S. Gregory Hays v. Page Perry, LLC, 11th Cir. (2015)
S. Gregory Hays v. Page Perry, LLC, 11th Cir. (2015)
S. Gregory Hays v. Page Perry, LLC, 11th Cir. (2015)
Page: 1 of 12
S. GREGORY HAYS,
Receiver for Lighthouse Financial Partners, LLC,
Plaintiff-Appellant,
versus
PAGE PERRY, LLC,
ESTATE OF J. BOYD PAGE,
ALAN R. PERRY, JR.,
J. STEVEN PARKER,
ROBERT D. TERRY, et al.,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(October 5, 2015)
Before WILLIAM PRYOR, JORDAN and JILL PRYOR, Circuit Judges.
Case: 15-11506
Page: 2 of 12
PER CURIAM:
S. Gregory Hays, the receiver for Lighthouse Financial Partners, LLC,
appeals the dismissal of his complaint against the law firm of Page Perry, LLC;
four of its partners, Steve Parker, Robert D. Terry, Daniel I. MacIntyre, and Alan
R. Perry Jr.; and the estate of deceased partner J. Boyd Page. Hays complained
about professional malpractice and the breach of fiduciary duties and of contract
by Page Perry, Parker, Terry, and MacIntyre, and about negligent supervision by
Page and Perry. Hays alleged that the lawyers violated their ethical and legal
obligations to Lighthouse, a registered investment advisor, by failing to report it
for regulatory noncompliance and by allowing its president and managing owner,
Benjamin DeHaan, to misappropriate clients funds. The district court dismissed
the complaint for failure to state a claim that had facial plausibility. See Ashcroft v.
Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 1949 (2009); Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 55556, 127 S. Ct. 1955, 1965 (2007). We affirm.
I. BACKGROUND
Lighthouse provided financial advice and investment services to its clients.
Its managing owner, DeHaan, diverted clients funds into a bank account labeled
Client Holding Pass Through that he opened ostensibly as an account for
Lighthouse. DeHaan concealed his wrongdoing by representing to federal and state
regulatory agencies that Lighthouse did not have custody of client funds and that
2
Case: 15-11506
Page: 3 of 12
Case: 15-11506
Page: 4 of 12
and on March 30, 2012, the Securities and Exchange Commission subpoenaed
DeHaan to testify. Parker and MacIntyre assisted DeHaan during the hearing. In
June 2012, Page Perry withdrew as counsel for Lighthouse and, after obtaining
DeHaans consent, Page Perry notified the Commission that DeHaan had been
purloining client funds. The Commission filed a civil enforcement action against
DeHaan and Lighthouse, which resulted in a freezing of its assets and the
appointment of Hays as receiver.
Hays filed a complaint against Page Perry and five of its partners. Hays
alleged that the law firm, Parker, Terry, and MacIntyre violated their duties to
report DeHaans misconduct to the highest authority that can act on behalf of the
[business] organization, Ga. R. of Profl Conduct 1.13(b); to avoid conflicts of
clients interests, id. R. 1.7; len[ding] credibility to DeHaans fraudulent
enterprise by . . . mak[ing] their presence highly visible . . . [in] Lighthouses
operations and helping DeHaan to garner trust and confidence with Lighthouses
clients; fail[ing] to inquire about and disregarding glaring irregularities in
records that they uncovered during the mock audit; and protecting . . . and even
facilitating [DeHaans] fraudulent scheme against Lighthouse. Page Perry and the
three partners, Hays alleged, also breached their fiduciary duty to Lighthouse by
treating DeHaan as their client and putting his interest above that of Lighthouse
and breached their contract by failing to properly advise Lighthouse with respect
4
Case: 15-11506
Page: 5 of 12
Case: 15-11506
Page: 6 of 12
Case: 15-11506
Page: 7 of 12
should have known that junior members had a tendency to engage in malpractice.
The district court also determined that the claims against MacIntyre failed because
the complaint did not allege what [MacIntyre] specifically advised DeHaan to do
during the hearing before the SEC or how it affected Lighthouse in any way.
II. STANDARD OF REVIEW
We review de novo the dismissal of Hayss complaint for failure to state a
claim. Jean v. Dorelien, 431 F.3d 776, 778 (11th Cir. 2005). To survive a motion
to dismiss, a complaint must contain sufficient factual matter, accepted as true, to
state a claim to relief that is plausible on its face. Iqbal, 556 U.S. at 678, 129 S.
Ct. at 1949 (quoting Twombly, 550 U.S. at 570, 127 S. Ct. at 1974). The complaint
must contain more than labels and conclusions; its well-pled allegations must
nudge[] the[] claims across the line from conceivable to plausible. Twombly,
550 U.S. at 555, 570, 127 S. Ct. at 1965, 1974.
III. DISCUSSION
Hayss complaint purports to allege errors and misconduct by Page Perry
and its partners. To survive a motion to dismiss, the complaint had to allege facts
that allow[ed] the [district] court to draw the reasonable inference that the
[lawyers] [were] liable for the misconduct alleged. Iqbal, 556 U.S. at 678, 129 S.
Ct. at 1949. [F]acts that are merely consistent with . . . liability and
demonstrate only a possibility, but not the plausibility, of relief fail to satisfy this
7
Case: 15-11506
Page: 8 of 12
Case: 15-11506
Page: 9 of 12
other matter (Compl. 112; Ex. 32). Hays alleged that the lawyers violated Rule
1.13(b) by failing to report DeHaan to regulatory officials, but that rule instead
required counsel to report misconduct to the highest authority that can act on
behalf of the organization, Ga. R. of Profl Conduct 1.13(b). Hays argues that
Page Perry should have reported its findings to Anatoly Melamud, a shareholder in
Lighthouse, but Hays never mentioned Melmud in the complaint. And, even if we
assume, like the district court, that the lawyers were remiss in conducting the mock
audit, the complaint did not allege a causal connection between the audit and
damages incurred by Lighthouse. Factual matter in the complaint and its exhibits
establish that DeHaan misled the lawyers and misappropriated client funds
notwithstanding their advice to remedy regulatory noncompliance by Lighthouse.
Hayss challenges to the dismissal of his complaint of malpractice lack
merit. Hays argues that the lawyers had to report that DeHaan was stealing from
Lighthouse and facilitated DeHaans wrongdoing by assisting him during the
hearing before the Securities Commission, but the allegations in the complaint fell
short of supporting a plausible inference that Page Perry knew of or aided in
DeHaans theft. See Oxford Asset Mgmt., Ltd. v. Jaharis, 297 F.3d 1182, 1188
(11th Cir. 2002). The complaint and exhibits establish that the lawyers knew about
some regulatory noncompliance and accepted DeHaans explanations for the
holding account and recordkeeping irregularities, but that fails to nudge[]
9
Case: 15-11506
Page: 10 of 12
[Hayss] claim[] [about knowledge of criminal activity] across the line from
conceivable to plausible. See Twombly, 550 U.S. at 570, 127 S. Ct. at 1974. Hays
also argues that Bullards affidavit establishes that the lawyers knew of DeHaans
theft, but as disclosed in the affidavit, Bullards opinion is based on [his]
assumption that the factual allegations in the Complaint are true. Hays contests
the summary rejection of his assertion that the lawyers also violated Rules of
Conduct 1.2(d) and 4.1, but the district court was entitled to disregard theories of
liability previously available, but not pressed by Hays until he moved for
reconsideration. See Wilchombe v. TeeVee Toons, Inc., 555 F.3d 949, 957 (11th
Cir. 2009) (quoting Stone v. Wall, 135 F.3d 1438, 1442 (11th Cir. 1998)).
Hays has abandoned any challenge that he could have made to the dismissal
of his complaints about the breach of fiduciary duties and of contract. [T]he law is
by now well settled in this Circuit that a legal claim or argument that has not been
briefed before the court is deemed abandoned and its merits will not be addressed.
Holland v. Gee, 677 F.3d 1047, 1066 (11th Cir.2012) (quoting Access Now, Inc. v.
Sw. Airlines Co., 385 F.3d 1324, 1330 (11th Cir. 2004)). The district court
dismissed Hayss complaints of breach of fiduciary duties and of contract as
duplicative of his complaint about professional malpractice, and Hays does not
contest that determination. We deem abandoned any challenge Hays might have
raised to the dismissal of that part of his complaint.
10
Case: 15-11506
Page: 11 of 12
Hayss complaint also is insufficient to state a claim against Page and Perry.
The complaint alleges that Page and Perry, as the senior partners of the firm, are
vicariously liable in respondeat superior for the acts of Defendants Parker, Terry
and MacIntyre in the course of their employment, but under Georgia law, a
member[ or] manager . . . of a limited liability company is not liable, solely by
reason of [his position], . . . for the acts or omissions of any other member,
manager, agent, or employee of the limited liability company, whether arising in
contract, tort, or otherwise. Ga. Code Ann. 14-11-303(a). Hays alleges that
Page and Perry failed to adequately supervise Defendants Parker, Terry, and
MacIntyre, but the complaint is devoid of any factual matter pertaining to Pages
or Perrys oversight of other lawyers. Hays argues that Perry . . . likely managed
the relationship with Lighthouse, Page and Perry were consulted on key events
when the fraud was detected by the regulators and the firm wrestled with its legal
and ethical obligations, and all of the partners met and discussed what to do
when their clients CEO needed separate criminal counsel, but these facts are not
stated in the complaint. For an employer to be held liable for negligent
supervision, there must be sufficient evidence to establish that the employer
reasonably knew or should have known of an employees tendencies to engage in
certain behavior relevant to the injuries allegedly incurred by the plaintiff. Novare
Grp., Inc. v. Sarif, 718 S.E.2d 304, 309 (Ga. 2011) (internal quotation marks and
11
Case: 15-11506
Page: 12 of 12
citation omitted). The complaint is devoid of allegations that Parker, Terry, and
MacIntyre had a tendency to engage in malpractice or that Page and Perry knew or
should have been aware of such tendencies.
The district court did not err by dismissing Hayss complaint. Because the
complaint lacked well-pleaded facts from which the district court could draw a
reasonable inference that any lawyer was liable for misconduct, the complaint was
properly dismissed for failure to state a claim.
IV. CONCLUSION
We AFFIRM the dismissal of Hayss complaint.
12