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Berkenfeld v. Lenet

United States Court of Appeals, Fourth Circuit

April 8, 2019

GARY R. LENET; MORGAN STANLEY & CO. LLC, a/k/a Morgan Stanley Smith Barney LLC, Defendants - Appellees.

          Argued: December 12, 2018

          Appeal from the United States District Court for the District of Maryland, at Baltimore. Paula Xinis, District Judge. (1:16-cv-01227-PX)

          David E. Fink, LAW OFFICES OF DAVID E. FINK, Baltimore, Maryland, for Appellants.

          Gilbert William Boyce, KUTAK ROCK, LLP, Washington, D.C., for Appellees.

          Before GREGORY, Chief Judge, WYNN and THACKER, Circuit Judges.


         Plaintiffs Brandon Berkenfeld, Sandra Ricki Diamond, and Barbara Holland-Eytan allege that negligent advice from Defendants-their financial advisor, Gary Lenet, and his employer, Morgan Stanley & Co., LLC-resulted in less favorable tax distribution options on their annuities inherited from the estate of Claire Blumberg. The district court found that Plaintiffs were barred from recovery under Maryland's contributory negligence law. But Maryland has a high bar for taking questions of contributory negligence from a factfinder and Plaintiffs' evidence offers a basis for a reasonable factfinder to determine that they justifiably relied on Defendants' advice. Accordingly, we reverse the district court's grant of summary judgment in favor of Defendants.



         Lenet is a financial advisor and Senior Vice President at Morgan Stanley. Morgan Stanley-on its website-and Lenet-through his LinkedIn webpage-represent that Lenet specializes in "estate and trust planning" and was recognized in 2009 as "one of the Top 1, 000 Financial Advisors in the country, one of only twenty advisors chosen in the state of Maryland." J.A. 658, 660. Morgan Stanley and Lenet also represent that Lenet has taught "continuing education requirement courses to external CPAs and Insurance Agents." J.A. 658, 660.

         Lenet served as Blumberg's financial advisor for several years and continued to do so after Blumberg granted Diamond the Power of Attorney over her financial affairs in November 2012. In that capacity-and as Blumberg's successor trustee-Diamond stated that she communicated with Lenet "almost daily either by e-mail or telephone regarding various financial issues." J.A. 641.

         Lenet also had an independent "professional and personal" relationship with each Plaintiff. Thus, as to Diamond, Lenet provided personal finance advice including, for instance, advising her on how much to spend in securing a mortgage for her home and helping her to secure a mortgage. Because of her "almost daily" communications with Lenet, Diamond "believed that [Lenet]'s financial advice was reliable." Id. As to Holland-Eytan, Lenet met with her in person and over the phone "periodically for several years to discuss [her] investments, [her] future in those investments, and how they would support [her at] retirement." J.A. 644. "Over time, [Holland-Eytan] became comfortable relying on the financial opinions of [Lenet]," particularly because of the "care and service he provided to [Blumberg]." Id. And as to Berkenfeld, Lenet and Berkenfeld exchanged "regular e-mails, occasional phone calls, and face-to-face meetings several times a year." J.A. 643. On occasion, Lenet provided Berkenfeld with stock tips. Berkenfeld stated that he "felt comfortable relying on . . . Lenet's advice and opinions regarding financial matters because he seemed very knowledgeable and had a great company like Morgan Stanley behind him." Id.


         The annuities at issue in this case were issued by Lincoln Financial and Commonwealth/Scudder to Blumberg. Blumberg designated Plaintiffs, who were her relatives, as equal beneficiaries of the two annuities.

         Soon after Blumberg's passing in late February 2014, Lenet visited Plaintiffs to discuss the annuities. According to each Plaintiff, Lenet advised them that the only way for them to receive their share of the annuities was through a single lump-sum payment. That advice was consistent with advice Diamond received from Lenet on two prior occasions. Plaintiffs did not pursue or receive any other advice regarding distribution options, stating that they trusted and relied on Lenet's assertion that a single lump-sum distribution was the only option available.

         In accordance with Lenet's advice, Plaintiffs completed an election form to receive their lump-sum distribution. In addition to the lump-sum option that Plaintiffs selected, the election form identified seven other "Payment Options." Immediately preceding the "Payment Options" section, the form stated that the annuity provider "is available to address any questions you may have." J.A. 533. A separate "Tax Withholding Section" of the election form stated: "You may wish to discuss your withholding election with a qualified tax advisor." J.A. 537. Berkenfeld testified that he did not read the election form, and Holland-Eytan testified that she could not recall whether she read the form. Holland-Eytan stated that, after she signed the election form, she twice asked Lenet if other distribution options were available, and on each occasion "Lenet stated that there were no other available disbursement options." J.A. 644.

         The record includes conflicting materials as to whether Lenet advised Plaintiffs to consult with a tax advisor before making a distribution decision. Plaintiffs' original complaint filed in state court alleged that, "Morgan Stanley advised Plaintiffs that they may wish to seek tax advice." J.A. 13. In tension with that allegation, Berkenfeld testified in his deposition that Lenet did not tell him to seek independent tax advice. And in an affidavit, Holland-Eytan appears to similarly assert that Lenet never advised her to seek independent tax advice. J.A. 644 ("I trusted [Lenet] as my financial professional and unless he ...

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