Brooks v. Euclid Systems Corp.

ADKINS, J. When he retired at age 55, welder Richard E. Brooks, appellant, decided to invest some of his accumulated retirement savings through his investment and financial advisor Michael P. Keating. Like many other unfortunate investors, Brooks later learned that Keating materially misrepresented the nature and suitability of the investments that he arranged for Brooks to purchase. Instead of the low risk, modest income portfolio that Brooks requested, Keating succeeded in investing, and ultimately losing, Brooks’ retirement savings in ⁴⁹⁴ unregistered, illiquid, speculative, high risk securities that were to be offered and sold only to “accredited investors.” 1 Brooks understandably sued Keating and made a claim against Keating’s employer, Delta Equity Services Corporation (“Delta”). 2 He also sued the issuers of the securities, including appellees Euclid Systems Corporation (“Euclid”), Ridgewood Power Trust IV/Ridgewood Power LLC (“Ridge-wood”), and Cyclean, Inc./Cyclean of Los Angeles, LLC (“Cy-clean”)(collectively sometimes referred to as “Issuers”). The Circuit Court for Baltimore County granted summary judgment in favor of all three Issuers.

Brooks then obtained a judgment against Keating. Brooks now appeals the judgments entered in favor of all three Issuers, 3 claiming that the summary judgment record presented a jury question on the following issues: I. Was Keating, in his capacity as an employee of Delta, acting as an agent of the Issuers?

II

Was either Keating or Delta an implied agent of the Issuers based on apparent authority to conduct the Issuers’ business?

III

Did the Issuers fail to disclose material facts in connection with their offer and sale of the securities that Brooks purchased?

IV

Were the Issuers negligent in the manner in which they offered and sold their securities? We agree with the circuit court that Keating was neither an actual nor an apparent agent of the Issuers, and that there was no material dispute of fact preventing summary judgment on Brooks’ vicarious liability negligence claims against them. ⁴⁹⁵ We agree with Brooks, however, that the circuit court failed to address his direct liability claims based on the nondisclosure allegations in his complaint. Accordingly, we must vacate the judgments on Counts I and II. We shall remand those counts for further proceedings consistent with our discussion of the substantive question that the circuit court did not decide.

FACTS AND LEGAL PROCEEDINGS 4 After retiring from 28 years of work at Baltimore Air coil, Inc. on August 31, 1995, Brooks took a lump sum distribution totaling $260,000 from his retirement account. Following through on recommendations from co-workers, he sought investment advice from Keating. Brooks told Keating that he wanted his retirement funds invested safely to preserve principal and to generate some income. Keating assured Brooks that he would find investments that protected his capital but yielded a modest return.

As a result, Brooks placed his trust in Keating’s investment advice, and employed him as a tax preparer as well. Keating undisputedly recommended and arranged Brooks’ purchases of inappropriate securities, including the securities offered by these three Issuers. Keating told Brooks that each of these investments was safe and suitable. He informed Brooks that he would have to sign or initial certain “paperwork,” which was merely a routine procedure that did not require him to actually review the wording of the documents.

Keating only showed Brooks the pages that needed a signature or initial, and did not give Brooks an opportunity to review the entire document. Brooks signed and initialed these pages on the understanding that he was simply indicating his willingness to purchase the securities based on the information supplied by Keating. The documents that Keating fraudulently induced Brooks to ⁴⁹⁶ sign were actually “Subscription Agreements” for the Issuers’ securities, and documents giving false information about Brooks’ income and assets. All of these securities were unregistered, illiquid, speculative, and high risk investments designed solely for “accredited investors” with substantial income, assets, and investment experience.

Brooks, a high school graduate with no investment experience, was not the type of wealthy and “sophisticated” investor who qualified as an accredited investor and generally purchased such high risk securities as part of a balanced portfolio of investments. He did not realize the high risk nature of these securities, or that Keating misrepresented information about the securities and his qualification to buy them. Nor, he claimed, did he understand that the Issuers would rely on his execution of these documents as verification that he appreciated the risky nature of the investment and that he had the income and assets that Keating listed in the subscription documents. Brooks lost his entire $25,000 investment in each of the securities offered by the three Issuers. 5 He filed a complaint in the Circuit Court for Baltimore County, asserting claims for intentional misrepresentation, negligent misrepresentation, and negligence in the offer and sale of the securities.

In addition to suing Keating and Delta, Brooks named these three Issuers as defendants. Admitting that there was no direct misrepresentation by the Issuers, he sued them for misrepresentation on the theory that Delta and Keating were their actual or apparent agents. Each of the Issuers moved for summary judgment on the ground that they did not have a principal-agent relationship with Delta or its employee Keating. In opposition to these motions, Brooks pointed to the selling agreements that each Issuer had with Delta as evidence of a principal-agent relationship.

He also pointed to other evidence of direct contact between the Issuers and Keating, which he asserted was ⁴⁹⁷ sufficient to raise an inference that there was an actual or apparent agency relationship. The circuit court rejected that theory. It concluded that the Issuers could not be vicariously liable for any intentional or negligent misrepresentation that Keating made, because neither Keating nor Delta was an actual or apparent agent of these Issuers. In addition, the court found that there were no “allegations that written materials issued by these [defendants were false or misleading.” It granted summary judgment in favor of each Issuer on all of Brooks’ claims.

After settling with Delta and obtaining a judgment against Keating, Brooks noted this appeal. We shall discuss additional facts and documents as they pertain to the individual Issuers. DISCUSSION Brooks sued all three Issuers for intentional misrepresentations and omissions of material fact (Count I), negligent misrepresentations and omissions of material fact (Count II), and negligence in the offer and sale of their securities (Count III). Although none of the Issuers are related, the issues and facts that Brooks raises in this appeal significantly overlap.

We shall examine these questions as they relate to each Issuer. I. Euclid Euclid develops and markets eye care industry products. In an effort to develop “corneal topographers” that shape contact lenses to individual corneas, Euclid decided to raise capital by offering stock through a private offering to accredited investors. Euclid’s Offering Memorandum Euclid issued an August 15, 1996 Confidential Offering Memorandum (the “Offering Memo”).

The lengthy Offering ⁴⁹⁸ Memo provided detailed information about the company, its business plan, and its key executives. It also included many cautionary statements about the nature and risks of the investment: • On the' cover page, Euclid advised prospective investors that, IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE RISKS INVOLVED. SEE RISK FACTORS. • On page two, Euclid informed prospective investors that “Subscriptions will be received subject to rejection or allotment in whole or in part at any time in the sole discretion of the Company. Investment is subject to satisfaction of the suitability requirements set forth herein.” • On page six, Euclid cautioned: AN INVESTMENT IN THE COMPANY INVOLVES SUBSTANTIAL RISKS AND IS LIMITED TO ACCREDITED INVESTORS MEETING THE SUITABILITY STANDARDS DESCRIBED IN THIS CONFIDENTIAL OFFERING MEMORANDUM.

NO MARKET EXISTS OR IS LIKELY TO DEVELOP FOR THE SALE OF CONVERTIBLE PREFERRED STOCK OR THE COMMON STOCK INTO WHICH THE CONVERTIBLE PREFERRED STOCK IS CONVERTIBLE, AND THE CONVERTIBLE PREFERRED STOCK WILL BE TRANSFERABLE ONLY UNDER CERTAIN LIMITED CONDITIONS. PROSPECTIVE INVESTORS ARE ENCOURAGED TO OBTAIN THE ADVICE OF QUALIFIED PROFESSIONALS BEFORE DECIDING TO INVEST. THIS CONFIDENTIAL OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY CONVERT ⁴⁹⁹ IBLE PREFERRED STOCK TO ANY PERSON WHO IS NOT AN ACCREDITED INVESTOR AND HAS NOT COMPLETED AND RETURNED A PURCHASER QUESTIONNAIRE AND SUBSCRIPTION AGREEMENT IN THE FORM REQUIRED BY THE COMPANY.... ANY WRITTEN OR ORAL PREDICTIONS OR REPRESENTATIONS WHICH DO NOT CONFORM TO THOSE CONTAINED IN THIS CONFIDENTIAL OFFERING MEMORANDUM SHOULD BE DISREGARDED AND THEIR USE IS A VIOLATION OF THE LAW. • On page 11, in a summary of the offering, Euclid described certain “Risk Factors,” stating that rtlhis Offering involves a high degree of risk, including the Company’s lack of profitability, inadequate dividend coverage, discretionary use of proceeds, possible regulatory constraints and possible need for additional financing.

See “Risk Factors.” • On page 13, immediately following the offering summary, Euclid warned potential investors to carefully read about and weigh the investment risks based on information set forth in the Offering Memo or provided by Euclid: READ THIS MEMORANDUM CAREFULLY BEFORE MAKING ANY INVESTMENT DECISION, ESPECIALLY THE SECTION ENTITLED RISK FACTORS.... INVESTORS WILL BE REQUIRED TO REPRESENT THAT THEY MEET CERTAIN FINANCIAL REQUIREMENTS AND THAT THEY ARE FAMILIAR WITH AND UNDERSTAND THE TERMS, RISKS AND MERITS OF THIS OFFERING. OFFERS ARE MADE ONLY TO PERSONS WHO MEET THE QUALIFICATIONS DESCRIBED UNDER INVESTOR SUITABILITY REQUIREMENTS. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS ⁵⁰⁰ INVOLVED....

AN INVESTMENT IN THE CONVERTIBLE PREFERRED STOCK INVOLVES SUBSTANTIAL RISKS AND IS ILLIQUID. INVESTORS WILL BE REQUIRED TO REPRESENT THAT THEY ARE ABLE TO BEAR THE ECONOMIC RISK OF THEIR INVESTMENT FOR AN INDEFINITE PERIOD, THE POTENTIAL LOSS OF THEIR ENTIRE INVESTMENT AND THAT THEY (OR PERSONS ACTING ON THEIR BEHALF) HAVE SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS SO AS TO BE CAPABLE OF UNDERSTANDING THE TERMS AND RISKS OF THIS OFFERING. SEE RISK FACTORS.... Prospective investors must not rely upon any representations or information other than as set forth in this Memorandum and in documents furnished by the Company upon request.

Each offeree and any purchaser representative is invited during the Offering and before purchasing any Convertible Preferred Stock to ask questions of, and to obtain additional information from, the Company concerning the terms and conditions of the Offering. The Company and any other relevant matters (including, but' not limited to, additional information to verify the accuracy of information in this Memorandum).... The offeree agrees to return this Memorandum and all other related documents to the Company immediately if the offeree does not meet the requirements set forth under Investor Suitability Requirements or if the offeree declines to invest. (Emphasis in original.) • On pages 14 and 15, Euclid detailed the “INVESTOR SUITABILITY REQUIREMENTS,” which restricted the offering to accredited investors with either (1) “individual income ... of more than $200,000 in each of the preceding two years,” or “joint income ... of more than $300,000 in each of the preceding two years” with a reasonable expectation of “joint income of more than $300,000 in the current year[,]” or (2) “an individual net ⁵⁰¹ worth, or together with their spouse ... a combined net worth in excess of $1,000,000.” Euclid also advised that “[t]he Company has reserved the right to reject a subscription for Convertible Preferred Stock for any reason in its sole discretion!,]” and that it “intends to exercise this right to the extent necessary to comply with certain provisions of ERISA, tax and securities laws.” • On pages 17 through 19, Euclid described the “RISK FACTORS” of the investment.

In the first paragraph, Euclid warned: INVESTMENT IN THE CONVERTIBLE PREFERRED STOCK INVOLVES SUBSTANTIAL RISKS, SOME OF WHICH ARE SUMMARIZED BELOW. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS, AMONG OTHERS, CONCERNING THE COMPANY AND THE OFFERING PRIOR TO INVESTING. • In the ensuing paragraphs, Euclid identified and discussed some of the specific, currently identifiable risks. 6 ⁵⁰² • On page 34, in setting 'forth the “Terms of the Offering and Plan of Distribution,” Euclid again advised that “[t]he Convertible Preferred Stock is being offered by the Company subject to the right of the Company in its sole discretion to reject subscriptions.” It also stated that the stock “will be sold only to Qualified Investors who demonstrate they are accredited investors meeting the criteria set forth under Investor Suitability Requirements.” • On page 35, Euclid explained “How to Subscribe for Convertible Preferred Stock[.]” These terms stated that Euclid would require prospective investors to submit a detailed “Subscriber Questionnaire and Subscription Agreement” that was included with the Offering Memo. Euclid again explicitly “reserve[d] the right to reject any subscription for any reason whatsoever,” Euclid’s Selling Agreement On July 10, 1996, Euclid made Diversified Investment Partners, Inc. (“Diversified”) its exclusive financial advisor. Under the terms of that agreement, Diversified introduced Euclid to securities broker-dealers who specialized in private placement investments such as Euclid’s.

One of those broker-dealers was Delta. Euclid entered into “best efforts selling agreements” with Delta and another broker-dealer. Under the terms of those agreements, the broker-dealers had “the non-exclusive right to ⁵⁰³ solicit subscriptions” and “agree[d] to use ... best efforts to obtain such subscriptions.” “It [was] understood that [Euclid] reserve[d] the right in its sole discretion to refuse to sell any Shares to any person at any time.” For each subscription that Euclid accepted, the broker-dealer earned certain percentage commissions. In return for the opportunity to sell Euclid’s securities, Delta represented and warranted that it “or its agent” would give the Offering Memo to each offeree “concurrently with making any offerfj” and that it would “make no representations with respect to [Euclid] or its business and affairs other than the representations set forth in the Confidential Offering Memorandum or the sales literature authorized for use in connection with the offering, or such other information as is specifically authorized by the Company and its legal counsel.” In addition, Delta warranted that “its agents will comply with all applicable provisions of’ federal and state securities laws.

The Selling Agreement provided inter alia that, [w]ith respect to any solicitations or offers made by [Delta] or its agents on behalf of [Euclid], [Delta] represents, warrants and covenants as follows: (1) Neither [Delta] nor any person acting on its behalf (“agent”) will offer the Shares by any means of any form of general solicitations or general advertising.... Neither [Delta] nor agent thereof will sponsor or hold any seminar or meeting at which the persons attending have been invited by any general solicitation or general advertising. (2) [Delta] or its agent will cause each person interested in acquiring a Unit to complete and execute a Purchaser Questionnaire, ... and will deliver the completed Purchaser Questionnaire to [Euclid] at the time the subscription materials are delivered to the Company to determine whether such person is qualified to acquire an interest in the Company. (3) [Delta] or its agent will furnish to each offeree, concurrently with making any offer to such offeree ... a copy of the Confidential Offering Memorandum and any supple ⁵⁰⁴ ment or amendment thereto. [Delta] or its agent will make no representations with respect to the Company or its business and affairs other than the representations set forth in the Confidential Offering Memorandum or the sales literature authorized for use in connection with the offering, or such other information as is specifically authorized by the Company and its legal counsel.

(4) [Delta] and its agents will comply with all applicable provisions of [securities laws].... The agreement also included cross-indemnification and contribution clauses. Delta indemnified Euclid against claims (1) arising out of or based upon a misrepresentation of material fact by Broker or its agents in connection with the sale of the Shares unless such misrepresentation(s) was the direct result of misleading information provided in writing to Broker or its agents by [Euclid] or any agent thereof; or (2) arising out of or based upon the failure of Broker or any of its agents to comply with any covenant, or the breach of any representation or warranty, set forth in this Agreement. Euclid’s Subscription Documents Brooks signed the requisite Subscriber Questionnaire/ Subscription Agreement, which is dated “10-7-96.” By doing so, he agreed that: • he had received and read the Offering Memo; • he had completed the Subscriber Questionnaire; • the information in both documents was “complete and accurate[;]” • he had “considered ... the information set forth [in the Offering Memo] under ‘Risk Factors[;]’ ” • he “understood” that “the Shares are speculative investments which involve a high degree of risk of loss of any investment therein[;]” • he was “an accredited investor[;]” ⁵⁰⁵ • he was “able to bear the economic risk of his investment in [Euclid] and to hold his shares for an indefinite period of time.” Brooks also placed his initials next to two specific provisions of the Subscription Agreement.

The first stated that Brooks’ net worth was at least $1,000,000. The second represented that he had such knowledge and experience in financial and business matters and in private placement investments in particular that [he was] capable of evaluating the merits and risks of an investment in the securities and [did] not desire to use a purchaser representative in connection with evaluation such merits and risks. On the next page, Keating verified that he was “familiar with [Brooks’] financial affairs and investment objectives[,]” that the investment was “suitable” for Brooks, and that Brooks “understood] the terms, and [was] able to evaluate the merits, of this offering.” Euclid’s Dealings With Keating Testifying in a deposition in an unrelated case involving another investor procured by Keating, Euclid’s CEO Bruce DeWoolfson said that he first met Keating in November 1996. He acknowledged that he spoke with Keating more than 20 times by phone.

He also met with Keating and prospective investors that Keating brought in “several” times, both at Keating’s office and at the company facilities. In May 1998, Keating brought prospective investors to Euclid’s annual meeting. By that time, Euclid had discussed with Keating the possibility of his becoming a company director. But shortly before that meeting, Euclid “learned from the Maryland Attorney General’s Office ... that Mr. Keating was going to [lose] his brokerage license and had engaged in questionable sales practices.” Instead of making him a director, Euclid “compromised and gave him a title of financial advisor to the company.” DeWoolfson explained that ⁵⁰⁶ the history of that was that Mr. Keating took a very active interest in [Euclid].

And he was the best producer we had in terms of raising capital for us. And he maintained that he needed to know ... very closely—the progress and the status of the company so that he could keep his investor clientele informed of the progress of the company. Keating, however, was “never paid for that. And he never had any substantive involvement.

It was ... an honorary title only, as a face-saving gesture for him.” Euclid then “learned the extent of his difficulties,” and “terminated” its relationship with Keating “within sixty days of the time” his legal troubles were announced. A. Actual Agent Brooks seeks to establish the existence of a principal-agent relationship because, under established principles of agency law, if Euclid was Delta’s or Keating’s principal, then it might be vicariously liable for their misrepresentations, nondisclo-sures, violations of securities laws, or negligence. See Sanders v. Rowan, 61 Md.App. 40, 50 , 484 A.2d 1023 (1984). An agency relationship may be created by written agreement or by conduct.

See Green v. H & R Block, Inc., 355 Md. 488, 503 , 735 A.2d 1039 (1999). The classic three factors considered in determining whether an agency relationship exists are whether: (1) [t]he agent is subject to the principal’s right of control; (2) the agent has a duty to act primarily for the benefit of the principal; and (3) the agent has the power to alter the legal relations of the principal. Schear v. Motel Mgmt. Corp. of Am., 61 Md.App. 670, 687 , 487 A.2d 1240 (1985); see Forrest v. P & L Real Estate Inv.

Co., 134 Md.App. 371, 396 , 759 A.2d 1187 (2000). These are not exclusive factors; “rather than being determinative, the three factors should be viewed within the context of the entire ⁵⁰⁷ circumstances of the transaction or relations.” Green, 355 Md. at 506 , 735 A.2d 1039 . Whether there is adequate evidence of an agency relationship to survive summary judgment is a question of law for the court. See Kersten v. Van Grack, Axelson & Williamowsky, P.C., 92 Md.App. 466, 473-74 , 608 A.2d 1270 (1992).

The circuit court found that Euclid did not “retain sufficient control over Mr. Keating to deem it liable for his actions, statements or misrepresentations.” Brooks disputes that finding. He contends that “there is no question[,]” based on the selling agreement and Euclid’s direct contacts with Keating, “that a jury could find that Delta was acting as the agent of ... Euclid in connection with the offer and sale of the securities to Brooks.” We agree with the circuit court that neither the Selling Agreement nor the evidence regarding Euclid’s relationship with Delta and Keating raised a material factual dispute as to whether there was a principal-agency relationship at the time Keating invested in Euclid. 1. Selling Agreement A principal’s right to control its agent is of paramount importance, but that control may be exercised in myriad ways.

See Schear, 61 Md.App. at 687 , 487 A.2d 1240 . A principal need not exercise physical control over the actions of its agent in order for an agency relationship to exist; rather, the agent must be subject to the principal’s control over the result or ultimate objectives of the agency relationship.... The level of control may be very attenuated with respect to the details. However, the principal must have ultimate responsibility to control the end result of his or her agent’s actions; such control may be exercised by prescribing the agent’s obligations or duties before or after the agent acts, or both.

Green, 355 Md. at 507-08, 510 , 735 A.2d 1039 . The circuit court concluded that Delta operated as an independent contractor and that Delta, rather than any of the ⁵⁰⁸ Issuers, was responsible for supervising Keating and his representations to investors. The only control that Euclid had over the manner in which Delta and Keating represented the investment was through the terms of the Selling Agreement. That agreement explicitly required Delta and its agents to comply with applicable securities laws and to present the Offering Memo to all prospective subscribers.

Because these contractual requirements merely restated legally imposed duties governing every securities transaction, the Selling Agreement did not give Euclid sufficient control over Delta or Keating to create a principal-agent relationship. In Brooks’ view, the Selling Agreement raises an inference that Delta and Keating were Euclid’s agents. In support, Brooks points to specific terms- in that agreement providing that Delta could only offer and sell the securities to investors who met the financial suitability and other offeree standards set forth in the [Offering Memo]; Delta was prohibited from advertising the availability of securities by way of newspaper, television or media; Delta could only present prospective investors with written materials previously approved by [Euclid]; Delta was required to present prospective investors with the [Offering Memo] prior to sale; Delta was required to collect the Investor Subscription Documents and funds from prospective investors and forward them to [Euclid]; and Delta was required to ensure that the information contained on the subscription documents was accurate. We review these terms in the context of the entire Selling Agreement, and in light of the Offering Memo and subscription documents to which the Selling Agreement refers.

We are not persuaded that a reasonable juror could infer that the Selling Agreement created a principal-agent relationship between Euclid and either Delta or Keating. The Selling Agreement did not give Euclid the right to select, supervise, discipline, or train the individual registered representatives who worked for Delta. Thus, Euclid had no right to control Keating or other Delta employees. ⁵⁰⁹ Similarly, with respect to Delta, the agreement did not give Euclid the right to control Delta’s conduct. We agree with the circuit court that the terms Brooks cites as evidence of Euclid’s control over Delta merely required Delta and its agents to comply with either preferred practices in the private placement industry or applicable securities laws. 7 In this case, the critical term of the Selling Agreement was that the offering could not be made to unaccredited investors.

If not mandatory, that term is widely used throughout the securities industry by issuers attempting to secure and protect a Regulation D exemption from securities’ registration requirements, and to avoid lawsuits such as this one, in which an unaccredited investor rightfully complains that the high risk and illiquid investment was not suitable for his portfolio. See generally 17 C.F.R. § 280.502 (b) & note (although issuer is not required to furnish the specified information in Regulation D “when it sells securities ... to any accredited investor,” issuer nevertheless “should consider providing [the same information it would provide to unaccredited investors] to accredited investors as well, in view of the anti-fraud provisions of the federal securities laws”); COMAR 02.02.04.15.A(2)(of-fering that complies with Maryland and federal regulations governing exempt securities offerings is nevertheless not exempt from anti-fraud provisions of Maryland Securities Act). As for other terms of the Selling Agreement that Brooks cites as examples of “control” terms that were not specifically required by law, we do not view any of these terms as evidence of the type of control required to establish agency. ⁵¹⁰ In his reply brief, Brooks points out that “there are no federal or state securities laws which obligated ... Euclid to place” restrictions (1) prohibiting Delta from making comments inconsistent with the Offering Memo, or offering the securities in a manner inconsistent with the Offering Memo; (2) requiring that Delta have the prospective investor complete the subscription documents and then forward those documents and the deposit; (3) prohibiting Delta from using written materials that were not approved by Euclid; and (4) requiring Delta to maintain files on investors who purchased the securities.

All of these terms in the Selling Agreement were patently designed to preserve and protect the exempt status of the offering, and to ensure compliance with anti-fraud principles applicable to the offering, by ensuring that investors understood that Delta and its representatives did not have any authority to change the terms of the offering. In this respect, these terms actually undermine rather than support the agency inference that Brooks seeks to draw. The United States District Court for the District of Maryland reviewed a substantively identical selling agreement between Ridgewood and Delta in a suit filed by another investor victimized by Keating. In Schweizer v. Keating, 150 F.Supp.2d 830, 839-41 (D.Md.2001), that court rejected an analogous contention that these contract terms raised an inference that the issuer had a principal-agent relationship with Delta or Keating.

We concur with the federal court’s observation that “[t]he reservation of some control over the manner in which work is done does not destroy the independent contractor relationship where the contractor is not deprived of his judgment in the execution of his duties.” Id. at 840 (citing Taylor v. Local No. 7 Int’l Union of Journeymen Horseshoers, 353 F.2d 593 , 597 (4th Cir.1965)). We also concur with that court’s explanation of why these terms do not preclude summary judgment. As Judge Garbis emphasized for the federal court: In the ... sale of securities by private offering, the contractual provisions at issue are insufficient to establish ... the right to control Delta and its representatives. ⁵¹¹ Securities sold by private offering are subject to numerous “prophylactic” regulations designed to ensure that they are sold to informed, sophisticated investors. See generally Securities Act of 1933, as amended by Securities Exchange Act of 1934, 15 U.S.C. § 77a et seq.; 17 C.F.R. § 230.501 et seq.

Most of the “control” provisions identified by Plaintiff are identical to those imposed under the applicable securities laws, and enable the offering to retain exemption from registration. Plaintiff has not presented any evidence suggesting that the restrictions placed upon Delta and its employees were atypical of those imposed upon independent broker/dealers selling privately offered securities. Indeed, responsible issuers would be expected to include such contractual provisions in selling agreements and related documents in order to ensure compliance with the law. Delta and its representatives retained a significant degree of discretion in selecting potential investors to whom trust shares would be offered and the manner in which the investment would be presented to the prospective buyer; hence, there is no basis for a determination that they were deprived of their discretion.

Plaintiffs assertion that the ... Defendants controlled Delta and its representatives in a manner that is indicative of [an agency] relationship is without merit. Id. As more proof of control, Brooks cites the commissions that Delta and Keating received as a result of Brooks’ purchase of Euclid securities.

Under the terms of the Selling Agreement, however, such payments did not give Euclid the type of control that principals exercise over their agents. There were no “quotas” that Delta or Keating were contractually obligated to meet. Nor was there any commission or other payment for merely presenting the investment opportunity to a client. Moreover, at all times, Delta and its agents remained free to decide whether to recommend the investment.

For these reasons, we agree with the circuit court that no reasonable ⁵¹² juror could infer from the terms of Euclid’s Selling Agreement that Euclid had a principal’s right to control Delta or Keating. That freedom and discretion that Delta and Keating exercised over interactions with investor clients also undermines Brooks’ claim that Delta was obligated to act primarily for the benefit of Euclid. Delta and Keating were not contractually or financially obligated to recommend the Euclid offering to any of their clients. Nor were they required to perform any other services on Euclid’s behalf.

To the contrary, both the agreement and the incorporated terms of Euclid’s Offering Memo recognize that, as investment advisors acting as “purchaser representatives,” Delta and Keating were obligated to act primarily for the benefit of their investor clients. Thus, their primary duty was not to sell Euclid’s securities, but rather to give Brooks appropriate advice and assistance in finding suitable investments for his retirement money. See, e.g., Brewster v. Maryland Sec. Comm’r, 76 Md.App. 722, 726-27 , 548 A.2d 157 (1988), cert. denied, 490 U.S. 1098 , 109 S.Ct. 2449 , 104 L.Ed.2d 1004 (1989)(“ ‘In recommending to a customer the purchase, sale or exchange of any security, a [registered representative] shall have reasonable grounds for