Harrison v. Dean Witter Reynolds, Inc.

Hudson Harrison and his company, Harrison Construction Inc. (collectively, Harrison) (plaintiff), invested money with Dean Witter Reynolds, Inc. (Dean Witter) (defendant). Harrison worked with Dean Witter account executive John Kenning, and Kenning’s assistant, John Carpenter (defendants), who both had assigned office space at Dean Witter’s Boca Raton branch, a local office telephone number, a toll-free telephone number, and Dean Witter business cards. Kenning and Carpenter told Harrison that if Harrison sent money to Kenning and Carpenter personally, the money would be placed into Carpenter’s employee account at Dean Witter and then be invested in a specially available fund. Kenning and Carpenter told Harrison that the arrangement would be more lucrative for Harrison because commissions would be reduced, and bonds could be purchased at Dean Witter’s prices. Harrison sent Kenning and Carpenter nearly $4 million, but Kenning and Carpenter did not handle the money as promised. Instead, Kenning and Carpenter invested the money in riskier put options and lost most of the money. Harrison sued Kenning, Carpenter, and Dean Witter for claims including violations of federal securities law. The district court granted summary judgment in Dean Witter’s favor, finding under the so-called “culpable-participant test” that Dean Witter had not exercised control over Kenning and Carpenter with respect to the alleged fraud and thus could not be held liable as a control person as a matter of law. Harrison appealed.