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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UGI Sunbury LLC v. Permanent Easement for 1.7575 Acres

Court: US Court of Appeals for the Third Circuit

Docket: 18-3126

Opinion Date: February 11, 2020

Judge: Matey

Areas of Law: Civil Procedure, Energy, Oil & Gas Law, Real Estate & Property Law

UGI builds natural gas pipelines. It obtained authorization to construct and operate an underground pipeline along 34.4 miles of land in Pennsylvania under the Natural Gas Act, 15 U.S.C. 717, The Landowners rejected UGI’s offers of compensation for rights of way, so UGI sought orders of condemnation. UGI prevailed; only the amount of compensation remained. The Landowners’ expert set the before-taking value of the land by comparing properties in the area and estimating what each is worth relative to the market but, in estimating the post-taking property values, the expert relied on his own “damaged goods theory,” drawing on his experience working in his grandfather’s appliance shop. The expert cited the impact on real estate values from the Three Mile Island nuclear incident in 1979, the Exxon Valdez Alaskan oil spill in 1989, and assorted leaking underground storage tanks. The expert’s reports contain no data relating to those incidents. The district court agreed “that some form of 'stigma’ attaches to the property as a whole” and adjusted the awards accordingly. The Third Circuit vacated. Rule 702 requires reliable expert testimony that fits the proceedings. The expert testimony presented by the Landowners bound only to speculation and conjecture, not good science or other “good grounds.”

Constellation-F, LLC v. World Trading 23, Inc.

Court: California Courts of Appeal

Dockets: B293033(Second Appellate District) , B293883(Second Appellate District)

Opinion Date: February 7, 2020

Judge: Wiley

Areas of Law: Landlord - Tenant, Real Estate & Property Law

This case arose when Constellation filed an unlawful detainer action against World Trading, which Constellation then converted to a damages action against World Trading and World Tech Toys for breach of contract. Constellation sought damages for past-due rent, late fees, interest, failure to maintain and repair, costs incurred by not being able to use the premises, and holdover rent. The Court of Appeal held that the trial court erred by ruling that the commercial holdover provision was an unlawful penalty. Rather, the commercial holdover provision was valid and Constellation was entitled to enforce it against World Trading. The court upheld the trial court's finding that World Tech was not jointly and severally liable as an alter ego of World Trade and remanded Constellation's estoppel and agency arguments for the trial court to decide. The court directed the trial court to include the $1,000 sanctions in the final judgment. The court otherwise affirmed the judgment and dismissed World Trading and World Tech's cross-appeal.

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.

Soto v. Union Pacific Railroad Co.

Court: California Courts of Appeal

Docket: B289712(Second Appellate District)

Opinion Date: February 13, 2020

Judge: Dennis M. Perluss

Areas of Law: Civil Procedure, Personal Injury, Real Estate & Property Law, Transportation Law

Irma Yolanda Munoz Soto sued Union Pacific Railroad Company and two of its employees, Scott King and Robert Finch (collectively, Union Pacific), for wrongful death (premises liability and general negligence) after Soto’s 16-year-old daughter was struck and killed by a freight train on an at-grade railroad crossing in Santa Clarita. The court granted Union Pacific’s motion for summary judgment, concluding as to Soto’s premises liability claim Union Pacific had no duty to remedy a dangerous condition because it did not own or control the railroad crossing. As to Soto’s negligence claim, the court ruled Soto could not establish that Union Pacific employees had negligently operated the train. On appeal, Soto argued she raised triable issues of material fact sufficient to defeat summary judgment. After review, of the evidence and governing law applicable to Soto’s claim, the Court of Appeal concurred there were no triable issues of fact, and summary judgment was appropriate.

Standard Water Control Systems, Inc. v. Jones

Court: Iowa Supreme Court

Docket: 17-2009

Opinion Date: February 7, 2020

Judge: Edward M. Mansfield

Areas of Law: Construction Law, Real Estate & Property Law

In this dispute over Contractor's attorney fees the Supreme Court affirmed the judgment of the district court finding that Homeowners waived their assertion that including attorney fees in a mechanic's lien foreclosure decree violated their homestead rights, holding that Homeowners needed to raise their homestead exemption before the district court entered the foreclosure decree. This appeal stemmed from a judicial determination that Homeowners had to pay most of Contractor's unpaid bill and that Contractor was entitled to foreclosure of its mechanic's lien. Later, a revised decree was entered granting Contractor the right to foreclose a mechanic's lien against the property both for the principal amount due and for the attorney fees. When a second sheriff's sale of the residence was impending, Homeowners, for the first time, asserted that including attorney fees in the mechanic's lien foreclosure decree violated their homestead rights. The judicial court found a waiver by Homeowners. The Supreme Court affirmed, holding (1) attorney fees can be recovered in a mechanic's lien foreclosure action against the homestead; and (2) the district court correctly found that principles of res judicata and waiver barred Homeowners' assertion of a homestead exemption.

Inland Edinburgh Festival, LLC v. County of Hennepin

Court: Minnesota Supreme Court

Docket: A19-0567

Opinion Date: February 12, 2020

Judge: G. Barry Anderson

Areas of Law: Real Estate & Property Law, Tax Law

In this appeal from the tax court's conclusion that the market value of Relator's two parcels of improved real estate was higher than the initial assessment value determined by Hennepin County or the valuation opinion presented by the sole appraiser to testify at trial the Supreme Court reversed in part the tax court, holding that the tax court erred in its valuation determination under the sales comparison approach. Relator sought review of Hennepin County's assessed value of $8,384,300 for Relator's retail shopping center property as of January 2, 2015. After a trial, the tax court gave a final valuation determination for the property of $8,461,400. Relator appealed, arguing that the tax court's value determination was excessive. The Supreme Court affirmed in part and reversed in part, holding (1) the tax court did not err in its decision to afford no weight to Relator's expert's opinion on the income approach; but (2) the tax court erred in its valuation determination based on the sales-comparison approach.

Kucera v. Billings

Court: Montana Supreme Court

Citation: 2020 MT 34

Opinion Date: February 11, 2020

Judge: Mike McGrath

Areas of Law: Real Estate & Property Law

The Supreme Court affirmed the order of the district court granting summary judgment for the City of Billings and Jon Does 1-10, thus dismissing Plaintiff's claims for negligence and nuisance, holding that Plaintiff's claims were barred by judicial estoppel. Plaintiff presented a claim to the City for damages to his home from a City water line break. The City denied Plaintiff's claim. Plaintiff then filed a petition for relief under Chapter 13 of the United States Bankruptcy Code. Plaintiff, however, failed under penalty of perjury to disclose potential claims against the City on his bankruptcy petition. After the City denied his claim, Plaintiff filed his complaint against the City for negligence, nuisance, and inverse condemnation seeking compensatory damages caused by the water leak. The City filed a motion for summary judgment for all three claims. Plaintiff conceded judgment on the inverse condemnation claim but contested judgment on his nuisance and negligence claims. The district court granted summary judgment for the City, determining that Plaintiff's claims were barred by judicial estoppel. The Supreme Court affirmed, holding that because Plaintiff did not disclose his potential claims against the City on his bankruptcy petition or anytime during the duration of the bankruptcy, Plaintiff's negligence and nuisance claims were barred by judicial estoppel.

Reese v. Reese-Young

Court: North Dakota Supreme Court

Citation: 2020 ND 35

Opinion Date: February 12, 2020

Judge: Gerald W. VandeWalle

Areas of Law: Civil Procedure, Energy, Oil & Gas Law, Real Estate & Property Law

Cheryl Reese appealed an amended judgment entered after the district court granted summary judgment deciding ownership of certain mineral interests and the right to receive the mineral royalties and bonus payments. In 2005, Dennis Reese and Tia Reese-Young, who both owned an interest in the minerals at the time, entered into an oil and gas lease for the property. After several conveyances, Dennis and Cheryl Reese owned a 12.5% interest in the minerals as joint tenants, and Reese-Young owned a 12.5% interest in the minerals as a tenant in common with Dennis and Cheryl. In July 2008, Dennis and Cheryl conveyed their 12.5% interest to Reese-Young by quit claim deed and reserved a life estate interest in the minerals. Dennis died in September 2008. In 2017, Cheryl sued Tia Reese-Young to quiet title and for declaratory judgment determining that Cheryl was the sole remaining life tenant in the property and that she was entitled to all of the proceeds to be derived from the minerals during her lifetime. Reese-Young argued the deed creating the life estate in Cheryl Reese did not explicitly reserve to Cheryl Reese an interest in the royalties, the deed was unambiguous, there were no disputed issues of material fact, and Tia Reese-Young is entitled to all of the income derived from the oil and gas production as a matter of law. Cheryl argued the unambiguous language of the deed established she reserved a life estate in the minerals and she was entitled to receive the royalty payments under the open mines doctrine because an oil and gas lease had been executed and oil and gas were being produced before the life estate was created. When the district court ruled in favor of Reese-Young, Cheryl appealed. After review, the North Dakota Supreme Court concluded as a matter of law, Cheryl was entitled to the proceeds from the oil and gas production, including the royalties and bonus payments, and she was not required to hold the proceeds in trust for Reese-Young. Judgment was reversed.

St. John Missionary Baptist Church v. Flakes

Court: Supreme Court of Texas

Docket: 18-0513

Opinion Date: February 7, 2020

Judge: Per Curiam

Areas of Law: Civil Procedure, Real Estate & Property Law

The Supreme Court reversed the judgment of the court of appeals ruling that, where the trial court granted a motion to dismiss without specifying the ground for its decision, the court of appeals did not have authority to order supplemental briefing but was instead required to affirm because of Appellants' failure to brief all possible grounds for the trial court's decision, holding that the court of appeals had the authority to order supplemental briefing. In this dispute over church assets, Appellees filed a motion to dismiss and a plea to the jurisdiction based on both standing and the ecclesiastical abstention doctrine. The trial court granted the motion but did not specify the grounds for its decision. Appellants appealed, but the appellate brief only addressed the standing issue. The court of appeals affirmed, holding that it lacked the authority to order supplemental briefing on the ecclesiastical abstention issue and was bound to affirm the trial court because Appellants failed to challenge all possible bases for the decision. The Supreme Court reversed, holding that because Appellants effectively raised the ecclesiastical abstention issue in their appellate briefing, the court of appeals had the authority to order additional briefing under Tex. R. App. P. 38.9.