O'connor v. R.F. Lafferty & Company, Inc

965 F.2d 893 (10th Cir. 1992)

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Nature of the Case

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Facts

P received a $200,000 property settlement from her divorce. She deposited this entire sum into an account with D to be handled by Roy Foulke (D). P's brother recommended Foulke who was a family friend and who had previously handled accounts for other members of P's family. P gave Foulke and Lafferty complete discretion to handle her account. Foulke knew P was not an experienced investor. P informed Foulke the money she deposited represented virtually all of her assets. P also instructed Foulke she would need to rely on the $700 income generated from her deposit and the $800 maintenance payments from her ex-husband to meet her monthly living expenses. Ms. O'Connor also expected her account to generate sufficient income to cover the taxes on her alimony and the account, the fees of her accountant and the servicing fees for her account. In 1985, because of the success in P's investment account, her husband was relieved of his alimony obligation. From that point, P's account would have to generate $2,100 a month. P contends that from 1982 through 1987 Foulke and D purchased several securities unsuitable for her investment objectives. They put her into oil and gas limited partnerships; units of stock and warrants in Patient Medical Systems Corporation; units of International Surgical and Pharmaceutical Corporation securities; units in Job Stores, Inc. securities; units in R.T. Acquisition Corporation securities; and units of Kerkoff Industries, Inc. securities. In 1988, P brought suit against Ds for violation of 10(b) of the 1934 Securities Exchange Act, and Rule 10b-5 promulgated thereunder; breach of a fiduciary duty; negligent failure to supervise; professional negligence; common law fraud; and intentional infliction of emotional distress. The court granted Ds' motion for summary judgment as to count one and subsequently dismissed counts five and seven. The court submitted the remaining state law claims to arbitration. The court later adopted the arbitrator's award of $30,000 in favor of P. P appealed.