’ motion. The motion requests a very narrow ruling: “Plaintiffs seek a ruling from this Court establishing that Defendant MSI owed Plaintiffs a contractual duty to ‘determine the suitability of any investment recommendations and advice, ’ in accordance with the express terms of their Brokerage Agreement.” Mot. at 1 (emphasis in original). But MSI admits the veracity of this narrow statement, as it agrees that “if MSI or one of its agents were to make investment recommendations or give investment advice to the Plaintiffs or the putative class members, then MSI and/or its agents would have a duty to make suitability determinations with respect to such recommendations or advice.” Opp’n at 4-5.

         What the parties do dispute, however, is whether the contractual duty created by the suitability clause extends to the investment advice Plaintiffs received from BEFC. See Reply at 1 (“MSI wants to exclude from its suitability duty all recommendations and advice that it received from MSI’s affiliated investment advisors.”); id. at 8 (“There is no language that excludes investment recommendations and advice from Thomas Bock, Mary Evans, or [BEFC].”); Opp’n at 1 (“Plaintiffs have not alleged, nor can they allege, that MSI actually made investment recommendations or gave investment advice relating to the Plaintiffs’ or the putative class members’ accounts.”); id. at 2 (“MSI has ...


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