Burdick v. Horner Townsend & Kent, Inc.
345 P.3d 531
Utah2015Background
- HTK (Hornor, Townsend & Kent), a Utah broker-dealer, employed registered rep Jeffrey Campbell, who marketed under the dba Five Star Financial Group (FSFG). Campbell resigned/inactivated his HTK securities license in Oct 2002 and thereafter sold unregistered Beverly Hills Development Corp. (BHDC) promissory notes.
- Campbell pleaded no contest to selling unregistered securities and was ordered to pay restitution; plaintiffs subsequently sued Campbell, HTK, FSFG and others for securities violations, negligent misrepresentation, negligent training/supervision, material aid, control-person liability, and related claims.
- The district court granted summary judgment to HTK on apparent-authority agency claims (dividing plaintiffs into those who dealt with Campbell while he was affiliated with HTK and those who first dealt with him after resignation), negligent supervision/training, material aid, and enforced a release signed by one investor (Howell).
- Plaintiffs then tried Campbell at jury trial and prevailed against him; after trial they sought attorney fees under Utah securities law. The district court denied fees in full because it found the fee affidavit failed to segregate work between HTK and Campbell.
- On appeal the Utah Supreme Court affirmed summary judgment for HTK on apparent authority, negligence and material-aid theories, affirmed enforcement of Howell’s release, reversed the denial of attorney fees (remanding for calculation) and affirmed the district court’s discretion to strike late evidence presented on reconsideration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HTK is liable under apparent authority for Campbell’s sale of BHDC notes (state securities & negligent misrepresentation) | Plaintiffs: HTK’s manifestations (shared office, shared phone/computers, prior affiliation, no client notice) created apparent authority and plaintiffs relied on HTK when investing | HTK: No manifestation by HTK that cloaked Campbell; many plaintiffs first dealt with Campbell after resignation; no evidence plaintiffs invested because of HTK | Affirmed for HTK — plaintiffs failed to prove required elements (reliance for some; manifestation for others) |
| Whether HTK had a duty/negligence independent of agency/supervision (general negligence) | Plaintiffs: HTK owed direct duties to customers irrespective of agency status | HTK: Claim was not pled or argued at summary judgment; raised first on reconsideration | Affirmed — district court did not abuse discretion in declining to consider a new negligence theory raised on reconsideration |
| Whether district court abused discretion by striking evidence supporting control-person liability (late evidence on reconsideration) | Plaintiffs: New CRD, NASD/FINRA materials showed HTK control and should have been considered | HTK: Evidence was available earlier and untimely; plaintiffs raised control theory only on reconsideration | Affirmed — court properly struck untimely evidence and declined new theory raised on reconsideration |
| Whether HTK materially aided Campbell in selling unregistered securities (joint/several liability) | Plaintiffs: HTK’s failure to eliminate Campbell’s apparent authority and other conduct amounted to material aid under Utah Code | HTK: No apparent authority exists; plaintiffs’ material-aid theory thus fails | Affirmed for HTK — material-aid claim fails because apparent authority was not established |
| Whether Howell’s release to Penn Mutual (HTK subsidiary) bars Howell’s BHDC-related claims | Howell: Release was ambiguous and should not bar claims unrelated to the insurance policy | HTK/Penn Mutual: Release language is broad and unambiguously releases any claims related to dealings with Campbell | Affirmed — Pennsylvania-law analysis: release language is clear and bars Howell’s claims against HTK |
| Whether district court abused discretion by denying all attorney fees after plaintiffs’ success against Campbell | Plaintiffs: Contingent fee agreement and affidavit support fees; district court should award fees for Campbell-specific work | HTK: Plaintiffs’ affidavit failed to segregate work between HTK and Campbell; impossible to determine reasonable fee allocation | Reversed in part and remanded — court abused discretion in denying fees in whole; remand to calculate reasonable fees and allocate between Campbell-successful work and other matters |
Key Cases Cited
- Merck & Co. v. Reynolds, 559 U.S. 633 (U.S. 2010) (statute of limitations principles relevant to securities claims)
- Luddington v. Bodenvest, Ltd., 855 P.2d 204 (Utah 1993) (articulates three-part test for apparent authority)
- Grazer v. Jones, 289 P.3d 437 (Utah 2012) (discusses apparent authority and agency principles)
- Dixie State Bank v. Bracken, 764 P.2d 985 (Utah 1988) (framework for assessing reasonable attorney fees)
- Kealamakia, Inc. v. Kealamakia, 213 P.3d 13 (Utah Ct. App. 2009) (contingency fee agreements not sole determinant of fee award)