Filed: Oct. 05, 2015
Latest Update: Mar. 02, 2020
Summary: Case: 15-11506 Date Filed: 10/05/2015 Page: 1 of 12 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 15-11506 Non-Argument Calendar _ D.C. Docket No. 1:13-cv-03925-TWT S. GREGORY HAYS, Receiver for Lighthouse Financial Partners, LLC, Plaintiff-Appellant, versus PAGE PERRY, LLC, ESTATE OF J. BOYD PAGE, ALAN R. PERRY, JR., J. STEVEN PARKER, ROBERT D. TERRY, et al., Defendants-Appellees. _ Appeal from the United States District Court for the Northern District of
Summary: Case: 15-11506 Date Filed: 10/05/2015 Page: 1 of 12 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 15-11506 Non-Argument Calendar _ D.C. Docket No. 1:13-cv-03925-TWT S. GREGORY HAYS, Receiver for Lighthouse Financial Partners, LLC, Plaintiff-Appellant, versus PAGE PERRY, LLC, ESTATE OF J. BOYD PAGE, ALAN R. PERRY, JR., J. STEVEN PARKER, ROBERT D. TERRY, et al., Defendants-Appellees. _ Appeal from the United States District Court for the Northern District of ..
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Case: 15-11506 Date Filed: 10/05/2015 Page: 1 of 12
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-11506
Non-Argument Calendar
________________________
D.C. Docket No. 1:13-cv-03925-TWT
S. GREGORY HAYS,
Receiver for Lighthouse Financial Partners, LLC,
Plaintiff-Appellant,
versus
PAGE PERRY, LLC,
ESTATE OF J. BOYD PAGE,
ALAN R. PERRY, JR.,
J. STEVEN PARKER,
ROBERT D. TERRY, et al.,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(October 5, 2015)
Before WILLIAM PRYOR, JORDAN and JILL PRYOR, Circuit Judges.
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PER CURIAM:
S. Gregory Hays, the receiver for Lighthouse Financial Partners, LLC,
appeals the dismissal of his complaint against the law firm of Page Perry, LLC;
four of its partners, Steve Parker, Robert D. Terry, Daniel I. MacIntyre, and Alan
R. Perry Jr.; and the estate of deceased partner J. Boyd Page. Hays complained
about professional malpractice and the breach of fiduciary duties and of contract
by Page Perry, Parker, Terry, and MacIntyre, and about negligent supervision by
Page and Perry. Hays alleged that the lawyers violated their ethical and legal
obligations to Lighthouse, a registered investment advisor, by failing to report it
for regulatory noncompliance and by allowing its president and managing owner,
Benjamin DeHaan, to misappropriate clients’ funds. The district court dismissed
the complaint for failure to state a claim that had facial plausibility. See Ashcroft v.
Iqbal, 556 U.S. 662, 678,
129 S. Ct. 1937, 1949 (2009); Bell Atl. Corp. v.
Twombly,
550 U.S. 544, 555–56,
127 S. Ct. 1955, 1965 (2007). We affirm.
I. BACKGROUND
Lighthouse provided financial advice and investment services to its clients.
Its managing owner, DeHaan, diverted clients’ funds into a bank account labeled
“Client Holding – Pass Through” that he opened ostensibly as an account for
Lighthouse. DeHaan concealed his wrongdoing by representing to federal and state
regulatory agencies that Lighthouse did not have custody of client funds and that
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the funds had been transferred to broker-dealers who served as custodians.
Between 2008 and 2012, Lighthouse retained Page Perry as legal counsel.
Their agreement, signed by DeHaan, stated that Page Perry would “advise
[Lighthouse] regarding all registration, licensing and regulatory requirements”;
assist in “drafting, reviewing, [and] advising as to the content and form of all
documents required to be filed by said regulators”; and advise Lighthouse about
“selected communications proposed to be issued,” “general business matters
relating to corporate formation and/or reorganization,” existing contracts, and “the
general legality, advisability, and regulatory implications of any actual or
prospective line of business . . . .” The agreement specified that Page Perry “will
not serve as General Counsel and will not make independent inquiry or
investigation without specific request” and its responsibilities did not include
“[c]ompliance matters, except as expressly identified.”
During the representation, Page Perry advised DeHaan about regulations
governing the custody of client funds and conducted a two-phase mock audit to
identify deficiencies in client files and account records. After each phase of the
audit, Page Perry issued a report that delineated shortcomings in Lighthouse
procedures and records. Some of the information exchanged by the lawyers and
DeHaan was preserved in email messages.
In the beginning of 2012, the Georgia Secretary of State audited Lighthouse,
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and on March 30, 2012, the Securities and Exchange Commission subpoenaed
DeHaan to testify. Parker and MacIntyre assisted DeHaan during the hearing. In
June 2012, Page Perry withdrew as counsel for Lighthouse and, after obtaining
DeHaan’s consent, Page Perry notified the Commission that DeHaan had been
purloining client funds. The Commission filed a civil enforcement action against
DeHaan and Lighthouse, which resulted in a freezing of its assets and the
appointment of Hays as receiver.
Hays filed a complaint against Page Perry and five of its partners. Hays
alleged that the law firm, Parker, Terry, and MacIntyre violated their duties to
report DeHaan’s misconduct to “the highest authority that can act on behalf of the
[business] organization,” Ga. R. of Prof’l Conduct 1.13(b); to avoid conflicts of
clients’ interests, id. R. 1.7; “len[ding] credibility to DeHaan’s fraudulent
enterprise by . . . mak[ing] their presence highly visible . . . [in] Lighthouse’s
operations” and helping DeHaan to “garner trust and confidence with Lighthouse’s
clients”; “fail[ing] to inquire about” and disregarding “glaring irregularities” in
records that they uncovered during the mock audit; and “protecting . . . and even
facilitating [DeHaan’s] fraudulent scheme against Lighthouse.” Page Perry and the
three partners, Hays alleged, also “breached their fiduciary duty to Lighthouse by
treating DeHaan as their client and putting his interest above that of Lighthouse”
and breached their contract by “failing to properly advise Lighthouse with respect
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to the numerous regulatory violations by DeHaan, failing to address the material
regulatory deficiencies it discovered or should have discovered in the mock audits,
and failing to act in Lighthouse’s best interest with respect to known regulatory
violations and other misconduct by DeHaan . . . .” Hays also alleged that “Page and
Perry, as the senior partners of the firm, [were] vicariously liable in respondeat
superior for the acts of . . . Parker, Terry and MacIntyre” and were negligent in
their supervision of those lawyers. Hays attached 36 exhibits to the complaint,
including the retainer agreement, some emails and correspondence, and an
affidavit from Mercer Bullard, an attorney, opining that Page Perry was negligent
and caused Lighthouse to incur damages.
Page Perry, Parker, and Terry filed motions to dismiss, which the district
court granted. The district court ruled that the complaint lacked factual material to
support a claim of malpractice. Lighthouse hired Page Perry “to perform an
advisory role,” and after “[d]isregarding the wild exaggerations, implausible
inferences and selective quotations from e-mails,” the district court determined that
the complaint failed to identify “a single instance in which Page Perry gave
Lighthouse bad advice” and that Bullard’s affidavit failed to cite any authority
requiring legal counsel “to report regulatory non-compliance to a government
agency.” The theory “that Page Perry had to inform on Lighthouse of suspected or
known regulatory violations” would, the district court reasoned, “convert private
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corporate lawyers representing financial advisers and other regulated industry
participants into unwilling government auditors required to utilize information
gained in the course of their representation to the potential detriment of their
clients” and cause lawyers to “routinely violate” rules safeguarding client
confidentiality. Even assuming that Page Perry “breached [its] duty of care by
performing deficient mock audits,” that breach was not the proximate cause of any
damages to Lighthouse, the district court ruled, because “the Complaint ma[de]
clear that Lighthouse’s compliance issues were . . . caused . . . by DeHaan’s
decision to flout applicable regulations to further his fraudulent scheme, and then
lie to his clients and his lawyers” and “[t]he Complaint fail[ed] to indicate how a
more adequate mock audit . . . would have prevented DeHaan’s criminal conduct.”
The district court ruled that the claims of breach of fiduciary duties and of contract
failed because they were “duplicative of the professional malpractice claim” and
because the complaint did not identify any authority or a provision in the contract
that required Page Perry to report Lighthouse.
The district court also granted the motions of Page, Perry, and MacIntyre to
dismiss the complaint. The claims against Page and Perry failed, the district court
explained, because Georgia law eliminates vicarious liability for members of a
limited liability company and because the complaint did not allege, to support
claims of negligent supervision and general negligence, that Page or Perry knew or
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should have known that junior members had a tendency to engage in malpractice.
The district court also determined that the claims against MacIntyre failed because
the complaint did not allege “what [MacIntyre] specifically advised DeHaan to do”
during the hearing before the SEC or “how it affected Lighthouse in any way.”
II. STANDARD OF REVIEW
We review de novo the dismissal of Hays’s complaint for failure to state a
claim. Jean v. Dorelien, 431 F.3d 776, 778 (11th Cir. 2005). “To survive a motion
to dismiss, a complaint must contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’”
Iqbal, 556 U.S. at 678, 129 S.
Ct. at 1949 (quoting
Twombly, 550 U.S. at 570, 127 S. Ct. at 1974). The complaint
must contain “more than labels and conclusions”; its well-pled allegations must
“nudge[] the[] claims across the line from conceivable to plausible.’”
Twombly,
550 U.S. at 555,
570, 127 S. Ct. at 1965, 1974.
III. DISCUSSION
Hays’s complaint purports to allege errors and misconduct by Page Perry
and its partners. To survive a motion to dismiss, the complaint had to allege facts
that “allow[ed] the [district] court to draw the reasonable inference that the
[lawyers] [were] liable for the misconduct alleged.” Iqbal, 556 U.S. at 678, 129 S.
Ct. at 1949. “[F]acts that are ‘merely consistent with’ . . . liability” and
demonstrate only a possibility, but not the plausibility, of relief fail to satisfy this
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standard. Id. As explained below, Hays’s allegations, individually or cumulatively,
do not allow a plausible inference that the lawyers knew of DeHaan’s theft or
support Hays’s claims that the lawyers violated their ethical and legal duties to
Lighthouse.
Hays’s complaint fails to state an allegation of legal malpractice by Page
Perry, Parker, Terry, or MacIntyre that is plausible on its face. A claim of legal
malpractice has two elements: the lawyers must have failed to “exercise ordinary
care, skill and diligence” when “perform[ing] the task for which [they] were
employed” and that negligence must have been the proximate cause of damage to
the client. See Tante v. Herring, 453 S.E.2d 686, 687 (Ga. 1994). Hays alleged that
the lawyers were negligent in failing to notify regulatory officials of
noncompliance by Lighthouse, but the complaint failed to identify any authority
requiring the lawyers to report their client. Hays alleged that the lawyers violated
the Georgia Rules of Professional Conduct, but a dereliction of ethical obligations
cannot “establish civil liability,” Allen v. Lefkoff, Duncan, Grimes & Dermer, P.C.,
453 S.E.2d 719, 720 (Ga. 1995) (quoting Davis v. Findley,
422 S.E.2d 859, 860
(Ga. 1992)). Moreover, the well-pleaded allegations in the complaint establish that
the lawyers had no conflict of interest, in violation of Rule of Conduct 1.7, because
“DeHaan was not their client” (Compl. ¶ 111; Ex. 2) and “the firm . . . ‘never
represented [DeHaan] and [refused to] do so in [the SEC investigation] or any
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other matter” (Compl. ¶ 112; Ex. 32). Hays alleged that the lawyers violated Rule
1.13(b) by failing to report DeHaan to regulatory officials, but that rule instead
required counsel to report misconduct to “the highest authority that can act on
behalf of the organization,’” Ga. R. of Prof’l Conduct 1.13(b). Hays argues that
Page Perry should have reported its findings to Anatoly Melamud, a shareholder in
Lighthouse, but Hays never mentioned Melmud in the complaint. And, even if we
assume, like the district court, that the lawyers were remiss in conducting the mock
audit, the complaint did not allege a causal connection between the audit and
damages incurred by Lighthouse. Factual matter in the complaint and its exhibits
establish that DeHaan misled the lawyers and misappropriated client funds
notwithstanding their advice to remedy regulatory noncompliance by Lighthouse.
Hays’s challenges to the dismissal of his complaint of malpractice lack
merit. Hays argues that the lawyers had to report that DeHaan was stealing from
Lighthouse and facilitated DeHaan’s wrongdoing by assisting him during the
hearing before the Securities Commission, but the allegations in the complaint fell
short of supporting a plausible inference that Page Perry knew of or aided in
DeHaan’s theft. See Oxford Asset Mgmt., Ltd. v. Jaharis, 297 F.3d 1182, 1188
(11th Cir. 2002). The complaint and exhibits establish that the lawyers knew about
some regulatory noncompliance and accepted DeHaan’s explanations for the
holding account and recordkeeping irregularities, but that fails to “nudge[]
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[Hays’s] claim[] [about knowledge of criminal activity] across the line from
conceivable to plausible.” See Twombly, 550 U.S. at 570, 127 S. Ct. at 1974. Hays
also argues that Bullard’s affidavit establishes that the lawyers knew of DeHaan’s
theft, but as disclosed in the affidavit, Bullard’s “opinion is based on [his]
assumption that the factual allegations in the Complaint are true.” Hays contests
the summary rejection of his assertion that the lawyers also violated Rules of
Conduct 1.2(d) and 4.1, but the district court was entitled to disregard theories of
liability “previously available, but not pressed” by Hays until he moved for
reconsideration. See Wilchombe v. TeeVee Toons, Inc.,
555 F.3d 949, 957 (11th
Cir. 2009) (quoting Stone v. Wall,
135 F.3d 1438, 1442 (11th Cir. 1998)).
Hays has abandoned any challenge that he could have made to the dismissal
of his complaints about the breach of fiduciary duties and of contract. “[T]he law is
by now well settled in this Circuit that a legal claim or argument that has not been
briefed before the court is deemed abandoned and its merits will not be addressed.”
Holland v. Gee, 677 F.3d 1047, 1066 (11th Cir.2012) (quoting Access Now, Inc. v.
Sw. Airlines Co.,
385 F.3d 1324, 1330 (11th Cir. 2004)). The district court
dismissed Hays’s complaints of breach of fiduciary duties and of contract as
duplicative of his complaint about professional malpractice, and Hays does not
contest that determination. We deem abandoned any challenge Hays might have
raised to the dismissal of that part of his complaint.
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Hays’s complaint also is insufficient to state a claim against Page and Perry.
The complaint alleges that “Page and Perry, as the senior partners of the firm, are
vicariously liable in respondeat superior for the acts of Defendants Parker, Terry
and MacIntyre in the course of their employment,” but under Georgia law, “a
member[ or] manager . . . of a limited liability company is not liable, solely by
reason of [his position], . . . for the acts or omissions of any other member,
manager, agent, or employee of the limited liability company, whether arising in
contract, tort, or otherwise.” Ga. Code Ann. § 14-11-303(a). Hays alleges that
“Page and Perry failed to adequately supervise Defendants Parker, Terry, and
MacIntyre,” but the complaint is devoid of any factual matter pertaining to Page’s
or Perry’s oversight of other lawyers. Hays argues that “Perry . . . likely ‘managed
the relationship’” with Lighthouse, “Page and Perry were consulted on key events
when the fraud was detected by the regulators and the firm wrestled with its legal
and ethical obligations,” and “all of the partners met and discussed what to do
when their client’s CEO needed separate criminal counsel,” but these facts are not
stated in the complaint. “For an employer to be held liable for negligent
supervision, there must be sufficient evidence to establish that the employer
reasonably knew or should have known of an employee’s tendencies to engage in
certain behavior relevant to the injuries allegedly incurred by the plaintiff.” Novare
Grp., Inc. v. Sarif, 718 S.E.2d 304, 309 (Ga. 2011) (internal quotation marks and
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citation omitted). The complaint is devoid of allegations that Parker, Terry, and
MacIntyre had a tendency to engage in malpractice or that Page and Perry knew or
should have been aware of such tendencies.
The district court did not err by dismissing Hays’s complaint. Because the
complaint lacked well-pleaded facts from which the district court could draw a
reasonable inference that any lawyer was liable for misconduct, the complaint was
properly dismissed for failure to state a claim.
IV. CONCLUSION
We AFFIRM the dismissal of Hays’s complaint.
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