Devonshire v. Johnston Group First Advisors

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 06a0067n.06
Filed: January 25, 2006
No. 04-4390
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
ROSALIE DEVONSHIRE, )
)
Plaintiff-Appellant, )
)
v. ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR THE
THE JOHNSTON GROUP FIRST ) NORTHERN DISTRICT OF OHIO
ADVISORS; BRADLEY M. JOHNSTON, )
)
Defendants-Appellees. )
Before: Moore, Rogers, and McKeague, Circuit Judges.
Rogers, Circuit Judge. This is a diversity action for negligence. The plaintiff, Rosalie
Devonshire, seeks damages for the loss of value to her stock portfolio allegedly caused by the
defendants’ inept handling of it during the 2000 recession. The defendants are The Johnston Group
First Advisors, a financial advising LLC, and its one member, Brad Johnston, who allegedly
mismanaged Devonshire’s investments during the 2000 recession. Devonshire appeals the district
court’s grant of summary judgment to defendants. The district court granted summary judgment to
defendants because “plaintiff has not brought forth evidence that she actually suffered damages as
a result of defendants’ alleged breach of duty.” We affirm.
I.
No. 04-4390
Devonshire v. The Johnston Group First Advisors et al.
Around May of 1999, Devonshire and her then-husband David Devonshire decided to
divorce. The divorce became final on November 29, 2000. After filing for divorce, Devonshire
opened two investment accounts with Commerce Bank for a total of approximately $100,000.
Devonshire transferred management of these accounts to Johnston on March 10, 2000. After the
finalization of the divorce, Devonshire’s complete investment portfolio was put in her name on
December 15, 2000. Devonshire entrusted management of this portfolio to Johnston.
Devonshire and Johnston met in or around August of 2000 to acquaint Johnston with
Devonshire’s situation and to foster a business relationship apart from her husband. Johnston sought
to “develop a strategy” for Devonshire that was “specific and unique to meeting” her needs.
Devonshire brought to the meeting “the scribblings of my monthly budget.” Devonshire told
Johnston that she wished to forestall discussion of a specific investment plan until after the divorce.
Relying on information from his prior dealings with Devonshire, Johnston sent to Devonshire
after the divorce a letter outlining his recommendations for her portfolio. He dated the letter January
26, 2001. Devonshire received it and looked it over. Devonshire had no immediate conversations
with Johnston regarding the investment strategy proposed in the letter. She objected to no part of
Johnston’s letter at that time. Devonshire later met with Johnston in March of 2001, however,
because she saw from her periodic financial statements “[t]hat I was losing a lot of money on a
monthly basis.”
At the March 2001 meeting, Johnston gave Devonshire her February statement showing that
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she had lost hundreds of thousands of dollars in February in addition to her other losses. Devonshire
said that “[I] got very upset and looked at Brad and I said, sell something, sell it, just sell something.
. . . I just didn’t want to lose any more money.” Devonshire did not pay close attention to economic
developments and was generally unaware of the serious economic recession then occurring.
Devonshire terminated her business relationship with Johnston in March of 2001.
Devonshire later brought this suit to recover money. Devonshire seeks damages for the
period when Johnston managed her portfolio. She hired financial expert William McGinnis.
McGinnis wrote a report and was deposed. In his report, McGinnis said that “Mr. Johnston was
negligent in the handling of Ms. Devonshire’s investments in that he did not adjust her portfolio in
light of significant material changes in her financial position resulting from her divorce.” McGinnis
also said in his report that Johnston breached his fiduciary duty to Devonshire by investing “in
securities which were unsuitable to [Devonshire’s] investment profile.” McGinnis’ report says
nothing about whether Devonshire has sustained damages, the quantity of any such damages, or
whether Johnston’s alleged breach of duty caused any damages.
In his deposition, McGinnis stated that Devonshire’s investment profile in late 2000 was
“fairly conservative.” He said that Devonshire’s portfolio was “overweighted in equities,”
especially in “risky segments” of the healthcare and technology industries. When asked which risky
segments of the healthcare industry Devonshire had invested in, McGinnis responded: “I don’t have
her portfolio in front of me.” When asked whether he had “undertaken any analysis to determine
the losses in Rosalie Devonshire’s account, during the time frame in your report,” McGinnis
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responded, “I have not.”
McGinnis said that the proper way to calculate Devonshire’s losses would be to compare the
performance of Devonshire’s portfolio with the performance of “a well-diversified, balanced
portfolio with longer term growth objectives.” He also stated that the market in late 2000 and early
2001 was “a very difficult market” and that Devonshire might have sustained losses even with a
more diversified portfolio.
II.
This court reviews a district court’s grant of summary judgment de novo. See Forsythe v.
BancBoston Mortg. Corp., 135 F.3d 1069, 1073 (6th Cir. 1997).
The district court properly granted summary judgment to defendants because Devonshire has
provided no Rule 56 evidence that would permit a rational juror to infer that Johnston’s alleged
negligence caused her losses. In Ohio, to recover in a negligence action the plaintiff must prove:
(1) the existence of a duty, (2) a breach of the duty, (3) and “an injury resulting proximately
therefrom.” Jeffers v. Olexo, 539 N.E.2d 614, 616 (Ohio 1989).
“A proximate cause of any given result is that cause which in the natural and continued
sequence of events contributes to produce the result, and without which it would not have
happened.” Xirafakis et al. v. Custodio, 2005 Ohio 2707, ¶ 16 (Ohio Ct. App. 2005). The Ohio
Court of Appeals has elaborated:
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While difficult to define, proximate cause is generally established where an original
act is wrongful or negligent and, in a natural and continuous sequence, produces a
result that would not have taken place without the act. Essentially, a plaintiff must
present evidence upon which a trier of fact may reasonably determine that it is more
likely than not that the negligence of a defendant was the direct or proximate cause
of the plaintiff’s injury. It is also well-settled that because the issue of proximate
cause is not open to speculation, conjecture as to whether the breach of duty caused
the particular damage is not sufficient as a matter of law.
Whiting v. State Dep’t of Mental Health, 750 N.E.2d 644, 647 (Ohio Ct. App. 2001) (citations
omitted). “If expert testimony is required to establish proximate cause, it must establish a
probability and not mere possibility of the causal connection.” Jones v. Med. Mut. of Ohio, 2004
Ohio 746, ¶ 9 (Ohio Ct. App. 2004).
The district court properly granted summary judgment to defendants because, even assuming
that Johnston was negligent, Devonshire has provided no evidence tending to prove that Johnston’s
alleged negligence caused any part of her losses. None of the Rule 56 evidence could allow a
rational trier of fact to conclude that Johnston caused her losses that would not have occurred
anyway during the 2000 recession.
Devonshire claims that Ohio law makes it inappropriate for a federal court to reach a
decision on the element of proximate cause at the summary judgment phase. Devonshire argues that
when the facts are sufficient to establish duty, breach and the existence of damages a jury must
decide the issue of proximate cause.
Nevertheless, assuming that Ohio forbids its courts from determining the issue of proximate
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cause at the summary judgment phase, federal courts must obey Federal Rule of Civil Procedure
56(c), which instructs federal courts to grant summary judgment on substantive legal issues,
proximate cause included, when there are no genuinely disputed issues of material fact and the
moving party is entitled to judgment as a matter of law. Because Rule 56(c) directly covers the
summary judgment issue here, this court may apply different state law only if Rule 56(c) cannot
rationally be characterized as procedural. See Walker v. Armco Steel Corp., 446 U.S. 740, 748
(1980) (“The [Hanna] Court explained that where the Federal Rule was clearly applicable . . . the
test was whether the Rule was within the scope of the Rules Enabling Act, 28 U.S.C. § 2072, and
if so, within a constitutional grant of power such as the Necessary and Proper Clause of Art. I.”);
McInnis v. A.M.F., Inc., 765 F.2d 240, 244 (1st Cir. 1985) (“federal rules purporting to govern
procedural matters, which are duly passed by Congress, shall be presumed constitutionally valid
unless they cannot rationally be characterized as rules of procedure”) (citing Hanna, 380 U.S. at
471). Under this test Rule 56(c) is of course procedural. That Ohio might prevent its own courts
from determining proximate cause at the summary judgment phase is irrelevant here.1
1
In any event, we do not read the cases cited by Devonshire to say that the issue of proximate
cause may not be decided at the summary judgment phase. See Welch v. Bloom, 2004 Ohio
3168, ¶ 7 (Ohio Ct. App. 2004); Strother v. Hutchinson, 423 N.E.2d 467 (Ohio 1981) (noting
that a trial court may direct a verdict if “reasonable minds could come to but one conclusion
upon the evidence submitted,” but finding that reasonable minds could differ in the case before
it); Whiteleather v. Yosowitz, 461 N.E.2d 1331 (Ohio Ct. App. 1983). Whereas Welch in ¶ 7 says
nothing about proximate cause, the whole of Strother says nothing about summary judgment.
Welch addresses proximate cause in ¶ 11. There Welch says that courts must resolve the issue of
proximate cause at the summary judgment phase if the facts are undisputed and the plaintiff’s
evidence requires mere speculation:
Normally, the issue of proximate cause involves questions of fact and cannot be
resolved by means of summary judgment. However, if the facts are undisputed,
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The district court properly granted summary judgment to defendants because Devonshire
failed to supply any Rule 56 evidence tending to prove that Johnston’s alleged negligence caused
any of her losses in the stock market. The complete lack of evidence of proximate cause also makes
it impossible for any trier of fact to approximate the magnitude of her recoverable losses. Only
those losses proximately caused by Johnston’s tortious actions could be awarded as damages—an
amount impossible to reasonably estimate given that no such causation has been shown. Cf.
Cincinnati Bell, Inc. v. Hinterlong, 437 N.E.2d 11, 16 (Hamilton County Mun. Ct. 1981) (noting that
damages must be calculable to “that degree of certainty of which the nature of the case will admit.”).
III.
For the foregoing reasons, the district court’s judgment is AFFIRMED.
the issue becomes a question of law which can be determined on summary
judgment. If the plaintiff's quantity or quality of evidence on the issue of
proximate cause requires mere speculation and conjecture to determine the cause
of the event at issue, then the defendant is entitled to summary judgment as a
matter of law.
Welch, 2004 Ohio 3168, at ¶11 (citations omitted).
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