06-5246-cv
Holmes v. Grubman

                                     UNITED STATES COURT OF APPEALS
                                        FOR THE SECOND CIRCUIT

                                              SUMMARY ORDER
       Rulings by summary order do not have precedential effect. Citation to summary
orders filed on or after January 1, 2007, is permitted and is governed by Federal Rule of
Appellate Procedure 32.1 and this court’s Local Rule 32.1.1. When citing a summary order in
a document filed with this court, a party must cite either the Federal Appendix or an
electronic database (with the notation “summary order”). A party citing a summary order
must serve a copy of it on any party not represented by counsel.

       At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New
York, on the twenty-third day of June, two thousand and ten.

PRESENT:

          JOHN M. WALKER, JR.,
          JOSÉ A. CABRANES,
                               Circuit Judges.*
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WILLIAM K. HOLMES, HOLMES CAPITAL , LLC, BREW DOG , LLC,
BIMINI STAR , LLC, and EBH INVESTMENTS CO ., LLC,

                     Plaintiffs-Appellants,

                               v.                                                          No. 06-5246-cv


JACK GRUBMAN and CITIGROUP GLOBAL MARKETS INC .
f/k/a Smith Barney Co., Inc.,

                     Defendants-Appellees.

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          *
         Judge Reena Raggi recused herself from participating in oral argument and deciding this
appeal. The appeal has been decided by the remaining two members of the panel, who are in
agreement. See 2d Cir. Local Rules, Internal Operating Procedure E(b).

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FOR PLAINTIFFS-APPELLANTS:                              ROSEMARY S. ARMSTRONG (Joseph J. Burton,
                                                        Jr., on the brief), Burton & Armstrong, LLP,
                                                        Atlanta, GA.


FOR DEFENDANTS-APPELLEES:                               WALTER RIEMAN (Brad S. Karp, Eric S.
                                                        Goldstein, and Susanna Buergel, on the brief)
                                                        Paul, Weiss, Rifkind, Wharton & Garrison
                                                        LLP, New York, NY.

       Appeal from an October 13, 2006 judgment of the United States District Court for the
Southern District of New York (Denise Cote, Judge).

     UPON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the District Court is AFFIRMED.

        This case returns to us from the Supreme Court of Georgia to which we had certified
questions of state law. See Holmes v. Grubman, 568 F.3d 329 (2d Cir. 2009). We certified the
following three questions:

        I.       Does Georgia common law recognize fraud claims based on forbearance in
                 the sale of publicly traded securities?

        II.      With respect to a tort claim based on misrepresentations or omissions
                 concerning publicly traded securities, is proximate cause adequately pleaded
                 under Georgia law when a plaintiff alleges that his injury was a reasonably
                 foreseeable result of defendant’s false or misleading statements but does not
                 allege that the truth concealed by the defendant entered the marketplace,
                 thereby precipitating a drop in the price of the security?

        III.     Under Georgia law, does a brokerage firm owe a fiduciary duty to the holder
                 of a non-discretionary account?

Id. at 340-41.

        The Supreme Court of Georgia has answered those questions in an opinion: Holmes v.
Grubman, No. S09Q1585, 2010 WL 424225 (Ga. Feb. 8, 2010). In doing so it agreed with the
District Court’s interpretation of Georgia law on proximate cause, holding that proximate cause
requires “that the truth concealed by the defendant entered the marketplace, thereby precipitating a
drop in the price of the security.” Id. at * 6. On the remaining certified questions, the Supreme
Court of Georgia held that Georgia common law recognizes fraud claims based on forbearance in
the sale of publicly traded securities (so-called “holder” claims) and that Georgia law recognizes a
fiduciary duty owed by a brokerage firm to the holder of a non-discretionary account. Id. at *3-4, *6.
Both of those holdings run contrary to the District Court’s rulings below. See Holmes v. Grubman,
Nos. 02 Civ. 3288, 04 Civ. 8308, 2006 WL 751382, at *2 (S.D.N.Y. Mar. 24, 2006) (holding that
Georgia law does not recognize “holder” claims); Holmes v. Grubman, 456 F. Supp. 2d 508, 517
(S.D.N.Y. 2006) (holding that a brokerage firm owes no fiduciary duty to holders of non-
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discretionary accounts under Georgia law).

        Although the District Court did not accurately anticipate the Supreme Court of Georgia’s
rulings with respect to two of the certified questions, we nevertheless conclude that plaintiffs’ claims
properly were dismissed. Proximate cause is an element of claims of fraud, negligence, and breach of
fiduciary duty under Georgia law. See Taylor v. Bennett Chevrolet/Buick, Inc., 609 S.E.2d 215, 217 (Ga.
Ct. App. 2005) (fraud); Cieplinski v. Caldwell Elec. Contractors, Inc., 633 S.E.2d 646, 650 (Ga. Ct. App.
2006) (negligence); Newitt v. First Union Nat’l Bank, 607 S.E.2d 188, 196 (Ga. Ct. App. 2004)
(negligent misrepresentation); Savu v. SunTrust Bank, 668 S.E.2d 276, 283 n.16 (Ga. Ct. App. 2008)
(breach of fiduciary duty). The District Court dismissed plaintiffs’ claims of fraud, negligence, and
negligent misrepresentation because plaintiffs failed to plead adequately proximate cause, and the
Supreme Court of Georgia confirmed that, in doing so, the District Court applied the correct legal
standard. Accordingly, we affirm the District Court’s dismissal of plaintiffs’ claims of fraud
(including plaintiffs’ “holder” claims), negligence, and negligent misrepresentation substantially for
the reasons stated in the District Court’s careful Opinion and Order. See Holmes, 456 F. Supp. 2d at
514-17.

        Although the District Court did not rely on a lack of proximate cause in dismissing plaintiffs’
claim for breach of fiduciary duty, we may affirm the judgment of the District Court on any basis
supported by the record, including grounds upon which the District Court did not rely. See Prisco v.
A & D Carting Corp., 168 F.3d 593, 610 (2d Cir. 1999). Because proximate cause is an element of a
claim for breach of fiduciary duty, we conclude that dismissal of that claim was also warranted.

                                           CONCLUSION

       We have considered all of plaintiffs’ arguments and find them to be without merit. For the
foregoing reasons, the judgment of the District Court is AFFIRMED.


                                                FOR THE COURT,
                                                Catherine O’Hagan Wolfe, Clerk of Court




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