Summary
granting defendant bank's motion for summary judgment motion on plaintiff customer's negligence claim where agreement between bank and customer limited bank's duties and bank acted in accordance with agreement
Summary of this case from Fort v. SunTrust BankOpinion
Civil Action No. 6:01-2189-24
July 11, 2002
ORDER
Plaintiff Clyde E. Matkin brings this action against Defendant Fidelity National Bank alleging causes of action for: 1) negligence; 2) breach of fiduciary duty; 3) fraud, constructive fraud and fraudulent concealment; 4) violations of the South Carolina Securities Act; 5) civil conspiracy; and 6) violations of the Racketeer Influence and Corrupt Organization Act. Plaintiff seeks actual and punitive damages, costs, and attorney's fees.
This matter is before the court on Defendant's motion for summary judgment filed January 10, 2002. Plaintiff filed a memorandum in opposition to Defendant's motion on January 30, 2002, to which Defendant filed a response on February 5, 2002. Plaintiff filed a supplemental memorandum on June 3, 2002. The court heard arguments from the parties on June 4, 2002. Defendant filed a response to Plaintiffs supplemental memorandum on June 11, 2002. The court has thoroughly reviewed the pleadings, motions, memoranda, exhibits, depositions, and other documents submitted by the parties in support of their respective positions. The court concludes that Defendant's motion for summary judgment should be granted.
FACTS
The facts, as taken in the light most favorable to the non-moving party, are as follows:
In May 1998, Plaintiff was approached by Andrew Leventis, an attorney acquaintance, about an investment opportunity in a business enterprise known as "Cash-4-Titles" (Titles). Titles was developed as an entity engaged in the business of issuing short-term, high interest loans. See Matkin Depo. 34:16-25). Titles solicited contributions from individual investors in order to establish capital for the enterprise. (See id. at 35:13-21). In exchange for their investments, the individuals received returns at rates of at least twenty-four percent. See id. at 35:25-36:1-2).
Plaintiff had several conversations with Leventis regarding the investment opportunity during May 1998. (See id. at 34:1-4). In June 1998, Leventis requested Plaintiff to accompany him to Atlanta, Georgia to meet with Michael Gause, a principal of Titles, to discuss the investment opportunity. (See id. at 33:21-25). During this meeting, Gause and Leventis advised Plaintiff that Defendant was the only institution that could be used in conducting transactions to invest in Titles. (See id. at 37:3-15). According to Plaintiff, Gause explained that Titles encouraged investors to use Defendant in order to reduce the number of institutions to which interest payments were distributed. (See id.)
At the advice of Leventis, Plaintiff contacted Sythan Voun, an employee of Defendant's Individual Retirement Account (IRA) department. (See id. at 46:5-23). Plaintiff spoke with Voun on several occasions regarding the Titles enterprise. (See id. at 47:20-22). Voun advised Plaintiff that Defendant had a long-term relationship with Titles, and that Titles always submitted timely interest payments to investors. (See id. at 47:24-25-48:1-14). According to Plaintiff, Voun also stated that she would invest in Titles if she were financially able to do so, and that the investment opportunity appeared to be a "good deal" in her opinion. (See id. at 50:14-18).
Plaintiff deposited approximately $300,000 into a Self-Directed Individual Retirement Account (SDIRA) with Defendant in July 1998. (See id. at 58:15-22). The SDIRA was governed by a custodial agreement that designated Defendant to be the custodian of the account. After Plaintiffs funds were deposited in the SDIRA, Plaintiff completed an "Asset Purchase Form" that directed Defendant to wire the funds into certain designated accounts controlled by entities associated with Titles. (See Defendant's Memorandum in Support of Summary Judgment, Ex. A). Thereafter, Plaintiff began receiving interest payments that were deposited in his SDIRA. (See Matkin Depo. 59:16-25).
The Custodial Agreement provides in relevant part: "You agree that all contributions shall be invested according to your sole discretion . . . We shall not be responsible for any investment decisions or recommendations with respect to the investment, reinvestment, or sale of assets in the custodial account. We shall not be responsible for reviewing any assets in the custodial account and shall not be responsible for questioning any of your investment decisions. We shall not be responsible for any loss resulting from any failure to act because of the absence of directions from you.
In December 1998, Plaintiff was contacted by Robert Gaudette, an employee of Defendant's IRA department. (See id. at 71:21-25-72:1-4). Gaudette advised Plaintiff about the advantages of a Roth IRA and recommended that Plaintiff convert his SDIRA into a Roth SDIRA. (See id. at 72:16-25). Thereafter, Plaintiff converted his account with Defendant into a Roth SDIRA. (See id.)
Plaintiff received numerous interest payments on his investments in Titles until October 1999. On or about October 15, 1999, Leventis contacted Plaintiff and advised him that his funds had been lost. (See id. at 74:18-25). Leventis also advised Plaintiff that all funds associated with the Titles enterprise had been frozen by the Securities and Exchange Commission, and that Gause had been arrested. (See id. at 75:5-9). This lawsuit followed.
I. Summary judgment standard
Defendant has moved for summary judgment pursuant to Rule 56, FRCP. Summary judgment "shall be rendered forthwith when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Rule 56(c), FRCP.
The court's duty in deciding a motion for summary judgment "is not . . . to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The party moving for summary judgment must demonstrate a lack of sufficient evidence while the non-moving party must set forth "specific facts showing that there is a genuine issue of material fact for trial." Rule 56(e), FRCP. For the evidence to present a genuine issue of material fact, it must be "such that a reasonable jury could return a verdict for the non-moving party."Anderson, 477 U.S. at 248.
An issue of fact is "material" only if establishment of the fact might affect the outcome of the lawsuit under the governing substantive law. See id. "[A] complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial."Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Production of a "mere scintilla of evidence" in support of an essential element will not prevent the court from granting a properly supported motion for summary judgment. Anderson, 477 U.S. at 251.
The court must determine "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52. Summary judgment should be granted in those cases in which it is perfectly clear that no genuine issue of material fact remains unresolved and inquiry into the facts is unnecessary to clarify the application of the law. See McKinney v. Bd. of Trustees, 955 F.2d 924, 928 (4th Cir. 1992).
A. Negligence
Plaintiff alleges that Defendant was negligent in allowing the funds in the SDIRA account to be invested in the Titles pyramid scheme. In order to establish negligence, a plaintiff must show: 1) a duty of care; 2) a breach of that duty by a negligent act or omission by a defendant; and 3) injury or damages proximately cause by the breach. See Doe v. Batson, 548 S.E.2d 854, 857 (S.C. 2001). The elements of proximate cause are legal cause and causation in fact. See Small v. Pioneer Machinery, Inc., 494 S.E.2d 835, 842 (S.C.Ct.App. 1998). A plaintiff must establish foreseeability to prove legal cause. See id. Causation in fact is established by showing that the injury complained of would not have occurred "but for" the negligence of the defendant. See id. Under South Carolina law, a plaintiff is required to show that the injury complained of occurred as a natural consequence of the defendant's act in order to prove proximate cause. See id. at 843.
Defendant contends that Plaintiffs negligence cause of action is without merit because the parties' relationship was governed exclusively by the custodial agreement. See, e.g., Pilot Industries v. Southern Bell Tel. Tele. Co., 495 F. Supp. 356 (D.S.C. 1979) (no recovery for negligence because defendant's duties limited by valid contractual agreement). Defendant also argues that it did not breach any of the limited duties imposed by the custodial agreement. Plaintiff responds that 26 U.S.C. § 408 imposes a statutory duty of care on Defendant that is independent of the custodial agreement. The court agrees with Defendant.
Section 408 does not impose a specific duty of care on an IRA custodian to prevent a customer from making unwise investment decisions. Plaintiff has failed to demonstrate that the appearance of the term "trustee" in § 408(h) supersedes the custodial agreement and imposes a duty of care on Defendant beyond properly maintaining the SDIRA. The custodial agreement clearly provides that Defendant maintained the SDIRA solely as a custodian, and did not undertake any other obligations with respect to Plaintiffs investment decisions. The court finds that Plaintiff has failed to set forth specific factual support for his position that Defendant breached a duty of care to protect his SDIRA funds. Defendant's motion is granted as to the negligence cause of action.
Section 408(h) provides that an IRA custodian is required to exercise the duties of a "trustee" in maintaining the IRA.
B. Breach of Fiduciary Duty
Plaintiff next alleges that Defendant breached its fiduciary duty with respect to the SDIRA. Defendant contends that no fiduciary relationship existed between the parties because the custodial agreement designated Defendant to act only as a custodian of the SDIRA. A confidential or fiduciary relationship exists when a party reposes a special confidence in another, so that the latter is bound to act in good faith and with due regard to the interest of the party imposing the confidence. See Island Car Wash. Inc. v. Norris, 358 S.E.2d 150, 152 (S.C.Ct.App. 1987). The facts and circumstances must indicate that the party reposing the trust has a foundation for his belief that the other party is acting not in its own behalf, but in the interests of the other party. See Burwell v. South Carolina Nat'l Bank, 340 S.E.2d 786, 790 (S.C. 1986).
A bank-depositor relationship may become a fiduciary relationship if the bank exceeds that scope of the contract and undertakes the responsibility of advising the customer as part of the relationship. See id. However, a party cannot impose a fiduciary duty through its own unilateral action. See Steele v. Victory Sav. Bank, 368 S.E.2d 91, 94 (S.C.Ct.App. 1987).
In the present case, Plaintiff argues that Voun's casual responses to several questions demonstrate Defendant's acceptance of a fiduciary role with respect to Plaintiffs SDIRA. Plaintiff contends that Voun's comment that the Titles investment appeared to be a good deal in her opinion exceeded the scope of Defendant's custodian role and converted the parties' relationship into a fiduciary relationship. As stated previously, the custodial agreement limited Defendant's obligations and duties to Plaintiff. There is no indication that Defendant accepted any other responsibility with regard to the SDIRA or Plaintiffs investment decisions. The court finds that Voun's comments are insufficient to establish that Defendant exceeded its limited role as a custodian of the SDIRA. Defendant's motion for summary judgment is granted as to this cause of action.
C. Fraud, Constructive Fraud, Fraudulent Concealment
Plaintiff alleges in the third cause of action that Defendant fraudulently represented and concealed the nature of the Titles enterprise in order to induce Plaintiff to invest his funds. In order to establish an action for fraud based on a representation, Plaintiff must prove: "(1) a representation; (2) falsity; (3) its materiality; (4) knowledge of the falsity or a reckless disregard of its truth or falsity; (5) intent that the representation be acted upon; (6) the hearer's ignorance of its falsity; (7) the hearer's reliance upon the truth; (8) the hearer's right to rely thereon; and (9) the hearer's consequent and proximate injury." Moorhead v. First Piedmont Bank Trust Co., 256 S.E.2d 414, 416 (S.C. 1979) (quoting O'Shields v. S. Fountain Mobile Homes, 204 S.E.2d 50 (S.C. 1974)). To establish constructive fraud, Plaintiff must establish all the elements of actual fraud except the element of intent. O'Quinn v. Beach Associates, 249 S.E.2d 734, 737 (S.C. 1978).
A failure to disclose also can create liability for fraud where there is a duty to disclose. See Landvest v. Owens, 274 S.E.2d 433, 434 (S.C. 1981). The law of South Carolina indicates three instances where there is a duty to disclose: "(1) where it arises from a preexisting definite fiduciary relation between the parties; (2) where one party expressly reposes a trust and confidence in the other with reference to the particular transaction in question, or else from the circumstances of the case, the nature of their dealings, or their position towards each other, such a trust and confidence in the particular case is necessarily implied; or (3) where the very contract or transaction itself, in its essential nature, is intrinsically fiduciary and necessarily calls for perfect good faith and full disclosure without regard to any particular intention of the parties." Kiriakides v. Atlas Food Sys. Services, Inc., 527 S.E.2d 371, 379 (S.C.Ct.App. 2000).
Plaintiff again argues that Defendant's liability is based on Voun's comment that the Titles investment appeared to be a good deal. However, "[t]here is no liability for casual statements, representations as to matters of law, or matters which plaintiff could ascertain on his own in the exercise of due diligence." AMA Mgmt Corp. v. Strasburger, 420 S.E.2d 868, 874 (S.C.Ct.App. 1992). Reliance can be justified only if the relationship of the parties is such that the defendant occupies a superior position to the plaintiff with respect to knowledge of the truth of the representation. See O.C. Gruber v. Santee Frozen Foods, Inc., 419 S.E.2d 795, 799 (S.C.Ct.App. 1992). In this case, Plaintiff has failed to establish a genuine issue of material fact indicating that Defendant had knowledge of the Titles pyramid scheme, or occupied a superior position that would allow Defendant to have knowledge of the pyramid scheme.
Plaintiff also contends that Leventis, acting as an apparent agent of Defendant, made numerous fraudulent representations to Plaintiff regarding the Titles investment. Apparent agency is established based on the principal's manifestations of authority to a third party. See Beasley v. Kerr-McGee Chem. Corp., Inc., 257 S.E.2d 726 (S.C. 1979). The conduct of the alleged agent is not sufficient to establish apparent agency. See Frasier v. Palmetto Homes, 473 S.E.2d 865 (S.C. 1996). However, apparent authority may exist where the principal passively permits the agent to appear to a third person to have authority to act on behalf of the principal. See R G Constr., Inc. v. Lowcountry Reg'l Transp. Auth., 540 S.E.2d 113, 118 (S.C.Ct.App. 2000) (citing Genovese v. Bergeron, 490 S.E.2d 608 (S.C.Ct.App. 1997).
Generally, agency is a question of fact to be resolved by a jury. See id. (citing Gathers v. Harris Teeter Supermarket, 317 S.E.2d 748 (S.C.Ct.App. 1984)). In the present case, Plaintiff argues that Leventis was acting as an agent of Defendant. Plaintiff contends that Leventis received forms and documents from Defendant in bulk quantities for the purpose of assisting individuals such as Plaintiff with opening accounts with Defendant. According to Plaintiff, Leventis' conduct in advising him about the Titles investment and assisting him with establishing the SDIRA with Defendant caused Plaintiff reasonably to believe that Defendant consented to Leventis' acting on its behalf. The court disagrees.
Leventis himself testified that he never provided any forms to Plaintiff pursuant to an agreement with Defendant. See Leventis Depo. 50:14-25 — 51:1-15). The fact that Leventis received and possessed a large quantity of uncompleted forms is insufficient to establish that Leventis exhibited "a pretense of authority" to act on Defendant's behalf. See R G Constr., Inc., 540 S.E.2d at 118 (citing Fernander v. Thigpen, 293 S.E.2d 424 (S.C. 1982)). Moreover, there is no indication that Defendant sent Leventis any documents or forms with the knowledge that Leventis was purporting to act on Defendant's behalf. Plaintiff has failed to demonstrate a manifestation of authority by Defendant to Plaintiff. The court finds that no reasonable jury would conclude that Leventis acted as an agent of Defendant. Accordingly, the court grants Defendant summary judgment on Plaintiffs fraud, constructive fraud, and fraudulent concealment cause of action.
D. South Carolina Securities Act
Plaintiff contends that Defendant violated S.C. Code Ann. §§ 35-1-1490 and 1500 through its alleged involvement with the Titles pyramid scheme. Section 35-1-1490 imposes liability upon any person or entity that sells a security by means of an untrue statement. Section 39-1-1500 creates derivative liability for a seller's violation of § 39-1-1490. Defendant argues that it neither sold Plaintiff any securities, nor assisted any party in selling securities to Plaintiff. Plaintiff has failed to submit a response to Defendant's argument with respect to this cause of action. Accordingly, the court grants Defendant summary judgment on Plaintiffs South Carolina Securities Act cause of action.
E. Civil Conspiracy
In order to support a claim of civil conspiracy, Plaintiff must prove: (1) a combination of two or more parties, (2) for the purpose of injuring Plaintiff, (3) which causes special damages to Plaintiff. See Vivens v. Walkins, 437 S.E.2d 132, 136 (S.C.Ct.App. 1993). Plaintiff argues that Leventis' involvement with Defendant in setting up the SDIRA leads to an inference that Leventis and Defendant conspired to procure customers to invest in Titles with the knowledge that the investment was unlawful. However, Plaintiff has failed to submit sufficient evidence to support his claim that Defendant conspired with Leventis for the purpose of injuring Plaintiff. The court finds that any inference of a conspiracy is discredited by Leventis' testimony that there was no agreement between himself and Defendant with respect to the Titles investment. (See Leventis Depo. 51:2-18). Accordingly, the court grants Defendant summary judgment on this cause of action.
F. Civil RICO
Plaintiff alleges that Defendant is subject to Civil RICO liability under 18 U.S.C. § 1962. Civil RICO liability arises when a party engages in a pattern of racketeering activity, the income from which is used in connection with the acquisition of an interest in or the establishment or operation of an enterprise or which conducts its affairs through such a pattern of racketeering activity. See 18 U.S.C. § 1962(c).
Plaintiff contends that Leventis and Defendant committed Civil RICO violations each time they permitted an individual to invest funds in the Titles enterprise. However, there are no facts demonstrating a pattern of racketeering activity, nor has Plaintiff established that Defendant used funds from any IRA to engage in a pattern of racketeering activity. As stated above, there is insufficient evidence to establish any agreement between Defendant and Leventis. The court finds that Plaintiff has failed to establish a genuine issue of material fact with respect to the alleged Civil RICO violations. Accordingly, the court grants Defendant summary judgment on this cause of action.
CONCLUSION
For the reasons set forth herein, IT IS HEREBY ORDERED that Defendant's motion for summary judgment be granted.