Lamm v. State Street Bank & Trust Co.

889 F. Supp. 2d 1321, 2012 U.S. Dist. LEXIS 135008, 2012 WL 3828287
CourtDistrict Court, S.D. Florida
DecidedAugust 21, 2012
DocketCase No. 12-CV-80317
StatusPublished
Cited by20 cases

This text of 889 F. Supp. 2d 1321 (Lamm v. State Street Bank & Trust Co.) is published on Counsel Stack Legal Research, covering District Court, S.D. Florida primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Lamm v. State Street Bank & Trust Co., 889 F. Supp. 2d 1321, 2012 U.S. Dist. LEXIS 135008, 2012 WL 3828287 (S.D. Fla. 2012).

Opinion

ORDER GRANTING MOTION TO DISMISS COMPLAINT

KENNETH L. RYSKAMP, District Judge.

THIS CAUSE comes before the Court on defendant State Street Bank & Trust Company’s motion to dismiss complaint [DE 9] filed on May 14, 2012. Plaintiff Douglas Lamm filed a response in opposition [DE 24] on June 18, 2012. Defendant filed a reply [DE 27] on June 29, 2012. This matter is ripe for adjudication.

I. Background1

In 2001, Plaintiff hired James Tagliaferri and his investment firm Taurus Advisory Group, LLC (“TAG”) as his investment advisers.2 Plaintiff entrusted a significant portion of his assets to TAG, authorizing TAG to exercise discretion in the purchase, sale, exchange, and disposition of stocks, bonds, and other securities on his behalf. In accordance with the SEC Rules and Regulations which prohibit investment advisers from having direct custody of client funds and securities, Plaintiff established two custody accounts for the holding and disposition of This assets.3 The first account is governed by a custody account agreement entered into by Plaintiff and Chase Manhattan Bank on January 30, 2001 (the “Chase Agreement”). The second account is an Investment Retirement Account (IRA) and is governed by a separate custody agreement entered into by Plaintiff and Investors Bank & Trust Company on December 6, 2002 (the “IRA Agreement”).4 In 2007, State Street Bank & Trust Company (“State Street”) took over both custody accounts and assumed the obligations of the custody agreements.

From November 2007 to November 2009, TAG, without Plaintiffs consent, engaged in a series of transactions whereby Plaintiffs conservative investments were replaced with purported securities of micro-cap companies and personal loans to friends of Tagliaferri. Upon TAG’S instructions, State Street disbursed funds from Plaintiffs accounts in order to effectuate these transactions. In return, State Street received and accepted promissory notes signed by TAG, some of which were made payable to “Hunter & Co.,” a company with the same address as TAG. Each of these transactions was reported to Plaintiff in the monthly account statements prepared by State Street pursuant to its obligations under the custody agreements.

On April 28, 2011, State Street sent Plaintiff a letter stating the following:

[1325]*1325Beginning with your account statement for September of 2010, we have been including a notice each month highlighting that illiquid, thinly traded and/or private placement securities listed in your account were past due or otherwise past their stated date of maturity and/or that the valuations reported for such assets were provided by your investment manager, TAG Virgin Islands, Inc. (TAG). Despite our repeated attempts to obtain updated valuations or confirmation that we should continue to use the previously reported valuations, we have not received valuation instructions from TAG for these assets since November 30, 2010 and, in the case of warrants valued by TAG, since July 30, 2010.
As a result of our inability to obtain current valuations from TAG, we will no longer assign a value to the above referenced assets commencing with your April 2010[sic] account statement. The account statement will indicate a value of zero with respect to these assets. Please note that the valuation of these assets as zero in your statement does not represent an assessment by us of the fair value of these assets but rather serves only to reflect the fact that TAG has not supplied us with current valuations. As previously indicated, we do not provide independent valuations for illiquid, thinly traded and/or private placement securities. We will be including an insert with your account statement describing the above valuation practice in relation to the relevant assets in your account.

The promissory notes deposited by TAG into Plaintiffs accounts were ultimately discovered to be fraudulent, and Plaintiff had “invested” over $1 million in worthless securities and mortgages. Plaintiff now seeks to recover his damages from State Street. According to Plaintiff, State Street “allowed TAG to defraud Plaintiff’ by turning a “blind eye” to TAG’S activities and accepting notes which were “obviously fraudulent on their face.” Plaintiffs seven-count complaint contains claims for breach of express contract, breach of implied contract, breach of fiduciary duty, negligence, gross negligence, aiding and abetting breach of fiduciary duty, and aiding and abetting fraud. Each count contains allegations that State Street breached its duties by (a) accepting the fraudulent promissory notes; (b) failing to notify Plaintiff that certain purported promissory notes were signed by TAG rather than the purported obligor; (c) failing to notify Plaintiff that certain purported promissory notes were executed in favor of Hunter & Co. rather than Plaintiff; (d) disbursing funds to purchase securities without timely receipt of stock certificates in exchange; (e) disbursing funds to other, unknown accounts without receipt of any securities in exchange; (f) reporting false CUSIP numbers on Plaintiffs monthly account statements; (g) reporting inaccurate, inflated, or false market values for the assets held in Plaintiffs accounts; (h) charging excessive custodial fees based on the inaccurate, inflated, or false market values; (i) failing to perform the auditing, reporting, and custodial duties required of IRA custodians; and (j) otherwise failing to notify Plaintiff and the SEC of the “obvious fraud” committed by TAG.

State Street moves to dismiss Plaintiffs complaint in its entirety, arguing that it had a strictly ministerial role as account custodian, and that Plaintiff has failed to allege conduct giving rise to a breach of its duties under the custody agreements. State Street has set forth multiple arguments in support of dismissal, each of which will be addressed in turn.

II. Legal Standard

In order to state a claim for relief, Federal Rule of Civil Procedure Rule 8(a) [1326]*1326requires only “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). When considering a motion to dismiss, the Court must accept all of the plaintiffs allegations as true. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). However, the Court need not accept legal conclusions as true. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Further, “a court’s duty to liberally construe a plaintiffs complaint in the face of a motion fo dismiss is not the equivalent of a duty to re-write it for [him].” Peterson v. Atlanta Hous. Auth., 998 F.2d 904, 912 (11th Cir.1993).

“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

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889 F. Supp. 2d 1321, 2012 U.S. Dist. LEXIS 135008, 2012 WL 3828287, Counsel Stack Legal Research, https://law.counselstack.com/opinion/lamm-v-state-street-bank-trust-co-flsd-2012.