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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United States v. Grayson Enterprises, Inc.

Court: US Court of Appeals for the Seventh Circuit

Docket: 19-1367

Opinion Date: February 12, 2020

Judge: St. Eve

Areas of Law: Business Law, Criminal Law, Immigration Law, White Collar Crime

Grayson does business under the name Gire Roofing. Grayson and Edwin Gire were indicted for visa fraud, 18 U.S.C. 1546 and harboring and employing unauthorized aliens, 8 U.S.C. 1324(a)(1)(A)(iii). On paper, Gire had no relationship to Grayson as a corporate entity. He was not a stockholder, officer, or an employee. He managed the roofing (Grayson’s sole business), as he had under the Gire Roofing name for more than 20 years. The corporate papers identified Grayson’s president and sole stockholder as Young, Gire’s girlfriend. Gire, his attorney, and the government all represented to the district court that Gire was Grayson’s president. The court permitted Gire to plead guilty on his and Grayson’s behalf. Joint counsel represented both defendants during a trial that resulted in their convictions and a finding that Grayson’s headquarters was forfeitable. Despite obtaining separate counsel before sentencing, neither Grayson nor Young ever complained about Gire’s or prior counsel’s representations. Neither did Grayson object to the indictment, the plea colloquy, or the finding that Grayson had used its headquarters for harboring unauthorized aliens. The Seventh Circuit affirmed. Although Grayson identified numerous potential errors in the proceedings none are cause for reversal. Grayson has not shown that it was deprived of any right to effective assistance of counsel that it may have had and has not demonstrated that the court plainly erred in accepting the guilty plea. The evidence is sufficient to hold Grayson vicariously liable for Gire’s crimes.

Johnson v. Charps Welding & Fabricating, Inc.

Court: US Court of Appeals for the Eighth Circuit

Dockets: 18-3007, 19-1206

Opinion Date: February 7, 2020

Judge: William Duane Benton

Areas of Law: Business Law, ERISA

Trustees of three employee benefit funds filed suit against Charps and others, alleging that defendants breached collective bargaining agreements by not contributing to the employee benefit funds for work performed by the affiliates, in violation of the Employee Retirement Income Security Act (ERISA). The district court granted summary judgment to defendants, awarding them attorney's fees and costs. The Eighth Circuit held that defendants did not owe contributions for the affiliates' work where the trustees have not shown a genuine issue that the defendant companies formed a relationship of alter ego, joint venture, or joint enterprise. Furthermore, the collective bargaining agreements did not require defendants to contribute for the work of Charps' affiliates. The court also held that the trustees did not meet their burden in opposing summary judgment on their claim that the district court failed to address Charps' liability for contributions based on its own employees' work, and the district court did not abuse its discretion in denying, as duplicative, the trustees' motion to compel production of the spreadsheets. Accordingly, the court affirmed the judgment in 18-3007, but reversed and remanded in 19-1206. On remand, the district court should award costs that are taxable under 28 U.S.C. 1821 and 1920. In regard to the nontaxable costs, the district court may determine whether they may be awarded as attorney's fees.

Warner W. Wiggins v. Warren Averett, LLC

Court: Supreme Court of Alabama

Docket: 1170943

Opinion Date: February 7, 2020

Judge: Greg Shaw

Areas of Law: Arbitration & Mediation, Business Law, Contracts, Professional Malpractice & Ethics

Plaintiff Warner Wiggins appeals a circuit court's order compelling him to arbitrate his claims against Warren Averett, LLC. Warren Averett was an accounting firm. Eastern Shore Children's Clinic, P.C. ("Eastern Shore"), a pediatric medical practice, was a client of Warren Averett. In September 2010, while Wiggins, who was a medical doctor, was a shareholder and employee of Eastern Shore, Warren Averett and Eastern Shore entered an agreement pursuant to which Warren Averett was to provide accounting services to Eastern Shore ("the contract"). The contract contained an arbitration clause. Thereafter, Wiggins and Warren Averett became involved in a billing dispute related to the preparation of Wiggins's personal income-tax returns. In 2017, Wiggins filed a single-count complaint alleging "accounting malpractice" against Warren Averett. Warren Averett filed an answer to Wiggins's complaint, asserting, among other things, that Wiggins's claims were based on the contract and were thus subject to the arbitration clause. A majority of the Alabama Supreme Court concluded the determination of whether Wiggins' claims were covered under the terms of the arbitration clause was delegated to an arbitrator to decide. Therefore, it affirmed the trial court's order.

Smith v. Kelley

Court: Massachusetts Supreme Judicial Court

Docket: SJC-12759

Opinion Date: February 11, 2020

Judge: Kafker

Areas of Law: Business Law

In this case involving a final judgment entered against a professional corporation for the fraudulent activity of one of its associates, the Supreme Judicial Court held that, in the unique circumstances of this case, Plaintiff, who was defrauded by the associate, may pursue successor liability against the sole proprietorship of Defendant, the sole shareholder and officer of the professional corporation. Plaintiff was defrauded by the corporation's associate in a mortgage scam. Defendant was the sole shareholder and officer of the corporation, RKelley-Law, P.C. (the P.C.). After the entry of final judgment against the P.C. Defendant voted to wind up the corporation and, that same day, began operating his law practice as a sole proprietorship. Thereafter, the P.C. was placed into bankruptcy proceedings. Because the P.C. had no assets, Plaintiff sought to recover from Defendant personally. The district court granted summary judgment in favor of Defendant, concluding that the doctrine of successor liability could not be applied where the successor in interest was a natural person rather than a corporate entity. The court of appeals affirmed. The Supreme Judicial Court reversed, holding that because Defendant's sole proprietorship was a mere continuation of the former professional corporation Plaintiff may pursue successor liability against the proprietorship.

State ex rel. Kerr v. Collier

Court: Supreme Court of Ohio

Citation: 2020-Ohio-457

Opinion Date: February 13, 2020

Judge: Per Curiam

Areas of Law: Business Law, Civil Procedure

The Supreme Court affirmed the judgment of the court of appeals dismissing Appellant's complaint for a writ of prohibition and dismissed as moot the motions Appellant filed in connection with the complaint, holding that the court of appeals correctly dismissed the complaint. In his complaint, Appellant sought to vacate charging orders and receivership orders concerning his membership interests in two limited liability companies, asserting that the orders exceeded the authority of Henry County Court of Common Pleas Judge John Collier. The court of appeals dismissed the complaint, concluding that Judge Collier did not patently and unambiguously lack jurisdiction to enter a charging order or to appoint a receiver. The Supreme Court affirmed, holding that because Judge Collier had subject matter jurisdiction to enter a charging order and to appoint a receiver, Appellant did not show that the judge patently and unambiguously lacked jurisdiction.