Citations
- 756 F. Supp. 2d 1053
Full opinion text
MEMORANDUM OPINION AND ORDER REGARDING CROSS-MOTIONS FOR SUMMARY JUDGMENT
MARK W. BENNETT, District Judge.
TABLE OF CONTENTS
I.INTRODUCTION.........................................................1057
A. Factual Background..................................................1057
B. Procedural Background...............................................1059
II.LEGAL ANALYSIS.......................................................1063
A. Standards For Summarg Judgment....................................1063
B. Timeliness Of The McGraws’ Claims...................................1064
1. Arguments of the parties..........................................1064
2. Analysis.........................................................1064
C. The Theory Or Theories Of Liability...................................1066
D. Direct Liability Claims...............................................1068
1. Necessity of expeH testimony......................................1069
a. Arguments of the parties......................................1069
b. Analysis.....................................................1070
2. Duty to non-customers............................................1071
a. Arguments of the parties......................................1071
b. Analysis..........!...........................................1072
3. Duty and breach..................................................1073
a. Arguments of the parties......................................1073
b. Analysis.....................................................1074
i. The duty to monitor ......................................1074
ii. Fiduciary duty...........................................1077
4. Summary........................................................1078
E. Vicarious Liability Claims............................................1078
1. Loveyren’s apparent authority.....................................1079
a. Arguments of the parties......................................1079
b. Analysis.....................................................1080
i. Liability based on employment or agency...................1080
ii. Lovegren’s apparent authority.............................1082
2. Existence and breach of Loveyren’s underlying duties ...............1083
a. Duty as to representations.....................................1084
b. Duty as to suitability of investments...........................1084
c. Fiduciary duty...............................................1085
3. Summary........................................................1085
III.CONCLUSION 1085
In this litigation, bilked investors seek to recover from a securities broker’s employers sums that they gave the broker (now deceased) to invest in fictitious “special investments.” Some of the plaintiffs’ claims were dismissed on pre-answer motions, and the defendants have now moved for summary judgment on all of the plaintiffs’ remaining claims. The defendants assert that, as a matter of law, they owed no duty to the plaintiffs with respect to the money that the plaintiffs gave to the broker; even if they did owe the plaintiffs some duty, the plaintiffs have failed to present competent expert testimony regarding the applicable standard of care; and the claims of some of the plaintiffs are barred by the applicable statute of limitations. For their part, the plaintiffs have moved for partial summary judgment as to the standard of care and duty owed by the defendants to the plaintiffs, based upon the opinions of their expert and the defendants’ expert, and breach of that standard of care, as a matter of law, as to their claims of negligent supervision and negligence as to suitability of investments. Not surprisingly, the parties each resist the other’s summary judgment motion.
I. INTRODUCTION
A. Factual Background
The court will not attempt here an exhaustive dissertation of the undisputed and disputed facts in this case, despite the extensive Statements of Facts submitted by the parties in support of the cross-motions for summary judgment. Rather, the court will set forth sufficient of the facts, both undisputed and disputed, to put in context the parties’ arguments concerning their cross-motions for summary judgment.
The remaining plaintiffs in this action are Thomas M. and Nancy N. McGraw (the McGraws), Patricia Pestka, and Dale Montross. McGraw, Montross, and Paul Lovegren, a figure at the center of this case, had been fraternity brothers at the University of Northern Iowa. Pestka, who is Thomas McGraw’s sister, also met Lovegren at the University of Northern Iowa. Lovegren was subsequently employed as a broker at Securities Corporation of Iowa (SCI) from March 1993 to March 2001, and as a broker for A.G. Edwards & Sons, Inc., from March 2001 to October 2005. It is not entirely clear from the present record whether Lovegren was actually an employee of or an independent contractor with SCI or A.G. Edwards. The McGraws and Pestka made some investments with SCI or A.G. Edwards, or both, for which Lovegren was their broker, and some investments directly with Lovegren that they believed were in accounts with SCI or A.G. Edwards. Montross also made some investments with Lovegren that he believed were with A.G. Edwards. Defendant Wells Fargo Investment Group, Inc., is the successor-by-merger to SCI, and defendant Wachovia Securities, L.L.C., is the successor-in-interest to A.G. Edwards. The court will refer to the current defendants and their predecessors as SCI/Wells Fargo and A.G. Edwards/Wachovia, respectively.
The McGraws, Pestka, and Montross each allege that they invested tens of thousands of dollars directly with Paul Lovegren, even though Lovegren was or had been a broker for SCI/Wells Fargo or A.G. Edwards/Wachovia at the pertinent times. More specifically, the McGraws gave Lovegren checks made payable to him in 1996, 1997, 1998, and 1999, to invest in what was purportedly a “special” currency investment. The McGraws understood that, because they were unable to invest the minimum of $500,000 to participate in the currency investment on their own, Lovegren was “doing [them] a favor” by “bundling” their money with his own in an investment in a SCI/Wells Fargo account, or later, an A.G. Edwards/Wachovia account. Thomas McGraw believed that the “Articles of Agreement” that he entered into with Lovegren concerning this investment protected his investment by providing that Lovegren personally “guaranteed” the principal “investment.”
As the result of her association with Lovegren, Pestka closed her account with A.G. Edwards/Wachovia in February 2006, then gave Lovegren two checks made payable to him in February and May of 2006, believing that Lovegren would invest the funds in “Bond Management, Inc.,” which was purportedly “a division of A.G. Edwards.” Pestka understood from Lovegren that he was opening an A.G. Edwards “Bond Management” division in Kansas City, after Lovegren had handled her investments at the A.G. Edwards office in Waterloo, Iowa, for some time. Lovegren convinced Pestka to make out the checks for the “Bond Management” investment directly to him, because he said that he was unsure if his accounts were set up and that he could invest her funds more quickly that way. Pestka claims not to have known that Lovegren had left A.G. Edwards/Wachovia in Waterloo before she made her investment in “Bond Management,” because when Lovegren visited Pestka in California in May of 2006, he called Karen Ballhagen, who had been Pestka’s “co-broker” at A.G. Edwards/Wachovia, to ask about rates and markets, and Pestka recognized her voice. When Pestka’s A.G. Edwards/Wachovia financial advisor, Karen Cady, asked Pestka why she was withdrawing her money, Pestka did not tell her that the money was- going to Lovegren. Instead, on Lovegren’s instructions, Pestka said that she was investing the money with a “school district,” which Pestka knew was not true.
Similarly, Montross gave two checks made payable to “Bond Management” to Lovegren, one in 2004 and one in 2006, believing that Lovegren would invest the funds in “Bond Management, Inc.,” which was purportedly “a division of A.G. Edwards.” Also in 2006, Montross made one withdrawal from his purported “Bond Management” investment with Lovegren, The defendants contend that Montross was never a brokerage client of A.G. Edwards/Wachovia or SCI/Wells Fargo, but Montross contends that he opened an account with Lovegren at A.G. Edwards, that he signed an account agreement, and that Lovegren told him that he was trading with A.G. Edwards in commodities. He explains, more specifically, that he filled out an application to open an account at “Bond Management” as “a division of A.G. Edwards.”
The McGraws admit that the “Articles of Agreement” and “Statements of Liquidation Value” that they received from Lovegren concerning their “special” currency investment do not refer to or mention the defendants. Similarly, Pestka and Montross admit that there are no documents relating to their “investments” with Lovegren in “Bond Management” that refer to or mention the defendants or their predecessor companies. Nevertheless, the plaintiffs all allege that documents related to their investments with Lovegren were notarized by other employees of SCI/Wells Fargo or A.G. Edwards/Waehovia; that they sent some of their cheeks for their investments to Lovegren at his offices at SCI/Wells Fargo or A.G. Edwards/Wachovia; that they received documentation of and other communications about their purported “investments” with Lovegren sent from Lovegren’s offices and company email accounts at SCI/Wells Fargo or A.G. Edwards/Waehovia; and that they discussed their investments with Lovegren at his offices at SCI/Wells Fargo or A.G. Edwards/Waehovia in proximity to other employees in those offices who could have heard the discussions. Thus, they contend that employees and agents of the defendants either knew of Lovegren’s “outside” business activities with the plaintiffs (which they describe as “selling away”), or should have discovered those activities from proper monitoring of incoming and outgoing correspondence and payments to and from Lovegren at his offices at SCI/ Wells Fargo or A.G. Edwards/Waehovia.
In about mid-2006, Lovegren disappeared. “Bond Management, Inc.,” in which Pestka and Montross believed that they had invested, and the “special” currency investment, in which the McGraws believed that they had invested, were fictitious. The plaintiffs allege that they did not learn that their investments with Lovegren were fictitious, and that the funds that they had invested with Lovegren were gone, until sometime between June and October of 2006, when they were contacted by the FBI about Lovegren’s disappearance. Lovegren’s body was discovered in a wooded area in Cedar Falls, Iowa, in May 2007.
The plaintiffs now allege that Lovegren stole, converted, and embezzled their funds, but that Lovegren was able to do so only because of the defendants’ negligence and breach of fiduciary duty.
B. Procedural Background
On September 30, 2008, the plaintiffs filed suit against A.G. Edwards & Sons, Inc., a division of Wachovia Securities, in the Iowa District Court for Blackhawk County, asserting claims of sale of unregistered securities in violation of Iowa securities law; aiding and abetting the sale of unregistered securities in violation of Iowa securities law; fraudulent practices in violation of Iowa securities law; aiding and abetting fraudulent practices in violation of Iowa securities law; breach of fiduciary duty; failure to supervise; and conspiracy to violate Iowa securities law. See docket no. 4. On October 28, 2008, Wachovia Securities, L.L.C., as successor-in-interest to A.G. Edwards & Sons, Inc., filed a Notice of Removal (docket no. 2), removing this action to this federal court on the basis of diversity of citizenship. On December 4, 2008, A.G. Edwards/Waehovia filed a Motion To Dismiss Or, In The Alternative, Motion For More Definite Statement (docket no. 10), to which the plaintiffs filed a Resistance (docket no. 13) on December 31, 2008. Before that Motion To Dismiss was resolved, however, the plaintiffs were granted leave to file an Amended Complaint on January 20, 2009. See Order (docket no. 17); Amended Complaint (docket no. 18). The court expressly denied the Motion To Dismiss as moot by Order (docket no. 24), filed February 5, 2009.
In their Amended Complaint, the plaintiffs added as defendants Karen Ballhagen and Wells Fargo Investment Group, Inc., as successor-by-merger with Securities Corporation of Iowa, but asserted the same seven claims that they had asserted in their original state-court petition. On February 26, 2009, A.G. Edwards/Waehovia filed a Motion To Dismiss The Amended Complaint Or, In The Alternative, Motion For More Definite Statement (docket no. 31). While that motion was pending, the court entered a Scheduling Order And Discovery Plan (docket no. 34) on March 24, 2009, and an Order Setting Civil Jury Trial, Final Pretrial Conference, And Requirements For The Proposed Final Pretrial order (docket no. 35) on March 27, 2009, setting a jury trial before Chief Judge Linda R. Reade to begin during the two-week period beginning May 17, 2010. On April 3, 2009, the plaintiffs filed both their Resistance To [A.G. Edwards/Wachovia’s] Motion To Dismiss, Or In The Alternative, For A More Definite Statement (docket no. 40) and their own second Motion To Amend (docket no. 39). On April 13, 2009, A.G. Edwards/Waehovia filed a Reply (docket no. 41) in further support of its Motion To Dismiss The Amended Complaint. Again, before the Motion To Dismiss The Amended Complaint was resolved, the court granted the plaintiffs’ second Motion To Amend on April 22, 2009. See Order (docket no. 42); Second Amended Complaint (docket no. 43). Subsequently, by Order (docket no. 47), dated May 6, 2009, the court also denied, with leave to refile, A.G. Edwards/Wachovia’s Motion To Dismiss The Amended Complaint Or, In The Alternative, Motion For More Definite Statement.
The plaintiffs’ Second Amended Complaint (docket no. 43) names the same defendants as the first Amended Complaint, but some of the claims are different. Count I of the Second Amended Complaint seeks to hold defendants SCI/Wells Fargo and A.G. Edwards/Wachovia liable for the sale of securities by Lovegren and Ballhagen allegedly by means of false statements or omissions of material facts, pursuant to Iowa Code § 502.509(2). Count II seeks to hold defendants SCI/Wells Fargo and A.G. Edwards/Wachovia liable for conduct of Lovegren and Ballhagen that involved employing a device, scheme, or artifice to defraud the plaintiffs and engaging in acts, practices, or a course of business that operated as a fraud or deceived the plaintiffs, pursuant to Iowa Code § 502.509(6). Count III seeks to hold defendants SCI/ Wells Fargo and A.G. Edwards/Wachovia liable on a claim of common-law fraud based on allegedly false and material representations allegedly made by Lovegren and Ballhagen to the plaintiffs to induce them to invest in securities purportedly issued by SCI/Wells Fargo and/or A.G. Edwards/Wachovia, that is, the “special investment” and the investment in “Bond Management, Inc.,” which was purportedly “a division of A.G. Edwards.” Count TV is a claim that SCI/Wells Fargo and A.G. Edwards/Wachovia negligently supervised Lovegren and Ballhagen. Count V is a claim of negligent misrepresentation against “the defendants.” Count VI is a claim of negligence as to suitability of an investment based on allegations that “the defendants” were negligent in one or more of the following respects: (a) in selecting, providing and recommending non-existent, non-registered, or unsuitable investments, including but not limited to the “special investment” and the investment in “Bond Management, Inc.,” which was purportedly “a division of A.G. Edwards”; (b) in failing to disclose conflicts of interest; (c) in subjecting the plaintiffs’ assets to inappropriate and unnecessary risk; (d) in failing to properly determine investment objectives of the plaintiffs; (e) in failing to make proper and informed investment decisions; (f) in failing to properly supervise and monitor investment accounts for performance, proper diversification, and suitability; and (g) in failing to take any action to protect the interests of the plaintiffs after they knew or should have known that the plaintiffs’ assets were at risk. Count VII is a claim of breach of fiduciary duty, apparently against defendants SCI/Wells Fargo and A.G. Edwards/Wachovia. The plaintiffs seek actual and punitive damages, costs, interest, and attorney fees.
On May 11, 2009, A.G. Edwards/Wachovia filed its Motion To Dismiss The Second Amended Complaint (docket no. 48). The plaintiffs filed a Resistance (docket no. 53) to A.G. Edwards/Wachovia’s motion on May 28, 2009, and A.G. Edwards/Wachovia filed a Reply (docket no. 54) in further support of its motion on June 1, 2009. On June 25, 2009, SCI/Wells Fargo also filed a Motion To Dismiss The Second Amended Complaint (docket no. 55). The plaintiffs filed a Resistance (docket no. 59) to SCI/ Wells Fargo’s motion on July 9, 2009. SCI/Wells Fargo was granted leave to file an Amended Motion To Dismiss on July 13, 2009. See Order (docket no. 61); Amended Motion To Dismiss (docket no. 62). SCI/Wells Fargo then filed a Reply (docket no. 63) in support of its motion to dismiss on July 15, 2009.
On September 10, 2009, Chief Judge Reade, to whom this case was then assigned, filed an Order (docket no. 70), dismissing with prejudice Counts I, II, and III of the Second Amended Complaint; dismissing with prejudice Count VII, to the extent that it alleged fraud as a basis for a claim of breach of fiduciary duty; and dismissing with prejudice plaintiff Montross’s claims against defendant SCI/ Wells Fargo. In other words, Chief Judge Reade dismissed all claims that sounded in fraud as failing to meet the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure. Defendants A.G. Edwards/Wachovia and SCI/Wells Fargo filed separate Answers (docket nos. 75 and 76) to the plaintiffs’ remaining claims on October 6, 2009, denying those claims.
On January 1, 2010, defendants SCI/ Wells Fargo and A.G. Edwards/Wachovia filed a joint Motion For Summary Judgment (docket no. 85), seeking summary judgment on all of the plaintiffs’ remaining claims, on the grounds that they owed no duty to the plaintiffs with respect to the money that the plaintiffs gave to Lovegren; even if they did owe the plaintiffs some duty, the plaintiffs have failed to present competent expert testimony regarding the applicable standard of care; and the claims- of some of the plaintiffs (the McGraws and Harms) are barred by the applicable statute of limitations. They filed an amended appendix (docket no. 88) in support of their motion on January 4, 2010. The plaintiffs filed a Resistance (docket no. 100) to the defendants’ motion on January 25, 2010, and the defendants filed a Reply (docket no. 103) on February 4, 2010.
On January 1, 2010, the plaintiffs filed a Partial Motion [sic] For Summary Judgment (docket no. 86), seeking partial summary judgment on their claims of “Negligent Supervision” (Count IV) and “Negligence-Suitability” (Count VI), on the grounds that the standard of care and duty owed to the plaintiffs, based upon the expert opinions of both the plaintiffs’ and the defendants’ liability experts, exists and was breached as a matter of law, in light of undisputed facts. The plaintiffs filed an Amended Brief and other amended documents in support of their motion for partial summary judgment on January 7, 2010, docketed as docket no. 98, and also attached to docket no. 86. Defendants SCI/Wells Fargo and A.G. Edwards/Wachovia filed a joint Brief In Resistance To Plaintiffs’ Partial Motion [sic] For Summary Judgment (docket no. 101), and an Amended Resistance (docket no. 105) on February 25, 2010 (docket no. 105). The plaintiffs filed a Reply (docket no. 102) in further support of their motion for partial summary judgment on February 4, 2010, and a Reply (docket no. 109) to the defendants’ amended response on March 10, 2010.
On March 1, 2010, the Clerk of Court filed a Notice Of Dismissal (docket no. 106), pursuant to Local Rule 41b(l), as to the plaintiffs’ claims against defendant Karen Ballhagen, unless appropriate action was taken by or no later than March 15, 2010. Because no action was taken within the time provided in the March 1, 2010, Notice, the Clerk of Court dismissed plaintiffs’ claims against defendant Ballhagen for failure to prosecute by Order (docket no. 110), filed March 25, 2010.
On April 1, 2010, Chief Judge Reade entered an Order (docket no. 113) in which she recused herself in this case and directed the Clerk of Court to reassign the case to another district court judge. Pursuant to that order, the case was reassigned to the undersigned. In light of the reassignment of the case and the undersigned’s existing trial schedule, the trial in this matter was continued from May 17, 2010, to September 20, 2010, in Sioux City, Iowa, by Order (docket no. 118), filed April 22, 2010. Subsequently, owing to a conflict in the undersigned’s schedule, the trial was continued again to February 28, 2011, by Order (docket no. 120), filed July 22, 2010.
On October 11, 2010, plaintiff Donald Harms filed a Stipulated Voluntary Dismissal (docket no. 121), signed by counsel for the plaintiffs and the defendants, dismissing all of his claims and causes of action in this case.
In short, the remaining plaintiffs are Thomas M. and Nancy N. McGraw (the McGraws), Patricia Pestka, and Dale Montross, and the remaining defendants are SCI/Wells Fargo and A.G. Edwards/Wachovia, although plaintiff Montross has no claims against defendant SCI/ Wells Fargo. The plaintiffs’ remaining claims are the following: negligent supervision (Count IV), negligent misrepresentation (Count V), negligence as to suitability of investments (Count VI), and breach of fiduciary duty (Count VII), but only to the extent that it does not allege fraud as a basis for a claim of breach of fiduciary duty. The defendants seek summary judgment on all of these claims, and the plaintiffs seek partial summary judgment as to the claims of negligent supervision (Count IV) and negligence as to suitability of investments (Count VI).
By Order (docket no. 122), filed December 6, 2010, the court set telephonic oral arguments on the parties’ cross-motions for summary judgment for December 16, 2010. Prior to the oral arguments, by Order (docket no. 123), filed December 8, 2010, the court directed the parties to be prepared to address at oral arguments the issue of which of the plaintiffs’ remaining claims, if any, were claims of direct liability of defendants SCI/Wells Fargo and/or A.G. Edwards/Wachovia for their own negligence, and which, if any, were claims for vicarious liability of defendants SCI/Wells Fargo and/or A.G. Edwards/Wachovia for misconduct of Lovegren based on his apparent authority to act as an agent of SCI/Wells Fargo and/or A.G. Edwards/Wachovia. The court also granted the parties leave to file supplemental briefs on this issue not later than December 14, 2010.
Both parties filed supplemental briefs (docket nos. 125 & 126) on December 14, 2010, ostensibly directed to the question of what theories of liability applied to which claims. As the court feared, having been given an inch to clarify a specific issue, the parties seized a mile to reiterate their arguments about whether or not summary judgment should be granted on each of the remaining claims, if those claims were brought under either or both theories. Thus, the supplemental briefs devolved into unauthorized surreply briefs, rather than a clarification of why certain claims were, were intended to be, or could only be brought on certain theories of liability, in light of the allegations in the Second Amended Complaint and the undisputed facts in the record.
At the oral arguments on December 15, 2010, the plaintiffs were represented by Kimberly Pieters Knoshaug of Lewis, Webster, Johnson & Van Winkle in Des Moines, Iowa. The defendants were represented by Adam Hochschild and Richard H. Kuhlman of Bryan Cave, L.L.P., in St. Louis, Missouri, and Kevin J. Visser of Simmons, Perrine, Moyer, Bergman, P.L.C., in Cedar Rapids, Iowa.
II. LEGAL ANALYSIS
A. Standards For Summary Judgment
Motions for summary judgment essentially “define disputed facts and issues and ... dispose of unmeritorious claims [or defenses].” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1982, 167 L.Ed.2d 929 (2007); see Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (“One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses.... ”). Summary judgment is only appropriate when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law.” Id. 56(c) (emphasis added); see Woods v. Daimler-Chrysler Corp., 409 F.3d 984, 990 (8th Cir.2005) (“Summary judgment is appropriate if viewing the record in the light most favorable to the nonmoving party, there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law.”).
A fact is material when it “ ‘might affect the outcome of the suit under the governing law.’ ” Johnson v. Crooks, 326 F.3d 995, 1005 (8th Cir.2003) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). Thus, “the substantive law will identify which facts are material.” Anderson, 477 U.S. at 248, 106 S.Ct. 2505. An issue of material fact is genuine if it has a real basis in the record, Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir.1992) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)), or when “ ‘a reasonable jury could return a verdict for the nonmoving party’ on the question,” Woods, 409 F.3d at 990 (quoting Anderson, 477 U.S. at 248, 106 S.Ct. 2505); see Diesel Machinery, Inc. v. B.R. Lee Indus., Inc., 418 F.3d 820, 832 (8th Cir.2005) (stating genuineness depends on “whether a reasonable jury could return a verdict for the nonmoving party based on the evidence”).
The moving party bears “the initial responsibility of informing the district court of the basis for its motion and identifying those portions of the record which show a lack of a genuine issue,” Hartnagel, 953 F.2d at 395 (citing Celotex, 477 U.S. at 323, 106 S.Ct. 2548), and demonstrating that it is entitled to judgment according to law. See Celotex, 477 U.S. at 323, 106 S.Ct. 2548 (“[T]he motion may, and should, be granted so long as whatever is before the district court demonstrates that the standard for the entry of summary judgment, as set forth in Rule 56(c), is satisfied.”). Once the moving party has successfully carried its burden under Rule 56(c), the nonmoving party has an affirmative burden to go beyond the pleadings and by depositions, affidavits, or otherwise, designate “specific facts showing that there is a genuine issue for trial.” Fed. R.Civ.P. 56(e); Mosley v. City of Northwoods, Mo., 415 F.3d 908, 910 (8th Cir. 2005) (“The nonmoving party may not ‘rest on mere allegations or denials, but must demonstrate on the record the existence of specific facts which create a genuine issue for trial.’ ” (quoting Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir.1995))).
In light of the parties’ arguments for and against the cross-motions for summary judgment in this case, the court finds it appropriate to organize its analysis issue-by-issue, rather than motion-by-motion, or even claim-by-claim. Moreover the court finds it appropriate to begin with the parties’ dispute over whether the McGraws’ claims are timely, the last issue raised in the defendants’ Motion For Summary Judgment, because, if the McGraws’ claims are not timely, the court need not consider any part of the record pertaining to them as to any of the other issues raised in the parties’ motions.
B. Timeliness Of The McGraws’ Claims
1. Arguments of the parties
The defendants assert that the applicable five-year statute of limitations bars the McGraws’ claims. They argue that the McGraws allege that Lovegren wrongfully took their money no later than 1999, but the McGraws did not file their original complaint in this lawsuit until September 30, 2008, at least four years too late. The plaintiffs contend that the McGraws’ claims are timely, because the statute of limitations did not begin to run until the McGraws had actual or imputed knowledge of the facts that would support a cause of action. They contend that the McGraws did not begin to suspect or feel that they had a claim until June or July 2006, about a month after the FBI told Thomas McGraw that there was no money in the wake of Lovegren’s disappearance. In reply, the defendants assert that it is undisputed that the McGraws intentionally kept their investments with Lovegren a “secret” and that the McGraws knew that their alleged investments with Lovegren were “illicit.” The defendants contend that the McGraws cannot now invoke the “discovery rule” to save claims that they are making against the companies from which they kept their alleged investments a secret.
2. Analysis
The plaintiffs do not dispute the defendants’ contention that the applicable statute of limitations is Iowa Code § 614.1(4), which provides as follows:
Actions may be brought within the times herein limited, respectively, after their causes accrue, and not afterwards, except when otherwise specially declared:
4. Unwritten contracts — injuries to property — fraud—other actions.
Those founded on unwritten contracts, those brought for injuries to property, or for relief on the ground of fraud in cases heretofore solely cognizable in a court of chancery, and all other actions not otherwise provided for in this respect, within five years, except as provided by subsections 8 [wages] and 10 [secured interest in farm products].
The plaintiffs assert, and the defendants do not dispute, that the statute of limitations did not begin to run until the McGraws had actual or imputed knowledge of the facts that would support their cause of action, citing State v. Wilson, 573 N.W.2d 248, 253 (Iowa 1998), and Woodroffe v. Hasenclever, 540 N.W.2d 45, 47 (Iowa 1995). See also Remmes v. International Flavors & Fragrances, Inc., 453 F.Supp.2d 1058, 1067 (N.D.Iowa 2006) (under the common-law discovery rule in Iowa, an action does not accrue until the plaintiff knows or in the exercise of reasonable care should have known both the fact of the injury and its cause).
The court doubts that the defendants have met their initial burden on a motion for summary judgment to show that the McGraws’ causes of action accrued at the time that they made their last contribution to the “special investment” with Lovegren in 1999. See Hartnagel, 953 F.2d at 395 (the moving party bears “the initial responsibility of informing the district court of the basis for its motion and identifying those portions of the record which show a lack of a genuine issue”). On the other hand, the court concludes that, at the very least, the McGraws have generated genuine issues of material fact that they did not have actual or imputed knowledge of the facts that would support a cause of action against the defendants at any time prior to 2006. Fed.R.CivP. 56(e) (the nonmoving party has an affirmative burden to go beyond the pleadings and by depositions, affidavits, or otherwise, designate “specific facts showing that there is a genuine issue for trial”); Mosley, 415 F.3d at 910 (the non-moving party must demonstrate on the record the existence of specific facts which create a genuine issue for trial). The plaintiffs have pointed to Thomas McGraw’s testimony that he did not “feel” that he had a claim against A.G. Edwards until “about a month after I got done talking with the FBI agent and him telling me that there was no money,” that is, in June or July 2006. Plaintiffs’ Supplemental Appendix at 274. The defendants have certainly failed to point to any evidence from which this court could find that it was undisputed that the McGraws knew or should have known as early as 1999 that Lovegren had embezzled or bilked them out of the funds that they believed that he had placed in a “special investment” for them, so that their claim accrued at the latest when they made their last contribution to the investment, let alone that they knew or should have known at that same time that the defendants’ negligence or other breach of duty was a cause of that injury. See Remmes, 453 F.Supp.2d at 1067 (an action does not accrue until the plaintiffs knows or in the exercise of reasonable care should have known both the fact of injury and its cause).
Moreover, the portions of the record cited by the defendants do not support their contentions that it is undisputed that the McGraws intentionally kept their investments with Lovegren a “secret” from the defendants and that the McGraws knew that their alleged investments with Lovegren were “illicit.” The statement of fact on which the defendants rely, and the plaintiffs admit, was, “Regarding [the] McGraws’ ‘investment’ with Lovegren, Lovegren told Thomas McGraw that ‘the fewer people who [know] about this, the better.’ ” Defendants’ Statement of Facts, ¶ 19. Similarly, the portion of Thomas McGraw’s deposition cited by the defendants in support of that statement of fact is the following:
Q. Did he [Lovegren] ever tell you to keep it [the currency investment] secret?
A. He — his statement was the fewer people who know about this, the better. I don’t want to let anybody else into this. I’m doing you a favor.
Q. Did that cause you any concern?
A. No.
Q. Did he ever tell you not to report anything about it on your taxes?
A. No.
Defendants’ Appendix at 67. While a reasonable juror could certainly infer from this evidence that McGraw was told to keep the investment secret from other possible investors, because Lovegren was “doing [him] a favor” and he “d[id]n’t want to let anybody else into” the investment, no reasonable juror could infer that McGraw was told not to tell the defendants about the investment, and certainly, in light of Thomas McGraw’s denial that Lovegren told him not to report anything about the investment on his taxes, no reasonable juror could infer that McGraw understood that the investment was “illicit.” Thus, the defendants’ “equitable” argument for denying the McGraws the benefit of the equitable “discovery rule” fails as a matter of law.
Therefore, the defendants’ motion for summary judgment on the McGraws’ claims on the ground that those claims are barred by the applicable statute of limitations will be denied.
C. The Theory Or Theories Of Liability
In the court’s view, one of the important issues in this case is whether each of the plaintiffs’ remaining claims against SCI/ Wells Fargo and A.G. Edwards/Wachovia is based on a theory of direct liability or vicarious liability. There is a significant legal distinction between vicarious liability of a principal for the negligence of an agent, based on the agent’s apparent authority to act on behalf of the agent, see, e.g., Wilkins v. Marshalltown Med. & Surgical Ctr., 758 N.W.2d 232, 236 (Iowa 2008) (considering whether a principal could be vicariously liable for the professional negligence of individual physicians through the doctrine of apparent authority), and direct liability of the principal for its own negligence, i.e., its own breach of duty, for example, in failing to supervise an agent who engaged in negligence or other misconduct. See, e.g., Kiesau v. Bantz, 686 N.W.2d 164, 171-72 (Iowa 2004) (a cause of action for negligent supervision of an employee allows the injured party to recover because the employer’s own wrongful conduct has facilitated in some manner the tortious or wrongful conduct of the employee). Indeed, it is black letter law that a principal’s liability under a respondeat superior theory of vicarious liability for acts of an agent has nothing to do with a principal’s direct liability for the principal’s own negligence that permitted or facilitated misconduct of an agent or employee. See id. (causes of action for negligent hiring, supervision, and retention “are separate and distinct from those based on respondeat superior liability, which imposes strict liability on employers for the acts of their employees committed within the scope of their employment”); see also IMT Ins. Co. v. Crestmoor Golf Club, 702 N.W.2d 492, 498 (Iowa 2005) (Cady, J„ dissenting) (“It is fundamental that a claim for negligent supervision and retention arises out of the employer’s own conduct. The tort does not, in any way, impose liability on the employer for misconduct of the employee.” (citations omitted)).
The plaintiffs’ Second Amended Complaint is not a model of clarity on this point, and the parties’ original briefing reflected considerable confusion about the theory or theories of liability for the remaining claims. Consequently, by Order (docket no. 123), filed December 8, 2010, the court directed the parties to be prepared to address at the oral arguments, as an initial matter, what theory or theories of liability pertain to each of the remaining claims. The court also granted the parties leave to file supplemental briefs, not later than December 14, 2010, addressing this question.
In their December 14, 2010, Brief Clarifying Theories Of Liability For Summary Judgment Cross-Motions And For Trial (docket no. 126) — along with other arguments well beyond the scope of the question on which the court authorized supplemental briefs — the plaintiffs did clarify the following:
• Count IV, denominated “Negligent Supervision,” is a direct liability claim;
• Count V, denominated “Negligent Misrepresentation,” is a vicarious liability claim for alleged negligent misrepresentations made by Lovegren within his apparent authority from and his employment relationship with SCI/Wells Fargo and/or A.G. Edwards/Wachovia;
• Count VI, denominated “Negligence— Suitability,” is also a vicarious liability claim for Lovegren’s conduct within his apparent authority from and his employment relationship with SCI/Wells Fargo and A.G. Edwards/Wachovia; and
• Count VII, denominated “Breach of Fiduciary Duty,” is both
• a direct liability claim against SCI/ Wells Fargo and A.G. Edwards/Wachovia for their breach of fiduciary duty to the plaintiffs and
• a vicarious liability claim for Lovegren’s breach of fiduciary duty to the plaintiffs while acting within his apparent authority from or his employment relationship with SCI/Wells Fargo and A.G. Edwards/Wachovia.
In their December 14, 2010, Supplemental Brief Concerning Plaintiffs’ Theory Or Theories Of Liability (docket no. 125), the defendants suggest that the two theories of liability are “intertwined,” relying on Riniker v. Locust Street Sec., Inc., 720 N.W.2d 191, 2006 WL 1278751 (Iowa Ct. App. May 10, 2006) (unpublished op.), but the defendants assert that they are not liable on any claim under either theory. Thus, the defendants do not contest in their supplemental brief the plaintiffs’ identification of the theory or theories of liability on which each of the remaining claims is based, nor do they offer a differing view of what claims are based on what theory or theories of liability.
That said, the court is not persuaded that the two theories are “intertwined,” as the defendants suggest, notwithstanding the decision of the Iowa Court of Appeals in Riniker. The analysis in Riniker is seriously flawed in precisely this respect: Riniker purportedly discusses “duty” and “agency” in separate sections, but the decision indicates that the Iowa Court of Appeals was confused about the nature of “duty” as the basis for direct liability and “agency” as a basis for vicarious liability.
Specifically, in its discussion of “duty,” the Iowa Court of Appeals held that, because the charitable gift annuities at issue in that case were not “securities” within the meaning of state or federal securities laws, the representative “was therefore not acting within his authority as a registered representative of [the brokerage firm] in recommending and marketing to [the plaintiffs’ decedent] [that] annuity.” Riniker, 2006 WL 1278751 at *2. The Iowa Court of Appeals also held that “uncontroverted facts demonstrating the absence of a connection between [the brokerage firm] and [the vendor of charitable annuities] or its annuities further support the district court’s conclusion that [the brokerage firm] owed no duty to the plaintiffs to supervise [a representative’s] business activities in this case [in selling the charitable annuities],” but cited as supporting this conclusion that there was no duty a California case concluding that a securities broker-dealer is not vicariously liable for actions taken by its registered representatives which are outside the representafive’s scope of employment. Id. (citing Asplund v. Select ed Inv. In Fin. Equities, 86 Cal.App.4th 26, 42, 103 Cal.Rptr.2d 34 (2001)). However, as explained above, vicarious liability of a principal for the misconduct of an agent has nothing to do with direct liability of a principal for its own misconduct. See Kiesau, 686 N.W.2d at 171-72 (recognizing that vicarious liability and direct liability are “separate and distinct” theories). Thus, the Iowa Court of Appeals, like the parties here, improperly blurred the distinction between direct liability and vicarious liability.
This confusion of distinct theories of liability in Riniker, contrary to Iowa Supreme Court authority, see Kiesau, 686 N.W.2d at 171-72, is one reason that this court is unwilling to find that the unpublished decision of an intermediate Iowa court is controlling here on the formulation of either a direct liability theory or a vicarious liability theory.
This court’s analysis of the remaining issues will address vicarious and direct liability claims separately.
D. Direct Liability Claims
The claims that the court now finds are based solely or alternatively on direct liability are Counts IV (negligent supervision) and VII (breach of fiduciary duty). As to these claims, the defendants assert that they are entitled to summary judgment that they owed no duty to any of the plaintiffs; that the plaintiffs cannot establish the applicable standard of care, because they have offered no expert testimony on duty and breach; and that the defendants did not breach any applicable duty of care as a matter of law. In contrast, the plaintiffs contend that they are entitled to summary judgment on the existence and breach of the defendants’ duty of care applicable to the plaintiffs’ claim of negligent supervision. The court begins its analysis of the plaintiffs’ direct liability claims with the question of the necessity of expert testimony to establish the standard of care and its breach.
1. Necessity of expert testimony a. Aryuments of the parties
The defendants argue that the plaintiffs cannot establish the requisite standard of care without expert testimony, which the plaintiffs have not offered. The defendants contend that the plaintiffs’ expert, Timothy Lyle, did not offer his opinion regarding the applicable standard of care in his September 1, 2009, report or his deposition. Instead, the defendants assert that, at his deposition, Mr. Lyle said that he needed time to review certain documents in order to offer such an opinion. The defendants contend that, although the plaintiffs received the pertinent documents two and a half months before Mr. Lyle’s deposition, they only gave them to him two days before his deposition, so that he testified that he had not had sufficient time to review the documents and would need more time. In short, the defendants contend that the plaintiffs’ failure to provide Mr. Lyle with relevant documents in a timely fashion, even though they had ample opportunity to do so, and Mr. Lyle’s failure to offer an opinion regarding the applicable standard of care mean that the plaintiffs have failed to offer competent testimony regarding the applicable standard of care, and the court must grant the defendants summary judgment on the plaintiffs’ claims.
In response, the plaintiffs point out that Mr. Lyle indicated that his September 1, 2009, report was not necessarily his final report, because he believed that there were additional documents that he needed to review. They argue that the defendants are attacking the factual basis of some of Mr. Lyle’s opinions, but the defendants have not identified with any detail what standards or factual information is lacking. They also argue that Mr. Lyle and the defendants’ expert, Cynthia King, have proffered opinions on the standards in the securities industry. They also contend that the undisputed facts show that the experts’ opinions of the standard of care are applicable to the defendants. Finally, the plaintiffs contend that the defendants have ignored the fact that Mr. Lyle testified that, in his opinion, within a reasonable degree of certainty based upon his experience in the industry, processes were in place that, if executed properly, would have uncovered Lovegren’s activities, and that it is also his opinion, based upon his training, education, experience, review, and knowledge of industry standards of care, customs, and practices, that the defendants violated their duties to the plaintiffs.
In support of their own motion for summary judgment, the plaintiffs also assert that their expert and the defendants’ expert actually agree on the standard of care and duty owed by brokerage firms generally to supervise and detect undisclosed outside business activity, as both refer to “red flags” and “other evidence” to contradict a representative’s report of no outside activity. The plaintiffs also contend in support of their motion that both experts agree that one way to detect outside activity based upon an industry standard is to monitor incoming and outgoing mail to determine if it discloses activities outside the regular books of the firm or a representative’s disclosures. The plaintiffs assert that their expert explains in his report and his deposition how the defendants failed in this obligation and, more importantly, opines that any reasonable performance of this function would have unveiled unauthorized business activity. Thus, the plaintiffs assert that the standard of care as to supervision and the defendants’ breach of that standard are fully articulated in the record.
In reply, the defendants assert that the plaintiffs’ expert assumed, with no identification of admissible evidence, that communications with the plaintiffs were created, time-stamped, and reviewed by other branch office personnel and that, consequently, the defendants breached their duty of care to the plaintiffs. The defendants contend that, because an expert’s testimony must be based upon sufficient facts or data, the court must disregard the plaintiffs’ expert’s opinions.
b. Analysis
In professional negligence actions, as in other negligence actions, the plaintiff must prove a duty of care was owed to him or her, breach of that duty, and damages caused by the breach of duty. Smith v. Koslow, 757 N.W.2d 677, 680 (Iowa 2008). As the Iowa Supreme Court explained some time ago,
Persons engaged in the practice of a profession or trade are held to the standard of “ ‘the skill and knowledge normally possessed by members of that profession or trade in good standing in similar communities.’ ” Kastler v. Iowa Methodist Hosp., 193 N.W.2d 98, 101 (Iowa 1971) (quoting Restatement (Second) of Torts § 283 (1965)). The burden rested upon [the plaintiff] to prove [the professional’s] breach of this standard of care. See Devine v. Wilson, 373 N.W.2d 155, 157 (Iowa App.1985). Unless a professional’s lack of care is so obvious as to be within the comprehension of a layperson, the standard of care and its breach must ordinarily be established through expert testimony. Perin v. Hayne, 210 N.W.2d 609, 613 (Iowa 1973); Devine, 373 N.W.2d at 157.
Humiston Grain Co. v. Rowley Interstate Transp. Co., Inc., 512 N.W.2d 573, 575 (Iowa 1994).
Although the parties have cited no Iowa case so holding, and the court has found none, the court nevertheless concludes that the standard of care, if any, of a brokerage firm to monitor or investigate the outside activities of its brokers is not so obvious as to be within the comprehension of a layperson, so that expert testimony on the applicable standard of care and its breach are required in this case. Id. The court also finds that the plaintiffs have offered such testimony, in the form of Mr. Lyle’s deposition testimony that various rules of the Financial Industry Regulatory Authority (FINRA, formerly the National Association of Securities Dealers, NASDA) establish the standards of care and that those rules were breached here, see Plaintiffs’ Appendix at 195-217 (Exhibit J, excerpts of deposition of Timothy Lyle), although his opinions may not be presented in as organized a fashion as the defendants might have desired. Compare Plaintiffs’ Appendix at 219-25 (Exhibit K, defendants’ expert’s report). Indeed, it appears that the defendants’ expert has identified essentially the same standard of care, although she does not find that the standard was breached. See Plaintiffs’ Appendix at 220-22.
The defendants also dispute the factual basis for Mr. Lyle’s conclusions that the defendants breached their duty of care in this case. See Fed.R.Evid. 702 (expert testimony must, inter alia, be “based upon sufficient facts or data”). However, as explained more fully below, the court concludes that the plaintiffs have identified sufficient basis in the record — although such evidence may be rather tenuous — to generate genuine issues of material fact that such alleged breach occurred. Fed. R.CrvP. 56(e) (the nonmoving party has an affirmative burden to go beyond the pleadings and by depositions, affidavits, or otherwise, designate “specific facts showing that there is a genuine issue for trial”); Mosley, 415 F.3d at 910 (the non-moving party must demonstrate on the record the existence of specific facts which create a genuine issue for trial).
Therefore, the defendants are not entitled to summary judgment on the ground that the plaintiffs lack necessary expert testimony to establish the duty of care and breach of that duty in this case.
2. Duty to non-customers
The defendants also contend that they owed no duty to non-customers, such as plaintiff Montross, where Montross was never a client of the defendants, and plaintiff Pestka, where Pestka was not a client of and Lovegren was no longer working for either of the defendants at the time in 2006 that Pestka allegedly gave Lovegren money to invest in “Bond Management, Inc.” The plaintiffs dispute the defendants’ assertions that a brokerage firm never owes a duty to non-customers and that they owed no duty to plaintiffs Montross and Pestka.
a. Arguments of the parties
The defendants contend that a financial institution owes no duty to non-customers, nor can a brokerage firm be responsible for tracking the transactions of people for whom the firm maintains no account records. They point out that the court has already dismissed Montross’s claims against SCI/Wells Fargo, because Montross never had a brokerage account at SCI/Wells Fargo. Similarly, they argue that Montross never had a brokerage account with A.G. Edwards/Wachovia, even if Montross was investing with Lovegren during a time period when Lovegren was a broker for A.G. Edwards/Wachovia. Similarly, they argue that a financial institution cannot conceivably owe a duty to someone, such as Pestka, who invested with a former representative only after the representative ceased to be employed by the brokerage firm.
The plaintiffs dispute the defendants’ contention that a plaintiff was only a client or customer of a brokerage firm, if he or she executed some brokerage firm documents and the defendants’ contention that defendants have no duty unless the plaintiff was a customer. The plaintiffs contend that a brokerage firm can be liable to non-customers, if it breaches its duty to monitor and investigate the outside activities or private securities transactions of it representatives, because those duties arise from the brokerage firm’s license to sell securities, not from a client relationship.
b. Analysis
Although the defendants cited no case that actually stands for the proposition that a brokerage firm owes no duty to a non-customer, the court has found a case that does stand for that general proposition. In Bear Stearns and Co. v. Buehler, 23 Fed.Appx. 773, 775 (9th Cir.2001), the Ninth Circuit Court of Appeals stated that, “[a]s a general rule, a broker-dealer owes no duty to a non-customer who has invested money through an independent investment advisor.” Bear Stearns and Co. v. Buehler, 23 Fed.Appx. 773, 775 (9th Cir.2001) (emphasis added). However, that case will not necessarily support summary judgment in the defendants’ favor on the issue of whether or not the defendants had any duty to a non-customer, because it also notes that “this general proposition of non-liability is far from a per se rule.” Id.
Moreover, in Bear Stearns, the Ninth Circuit Court of Appeals explained when a brokerage firm can be liable to a non-customer, as follows:
Where there is additional involvement by the broker-dealer, a duty may be found. In Software Design [& Appl. v. Hoefer & Arnett, Inc.], the court noted that “sufficiently suspicious” circumstances may place a broker-dealer on notice that her customer is perpetrating fraud on non-customer investors. 49 Cal.App.4th [472,] 483, 56 Cal.Rptr.2d 756 [ (1996) ]. Once aware of troublesome “red flags,” the broker-dealer may have a duty which runs to non-customers to monitor and investigate any unusual account activity. Id.; see also City of Atascadero v. Merrill Lynch, 68 Cal.App.4th 445, 483-84, 80 Cal.Rptr.2d 329 (1998) (finding trustee-investors, who had no direct contact with Merrill Lynch, could nonetheless state a claim for breach of fiduciary duty if Merrill Lynch actively participated in broker’s fraud).
Bear Stearns, 23 Fed.Appx. at 776. Thus, there is a well-defined exception to the general rule that a brokerage firm has no duty to a non-customer.
Therefore, the defendants are not entitled to summary judgment on their contention that a brokerage firm never has a duty to non-customers. The fact-driven questions, addressed below, are whether or not the circumstances giving rise to a duty to non-customers arose as to either Montross or Pestka and whether that duty was breached as to any of the plaintiffs.
3. Duty and breach
a. Arguments of the parties
The defendants assert that there is no factual support for the plaintiffs’ contention that there were “red flags” that gave rise to a purported duty on the part of the defendants to monitor or investigate Lovegren’s activities. Specifically, they point out that SCI/Wells Fargo has no record of any checks being sent by the McGraws to SCI/Wells Fargo payable to Lovegren personally. Thus, they contend that the McGraws are relying on unsupported and self-serving affidavits and testimony to support their contention that they mailed checks to SCI/Wells Fargo. The defendants also contend that there is no support in the record for Montross’s contention that he “mailed” checks to Lovegren at his A.G. Edwards/Wachovia office. The defendants also contend that there is no evidence supporting the plaintiffs’ allegations that personnel at their branch offices created, time-stamped, or reviewed any of the documents relating to the plaintiffs’ purported investments with Lovegren. They also argue that a person who notarizes a document cannot be charged with knowledge of the contents of the document. They argue that there is no other evidence that anyone at their branch offices knew about Lovegren’s improper conduct. They also contend that the fact that documents were printed at the branch offices, even if true — and they contend that there is no evidence that it is true — would not demonstrate that the companies knew or should have known about Lovegren’s wrongdoing. Similarly, they argue that e-mails to and from Lovegren at his office address, if they in fact happened, would not generate any genuine issues of material fact as to liability of the companies. All of the defendants’ contentions amount to the general contention that they had no notice of Lovegren’s conduct that would have given rise to a duty to investigate, monitor, or stop it.
The plaintiffs argue that the relevant duties, a duty to supervise representatives and a fiduciary duty, are apparent from FINRA rules and from the reports and testimony of both parties’ experts. They dispute the defendants’ contention that firms are not responsible to supervise a representative’s activities if those activities are not “approved.” Rather, they argue that the duty is not specific to “approved” activities, but includes “outside” activities, nor is it a duty only to particular clients, because the duty is coexistent and coextensive with the license to sell securities. The plaintiffs also argue that Riniker v. Locust Street Sec., Inc., 720 N.W.2d 191, 2006 WL 1278751 (Iowa Ct.App. May 10, 2006) (unpublished op.), on which the defendants rely, is distinguishable, because the broker in that case was not an employee of the brokerage firm, but an independent contractor, and he sold many different firms’ products, but Lovegren was an employee of the brokerage firms purportedly selling only their securities. They also contend that they have identified sufficient “red flags” that imposed a duty upon the defendants to monitor and investigate Lovegren’s “outside” activities, including incoming and outgoing correspondence and checks mailed to Lovegren at his office, handling and notarizing of correspondence and documents related to Lovegren’s “outside” investment activities by branch employees, and proximity of branch employees when Lovegren discussed his “outside” investments with the plaintiffs at the defendants’ offices. Moreover, they contend that the undisputed evidence shows that SCI/Wells Fargo and A.G. Edwards/Wachovia breached those duties and, consequently, failed to discover and stop Lovegren’s fictitious investment schemes.
b. Analysis
As the Iowa Supreme Court recently reiterated, “An actionable claim of negligence requires the existence of a duty to conform to a standard of conduct to protect others, a failure to conform to that standard, proximate cause, and damages.” Thompson v. Kaczinski, 774 N.W.2d 829, 834 (Iowa 2009) (internal quotation marks and citations omitted). It is for the fact finder to consider the specific facts and circumstances to determine if the actor breached the duty. Id. at 834-35.
This court concludes that the parties’ dispute is not so much about the relevant duty or duties, but about whether the relevant duties actually arose in the circumstances of this case. As noted above, there appears to be no real disagreement between the parties’ experts concerning the relevant duty to supervise. See Plaintiffs’ Appendix at 195-217 (plaintiffs’ expert’s recitation of relevant duties); id. at 220-22 (defendants’ expert’s recitation of relevant duties). Indeed, in their recitation of the applicable duty in their briefing, the plaintiffs rely, in large part, on the defendants’ expert’s report. Nevertheless, the court will summarize the relevant duty to supervise and the relevant fiduciary duty and the circumstances in which those