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Bussing v. COR Clearing, LLC

United States District Court, D. Nebraska

May 21, 2014

JULIE A. BUSSING, Plaintiff,
v.
COR CLEARING, LLC, et al., Defendants

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[Copyrighted Material Omitted]

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For Julie A. Bussing, Plaintiff: David M. Gaba, LEAD ATTORNEY, COMPASS LAW GROUP, Seattle, WA; John L. Spray, LEAD ATTORNEY, MATTSON, RICKETTS LAW FIRM, Lincoln, NE.

For COR Securities Holdings, Inc., Carlos P. Salas, in their Individual Capacities, Christopher L. Frankel, in their Individual Capacities, COR Clearing, LLC, Defendants: Gillian G. O'Hara, Kasey M. Cappellano, Marcia A. Washkuhn, LEAD ATTORNEYS, KUTAK, ROCK LAW FIRM - OMAHA, Omaha, NE.

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MEMORANDUM AND ORDER

John M. Gerrard, United States District Judge.

This matter is before the Court on the parties' objections (filings 74 and 76) to the Magistrate Judge's Findings and Recommendation (filing 70), recommending that the Court grant in part and deny in part the defendants' motion to dismiss (filing 26), and recommending that the Court deny the plaintiff's motion to file her proposed third amended complaint (filing 63), but with leave to submit a new third amended complaint reasserting her state law claims in a manner consistent with the Findings and Recommendation. For the reasons discussed below, the Court will accept in part, and reject in part, the Magistrate Judge's recommendations. The specific implications of this decision for the parties' underlying motions (filings 26 and 63) will be discussed in greater detail below.

I. FACTUAL BACKGROUND

Plaintiff Julie A. Bussing has worked in the securities industry since 1989.[1] She is licensed as a Certified Public Accountant, holds a Masters of Business Administration, and she has been qualified to hold several Financial Industry Regulatory Authority (FINRA) licenses.[2] Filing 63-1 at

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¶ ¶ 12-13. Bussing alleges that from her long career in the area, she has obtained a comprehensive familiarity with trading, clearing operations, finance, accounting, and compliance with the rules and regulation of FINRA and the Securities and Exchange Commission (SEC). Filing 63-1 at ¶ 14.

In September 2011, Bussing began working as an independent contractor for defendant COR Securities Holdings, Inc. (" COR" ), a private investment management company. During this period, Bussing was retained by and reported to defendant Steven Sugarman, who was a director of COR as well as its CEO. Filing 63-1 at ¶ ¶ 5, 15. Part of her duties involved assisting with the due diligence for COR's acquisition of Legent Clearing, LLC (" Legent" ). Legent, which was headquartered in Omaha, provides clearing services to brokerage clients, and is now COR's wholly owned subsidiary. Filing 63-1 at ¶ ¶ 2, 4.

Before its acquisition by COR, Legent had been involved in several regulatory investigations and examinations. From 2009 to 2011, FINRA investigated and sanctioned Legent for various violations of FINRA rules and federal securities laws, including anti-money laundering provisions and the Bank Secrecy Act of 1970, 31 U.S.C. § 5311, et seq. Filing 63-1 at ¶ ¶ 18-19. Bussing learned of these issues through her investigation for COR. Filing 63-1 at ¶ 25.

As part of her duties related to COR's acquisition of Legent, Bussing also worked to develop a " Change of Control Plan." Filing 63-1 at ¶ 15. The plan was designed to ameliorate Legent's " 'troubling' regulatory history" and was approved by COR for implementation immediately after it completed its acquisition of Legent, during the first half of 2012. Filing 63-1 at ¶ ¶ 16-17.

Beginning in November 2011, Sugarman recruited Bussing to work for and lead Legent as its Executive Vice President. Filing 63-1 at ¶ 24. Bussing initially declined to work for Legent based on the results of her investigation. Filing 63-1 at ¶ 25. She alleges that " Sugarman, Legent, and COR (and their respective officers and directors) made certain assurances to . . . induce her to accept employment with Legent." Filing 63-1 at ¶ 26. Bussing claims she was assured she would be authorized to implement the Change of Control Plan and that Legent would enter into a long-term employment agreement with her. Filing 63-1 at ¶ 26.

Bussing and Legent entered into an oral employment agreement, which provided for, among other things, a 3-year term of employment, and allowed Bussing to report directly to Sugarman and the COR Board of Directors instead of defendant Christopher Frankel, Legent's CEO. Filing 63-1 at ¶ ¶ 7, 27. On January 1, 2012, Bussing began working for Legent as its executive vice president. Filing 63-1 at ¶ 28. Bussing and Legent later entered into a written employment agreement, which was backdated to January 1, 2012. Filing 63-1 at ¶ 44.

Bussing began implementing the Change of Control Plan in January 2012. Filing 63-1 at ¶ 30. Around that same time, FINRA began another investigation of Legent, for the same types of violations that had been found in previous years. Filing 63-1 at ¶ 20. From January to April, FINRA sent several large document and information requests, and conducted onsite examinations of Legent, all of which resulted in " significant pressure" on Legent's compliance efforts and disrupted

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Legent's ongoing business operations. Filing 63-1 at ¶ ¶ 36-41.

On April 23, 2012, FINRA instituted formal proceedings against Legent, alleging that from 2009 and 2010, Legent had failed to comply with the requirements of the Bank Secrecy Act, as well as anti-money laundering and financial reporting responsibilities imposed by various FINRA and SEC rules. Filing 63-1 at ¶ ¶ 21-22. On April 25, Bussing received a request from FINRA, pursuant to FINRA Rule 8210, to provide " extensive" documents and information, which were to be compiled and made available to FINRA staff when they arrived at Legent's office on April 30. Filing 63-1 at ¶ 48. Bussing alleges that in the course of preparing responses to the request, she identified several potential or existing violations of FINRA rules and federal securities regulations, which FINRA was likely to discover, including violations of the Bank Secrecy Act and anti-money laundering provisions. Filing 63-1 at ¶ 50. During this time, Frankel was the Legent officer ultimately responsible for compliance with various anti-money laundering provisions. Filing 63-1 at ¶ 51.

On April 26, 2012, Bussing met with defendant Carlos Salas, a director of COR, who told Bussing that she had the support of COR management. Filing 63-1 at ¶ ¶ 6, 52. Sugarman similarly expressed his support of Bussing's investigations and disclosures. Filing 63-1 at ¶ 53. On April 27, based upon violations identified in response to the Rule 8210 document request, Bussing directed Legent staff to cease processing penny stock certificates. Filing 63-1 at ¶ 54. Bussing also directed Legent staff to perform several transactional audits and account reviews, including an audit of all third-party foreign wires from 2011 and 2012. Filing 63-1 at ¶ 55. Later that day, Salas met with Bussing and expressed his dissatisfaction with Bussing's response to the document request and the decision to cease processing penny stock certificates. Filing 63-1 at ¶ 56. Bussing alleges that Salas advocated ignoring or responding incompletely to FINRA's document request. Filing 63-1 at ¶ 56.

Two days later, on April 29, 2012, defendant Jeffrey Sime, an officer of Legent, instructed Bussing to cease preparing a response to the Rule 8210 document request and to cease her audit of Legent's anti-money laundering compliance. Filing 63-1 at ¶ ¶ 8, 58. Bussing alleges that Sime was so agitated during their meeting that it prompted her to threaten to call security. Filing 63-1 at ¶ ¶ 58-59. Later that day, Bussing issued a report to COR and Legent which detailed several violations of anti-money laundering provisions and deficits in Legent's internal record-keeping. The report stated that Legent had processed transactions that violated the Bank Secrecy Act and anti-money laundering provisions on a daily basis throughout 2011 and 2012, and that Legent had likely been used to facilitate money-laundering activities. Filing 63-1 at ¶ ¶ 60-63. Bussing discussed these findings with Legent and COR management, including Sugarman, Salas, and Frankel. Filing 63-1 at ¶ 64. She alleges that she " was directed by Legent and COR management, including but not limited to Sugarman, Salas, Frankel, and Legent's new CCO to stall, delay, stop digging, and stop responding to the Rule 8210 Document Request or FINRA." Filing 63-1 at ¶ 65. Bussing refused, and participated in FINRA's onsite examination of Legent's offices, which took place from April 30 to May 3. Filing 63-1 at ¶ 66.

On May 4, 2012, Salas allegedly notified Bussing that he, Sugarman, and COR had decided Bussing " needed a vacation," and ordered Bussing to begin taking leave immediately.

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Salas also told Bussing that when she returned, her position would be changed and he would become Legent's CEO. Filing 63-1 at ¶ 68. Finally, on or around May 20, Bussing was notified that her employment with Legent had been terminated for cause. Filing 63-1 at ¶ ¶ 72-73.

II. STANDARD OF REVIEW

This matter is before the Court on the parties' objections to the Magistrate Judge's Findings and Recommendation. There are technically several layers to the standard of review in this case, but as it turns out, the same standard governs most of the Court's substantive analysis. Under 28 U.S.C. § 636(b)(1), a district court may refer matters to a magistrate judge, who will in turn provide proposed findings of fact and recommendations for disposition. Thereafter, the district court " shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." Id. Following that review, the district court " may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." Id.

Failure to object to a finding of fact in a Magistrate Judge's recommendation may be construed as a waiver of the right to object from the district court's order adopting the recommendation of the finding of fact. NECivR 72.2(f). And the failure to file an objection eliminates not only the need for de novo review, but any review by the Court. Thomas v. Arn, 474 U.S. 140, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985); Leonard v. Dorsey & Whitney LLP, 553 F.3d 609 (8th Cir. 2009); see also United States v. Meyer, 439 F.3d 855, 858-59 (8th Cir. 2006). So, with one exception (which relates to Bussing's claim for tortious interference), this Memorandum and Order touches only upon those aspects of the Findings and Recommendation to which the parties have objected. The Court has reviewed the remaining portions of the Findings and Recommendation, and will accept the Magistrate Judge's recommendations without modification.

Because the Court's analysis of the portions subject to objections is de novo, it is the same as the standard governing the underlying motions to dismiss and for leave to amend, to which the Court now turns. Following the defendants' motion to dismiss for failure to state a claim (filing 26), Bussing filed a motion for leave to file a third amended complaint, along with a proposed amended complaint. Filings 63 and 63-1. For all practical purposes, the Court's review of these motions has collapsed into a single inquiry: whether Bussing's third proposed amended complaint states a claim for relief.[3]

A complaint must set forth a short and plain statement of the claim showing that the pleader is entitled to relief. Fed.R.Civ.P. 8(a)(2). This standard does not require detailed factual allegations, but it demands more than an unadorned accusation. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The complaint need not contain detailed factual allegations, but must provide more than labels and conclusions; and a formulaic

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recitation of the elements of a cause of action will not suffice. Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). For the purposes of a motion to dismiss a court must take all of the factual allegations in the complaint as true, but is not bound to accept as true a legal conclusion couched as a factual allegation. Id.

And to survive a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a complaint must also contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. Iqbal, 556 U.S. at 678. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. Where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged--but it has not shown--that the pleader is entitled to relief. Iqbal, 556 U.S. at 679.

Determining whether a complaint states a plausible claim for relief will require the reviewing court to draw on its judicial experience and common sense. Id. The facts alleged must raise a reasonable expectation that discovery will reveal evidence to substantiate the necessary elements of the plaintiff's claim. See Twombly, 550 U.S. at 545. The court must assume the truth of the plaintiff's factual allegations, and a well-pleaded complaint may proceed, even if it strikes a savvy judge that actual proof of those facts is improbable, and that recovery is very remote and unlikely. Id. at 556.

III. ANALYSIS

The Court first takes a moment to sort through the claims in Bussing's operative complaint, which asserts twelve theories of recovery, with each brought against all of the defendants (unless otherwise noted). Those theories are: retaliation in violation of 15 U.S.C. § 78u-6(h), the whistleblower-protection provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (" Dodd-Frank" ); [4] retaliation in violation of Neb. Rev. Stat. § 48-1114(3) of the Nebraska Fair Employment Practices Act (FEPA), Neb. Rev. Stat. § 48-1101 et seq. ; wrongful termination in violation of public policy; breach of contract; breach of the covenant of good faith and fair dealing (against Legent only); defamation; fraudulent inducement, misrepresentation, and concealment; negligent misrepresentation; tortious interference with a business relationship or expectancy; and negligence.

The Magistrate Judge first found that Bussing failed to state a claim under Dodd-Frank. Filing 70 at 6-16. Bussing has objected to this finding, and as explained below, this Court finds that Bussing has, in fact, stated a claim for relief under Dodd-Frank. Filing 76.

The Magistrate Judge also found that Bussing had failed to state claims for defamation and for fraudulent inducement, fraudulent misrepresentation, fraudulent concealment, and negligent misrepresentation, and that her proposed amendment, as to those claims, was thus futile. Filing 70 at 21-25. Bussing has not objected to this aspect of the Magistrate Judge's findings. The Court therefore adopts those findings: those claims are dismissed and leave to amend is denied.

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The defendants have not challenged Bussing's claims for breach of contract and breach of the covenant of good faith and fair dealing. Accordingly, those claims may proceed. The defendants have objected to the Magistrate Judge's finding that Bussing had successfully pleaded claims for wrongful termination in violation of public policy and under FEPA. Filing 74. The resolution of those claims is detailed below; for now it suffices to say that they will be allowed to proceed.

Next, the Magistrate Judge found that Bussing had stated claims for tortious interference against the individual defendants, but not the corporate defendants. Bussing has objected to the latter finding. Filing 76. The Court finds that Bussing's tortious interference claims require a close examination of potentially complex legal questions that the parties have not yet briefed. The claims will be allowed to proceed, subject to reevaluation at a later time.

Finally, the Magistrate Judge found that Bussing had failed to state a claim for negligence against the individual defendants, but that she had stated a claim for negligence against COR and Legent, based upon their alleged failure to properly report certain information to the IRS. Filing 70 at 26-27. Neither party has objected to either aspect of this finding, and so the Court adopts the Magistrate Judge's recommendation without modification.

Before turning to the merits of Bussing's claim under Dodd-Frank, one additional procedural matter bears noting: Bussing's Motion to Offer Additional Evidence (filing 78) will be denied as moot. The Court has considered the proffered evidence, ...


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