{ "id": 8957786, "name": "EVA M. STERNER, Plaintiff v. DELMAR S. PENN, REGINA GUNN PENN, AMERITRADE, INC., ADVANCED CLEARING, INC., DEUTSCHE BANC ALEX. BROWN, INC. and WALL STREET ACCESS, Defendants", "name_abbreviation": "Sterner v. Penn", "decision_date": "2003-08-05", "docket_number": "No. COA02-827", "first_page": "626", "last_page": "635", "citations": [ { "type": "official", "cite": "159 N.C. App. 626" } ], "court": { "name_abbreviation": "N.C. Ct. App.", "id": 14983, "name": "North Carolina Court of Appeals" }, "jurisdiction": { "id": 5, "name_long": "North Carolina", "name": "N.C." }, "cites_to": [ { "cite": "1994 WL 543528", "category": "reporters:specialty_west", "reporter": "WL", "year": 1994, "opinion_index": 0 }, { "cite": "37 F.3d 1493", "category": "reporters:federal", "reporter": "F.3d", "year": 1994, "opinion_index": 0 }, { "cite": "548 S.E.2d 704", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 2001, "pin_cites": [ { "page": "711" } ], "opinion_index": 0 }, { "cite": "353 N.C. 647", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 135724 ], "year": 2001, "pin_cites": [ { "page": "657" } ], "opinion_index": 0, "case_paths": [ "/nc/353/0647-01" ] }, { "cite": "333 S.E.2d 236", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 2, "year": 1985, "pin_cites": [ { "page": "241" }, { "page": "241" } ], "opinion_index": 0 }, { "cite": "314 N.C. 267", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 4690671 ], "weight": 2, "year": 1985, "pin_cites": [ { "page": "275" }, { "page": "274" } ], "opinion_index": 0, "case_paths": [ "/nc/314/0267-01" ] }, { "cite": "403 S.E.2d 483", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 10, "year": 1991, "pin_cites": [ { "page": "492", "parenthetical": "citation and quotation marks omitted" }, { "page": "493" }, { "page": "580-81" }, { "page": "485" }, { "page": "593" }, { "page": "493" }, { "page": "594" }, { "page": "493" } ], "opinion_index": 0 }, { "cite": "328 N.C. 578", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 2538399 ], "weight": 3, "year": 1991, "pin_cites": [ { "page": "592-93", "parenthetical": "citation and quotation marks omitted" }, { "page": "593" } ], "opinion_index": 0, "case_paths": [ "/nc/328/0578-01" ] }, { "cite": "N.C. Gen. Stat. \u00a7 75-1.1", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "weight": 2, "year": 2001, "pin_cites": [ { "page": "(b)" } ], "opinion_index": 0 }, { "cite": "535 S.E.2d 597", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 2000, "pin_cites": [ { "page": "602", "parenthetical": "holding that where plaintiff alleged that the defendant \"took advantage of his position of trust and benefitted from his actions in that he was paid for his services,\" such an allegation by itself was insufficient to show that the defendant sought his own advantage" } ], "opinion_index": 0 }, { "cite": "140 N.C. App. 106", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 12122230 ], "year": 2000, "pin_cites": [ { "page": "114" } ], "opinion_index": 0, "case_paths": [ "/nc-app/140/0106-01" ] }, { "cite": "488 S.E.2d 215", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 2, "year": 1997, "pin_cites": [ { "page": "224" }, { "page": "224" } ], "opinion_index": 0 }, { "cite": "346 N.C. 650", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 139442 ], "weight": 2, "year": 1997, "pin_cites": [ { "page": "666-67" }, { "page": "667" } ], "opinion_index": 0, "case_paths": [ "/nc/346/0650-01" ] }, { "cite": "510 S.E.2d 374", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1999, "opinion_index": 0 }, { "cite": "350 N.C. 57", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 132279 ], "year": 1999, "opinion_index": 0, "case_paths": [ "/nc/350/0057-01" ] }, { "cite": "499 S.E.2d 790", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 2, "year": 1998, "pin_cites": [ { "page": "798", "parenthetical": "citation and quotation marks omitted" } ], "opinion_index": 0 }, { "cite": "129 N.C. App. 432", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 11650923 ], "year": 1998, "opinion_index": 0, "case_paths": [ "/nc-app/129/0432-01" ] }, { "cite": "215 S.E.2d 583", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1975, "pin_cites": [ { "page": "587", "parenthetical": "holding that the \"existence of a legal duty\" constitutes the threshold requirement for a negligence action" } ], "opinion_index": 0 }, { "cite": "288 N.C. 62", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8564807 ], "year": 1975, "pin_cites": [ { "page": "68", "parenthetical": "holding that the \"existence of a legal duty\" constitutes the threshold requirement for a negligence action" } ], "opinion_index": 0, "case_paths": [ "/nc/288/0062-01" ] }, { "cite": "1991 WL 15301", "category": "reporters:specialty_west", "reporter": "WL", "year": 1991, "pin_cites": [ { "page": "*4", "parenthetical": "stating that \"[t]here is even greater reason to reject monitoring liability in the case of discount brokers whose admitted function is not to give advice so investors can save money on commissions\"" } ], "opinion_index": 0 }, { "cite": "918 F. Supp. 1384", "category": "reporters:federal", "reporter": "F. Supp.", "case_ids": [ 7810721 ], "year": 1996, "pin_cites": [ { "page": "1393", "parenthetical": "holding it would be unethical to require a broker/dealer to inquire into all the agreements between its customer and his or her clients" } ], "opinion_index": 0, "case_paths": [ "/f-supp/918/1384-01" ] }, { "cite": "457 F. Supp. 1380", "category": "reporters:federal", "reporter": "F. Supp.", "case_ids": [ 4035332 ], "weight": 7, "year": 1978, "pin_cites": [ { "page": "1382-83" }, { "page": "1387" }, { "page": "1387" } ], "opinion_index": 0, "case_paths": [ "/f-supp/457/1380-01" ] }, { "cite": "150 S.E. 618", "category": "reporters:state_regional", "reporter": "S.E.", "year": 1929, "opinion_index": 0 }, { "cite": "198 N.C. 44", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8596761 ], "year": 1929, "opinion_index": 0, "case_paths": [ "/nc/198/0044-01" ] }, { "cite": "301 F.3d 220", "category": "reporters:federal", "reporter": "F.3d", "case_ids": [ 11417876 ], "weight": 5, "year": 2002, "pin_cites": [ { "page": "224" }, { "page": "225" }, { "page": "226" } ], "opinion_index": 0, "case_paths": [ "/f3d/301/0220-01" ] }, { "cite": "454 S.E.2d 655", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1995, "opinion_index": 0 }, { "cite": "339 N.C. 739", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 2558925, 2556401, 2557239, 2559480, 2556571 ], "year": 1995, "opinion_index": 0, "case_paths": [ "/nc/339/0739-05", "/nc/339/0739-04", "/nc/339/0739-01", "/nc/339/0739-03", "/nc/339/0739-02" ] }, { "cite": "449 S.E.2d 202", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1994, "pin_cites": [ { "page": "214" } ], "opinion_index": 0 }, { "cite": "116 N.C. App. 493", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8524741 ], "year": 1994, "pin_cites": [ { "page": "511" } ], "opinion_index": 0, "case_paths": [ "/nc-app/116/0493-01" ] }, { "cite": "411 S.E.2d 916", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1992, "pin_cites": [ { "page": "920" } ], "opinion_index": 0 }, { "cite": "330 N.C. 487", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 2513373 ], "year": 1992, "pin_cites": [ { "page": "490" } ], "opinion_index": 0, "case_paths": [ "/nc/330/0487-01" ] }, { "cite": "426 S.E.2d 733", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 2, "year": 1997, "pin_cites": [ { "page": "735" } ], "opinion_index": 0 }, { "cite": "126 N.C. App. 826", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 11713689 ], "year": 1997, "pin_cites": [ { "page": "828" } ], "opinion_index": 0, "case_paths": [ "/nc-app/126/0826-01" ] }, { "cite": "529 S.E.2d 236", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 2000, "pin_cites": [ { "page": "241", "parenthetical": "quoting Peterkin v. Columbus County Bd. of Educ., 126 N.C. App. 826, 828, 426 S.E.2d 733, 735 (1997)" } ], "opinion_index": 0 }, { "cite": "137 N.C. App. 387", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 11093692 ], "year": 2000, "pin_cites": [ { "page": "392", "parenthetical": "quoting Peterkin v. Columbus County Bd. of Educ., 126 N.C. App. 826, 828, 426 S.E.2d 733, 735 (1997)" } ], "opinion_index": 0, "case_paths": [ "/nc-app/137/0387-01" ] }, { "cite": "543 S.E.2d 892", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 2000, "opinion_index": 0 }, { "cite": "352 N.C. 150", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 684907, 684972, 684945, 684919, 684926 ], "year": 2000, "opinion_index": 0, "case_paths": [ "/nc/352/0150-01", "/nc/352/0150-04", "/nc/352/0150-02", "/nc/352/0150-05", "/nc/352/0150-03" ] }, { "cite": "526 S.E.2d 214", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 2000, "pin_cites": [ { "page": "215" } ], "opinion_index": 0 }, { "cite": "136 N.C. App. 834", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 11242419 ], "year": 2000, "pin_cites": [ { "page": "834-35" } ], "opinion_index": 0, "case_paths": [ "/nc-app/136/0834-01" ] } ], "analysis": { "cardinality": 968, "char_count": 21114, "ocr_confidence": 0.757, "pagerank": { "raw": 3.083331895109518e-07, "percentile": 0.8581326556104236 }, "sha256": "5527dc264a5730c50307b0ed74729141cc9a13d02673f6e4fe45976f488b3a97", "simhash": "1:1bcb5570b4ef2159", "word_count": 3307 }, "last_updated": "2023-07-14T16:27:55.515420+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "Judges McGEE and STEELMAN concur." ], "parties": [ "EVA M. STERNER, Plaintiff v. DELMAR S. PENN, REGINA GUNN PENN, AMERITRADE, INC., ADVANCED CLEARING, INC., DEUTSCHE BANC ALEX. BROWN, INC. and WALL STREET ACCESS, Defendants" ], "opinions": [ { "text": "HUDSON, Judge.\nPlaintiff Eva M. Sterner lost more than $160,000 that she had entrusted to defendant Delmar Penn, believing that he would invest the money for her. Penn used the services of defendants Ameritrade, Inc. (\u201cAmeritrade\u201d); Advance Clearing, Inc. (\u201cAdvanced Clearing\u201d); Deutsche Banc Alex. Brown, Inc. (\u201cDeutsche Banc\u201d); and Wallstreet Access (\u201cWallstreet Access\u201d), brokerage firms and securities clearing companies. Sterner sued the defendants, asserting claims for negligence, constructive fraud, and unfair and deceptive trade practices. Defendants moved to dismiss the suit, and the trial court granted the motion. For the reasons set forth below, we affirm the decision of the trial court.\nBACKGROUND\nAccording to the complaint, in the fall of 1998, plaintiff, a widow, met Penn, who told her that he was a highly successful investor. Penn and his wife promised to invest plaintiff\u2019s money and guaranteed plaintiff that they would double or even triple her investment. Plaintiff agreed and, in September 1998, transferred a total of $170,700.00 to Penn for him to invest.\nPenn placed plaintiffs money into accounts that he had opened with defendants Ameritrade and Deutsche Banc, both brokerage firms. The accounts were in the names of Delmar Penn and an entity known as BTL Worldwide Unlimited, Inc., which was not a valid corporation. Penn executed trades on plaintiff\u2019s behalf through Ameritrade and Deutsche Banc and through their respective securities clearing companies, Advanced Clearing and Wall Street Access. Penn traded through these accounts and lost all of plaintiff\u2019s money except for $2000, which he returned to her.\nOn 30 July 1999, plaintiff sued Penn and his wife for breach of contract, negligence, constructive fraud, and unfair trade practices. Because of criminal charges pending against Penn, the trial court stayed plaintiff\u2019s case. In September 2001, plaintiff moved to amend the complaint to add Ameritrade, Advanced Clearing, Deutsche Bank, and Wallstreet Access. The trial court allowed the motion, and plaintiff filed her amended complaint on 6 November 2001, adding claims of negligence, constructive fraud, and unfair and deceptive trade practices against these additional defendants.\nOn 11 January 2002, Ameritrade and Advanced Clearing moved to dismiss for failure to state a claim upon which relief can be granted, pursuant to Rule 12(b)(6). Shortly thereafter, Deutsche Banc and Wallstreet Access likewise filed a Rule 12(b)(6) motion. The trial court granted both motions, and plaintiff appealed to this Court. Plaintiff moved to voluntarily dismiss Penn and his wife without prejudice pending the outcome of this appeal, and the trial court granted the motion.\nANALYSIS\nPlaintiff assigns error to the trial court\u2019s grant of defendants\u2019 motions to dismiss. A Rule 12(b)(6) motion tests the legal sufficiency of the pleading. N.C.G.S. \u00a7 1A-1, Rule 12(b)(6) (2001); Shaut v. Cannon, 136 N.C. App. 834, 834-35, 526 S.E.2d 214, 215, disc. rev. denied, 352 N.C. 150, 543 S.E.2d 892 (2000). A Rule 12(b)(6) motion will be granted \u201c \u2018(1) when the face of the complaint reveals that no law supports plaintiff\u2019s claim; (2) when the face of the complaint reveals that some fact essential to plaintiff\u2019s claim is missing; or (3) when some fact disclosed in the complaint defeats plaintiff\u2019s claim.\u2019 \u201d Walker v. Sloan, 137 N.C. App. 387, 392, 529 S.E.2d 236, 241 (2000) (quoting Peterkin v. Columbus County Bd. of Educ., 126 N.C. App. 826, 828, 426 S.E.2d 733, 735 (1997)). We treat all factual allegations of the pleading as true but not conclusions of law. Id. In sum, a Rule 12(b)(6) motion asks the court to \u201cdetermine whether the complaint alleges the substantive elements of a legally recognized claim.\u201d Embree Const. Group v. Rafcor, Inc., 330 N.C. 487, 490, 411 S.E.2d 916, 920 (1992).\nA.\nPlaintiff argues first that the complaint sufficiently alleges a negligence claim against the four corporate defendants because it asserts that they negligently allowed Penn, an unlicensed broker, to transfer plaintiff\u2019s money from her account to the brokerage accounts and also because defendants failed to supervise the manner in which Penn invested plaintiff\u2019s funds. Because we can find no authority in North Carolina law for imposing a duty upon defendants to oversee Penn in these respects, we conclude that the trial court properly dismissed the claims for negligence.\nTo withstand a motion to dismiss, plaintiff\u2019s negligence complaint must allege \u201cthe existence of a legal duty or standard of care owed to the plaintiff by the defendant, breach of that duty, and a causal relationship between the breach of duty and certain actual injury or loss sustained by the plaintiff.\u201d Peace River Elec. Coop., Inc. v. Ward Transformer Co., 116 N.C. App. 493, 511, 449 S.E.2d 202, 214 (1994), disc. rev. denied, 339 N.C. 739, 454 S.E.2d 655 (1995). The sine qua non of a negligence claim is a legal duty owed by defendant to the plaintiff. Eisenberg v. Wachovia Bank, N.A., 301 F.3d 220, 224 (4th Cir. 2002).\nIn North Carolina, securities broker/dealers like defendants have long been subject to liability for negligence to customers. Folger v. Clark, 198 N.C. 44, 150 S.E. 618 (1929). This case, however, presents a different question \u2014 whether a securities broker/dealer has a legal duty to \u201csupervise\u201d and \u201cmonitor\u201d the investments ordered by its customer on behalf of that customer\u2019s client. Because our courts have not yet answered this question, we begin our analysis with authority from other jurisdictions.\nPlaintiff\u2019s brief cites no persuasive authority indicating that securities broker/dealers are charged with such a broad duty, and we have found none. To the contrary, other courts have declined to impose the broad duty that plaintiff asks us to recognize and impose today.\nIn Cumis Insurance Society, Inc. v. E. F. Hutton & Co., 457 F. Supp. 1380 (1978), for example, a federal district court in New York faced a similar situation. There, the plaintiff was an assignee of two credit unions who were the victims of a fraud perpetrated by an investment advisor named George Oppenheimer. The complaint named E. F. Hutton & Co., (\u201cHutton\u201d) a broker with which Oppenheimer did business, and several other parties as defendants, in part because Oppenheimer used Hutton\u2019s broker/dealer services to execute trades on behalf of his clients. Cumis, 457 F. Supp. at 1382-83. Specifically, the plaintiff alleged that Hutton knew or should have known about inappropriate investment orders that Oppenheimer had placed. Id. at 1387. The plaintiff premised the alleged constructive knowledge on Hutton\u2019s alleged duty to investigate all the clients of all its customers to ascertain the appropriateness of their customers\u2019 orders. Id.\nThe New York court held that no such duty existed for two persuasive reasons. First, the plaintiff itself had \u201cno reason or right to expect [Hutton] to supervise the use of [its money], for they dealt with Oppenheimer, not Hutton.\u201d Id. Second, the plaintiff could find no precedent to support its argument that such a duty should be imposed on broker/dealers. Id.\nSimilarly, other courts have refused to impose a duty on broker/dealers to supervise and monitor the investment orders of their customers. The policy justifications for these decisions range from ethical considerations to simple economics. See Unity House v. North Pacific Investments, 918 F. Supp. 1384, 1393 (D. Hawaii 1996) (holding it would be unethical to require a broker/dealer to inquire into all the agreements between its customer and his or her clients); Chee v. Marine Midland Bank, N.A., 1991 WL 15301 *4 (E.D.N.Y. 1991) (stating that \u201c[t]here is even greater reason to reject monitoring liability in the case of discount brokers whose admitted function is not to give advice so investors can save money on commissions\u201d).\nIn Eisenberg, 301 F.3d 220, the Fourth Circuit, applying North Carolina law, held that a bank does not owe a duty to a noncustomer with no relationship to the bank who is defrauded by the bank\u2019s customer through use of its services. Eisenberg, 301 F.3d at 225. The court found that the plaintiff fell \u201cinto the undefined and unlimited category of strangers who might interact with [defendant\u2019s] customer.\u201d Id. at 226. To extend defendant\u2019s duty to include strangers like plaintiff, the court reasoned, \u201cwould expose banks to unlimited liability for unforeseeable frauds.\u201d Id.\nAlthough the facts in Eisenberg are distinguishable from those before us, we find the logic of the decision and its public policy considerations analogous and persuasive. Plaintiff alleges that defendants \u201cowed a duty to exercise reasonable care and diligence in their relationship with the Plaintiff\u2019 and that they breached this duty when they failed to properly supervise Penn, their customer, or to \u201cmonitor the funds or investments of the Plaintiff,\u201d which were ordered by Penn. We cannot agree that this could state a claim under North Carolina law, as we see no basis to impose such a \u201cwide-ranging duty on brokers.\u201d Cumin, 457 F. Supp. at 1387. Plaintiff alleges that defendants executed Penn\u2019s investment orders. There are neither allegations that defendants acted as investment advisors to Penn, nor to plaintiff. Because defendants had no duty to supervise and monitor Penn\u2019s actions to protect plaintiff, we hold that plaintiff\u2019s negligence claim fails. Meyer v. McCarley & Co., 288 N.C. 62, 68, 215 S.E.2d 583, 587 (1975) (holding that the \u201cexistence of a legal duty\u201d constitutes the threshold requirement for a negligence action).\nThus, we hold that plaintiff\u2019s claim for negligence against defendants is legally insufficient and, therefore, that the trial court properly granted defendants\u2019 motion to dismiss on this basis.\nB.\nPlaintiff also argues that her complaint sufficiently alleges a constructive fraud claim against defendants. Again, we disagree.\nIn State Ex Rel. Long v. Petree Stockton, L.L.P., 129 N.C. App. 432, 499 S.E.2d 790 (1998), cert. dismissed, 350 N.C. 57, 510 S.E.2d 374 (1999), we described the essential elements of a claim based on constructive fraud. To survive a motion to dismiss, such a claim must:\nallege facts and circumstances (1) which created the relation of trust and confidence, and (2) led up to and surrounded the consummation of the transaction in which defendant is alleged to have taken advantage of his position of trust to the hurt of plaintiff. Further, an essential element of constructive fraud is that defendants sought to benefit themselves in the transaction.\nPetree Stockton, L.L.P., 129 N.C. at 445, 499 S.E.2d at 798 (citation and quotation marks omitted); see also Barger v. McCoy Hillard & Parks, 346 N.C. 650, 666-67, 488 S.E.2d 215, 224 (1997). The benefit sought by the defendant must be more than a continued relationship with the plaintiff. Barger, 346 N.C. at 667, 488 S.E.2d at 224. Moreover, \u201cpayment of a fee to a defendant for work done by that defendant does not by itself constitute sufficient evidence that the defendant sought his own advantage.\u201d Nationsbank of N.C. v. Parker, 140 N.C. App. 106, 114, 535 S.E.2d 597, 602 (2000) (holding that where plaintiff alleged that the defendant \u201ctook advantage of his position of trust and benefitted from his actions in that he was paid for his services,\u201d such an allegation by itself was insufficient to show that the defendant sought his own advantage).\nHere, plaintiff alleges in her complaint that defendants, acting as broker/dealers, accepted her money, thereby creating a relationship of trust and confidence between them. Without deciding whether those allegations are sufficient, we affirm the dismissal of plaintiff\u2019s constructive fraud claim based on her failure to allege that defendants sought a benefit through that relationship. The closest allegation is that plaintiff contends that her money was traded through defendants and that defendants financially benefitted via \u201ccommissions\u201d on \u201csales transactions.\u201d\nWe conclude, therefore, that the complaint, taken in the light most favorable to plaintiff, alleges simply that defendants benefitted by earning commissions on the sales transactions ordered by Penn. This allegation, by itself, is not enough; it fails to show that defendants sought to benefit themselves by taking unfair advantage of plaintiff, as our law requires. Thus, we affirm the trial court\u2019s dismissal of plaintiff\u2019s constructive fraud claim.\nC.\nPlaintiff also contends that our unfair and deceptive trade practices statute, G.S. \u00a7 75-1.1 et seq., is applicable to securities transactions such as those executed by defendants. Specifically, she alleges that defendants facilitated Penn\u2019s wrongful actions by accepting money transferred directly from plaintiff\u2019s bank accounts to those opened by Penn; by allowing plaintiff\u2019s money to be invested through an unlicensed broker and failing to verify whether Penn was a licensed broker; by failing to verify whether BTL Worldwide Unlimited, Inc. was a valid corporation; and by failing to monitor the \u201cappropriateness of the ridiculous investments\u201d that Penn made. We agree with the trial court, and with defendants, that North Carolina\u2019s Unfair and Deceptive Trade Practices Act does not apply to the present situation.\nThe Unfair and Deceptive Tirade Practice Act (\u201cUDTPA\u201d or \u201cthe Act\u201d) prohibits unfair trade practices affecting commerce. N.C. Gen. Stat. \u00a7 75-1.1 (2001). The UDTPA does not govern \u201call wrongs;\u201d accordingly, plaintiffs must \u201cfirst establish that defendants\u2019 conduct was in or affecting commerce before the question of unfairness or deception aries.\u201d HAJMM v. House of Raeford Farms, 328 N.C. 578, 592-93, 403 S.E.2d 483, 492 (1991) (citation and quotation marks omitted). Commerce is defined as \u201call business activities, however denominated, but does not include professional services rendered by a member of a learned profession.\u201d N.C. Gen. Stat. \u00a7 75-1.1(b) (2001).\nIn addition to the explicit exception for members of a learned profession, common law exceptions to the Act have evolved since the statute was created. Relevant here, our Supreme Court has explicitly held that \u201csecurities transactions are beyond the scope\u201d of the UDTPA. Skinner v. E.F. Hutton & Co., 314 N.C. 267, 275, 333 S.E.2d 236, 241 (1985). According to the Court in Skinner, the UDTPA does not apply to securities transactions because such application would create overlapping supervision, enforcement, and liability in an area of law that is already pervasively regulated by state and federal statutes and agencies. Id.] see also Dalton v. Camp, 353 N.C. 647, 657, 548 S.E.2d 704, 711 (2001); HAJMM, 328 N.C. at 593, 403 S.E.2d at 493 (1991).\nWe have found one decision that closely parallels the situation here. In Harrah v. J.C. Bradford & Co., 37 F.3d 1493, 1994 WL 543528 (4th Cir. Oct. 6, 1994), an individual convinced several investors to allow him to invest their money in stock options, guaranteeing them \u201clarge returns with no risk of loss.\u201d Id. at *1. The individual invested the plaintiffs\u2019 money through trading accounts with the defendant, a brokerage firm. Id. There was no indication that the defendant knew the sources of the funds. When the plaintiffs demanded that the individual return their money, he returned small amounts but never fully repaid them. Id. at *2. Plaintiffs then sued, alleging, inter alia, that the defendant had violated the UDTPA. Id. The district court granted summary judgment for the defendant.\nThe Fourth Circuit then affirmed the trial court, holding that the plaintiffs could not bring an UDTPA claim against the defendant brokerage firm. Id. at *3. As the court explained, the individual\u2019s transactions with the defendant were \u201cplainly securities-related activities.\u201d Id. at *4. The UDTPA does not govern securities transactions because there is \u201c \u2018pervasive and intricate\u2019 securities regulation under both the North Carolina Securities Act as well as the Securities Exchange Act of 1934.\u201d Id. at * 3 (citing Skinner, 314 N.C. at 274, 333 S.E.2d at 241).\nPenn here, like the individual in Harrah, convinced plaintiff to permit him to invest her money and also guaranteed large returns. Using plaintiff\u2019s money, Penn, again like the individual in Harrah, invested funds with Ameritrade and Deutsche Banc and conducted the trading activity through Advanced Clearing and Wallstreet Access. We are persuaded that the Fourth Circuit\u2019s reasoning in Harrah is sound and, therefore, we hold that North Carolina\u2019s UDTPA has no application here.\nPlaintiff relies on HAJMM, 328 N.C. 578, 403 S.E.2d 483, for her contention that the sale of securities can be classified as a commercial transaction, so that the UDTPA comes into play. In HAJMM, the defendant, whose main business involved processing turkey and other poultry, issued revolving fund certificates. Id. at 580-81, 403 S.E.2d at 485. The Supreme Court held that the UDTPA did not apply, extending its decision in Skinner (that the Act does not apply to corporate securities) to the revolving fund certificates at issue in HAJMM. This holding had two grounds. First, securities transactions are already subjected to pervasive regulation by other sources. Id. at 593, 403 S.E.2d at 493. Second, the Court explained, the \u201clegislature simply did not intend for the trade, issuance and redemption of corporate securities or similar financial instruments\u201d to constitute business activities as that term is used in the Act:\n\u201cBusiness activities\u201d is a term which connotes the manner in which businesses conduct their regular, day-to-day activities, or affairs, such as the purchase and sale of goods, or whatever other activities the business regularly engages in and for which it is organized.\nIssuance and redemption of securities are not in this sense business activities. The issuance of securities is an extraordinary event done for the purpose of raising capital in order that the enterprise can either be organized for the purpose of conducting its business activities or, if already a going concern, to enable it to continue its business activities. Subsequent transfer of securities merely works a change in ownership of the security itself.\nId. at 594, 403 S.E.2d at 493. Accordingly, the transactions at issue were not \u201c \u2018in or affecting commerce,\u2019 even under a reasonably broad interpretation of the legislative intent underlying these terms.\u201d Id.\nPlaintiff takes heart in the second explanation and contends that the UDTPA applies here because defendants\u2019 central business activity actually is securities transactions. In light of the Supreme Court\u2019s clear pronouncement in Skinner that the Act does not apply to securities transactions, however, we must affirm the trial court\u2019s dismissal of this count.\nCONCLUSION\nFor the reasons set forth above, we affirm the decision of the trial court to dismiss plaintiff\u2019s complaint.\nAffirmed.\nJudges McGEE and STEELMAN concur.", "type": "majority", "author": "HUDSON, Judge." } ], "attorneys": [ "S. Mark Rabil, for plaintiff-appellant.", "Womble, Carlyle, Sandridge & Rice, P.L.L.C., by Ronald R. Davis and Allison R. Bost, for defendant-appellees Ameritrade, Inc. and Advanced Clearing, Inc.", "Wilson & Iseman, L.L.P., by G. Gray Wilson and Maria C. Papoulias, for defendant-appellees Deutsche Banc Alex. Brown, Inc. and Wall Street Access." ], "corrections": "", "head_matter": "EVA M. STERNER, Plaintiff v. DELMAR S. PENN, REGINA GUNN PENN, AMERITRADE, INC., ADVANCED CLEARING, INC., DEUTSCHE BANC ALEX. BROWN, INC. and WALL STREET ACCESS, Defendants\nNo. COA02-827\n(Filed 5 August 2003)\n1. Securities\u2014 brokerage and clearing \u2014 negligence\u2014no duty to third party\nNegligence claims against brokerage firms and clearing companies did not state claims, and 12(b)(6) dismissals were properly granted, where the action arose from a third party\u2019s (Penn\u2019s) investment activities for plaintiff and there were no allegations that defendants acted as investment advisors to Penn or to plaintiff. Defendants had no duty to supervise and monitor Penn to protect plaintiff.\n2. Securities\u2014 brokerage and clearing \u2014 constructive fraud\nConstructive fraud claims against brokerage firms and clearing companies did not state claims, and 12(b)(6) dismissals were properly granted, where the action arose from a third party\u2019s (Penn\u2019s) investment activities for plaintiff and the complaint alleged that defendants benefitted by earnings commissions on the sales transactions ordered by Penn. Plaintiff did not allege that defendants sought to benefit themselves by taking unfair advantage of plaintiff.\n3. Securities\u2014 brokerage and clearing \u2014 unfair and deceptive practices statute \u2014 not applicable\nNorth Carolina\u2019s unfair and deceptive trade practices statute did not apply, and 12(b)(6) dismissals were properly granted, where the action arose from a third party\u2019s (Penn\u2019s) investment activities for plaintiff. Application of N.C.G.S. \u00a7 75-1.1 would create overlapping supervision, enforcement, and liability in an area of law pervasively regulated by state and federal statutes and agencies.\nAppeal by plaintiff from order entered 5 February 2002 by Judge William Z. Wood, Jr. in Forsyth County Superior Court. Heard in the Court of Appeals 20 February 2003.\nS. Mark Rabil, for plaintiff-appellant.\nWomble, Carlyle, Sandridge & Rice, P.L.L.C., by Ronald R. Davis and Allison R. Bost, for defendant-appellees Ameritrade, Inc. and Advanced Clearing, Inc.\nWilson & Iseman, L.L.P., by G. Gray Wilson and Maria C. Papoulias, for defendant-appellees Deutsche Banc Alex. Brown, Inc. and Wall Street Access." }, "file_name": "0626-01", "first_page_order": 656, "last_page_order": 665 }