Court Reversed Summary Judgment For A Client As Against His Financial Advisor

by Winstead PC

In Kang v. Song, Song sued Kang for fraud, violations of the Texas Securities Act, violations of Texas’s Deceptive Trade Practices Act (DTPA), breach of fiduciary duty, negligent misrepresentation, breach of contract, and negligence based on Kang’s actions as Song’s investment adviser. No. 02-15-00148-CV, 2016 Tex. App. LEXIS 10198 (Tex. App.—Fort Worth September 15, 2016, no pet. history). Song filed a motion for traditional summary judgment on each of his claims. As evidence, Song relied on his affidavit, the affidavit of his attorney, and deemed admissions. Kang filed a response to the motion and an affidavit contradicting some of the statements in Song’s affidavit. The trial court granted summary judgment for Song, and awarded Song economic damages of $811,572.02, treble damages under the DTPA of $1,623,144.04, and attorney’s fees of $730,414.81. Kang appealed pro se.

The court of appeals reversed the judgment and remanded for further proceedings. First, the court addressed the main evidence in the case, the deemed admissions. The court held that there was no evidence that the requests for admissions were ever served on the defendant because there was no certificate of service. The court of appeals then disregarded that evidence. The court then turned to the parties’ affidavits. Song stated that he relief on Kang’s statements that he was a stock trader and investor who managed third party accounts for years, he held Series 7 and Series 66 licenses, and he would not lose an of Song’s principal investment and would receive a profit. Kang stated that he had been a financial advisor for twenty-five years and had been Song’s financial advisor for eighteen years, Song was a sophisticated business owner and investor, and that Song told him that Song’s investment objective for his stock investments is to double the value each year.

Regarding Song’s breach of fiduciary duty claim, the court stated as follows:

Song characterized Kang as an investment adviser, while Kang referred to himself as a financial advisor. An investment or financial advisor generally owes a fiduciary duty to clients, and thus, under either characterization of Kang’s role, he owed a fiduciary duty to Song. However, what a fiduciary duty requires of the fiduciary can vary. Song’s affidavit was evidence that Kang did more than merely act at Song’s direction in making investments and that Kang acted as an advisor trusted by Song to make appropriate trades in line with Song’s conservative investment strategy. But Kang produced his own affidavit to contradict Song’s. While Kang’s affidavit is short, it is some evidence that Song is an experienced business person who follows an aggressive investment strategy with the intent to double his investments each year, rather than an unsophisticated investor relying on his advisor to make decisions about investment strategy. And while Song stated that he relied on Kang’s having stockbroker licenses and his statements about his past success in trading in deciding to trust and hire Kang, Kang produced evidence that they had a nearly two-decade history of Kang providing Song with financial advice and working with him on business deals, raising a question about what factors led Song to give Kang access to his trading accounts, and thus whether Kang breached any duties to Song with respect to his obligation to disclose relevant information. In other words, Kang was Song’s fiduciary and as such owed him certain duties, but the summary judgment evidence did not establish as a matter of law what those duties encompassed or whether they were breached. And because Kang’s affidavit raised a fact issue about the nature of the investment strategy Song instructed him to follow, Song’s affidavit does not establish as a matter of law that his losses came from Kang’s breach of any duties, rather than the inherent risk of trading in securities. Viewing the evidence in the light most favorable to Kang, we conclude that Song did not establish his claim for breach of fiduciary duty as a matter of law, and thus the trial court erred by granting summary judgment on that claim.

The court similarly found that there were fact questions regarding Song’s other claims, and reversed and remanded the case for further proceedings. The court cited the following precedent for the proposition that Kang, the financial advisor, owed fiduciary duties: Izzo v. Izzo, No. 03-09-00395-CV, 2010 Tex. App. LEXIS 3623, 2010 WL 1930179, at *7 (Tex. App.—Austin May 14, 2010, pet. denied) (mem. op.) (holding that sufficient evidence supported the trial court’s conclusion that the appellee acted as the appellant’s investment adviser prior to their marriage and that he therefore owed the appellee a fiduciary duty that arose prior to the marriage); W. Reserve Life Assur. Co. of Ohio v. Graben, 233 S.W.3d 360, 374 (Tex. App.—Fort Worth 2007, no pet.) (holding that the appellee’s financial advisor had a duty to act as a fiduciary); William Alan Nelson II, Broker-Dealer: A Fiduciary by Any Other Name?, 20 Fordham J. Corp. & Fin. L. 637, 659-60 (2015) (stating that “courts and regulators look to the substance of the relationship rather than relying on titles to discern fiduciary responsibility,” regardless of whether individuals describe themselves as investment advisers, financial advisors, brokers, or dealers).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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