Lawarre v. Fifth Third Secs., Inc.
2012 Ohio 4016
Ohio Ct. App.2012Background
- Plaintiffs LaWarre, Papa, Eagle Flight Investments, Property Asset Management, and LAJ, Inc. sued Fifth Third Securities and Fifth Third Bank after substantial losses from an options strategy run by Hughes, with Papa owning the investment entities and all plaintiffs relying on Fifth Third’s advisory relationship.
- Fifth Third Bank and Fifth Third Securities operated together informally as Fifth Third Financial Advisors, sharing personnel (Collins, Sturgeon, Hughes) and supervisory structure.
- Collins (LaWarre’s banker) and Sturgeon (Papa’s) introduced Hughes to the clients; they signed documents containing risk disclosures that warned about the high risks of options trading.
- In 2006–2007, Fifth Third placed Hughes under supervisor scrutiny; later, a six‑month restriction was eased after compliance approval, before Hughes left for FHJ in 2007.
- After Hughes left, plaintiffs transferred their accounts to FHJ seeking Hughes’s strategy; losses at FHJ totaled millions; plaintiffs asserted negligence, breach of fiduciary duty, fraud, breach of contract, and related claims; trial court granted summary judgment for Fifth Third on most tort and contract claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty and proximate causation for tort claims | LaWarre and Papa allege Fifth Third breached duties while Hughes was their advisor | Fifth Third did not owe post‑transfer duties; damages occur after transfer | No liability; post‑transfer damages not caused by Fifth Third; summary judgment affirmed for Fifth Third on torts |
| Breach of contract—suitability and warning | Contract breach due to recommending unsuitable investments and failing to warn | Contract unambiguously warned of risks; sophisticated investors; no damages shown | No breach; contract interpreted under MA law; no proximate damages; summary judgment for Fifth Third on contract claims |
| Ohio/Kentucky Blue Sky Act claims | Claims of fraud/fraudulent nondisclosure under securities acts | No misrepresentation or reliance proven; warnings and disclosures adequate | Summary judgment for Fifth Third on statutory claims |
| Fraud and negligent misrepresentation—reliance and causation | Fiduciary relationship and disclosures misled plaintiffs into continuing with Hughes | Warnings given; reliance questioned; damages post‑transfer not linked to pre‑transfer acts | Issues of material fact remain; but majority holds some relief precludes summary judgment on some claims; see dissenting views |
| Economic loss rule applicability | Tort claims arise from independent duties; not barred by contract | Overlap with contract; damages relate to contract | As to some fiduciary/tort claims, genuine issues of material fact remain; majority allows some tort claims to proceed; see dissent |
Key Cases Cited
- Herbert v. Banc One Brokerage Corp., 93 Ohio App.3d 271 (1st Dist.1994) (duty to warn third parties and scope of fiduciary duties discussed; proximate cause analysis framework)
- Temple v. Wean United, Inc., 50 Ohio St.2d 317 (Ohio Supreme Court) (summary judgment standards and evidentiary review)
- Greene v. Whiteside, 181 Ohio App.3d 253 (1st Dist.2009) (summary judgment and due consideration of evidence on contracts/torts)
- Stinespring v. Natorp Garden Stores, 127 Ohio App.3d 213 (1st Dist.1998) (material facts standard and reliance on evidence for summary judgment)
- Blon v. Bank One, 35 Ohio St.3d 98 (1988) (fiduciary disclosure duties and reliance considerations)