Lloyd v. Metropolitan West Asset Management
Filed 1/11/13 Lloyd v.
Metropolitan West Asset Management CA2/8
NOT TO BE PUBLISHED
IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits
courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
BRUCE
M. LLOYD,
Plaintiff and Appellant,
v.
METROPOLITAN
WEST ASSET MANAGEMENT, LLC,
Defendant and Respondent.
B238724
(Los Angeles County
Super. Ct. No. GC045879)
APPEAL from a judgment of the Superior Court of
County.
Jan A. Pluim, Judge.
Affirmed.
Ernster Law Offices, John H. Ernster and Ryan K. Marden for
Plaintiff and Appellant.
Bryan Cave, Edward
M. Rosenfeld and R. Andrew Chereck for Defendant and Respondent.
__________________________
Plaintiff Bruce M.
Lloyd appeals from the summary judgment
entered in favor of defendant Metropolitan West Asset Management, LLC (Metro),
in this action based on Metro’s alleged failure to pay Lloyd pursuant to his
contract to solicit clients for Metro’s investment business. We affirm the judgment because the undisputed
evidence shows that Lloyd violated federal disclosure regulations governing his
solicitation activities. These violations would make any payment to
him unlawful.
FACTS AND PROCEDURAL HISTORY
Metro is a Los Angeles-based investment
advisory firm that is registered as an investment adviser subject to the
federal Investment Advisers Act of 1940.
(15 U.S.C. § 80b-1 et seq.; the Advisers Act.)
The Advisers Act prohibits any
fraudulent transaction, practice, or course of business when dealing with a
client or prospective client. (15 U.S.C.
§ 80b-6(1), (2), (4).) Pursuant to this
provision, the Securities and Exchange Commission (SEC) promulgated a regulation
in 1979 mandating certain disclosures by those who solicit clients on behalf of
investment advisers subject to the Advisers Act like Metro. (17 C.F.R. § 275.206(4)-3
(2012).) Known as the Cash Solicitation
Rule, it requires solicitors to provide two disclosure forms to prospective
clients. The first, Part 2 of SEC Form
ADV, contains information about the investment advisory firm, including the
identity of its principal owner, the types of services offered, and the amount
of client assets managed. The second
concerns the solicitor, the nature of his relationship with the investment
advisory firm, the terms of his compensation, and the extra amount, if any, the
client will be charged as a result.
(17 C.F.R. § 275.206(4)-3(b).)
Under the Cash Solicitation Rule, it
is unlawful for an investment adviser to pay a cash fee for solicitation
activities unless the fee is paid pursuant to a
solicitor to comply with these disclosure requirements “at the time of any
solicitation activities.†(17 C.F.R. §
275.206(4)-3(a)(2)(iii)(A)(3).) It is
also unlawful for an investment adviser to pay a cash fee to a solicitor unless
the client procured by the solicitor provides the investment firm with a signed
and dated acknowledgment of receipt of the two required disclosure forms before
or at the time of entering an investment advisory contract. (17 C.F.R. § 275.206(4)-3(a)(2)(iii)(B).)
Bruce M. Lloyd had lengthy
experience soliciting clients on behalf of investment management firms,
specializing in clients in Europe, the Middle East, and Africa. In March 2005, Lloyd and Metro executed a
written agreement by which Lloyd would solicit clients on Metro’s behalf. Metro agreed to pay Lloyd a monthly retainer
of $3,500 for his services, along with a referral fee for each client he
brought to Metro. The agreement
incorporated the Cash Solicitation Rule, attached copies of the required
disclosure forms, and stated that Lloyd’s right to compensation was contingent
upon his compliance with the Cash Solicitation Rule.
After the solicitation agreement was
signed, Lloyd began soliciting clients for Metro, but was unsuccessful in doing
so. In May 2006, Metro told Lloyd it
would no longer pay him the $3,500 monthly retainer fee, but would pay a
referral fee for any clients he solicited who actually brought their investment
business to Metro. Lloyd continued to
solicit clients, including a Swiss financial institution known as Pictet &
Cie.
In August 2008, Metro notified Lloyd
both orally and by e-mail that it was terminating the solicitation
agreement. Even so, Lloyd continued his
efforts to solicit Pictet as a client for Metro into February 2009. All told, Lloyd met with representatives of
Pictet 17 times in Switzerland and twice in Los Angeles on behalf of
Metro. In May 2009, Pictet decided to
invest with Metro.
In 2010, Lloyd asked Metro to
compensate him for bringing Pictet to Metro.
When Metro refused, Lloyd sued, alleging several causes of action based
on Metro’s failure to pay him a monthly retainer fee after 2006 and its refusal
to pay a referral fee for the Pictet deal:
breach of written, oral, and implied-in-fact contracts; breach of the
covenant of good faith and fair dealing; a common count for services rendered;
concealment; fraud; false promises; and negligent misrepresentation.
During discovery, Lloyd testified at
his deposition that he never provided Pictet or any other company he solicited
on Metro’s behalf with the disclosure documents required by the Cash
Solicitation Rule. Lloyd said this was
in accord with his understanding of the industry practice not to do so until a
deal with the client was virtually consummated and the investment agreement was
about to be signed.
Based on this admission, Metro
brought a summary judgment motion contending that Lloyd was not entitled to
compensation under the solicitation agreement because he failed to comply with
the Cash Solicitation Rule. Doing so
would not only be unlawful under that rule, it was also not allowed under the solicitation
agreement, which made Lloyd’s compliance with the Cash Solicitation Rule a
condition precedent to any payments.
Lloyd’s opposition points and
authorities raised two grounds concerning the Cash Solicitation Rule: (1)
Metro provided no authority showing that the rule applied when soliciting
foreign investors; and (2) Lloyd
complied with the rule, based on paragraph 19 of his accompanying declaration,
where he stated that it was his “recollection that [he] provided Pictet with
the [required disclosure forms]†sometime before May 2007.
statement on the ground that it contradicted his sworn deposition testimony
that he never provided those documents to Pictet or any other prospective
clients he solicited on Metro’s behalf.
The trial court sustained that objection,
with the Cash Solicitation Rule.
STANDARD OF REVIEW
Summary judgment is granted when a moving party establishes the
right to the entry of judgment as a matter
of law. (Code Civ. Proc.,
§ 437c, subd. (c).) In
reviewing an order granting summary judgment, we must assume the role of the
trial court and redetermine the merits of the motion. In doing so, we must strictly scrutinize the
moving party’s papers. The declarations
of the party opposing summary judgment, however, are liberally construed to
determine the existence of triable issues of fact. All doubts as to whether any material,
triable issues of fact exist are to be resolved in favor of the party opposing
summary judgment. While the appellate
court must review a summary judgment motion by the same standards as the trial
court, it must independently determine as a matter of law the construction and
effect of the facts presented. (
(2010) 184 Cal.App.4th 712, 716.)
Accordingly, we are not bound by the trial court’s stated reasons and
review only the ruling, not its rationale.
(Law Offices of Dixon R. Howell v.
Valley (2005) 129 Cal.App.4th 1076, 1092.)
A defendant moving for
showing that there is no merit to a cause of action if that party has shown
that one or more elements of the cause of action cannot be established or that
there is a complete defense to that cause of action. (Code Civ. Proc., § 437c,
subds. (o)(2), (p)(2).) If the
defendant does so, the burden shifts back to the plaintiff to show that a
triable issue of fact exists as to that cause of action or defense. In doing so, the plaintiff cannot rely on the
mere allegations or denial of her pleadings, “but, instead, shall set forth the
specific facts showing that a triable issue of material fact exists . . . .†(Id.,
subd. (p)(2).) A triable issue of
material fact exists “if, and only if, the evidence would allow a reasonable
trier of fact to find the underlying fact in favor of the party opposing the
motion in accordance with the applicable standard of proof.†(Aguilar
v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.)
DISCUSSION
On appeal, Lloyd raises three
arguments concerning the applicability of the Cash Solicitation Rule: (1)
based on paragraph 19 of his declaration, he in fact complied with the Cash
Solicitation Rule; (2) not until the
hearing on its summary judgment motion did Metro contend that the rule applied
to the monthly retainer fee, making it unfair to grant summary judgment in the
first instance, or for this court to affirm the judgment; and
(3) Metro did not show that the Cash Solicitation Rule applied when
soliciting overseas investors. In his
appellate reply brief, Lloyd amplifies the second contention, asserting that
payment of the monthly retainer would not violate the Cash Solicitation Rule,
or the terms of the solicitation agreement that incorporated that rule. We take each in turn.
A.
We Must Disregard Lloyd’s
Self-serving Statement in His Declaration
Concerning
His Supposed Compliance With the Cash Solicitation Rule
A party’s self-serving declarations
submitted in opposition to a summary judgment motion that contradict his sworn
disregarded. (Archdale v. American Internat. Specialty Lines Ins. Co. (2007)
154 Cal.App.4th 449, 473.) Although
the trial court sustained Metro’s objection to paragraph 19 of Lloyd’s
declaration on this ground, Lloyd has not mentioned or attempted to challenge
that ruling on appeal. Accordingly, the
issue is waived. (Jessen v. Mentor Corp. (2008) 158 Cal.App.4th 1480,
1492.) As a result, the only evidence
supporting Lloyd’s contention that he complied with the disclosure requirements
of the Cash Solicitation Rule disappears, leading us to reject this contention.
B.
Metro’s Supposed Failure to
Timely Raise the Retainer Fee Issue
Although Lloyd contends that Metro
did not raise the Cash Solicitation Rule’s applicability to the monthly
retainer fee until the hearing on its summary judgment motion, he does not cite
to where in the reporter’s transcript that occurred. We struck Lloyd’s first appellate brief for
its failure to provide record citations.
(Cal. Rules of Court, rule 8.204(a)(1)(C).) Although his revised appellate brief included
numerous record citations, it omitted this one.
We therefore deem the issue waived.
(Supervalu, Inc. v. Wexford
Underwriting Managers, Inc. (2009) 175 Cal.App.4th 64, 79.)
Alternatively, while it is true that
Metro’s summary judgment points and authorities focused on Lloyd’s right to a
referral fee, we believe the retainer fee issue was fairly encompassed within
Metro’s moving points and authorities.
Lloyd’s first amended complaint alleged that he was entitled to both the
retainer fee and the referral fee, and Metro’s notice of motion contended that
under the Cash Solicitation Rule it would be unlawful to pay Lloyd “the cash
sum he seeks to recover in this action.â€
Furthermore, in its statement of undisputed facts, in Fact No. 27, Metro
contended that under section 2.1.2(a) of the solicitation agreement, Lloyd’s
failure to provide disclosure documents to Pictet meant he was not “entitled to
receive any compensation from [Metro] pursuant to Article 3†of that
agreement. Article 3 of the solicitation
agreement is divided into subsections concerning Lloyd’s separate rights to referral
and monthly retainer fees, and his loss of those rights should he fail to
comply with the Cash Solicitation Rule.
Based on this, we conclude the issue was properly before the trial
court.
C.
The Cash Solicitation Rule
Applies to the Monthly Retainer Fee
Lloyd contends that triable issues
of fact remain concerning his right to his unpaid monthly retainer fees because
the solicitation agreement does not make his right to those fees contingent on
his compliance with the Cash Solicitation Rule.
He points to section 3.1.1 of the agreement, which governs the retainer
fee, and is silent on the issue of the Cash Solicitation Rule. By contrast, Lloyd notes, section 3.1.2,
which governs referral fees, expressly states that Metro was not obligated to
pay those fees if Lloyd did not comply with the Cash Solicitation Rule.
The short answer to this contention
is found in the Cash Solicitation Rule, which makes unlawful the payment of
cash fees “with respect to solicitation activities†if the rule has been violated. (17 C.F.R. § 275.206(4)-3(a).) The sole purpose of the solicitation
agreement was for Lloyd to refer prospective clients to Metro – in other words,
to perform solicitation activities.
Section 3.1 of the agreement, which included both referral and retainer
fees, was described as a schedule of “compensation for Solicitor’s services
hereunder.†Nor does Lloyd dispute that
his monthly activities concerned anything other than solicitation activities. Therefore, the monthly retainer fee did
compensate Lloyd for solicitation activities.
A somewhat longer answer comes from
the solicitation agreement itself. Even
though referral fees under section 3.1.2 were made expressly contingent on
compliance with the Cash Solicitation Rule, while section 3.1.1 for the
retainer fee did not mention that rule, section 2.1.2, under the subheading “Conformity
with Advisers Act,†clarified that the retainer fee was subject to the same
condition. Under section 2.1.2,
subdivision (a), headed “Procedures for Referral Fees,†the agreement
said that Lloyd “shall not be entitled to receive any compensation from [Metro] pursuant
to Article 3 . . . unless and until†compliance with the Cash Solicitation
Rule has occurred. (Italics added.) This provision does not distinguish between
the section 3 subdivisions for referral and retainer fees. Instead, it applies to fees under section 3
as a whole. We therefore conclude that
even under the parties’ contract, Lloyd’s right to receive retainer fees was
subject to his compliance with the Cash Solicitation Rule.
D.
The Cash Solicitation Rule
Applies When Soliciting Foreign Investors
Lloyd contends that Metro’s summary
judgment motion did not address the issue of whether the Cash Solicitation Rule
applied to the solicitation of foreign investors. Metro’s separate statement of undisputed
facts included the following: Lloyd
lives in Los Angeles County; Metro’s principal place of business is in Los
Angeles County; Metro is registered under, and is subject to, the Advisers Act;
and Lloyd solicited Pictet at meetings in Switzerland and Los Angeles. Lloyd did not dispute these facts. The Cash Solicitation Rule applies to any
investment adviser registered under the Advisers Act. (17 C.F.R. § 275.206(4)-3(a).)
Lloyd’s summary judgment opposition
papers contended this was insufficient to show that the Cash Solicitation Rule
applied to foreign investors, citing to the declaration of lawyer
Friedland-Wechsler, who opined that she was aware of no legal authority for
such a proposition.
name="_ftnref5" title="">
the undisputed facts mentioned above, as well as to an SEC document stating its
position that the Advisers Act applied “everywhere†to any investment adviser
subject to that act. The trial court expressly
ruled on the issue, finding that the Cash Solicitation Rule applied because
Metro was located in Los Angeles and was a registered adviser under the
Advisers Act. Based on this, we conclude
that the issue was squarely raised by Metro and supported by references to both
the facts and legal authority.
As for whether the trial court’s
ruling was correct, it is Lloyd who fails to cite any authority for the
proposition that the Cash Solicitation Rule does not apply when soliciting
foreign investors. Several federal district
courts have concluded that the Advisers Act does apply to the activities of
domestic investment firms registered under that Act. (S.E.C.
v. Gruss (S.D.N.Y. 2012) 859 F.Supp.2d 653, 662-664 [finding that
15 U.S.C. § 80b-6, pursuant to which the Cash Solicitation Rule was promulgated,
applies even as to foreign clients]; S.E.C.
v. ICP Asset Management, LLC (S.D.N.Y. June 21, 2012, No. 10 Civ.
4791(LAK)) 2012 WL 2359830 [same].)
we conclude that the Cash Solicitation Rule applied because Metro was a Los
Angeles-based investment adviser registered pursuant to the Advisers Act, Lloyd
was a Los Angeles-based solicitor performing referral services for Metro under
an agreement subject to that act, and some of Lloyd’s solicitation activities
occurred in the Los Angeles area.
name="_ftnref7" title="">[7]
The summary judgment is
affirmed. Respondent Metro shall recover
its appellate costs. Metro’s motion for
sanctions on appeal is denied.
RUBIN,
J.
WE CONCUR:
BIGELOW,
P. J.
FLIER,
J.
name="_ftn1" title="">[1] Lloyd’s
opposition points and authorities also argued that Metro could not orally
modify the solicitation agreement, and that Metro’s e-mail and oral notices
that it was terminating the contract did not comply with the contract’s notice
requirements. Lloyd testified at his
deposition that he never complained to Metro after it orally modified the
contract in 2006 and stopped paying the monthly retainer, and that when he was
told the contract was being terminated, he agreed to that statement. Although Lloyd raises these same two issues
on appeal, because we hold that the Cash Solicitation Rule operates as a
complete defense to Lloyd’s action, we need not address them.
name="_ftn2" title="">[2] Although Lloyd relies on this
paragraph from his declaration in his appellate briefs, he does not address or
in any manner challenge the trial court’s evidentiary ruling. As we discuss in part A. of our DISCUSSION,
the issue is therefore waived. Lloyd’s
summary judgment opposition papers were also supported by the expert witness
declaration of attorney Naomi Friedland -Wechsler, who claimed to have
experience with the Cash Solicitation Rule through her representation of
clients in the financial industry, and who opined that Lloyd complied with that
rule, and that the rule did not apply outside the United States. Evidentiary objections by Metro were
sustained to this declaration to the extent they relied on Lloyd’s declaration,
and to the extent that she opined the Cash Solicitation Rule did not apply to
foreign investors. On appeal, although
Lloyd refers to the expert’s opinion that the Cash Solicitation Rule does not
apply to foreign investors, he fails to address or challenge the trial court’s
evidentiary ruling. We will therefore
disregard that declaration as well.
