KENNETH L. RYSKAMP, District Judge.
In 2001, Plaintiff hired James Tagliaferri and his investment firm Taurus Advisory Group, LLC ("TAG") as his investment advisers.
From November 2007 to November 2009, TAG, without Plaintiff's consent, engaged in a series of transactions whereby Plaintiff's 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 Plaintiff's 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:
The promissory notes deposited by TAG into Plaintiff's 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." Plaintiff's 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 Plaintiff's monthly account statements; (g) reporting inaccurate, inflated, or false market values for the assets held in Plaintiff's 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 Plaintiff's 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.
In order to state a claim for relief, Federal Rule of Civil Procedure Rule 8(a)
"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. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the `grounds' of his `entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citations omitted). "Factual allegations must be enough to raise a right to relief above the speculative level." Id.
Despite the leniency of the general standard, Federal Rule of Civil Procedure 9(b) provides that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." "This Rule serves an important purpose in fraud actions by alerting defendants to the `precise misconduct with which they are charged' and protecting defendants against spurious charges of immoral and fraudulent behavior." Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1370-71 (11th Cir.1997). Rule 9(b) is satisfied when the complaint sets forth: (1) precisely what statements were made in what documents or oral representations or what omissions were made; (2) the time and place of each statement and the person responsible for making (or in the case of omissions, not making) same; (3) the content of such statements and the manner in which they misled the plaintiff; and (4) what the defendants obtained as a consequence of the fraud. Id. at 1371.
Federal courts sitting in diversity jurisdiction must apply the substantive law of the forum state (Florida), including its choice of law rules. Westerman v. Sears, Roebuck & Co., 577 F.2d 873, 878 (5th Cir.1978). Under Florida law, a contractual choice-of-law provision is enforceable "unless the law of the chosen forum contravenes strong public policy." Maxcess, Inc. v. Lucent Techs., Inc., 433 F.3d 1337, 1341 (11th Cir.2005). In this case, the custody agreements contain choice-of-law provisions which state that "This Agreement shall be governed by the laws of the State of New York." The Court will thus apply New York law to Plaintiffs contract claims.
These narrow choice-of-law provisions do not, however, encompass Plaintiff's tort claims. See Green Leaf Nursery v. E.I DuPont De Nemours & Co., 341 F.3d 1292, 1300-01 (11th Cir.2003). The Court must therefore turn to Florida's "most significant relationship" test to determine which state's laws govern. Id. at 1301. Under this test, courts consider
"A breach of contract claim under New York law requires the plaintiff to allege: `(1) the existence of a contract, (2) performance by the party seeking recovery, (3) non-performance by the other party, and (4) damages attributable to the breach.'" Schlessinger v. Valspar Corp., 817 F.Supp.2d 100, 105 (E.D.N.Y.2011). State Street does not dispute that the custody agreements are valid contracts.
It is well-established that agreements are to be construed in accordance with the parties' intent. Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 750 N.Y.S.2d 565, 780 N.E.2d 166, 170 (2002). "The best evidence of what parties to a written agreement intend is what they say in their writing." Id. "Thus, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." Id. "A primary factor to be considered in any attempt to interpret a contract is the purpose of the parties in making the contract." Wing Ming Properties (U.S.A.) Ltd. v. Mott Operating Corp., 148 Misc.2d 680, 561 N.Y.S.2d 337, 340 (Sup. Ct.1990). If the parties' over-all intention is clear from the document, individual provisions are to be construed in a way which will carry out the plain purpose and object of the agreement. Kass v. Kass, 91 N.Y.2d 554, 673 N.Y.S.2d 350, 696 N.E.2d 174, 181 (1998); Cromwell Towers Redevelopment Co. v. City of Yonkers, 41 N.Y.2d 1, 390 N.Y.S.2d 822, 359 N.E.2d 333, 337 (1976). A contracting party's duties are limited to those expressly provided for in the agreement, and courts are to not read in additional duties "unless it can be clearly implied from the language and purpose
The custody agreements at issue in this case expressly state that Plaintiff's accounts were established "for the purpose of holding or disposing of any property" received by the custodian, State Street.
The parties 1 rights and obligations with respect to the monthly account statements are contained in Paragraph 19 of the agreements, which provides:
Paragraph 20, titled "Custodian Responsibility," provides in relevant part:
It is apparent that State Street's role as custodian was merely administrative, and that State Street's only investment duties were to carry out the instructions given by Plaintiff or TAG. There is nothing in the custody agreements which required State Street to ensure timely delivery of property into the account or to confirm the validity of the promissory notes received. The only discretionary authority State Street held with respect to investments is found in the Reservation of Right clauses, which provide:
However, these clauses did not create an affirmative duty for State Street to validate each transaction. As the title implies, State Street was merely granted the right to refuse acceptance of certain investments. Further, the custody agreements clearly and unambiguously disclaim any duties to supervise account investments or to take other actions not specifically required by the agreement. The Court finds that Plaintiff has failed to state a claim for breach of contract with respect to State Street's disbursement of funds and settlement of account transactions, each of which was undisputedly done at TAG's direction,
Furthermore, the custody agreements specifically exempt State Street from liability for any acts and omissions in reliance on instructions which State Street subjectively and in good faith believed were given by Plaintiff or by someone acting on Plaintiff's behalf, unless such reliance was the result gross negligence or willful misconduct.
As to State Street's reporting obligations, the custody agreements only required State Street to provide Plaintiff with monthly statements containing the account transactions, a list of the securities in the account, and any available market value information obtained from sources which State Street believed to be reliable. Accordingly, State Street's failure to disclose any other information, such as the fact that the promissory notes bore TAG's signature rather than that of the purported issuer, cannot give rise to a breach. The fact that the market values in the monthly statements were false or inaccurate also does not give rise to a breach, as State Street had no duty to validate the CUSIP numbers or otherwise investigate the accuracy of the information provided by TAG. Indeed, the custody agreements expressly disclaimed any guarantees as to the accuracy of the reported market values.
Plaintiff's failure to comply with the notice requirements contained in the custody agreements is also fatal to his breach of contract claims based on the monthly account statements. The agreements clearly and unequivocally release State Street from liability for all items in the monthly statements if after sixty days Plaintiff has failed to give written notice of objection.
With respect to the allegedly excessive fees charged to Plaintiff's accounts, the custody agreements authorized State Street to charge "for all fees and expenses incurred in connection with the Account and for custodian fees based on the custodian fee schedule in effect from time to time." The complaint does not allege that State Street did not comply with the fee schedule set by the agreement. Rather,
In sum, Plaintiff has failed to allege a breach of State Street's duties under the custody agreements. The Court may not read into the agreements the additional duties claim by Plaintiff, as doing so would not only be inconsistent with the their plain purpose, but would also contradict the provisions which clearly and unambiguously limit State Street's duties to those expressly provided for in the agreements. Accordingly, Plaintiff's breach of contract claims must be dismissed.
Florida's economic loss rule provides that "parties to a contract can only seek tort damages if the alleged tortious conduct constitutes a tort distinct from the parties' contractual rights and obligations." SFM Holdings, Ltd. v. Banc of Am. Sec., LLC, No. 06-80652-CIV-RYSKAMP, 2007 WL 7124464, at *8 (S.D.Fla. Feb. 12, 2007), aff'd, 600 F.3d 1334 (11th Cir.2010).
Plaintiff is also unable to establish that State Street owed Plaintiff fiduciary duties. Under Florida law, banks ordinarily do not owe fiduciary duties to their customers. Jaffe v. Bank of Am., N.A., 667 F.Supp.2d 1299, 1319 (S.D.Fla.2009) (citing Motorcity of Jacksonville, Ltd. v. Se. Bank N.A., 83 F.3d 1317, 1339 (11th Cir.1996)). "One may not... unilaterally impose a fiduciary relationship
In order to establish a claim for aiding and abetting, the plaintiff must establish that that the aider and abettor had knowledge of the underlying breach of fiduciary duty or fraud, and that the aider and abettor substantially assisted or encouraged commission of the breach or fraud. In re Caribbean K Line, Ltd., 288 B.R. 908, 919 (S.D.Fla.2002); Hines v. FiServ, Inc., No. 808-CV-2569-T-30AEP, 2010 WL 1249838, at *4 (M.D.Fla. Mar. 25, 2010). "In order for a claim of aiding and abetting to survive a motion to dismiss, the plaintiff must allege that the defendant had actual knowledge of the underlying wrongdoing." Lawrence v. Bank of Am., N.A., No. 8:09-CV-2162-T-33TGW, 2010 WL 3467501, at *3 (M.D.Fla. Aug. 30, 2010). "[W]hile the element of actual knowledge may be alleged generally, the plaintiff still must accompany that general allegation with allegations of specific `facts that give rise to a strong inference of actual knowledge regarding the underlying fraud.'" Id. (quoting Rosner v. Bank of China, No. 06 CV 13562, 2008 WL 5416380, at *5 (S.D.N.Y. Dec. 18, 2008)). See also Court Appointed Receiver of Lancer Offshore, Inc. v. Citco Group Ltd., No. 05-60080CIV, 2008 WL 926513, at *6 (S.D.Fla. Mar. 31, 2008). "Conclusory statements that a defendant `actually knew' [are] insufficient to support an aiding and abetting claim where the facts in the complaint only suggest that the defendant `should have known that something was amiss.'" Platinum Estates, Inc. v. TD Bank, N.A., No. 11-60670-CIV, 2012 WL 760791, at *3 (S.D.Fla. Mar. 8, 2012) (alterations omitted).
The courts in both Rosner and Citco Group found allegations that a bank's disregard of "obvious red flags" such as atypical and non-routine banking transactions were insufficient to establish the conscious awareness of wrongdoing necessary to maintain an aiding and abetting cause of action. Plaintiff's claims which are premised on the same theory also fail. Though Plaintiff has generally alleged actual knowledge, the factual allegations at most establish that State Street
The Court has carefully considered the motion, response, reply, applicable law, and pertinent portions of the record. For the foregoing reasons, it is hereby
Plaintiff's allegations that State Street violated its IRA custodial duties pursuant to 26 U.S.C. § 408 of the Internal Revenue Code do not fare any better. Numerous courts have held that "there is no implied cause of action against allegedly errant IRA fiduciaries under Section 408 of the Internal Revenue Code." Grund v. Delaware Charter Guarantee & Trust Co., 788 F.Supp.2d 226, 235 (S.D.N.Y.2011). "Section 408 of the Code does no more than establish a framework whereby individuals may obtain favorable tax treatment." Id. "[S]ection 408 does not impose a specific duty of care requiring an IRA custodian to prevent a customer from making unwise investment decisions or to exceed the agreed-upon duties set forth in the IRA Agreements." Mandelbaum v. Fiserv, Inc., 787 F.Supp.2d 1226, 1237 (D.Colo.2011).
