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Hays v. Page Perry, LLC

United States District Court, N.D. Georgia, Atlanta Division

March 17, 2015

S. GREGORY HAYS Receiver for Lighthouse Financial Partners, LLC, Plaintiff,
v.
PAGE PERRY, LLC, et al., Defendants

For S. Gregory Hays, Receiver for Lighthouse Financial Partners, LLC, Plaintiff: Allison S. Hines Ficken, Edward Joseph Dovin, LEAD ATTORNEYS, Dovin Malkin & Ficken, LLC, Atlanta, GA.

For Page Perry, LLC, Estate of J. Boyd Page, Alan R. Perry, Jr., J. Steven Parker, Robert D. Terry, Daniel I. MacIntyre, Defendants: Christine L. Mast, Zachary Lewis, Hawkins Parnell Thackston & Young, LLP-GA, Atlanta, GA; Henry Lane Young, II, Hawkins & Parnell, Atlanta, GA.

OPINION AND ORDER

THOMAS W. THRASH, JR., United States District Judge.

This is a legal malpractice case arising out of services provided by the Defendants to Lighthouse Financial Partners, LLC. The Receiver claims that Page Perry lawyers committed legal malpractice by not informing regulatory authorities of regulatory violations by their client. The Court granted the Defendants' Motion to Dismiss based upon the total absence of any authority to support such a strange perversion of lawyers' professional responsibilities to their clients: to maintain in confidence all information gained in the professional relationship. It is now before the Court on the Plaintiff's Motion for Reconsideration [Doc. 30]. For the reasons set forth below, the Plaintiff's Motion for Reconsideration [Doc. 30] is DENIED.

I. Background

On February 1, 2013, Benjamin DeHaan -- the former manager and majority owner of Lighthouse Financial Partners, LLC -- pled guilty to one count of wire fraud.[1] Lighthouse was in the business of providing investment services to its clients, including investment of client funds. For years, DeHaan misappropriated funds from Lighthouse's clients.[2] To accomplish this, he made several misrepresentations to federal and state regulatory authorities. To avoid stringent regulations, Lighthouse would report that it was not taking custody of its clients' funds.[3] Lighthouse stated that the funds were immediately being transferred to qualified broker--dealers that served as custodians.[4] Two specific broker--dealers were listed: Interactive Brokers and TD Ameritrade.[5] However, Lighthouse was taking custody of its clients' funds.[6] Lighthouse -- at DeHaan's direction -- opened a bank account called the " Client Holding -- Pass Through" Account (" Pass Through Account" ).[7] Lighthouse represented that the Pass Through Account operated merely as a conduit between Lighthouse clients and the broker--dealers.[8] However, the funds placed in this Pass Through Account were being stolen by DeHaan for his personal use.[9]

From 2008 until 2012, the Defendant Page Perry, LLC represented Lighthouse.[10] Pursuant to a retainer agreement, Page Perry agreed to " advise [Lighthouse] regarding all registration, licensing, and regulatory requirements, including, as applicable, the requirements of the Securities and Exchange Commission and all state securities and investment advisor regulators." [11] The agreement made clear that Page Perry's responsibilities did not include " [c]ompliance matters, except as expressly identified." [12] In July of 2010, J. Steven Parker -- a partner at Page Perry -- performed a mock audit of Lighthouse, which included a review of Lighthouse's records and financial statements.[13] The 2010 financial statements referenced the Pass Through Account.[14] Parker sent DeHaan an e--mail, which read: " I re--checked the Georgia custody rule. You can receive checks made payable to 'third parties,' but not checks made payable to you. If you receive checks payable to Lighthouse, you still do not have custody if you return them within 3 business days. You should return the check ASAP and get a replacement payable to [Interactive Brokers]." [15]

Another mock audit took place in August of 2011.[16] To assist, Parker hired Em Walker, a former staff attorney for the Georgia Securities Commission.[17] When Walker visited the Lighthouse office on September 1, 2011, DeHaan was unable to produce most of the documents that he had been asked for in advance, including bank statements and client account statements.[18] Walker recommended that Page Perry investigate whether Lighthouse's clients were receiving periodic statements from the custodians Interactive Brokers and TD Ameritrade.[19] Parker wrote to Interactive Brokers and asked for assurances that Interactive Brokers was sending quarterly account statements to Lighthouse's clients.[20] On October 4, 2011, Parker met with DeHaan and informed DeHaan that Lighthouse was not in compliance with custody requirements because Interactive Brokers had not been providing account statements to Lighthouse's clients.[21] On November 18, 2011, Page Perry issued its mock audit report which stated that " [c]lient transaction records were not available at time of audit." [22]

On December 14, 2011, Lighthouse received notice that the Georgia Securities Commissioner planned to audit Lighthouse's records. The Commissioner's office asked to see the client account statements from Interactive Brokers or TD Ameritrade. On February 23, 2012, Lighthouse asked Parker for assistance. Parker drafted an email that Lighthouse sent to the auditor. This e--mail indicated that " DeHaan had been unable to obtain the client statements because TD Ameritrade had provided Lighthouse with the wrong phone numbers." [23] Additionally, Parker instructed DeHaan to close the Pass Through Account and have it audited by April of 2012.[24] Then, on March 30, 2012, the SEC issued a subpoena to DeHaan. DeHaan appeared before the SEC on April 3, 2012, and he was represented by two Page Perry partners, the Defendants Robert D. Terry and Daniel I. MacIntyre. On June 14, 2012, Page Perry withdrew as counsel for Lighthouse.[25] With DeHaan's consent, Page Perry then reported his criminal activity to the SEC.[26]

The SEC filed a civil enforcement action against Lighthouse and DeHaan.[27] Lighthouse's assets were frozen, and the Plaintiff S. Gregory Hays was appointed as Receiver for Lighthouse. The Plaintiff filed this lawsuit, arguing that the Defendants knew, or should have known, that Lighthouse had custody of its clients' funds and that DeHaan was converting those funds for personal use. The Plaintiff further argues that the Defendants should have notified regulatory authorities of these violations, and that such notification could have mitigated the ensuing damage. The Plaintiff asserted claims for professional malpractice, breach of fiduciary duty, and breach of contract.[28] On June 10, 2014, the Court dismissed the Plaintiff's claims.[29] The Plaintiff now moves for reconsideration.

Remarkably, in the briefing on the Motion for Reconsideration, the Plaintiff now argues that Page Perry had " knowledge of DeHaan's theft and assisted in and perpetuated his criminal conduct." [30] In this regard, the Plaintiff's Motion for Reconsideration goes one step further in reliance upon what the Court characterized in its initial Order as " wild exaggerations, implausible inferences and selective quotations from e-mails ...." The Complaint does not even allege that Page Perry had actual knowledge of DeHaan's ongoing theft of client funds until the very end of the attorney-client relationship. This new claim of actual knowledge of the theft of client funds during the ongoing attorney-client relationship is totally contradicted by the 168 pages of exhibits attached to the Plaintiff's Complaint.

II. Legal Standard

Local Rule 7.2 provides that motions for reconsideration are not to be filed " as a matter of routine practice," but only when " absolutely necessary." [31] A party may move for reconsideration only when one of the following has occurred: " an intervening change in controlling law, the availability of new evidence, [or] the need to correct clear error or prevent manifest injustice." [32] Further, a party " may not employ a motion for reconsideration as a vehicle to present new arguments or evidence that should have been raised earlier, introduce ...


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