Which Laws Apply to Broker-Dealers? Federal Laws? State Laws? Both? General Principles Leading to an Answer

TAMAR FRANKEL

BU Law emerita professor Tamar Frankel explains the law of preemption as it pertains to broker-dealers and their investor clients. She predicts, among other things, that either the clients will demand that broker-dealers adhere to a fiduciary duty, or else that states will impose that duty on them.

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NTV Management, Inc. v. Lightship Global Ventures, LLC

Docket: SJC-12737

Opinion Date: March 5, 2020

Judge: Barbara A. Lenk

Areas of Law: Consumer Law, Contracts, Securities Law

The Supreme Judicial Court vacated the trial judge's order setting aside the jury verdict and reinstated the original judgment in favor of Plaintiff, holding that the contract at issue in this appeal did not require an obligation that Plaintiff register as a securities broker-dealer under Massachusetts and Federal securities laws. Plaintiff sued Defendant alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of Mass. Gen. Laws ch. 93A. A jury found Defendant liable on all claims and awarded treble damages. Thereafter, the judge set aside the jury's verdict in its entirety, concluding that Plaintiff had been required to register as a securities broker-dealer and that its failure to do so rendered its contract with Defendant invalid and unenforceable. The contract required Plaintiff to "source capital and structure financing transactions from agreed-upon investors and/or lenders" for Defendant. The Supreme Judicial Court reversed, holding (1) the contract, on its face, did not require Plaintiff to "effect" transactions in "securities"; and (2) because Plaintiff's purported obligation to register as a broker-dealer was the sole basis for the judge's decision that Plaintiff could not maintain its breach of contract and Mass. Gen. Laws ch. 93A claims, the judge's decision to set aside the jury verdict was erroneous.