Broker-Dealer Litigation - Greenberg Traurig LLP

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Haase v. GunnAllen Fin., Inc., 2011 WL 768045 (E.D. Mich. Feb. 28, 2011).
Plaintiffs filed a complaint against the stock broker and investment advisor (“Broker”)
who solicited them into investing in telecommunication companies that never existed. Plaintiffs
also named the securities broker-dealers that employed Broker as a registered representative.
One of the broker-dealer defendants (“BD”) filed a motion to dismiss the numerous claims filed
against it by plaintiff, including plaintiff’s common law causes of action against BD, which
consisted of: failure to supervise Broker, respondeat superior, apparent authority, negligence,
unjust enrichment, and breach of fiduciary duty. The court found that although failure to
supervise, respondeat superior, apparent authority, and negligence were stated as being grounded
in negligence, the claims were rooted in fraud. Because the court found that plaintiffs’ federal
fraud claims did not meet the heightened pleading standards, the court held that the plaintiffs’
common law claims rooted in fraud were also dismissed. The court held that the breach of
fiduciary duty claim must be dismissed because plaintiffs failed to show that the accounts
allegedly held by BD were discretionary. Under Michigan law, a fiduciary relationship only
arises between a broker and his client where the account is discretionary. The unjust enrichment
claim also failed because plaintiff did not establish: (1) the receipt of a benefit to BD from
plaintiff and (2) an equity resulting to plaintiff because of the retention of the benefit by BD.
Louisiana-Pacific Corp. v. Money Market 1 Institutional Investment Dealer, 2011 WL 1152568
(N.D. Cal. 2011).
Louisiana Pacific Corporation (“LP”) brought an action against Deutsche Bank Securities
Inc. (“DBSI”) for common law fraud, and against Money Market 1 Institutional Investment
Dealer (“MM1”) for common law fraud, common law negligent misrepresentation, and common
law breach of fiduciary duty. In its complaint, LP alleged that DBSI, in its capacity as sole
broker-dealer, placed support bids on Auction Rate Securities (“ARS”), which artificially
inflated their value. In addition, LP claimed that MM1, in its capacity as LP’s financial advisor
and broker-dealer, made representations that ARS were highly liquid and safe cash equivalents
that posed virtually no risk of principal loss. In reliance on MM1’s advice, LP invested more
than $300 million of its working capital in ARS. To successfully present a claim of common law
fraud under California law, a party must prove (1) misrepresentation, either false representation,
concealment, or nondisclosure; (2) knowledge of the falsity; (3) intent to defraud; (4) justifiable
reliance; and (5) resulting damage. Here, the court dismissed LP’s common law fraud claim
because it failed to establish scienter and justifiable reliance.
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