The Clients’ Waiver of Their Rights Under Regulation BI of the Securities and Exchange Commission

TAMAR FRANKEL

BU Law emerita professor Tamar Frankel discusses the Securities and Exchange Commission (SEC)’s Regulation Best Interest (BI), which imposes on broker-dealers a commitment to act in the best interests of their clients. Specifically, Frankel addresses the SEC’s treatment of client waivers of the Regulation BI, which goes even further than general fiduciary law to prohibit any waiver of the broker-dealer’s conflicting interests.

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Castillo v. G&M Realty L.P.

Court: US Court of Appeals for the Second Circuit

Docket: 18-498

Opinion Date: February 20, 2020

Judge: Barrington D. Parker

Areas of Law: Intellectual Property, Real Estate & Property Law

The Second Circuit affirmed the district court's award of statutory damages to plaintiffs under the Visual Artists Rights Act of 1990. Defendants are developers who destroyed aerosol artwork that plaintiff painted on buildings owned by defendants. The site was known as 5Pointz in Long Island City, New York, and evolved into a major global center for aerosol art, attracting thousands of visitors, numerous celebrities, and extensive media coverage. The court held that the district court correctly determined that temporary artwork may achieve recognized stature so as to be protected from destruction by VARA and that plaintiffs' work had achieved that stature. The court also held that the district court did not err in finding defendants' violations of VARA to be willful and that the district court's award of statutory damages was not an abuse of discretion.

Bridge Aina Le'a, LLC v. Hawaii Land Use Commission

Court: US Court of Appeals for the Ninth Circuit

Dockets: 18-15738, 18-15817

Opinion Date: February 19, 2020

Judge: Milan D. Smith

Areas of Law: Constitutional Law, Real Estate & Property Law

Plaintiff, Bridge Aina Le'a, filed suit challenging the Commission's 2011 reversion of land on the island of Hawaii from a conditional urban land use classification to the prior agricultural use classification. The reversion came after twenty-two years during which various landowners made unfulfilled development representations to the Commission to obtain and maintain the land's urban use classification. The Ninth Circuit reversed the district court's denial of the state's motion for judgment as a matter of law (JMOL), because the evidence did not establish an unconstitutional regulatory taking under either Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), and Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978). Accordingly, the panel vacated the judgment for plaintiff and the nominal damages award, remanding with instructions for the district court to enter judgment for the state. The panel affirmed the district court's dismissal of plaintiff's equal protection claim, holding that issue preclusion barred plaintiff from litigating the claim.

Castillo v. United States

Court: US Court of Appeals for the Federal Circuit

Docket: 19-1158

Opinion Date: February 20, 2020

Judge: Richard Gary Taranto

Areas of Law: Constitutional Law, Real Estate & Property Law, Zoning, Planning & Land Use

The plaintiffs own land abutting a railroad right-of-way that was long ago granted to, and for decades used by, the Railway in Dade County, Florida. When the Railway abandoned the right-of-way for rail use, full rights to the underlying land, unencumbered by the easement, would have reverted to whoever owned such rights, had there been no overriding governmental action. However, the Railway successfully petitioned the Surface Transportation Board to have the railroad corridor turned into a recreational trail under the National Trails System Act Amendments, 16 U.S.C. 1247(d). The landowners sued, alleging that the agency’s conversion of the right-of-way into a recreational trail constituted a taking of their rights in the corridor land abutting their properties and that the government must pay just compensation for that taking. To establish their ownership of the corridor land, the plaintiffs relied on Florida's “centerline presumption,” which provides that when a road or other corridor forms the boundary of a landowner’s parcel, that landowner owns the fee interest in the abutting corridor land up to the corridor’s centerline, absent clear evidence to the contrary. The trial court ruled in favor of the government. The Federal Circuit reversed. The centerline presumption applies to railroad rights-of-way and the plats at issue do not clearly express the intent required to avoid application of the centerline presumption.

Forbes v. Platinum Mortgage, Inc.

Court: Supreme Court of Alabama

Docket: 1180985

Opinion Date: February 14, 2020

Judge: Sellers

Areas of Law: Real Estate & Property Law

Dale Forbes, as administrator ad litem for the estate of Gay Nell Mize, appealed the grant of summary judgment entered in favor of Platinum Mortgage, Inc. ("Platinum"), and PennyMac Loan Services, LLC ("PennyMac"). Gay Nell signed, and the record contained, a notarized power of attorney. The limited power of attorney authorized Gay Nell's husband, Charles Mize, to execute, on Gay Nell's behalf, certain documents in a transaction refinancing the Mizes' house. On the authority of the power of attorney, Charles borrowed $175,000 from Platinum and gave Platinum a mortgage on the Mizes' residence, executing both a loan agreement and a mortgage. Platinum then assigned the loan and mortgage to PennyMac. In 2015, Gay Nell was declared incompetent and a conservator was appointed for her. The conservator sued multiple defendants, including Platinum and PennyMac, alleging that the power of attorney executed by Gay Nell was invalid, that Gay Nell was not bound by the loan agreement and the mortgage executed by Charles, and that the Mizes' house was not encumbered by the mortgage. Platinum and PennyMac filed separate motions for a summary judgment. After review, the Alabama Supreme Court concluded the estate did not provide any persuasive argument that would render the loan agreement and the mortgage anything other than valid and binding on Gay Nell. "The trial court in the present case determined, and rightly so, that Platinum and PennyMac properly relied on the power of attorney, because they had no actual knowledge that it was anything other than a valid instrument authorizing Charles to execute the loan agreement and the mortgage as Gay Nell's duly authorized agent." Accordingly, the Court affirmed summary judgment.

Scholes v. Lambirth Trucking Co.

Court: Supreme Court of California

Docket: S241825

Opinion Date: February 20, 2020

Judge: Cuellar

Areas of Law: Real Estate & Property Law

The Supreme Court affirmed the decision of the court of appeal affirming the trial court's grant of Defendant's demurrer and dismissing Plaintiff's complaint alleging that Defendant negligently allowed a fire to spread from Defendant's property to Plaintiff's property, harming some of Plaintiff's trees, holding that Plaintiff could not rely on Cal. Civ. Code 3346's extended statute of limitations and that his complaint was otherwise untimely. Section 3346 provides enhanced damages to plaintiffs suffering wrongful injuries to timber, trees, or underwood. The relevant statute of limitations where a plaintiff seeks such damages is five years. In this case, Plaintiff alleged that section 3346's enhanced damages and five-year statute of limitations applied to property damage from a fire negligently allowed to escape from Defendant's property. Defendant filed a demurrer, arguing that Plaintiff's claims were time-barred. The trial court granted the demurrer. The court of appeal affirmed, concluding that the three-year statute of limitations in Cal. Code Civ. Proc. 338(b) applied to this action for trespass upon or injury to real property. The court of appeal agreed. The Supreme Court affirmed, holding that section 3346 is inapplicable to damages to timber, trees, or underwood from negligently escaping fires and that Plaintiff's complaint was otherwise untimely.

Citizens for South Bay Coastal Access v. City of San Diego

Court: California Courts of Appeal

Docket: D075387(Fourth Appellate District)

Opinion Date: February 18, 2020

Judge: Joan Irion

Areas of Law: Government & Administrative Law, Real Estate & Property Law, Zoning, Planning & Land Use

The City of San Diego (the City) appealed a judgment in a lawsuit filed by Citizens for South Bay Coastal Access (Plaintiff), which challenged the City's issuance of a conditional use permit allowing it to convert a motel that it recently purchased into a transitional housing facility for homeless misdemeanor offenders. Specifically, the City contended the trial court erred by ruling that the City was required to obtain a coastal development permit for the project because the motel was located in the Coastal Overlay Zone as defined in the City's municipal code. After review, the Court of Appeal concluded the trial court erred in concluding that a coastal development permit was required under state law regulations promulgated by the California Coastal Commission (the Commission). Because the Commission certified the City's local coastal program, those provisions applied here rather than the Commission's regulations. "Under the City's local coastal program, the project is exempt from the requirement to obtain a coastal development permit because it involves an improvement to an existing structure, and no exceptions to the existing- structure exemption are applicable." Accordingly, the Court reversed the judgment.

Mook v. Bd. of Cty. Comm’rs

Court: Colorado Supreme Court

Citation: 2020 CO 12

Opinion Date: February 18, 2020

Judge: William W. Hood, III

Areas of Law: Real Estate & Property Law, Tax Law, Zoning, Planning & Land Use

The common issue from three property tax cases presented to the Colorado Supreme Court for review centered on what constituted "residential land" under 39-1-102(14.4)(a), C.R.S. (2019). In Colorado, residential land was taxed as a lower rate than vacant land. The Mooks owned two parcels of land in Summit County, Colorado. One parcel contained the Mooks’ house, classified as residential land. The other parcel was undeveloped, and it was classified as vacant land (“the subject parcel”). The parties agreed that these two parcels didn't physically touch. The Homeowners’ Association (“HOA”) owned an approximately seventeen-foot-wide strip of land that completely separated the two properties (that strip provided other members of the HOA access to adjacent public land). The Mooks petitioned the Board of County Commissioners of Summit County (“BCC”) to reclassify the subject parcel from vacant land to residential land. The BCC denied their petition, and the Mooks appealed to the Board of Assessment Appeals (“BAA”). The BAA upheld the BCC’s decision. Notably, the BAA determined that contiguous parcels are those that are “physically connected.” Here, the residential and subject parcels didn't physically touch, and the BAA “was not persuaded that the use of the subject lot in conjunction with the residential lot was sufficient to defeat the plain meaning of contiguity.” Thus, the BAA concluded that the two parcels aren’t contiguous, and it denied the Mooks’ appeal. Taking the three appeals together, the Colorado Supreme Court concluded: (1) only parcels of land that physically touch qualify as “contiguous parcels of land;” (2) a residential improvement isn’t needed on each contiguous and commonly owned parcel of land and a landowner can satisfy the “used as a unit” requirement by using multiple parcels of land together as a collective unit of residential property; and (3) county records dictate whether parcels are held under “common ownership.”

Ziegler v. Park Cty. Bd. of Cty. Comm'rs

Court: Colorado Supreme Court

Citation: 2020 CO 13

Opinion Date: February 18, 2020

Judge: William W. Hood, III

Areas of Law: Real Estate & Property Law, Tax Law, Zoning, Planning & Land Use

This case asked the Colorado Supreme Court to construe the definition of residential land in section 39-1-102(14.4)(a), C.R.S. (2019). Stephen Ziegler (through the Stephen J. Ziegler Revocable Trust Dated July 17, 2008) owned four parcels of land in Park County, Colorado. One parcel was classified as “residential land” under section 39-1-102(14.4)(a) and taxed accordingly. However, the other three parcels remained “vacant land” and are thus taxed at a higher rate. Ziegler sought to reclassify those vacant parcels as residential land to receive a corresponding tax abatement. As it concluded in Mook v. Summit Cty. Bd. of Cty. Comm'rs, 2020 CO 12 (2020): (1) a residential improvement isn’t needed on each contiguous and commonly owned parcel of land for that parcel to be “used as a unit;” and (2) a landowner can satisfy the “used as a unit” requirement by using multiple parcels of land together as a collective unit of residential property. The BAA here applied the same legal standards that the Court expressly disavowed in Mook. Thus, it reversed the BAA’s order and remanded for the BAA to apply the standards articulated in this case to determine whether the vacant parcels qualified as “residential land.”

Day v. Idaho Transportation Dept

Court: Idaho Supreme Court - Civil

Docket: 45552

Opinion Date: February 14, 2020

Judge: Joel D. Horton

Areas of Law: Government & Administrative Law, Real Estate & Property Law

Bennett Day, Trustee of Trust B of the Donald M. and Marjorie D. Day Family Trust, John Day, Dan E. Day, Holcomb Road Holdings, LLC, Donna Day Jacobs, and David R. Day (collectively, the Day family) appealed a district court's decision dismissing their claims against the State of Idaho and the Idaho Transportation Department (the Department). This case related to certain property the Day family owned near Isaacs Canyon in Ada County, Idaho. In the 1990s, the State began working on the Isaacs Canyon Interchange near the Day property. The frontage road (Eisenman Road) was extended to the interchange. Eisenman Road did not reach the Day property. In late 1997, which the parties each stipulated was the date for valuation of any taking, the Department substantially completed construction of the Isaacs Canyon Interchange project. After the interchange was completed, the State transferred jurisdiction and maintenance of Eisenman Road southwest of the Interchange to the Ada County Highway District (ACHD). In 2014, the Department applied to ACHD to obtain access from Eisenman Road to the Day property. In 2015, the Department offered the Day family $560,000 to build an access road themselves, but the Days rejected the offer. In May 2016, ACHD advised the Department that it would “not accept a public street” needed to create the access desired by the Day family. Following ACHD’s denial of the Department’s application, the Day family filed this action, asserting claims against the Department for inverse condemnation, breach of contract, and breach of the implied covenant of good faith and fair dealing. Both parties moved for partial summary judgment and the Department moved to dismiss the Day family’s complaint. The Day family appealed when the district ocurt dismissed its claims. Their appeal presented for the Idaho Supreme Court's review: (1) a question of whether the district court erred by considering the Department’s motion to dismiss without notifying the Day family that it would consider matters outside of the pleadings; (2) a question of whether the district court correctly dismissed the Day family’s claims for lack of standing and for untimeliness; and (3) whether either party was entitled to an award of attorney fees on appeal. The Supreme Court determined the district court: erred in granting summary judgment for the Department on all of the Day family’s inverse condemnation claims; erred by granting summary judgment on the contract claim; and incorrectly held that the statute of limitations barred the inverse condemnation claims of Donna Day Jacobs and David R. Day. Furthermore, the Court determined the district court erred by dismissing the Day family’s contract-based claims.

Blair v. EMC Mortgage, LLC

Court: Supreme Court of Indiana

Docket: 19S-MF-530

Opinion Date: February 17, 2020

Judge: Loretta H. Rush

Areas of Law: Real Estate & Property Law

The Supreme Court affirmed the judgment of the trial court foreclosing a mortgage but finding that Lender was entitled to recover only payments and interest that accrued after a certain date due to Indiana's six-year statute of limitations to bring an action on the note underlying a mortgage, holding that there is no need to judicially create additional time constraints on a lender's ability to bring an action upon a closed installment contract. Lawsuits to enforce obligations under closed installment contracts are subject to multiple statutes of limitations. Borrowers in this case asked the Supreme Court to impose an additional rule of reasonableness. The trial court granted partial relief. The Supreme Court affirmed, holding (1) imposing additional, judicially-created time constraints upon a lender's ability to bring a claim on a closed installment contract is not necessary; (2) two statutes of limitations apply to a cause of action upon a promissory note; and (3) Lender sued within the applicable statutes of limitations.

Collins Asset Group, LLC v. Alkhemer Alialy

Court: Supreme Court of Indiana

Docket: 19S-CC-531

Opinion Date: February 17, 2020

Judge: Loretta H. Rush

Areas of Law: Real Estate & Property Law

The Supreme Court reversed the order of the trial court dismissing a lender's complaint seeking to recover on an accelerated promissory note, holding that, under either of two statutes of limitations, the lender can assert its claim. As explained today in Blair v. EMC Mortgage, LLC, __ N.E.3d __ (Ind. Feb. 17, 2020), two statutes of limitations apply equally to a cause of action upon a promissory note. Further explained in Blair is that the Supreme Court will not impose an additional rule of reasonableness on a mortgage lender's ability to bring an action upon a closed installment contract. In the instant case, Borrower executed a promissory note and mortgage to be paid in monthly installments over twenty-five years. After Borrower stopped making payments on the note Lender accelerated the debt, demanding payment in full. Borrower did not pay, and Lender sued. Borrower moved to dismiss the complaint, arguing that the claim was barred by Ind. Code 34-11-2-9. The court of appeals affirmed and held that Borrower waived its argument that Ind. Code 26-1-3.1-118(a) should also apply. The Supreme Court reversed, holding (1) Borrower did not waive its argument under section 26-1-3.1-118(a); and (2) Borrower can equally recover amounts owed under either statute of limitations.

Holland v. Murphy Oil USA, Inc.

Court: Supreme Court of Mississippi

Citation: 2018-CA-01491-SCT

Opinion Date: February 20, 2020

Judge: Leslie D. King

Areas of Law: Business Law, Personal Injury, Real Estate & Property Law

In 2016, Mario Holland parked his vehicle at Black’s Food Market and walked to West Lounge. Upon returning to his vehicle after patronizing West Lounge, Holland was shot and robbed in the Black’s Food parking lot. He alleged the assailant came from a vacant lot across the street from Black’s Food. Murphy Oil owned the vacant lot. Holland suffered serious injuries from the assault. The trial court granted summary judgment in favor of defendant Murphy Oil, finding that, as a landowner that owned land near the scene of an assault, it did not owe any legal duty to Holland. Holland appealed, arguing that the Mississippi Supreme Court should adopt Section 54 of the Restatement (Third) of Torts, which provided for instances when landowners might owe a duty to persons or property located off the landowner’s property. The Supreme Court determined it did not need to address the Restatement because it did not apply to the facts of this case. Further, the Court affirmed the trial court’s grant of summary judgment because the landowner did not owe any legal duty to Holland.

Bluestein v. Town of Sullivans Island

Court: South Carolina Supreme Court

Docket: 27947

Opinion Date: February 19, 2020

Judge: John W. Kittredge

Areas of Law: Civil Procedure, Real Estate & Property Law, Zoning, Planning & Land Use

This case concerned accreting land along the South Carolina coast that owned by the Town of Sullivan. Petitioners Nathan and Ettaleah Bluestein and Theodore and Karen Albenesius (collectively, Petitioners) bought property in the Town that abutted the accreting land. Petitioners' properties were once considered oceanfront lots only a short distance from the beach, but due to accretion, the properties were now a substantial distance away. The accreting land was subject to a 1991 deed, which set forth certain rights and responsibilities respecting the condition of the property and the Town's duties concerning upkeep of the land. Petitioners were third party beneficiaries of the 1991 deed. Petitioners argued the 1991 deed mandated the Town keep the vegetation on the land in the same condition as existed in 1991, particularly as to the height of shrubs and vegetation. Conversely, the Town contended the 1991 deed granted it unfettered discretion to allow unchecked growth of the vegetation on the accreting land. The South Carolina Supreme Court determined all parties cherrypicked language from the 1991 deed to support their respective interpretations of the deed. But contrary to the holding of the court of appeals and the trial court's findings, the Supreme Court held the deed was “far from unambiguous;” because the 1991 deed is ambiguous in terms of the Town's maintenance responsibilities, the court of appeals erred in affirming the entry of summary judgment for the Town. As a result, the matter was remanded to the trial court for further proceedings.

Town of Wilson v. City of Sheboygan

Court: Wisconsin Supreme Court

Docket: 2018AP002162

Opinion Date: February 14, 2020

Judge: Dallet

Areas of Law: Real Estate & Property Law

The Supreme Court affirmed the judgment of the circuit court concluding that an annexation of 247 acres of land to the City of Sheboygan satisfied the statutory contingency requirement, the rule of reason, and the procedural requirements of Wis. Stat. 66.0217, holding that the circuit court did not err or abuse its discretion. This appeal concerned J. Kohler Company's plan to convert 247 acres of land located in the Town of Wilson into a golf course. Kohler petitioned for annexation to the City of Sheboygan, determining that the golf course would not be developed if the land remained in the boundaries of the Town. In response, the Town filed this declaratory judgment action challenging the annexation. The circuit court dismissed the action in full. The Supreme Court affirmed, holding (1) the annexation met the statutory contiguity requirement in Wis. Stat. 66.0217(3); (2) the annexation satisfied the rule of reason; and (3) the petition complied with the signature and certification requirements set forth in Wis. Stat. 66.0218(3) and (5)(a).