Can you sue an alleged conspirator without suing the other parties to the alleged conspiracy? That was one of the questions addressed by Judge Gale in the decision last week in Loftin v. QA Investments LLC, 2015 NCBC 41.
Loftin had invested in an alleged tax shelter product which resulted in a $27 million capital loss deduction which was disallowed by the IRS. He sued the accounting firm and the law firm which had developed the alleged tax shelter, as well as Defendant QA Investments, the investment advisor which had made the investments in the alleged tax shelter on his behalf.
The accounting firm and the law firm were voluntarily dismissed by Loftin from the case in November 2013.
Motion To Dismiss Conspiracy Claims
QA argued that the civil conspiracy claim against it should be dismissed because its alleged co-conspirators -- the accountants and the law firm -- were no longer parties to the case. Judge Gale found whether a case can proceed against only one alleged conspirator to be an interesting question of law. He said that he had "struggled to find any case law directly address[ing]" the issue. He denied the Motion "in absence of clear precedent dictating otherwise." Op. ¶32.
Motion To Dismiss Fiduciary Duty Claims
QA disputed that it owed any fiduciary duty to Loftin, but the Court found Loftin's allegations of a fiduciary relationship to be "minimally adequate" to survive the Motion to Dismiss. Op. ¶44. Judge Gale said that "[m]uch greater specificity would be required by a Rule 56 standard." Id.
Those "minimally adequate" allegations were that QA had represented that "it would serve as advisor and guardian over his interests with respect to the [alleged tax shelter] transactions, and that QA represented to Loftin that their relationship was a confidential one." Id.
Motion To Dismiss Unfair And Deceptive Practices Claim
QA prevailed on its Motion to Dismiss the UDPA claim, on the basis that securities transactions are outside the scope of Chapter 75. That's pretty well accepted law. See, e.g, Skinner v. E.F. Hutton & Co., 314 N.C. 267, 274-75, 333 S.E.2d 236, 241 (1985).
The Court rejected, however, QA's argument that it was engaged in a learned profession and therefore protected from Chapter 75 liability per the statutory language of G.S. §75-1.1(b). The statute does not extend to "professional services rendered by a member of a learned profession."
Lawyers are acknowledged to be members of a "learned profession" and therefore not subject to Chapter 75 claims (Sharp v. Gailor, 132 N.C. App. 213, 510 S.E.2d 702 (1999). Given that most of the readers of this blog are lawyers you may bristle at the thought of having "investment advisors" as members of our exclusive club.
But have no worries. Judge Gale wasted no ink in rejecting this argument, holding that he had:
found no support for QA's contention that a general 'investment services' role constitutes a 'learned profession' under Chapter 76. The Court does not believe that it needs to address that argument any further.
That part of the ruling reminds me of Groucho Marx's famous letter resigning from the Friars' Club, when he said "I don't want to belong to any club that would accept me as one of its members."