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Final Copy 286 Ga. 636

S09Q1585. HOLMES et al. v. GRUBMAN et al. Carley, Presiding Justice.

As of June 1999, Appellants William K. Holmes and four entities controlled by him owned 2.1 million shares in WorldCom, Inc., the major telecommunications company which went bankrupt after the revelation of massive accounting fraud in 2002. In this suit against Appellees Citigroup Global Markets, Inc., f/k/a Salomon Smith Barney & Co., Inc. (SSB), and its financial analyst, Jack Grubman, Appellants allege that, on June 25, 1999, Holmes verbally ordered his broker at SSB to sell all of Appellants' WorldCom stock, which was then being traded at approximately $92 per share. Appellants further allege that the SSB broker convinced Holmes not to sell, based on recent research reports by Grubman and on his reputation, and that Appellees were operating under a conflict of interest, knowing that WorldCom stock was grossly overvalued, but nevertheless promoting it in order to retain WorldCom's lucrative investment banking business. Instead of selling, Holmes purchased

additional shares as the stock price declined. In October 2000, Appellants were forced to sell all of their WorldCom shares in order to meet margin calls, resulting in alleged losses of nearly $200 million. Appellants filed for bankruptcy and, in 2003, brought this action for damages under Georgia law in the United States Bankruptcy Court for the Middle District of Georgia. The case was transferred to the United States District Court for the Southern District of New York and consolidated for pretrial purposes with the multi-district WorldCom Securities Litigation. Appellants' third amended complaint includes claims of fraud, negligent misrepresentation, negligence in making disclosures, and breach of fiduciary duty. The district court dismissed that complaint for failure to state a claim upon which relief can be granted. Holmes v. Grubman (In re WorldCom, Inc. Securities Litigation), 456 FSupp.2d 508 (S.D.N.Y. 2006). On appeal, the

United States Court of Appeals for the Second Circuit certified the following three questions to this court: I. Does Georgia common law recognize fraud claims based on forbearance in the sale of publicly traded securities? II. With respect to a tort claim based on misrepresentations or omissions concerning publicly traded securities, is proximate cause adequately pleaded under Georgia law when a plaintiff
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alleges that his injury was a reasonably foreseeable result of defendant's false or misleading statements but does not allege that the truth concealed by the defendant entered the market place, thereby precipitating a drop in the price of the security? III. Under Georgia law, does a brokerage firm owe a fiduciary duty to the holder of a non-discretionary account? Holmes v. Grubman, 568 F3d 329, 340-341 (D) (2nd Cir. 2009). 1. The claims to which the first question refers are often called "holder" claims. Although this Court has never specifically addressed such claims, it is well settled that one of the elements of the tort of fraud in Georgia is an "`intention to induce the plaintiff to act or refrain from acting . . . .' [Cit.]" (Emphasis supplied.) Stiefel v. Schick, 260 Ga. 638, 639 (1) (398 SE2d 194) (1990). See also Charles R. Adams III, Ga. Law of Torts

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Georgia Law