KEVIN H. SHARP, District Judge.
Defendant Johnston Barton Proctor & Rose, LLP ("Defendant" or "Johnston Barton") filed a Motion for Summary Judgment (Docket Entry No. 44), to which Plaintiff Timothy Pagliara ("Plaintiff" or "Pagliara") filed a response in opposition (Docket Entry No. 54), and Defendant filed a reply (Docket Entry No. 59).
Plaintiff is a licensed securities broker.
Eventually, there was a falling out between Capital Trust and NBCS, wherein ongoing "protracted litigation" between the parties ensued. Defendant, Johnston Barton, is a Birmingham, Alabama, law firm, who was initially hired to represent NBCS in connection with the litigation.
In late 2009 or early 2010, NBCS received a complaint from one of Plaintiff's longtime clients, Philip Butler ("Butler"). Butler had requested advice on how to invest a $100,000.00 certificate of deposit that was about to mature. In March 2008, Plaintiff, working as a registered representative of NBCS, invested $98,315.00 of Butler's funds in three different bank stocks: Bank of America Corp., Regions Financial Corp., and Fifth Third Bankcorp. Before long, the financial crisis occurred, and by the end of the year, the value of the bank stocks had fallen precipitously. This investment formed the basis of Butler's complaint against NBCS and Plaintiff.
On January 20, 2010, Butler's counsel, Jonathan Butler ("J. Butler")
Shortly after receipt of the Butler demand and in accordance with its internal policies, NBCS asked Plaintiff to provide all documents related to the Butler portfolio and a written statement responding to the issues raised in the demand, and instructed Plaintiff that he was not to have contact with Butler about the claims.
After receiving the Butler demand, Plaintiff contacted Butler directly and offered to settle all claims against himself and NBCS for just below $15,000.00.
The License Agreement between Capital Trust and NBCS contains an indemnity provision:
(Docket Entry No. 47 at Exh. B). On February 4, 2010, Plaintiff e-mailed a letter to NBCS notifying NBCS that Capital Trust intended to defend Butler's claims in arbitration and stated, "[w]e object to any payment by NBC Securities, Inc. to settle this frivolous claim."
To evaluate Butler's claims, NBCS and Miller reviewed the Butler demand, Plaintiff's rebuttal to that letter, and the documents in the client's file.
On May 10, 2010, NBCS settled the Butler claim for $30,000.00. (Docket Entry No. 47-27 and Docket Entry No. 47-3, Wilkins Dep. at p. 159). Plaintiff was not involved in the negotiation process or made a party to the settlement. Phelan, however, was involved in the decision to settle the Butler demand and ultimately it was Phelan who made the decision that NBCS would settle with Butler for $30,000.00.
Plaintiff had previously told Butler directly that he would never settle for or above the reporting threshold of $15,000.00 and further informed Butler he would not be a party to a settlement in excess of the $15,000.00 FINRA reporting threshold. It is Plaintiff's belief that "NBCS looked at Mr. [Butler]'s claim as an opportunity to exact some form of revenge against Mr. Pagliara. It saw an opportunity to harm his reputation and to damage his 27-year spotless regulatory record, and it seized the opportunity." (Docket Entry No. 1-1 at ¶ 22).
According to Phelan, he "gave no thought to Mr. Pagliara's reporting obligations in connection with any such settlement." (Docket Entry No. 47-22, Phelan Dep. at p. 30). Phelan testified in his deposition as follows:
(Phelan Dep. at p. 28). Miller testified that the settlement with Butler was not intentionally negotiated or arrived at in any manner to achieve a result harmful to Plaintiff. Similarly, Butler's counsel testified about the settlement as follows:
(Docket Entry No. 47-6, J. Butler Dep. at p. 118-119).
Butler's counsel found Miller to be professional and interested in addressing the issue. When asked during his deposition if he was aware of any bad faith on the part of Johnston Barton's Kurt Miller, Butler's lawyer testified:
According to Defendant, it was Miller's intent, when he agreed on NBCS's behalf to settle Butler's claim for $30,000.00, that any claims against Pagliara would also be released as part of that settlement. (Miller Dep. at p. 32). Butler's counsel testified that Miller called him after the $30,000.00 agreement was reached and expressed that he (Miller) had believed the $30,000.00 would be a full and final settlement and would wrap up the whole matter — including claims against Pagliara. (J. Butler Dep. at p. 108-109). Contrary to Defendant's assertion, Plaintiff argues that even the first draft of the Settlement Agreement that Miller provided to J. Butler excluded Pagliara from the release.
Shortly after the settlement, NBCS amended its Form U-5 filing to reflect the settlement reached with Butler. NBCS's amended Form U-5 filing explicitly stated that the settlement did not include any claims against Pagliara. Pagliara had 30 days from time of settlement to report it on his Form U-4. On March 30, 2011, nearly eleven months after NBCS settled with Butler, Pagliara amended his Form U-4 to disclose for the first time that NBCS had settled with Butler for $30,000.00.
Phelan testified that although the License Agreement gave NBCS the express right to request indemnity from Pagliara for the settlement amount, NBCS ultimately determined not to seek reimbursement from Pagliara for any portion of its settlement with Butler since the settlement did not include Pagliara and was only a settlement of any claims against NBCS. (Phelan Dep. at p. 32-33). Plaintiff alleges, on the other hand, that pursuant to the License Agreement, NBCS initially planned to seek indemnity from Capital Trust for the costs of defending the Butler claims and for any damages eventually paid. But, after settling, and after allegedly consulting additional counsel, NBCS decided to not seek indemnification. Thus, neither Plaintiff nor Capital Trust paid anything in connection with the Butler settlement.
Based on these events, Plaintiff filed suit in the Williamson County Chancery Court. Defendants removed the suit to this Court based upon diversity jurisdiction.
On October 16, 2010, the Court entered an Order and Memorandum ("Judge Trauger Memorandum Opinion") granting in part and denying in part Defendant's motion to dismiss. See (Docket Entry Nos. 27-28). The Court dismissed Plaintiff's claims for violations under the Tennessee Consumer Protection Act and for "intentional infliction of harm." The Court did not dismiss Plaintiff's breach of fiduciary duty claim, holding that the allegations of the Complaint, if true, "are sufficient to create at least a limited fiduciary duty." (Docket Entry No. 27 at 18).
Plaintiff now asserts a single claim for breach of fiduciary duty. He alleges Defendant breached a duty owed to him, wherein the evidence shows (1) lack of good faith, (2) the settlement was not a reasonable compromise, and (3) intent to harm Plaintiff. (Docket Entry No. 54 at 15-17). Defendant has moved for summary judgment on this claim.
A party may obtain summary judgment if the evidence establishes there are not any genuine issues of material fact for trial and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Covington v. Knox County School Sys., 205 F.3d 912, 914 (6
To defeat a properly supported motion for summary judgment, the nonmoving party must set forth specific facts showing that there is a genuine issue of material fact for trial. If the party does not so respond, summary judgment will be entered if appropriate. Fed. R. Civ. P. 56(e). The nonmoving party's burden of providing specific facts demonstrating that there remains a genuine issue of material fact for trial is triggered once the moving party shows an absence of evidence to support the nonmoving party's case. Celotex, 477 U.S. at 325. A genuine issue exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. In ruling on a motion for summary judgment, the Court must construe the evidence in the light most favorable to the nonmoving party, drawing all justifiable inferences in its favor. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
Overstreet v. TRW Commercial Steering Div., 256 S.W.3d 626, 641-42 (Tenn. 2008) (Koch, J., concurring) (footnotes omitted) (citing McRedmond v. Estate of Marianelli, 46 S.W.3d 730, 738 (Tenn. Ct. App. 2000); Restatement (Second) of Torts § 874 cmt. a (1979)). "Proof of damages is an essential element of" a fiduciary duty claim, Union Planters Bank of Middle Tenn. v. Choate, No. M1999-01268-COA-R3-CV, 2000 WL 1231383, at *3 (Tenn. Ct. App. Aug. 31, 2000), as is causation of damages. See Restatement (Second) of Torts § 874 ("One standing in a fiduciary relation with another is subject to liability to the other for harm resulting from a breach of duty imposed by the relation." 23 Tennessee Practice Elements of an Action § 8:1 (2009) (including damages and proximate cause as elements to the cause of action for fiduciary duty).
"Under Tennessee common law, there are two principal types of fiduciary status." Foster Bus. Park, LLC v. Winfree, No. M2006-02340-COA-R3-CV, 2009 WL 113242, at *12 (Tenn. Ct. App. Jan. 15, 2009) (citing Steven W. Feldman, Tennessee Practice: Contract Law and Practice § 6.13, at 504 (2006)). "The first category of common law fiduciary status consists of relationships that are fiduciary per se ... such as between a guardian and ward, an attorney and client, or conservator and incompetent." Id. (citing Kelly v. Allen, 558 S.W.2d 845, 848 (Tenn. 1977); Mitchell v. Smith, 779 S.W.2d 384, 389 (Tenn. Ct. App. 1989); Parham v. Walker, 568 S.W.2d 622, 625 (Tenn. Ct. App. 1978)).
A relationship which is not fiduciary per se may become a fiduciary relationship where one party has exercised "`dominion and control over another.'" Id. (quoting Kelley v. Johns, 96 S.W.3d 189, 197 (Tenn. Ct. App. 2002)). "This relationship, often called a `confidential relationship,' `is not merely a relationship of mutual trust and confidence, but rather it is one `where confidence is placed by one in the other and the recipient of that confidence is the dominant personality, with ability, because of that confidence, to influence and exercise dominion and control over the weaker or dominated party.'" Id. (quoting Kelley, 96 S.W.3d at 197; Iacometti v. Frassinelli, 494 S.W.2d 496, 499 (Tenn. Ct. App. 1973)); see also Roberts v. Chase, 25 Tenn.App. 636, 166 S.W.2d 641, 650-51 (Tenn. Ct. App. 1942). "Relationships that are not fiduciary per se `require proof of the elements of dominion and control in order to establish the existence of a confidential relationship.'" Id. (quoting Kelley, 96 S.W.3d at 197). "Because confidential relationships can assume a variety of forms, the courts have been hesitant to define precisely what a confidential relationship is and the court must look to the particular facts and circumstances of the case to determine whether one party exercised dominion and control over another, weaker party." Id. at *13 (citing Roberts v. Roberts, 827 S.W.2d 788 (Tenn. Ct. App. 1991)).
As the Court states in the Memorandum Opinion, courts from other states have recognized that this type of confidential relationship can exist between a lawyer and a nonclient. See e.g., Chem-Age Indus. v. Glover, 652 N.W.2d 756, 772 (S.D. 2002); Greenberg Traurig of N.Y., P.C. v. Moody, 161 S.W.3d 56, 78 (Tex. App. 2004); Fassihi v. Sommers, Schwartz, Silver, Schwartz & Tyler, P. C., 309 N.W.2d 645, 648 (Mich. Ct. App. 1981). This type of fiduciary relationship is also recognized in the Mallen & Smith treatise. See Legal Malpractice § 15:3 ("A fiduciary relationship can exist if a person is entitled to place trust and confidence in another, who may happen to be a lawyer."). (Docket Entry No. 27 at 17).
In the present case, the Court previously opined that "the allegations of the Complaint, if true, are sufficient to create at least a limited fiduciary relationship." (Docket Entry No. 27 at 18). The Court further added:
(Id. at 18-19) (emphasis added).
Plaintiff maintains the evidence presented in this case demonstrates that Defendant "acted with a lack of good faith in numerous respects." (Docket Entry No. 54 at 15). Plaintiff claims (1) Defendant breached his contractual rights to defend the Butler claim, (2) Defendant carved him out of the release provision of the Settlement Agreement, (3) the Settlement Agreement left him exposed to further claims by Butler
Defendant asserts, conversely, that there is "no evidence upon which a jury could reasonably find that Johnston Barton worked in concert with its client, NBC[S], to purposely inflate the settlement amount beyond the actual value of Butler's claim or did so with the intent of blemishing Pagliara's regulatory record." (Docket Entry No. 46 at 18). Defendant advised NBCS on the "risks, uncertainty, and costs of defending the claim," and ultimately NBCS made a decision to settle if it could be "accomplished on a reasonable basis." (Id.). Furthermore and of importance, under the License Agreement, NBCS had the exclusive right to settle any claim against it or its representatives, without prior approval of Capital Trust or Plaintiff. (Id. at 23 and Docket Entry No. 47 at Exh. B).
After analyzing the particular facts and circumstances of this case, it is apparent that the relationship between Plaintiff and Defendant was one "where (at least partially) confidence was placed by one in the other and the recipient of that confidence was the dominant personality, with ability, because of that confidence, to influence and exercise dominion and control over the weaker or dominated party." See Winfree, No. M2006-02340-COA-R3-CV, 2009 WL 113242, at *12 (Tenn. Ct. App. Jan. 15, 2009).
Nevertheless, having considered this Court's previous Memorandum and Opinion in relation to the pending motion for summary judgment and the particular facts and circumstances herein, the undersigned finds the evidence shows that Defendant negotiated the settlement in good faith (with no intent to harm Plaintiff's reputation) and that the settlement was a reasonable compromise of Butler's claim; therefore, Defendant discharged its duty to Pagliara. Furthermore, there has been no evidence presented wherein Defendant worked in concert with NBCS to purposely inflate the settlement amount beyond the actual value of the claim. Consequently, Plaintiff's allegations are insufficient to support his breach of fiduciary claim.
"Proof of damages is an essential element of" a fiduciary duty claim, Union Planters Bank of Middle Tenn. v. Choate, No. M1999-01268-COA-R3-CV, 2000 WL 1231383, at *3 (Tenn. Ct. App. Aug. 31, 2000), as is causation of damages. See Restatement (Second) of Torts § 874 ("One standing in a fiduciary relation with another is subject to liability to the other for harm resulting from a breach of duty imposed by the relation."); 23 Tennessee Practice Elements of an Action § 8:1 (2009) (including damages and proximate cause as elements to the cause of action for fiduciary duty).
Plaintiff claims he is entitled to recover for the mental suffering he has incurred as a result of Defendant's intentional breach of fiduciary duty.
Tennessee permits the recovery of damages for emotional injuries standing alone that result from another's extreme or outrageous conduct. Wilson, et al., 2008 WL 4211117 at *6 (Tenn. Ct. App. 2008); Moorhead v. J.C. Penney Co., Inc., 555 S.W.2d 713 (Tenn. 1977) (permitting recovery of damages for mental distress without accompanying physical injury where the mental anguish was due to the "extreme and outrageous" conduct of the defendant).
Under Tennessee law, in order to establish a claim of intentional infliction of emotional distress, Plaintiff must prove that: (1) the conduct complained of must be intentional or reckless; (2) the conduct must be so outrageous that it is not tolerated by civilized society; and (3) the conduct must result in serious mental injury. Bain v. Wells, 936 S.W.2d 618, 622 (Tenn. 1997). Liability for intentional infliction of emotional distress is only appropriate where "the conduct has been so outrageous in character and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community." Bryan v. Campbell, 720 S.W.2d 62, 64 (Tenn. Ct. App. 1986).
Outrageous conduct does not include "mere insults, indignities, threats, annoyances, petty oppression or other trivialities." Lane v. Becker et al., 334 S.W.3d 756, 763 (Tenn. Ct. App. 2010); Levy v. Franks, 159 S.W.3d 66, 83 (Tenn. Ct. App. 2004); Arnett v. Domino's Pizza I, LLC, 124 S.W.3d 529, 539 (Tenn. Ct. App. 2003) (quoting Bain, 936 S.W.2d at 622). A plaintiff seeking damages for intentional infliction of emotional distress must meet an "exacting standard." Lane, 334 S.W.3d 756, 763 (citing Miller v. Willbanks, 8 S.W.3d 607, 614 (Tenn. 1999)). "Recovery for intentional infliction of emotional distress is limited to mental injury, which is so severe that no reasonable person would be expected to endure it." Id. (citing Arnett, 124 S.W.3d at 540).
While Plaintiff may have experienced some level of emotional anguish, Plaintiff's anger and trouble sleeping along with other related issues are simply insufficient to demonstrate the third element of intentional infliction of emotional distress — serious mental injury. See Bain, 936 S.W. 2d at 622; see also Vanover v. White, 2008 WL 2713711, *18 (E.D. Tenn. July 10, 2008)(serious mental injury is evinced by an inability to "cope" with the mental stress caused by the relevant events). As such, it is not necessary to consider whether the conduct alleged here "has been so outrageous in character and so extreme in degree, as to go beyond all possible bounds of decency."
Although Tennessee permits the recovery of damages for emotional injuries standing alone that result from another's extreme or outrageous conduct, the conduct complained of in this instance does not rise to that level injury. Hence, Plaintiff is not entitled to emotional damages
Therefore, Defendant is entitled to summary judgment on Plaintiff's sole remaining claim.
Lastly, Plaintiff avers even if the Court were to find he is not entitled to compensatory damages, he would "be entitled to nominal damages for Defendant's intentional tort," citing Pagan v. Vill. of Glendale, Ohio, 559 F.3d 477, 478 n.1 (6th Cir. 2009), wherein the Court held (in Morrison v. Bd. of Educ., 521 F.3d 602, 610 (6th Cir. 2008)) that nominal damages "are a symbolic recognition of harm that may be awarded without proof of actual harm and `have only a declaratory effect.'" (Docket Entry No. 54 at 21). Plaintiff requests a declaration that Defendant breached its duties to him. (Id.).
A plaintiff is not entitled to declaratory relief in the absence of a viable claim. See Evans v. Walgreen Co., 813 F.Supp.2d 897, 930 (W.D. Tenn. August 25, 2011) (citing Weiner v. Klais & Co., Inc., 108 F.3d 86, 92 (6th Cir. 1997) ("With regard to Count IV, in which plaintiff seeks declaratory relief, plaintiff has merely asserted a form of relief, not a cause of action. Plaintiff is not entitled to this relief in the absence of a viable claim."). As Plaintiff has no viable claim, the request for declaratory relief must fail.
Plaintiff further argues that "such an award of nominal damages would, in the case of this intentional tort, support assessment of punitive damages" against Defendant for its alleged misconduct... [and] given the proof of intentional and malicious conduct, [Plaintiff] would be entitled to punitive damages even [absent any] compensatory damages for emotional distress (Id. at 22-23) (emphasis added). Defendant disagrees and avers that "[e]ven if Plaintiff could prove he is entitled to nominal damages, [he] cannot prove actual damages, and is therefore not entitled to any punitive damages," citing B&L Corp. v. Thomas and Thorngren, Inc., 162 S.W.3d 189, 223 (Tenn. Ct. App. 2004). See (Docket Entry No. 59 at 9).
To recover punitive damages, a plaintiff must prove, by clear and convincing evidence, that the defendant engaged in intentional, fraudulent, malicious, or reckless conduct. Hodges v. S.C. Toof & Co., 833 S.W.2d 896, 901 (Tenn. 1992). A person acts intentionally when "it is the person's conscious objective or desire to engage in the conduct or cause the result" and maliciously when he is "motivated by ill will, hatred, or personal spite." Id.; see also Winkler v. Petersilie, 124 Fed.Appx. 925, 2005 WL 450595 (C.A.6 (Tenn. 2005)).
The Court is not persuaded that Defendant engaged in intentional, fraudulent, malicious, or reckless conduct in connection with the Butler matter. Further, Plaintiff failed to demonstrate proof of any damages — whether it be actual or nominal — which, likewise, precludes recovery of punitive damages. Consequently, Plaintiff is not entitled to punitive damages.
For all of the reasons stated, Defendant's Motion for Summary Judgment (Docket Entry No. 44) is hereby GRANTED.
An appropriate Order shall be entered.
