The Investors’ Control of Their Investment Advisers. Who Has the Final Word?

TAMAR FRANKEL

BU Law emerita professor Tamar Frankel discusses an emerging issue affecting financial advisers—when a client may exercise control over the actions of the adviser. Frankel relates the story of an investment adviser that did not follow the client’s orders to cease certain investments, at a cost of almost $5 million to the client. As Frankel explains, the Securities and Exchange Commission (SEC) got involved, resulting in the investment adviser’s settlement for a significant payment to the client and other conditions.

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Alpern v. Ferebee

Court: US Court of Appeals for the Tenth Circuit

Docket: 19-1086

Opinion Date: February 7, 2020

Judge: Gregory Alan Phillips

Areas of Law: Environmental Law, Government & Administrative Law, Zoning, Planning & Land Use

Thomas Alpern claimed the United States Forest Service improperly charges him a fee when he entered Maroon Valley to park and hike. He cited an provision of the Federal Lands Recreation Enhancement Act (REA) he claimed prohibited charging a fee "solely for parking." He argued that this prohibition overrode another REA provision that allowed agencies to charge a fee when certain listed amenities were present, like picnic tables, security patrols, trash bins, and interpretive signs. The Tenth Circuit disagreed, finding section 6802(d)(1)(A) prohibited charging fees “[s]olely for parking . . . along roads or trailsides[,]” something Alpern did not do. The Court found Alpern parked in a developed parking lot featuring all the amenities listed in section 6802(f)(4), not along a road or trailside. So it affirmed the district court’s decision to reject Alpern’s as-applied challenge to the Maroon Valley fee program.

Fowler v. City of Lafayette

Court: California Courts of Appeal

Docket: A156525(First Appellate District)

Opinion Date: February 10, 2020

Judge: Tucher

Areas of Law: Real Estate & Property Law, Zoning, Planning & Land Use

The application called for a “tennis cabaña” with a guest room and bathroom, next to a tennis court on a 2.38-acre residential property. Neighbors objected that the cabaña was inconsistent with the neighborhood; was too close to an adjacent home: was an illegal second unit; violated a landscape condition imposed when the tennis court was approved; was too large, too close to neighboring residences; was inconsistent with the general plan and municipal code; that the hearing notices violated the Brown Act; and that the applicants had an unfair advantage because their architect was a Planning Commission member. The applicants cut the size to 1,100 square feet and increased the distance from the cabaña to a neighboring project, and improved landscaping. The Commission approved the project subject to conditions, including a landscape agreement and the prohibition on use as a secondary dwelling unit. The City Council denied an appeal. While approval was pending, the applicants’ attorney threatened to sue if the city denied the project; the Council discussed the threat of litigation during closed sessions. That a threat of litigation had been made was not noted in the agenda for any of the public meetings. Plaintiffs did not learn about the litigation threat or the discussions until after the project had been approved. The court of appeal affirmed. While the city improperly considered the application in closed sessions in violation of Gov. Code 54950 (Brown Act), there was no prejudice.

Herpel v. County of Riverside

Court: California Courts of Appeal

Docket: E070618(Fourth Appellate District)

Opinion Date: February 10, 2020

Judge: Raphael

Areas of Law: Government & Administrative Law, Native American Law, Tax Law, Zoning, Planning & Land Use

At issue before the Court of Appeal was whether Riverside County, California could impose a tax on possessory interests in federally owned land set aside for the Agua Caliente Band of Cahuilla Indians or its members. In 1971, Court held that it could, holding in part that federal law did not preempt the tax. The tax was also upheld that year by the Ninth Circuit. Since then, the United States Supreme Court articulated a new preemption framework in considering whether states may tax Indian interests, and the Department of the Interior promulgated new Indian leasing regulations, the preamble of which stated that state taxation was precluded. Nevertheless, the Court of Appeal concluded, as it did in 1971, this possessory interest tax was valid.

State Water Resources Control Bd. v. Baldwin & Sons, Inc.

Court: California Courts of Appeal

Docket: D075617(Fourth Appellate District)

Opinion Date: February 10, 2020

Judge: Guerrero

Areas of Law: Civil Procedure, Environmental Law, Government & Administrative Law, Zoning, Planning & Land Use

Appellants Baldwin & Sons, Inc.; Baldwin & Sons, LLC; Sunranch Capital Partners, LLC; USA Portola Properties, LLC; Sunrise Pacific Construction; USA Portola East, LLC; USA Portola West, LLC; and SRC-PH Investments, LLC, all appealed an order compelling compliance with administrative subpoenas issued by the State Water Resources Control Board. Appellants were involved (or believed to be involved) in the construction of a large-scale development in the Portola Hills Community in Lake Forest, California. The State Board initiated an investigation into alleged violations of the federal Clean Water Act and California's Porter-Cologne Water Quality Control Act occurring during construction activities. In connection with its investigation, the State Board issued subpoenas seeking Appellants' financial records. When Appellants refused to produce the requested financial records, the State Board sought a court order compelling compliance with the subpoenas. With the exception of tax returns, the trial court concluded that the information sought was relevant to the State Board's investigation and subject to disclosure pursuant to the investigative subpoenas. Appellants argued on appeal: (1) their financial records were not reasonably relevant to the State Board's investigation; (2) compelling production of their financial records violated their right to privacy; and (3) the protective order did not adequately protect against disclosure of their private financial information to third parties. The Court of Appeal rejected these claims and affirmed the challenged order compelling production of the Appellants' financial records subject to a protective order.

City of Atlanta v. Atlanta Indep. Sch. Sys.

Court: Supreme Court of Georgia

Docket: S19A1203

Opinion Date: February 10, 2020

Judge: Robert Benham

Areas of Law: Constitutional Law, Government & Administrative Law, Zoning, Planning & Land Use

City of Atlanta (“the City”) and the Atlanta Independent School System (“APS”) were involved in a dispute over the City’s annexing property in Fulton County, while it expressly prohibiting the co-expansion of APS’s territory. The Georgia Supreme Court granted the City’s application for interlocutory appeal challenging the trial court’s denial of its motion to dismiss. The Court concluded this matter did not amount to an actual, justiciable controversy; consequently, it vacated the trial court’s order and remanded for this case to be dismissed by the trial court. “These parties have appeared before this Court numerous times, and the instant dispute is part of a larger, ongoing disagreement between the City and APS. … Mere disagreement about the 'abstract meaning or validity of a statute [or ordinance]’ does not constitute an actual controversy within the meaning of the Declaratory Judgment Act. … APS has failed to establish the existence of an actual controversy, for purposes of declaratory relief, because it has failed to demonstrate that a ruling in its favor would have any immediate legal consequence.”