Lustgraff v. Behrens

619 F.3d 867 (8th Cir. 2010)

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Nature of the Case

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Facts

KCL is licensed with the Nebraska Department of Insurance to deal in sickness and accident insurance, life insurance, variable life insurance, and variable annuities. KCL offers various investment options through Sunset, its wholly-owned subsidiary. Sunset is a broker-dealer registered with the SEC. Sunset is KCL’s in house brokerage firm. Ps allege that Sunset markets itself as a trusted financial advisory firm with agents and representatives who can be trusted to give advice on insurance and financial matters. Behrens (D) was President and CEO of 21st Century Financial Group, Inc., which Ps allege he operated like a branch office of Sunset. D was a registered representative of Sunset and a general agent of KCL. KCL promoted D and gave him a number of awards that 'expressly and implicitly suggested that D was trustworthy and acting with the authority, consent, and approval of [KCL] and its affiliates and subsidiaries.' Ps invested money with D through National Investments, Inc., an entity that D. D sold promissory notes to Ps, listing National Investments as the borrower. D took their money with the promise that he would invest it and provide them with a steady stream of income. D 'misappropriated the funds for his personal use, spent the money in other ways, or simply transferred money among Ps and other investors to prevent them from discovering the fraud.' Ps sought relief from Sunset on theories of federal and state control-person liability and common law theories of secondary liability. Eventually, they added KCL as a defendant. Ps brought claims against Sunset and KCL based on theories of federal and state control-person liability and common law theories of secondary liability. They allege that Sunset and KCL are liable based on theories of (A) federal control-person liability; (B) state control-person liability; (C) apparent authority; and (D) respondeat superior. The district court granted Sunset's and KCL's motions to dismiss. Ps appealed.