EDWARD ROMAN V SCOTT C BRIGGS
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STATE OF MICHIGAN
COURT OF APPEALS
EDWARD ROMAN,
UNPUBLISHED
February 27, 2001
Plaintiff-Appellant,
v
SCOTT C. BRIGGS, RONALD J. BRIGGS, and
MICHIGAN MEDICAID PLANNING
STRATEGIES,
No. 216061
Macomb Circuit Court
LC No. 97-005602-NZ
Defendants-Appellees.
Before: Sawyer, P.J., and Jansen and Gage, JJ.
PER CURIAM.
This action arises out of plaintiff’s liquidation of his stock portfolio to purchase an
annuity and insurance policies on the advice of defendants, resulting in a capital gains tax
liability of approximately $50,000. Plaintiff alleged a violation of the Michigan Uniform
Securities Act, fraud, and negligence due to defendants’ failure to inform him of the tax
consequences of liquidating his stock portfolio. Defendants filed a motion for summary
disposition pursuant to MCR 2.116(C)(8) and (C)(10), arguing that they could not be held liable
for fraud because plaintiff knew of the tax consequences before his stocks were sold. Defendants
also argued that they could not be held liable under the Securities Act because defendants were
not financial advisers within the meaning of the act. The trial court agreed and granted summary
disposition in favor of defendants. Plaintiff appeals by delayed application for leave granted. We
affirm in part, reverse in part and remand for further proceedings.
Plaintiff first argues that defendants violated the Michigan Uniform Securities Act,
fraudulently concealed the tax consequences of plaintiff liquidating his stocks, and negligently
breached their duty of care arising from the special relationship they had with plaintiff as
insurance agents. We disagree. A trial court’s grant or denial of summary disposition pursuant
to MCR 2.116(C)(10), based on a finding that there is no genuine issue as to any material fact, is
reviewed de novo. Markillie v Bd of Co Rd Comm'rs of Co of Livingston, 210 Mich App 16, 18;
532 NW2d 878 (1995). The appellate court, like the trial court, must view the depositions,
affidavits, and documentary evidence in a light most favorable to the nonmoving party and must
make all legitimate inferences in favor of the nonmoving party. Quinto v Cross & Peters Co,
451 Mich 358, 362; 547 NW2d 314 (1996).
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Plaintiff’s claim under the Michigan Uniform Securities Act, MCL 451.501 et seq.; MSA
19.776(102) et seq., was based on an allegation that defendants violated subsection 102(a) of the
act, MCL 451.502(a); MSA 19.776(102)(a), which provides in relevant part:
(a) It is unlawful for any person who receives any consideration from
another person primarily for advising the other person as to the value of securities
or commodity contracts or their purchase or sale, whether through the issuance of
analyses or reports or otherwise:
(1) To employ any device, scheme, or artifice to defraud the other person.
Plaintiff argues that defendants fall within the scope of this provision because under subsection
401(f) of the act, MCL 451.801(f); MSA 19.776(401)(f), they were investment advisers.
Although the term “investment adviser” does not appear in subsection 102(a), the description of
an investment adviser in subsection 401(f) is substantially the same as the description of persons
intended to be reached by subsection 102(a). People v Cook, 89 Mich App 72, 87; 279 NW2d
579 (1979). Subsection 401(f) provides in part:
(f) “Investment adviser” means any person who, for consideration,
engages in the business of advising others, either directly or through publications
or writings, as to the value of securities or commodity contracts, or as to the
advisability of investing in, purchasing, or selling securities or commodity
contracts, who, for consideration and as a part of a regular business, issues or
promulgates analyses or reports concerning securities or commodity contracts, or
who acts as a finder in conjunction with the offer, sale, or purchase of a security or
commodity . . . .
Defendants argue that they do not fall within this definition of “investment adviser”
because they did not receive consideration for investment advice as a part of this transaction. In
Cook, this Court stated that merely because the defendant received consideration “as a result of”
investment advice, he did not receive consideration “primarily for” the advice and was not an
investment adviser:
Subsection 102(a) was intended to reach persons who are specially
compensated for rendition of investment advice. “The essential distinction to be
borne in mind in (applying this provision to) borderline cases . . . is the distinction
between compensation for advice itself and compensation for services of another
character to which advice is merely incidental.” Uniform Securities Act, 401(f),
Official Comment, Reprinted in Loss & Cowett, Blue Sky Law, p. 339. [Id. at 8687.]
Similarly, here, the documents before the trial court established that although defendants would
have received money for selling insurance to plaintiff, this money was not payment for
investment advice. Because defendants were not investment advisers, they were not subject to
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the prohibitions of subsection 102(a) of the Securities Act, and the trial court was therefore
correct in granting summary disposition on this claim.
Plaintiff next contends that the trial court erred in granting summary disposition of
plaintiff’s negligence and fraud claims. The trial court correctly stated that negligent
misrepresentation requires that a party justifiably relied to his detriment on information provided
without reasonable care by one who owed the relying party a duty of care. Stockler v Rose, 174
Mich App 14, 30; 436 NW2d 70 (1989). In determining whether to impose a duty of care, this
Court evaluates factors such as the relationship of the parties, the foreseeability of the harm, the
burden on the defendant, and the nature of the risk presented. Girvan v Fuelgas Co, 238 Mich
App 703, 711; 607 NW2d 116 (1999).
Plaintiff asserts that defendants breached a special duty to plaintiff under Stein v
Continental Casualty Co, 110 Mich App 410; 313 NW2d 299 (1981), modified in part Harts v
Farmers Ins Exchange, 461 Mich 1, 11; 597 NW2d 47 (1999). Stein is distinguishable from the
facts of this case, however, because there this Court was discussing the duty of an insurer to
inform an insured regarding the adequacy of the policy’s coverage. Id. at 416. In the present
case, plaintiff asserts that defendants had a duty to inform plaintiff regarding the tax
consequences of liquidating stocks, a subject outside the realm of the insurer-insured
relationship.
In Harts, supra at 11, our Supreme Court held that an insurer owes its insured a duty
when (1) the agent misrepresents the nature or extent of the coverage offered or provided, (2) an
ambiguous request is made that requires a clarification, (3) an inquiry is made that may require
advice and the agent, though he need not, gives advice that is inaccurate, or (4) the agent assumes
an additional duty by either express agreement with or promise to the insured. None of these
factors applies to defendants in the present case. Thus, we agree that no special relationship
imposing a duty on defendants existed to affirmatively advise plaintiff on the tax consequences
of the transaction. That is, there would be no liability by defendants if they made no
representations regarding tax consequences.
However, defendants would be liable if plaintiff is able to establish that he detrimentally
relied on an affirmative misrepresentation by defendants. On this issue, we believe that there
exists a genuine issue of material fact. First, we note that this issue does not solely involve the
issue whether plaintiff understands the general concept of capital gains taxes. The evidence in
this case clearly establishes that there is no genuine issue of material fact that plaintiff knew prior
to this transaction that he could, in general terms, incur capital gains tax liability by selling stock
at a profit. Indeed, plaintiff had previously liquidated assets from which he had paid capital gains
taxes and his monthly securities statement revealed plaintiff’s unrealized taxable gains. That
fact, however, is not conclusive to the question whether plaintiff may have detrimentally relied
on a representation by defendants that this particular transaction would be tax free. Indeed,
plaintiff makes such an averment in his affidavit:
5. That at this meeting, Scott C. Briggs informed me that by placing the
money into an annuity, there were no market risks, that I would have a
guaranteed principal and interest return, and that there would be no penalties or
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taxes associated with this transaction and that amazingly, there would be no
charges or fees associated with this process.
6. That it was my understanding that all I was doing was transferring
my funds from one brokerage company to another brokerage company and in
purchasing this annuity, I would be financially more secure. [Emphasis added.]
There certainly are transactions which may be tax-free. For example, one could sell
securities held in a 401(k) deferred compensation plan, roll the proceeds over to an Individual
Retirement Account, and purchase new securities, all without incurring a tax liability if handled
properly. Obviously, the transaction involved was not such a tax-free transaction. However,
what is relevant is that a representation that a transaction is, in fact, tax-free is not inherently
unbelievable. Therefore, if defendants made such a misrepresentation, plaintiff may have relied
on that misrepresentation to his detriment and his claim on this ground is viable.
Whether such a representation was made, and whether there was reliance by plaintiff,1
represents a genuine issue of material fact to be resolved by the jury.
For the above reasons, the trial court should have denied summary disposition as to the
misrepresentation claim.
Affirmed in part, reversed in part and remanded for further proceedings consistent with
this opinion. We do not retain jurisdiction. No costs, neither party having prevailed in full.
/s/ David H. Sawyer
/s/ Kathleen Jansen
/s/ Hilda R. Gage
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In this regard, we are particularly troubled by the fact that plaintiff made no effort to determine
if he could cancel the sell order upon learning of the magnitude of the tax liability. However,
that is a consideration for the jury, not this Court.
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