Bagby v. Merrill Lynch, Pierce, Fenner & Smith

• Decision Date: 08 June 2000
• Docket Number: No. 99-4011-RDR.,99-4011-RDR.
• Parties: Marcia BAGBY, et al., Plaintiffs, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendant.
• Court: U.S. District Court — District of Kansas

104 F.Supp.2d 1294

Marcia BAGBY, et al., Plaintiffs, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendant.

No. 99-4011-RDR.

United States District Court, D. Kansas.

June 8, 2000.

Timothy H. Girard, Grant M. Glenn, Bruce J. Woner, Woner, Glenn, Reeder & Girard, Topeka, KS, for Marcia Bagby, As Successor Trustee of the Sterling C. Klugg and Miriam R. Klugg Trust, Miriam R Klugg, plaintiffs.

Gordon D. Gee, Lynne C Kaiser, Rachel H. Baker, Rod L. Eisenhauer, Seigfreid, Bingham, Levy, Selzer & Gee, Kansas City, MO, for Merrill Lynch Pierce Fenner & Smith, a Delaware Corporation, defendant.

MEMORANDUM AND ORDER

ROGERS, District Judge.

This is a diversity action. Plaintiffs contend that they sustained certain losses due to the acts or omissions of the brokerage firm Merrill Lynch, Pierce, Fenner & Smith, Inc. This matter is presently before the court upon defendant's motion for summary judgment. The defendant contends that plaintiffs' claims are barred by the applicable statutes of limitations. Having heard oral argument on the defendant's motion, the court is now prepared to rule.

I.

A court grants a motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure if a genuine issue of material fact does not exist and if the movant is entitled to judgment as a matter of law. The court is to determine "whether there is the need for a trial — whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). "Only disputes over facts that might affect the outcome of the suit under the governing law will ... preclude summary judgment." Id. There are no genuine issues for trial if the record taken as a whole would not persuade a rational trier of fact to find for the nonmoving party. Matsushita Elec. Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

The initial burden is with the movant to "point to those portions of the record that demonstrate an absence of a genuine issue of material fact given the relevant substantive law." Thomas v. Wichita Coca-Cola Bottling Co., 968 F.2d 1022, 1024 (10th Cir.), cert. denied, 506 U.S. 1013, 113 S.Ct. 635, 121 L.Ed.2d 566 (1992). If this burden is met, the nonmovant must "come forward with specific facts showing that there is a genuine issue for trial as to elements essential to" the nonmovant's claim or position. Martin v. Nannie and the Newborns, Inc., 3 F.3d 1410, 1414 (10th Cir.1993) (citations omitted). The nonmovant's burden is more than a simple showing of "some metaphysical doubt as to the material facts," Matsushita, 475 U.S. at 586, 106 S.Ct. 1348; it requires "`present[ing] sufficient evidence in specific, factual form for a jury to return a verdict in that party's favor.'" Thomas v. International Business Machines, 48 F.3d 478, 484 (10th Cir.1995) (quoting Bacchus Industries, Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir.1991)). The court views the evidence of record and draws all reasonable inferences in the light most favorable to the nonmovant. Id. A party relying on only conclusory allegations cannot defeat a properly supported motion for summary judgment. White v. York Intern Corp., 45 F.3d 357, 363 (10th Cir. 1995).

More than a "disfavored procedural shortcut," summary judgment is an important procedure "designed `to secure the just, speedy and inexpensive determination of every action.' Fed.R.Civ.P. 1." Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). At the same time, a summary judgment motion does not empower a court to act as the jury and determine witness credibility, weigh the evidence, or choose between competing inferences. Windon Third Oil and Gas v. Federal Deposit Ins., 805 F.2d 342, 346 (10th Cir.1986), cert. denied, 480 U.S. 947, 107 S.Ct. 1605, 94 L.Ed.2d 791 (1987).

II.

For the purposes of the instant motion, the facts are not generally in dispute. The following facts are either uncontroverted or viewed in the light most favorable to the plaintiffs.

On August 26, 1987, Sterling and Miriam Klugg established the Sterling C. Klugg and Miriam R. Klugg Trust ("the Klugg Trust"). Murray F. Hardesty, a Topeka, Kansas attorney, was appointed by the Kluggs as Trustee.

The Kluggs had accumulated holdings of various stocks, and their stock portfolio was transferred to the corpus of the Trust. Prior to the establishment of the Trust, Sterling Klugg had been an active participant in the management of the Klugg portfolio. On September 11, 1987, the stock portfolio was valued at approximately $357,718.75. Using Sterling Klugg's social security number, Hardesty opened Account Number 504-34423 in his own name with the defendant in September 1987. The Merrill Lynch account representative assigned to the account was Bill Johnson, Hardesty's brother-in-law. Sterling Klugg passed away in June 1988. For several years after the death of Sterling Klugg, Miriam Klugg relied upon Hardesty and the defendant to look after her best interests.

On November 24, 1993, Hardesty filed a voluntary bankruptcy petition in the United States Bankruptcy Court for the District of Kansas. In that petition, he listed Miriam Klugg as a creditor. On December 27, 1993, Hardesty filed a statement of financial affairs with the bankruptcy court. This document showed that Hardesty owed Miriam Klugg $547,063.00. The statement also showed assets of $1,612,950.73 and liabilities of $2,025,352.27. Unsecured nonpriority claims (which included Miriam Klugg's claim) totaled $2,025,352.27.

On January 6, 1994, Miriam Klugg was appointed to the Unsecured Creditors' Committee ("the Committee") in the Hardesty bankruptcy. The Committee applied to have Bruce Woner of the law firm of Woner, Glenn, Reeder, Lowry & Girard, plaintiffs' attorney in this action, represent it in the Hardesty bankruptcy. The Committee sought to investigate the financial affairs and transactions of Hardesty. On the same day that the Committee was appointed, Woner, on behalf of the Committee, moved the court for an order requiring the defendant to produce certain documents for any accounts in which Hardesty had any interest, including Account No. 504-34423. On January 26, 1994, the bankruptcy judge granted this motion.

On February 2, 1994, Woner's law firm sent a subpoena to the defendant for the aforementioned requested documents. These documents were produced by the defendant to Woner's law firm on March 22, 1994. Monthly account statements were provided for nine accounts. For Account No. 504-34423, the defendant provided monthly account statements from August 1987 through January 1994. These monthly account statements show numerous transfers out of Account No. 504-34423 into Hardesty's personal accounts. The last activity in the account other than automatic dividend reinvestments was on September 13, 1993, when there was an $8,000.00 withdrawal.

On April 12, 1994, the Committee's attorneys wrote to the defendant, listing all 27 transfers out of Account No. 504-34423 to other Merrill Lynch accounts in which Hardesty had a personal interest. On May 7, 1994, after certain criminal charges were brought against Hardesty (including certain charges related to the Klugg Trust), he was replaced as Trustee of the Trust by plaintiff Marcia Bagby.

On May 25, 1994, Woner conducted a Rule 2004 examination of Hardesty in the bankruptcy matter. During the examination, Woner stated that he had "reviewed a number of documents" and asked Hardesty about assets transferred by Hardesty out of the Klugg account at Merrill Lynch into Hardesty's personal account.

On June 29, 1994, Miriam Klugg filed a proof of claim in the Hardesty bankruptcy in the estimated amount of $547,063.00 for "trust funds unaccounted for by debtor." The claim states that $547,063.00 "is an estimate of the amount of funds that the debtor took from a trust account on which he was the trustee. This amount is based on an accounting provided to Miriam Klugg as of 10/31/93."

On or about October 13, 1994, the Klugg Trust filed a United States Fiduciary Income Tax Return for 1993 naming Marcia Bagby as fiduciary and claiming a theft loss of $547,063.00 as a result of "Misappropriated Trust Corpus." In August 1995, Hardesty pleaded guilty to theft or embezzlement from an employee benefit plan, mail fraud and money laundering.

The only transactions in Account No. 504-34423 between October 1993 and February 1995 were automatic dividend reinvestments into money market shares. None of the transactions during this period were the result of any communication with the defendant by the plaintiffs. The defendant never provided investment advice to the plaintiffs. In April 1995, Account No. 504-34423 was closed by Bagby, and all assets were transferred to Account No. 504-43598. She closed this account in June 1995.

Plaintiffs and the defendant entered into a tolling agreement, effectively tolling the statutes of limitation as to all causes of action existing, if any, effective February 20, 1997. On December 31, 1998, plaintiffs filed this action in state court. The action was removed to this court on February 8, 1999.

III.

In this case, plaintiffs contend that the defendant breached various contractual, statutory and other obligations to them in their handling of the Klugg Trust account. Generally, they contend that the defendant did not prevent Hardesty from (a) transferring assets out of the account, and (b) making inappropriate trades in that account. Plaintiffs allege six causes of action: negligence, breach of fiduciary duty, fraud by silence, violations of federal and state securities laws, breach of express and implied contract, and breach of the obligations of a constructive trustee.

The defendant contends in the instant motion that all of the claims...