Holmes v. Grubman

286 Ga. 636 (2010)

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Holmes v. Grubman

Georgia Supreme Court
286 Ga. 636 (2010)

  • Written by Robert Cane, JD

Facts

William Holmes (plaintiff) owned 2.1 million shares of WorldCom, Incorporated stock. Citigroup Global Markets, Incorporated formerly known as Salomon Smith Barney & Company, Incorporated (Salomon) (defendant) was Holmes’s stockbroker. Jack Grubman (defendant) was a reputable financial analyst at Salomon. In 1999, Holmes ordered his broker at Salomon to sell all of his WorldCom stock. The broker convinced Holmes not to sell based on recent reports by Grubman even though the stock was grossly overvalued. Holmes alleged that Salomon had a conflict of interest and promoted the overvalued stock due to Salomon’s desire to retain WorldCom’s investment-banking business. In 2000, Holmes was forced to sell to meet margin calls, which resulted in losses of nearly $200 million. Holmes filed for bankruptcy and brought an action against Salomon and Grubman under Georgia law in the United States Bankruptcy Court for fraud, negligent misrepresentation, negligence in making disclosures, and breach of fiduciary duty. The case was transferred to the United States District Court for the Southern District of New York and consolidated with other WorldCom litigation. The district court dismissed Holmes’s complaint for failure to state a claim upon which relief could be granted. Holmes appealed. The United States Court of Appeals for the Second Circuit certified two questions to the Georgia Supreme Court. The first question was: does Georgia common law recognize fraud claims based on forbearance in the sale of publicly traded securities?

Rule of Law

Issue

Holding and Reasoning (Carley, J.)

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