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Broker Can't Sue Law Firm for Breach of Fiduciary Duty

By Robyn Hagan Cain | Last updated on

Timothy Pagliara has been a licensed securities broker for more than 25 years. He's received numerous accolades and maintained a nearly-spotless record with the Financial Industry Regulatory Authority (FINRA). He blames the single blemish on Birmingham law firm Johnston Barton Proctor & Rose, LLP (JBPR).

Even if the JBPR is the reason for Pagliara's almost-perfect-but-not-quite record, the Sixth Circuit Court of Appeals ruled this week that a district court properly dismissed Pagliara's breach of fiduciary duty claim against the firm.

Pagliara was once a partner with PMW partners (PMW), which did business in Tennessee as Capital Trust Wealth Management Group (Capital Trust), formerly the Tennessee arm of NBC Securities, Inc. (NBC). Pagliara served as an employee and registered representative of both Capital Trust and NBC. This arrangement lasted until early 2008, when Capital Trust and NBC experienced a falling out.

Around the same time, Philip Butler approached Pagliara for investment advice. Butler decided to follow Pagliara's recommendation, but the value of his investments tumbled when the financial crisis reared its ugly head.

About a year later, Butler's attorney sent a letter addressed to NBC, on which Pagliara was copied, threatening to sue for allegedly negligent investment advice. NBC retained JBPR to handle the defense. JBPR represented NBC in other legal matters, including litigation between NBC and Capital Trust about the aforementioned falling out.

Pagliara wanted to settle the claim for $14,900 -- $100 below FINRA's mandatory reporting threshold for customer disputes -- and told NBC that he "object[ed] to any payment by NBC ... to settle [Butler's] frivolous claim." Butler refused to settle below the FINRA threshold, but eventually settled with NBC -- through JBPR -- for $30,000.

Pagliara sued the firm for breach of fiduciary duty. A district court dismissed his complaint.

Pagliara says that JBPR had sole control over the defense of Butler's claim. He asserts that JBPR subsequently breached the duty it owed to him in a number of ways that boil down to failing to negotiate in good faith, accepting a settlement that was not a reasonable compromise of Butler's claim, and intending to harm Pagliara in so doing.

In rejecting his claim, the Sixth Circuit noted:

The only evidence supporting Pagliara's claim is a number of bald assertions of bad faith and intent to harm set forth in the complaint ... Inference alone is not enough to rescue his claim. Pagliara does not offer a remotely plausible narrative from which we could reasonably deduce that JBPR intended to (or did) do him wrong. Without it, Pagliara fails to raise a "genuine" factual question as to whether JBPR breached a duty it may have owed him.

Not every exchange with a lawyer establishes a fiduciary duty. If you want to sue a lawyer for a breach, make sure that your complaint properly establishes that the fiduciary duty existed.

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