This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2000).







Equico Securities, Inc.

n/k/a EQ Financial Consultants, Inc., et al.,






Theresa Wang, et al.,



Filed March 20, 2001


Toussaint, Chief Judge


Dakota County District Court

 File No. C6007936


Lauren Lonergan, Jack Young Perry, Briggs and Morgan, 2400 IDS Center, 80 South 8th Street, Minneapolis, MN 55402  (for respondents)


Thomas Edward McEllistrem, Collins, Buckley, Sauntry & Haugh, P.L.L.P., W-1100 First National Bank Building, 332 Minnesota Street, St. Paul, MN 55101-1379 (for appellants)



            Considered and decided by Toussaint, Chief Judge, Harten, Judge, and Foley, Judge.*


U N P U B L I S H E D  O P I N I O N


TOUSSAINT, Chief Judge

Appellants challenge the district court’s decision (1) to dismiss their claims of negligent supervision, respondeat superior, negligence, and state securities act violation; and (2) to issue an injunction, enjoining appellants from arbitration before the National Association of Securities Dealers (NASD).  Because appellants have not shown a threat of or actual physical injury or that respondent’s employee acted within the scope of her employment, we affirm the district court’s dismissal of appellants’ claims.  Further, because the elements of res judicata are present and there is no independent cause of action for a NASD claim, we affirm the district court’s order enjoining appellants from relitigating the same issues before the NASD. 


This is a consolidated appeal from three different district court decisions in two different suits involving the same parties: appellants Theresa Wang and Te-Chin Liu (appellants), and respondent EQ Financial and Equitable Life (Equico). 

Ansula Liu (Liu) was an independent insurance agent for Equico, and a broker authorized to sell respondent’s life insurance products.  In 1991 or 1992, Liu became acquainted with appellant Wang and appellant Te-Chin.  After meeting the appellants, Liu transferred appellant Wang’s IRA, opened an IRA for appellant Te-Chin, and sold insurance policies to both appellants. 

            In 1994, Liu began working for Emphasys Software (Emphasys), as a district manager.  Equico questioned Liu regarding her employment with Emphasys.  Equico was assured that Liu would not be in a position of raising funds or selling stocks, but in a position of management.  In reality, Liu began raising capital for Emphasys and advised appellants to buy stock in Emphasys. 

Appellant Wang testified in her deposition that she understood Liu was working for Emphasys as a broker and consultant when she purchased Emphasys stock.  Prior to purchasing stock, appellant Wang talked with Ansula Liu by phone and met with her at Emphasys’s office.

Appellant Te-Chin (1) knew that Liu was working for Emphasys when he purchased his Emphasys stock; (2) visited Liu at her Emphasys office before making his first Emphasys stock purchase; and (3) after his third purchase, visited Liu at Emphasys to accept a consultant position with Emphasys. 

            When the stocks were purchased, the appellants made their checks payable to Emphasys and gave them directly to Liu.  In turn, Liu signed the stock certificates as CEO of Emphasys and hand-delivered them to appellants. 

Appellants originally filed suit against Liu and Equico alleging fraud, misrepresentation, violation of state securities law, respondeat superior, negligence, and negligent supervision in connection with their purchase of securities in Emphasys.  In October 1999, the district court granted Equico’s rule 12 motion to dismiss appellants’ negligent supervision claim for failure to state a claim.  In January 2000, the district court granted Equico’s rule 56 motion for summary judgment, dismissing appellants remaining claims against Equico.

In February 2000, appellants filed an arbitration claim with National Association of Securities Dealers (NASD), claiming that Equico violated NASD Rule 3010: failure to supervise.  In response, Equico filed a district court action seeking an injunction to enjoin appellants from pursuing NASD arbitration claim.  The district court granted Equico’s motion for summary judgment and permanently enjoined appellants from pursuing their failure to supervise claim before the NASD.  In dismissing the claim, the district court noted that

[d]ismissal of the negligence supervision claim, the negligence claim, and the respondeat superior claim encompass all facts which support a failure to supervise claim which the [appellants] seek to present [to NASD].


Appellants appeal the district court’s dismissal of its claims against Equico and its subsequent order, enjoining appellants from pursuing their arbitration claim before the NASD.




Rule 12 Dismissal of Negligent Supervision Claim.


            Appellants argue that the trial court erred when it dismissed their negligent supervision claim for failure to state a claim upon which relief could be granted.  In reviewing a complaint which is dismissed for failure to state a claim upon which relief can be granted, the appellate court determines only whether the complaint sets forth a legally sufficient claim for relief.  Minn. R. Civ. P. 12.02(e); Barton v. Moore, 558 N.W.2d 746, 749 (Minn. 1997).

            Appellants alleged in their complaint that Equico breached its duty of closely supervising and monitoring its employees and that such breach “was a direct cause of [appellants’] financial losses ***.”  However, mere economic loss does not give rise to a claim of negligent supervision.  Rather, a viable claim of negligent supervision requires the infliction of a threat of, or actual, physical injury.  Semrad v. Edina Realty, Inc., 493 N.W.2d 528, 534 (Minn. 1992); Bruchas v. Preventative Care, Inc., 553 N.W.2d 440, 443 (Minn. App. 1996).  Because appellants alleged only economic loss in their complaint, the trial court did not err in dismissing their negligent supervision claim for failure to state a claim upon which relief can be granted.


Rule 56 Dismissal of Respondeat Superior, Negligence, and State Securities Act Claims.


Appellants argues that the trial court erred when it granted Equico’s summary judgment, dismissing appellant’s remaining claims—respondeat superior, negligence, and state securities act violations.  On appeal from summary judgment, this court reviews the record to determined whether any genuine issues of material fact exist and whether the district court erred in applying the law.  Offerdahl v. University of Minn. Hosps. & Clinics, 426 N.W.2d 425, 427 (Minn. 1988).  This court must review the evidence in the light most favorable to the nonmoving party.  Id.

A.                 Respondeat Superior

Appellant alleges that Equico is vicariously liable for Liu’s conduct because Liu was employed by Equico at the time she sold Emphasys stock to appellants.  In order to establish vicarious liability of an employer under the doctrine of respondeat superior, a claimant must demonstrate that (1) the employee’s conduct occurred within the work-related limits of time and place, and (2) the employee’s conduct was reasonably foreseeable given the nature of the employment and its duties.  Oelschlager v. Magnuson, 528 N.W.2d 895, 902 (Minn. App. 1995).

Appellants have failed to demonstrate that Equico should be held vicariously liable for Liu’s conduct.  It is undisputed that appellants knew that Liu was working for, and selling stock on the behalf of, Emphasys when they invested in Emphasys.  Appellants testified as such in their depositions called and visited Liu at the Emphasys office, and Liu signed the stock certificates and checks as the CEO of Emphasys.  Appellant neither saw, nor received, any documentation relating to the purchase of Emphasys stock that has Equico’s name on it or that would suggest that Equico was involved in the transaction in any manner.  Alternatively, whenever appellants bought Equico products, Equico would send confirmation materials to appellants. 

Because appellants believed that Liu was working for Emphasys, not Equico, when Liu was selling the Emphasys stock, they have failed to establish that Liu’s actions were within her scope of employment with Equico.  See Semrad, 493 N.W.2d at 535 (finding no liability were sale of investment was not incidental to work for Edina Realty, transaction was not authorized by Edina Realty, and the broker had a separate office and venture for such sales); Cf. Opatz v. John G. Kinnard & Co., 454 N.W.2d 471, 474 (Minn. App. 1990) (finding liability where the investor was not aware that the broker was working for a separate corporation and expected to receive confirmation from the brokerage).   Accordingly, the trial court did not err when it granted Equico summary judgment dismissing appellants’ respondeat superior claim.

B.                 Negligence

Appellants argue that Equico was negligent in “failing to determine suitable investments for [appellants’] needs and circumstances, and selling stock in an unsuitable investment, namely Emphasys stock.”  In order to establish a prima facie claim of negligence, a claimant must establish a duty owed.  Minneapolis Emp. Ret. Fund v. Allison-Williams, 519 N.W.2d 176, 182 (Minn. 1994).  A broker’s duty to their client is to exercise the degree of care and skill usually exercised by members of the profession under similar circumstances.  Id.

            Appellants’s claim fails because they did not demonstrate a duty owed by Equico to appellants for Liu’s alleged sale of unsuitable investment in Emphasys stock.  As previously stated, Liu’s sale of Emphasys stock stemmed not from her employment with Equico or any instructions given by them, but out of her own independent venture.  Cf. id. (holding that in cases where a broker fails to exercise due care in executing all instructions expressly given to her, a negligence action may be brought). Thus, the conduct by Liu does not construe negligence on the part of Equico but alleged negligence by Liu in her employment with Emphasys.  Accordingly, the trial court did not err in granting Equico’s motion for summary judgment, dismissing appellants’s negligence claim.

C.                 State Securities Act

Appellants argue that Equico is liable for Liu’s alleged violations of the Minnesota Securities Act, Minn. St. ch. 80A (2000).  Under the Minnesota Securities Act, a broker-dealer who directly or indirectly controls a person is jointly and severally liable to the same extent as the person committing the Securities Act violation.  Minn. Stat. § 80A.23.  In order to establish a claim under the act, a claimant must demonstrate that the broker-dealer possessed the power to control the specific transaction or activity upon which the primary violation is predicated.  Semrad, 493 N.W.2d at 532-33.

For the same reasons that appellants failed to establish their claims of negligence and respondeat superior, they cannot establish their state securities act violation claim.  Equico did not control Liu’s sale of Emphasys stock.  See id. (refusing to impose liability under the act where the products the brokers were selling were distinct from those sold by the brokerage firm and the broker had a separate venture selling the investment products).  Accordingly, the trial court did not err in granting Equico’s summary judgment, dismissing appellants’ state securities act claim.


Injunction Enjoining Arbitration

Appellants argue that the trial court erred when it granted Equico’s summary judgment enjoining appellants from pursuing a claim of negligent supervision in the NASD arbitration forum after their claims had been dismissed in district court.  A trial court’s findings regarding entitlement to injunctive relief will not be set aside unless clearly erroneous.  LaValle v. Kulkay, 277 N.W.2d 400, 402 (Minn. 1979). 

“A party seeking an injunction must first establish that the legal remedy is inadequate and that the injunction is necessary to prevent great and irreparable injury.”  City of Mounds View v. Metropolitan Airports Com’n, 590 N.W.2d 355 (Minn. App. 1999) (citing Cherne Indus., Inc. v. Grounds & Assocs., 278 N.W.2d 81, 92 (Minn. 1979)).  Once a party has established irreparable harm, the trial court must consider five factors before issuing an injunction to prevent injury.  City of Mounds View, 590 N.W.2d at 357-58.  Those include: (1) the parties’ relationship before the dispute; (2) relative hardships-weighing the harms alleged by both parties; (3) the likelihood that the party seeking the injunction will prevail on the merits; (4) public policy considerations; and (5) the administrative burden on the court.  Id.

A.        Irreparable Harm

The district court found that Equico would be irreparably harmed if it was forced to defend itself for a second time against a claim arising out of the same facts that gave rise to claims previously dismissed by the trial court.  “Irreparable harm” is a harm for which there is no adequate remedy at law.  See  Miller v. Foley, 317 N.W.2d 710, 713 (Minn.1982) (stating that harm is irreparable when it cannot be compensated by money).  Irreparable harm may be inferred from the filing of successive claims to litigate the same questions between the same parties arising out of the same set of facts.  See Favorite v. Minneapolis Street Ry. Co., 253 Minn. 136, 141 91N.W.2d 459, 463 (1958) (issuing injunction against second suit involving the same claims and same parties).  Because the arbitration claim filed by appellants involves the same set of facts, same parties, and the same questions as were preciously resolved by the district court, the district court did not err in finding that Equico would suffer irreparable harm if the appellants were allowed to proceed with their arbitration claim.

B.        Injunction Factors

For the same reasons that the district court found irreparable harm, the district court found that the five factors weighed in favor of granting an injunction enjoining appellants from proceeding with arbitration.

1.         Nature of Relationship

            The parties have been in litigation over the same facts and circumstances for over a year prior to the injunction issuance.  The district court dismissed one of claims and later granted summary judgment to respondent on the remaining claims.  The parties’ prior relationship in this case supports granting the injunction.

2.         Balance of Harms

Relitigation of the same issues will have a harmful affect on Equico, as well as the court system, if it has to defend itself again after the trial court has already come to a decision.  See Favorite, 253 Minn. at 141, 91 N.W.2d at 463 (issuing injunction against second suit involving the same claims and same parties because of the harm to the defendant).  Appellants only harm consists of lost investments.  In this case, respondent’s harm outweighs appellants harm.  See Miller, 317 N.W.2d at 713 (stating that irreparably harm is a greater harm than mere injuries in terms of money).  The record supports the grant of an injunction.

3.         Likelihood of Success on the Merits

The district court found that appellants’s arbitration claim is unlikely to succeed because it is barred by the doctrine of res judicata.  Whether the doctrine of res judicata applies to a given set of facts is reviewed de novo.  Erickson v. Commissioner of Dep’t of Human Servs., 494 N.W.2d 58, 61 (Minn. App. 1992).  “If the doctrine applies, the decision whether to actually apply it is left to the discretion of the trial court.”  Id. (citation omitted). 

Res judicata applies when two successive suits involve claims arising out of the same nucleus of facts.  Anderson v. Werner Continental, Inc., 363 N.W.2d 332, 335 (Minn.App.1985), review denied (Minn. June 24, 1985).     

The present request for an injunction concerns facts and circumstances in existence at the time of the district court judgment.  Because the district court considered all the facts and circumstances giving rise to appellants’ legal claims in a motion for summary judgment, the district court rendered a judgment on the merits.  See Dollar travel Agency, Inc. v. Northwest Airlines, Inc., 354 N.W.2d 880, 882 (Minn. App. 1984) (holding that summary judgment is a judgment on the merits). Appellants arbitration claim alleges essentially the same legal claim—negligent supervision, by the same party, Equico, and arises out of the same nucleus of facts.  Res judicata bars appellant’s claims.  See Anderson, 363 N.W.2d at 335 (dismissing action alleging common-law fraud, and violations of fiduciary duties and state securities laws on grounds of res judicata in light of previously dismissed federal securities action which involved the same parties and arose out of the same nucleus of facts).  Other jurisdictions have barred National Association of Securities Dealers (NASD) arbitration where claims arising out of the same set of facts and circumstances have been previously considered and decided upon in district court.  In re Y &A Group Secs. Litig., 38 F.3d 380, 382 (8th Cir. 1994); Signator Investors, Inc. v. Olick, No. 99-4854, 2000 WL 276097 (E.D. Pa. March 3, 2000).

Moreover, appellants’s NASD claim is unlikely to succeed because there is no independent, private cause of action for an investor against a broker-dealer for violation of the NASD supervisory rules. Baden v. Craig-Hallum, Inc., 646 F.Supp. 483, 491 (D. Minn. 1986) (dismissing NASD claim brought by investor against broker and citing other federal cases that have determined that the NASD rules do not provide a private cause of action).  Because appellants are unlikely to be successful in pursuing their NASD claim, an injunction is favored.

            4.         Public Policy

            Relitigation of the same issues from the same cause of action bears heavily on public interest and policy. See Wessling v. Johnson, 424 N.W.2d 795, 799 (Minn. App. 1988) (noting policy reasons underlying res judicata include avoiding unnecessary litigation, judicial economy, and establishing certainty in legal decisions), review denied (Minn. July 28, 1988).  Therefore, the grant of an injunction is supported.

5.         Administrative burden on the court

            The issuance of an injunction does not create an administrative burden, but reduces administrative burden by preventing further litigation.  See Favorite, 253 Minn. at 141, 91 N.W.2d at 463 (“Repeated litigation of a right which has been adjudicated with finality is without any legitimate purpose ***.”)  Because the record shows that appellants are attempting to relitigate the same issues in arbitration that were previously decided on the merits by the district court, an injunction was warranted.  Therefore, the district court did not err.


*  Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.