GunBroker.com, an online firearms marketplace, hired Tenor Capital Partners, a financial firm, to help establish an Employee Stock Ownership Plan (ESOP). The agreement outlined three stages: analysis and structuring, financing, and closing. Tenor performed the first stage, providing a company valuation and financial analysis, but did so without registering as an investment adviser with the SEC or the state of Georgia. After Tenor secured a term sheet for financing, GunBroker terminated the relationship and proceeded with a different financing deal. Tenor sued for unpaid fees, while GunBroker countersued, alleging Tenor violated the Investment Advisers Act and the Georgia Securities Act by acting as an unregistered adviser and breached fiduciary duties. The district court granted summary judgment to Tenor on the fiduciary duty claim, relying on a contract clause disclaiming any fiduciary relationship, and dismissed the Georgia Securities Act claim. A jury later awarded Tenor $1.5 million on a counterclaim for unjust enrichment regarding the financing services. GunBroker appealed these rulings.
The Eleventh Circuit addressed three primary issues. First, regarding the breach of fiduciary duty, the court held that the Investment Advisers Act imposes a statutory fiduciary duty on any person acting as an investment adviser, regardless of registration status. The court reasoned that this duty arises from federal law, not the contract itself. Consequently, a contractual disclaimer stating that no fiduciary relationship exists is ineffective to waive these statutory obligations. The court noted that the Act explicitly voids any provision binding a person to waive compliance with its provisions. Second, on the Georgia Securities Act claim, the court affirmed the district court's dismissal. Although the exemption for having fewer than six clients in Georgia was raised late as an affirmative defense, the court found no prejudice to GunBroker because Tenor had provided notice of the defense during the motion for reconsideration, allowing GunBroker to respond. Third, concerning the unjust enrichment claim, the court reversed the jury's verdict. Under Georgia law, recovery for unjust enrichment is barred if the contract is void in its entirety due to illegality. The court found the contract void because it involved a violation of the Investment Advisers Act. Furthermore, the court determined that Tenor's stage-two financing services could not be severed from the illegal stage-one advice. Tenor's financing pitch relied entirely on the valuation and analysis generated during the illegal stage-one services. Because Tenor could not establish its claim for unjust enrichment without relying on the illegal investment advice, the claim failed as a matter of law.
The case is remanded to the district court for further proceedings. The breach of fiduciary duty claim must be tried on the merits, as the summary judgment based on the contract disclaimer is vacated. The unjust enrichment claim is reversed, meaning GunBroker is entitled to judgment on that counterclaim, and Tenor cannot recover the $1.5 million verdict. The Georgia Securities Act claim remains dismissed. The decision clarifies that investment advisers cannot contract away their federal fiduciary duties and that equitable claims for payment are unavailable when the underlying services are inextricably linked to illegal unregistered advice.