Sterling Trust Co. v. Adderley

168 S.W.3d 835 (2005)

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Sterling Trust Co. v. Adderley

Texas Supreme Court
168 S.W.3d 835 (2005)

  • Written by Robert Cane, JD

Facts

Norman Cornelius (defendant) owned and operated Avalon Custom Homes (Avalon), which developed and sold luxury homes. Cornelius attracted investments in Avalon from various individuals. Sterling Trust Company (Sterling) (defendant) served as the third-party trustee for investments in Avalon made through Cornelius. However, Cornelius was operating Avalon as an illegal pyramid scheme, and the Securities and Exchange Commission (SEC) filed suit against Cornelius. Avalon was forced into receivership. The investors of Avalon lost millions of dollars. The investors (plaintiffs) sued Cornelius, Sterling, and several other parties. At trial, Sterling was exposed to secondary liability for aiding Cornelius in violating the Texas Securities Act. The trial court instructed the jury that Sterling could be held liable for Cornelius’s violation of the Texas Securities Act only if Sterling had reckless disregard for any specific untruth or omission made by Cornelius to investors. The jury found that Sterling was not liable because he did not know or could not have known of untruths or omissions made by Cornelius in attracting investors for Avalon. However, the jury found Sterling liable for aiding and abetting Cornelius. The court of appeals affirmed the trial court’s judgment. Sterling appealed.

Rule of Law

Issue

Holding and Reasoning (O’Neill, J.)

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