United States District Court, D. Montana, Helena Division
[Copyrighted Material Omitted]
Brett G. Evans, Jeffrey S. Kob, Hull Evans & Kob LLP, Santa Ana, CA, Murry Warhank, Gough Shanahan Johnson & Waterman, Helena, MT, Stephen D. Bell, Dorsey & Whitney LLP, Denver, CO, for Petitioner/Counter-Respondent.
Kalju Nekvasil, Goodman & Nekvasil, P.A., Clearwater, FL, Linda M. Deola, Reynolds Motl and Sherwood, Helena, MT, for Respondents/Counter-Petitioners.
ORDER CONFIRMING ARBITRATION AWARD
CHARLES C. LOVELL, Senior District Judge.
Before the Court is a Petition to Vacate Arbitration Award (ECF No. 1) filed by Petitioner Waveland Capital Partners, LLC (" Waveland" ), and a Motion to Confirm Arbitration Award (ECF No. 11) filed by Randall A. and Helen E. Tommerup (" Tommerup" ). Having reviewed the briefs and affidavits of the parties, and all the record in this case, the Court is prepared to rule. The sole issue raised by the Petition to Vacate the Arbitration Award is whether the arbitration panel manifestly disregarded the law applicable to the arbitration.
Randall and Helena Tommerup live in Dillon, Montana, and have been married forty-one years. Randall Tommerup makes and sells fence posts and rails. Helen Tommerup is a bank teller. (ECF No. 12-3, ¶ 2, Claimants' Statement of Claim.) The Tommerups discussed investing " a significant portion" of their life savings with Melvin T. Day, II (" Day" ). Tommerups claim that they wanted " conservative, low risk investments that provided dependable income." (ECF 12-3, ¶ 3.) Tommerups began discussing 1031 exchanges with Day. Day is both an independent contractor  and a registered representative of securities broker/dealer Waveland Capital Partners, LLC (" Waveland" ). Waveland is a securities broker/dealer in Montana, Utah, the Securities and Exchange Commission (" SEC" ), and a member of the Financial Industry Regulatory Authority (" FINRA" ). As a licensed member of FINRA, Waveland has agreed to submit all disputes arising out of or in connection with its business to arbitration conducted according to the FINRA Code of Arbitration Procedure.
Prior to Day's relationship with Waveland, Day had a significant negative history in the investment field: he was fired by
Dain Bosworth in 1983 for various violations, the State of Utah issued a cease and desist order against him in 1999 and caused him to suffer a brief suspension, and he was sued by an investor in 2000 resulting in a Ch. 7 bankruptcy filing by his business. During the time period at issue here, Day was located in Lehi, Utah, working in a Waveland office. (ECF No. 12-3, ¶ 10.) Day was one of many (" dozens or hundreds" ) Waveland representatives. ( Id. ) Day was supervised by the Waveland office in Irvine, California. ( Id. ) Waveland relied upon Day to report truthfully his activities and compliance with Waveland's rules, FINRA's rules, and state and federal laws. (ECF No. 12-3, ¶ 16.) Day was not licensed in Montana. (ECF No. 12-3, ¶ 18.)
Day recommended that the Tommerups invest in two long-term real estate investments totaling $410,000.00: (1) a January 28, 2005 investment in DBSI-Executive Park LLC, Tenant in Common, in the amount of $150,000, and (2) a September 8, 2005, investment in DBSI Arrowhead, LLC 1695, 1705 & 1715 Indian Woods Circle, Tenants in Common, in the amount of $260,000. (ECF No. 12-3, ¶ 23.) In addition, the Tommerups assumed mortgage debt on the two properties totaling $425,388.77. ( Id. ) Tommerups claim that they would not have invested their life savings in these investments had they known that these were " high-risk, high-commission, illiquid investments...." (ECF No. 12-3, ¶ 24.) The Tommerups claim they planned to use the investment income to pay their living expenses. (ECF No. 12-3, ¶ 26.) Day allegedly offered them no alternative investments. (ECF No. 12-3, ¶ 25.) The investment apparently collapsed in September, 2008, when the promised monthly payments to the Tommerups stopped.
In Count I of their Statement of Claim, the Tommerups allege violation of federal securities laws by claiming that Waveland and Day violated section 2(1) of the Securities Act, 15 U.S.C. § 77b(a)(1), and section 3(a)(10) of the Securities Exchange Act, 15 U.S.C. § 78c(a)(10). Tommerups assert that Waveland was a controlling person within the meaning of section 20 of the Securities Exchange Act, 15 U.S.C. § 78t. Tommerups claims that Waveland and Day offered and sold unregistered securities, engaged in fraud in the offer or sale of securities, and engaged in fraud in connection with the purchase or sale of securities.
In Count II of their Statement of Claim, the Tommerups allege violations of the Securities Act of Montana, charging both a failure to register DBSI in Montana (M.C.A. § 30-10-202), and also making unsuitable recommendations, misrepresentations and omissions of material fact (M.C.A. §§ 30-10-301, -307).
In Count III of their Statement of Claim, the Tommerups allege violations of the Montana Unfair Trade Practices and Consumer Protection Act. Tommerups allege that Waveland, acting through Day, violated Mont.Code Ann. § 30-14-103 by engaging in unfair methods of competition or unfair or deceptive acts or practices in the conduct of trade or commerce.
In Count IV of their Statement of Claim, the Tommerups allege violation of the Utah Securities Act. Tommerups allege failure to register DBSI in Utah (Utah Securities Act 61-1-7), and making unsuitable recommendations, misrepresentations, and omission of material fact (Utah Securities Act 61-1-1(2)). Under the Utah Securities Act, Section 61-1-22(4), a broker/dealer who directly or indirectly controls a person whose activities constitute violations of the Act can be held liable under the doctrine of respondeat superior.
In Count V of their Statement of Claim, the Tommerups allege breach of contract. Tommerups allege that Waveland and Day broke laws, rules, and regulations relating to the transaction and fraudulently induced them to enter into the contractual relationship by false representations and non-disclosure of material facts. The breach of FINRA Rules 2110, 2310, 2120, 2330, and 3010 allegedly constitute a breach of the contractual relationship between the Tommerups and Waveland and Day. Further, violations of the rules of the Utah Securities Commission and the Montana Rules of the Securities Department constitute further breach of the contract.
In Count VI of their Statement of Claim, the Tommerups allege Common Law Fraud. In Count VII, the Tommerups alleged Breach of Fiduciary Duty. In Count VIII, the ...