Opinion
05 Civ. 10264 (RMB).
July 25, 2006
DECISION ORDER
I. Introduction
On or about February 21, 2006, "Carolyn Nay, as Guardian of Alfred Thiele" ("Plaintiff") filed an Amended Complaint against Merrill, Lynch, Pierce, Fenner Smith, Inc. ("Merrill Lynch") and Independence Community Bank ("Independence," and, collectively, "Defendants"), alleging that Defendants allowed a "systematic looting" of Thiele's "substantial accounts" by his housekeeper, Marta Consuelo Lopez, and her son-in-law, Juan Carlos DeNegri. (Amended Complaint, dated February 21, 2006 ("Am. Compl."), ¶¶ 1-4, 11-13, 20-21 ("Ms. Lopez and Mr. DeNegri looted Mr. Thiele's Merrill Lynch account in the sum of $262,233.69, using Merrill Lynch Cash Management Account (CMA) checks and a Merrill Lynch Visa Card. Defendant Independence Community Bank permitted Mr. DeNegri and Ms. Lopez to loot at least $98,594 from Mr. Thiele's [Independence] account despite the fact that they knew him to be incapacitated.").) Plaintiff alleges that: (A) Merrill Lynch violated "the Securities Laws of the United States," particularly Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) ("Section 10(b)"), "in [its] agreement with Marta Consuelo Lopez and Juan Carlos DeNegri to loot, defraud and convert the Merrill Lynch accounts of Alfred Thiele and to misapply the same by wrongfully giving said monies to Marta Consuelo Lopez and Juan Carlos DeNegri;" (B) Defendants "acting in concert and conspiracy with Marta Consuelo Lopez [and] Juan Carlos DeNegri, committed the tort of fraud . . . to [Thiele's] damage in the sum of $98,594 for the loss of his [Independence] account funds and in the sum of $262,233.69 in his Merrill Lynch account funds;" (C) Defendants "acting in concert and conspiracy with Marta Consuelo Lopez and Juan Carlos DeNegri, committed the tort of conversion . . . to [Thiele's] damage in the sum of $98,594 wrongfully taken from . . . Alfred Thiele's [Independence] accounts and $262,233.69 from . . . Alfred Thiele's Merrill Lynch accounts;" (D) Defendants "acting in concert and conspiracy with Marta Consuelo Lopez and Juan Carlos DeNegri, violated their fiduciary duty to Alfred Thiele in that they permitted funds entrusted to them by Alfred Thiele to come into the hands of Marta Consuelo Lopez and Juan Carlos DeNegri despite the fact that they knew or should have known that said funds did not belong to Marta Consuelo Lopez or Juan Carlos DeNegri, all to [Thiele's] damage in the sum of $98,594 from his [Independence] account and $262,233.69 from his Merrill Lynch account;" and (E) Defendants' actions "constitutes misconduct so outrageous and abusive as to entitle [Plaintiff] to punitive and exemplary damages from [D]efendants in the sum of Ten Million Dollars ($10,000,000)." (Am. Compl. ¶¶ 23-32.)
On or about March 7, 2006, Defendants moved to dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure ("Fed.R.Civ.P.") 12(b)(6) (Notice of Motion to Dismiss, dated March 7, 2006; Affirmation [of Steven G. Leventhal] in Support of Defendant's Motion to Dismiss, dated March 7, 2006; Notice of Joinder by Independence Community Bank of New York in Merrill Lynch, Pierce, Fenner Smith, Inc.'s Motion to Dismiss the Amended Complaint, dated March 7, 2006; Declaration [by Steven S. Rand] in Support of Independence Community Bank's Motion to Join Co-Defendants Merrill, Lynch, Pierce Fenner Smith, Inc. on its Motion to Dismiss the Amended Complaint, dated March 7, 2006; Memorandum of Law in Support of Defendant's Motion to Dismiss, dated March 7, 2006 ("Def. Mem.")) arguing that: (A) Plaintiff has "not alleged any facts related to the sale or purchase of securities" or that Merrill Lynch "made any misstatement or omission of a material fact;" (B) Plaintiff has not alleged that Defendants "made any false representation of a material fact with the intent to defraud Mr. Thiele, or that Mr. Thiele relied on a false representation of either [D]efendant;" (C) "[f]unds deposited in a bank account are not sufficiently specific and identifiable . . . to support a claim for conversion against the bank" and "[t]he same principle has been applied to conversion claims brought by customers of other financial institutions, such as brokerage houses;" (D) "there is no general fiduciary duty inherent in the ordinary relationship between a broker and its customer" or "between a bank and its depositor;" and (E) "New York does not recognize a separate cause of action for punitive damages." (Def. Mem. at 1, 3, 5, 6-7, 9, 10.)
On or about March 22, 2006, Plaintiff filed an opposition (Plaintiff's Memorandum of Law in Opposition to Defendants' Motion to Dismiss, dated March 22, 2006 ("Pl. Mem."); Affidavit of Carolyn Nay, dated November 17, 2005) arguing that (A) "Merrill Lynch . . . KNEW that Mr. Thiele's accounts at Merrill Lynch were being looted . . . [and] nevertheless permitted same to go on;" (B) Defendants failed to act "with any morality whatsoever;" (C) Defendants "enabled the accounts of a long-term aged customer to be looted despite their actual knowledge of the looting;" (D) Defendants "were fiduciaries for Mr. Thiele, the elderly plaintiff who entrusted his life savings to these two large financial institutions;" and (E) "punitive damages are . . . appropriate" because Defendants "were . . . indifferent and [acted] with reckless disregard for [Thiele's] life savings." (Pl. Mem. at 8, 10, 11, 12.) On or about March 29, 2006, Defendants filed a reply. (Reply Memorandum of Law in Support of Defendant's Motion to Dismiss [F.R. Civ. P. 12(b)(6)], dated March 29, 2006 ("Def. Reply").)
For the reasons set forth below, Defendants' motion to dismiss is granted.
II. Legal Standard
When considering a motion to dismiss pursuant to Fed.R.Civ.P. Rule 12(b)(6), the Court "must accept the factual allegations of the complaint as true and must draw all reasonable inferences in favor of the plaintiff." Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir. 1996). However, "[d]ismissal for failure to state a claim is proper where it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d Cir. 2002) (internal quotation marks omitted).
"[T]he parties' briefs assume that New York law controls, and such implied consent . . . is sufficient to establish choice of law [with respect to state law claims]." See Motorola Credit Corp. v. Uzan, 388 F.3d 39, 61 (2d Cir. 2004) (quoting Krumme v. WestPoint Stevens, Inc., 238 F.3d 133, 138 (2d Cir. 2000) andTehran-Berkeley Civil Envtl. Eng'rs v. Tippetts-Abbett-McCarthy-Stratton, 888 F.2d 239, 242 (2d Cir. 1989)) (internal quotation marks omitted).
III. Analysis
(A) Violation of Federal Securities Laws
"In order to state a claim for securities fraud under Section 10(b) . . . a plaintiff must establish that `the defendant, in connection with the purchase or sale of securities, made a materially false statement or omitted a material fact, with scienter, and that the plaintiff's reliance on the defendant's action caused injury to the plaintiff.'" Lawrence v. Cohn, 325 F.3d 141, 147 (2d Cir. 2003) (quoting Ganino v. Citizens Utils. Co., 228 F.3d 154, 161 (2d Cir. 2000)). "Any fraud must be pled with particularity [pursuant to Fed.R.Civ.P.] 9(b); but the rule is applied assiduously to securities fraud." Lentell v. Merrill Lynch Co., Inc., 396 F.3d 161, 168 (2d Cir. 2005); see also In re Nokia Oyj (Nokia Corp.) Sec. Litig., 423 F. Supp. 2d 364, 391 (S.D.N.Y. 2006) ("The Second Circuit has established that to state a claim for relief under Section 10(b) . . . Rule 9(b) requires a complaint to: (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.") (internal quotation marks omitted).
Here, what Plaintiff has alleged, however unfortunate the circumstances may have been, is not securities fraud. See Coppola v. Applied Elec. Corp., No. 98 Civ. 3149, 1998 WL 667934, at *3 (E.D.N.Y. Aug 3, 1998) ("[A] court should be reluctant to imply a 10b-5 cause of action for wrongs that do not fall within Section 10(b)'s fundamental purpose of requiring full and fair disclosure to participants in securities transactions of information that would be useful to them in deciding whether to buy or sell securities."); Bochicchio v. Smith Barney, Harris Upham Co., Inc., 647 F. Supp. 1426, 1430 (S.D.N.Y. 1986) ("Where the underlying claim is, in essence, one of state law and where no actual securities transactions are involved, . . . the securities laws should be read as narrowly as tenable."). First, the allegations in the Amended Complaint do not pertain to the purchase or sale of a security. See Anatian v. Coutts Bank (Switzerland) Ltd., 193 F.3d 85, 88 (2d Cir. 1999) (citingChemical Bank v. Arthur Andersen Co., 726 F.2d 930, 943 (2d Cir. 1984)); Lenczycki v. Shearson Lehman Hutton, Inc., No. 88 Civ. 9262, 1990 WL 151137, at *6 (S.D.N.Y. Sept. 29, 1990) ("Lenczycki's complaint does not properly allege misrepresentation in the actual purchase or sale of securities. . . . [A] suit under the securities laws is limited to actual buyers or sellers of securities."). Indeed, "[n]o particular security is even mentioned or alluded to in the [Amended] Complaint." See Bochicchio, 647 F. Supp. at 1430; see also Bissell v. Merrill Lynch Co., Inc., 937 F. Supp. 237, 242-44 (S.D.N.Y. 1996); Bochicchio, 647 F. Supp. at 1430.
Second, Plaintiff fails to allege that Merrill Lynch "made any misrepresentation or omission of a material fact." See Bildstein v. Dreyfus/Laurel Funds, Inc., No. 97 Civ. 8919, 1999 WL 177349, at *4 (S.D.N.Y. Mar. 31, 1999). Nowhere in the Amended Complaint does Plaintiff allege a misrepresentation by Merrill Lynch, (see Am. Compl. ¶¶ 1-22), nor does Plaintiff allege a material omission. In fact, Plaintiff acknowledges that Merrill Lynch took measures to protect Thiele. (Am. Compl. ¶¶ 13-16.) Merrill Lynch representatives contacted Mr. Thiele between June 31, 2001 and September 2, 2004 in connection with the alleged "looting of Mr. Thiele's Merrill Lynch account." (Am. Compl. ¶ 13.) And, Plaintiff confirms that "[o]n or about April 3, 2003, a Merrill Lynch representative made the following entry in the Merrill Lynch journal: `Met with Mr. Thiele in his home. . . . We discussed the ATM transactions and checks written since June 2002 of which he was unaware." (Am. Compl. ¶ 16). "[C]urrent law and SEC regulations impose no duty on [Merrill Lynch to] disclose more than [it] did," see In re Merrill Lynch Mgmt. Funds Sec. Litig., No. 04 Civ. 3759, 2006 WL 1628005, at *3 (S.D.N.Y. June 12, 2006), and Plaintiff's federal securities claim "must be dismissed for failure to state a claim upon which relief can be granted." See Bochicchio, 647 F. Supp. at 1430; see also Coppola, 1998 WL 667934, at *3; Bissell, 937 F. Supp. at 244.
Having found neither a connection to the purchase or sale of securities nor a material misrepresentation or omission on the part of Merrill Lynch, "the Court need not determine whether the remaining elements of [Plaintiff's] Section 10(b) . . . claim have been alleged sufficiently or whether [Plaintiff's] fraud allegations otherwise meet the specificity requirements of Rule 9." See Greenwald v. Orb Commc'ns Mktg., Inc., 192 F. Supp. 2d 212, 228 (S.D.N.Y. 2002).
And, although Plaintiff alleges that Merrill Lynch acted "in concert and conspiracy" to violate Rule 10(b), any conspiracy claim must be dismissed because Plaintiff has failed to properly allege "an underlying securities violation." See Borden, Inc. v. Spoor Behrins Campbell Young, Inc., 778 F. Supp. 695, 701 (S.D.N.Y. 1991).
(B) Fraud
"Under New York law, to state a claim for fraud a plaintiff must demonstrate: (1) a misrepresentation or omission of material fact; (2) which the defendant knew to be false; (3) which the defendant made with the intention of inducing reliance; (4) upon which the plaintiff reasonably relied; and (5) which caused injury to the plaintiff." Wynn v. AC Rochester, 273 F.3d 153, 156 (2d Cir. 2001). "Fraud must be pled with particularity, Fed.R.Civ.P. 9(b), which requires that the plaintiff (1) detail the statements (or omissions) that the plaintiff contends are fraudulent, (2) identify the speaker, (3) state where and when the statements (or omissions) were made, and (4) explain why the statements (or omissions) are fraudulent." Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 187 (2d Cir. 2004) (internal quotation marks omitted).
Plaintiff does not allege that either Defendant made affirmative misrepresentations. (See Am. Compl. ¶¶ 1-22.) "Where, as here, no affirmative misrepresentation is alleged, it is incumbent upon the party charging fraud to establish that there was a duty to disclose the omitted fact. This duty usually arises when the plaintiff and the defendant have a fiduciary or other similar confidential relationship between them." See Newbro v. Freed, 409 F. Supp. 2d 386, 400 (S.D.N.Y. 2006). "[I]n the absence of a confidential or fiduciary relationship between [the parties] imposing a duty to disclose, [defendant's] mere silence, without some act which deceived [plaintiff] cannot constitute a concealment that is actionable as fraud."Rosenblatt v. Christie, Manson Woods, Ltd., No. 04 Civ. 4205, 2005 WL 2649027, at *10 (S.D.N.Y. Oct. 14, 2005) (brackets in original).
Here, Independence was not a fiduciary vis-a-vis Mr. Thiele because "[t]he relationship between a bank and its depositor is not a fiduciary one, but only that of a debtor and creditor."See Ryan v. Hunton Williams, No. 99 Civ. 5938, 2000 WL 1375265, at *10 (E.D.N.Y. Sept. 20, 2000); see also Banque Arabe et Internationale D'Investissement v. Maryland Nat'l Bank, 57 F.3d 146, 158 (2d Cir. 1995) ("Generally, banking relationships are not viewed as special relationships giving rise to a heightened duty of care."); Mfrs. Hanover Trust Co. v. Yanakas, 7 F.3d 310, 318 (2d Cir. 1993) ("Under New York law, the usual relationship of bank and customer is that of debtor and creditor, and does not create a fiduciary relationship.") (quoting Aaron Ferer Sons Ltd. v. Chase Manhattan Bank, N.A., 731 F.2d 112, 122 (2d Cir. 1984)). The Amended Complaint "does not allege facts indicating that [Independence's] actions were designed to instill a special relationship apart from the ordinary debtor/creditor relationship." See Bauer v. Mellon Mortgage Co., 680 N.Y.S.2d 397, 401 (N.Y.Sup.Ct. 1998); see also Tevdorachvili v. Chase Manhattan Bank, 103 F. Supp. 2d 632, 640 (E.D.N.Y. 2000) ("Plaintiff claims that Chase breached a fiduciary duty to him, but he has failed to allege any factual circumstance about his relationship with Chase that might support such a claim. Indeed, he has failed to allege anything more than a relationship of depositor to bank — precisely the contractual sort of relationship that, by itself, supports no further allegation of fiduciary breach.").
Likewise, Merrill Lynch was not a fiduciary, because "[u]nder New York law, the mere existence of a broker-customer relationship is not proof of its fiduciary character." See Bissell, 937 F. Supp. at 246 ("The fiduciary obligation between a broker and customer under New York law is limited to affairs entrusted to the broker, and the scope of affairs entrusted to a broker is generally limited to the completion of a transaction.") (internal brackets and quotation marks omitted); see also Indep. Order of Foresters v. Donald, Lufkin Jenrette, Inc., 157 F.3d 933, 940 (2d Cir. 1998) (same). "In the absence of discretionary trading authority delegated by the customer to the broker — and none is alleged in the case at bar — a broker does not owe a general fiduciary duty to his client." See Bissell, 937 F. Supp. at 246.
Plaintiff argues that Defendants were fiduciaries to Mr. Thiele, "the elderly plaintiff who entrusted his life savings to these two large financial institutions," (see Pl. Mem. at 10), but under New York law, even a "long-standing relationship" with a financial institution, coupled with a customer's "advanced age and deteriorating health" does not, without more, create a fiduciary relationship. See Backer v. Schenectady Trust Co., 628 N.Y.S.2d 197, 199 (N.Y.App.Div. 1995). Accordingly, "the other elements required to prove fraud need not be considered,"see W. Tsusho Co., Ltd. v. Prescott Bush Co., Inc., No. 92 Civ. 3378, 1993 WL 228072, at *3 (S.D.N.Y. June 23, 1993), and Plaintiff's fraud claim is dismissed. See Newbro, 409 F. Supp. 2d at 400-01; Rosenblatt, 2005 WL 2649027, at *10.
(C) Conversion
Under New York law, "[c]onversion occurs when a defendant exercises unauthorized dominion over personal property in interference with a plaintiff's legal title or superior right of possession." LoPresti v. Terwilliger, 126 F.3d 34, 41 (2d Cir. 1997) (internal quotation marks omitted). "An action for converting money may be asserted only when `there is a specific, identifiable fund and an obligation to return or otherwise treat in a particular manner the specific fund in question.'"Nwachukwu v. Chem. Bank, No. 96 Civ. 5118, 1997 WL 441941, at *5 (S.D.N.Y. Aug. 6, 1997) (quoting Mfrs. Hanover Trust Co. v. Chem Bank, 559 N.Y.S.2d 704, 712 (N.Y.App.Div. 1990)).
Plaintiff's conversion claim against Independence "fails, as a matter of law, because `funds deposited in a bank account are not sufficiently specific and identifiable, in relation to the bank's other funds, to support a claim for conversion against the bank.'" See Fundacion Museo de Arte Contemporaneo de Caracas v. CBI-TBD Union, 160 F.3d 146, 148 (2d Cir. 1998) (quotingChem. Bank v. Ettinger, 602 N.Y.S.2d 332, 336 (N.Y.App.Div. 1993)); Tevdorachvili, 103 F. Supp. 2d at 643. And, because "[t]his rule also applies to funds invested with brokerages, unless the funds are held in a distinct separate account in which they are specifically identifiable" — which is not alleged — here, Plaintiff's claim against Merrill Lynch fails as well.See Citadel Mgmt., Inc. v. Telesis Trust, Inc., 123 F. Supp. 2d 133, 148 n. 4 (S.D.N.Y. 2000) Double Alpha Inc. v. Mako Partners, L.P., No. 99 Civ. 11541, 2000 WL 1036034, at *4 (S.D.N.Y. July 27, 2000); High View Fund, L.P. v. Hall, 27 F. Supp. 2d 420, 429 (S.D.N.Y. 1998).
(D) Breach of Fiduciary Duty
"Under New York law, to state a cognizable claim for fiduciary duty, a plaintiff must allege three elements: (1) the existence of a fiduciary relationship; (2) knowing breach of a duty that relationship imposes; and (3) damages suffered." Carruthers v. Flaum, 388 F. Supp. 2d 360, 381 (S.D.N.Y. 2005).
For the reasons discussed in subsection B, supra, Defendants were not in a fiduciary relationship with Mr. Thiele. (See supra pp. 8-9.) "Accordingly, the cause of action for breach of fiduciary duty must be dismissed." See Tevdorachvili, 103 F. Supp. 2d at 640; Bissell, 937 F. Supp. at 247.
Although Plaintiff alleges that Defendants acted "in concert and conspiracy" to commit the common law torts of fraud, conversion, and breach of fiduciary duty, "a civil conspiracy claim in New York is a derivative cause of action requiring an independent underlying tort to serve as the basis of the conspiracy." See Treppel v. Biovail Corp., No. 03 Civ. 3002, 2005 WL 427538, at *9 (S.D.N.Y. Feb. 22, 2005); see also Kirch v. Liberty Media Corp., 449 F.3d 388, 401 (2d Cir. 2006) ("New York does not recognize an independent tort of conspiracy."). Because the Court in this case dismissed the underlying torts, any civil conspiracy claims against Defendants must also be dismissed. See Treppel, 2005 WL 427538, at *9.
(E) Punitive Damages
Under New York law, "there exists no separate cause of action for punitive damages" and, therefore, "the motion to dismiss the plaintiff's separate cause of action for punitive damages is granted." See Golden First Mortgage Corp. v. Berger, 251 F. Supp. 2d 1132, 1141 (E.D.N.Y. 2003); Win Spark Trading Co. v. Century Bus. Credit Corp., Nos. 01 Civ. 6605, 01 Civ. 6603, 01 Civ. 6607, 2002 WL 1343763, at *1 n. 1 (S.D.N.Y. June 18, 2002);see also Paisley v. Coin Device Corp., 773 N.Y.S.2d 582, 583 (N.Y.App.Div. 2004) ("[N]o separate cause of action for punitive damages lies for pleading purposes.").
IV. Conclusion and Order
For the reasons set forth above, Defendants' motion to dismiss [# 11] is granted. And, because Plaintiff has not requested leave to amend, "the Court declines to provide Plaintiff with leave to file [a second] amended complaint." See Kaufman v. U.S. Dept. of Labor, No. 04 Civ. 4737, 2006 WL 1662633, at *2 (E.D.N.Y. June 8, 2006); Evercrete Corp. v. H-Cap Ltd., 429 F. Supp. 2d 612, 632 (S.D.N.Y. 2006) (same); see also Oparaji v. City of N.Y., 152 F.3d 920, 1998 WL 432988, at *2 (2d Cir. 1998) ("[A] district court has no duty to instruct plaintiffs that they may move to amend their complaint and, at least in counseled cases, cannot abuse its discretion by failing tosua sponte grant leave to amend.").
The Clerk of the Court is respectfully requested to close this case.