DOUGLAS M. PATERSON, ET AL. v. EQUITY TRUST COMPANY
C.A. No. 11CA009993
IN THE COURT OF APPEALS NINTH JUDICIAL DISTRICT COUNTY OF LORAIN, OHIO
March 5, 2012
[Cite as Paterson v. Equity Trust Co., 2012-Ohio-860.]
WHITMORE, Presiding Judge.
APPEAL FROM JUDGMENT ENTERED IN THE COURT OF COMMON PLEAS COUNTY OF LORAIN, OHIO CASE No. 09CV160723
WHITMORE, Presiding Judge.
{¶1} Plaintiff-Appellants, Douglas Paterson and Douglas Paterson as Beneficiary of Equity Trust Company FBO Douglas Paterson IRA No. 70492 (collectively “Paterson“), appeal from the judgment of the Lorain County Court of Common Pleas, granting summary judgment in favor of Defendant-Appellee, Equity Trust Company (“Equity Trust“). This Court affirms.
I
{¶2} Paterson acquired a public retirement fund after he spent numerous years as a public employee in Michigan. Seeking help with bookkeeping and investment opportunities, Paterson hired Jeff Sadlak, an investment advisor for whom Paterson had received a recommendation. Sadlak eventually suggested that Paterson invest in a real estate venture through a company named Williamston Holdings, LLC (“Williamston“). According to Sadlak, he had identified a piece of property in Williamston, Michigan worth far more than the debt due on the land. Williamston would use its investors’ funds to eliminate the debt and flip the
{¶3} On February 13, 2007, Equity Trust received two letters and a direction of investment form, requesting the transfer of $66,666.66 from Paterson‘s IRA to Williamston. The second letter indicated that the transfer to Williamston represented a loan and Equity Trust would be forwarded a properly executed loan agreement as well as a security agreement, pledging shares of Williamston as security for the loan. The letters and the form all bore Paterson‘s signature, but he never signed the documents. Rather, Sadlak signed Paterson‘s name on the documents and sent them to Equity Trust. Pursuant to the letters and the form, Equity Trust transferred $66,666.66 to Williamston. Paterson‘s quarterly statements from Equity Trust reflected the transfer to Williamston.
{¶4} Equity Trust never received a promissory note or security agreement as collateral for the loan. In early summer 2008, Paterson learned that the property in which he had invested through Williamston was being foreclosed upon and that he did not have any secured ownership interest in the property. Paterson ultimately asked Equity Trust to reimburse the $66,666.66 it transferred to Williamston because he never signed for the transfer. Equity Trust refused.
{¶5} On February 12, 2009, Paterson filed suit against Equity Trust for conducting a sale in violation of Ohio‘s securities laws as well as for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, and intentional and negligent misrepresentation. Equity Trust filed a motion for summary judgment on December 30, 2010.
{¶6} Paterson now appeals from the trial court‘s judgment and raises three assignments of error for our review.
II
Assignment of Error Number One
THE TRIAL COURT ERRED WHEN IT GRANTED SUMMARY JUDGMENT FOR EQUITY TRUST COMPANY ON COUNT V, MR. PATERSON‘S CLAIM THAT EQUITY TRUST WAS LIABLE TO HIM FOR ITS VIOLATION OF
O.R.C. 1707 ET SEQ. , THE OHIO SECURITIES ACT, BECAUSE GENUINE ISSUES OF MATERIAL FACT EXIST AS TO WHETHER MR. PATERSON‘S INVESTMENT WAS A SECURITY REQUIRED TO BE REGISTERED AND WHETHER EQUITY TRUST‘S ACTS CONSTITUTE AIDING OR PARTICIPATING IN THE SALE TO HIM OF THAT SECURITY.
{¶7} In his first assignment of error, Paterson argues that the trial court erred by concluding that Equity Trust was entitled to summary judgment on his claim under
{¶8} This Court reviews an award of summary judgment de novo. Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105 (1996). Pursuant to
(1) No genuine issue as to any material fact remains to be litigated; (2) the moving party is entitled to judgment as a matter of law; and (3) it appears from the evidence that reasonable minds can come to but one conclusion, and viewing
such evidence most strongly in favor of the party against whom the motion for summary judgment is made, that conclusion is adverse to that party.
Temple v. Wean United, Inc., 50 Ohio St.2d 317, 327 (1977). The party moving for summary judgment bears the initial burden of informing the trial court of the basis for the motion and pointing to parts of the record that show the absence of a genuine issue of material fact. Dresher v. Burt, 75 Ohio St.3d 280, 292-293 (1996). Specifically, the moving party must support the motion by pointing to some evidence in the record of the type listed in
{¶9}
[t]he person making such sale or contract for sale, and every person that has participated in or aided the seller in any way in making such sale or contract for sale, are jointly and severally liable to the purchaser, in an action at law in any court of competent jurisdiction, upon tender to the seller in person or in open court of the securities sold or of the contract made, for the full amount paid by the purchaser and for all taxable court costs, unless the court determines that the violation did not materially affect the protection contemplated by the violated provision.
{¶10} Paterson‘s theory here was that Sadlak sold him an investment in Williamston that was required to be registered as a security.
“Security” means any certificate or instrument, or any oral, written, or electronic agreement, understanding, or opportunity, that represents title to or interest in, or is secured by any lien or charge upon, the capital, assets, profits, property, or credit of any person or of any public or governmental body, subdivision, or agency. It includes shares of stock, certificates for shares of stock, an uncertificated security, membership interests in limited liability companies, voting-trust certificates, warrants and options to purchase securities, subscription rights, interim receipts, interim certificates, promissory notes, all forms of commercial paper, evidences of indebtedness, bonds, debentures, land trust certificates, fee certificates, leasehold certificates, syndicate certificates, endowment certificates, interests in or under profit-sharing or participation agreements, interests in or under oil, gas, or mining leases, preorganization or reorganization subscriptions, preorganization certificates, reorganization certificates, interests in any trust or pretended trust, any investment contract, any life settlement interest, any instrument evidencing a promise or an agreement to pay money, warehouse receipts for intoxicating liquor, and the currency of any government other than those of the United States and Canada, but sections 1707.01 to 1707.45 of the Revised Code do not apply to the sale of real estate.
{¶11} There is no dispute that Equity Trust did not sell Paterson the alleged security here. At most, Equity Trust aided or participated in the sale of a security between Paterson and
{¶12} ”
{¶13} In the absence of proof that there was a “security” here, Equity Trust could not be liable for aiding or participating in the sale of an unregistered security. Paterson failed to show that a genuine issue of material fact exists with regard to whether he purchased a security. Accordingly, the trial court did not err by granting summary judgment in favor of Equity Trust on Paterson‘s claim under
Assignment of Error Number Two
THE TRIAL COURT ERRED WHEN IT GRANTED SUMMARY JUDGMENT FOR EQUITY TRUST COMPANY ON COUNT III, MR. PATERSON‘S BREACH OF FIDUCIARY DUTY CLAIM, BECAUSE WHETHER EQUITY TRUST OWED MR. PATERSON A FIDUCIARY DUTY IN THE CIRCUMSTANCES AND, IF SO, WHETHER EQUITY TRUST BREACHED THIS FIDUCIARY DUTY, ARE FACTUAL QUESTIONS.
{¶14} In his second assignment of error, Paterson argues that the trial court erred by concluding that Equity Trust was entitled to summary judgment on his claim for breach of fiduciary duty. Specifically, he argues that genuine issues remain as to whether Equity Trust, as his agent, failed to exercise reasonable care to protect his IRA account. We disagree.
{¶15} Because this assignment of error also stems from the trial court‘s summary judgment decision, we incorporate the standard of review set forth in the first assignment of error.
{¶16} The IRA Application Paterson admitted to signing contains the following provisions:
8.03 Representations and Responsibilities:
(a) * * * By performing services under this Agreement [Equity Trust] [is] acting as your agent. You acknowledge and agree that nothing in this Agreement shall be construed as conferring fiduciary status upon us.
* * *
8.05 Investment of Amounts in the IRA:
* * *
(b) Custodian Acting in Passive Capacity Only. [Equity Trust] [is] acting solely as a passive custodian to hold IRA assets and we have no discretion to direct any investment in your IRA. Accordingly, we are not a fiduciary * * * with respect to your IRA account.
The unambiguous terms of the application support the conclusion that no fiduciary relationship existed between Paterson and Equity Trust. Further, this Court has refused to recognize the existence of a fiduciary relationship between the custodian of a self-directed IRA and an investor in similar circumstances. Tarquinio v. Equity Trust Co., 9th Dist. No. 06CA008913, 2007-Ohio-3305, ¶ 10-16.
{¶18} Paterson also argues on appeal that, as a matter of public policy, Equity Trust should not be permitted to disclaim its fiduciary duty as an agent by contract. The record reflects that Paterson did not make this argument in the court below. As such, he cannot raise it for the first time on appeal. Morgan v. Village of Silver Lake, 9th Dist. No. 25148, 2010-Ohio-3581, ¶ 11.
{¶19} Because Paterson failed to demonstrate that any genuine issue of material fact exists here with regard to whether Equity Trust owed him a fiduciary duty, the trial court did not err by concluding that Equity Trust was entitled to summary judgment on the claim for breach of a fiduciary duty. Paterson‘s second assignment of error is overruled.
Assignment of Error Number Three
THE TRIAL COURT ERRED WHEN IT GRANTED SUMMARY JUDGMENT FOR EQUITY TRUST COMPANY ON COUNT I, MR. PATERSON‘S BREACH OF CONTRACT CLAIM, BECAUSE WHETHER EQUITY TRUST FORMED AN ADEQUATE “BELIEF” THAT THE DIRECTION OF INVESTMENT FORM WAS “GENUINE” AS REQUIRED BY THE APPLICATION AGREEMENT IS AN ISSUE OF MATERIAL FACT FOR THE JURY.
{¶21} Once again, we incorporate the standard of review and summary judgment law set forth in Paterson‘s first assignment of error. “Ratification has been defined as the approval by act, word, or conduct of that which was improperly done.” AFCO Credit Corp. v. Brandywine Ski Ctr., Inc., 81 Ohio App.3d 217, 221 (9th Dist.1992). A principal may ratify the unauthorized acts of his agent, “and such ratification relates back to the time of performance of the acts and binds the principal from that time.” Penn Traffic Co. v. AIU Ins. Co., 99 Ohio St.3d 227, 2003-Ohio-3373, ¶ 16, quoting State v. Warner, 55 Ohio St.3d 31, 65 (1990). Even an unauthorized signature may be ratified. Beneficial Mortg. Co. of Ohio v. Ludrosky, 9th Dist. No. 2311-M, 1994 WL 687204, *4 (Dec. 7, 1994). Ratification may be implied through conduct in the absence of an express ratification. Campbell v. Hospitality Motor Inns, Inc., 24 Ohio St.3d 54, 57 (1986). Additionally, ratification may occur when a principal, having knowledge of his agent‘s acts, fails to repudiate them within a reasonable period of time. Id.
{¶22} Paterson claimed that Equity Trust breached its contract with him by disbursing the funds from his IRA on the basis of a forged signature. Equity Trust argued that it was entitled to summary judgment because Paterson ratified Sadlak‘s forgeries. In his deposition, Paterson admitted that he agreed to open a self-directed IRA with Equity Trust for the purpose of transferring funds to Williamston. He signed the account application, which Sadlak witnessed, on January 29, 2007. Paterson testified that he wanted to invest his money in Williamston and
Q: * * * [W]hen did you become aware that your IRA made an investment in the Williamston property?
A: I believe [Sadlak] told me, and then I saw it on the * * * quarterly statement. I think the first quarterly statement that came reflected that there was a $66,000 investment in the Williamston property.
* * *
Q: And when [Sadlak] told you it had been invested, did you raise any objection?
A: No.
Q: In fact, this is what you wanted; was it not?
A: Yes.
Q: And it was your intent to invest the $66,666.66 in the Williamston property, as you referred to it, right?
A: That‘s correct.
Paterson testified that he was aware Sadlak was sending forms to Equity Trust on his behalf. Although Paterson testified that he did not sign the letters or direction of investment form that Sadlak sent to Equity Trust, he could not recall if Sadlak told him he was sending the items on Paterson‘s behalf. Paterson stated that he only became dissatisfied with his investment when he learned that it fell through.
{¶23} Paterson argues that he could not ratify the disbursement of his funds here because he did not have full knowledge of the facts. Specifically, he argues that he did not know Sadlak forged his signature and had he known Sadlak “was in fact a common criminal * * * he would have instantly canceled the investment.” Paterson‘s deposition testimony was not clear on this point, however, as he said he knew Sadlak was sending forms to Equity Trust on his behalf and just did not recall if Sadlak had told him he sent those items. More importantly, it is
III
{¶24} Paterson‘s assignments of error are overruled. The judgment of the Lorain County Court of Common Pleas is affirmed.
Judgment affirmed.
There were reasonable grounds for this appeal.
We order that a special mandate issue out of this Court, directing the Court of Common Pleas, County of Lorain, State of Ohio, to carry this judgment into execution. A certified copy of this journal entry shall constitute the mandate, pursuant to App.R. 27.
Immediately upon the filing hereof, this document shall constitute the journal entry of judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the period for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is
Costs taxed to Appellants.
BETH WHITMORE
FOR THE COURT
DICKINSON, J.
CONCURS
CARR, J.
DISSENTS
APPEARANCES:
NANCY C. SCHUSTER, Attorney at Law, for Appellants.
KENNETH A. BRAVO and ISAAC J. EDDINGTON, Attorneys at Law, for Appellee.