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LINSEY v. E. F. HUTTON & CO.

November 23, 1987

Bishop Nathaniel L. Linsey, individually and as trustee for the First C.M.E. Church of Anchorage, Alaska, Plaintiff,
v.
E. F. Hutton & Company, Inc., et al., Defendants



The opinion of the court was delivered by: HOGAN

 Thomas F. Hogan, U.S.D.J.

 Nathaniel L. Linsey, a bishop of the Christian Methodist Episcopal (C.M.E.) Church, is suing E. F. Hutton & Company, Inc., and one of its brokers, Joseph D. Alexander, as a result of losses from the investment of church funds. By order dated July 27, 1987, the Court severed the claims against defendant Alexander and stayed those proceedings until the resolution of his bankruptcy. This matter is now before the Court on defendant E. F. Hutton & Co.'s motions to dismiss and for summary judgment. Because Bishop Linsey lacks standing either as a representative of the church or individually under federal securities laws, and because he did not suffer a legally cognizable personal injury, the Court shall enter summary judgment for defendant and dismiss the complaint with prejudice.

 Background

 Plaintiff has been a bishop of the C.M.E. Church since 1978. In October, 1982, he became Bishop of the Ninth Episcopal District, which includes California and Alaska. In July, 1986, after the events complained of herein, he became bishop of the Tenth Episcopal District, which includes Africa and is headquartered in Lagos, Nigeria.

 In April, 1984, plaintiff and defendant Alexander discussed opportunities for investing the $ 1,400,000. On April 24, 1984, plaintiff as president of the California Conference and Mrs. Parks as treasurer established an account with E. F. Hutton & Co.'s branch office in Washington, D.C., where defendant Alexander was employed. The account documents identified the customer as the C.M.E. Church California Conference; they were executed by plaintiff as president of the California Conference and Mrs. Parks as treasurer. Checks could be written on the account only if signed by both plaintiff and Mrs. Parks.

 In early May, 1984, a parsonage was purchased in Anchorage with a portion of the funds; the remainder of the money, $ 1,194,000, was wired to E. F. Hutton & Co. in Washington on May 3, 1984. Stocks, bonds, and treasury bills were purchased. Plaintiff received monthly statements and confirmations of transactions in the account, and repeatedly expressed concerns about the account's performance. As a result, an options account agreement was executed by plaintiff and Mrs. Parks in late July, 1984. Plaintiff continued to be unhappy with the return, and on December 6, 1984, after receiving an accountant's analysis that the account was indeed losing money, ordered all securities liquidated and the money placed in a money market account. A series of withdrawals followed; by December 4, 1985, the account was essentially emptied.

 There is disagreement on precisely how much money was lost. A church report apparently places the loss at $ 300 over the 19-month life of the account; the account lost $ 72,236 on the sale of stock, but reported $ 71,936 income in interest and dividends. The complaint claims $ 52,000 in principal was lost and the church was denied about $ 125,000 interest that would have been earned had the funds remained on deposit at Founders Savings and Loan Association.

 Plaintiff alleges that as a result of the poor investment performance of the funds entrusted him he was in July, 1986, "demoted and reassigned to the least desirable Episcopal District in the C.M.E. Church, The Tenth Episcopal District, in Africa." In addition to the less desirable assignment, plaintiff did not as bishop of the Tenth Episcopal District receive an official residence or housing allowance; he estimated his additional out-of-pocket expenses resulting from the four-year assignment to the Tenth Episcopal District to be $ 160,000.

 Plaintiff filed this complaint on December 31, 1986, alleging that false representations had been made that the return on funds invested with E. F. Hutton & Co. would be not less than 15 percent and there would be no loss of principal. He also alleged that the defendants failed to warn of the risks associated with options trading. The complaint states five counts: violation of section 10(b) of the Securities and Exchange Act of 1934; "negligence per se and presumed," apparently stating a theory of common law negligence based on violation of the Securities and Exchange Act; common law negligence; common law fraud; and breach of fiduciary duty. All of the counts simultaneously seek damages for plaintiff in his representative capacity and in his personal capacity.

 Bishop Linsey's Standing as a Representative of the Church

 Plaintiff states in his complaint that he is suing both individually and "as agent and trustee for the Christian Methodist Episcopal Church." Defendant E. F. Hutton & Co. challenges his standing to sue on behalf of the Christian Methodist Episcopal Church or the First C.M.E. Church of Anchorage, Alaska.

 Defendant has submitted a resolution adopted by the College of Bishops of the C.M.E. Church on October 2, 1987, expressly disavowing Bishop Linsey's authority to sue as a representative of the Church. The resolution, whose ...


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