SFM Holdings, Ltd. v. Banc of Am. Secs., LLC, No. 07-11178
SFM Holdings, Ltd. v. Banc of Am. Secs., LLC, No. 07-11178, concerned an action against an investment bank, claiming damages due to violations of federal and state securities laws, breach of fiduciary duty, and constructive fraud. The court of appeals affirmed the dismissal of the complaint, holding that 1) the district court properly relied on an agreement outside the pleadings because it undeniably determined the terms of the relationship between the parties; and 2) the agreement explicitly stated that defendant was not acting as an adviser or fiduciary to plaintiff.
As the court of appeals wrote: "Whether Banc of America Securities had a fiduciary duty to SFM is determined by the substantive agreement of the parties. It is not determined by labels placed on the relationship. Kim, Lee and Shoreland acted as SFM's investment advisor. Kim exercised discretionary control over the account according to the allegations of the complaint. The PB Agreement explicitly stated the Banc of America Securities was not acting as an adviser or fiduciary to the customer. It had no direct contact with SFM. Given this relationship, the fiduciary is the party who has direct contact with and provides investment advice to the
customer. See McDaniel v. Bear Stearns & Co., 196 F. Supp. 2d 343, 353 (S.D.N.Y. 2002) (clearing firms only liable when they become "actively and directly involved in the introductory broker's actions" and not when performing 12 mere "routine clearing functions."). Even if Banc of America Securities actually served as the prime and executing broker, "[i]n no way, shape or form does the complaint plead that [Banc of America Securities] was making decisions regarding the accounts [but rather] simply executed the [SFM] transactions along with the other transactions sent to it by [Kim]." Dillon v. Militano, 731 F. Supp. 634, 636 (S.D.N.Y. 1990)."
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