DECISION WITHOUT PUBLISHED OPINION
Affirmed.
den-v-craig-hallum-inc646 F. Supp. 483 (D. Minn. 1986).
See Barbara, supra note 8.
For example, in Zannini v. Ameritrade Holding Corp., we held that a subscriber's class action negligence claim against an online brokerage service was not preempted by a federal statute. That statute authorized the SEC to establish the standards for a broker-dealer's operational capacity. Relying on federal cases, we concluded that absent preemptive federal regulations, courts generally permitted investors' state law claims if they involved the relationship between investors and their brokers; the bargains struck between investors and their brokers; and efficacy of the broker's trading system, especially as compared to its representations about the system.
Zannini v. Ameritrade Holding Corp., 266 Neb. 492, 667 N.W.2d 222 (2003).
Id.
But investors cannot plead around the lack of a private cause of action for violations of federal securities law by captioning their claim as a common-law claim. For example, federal courts do not permit a common-law breach of contract claim against NASD or a securities exchange for violating or failing to enforce its own rules. These courts have precluded these claims because the statute requiring compliance with securities statutes and rules does not grant a private right of action. Similarly, the Seventh Circuit rejected a common-law claim for breach of fiduciary duty based on the violation of an exchange rule when the governing statute did not provide a private cause of action.
See, e.g., MMS Financial, supra note 6; Sparta Surgical, supra note 7.
See Indemnified Capital Inv. v. R.J. O'Brien Assoc., 12 F.3d 1406 (7th Cir. 1993). See, also, In re Series 7 Broker Qualification Exam Scoring, 548 F.3d 110 (D.C. Cir. 2008).
The U.S. Supreme Court has held that the broker-dealer recordkeeping requirements under the Securities Exchange Act do not provide a private damage remedy for violations. And many federal courts have accordingly held no private right of action exists for violations of rules promulgated by a securities exchange or self-regulatory organization. On point here, the Second Circuit has specifically held that a contract's implied incorporation of rules and regulations that govern a brokerdealer's dealings with an investor will not support a private cause of action when the rules and regulations themselves provide no private cause of action.
See Touche Ross v. Redington, 442 U.S. 560, 99 S. Ct. 2479, 61 L. Ed. 2d 82 (1979).
See 5 Thomas Lee Hazen, The Law of Securities Regulation § 14.26[2] (6th ed. 2009).
Gurfein v. Ameritrade, Inc., 312 Fed. Appx. 410 (2d Cir. 2009). See, also, Appert v. Morgan Stanley Dean Witter, Inc., No. 08-CV-7130, 2009 WL 3764120 (N.D. Ill. Nov. 6, 2009).
We agree with these authorities. Permitting the appellants to proceed with a breach of contract claim for the defendants' alleged violation of federal recordkeeping duties would be inconsistent with Congress' intent to (1) give federal courts exclusive jurisdiction over such violations and (2) preclude private remedies for violations of recordkeeping requirements. We conclude that the district did not err in dismissing the appellants' breach of contract claim.
2. THE APPELLANTS MUST SHOW THAT THEY RECEIVED A REPRESENTATION UNDER ANY OF THEIR DECEIT CLAIMS
The appellants argue that for their misrepresentation and concealment claims, we should recognize their theory of reliance on the integrity of the financial industry's regulatory system. They argue that the defendants had a public duty to provide this information and that they wrongfully manipulated the system by supplying inaccurate or false information or by concealing the truth about Engle's discharge in the Form U-5. They do not claim that they received or learned of the statements in the Form U-5. But they contend that the court erred in requiring them to show direct reliance on the Form U-5 statements, because they relied on the consequences of the false filing: the lack of regulatory action against Engle and her employment by a reputable firm after she left Kirkpatrick Pettis. Thus, it was reasonable for them to conclude that she was a reputable broker in whom they could trust.
The appellants argue that Bank of Valley v. Mattson supports their theory of reliance because it illustrates that a plaintiff can rely on an indirect misrepresentation even if the defendant did not intend this result. Instead, they argue that the defendants had reason to expect that the appellants would rely on their misrepresentation. We disagree with the appellants that Bank of Valley applies here.
Bank of Valley v. Mattson, 215 Neb. 596, 339 N.W.2d 923 (1983).
In Bank of Valley, we recognized an exception to the requirement that a plaintiff show the maker of a misrepresentation intended the plaintiff to rely on his or her misrepresentation. We held that a claim of fraudulent misrepresentation did not fail because the person relying on the misrepresentation learned of it through a third party. In that case, the appellant was told the false facts by a third party who repeated what the maker of the misrepresentation had stated to the third party. The appellant then made a loan to the maker in reliance on the false facts. In concluding that the appellant could rely on the information relayed to him by the third party, we quoted applicable provisions of the Restatement (Second) of Torts. First, we stated that § 531 provides:
"One who makes a fraudulent misrepresentation is subject to liability to the persons or class of persons whom he intends or has reason to expect to act or to refrain from action in reliance upon the misrepresentation, for pecuniary loss suffered by them through their justifiable reliance in the type of transaction in which he intends or has reason to expect their conduct to be influenced."
We agree that this section extends liability to plaintiffs that the defendant had "reason to expect" would rely on the false representation. We note, however, that this class of plaintiffs does not include every plaintiff that a reasonable person should have recognized as being a possible recipient of a false representation. In Bank of Valley, we also relied on § 533 of the Restatement, which imposes liability for indirect misrepresentations through a third party. The comments to § 533 clarify that the maker of a misrepresentation must intend that it be repeated to others to influence them or must have information that gives the maker "special reason to expect that [the misrepresentation] will be communicated to others, and will influence their conduct."
See Restatement, supra note 24, comment d.
See id., § 533, comment d. at 73.
In sum, a plaintiff can rely on the third-party communication of a defendant's fraudulent misrepresentation if the plaintiff shows that the defendant intended the plaintiff to learn of and rely on it in the transaction or type of transaction involved, or had a particular reason to believe that the plaintiff would do so. But in Bank of Valley, we specifically analyzed whether the hearer had justifiably relied on the misrepresentation. So while the third-party communication exception provides a limited exception to the intent element, Bank of Valley did not hold that a plaintiff need not show actual reliance on a misrepresentation.
See, Bank of Valley, supra note 23; Restatement, supra note 24, § 531.
Moreover, we have required plaintiffs to show that they received a misrepresentation. In Brummels v. Tomasek, we held that the plaintiff's fraudulent misrepresentation claim failed because the plaintiff did not allege that the misrepresentation was made to him or her. But the plaintiff never received the misrepresentation. So in the context of the facts in that case, we clearly meant that the plaintiff failed to allege that he received the representation.
Brummels v. Tomasek, 273 Neb. 573, 731 N.W.2d 585 (2007), citing Foiles v. Midwest Street Rod Assn. of Omaha, 254 Neb. 552, 578 N.W.2d 418 (1998).
The principle that a plaintiff must have received the information before the plaintiff can show reliance is reflected in the Restatement's § 533. That section limits liability for misrepresentations made through a third party to those that "the maker intends or has reason to expect its terms will be repeated or its substance communicated to the other, and that it will influence his conduct in the transaction or type of transaction involved." Similarly, the Restatement permits the "recipient" of a fraudulent misrepresentation to recover against its maker if the recipient justifiably relied on it. These provisions illustrate that plaintiffs cannot show reliance on a misrepresentation that never reached them and of which they had no knowledge.
Restatement, supra note 24, § 533 at 73 (emphasis supplied).
See id., § 537 at 80.
Slakey Brothers Sacramento, Inc. v. Parker, 265 Cal. App. 2d 204, 71 Cal. Rptr. 269 (1968).
Similarly, for negligent misrepresentation claims, we have stated that "[b]y its terms, § 552 contemplates liability to third parties only if the supplier intends for the misinformation to ultimately reach the third party or if the supplier knows that the recipient will pass the misinformation on to the third party." We specifically declined to extend the defendant's liability to third parties who were not recipients of the defendant's negligent misrepresentation. So for both negligent and fraudulent misrepresentation, the plaintiff must be a recipient of the misrepresentation to show reliance.
Brummels, supra note 28, 273 Neb. at 580, 731 N.W.2d at 592.
Also, whether the appellants received the alleged misrepresentations is relevant to their concealment claim. A person has a duty to disclose information to another in a transaction when necessary to prevent his or her partial or ambiguous statement from being misleading. But a plaintiff must have received the representation before the plaintiff can show that a defendant had a duty to disclose additional facts. So this type of concealment claim also depends upon whether the appellants received the defendants' partial or ambiguous representations.
See Streeks v. Diamond Hill Farms, 258 Neb. 581, 605 N.W.2d 110 (2000), citing Restatement, supra note 24, § 551(2).
Restatement, supra note 24, § 551(2)(b), comment g.
But the appellants counter that reliance can be shown by their reliance on the integrity of the financial industry's regulatory system. They analogize to the fraud-on-the-market doctrine, which the U.S. Supreme Court recognized in a decision under rule 10b-5 of the SEC's regulations.
See 17 C.F.R. § 240.10b-5 (2010).
See Basic Inc. v. Levinson, 485 U.S. 224, 108 S. Ct. 978, 99 L. Ed. 2d 194 (1988).
When involving the purchase or sale of a security, rule 10b-5 prohibits making any untrue statement of a material fact or omitting any material fact necessary to prevent a statement from being misleading. The rule is authorized by a provision of the Securities Exchange Act. That statute prohibits manipulative or deceptive practices in buying or selling securities registered on a national securities exchange. The U.S. Supreme Court has held there is a narrow exception to the reliance requirement for actions brought under rule 10b-5. For these claims, the Court recognized a rebuttable presumption of reliance on a material misrepresentation reflected in the market price of a traded security that has been fraudulently distorted. But the presumption is limited to situations in which investors trade securities relying on the integrity of a well-established securities market. The appellants ask us to apply this presumption here. We decline to do so.
See 17 C.F.R. § 240.10b-5(b).
See 15 U.S.C. § 78j(b).
See Basic Inc., supra note 36.
Here, the rationale does not exist for applying the fraudon-the-market doctrine. The reliance presumption is based on efficient market theory. That is, in an open securities market, "`the price of a company's stock is determined by the available material information,'" and affected by misrepresentations or the withholding of material information. Moreover, the presumption depends upon the existence of a public statement that reflects the alleged misrepresentations. Here, the appellants did not allege, or show through exhibits, that any information in the Form U-5 was publicly disclosed by NASD. Even if we assumed that the report were publicly available, it would not be a public statement of collective information that was influenced by market forces. Instead, the appellants are relying on the absence of regulatory action taken because of the filing; failure to regulate is not an appropriate application for the reliance presumption.
Id., 485 U.S. at 241.
See Basic Inc., supra note 36.
See Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 128 S. Ct. 761, 169 L. Ed. 2d 627 (2008).
The fraud-on-the-market doctrine has generally been limited to securities fraud claims brought under rule 10b-5. Rule 10b-5 limits claims to those involving the buying and selling of securities, for which an efficient market theory makes sense. Further, Congress designed the Securities Exchange Act to protect investors against the manipulation of stock prices, where investors must rely on market integrity in securities markets because millions of shares are traded daily.
See Basic Inc., supra note 36.
As noted, in contrast to transactions involving the buying or selling of securities, the U.S. Supreme Court has held that the broker-dealer recordkeeping requirements under the Securities Exchange Act do not provide a private damage remedy for violations. Neither the Form U-5 filing nor the letters to customers were transactions involving the trading of securities. We conclude that the reliance presumption is not appropriate in this context. Thus, we reject the appellants' argument that they can premise their misrepresentation or concealment claims through their alleged reliance on the absence of regulatory action against Engle or her subsequent employment by another broker-dealer.
See, Touche Ross, supra note 20; 5 Hazen, supra note 21.
3. NEGLIGENT MISREPRESENTATION
As noted, the appellants' negligent misrepresentation claim rested solely upon their allegations that Kirkpatrick Pettis supplied false information to NASD on the Form U-5. The appellants contend that the court erred in dismissing this claim because they could not show that they had relied on statements in the Form U-5.
As explained, the appellants must show they were recipients of the defendant's negligent misrepresentation. But the appellants counter that under the Restatement (Second) of Torts § 552(3), the defendants had a public duty to provide information to NASD disclosing the circumstances of Engle's discharge. They contend that as investors, they were within the class of persons for whom this duty existed. We do not reach the public duty issue, because we have already determined that they cannot show reliance on the Form U-5 when they did not receive statements made in the filing.
See Brummels, supra note 28.
We have adopted the Restatement's § 552 for claims of negligent misrepresentation. That section provides:
See Gibb v. Citicorp Mortgage, Inc., 246 Neb. 355, 518 N.W.2d 910 (1994).
(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered
(a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and
(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.
(3) The liability of one who is under a public duty to give the information extends to loss suffered by any of the class of persons for whose benefit the duty is created, in any of the transactions in which it is intended to protect them.
As the North Carolina Court of Appeals explained, the elements of a negligent misrepresentation claim are set out under subsection (1) of the Restatement's § 552. Subsections (2) and (3) only define the class of plaintiffs who can recover. Subsection (3) extends liability to a larger class of persons than the class defined under subsection (2). But more important to our analysis, it does not eliminate the requirement that the extended class of beneficiaries must have received and relied upon the misinformation.
See Brinkman v. Barrett Kays Associates, P.A., 155 N.C. App. 738, 575 S.E.2d 40 (2003).
See id.
Further, comment a. of § 552 applies to the entire section and states that liability extends to the "users" of commercial information "in which the maker was manifestly aware of the use to which the information was to be put and intended to supply it for that purpose." And the illustrations in the comments to subsection (3) also show that a plaintiff must have relied on the representation. So the appellants' reliance on subsection (3) of the Restatement's § 552 does not change our holding that in negligent misrepresentation claims: The plaintiff must receive and rely on the commercial misinformation supplied by the defendant.
Restatement, supra note 24, § 552, comment a. at 128.
See id., comment k.
See, Hollywood Trucking, Inc. v. Watters, 385 111. App. 3d 237, 895 N.E.2d 3, 324 Ill. Dec. 3 (2008); Brinkman, supra note 48; Taylor v. Stevens County, 47 Wash. App. 134, 732 P.2d 517 (1987).
The appellants did not allege that they received or were aware of the statements in the Form U-5. We conclude that the court did not err in dismissing their negligent misrepresentation claim for failure to allege reliance.
4. FRAUDULENT MISREPRESENTATION CLAIM
The appellants contend that by filing the Form U-5 and sending letters to the appellants, the defendants "attempted to `assuage' and `alleviate' any concerns [the appellants] may have had regarding Engle's competency." We have already rejected their argument that they could show reliance on the Form U-5 through the absence of regulatory activity against Engle and her employment with a different broker-dealer. Because they did not allege that they received or were aware of statements in the Form U-5, the court also did not err in dismissing their fraudulent misrepresentation claim to the extent that it was based on the Form U-5 statements. We next address their argument that the court erred in dismissing their claim to the extent it was based on letters to customers from Kirkpatrick Pettis and from Engle and Schuster.
Brief for appellants at 24.
The court determined that the letters to customers from Kirkpatrick Pettis and Engle and Schuster did not contain a fraudulent misrepresentation, because neither letter specified a reason for closing the Nebraska City and Syracuse offices. But the court failed to consider whether the letters were intended to create a false impression, even if literally true.
To state a claim for fraudulent misrepresentation, a plaintiff must allege (1) that a representation was made; (2) that the representation was false; (3) that when made, the representation was known to be false or made recklessly without knowledge of its truth and as a positive assertion; (4) that the representation was made with the intention that the plaintiff should rely on it; (5) that the plaintiff did so rely on it; and (6) that the plaintiff suffered damage as a result.
Brummels, supra note 28.
[9-13] It is true that mere silence cannot constitute a misrepresentation absent a duty to disclose information. But we need not consider whether Kirkpatrick Pettis owed fiduciary duties to the appellants. When a party makes a partial or fragmentary statement that is materially misleading because of the party's failure to state additional or qualifying facts, the statement is fraudulent. "Fraudulent misrepresentations may consist of half-truths calculated to deceive, and a representation literally true is fraudulent if used to create an impression substantially false." "`To reveal some information on a subject triggers the duty to reveal all known material facts.'" Consistent with imposing liability for half-truths, the Restatement (Second) of Torts § 527 provides that an ambiguous statement is fraudulent if made with the intent that it be understood in its false sense or with reckless disregard as to how it will be understood.
See Moyer v. Richardson Drug Co., 70 Neb. 190, 97 N.W. 244 (1903).
See, State ex rel. NSBA v. Douglas, 227 Neb. 1, 416 N.W.2d 515 (1987); Johnson v. Richards, 155 Neb. 552, 52 N.W.2d 737 (1952); Restatement, supra note 24, § 529. See, also, State v. Douglas, 217 Neb. 199, 349 N.W.2d 870 (1984).
See Johnson, supra note 56, 155 Neb. at 563, 52 N.W.2d at 744.
State ex rel. NSBA, supra note 56, 227 Neb. at 26, 416 N.W.2d at 531.
It is true that Kirkpatrick Pettis' letter did not give an explanation for its closing of the Nebraska City and Syracuse offices. But in the next sentence, it stated that its customers would shortly be receiving information from Engle and Schuster announcing their new affiliation with First Union Securities. The letter did not disclose to customers, as the appellants' allegations and exhibits suggest, that Kirkpatrick Pettis was closing the offices because (1) it had discharged Engle for misconduct and (2) Schuster had elected to follow her.
We conclude that the court erred in dismissing the appellants' fraudulent misrepresentation claim without considering whether statements in the letters from Kirkpatrick Pettis and Engle and Schuster, while literally true, were sufficient to create a false impression. But in our de novo review, we conclude that the appellants plausibly claimed that Kirkpatrick Pettis sent or authorized letters fraudulently implying that Engle and Schuster were leaving Kirkpatrick Pettis' employment because Kirkpatrick Pettis was closing its Nebraska City and Syracuse offices for reasons unrelated to Engle's conduct. Whether the appellants can ultimately prove that the impression was false is not the issue in considering a motion to dismiss. Accepting all the factual allegations in the complaint as true and drawing all reasonable inferences in favor of the appellants, the complaint is sufficient to survive a motion to dismiss.
5. FRAUDULENT CONCEALMENT
The appellants alleged that Kirkpatrick Pettis fraudulently concealed the true reason for Engle's discharge in its Form U-5 filing and in the letters that they sent to customers. Their claim regarding the Form U-5 is twofold. First, they alleged that Kirkpatrick Pettis' failure to report the true reason for Engle's discharge was "a material fact to the NASD, SEC, [the appellants,] and the State of Nebraska, in their decision to allow her to do business with the [appellants]." Second, they alleged that the concealment was material to the appellants' decision to continue to do business with her.
To the extent that the appellants' concealment claim relied on the Form U-5 and securities regulators' response, permitting the claim would be inconsistent with federal securities law. As discussed, Congress excluded a private remedy for a violation of filing requirements under the Securities Exchange Act. We do not consider whether the appellants could base their concealment claim upon an omission within the Form U-5 under other circumstances. As explained above, this part of the claim fails because they did not allege that they received any statements in the filing. But their allegation that the letters to them from Kirkpatrick Pettis and Engle constituted a fraudulent concealment was unrelated to any duty to file reports with securities regulators. Because it does not rely upon the violation of duties for which a remedy does not exist, it is not precluded.
See, Touche Ross, supra note 20; 5 Hazen, supra note 21.
We note that an overlap exists between fraudulent concealment claims and misrepresentation claims based on half-truths or ambiguities. That is, if a defendant's partial or ambiguous representation is materially misleading, then the defendant has a duty to disclose known facts that are necessary to prevent the representation from being misleading.
See, Streeks, supra note 33; Restatement, supra note 24, § 551(2)(b).
As noted, on November 28, 2000, Kirkpatrick Pettis sent a letter to its customers stating that it would be closing its Nebraska City and Syracuse offices on November 29. It did not give any reason for the closings or for Engle's new affiliation. But it informed its customers that they would soon be receiving information from Engle and Schuster announcing their affiliation with First Union Securities. It included a number to call if the customers wished to maintain their business with Kirkpatrick Pettis or had any questions regarding their account.
The district court found that Kirkpatrick Pettis' letter invited the appellants to maintain their business with it, instead of pushing them to follow Engle. So the court determined that the claim failed because the defendants did not conceal any material fact with the intent that the appellants act in response to the concealment. But the court failed to consider whether the defendants concealed the information with the intent that the appellants refrain from acting.
In St reeks v. Diamond Hill Farms, we quoted and relied on the Restatement's § 551 to address the appellant's argument that he had no duty to disclose information in a fraudulent concealment case. Subsection (1), which sets out the elements of the claim, provides:
Streeks, supra note 33.
See Restatement, supra note 24, § 551.
(1) One who fails to disclose to another a fact that he knows may justifiably induce the other to act
or refrain from acting in a business transaction is subject to the same liability to the other as though he had represented the nonexistence of the matter that he has failed to disclose, if, but only if, he is under a duty to the other to exercise reasonable care to disclose the matter in question.
The Restatement rule obviously includes a defendant's intent to induce another person to refrain from acting. But in Streeks, we also quoted an earlier case as properly setting out the elements of fraudulent concealment. Unfortunately, those elements did not include a defendant's intent to induce another person to refrain from taking action:
"to prove fraudulent concealment, a plaintiff must show that (1) the defendant had a duty to disclose a material fact; (2) the defendant, with knowledge of the material fact, concealed the fact; (3) the material fact was not
within the plaintiff's reasonably diligent attention, observation, and judgment; (4) the defendant concealed the fact with the intention that the plaintiff
act in response to the concealment or suppression; (5) the plaintiff, reasonably relying on the fact or facts as the plaintiff believed them to be as the result of the concealment, acted or withheld action; and (6) the plaintiff was damaged by the plaintiff's action or inaction in response to the concealment."
We have been imprecise in setting out the intent element for fraudulent concealment cases. And the intent element cannot be read consistently with the reliance and damage elements. Those elements require a plaintiff to show that he or she acted or refrained from acting in response to a concealment and sustained damages as a result. In contrast, a defendant's intent to induce the plaintiff to act in response to a concealment cannot include the plaintiff's choosing not to act. Instead, when a plaintiff's inaction in response to a concealment causes damages, it is because the concealment of material information induced the plaintiff's false belief that action was not needed. The concealment deprives the plaintiff of making an intelligent choice to act or refrain from acting.
See, e.g., Security Inv. Co. v. State, 231 Neb. 536, 437 N.W.2d 439 (1989). Compare Mogensen v. Mogensen, 273 Neb. 208, 729 N.W.2d 44 (2007).
By comparison, in fraudulent misrepresentation cases, we have stated that a plaintiff must show that the defendant intended the plaintiff to rely on a false representation. That requirement is broad enough to include a plaintiff's action or inaction in reliance upon a defendant's misrepresentation, which is consistent with Restatement principles. And many courts either apply the same elements for all fraud and deceit claims, i.e., fraudulent misrepresentations or concealments, or have specifically stated in fraudulent concealment cases that the defendant must have intended to induce the plaintiff to either act or refrain from action.
See Brummels, supra note 28.
Compare Restatement, supra note 24, § 531.
See, e.g., Stephenson v. Capano Development, Inc., 462 A.2d 1069 (Del. 1983); ASC Const. Equip. v. City Commercial Estate, 303 Ga. App. 309, 693 S.E.2d 559 (2010); Gouge v. McNamara, 586 N.W.2d 710 (Iowa App. 1998); Francis v. Stinson, 760 A.2d 209 (Me. 2000); 7979 Airport Garage v. Dollar Rent A Car, 245 S.W.3d 488 (Tex. App. 2007).
Because of our inconsistency, the district court failed to consider whether the defendants intended the appellants to refrain from acting. To avoid further mistakes, we hold that to prove fraudulent concealment, a plaintiff must prove these elements: (1) The defendant had a duty to disclose a material fact; (2) the defendant, with knowledge of the material fact, concealed the fact; (3) the material fact was not within the plaintiff's reasonably diligent attention, observation, and judgment; (4) the defendant concealed the fact with the intention that the plaintiff act or refrain from acting in response to the concealment or suppression; (5) the plaintiff, reasonably relying on the fact or facts as the plaintiff believed them to be as the result of the concealment, acted or withheld action; and (6) the plaintiff was damaged by the plaintiff's action or inaction in response to the concealment.
Unsurprisingly, the intent element that we first set out in In re Estate of Stephenson has been repeated in other published opinions besides Streeks. To ensure that the incorrect intent element does not resurface, we overrule the following opinions only to the extent that they can be read as precluding a plaintiff from showing that a defendant fraudulently concealed a material fact with the intent that the plaintiff refrain from acting in response: Brummels v. Tomasek ; Streeks v. Diamond Hill Farms ; In re Estate of Stephenson ; Ord v. AmFirst Invest. Servs. ; Kramer v. Eagle Eye Home Inspections ; and Precision Enters. v. Duffack Enters.
In re Estate of Stephenson, 243 Neb. 890, 503 N.W.2d 540 (1993).
Brummels, supra note 28.
Streeks, supra note 33.
In re Estate of Stephenson, supra note 69.
Ord v. AmFirst Invest. Servs., 14 Neb. App. 97, 704 N.W.2d 796 (2005).
Kramer v. Eagle Eye Home Inspections, 14 Neb. App. 691, 716 N.W.2d 749 (2006), abrogated on other grounds, Tracy Broadcasting Corp. v. Telemetrix, Inc., 17 Neb. App. 112, 756 N.W.2d 742 (2008).
Precision Enters. v. Duffack Enters., 14 Neb. App. 512, 710 N.W.2d 348 (2006).
Having clarified the elements of a fraudulent concealment claim, we turn to the sufficiency of the appellants' complaint on the intent element. As the trial court realized, Kirkpatrick Pettis' letter failed to explain to its customers the reason for Engle's discharge. Additionally, the letter also failed to disclose to customers that it had discharged Engle and was closing the offices because of that action, as suggested by the complaint. Because the letter failed to state any reason, the appellants could have reasonably believed that the offices were being closed for an innocuous reason that did not concern them and that Engle and Schuster were leaving Kirkpatrick Pettis because of the closings.
Further, Kirkpatrick Pettis stated in its letter that customers would shortly be receiving information from Engle and Schuster about their new affiliation. And a letter from Kirkpatrick Pettis' general counsel to Engle's attorney suggests that Kirkpatrick Pettis knew Engle would likely represent her discharge as a voluntary termination. In fact, Engle and Schuster — on Engle's last day of employment with Kirkpatrick Pettis — sent a letter to their customers the day after Kirkpatrick Pettis sent its letter. In that letter, Engle and Schuster stated that customers would be receiving paperwork in a couple of days to transfer their accounts to First Union Securities. They also stated that Kirkpatrick Pettis was "being very helpful in making this transfer as smooth as possible."
The letters in the attached exhibits, coupled with the complaint's allegations that Kirkpatrick Pettis approved them, are sufficient to support a claim that Kirkpatrick Pettis knew some of its customers were about to transfer their accounts to Engle and Schuster's new firm absent any disclosure regarding Engle's discharge.
Although the court concluded that Kirkpatrick Pettis' letters were intended to persuade customers to keep their accounts with Kirkpatrick Pettis after it closed its Nebraska City and Syracuse offices, that intent did not preclude any other purpose. The appellants specifically alleged that because of the defendants' approval of these letters and their agents' concealments, they were unable to ascertain the truth about Engle's conduct. So another plausible purpose for concealing information about Engle's discharge was to ensure that the appellants did not question investment activity in their accounts or Kirkpatrick Pettis' ability to supervise its agents.
Accepting all the factual allegations in the complaint as true and drawing all reasonable inferences in favor of the appellants, we conclude that the appellants' complaint was sufficient to survive a motion to dismiss. The appellants' complaint and exhibits allege that (1) by failing to disclose Engle's discharge or the reason for her discharge and (2) by allegedly permitting Engle and Schuster to solicit customers with Kirkpatrick Pettis' apparent cooperation, the defendants intended that the appellants not question Engle's misconduct. We therefore reverse the district court's order dismissing this claim only as it relates to Engle's and Kirkpatrick Pettis' letters to customers.
The district court dismissed the appellants' complaint solely upon their failure to allege sufficient facts regarding the defendants' intent in these letters. The remaining elements raise factual issues which are not properly before us. Also, because the court concluded that the appellants had failed to state a claim, it did not reach their other theories of liability, and we similarly do not reach those issues.
V. SUMMARY
In conclusion, we hold the following:
• We affirm the court's dismissal of the breach of contract claim, because the rules the defendants allegedly violated do not provide a private remedy and federal courts have exclusive jurisdiction over private suits brought for the alleged violations.
• We affirm the court's dismissal of the appellants' negligent misrepresentation claim. This claim, which was based solely on statements in a securities regulations filing, fails because the appellants did not allege that they received the statements.
• We reverse the court's dismissal of the appellants' fraudulent misrepresentation claim to the extent that it is based on statements made in letters Kirkpatrick Pettis sent or authorized Engle to send to its customers. The appellants plausibly claimed that the letters created a false impression about Engle's leaving her employment with Kirkpatrick Pettis.
• We reverse the court's dismissal of the appellants' fraudulent concealment claim that was also based on these letters. The appellants plausibly claimed that they would not have transferred their business to Engle's new broker-dealer if material facts regarding her discharge had been disclosed.
AFFIRMED IN PART, AND IN PART REVERSED AND REMANDED FOR FURTHER PROCEEDINGS.
WRIGHT and STEPHAN, JJ., not participating.