Conte v. U.S. Alliance Federal Credit Union

• Decision Date: 23 February 2004
• Docket Number: No. 3:01 CV 463(EBB).,3:01 CV 463(EBB).
• Citation: 303 F.Supp.2d 220
• Parties: Victor T. CONTE Plaintiff v. US ALLIANCE FEDERAL CREDIT UNION, Defendant
• Court: U.S. District Court — District of Connecticut

Page 220

303 F.Supp.2d 220

Victor T. CONTE Plaintiff v. US ALLIANCE FEDERAL CREDIT UNION, Defendant

No. 3:01 CV 463(EBB).

United States District Court, D. Connecticut.

February 23, 2004.

COPYRIGHT MATERIAL OMITTED

Elisabeth Ann Seieroe Maurer, Ridgefield, CT, for Plaintiff.

Andrew M. Zeitlin, Shipman & Goodwin, Stamford, CT, Frederick S. Gold, Shipman & Goodwin, Martin P. Unger, Certilman, Balin, Adler & Hayman, East Meadow, NY, for Defendant.

RULING ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

BURNS, Senior District Judge.

Introduction

Plaintiff, Victor Conte (hereinafter "Conte"), brought an eight-count complaint against Defendants U.S. Alliance Federal Credit Union (hereinafter "US Alliance"), Affina Brokerage Services, Inc., and three of its employees. Defendants moved to dismiss the Complaint or, in the alternative, for summary judgment. As a result, in a ruling on Defendants' Motion for Summary Judgment, dated March 28, 2002, this Court dismissed the individual defendants and Affina Brokerage Services, Inc., and granted summary judgment for the present defendant as to several of plaintiff's claims. The court denied the motion as to the claims of negligence, breach of fiduciary duty, conversion, and breach of oral contract. Following the completion of discovery, defendant U.S. Alliance now moves for summary judgment on the remaining four counts of the complaint.

STATEMENT OF FACTS

The following facts are culled from the parties' Local Rule 9(c) Statements, affidavits, and the exhibits attached to their respective memoranda. The facts are either undisputed or are read most favorably to the non-movant Plaintiff, Victor T. Conte (hereinafter "Conte" or "plaintiff"). The Court sets forth only those facts deemed necessary to an understanding of the issues raised in, and decision rendered on, this Motion.

The plaintiff is a resident of the State of Connecticut and a member of U.S. Alliance. US Alliance is a federally regulated credit union that provides many different financial services. Affina Brokerage, Inc., (hereinafter "Affina") is the brokerage arm and fully owned subsidiary of U.S. Alliance, sharing employees, office space and assets. Conte avers he was never aware of Affina's existence or that it existed as an entity separate from U.S. Alliance.

Conte first joined the IBM Credit Union, which was a corporate predecessor of U.S. Alliance, in 1970. Since then, plaintiff has taken advantage of multiple services of U.S. Alliance, including loans, banking services and brokerage services. Conte signed a Secured Loan Application and a Stock Secured Loan Agreement on October 11, 1994, in order to set up a Secured Loan Revolving Credit Plan with U.S. Alliance. The Secured Loan Application signed by Conte includes the following relevant terms:

Security Collateral: The value of your collateral, as determined by the Credit Union, must remain greater than the principal balance plus accrued finance charges you owe. Should the loanable value of your securities decline, the Credit Union may, at its sole option and without prior notice, transfer funds from another account or loan of yours to pay down your loan, or sell your collateral and apply the proceeds to this and any other debts you may owe the Credit Union.

Stock Sales: When necessary, Credit Union members can sell securities to repay an outstanding Credit Union loan, in whole or in part, in accordance with federal accounting procedures.

Similarly, the Secured Loan Revolving Credit Plan and Disclosure Agreement provides:

Security Interest: That to protect the Credit Union in the event of default, you grant the Credit Union a security interest in any shares of Capital Stock or other stocks or bonds which have been endorsed, delivered and/or pledged to the Credit Union as collateral. You also pledge and grant a security interest in and/or right to offset against all Credit Union account balances on which you are an account owner except qualified retirement accounts...

[T]he Credit Union's responsibility for your collateral in its possession is to use reasonable care for the custody and preservation of your collateral ..

[I]n the event of default, the Credit Union may, at its sole option and without prior notice, ... sell or transfer your collateral and apply the proceeds to this or any other debts you may owe the Credit Union.

Plaintiff was aware that, under the terms of his agreement, he could borrow up to 85% of the value of the assets in his portfolio that were on deposit at the Credit Union. Plaintiff avers that, throughout his business with U.S. Alliance, he was of the belief that his stocks were maintained through a margin account. US Alliance avers that this was not a margin account, but that, instead, his securities on deposit with U.S. Alliance served as collateral for loans he took out with U.S. Alliance. Regardless of the form of the account, Conte admits to using the value of his assets on deposit at U.S. Alliance to purchase securities, with the understanding that if he was undersecured he would have to make up the difference. At the same time, however, Conte also avers that because the loan statements he received for various loans he took out from 1984 until 2001 included the statement "DEMAND LOAN — OUTSTANDING BALANCE CALLABLE ON 7 DAYS NOTICE," he was under the impression that he would be given seven days to bring any undersecured loan back into balance.

Conte maintained a large stock portfolio at U.S. Alliance. All securities transactions made and authorized by Conte before September 9, 1998, were unsolicited, and no member of U.S. Alliance or Affina encouraged Conte to buy or sell stock. From 1996 through 1999, Conte estimates that he borrowed approximately one million dollars and paid U.S. Alliance $140,000.00 in interest during that time. Conte kept track of the value of his securities portfolio on a regular basis, utilizing the automated dial-up telephone service provided by U.S. Alliance to check portfolio account balances. However, the dial-up system did not provide current balances, as there was a delay in reporting transactional information.

In 1993, Conte became undersecured due to a drop in the value of his stock. US Alliance responded by placing a courtesy call to Conte, informing him of how much he was undersecured and the best way to satisfy the issue. According to Conte, he discussed the options available to him with the employee and they concluded that pledging two condominiums he owned would be the best way to solve his under-collateralization. Conte also received a letter that informed him of his undersecured status. Conte assumed thereafter that, if he became under-collateralized again, U.S. Alliance would carry out the same procedure to resolve another default.

On September 8, 1998, Conte received a courtesy call from David Brody, an employee of U.S. Alliance's collections department, alerting him to the fact that he was undersecured in his loan account. The details of the discussion are in dispute. Conte avers that Brody was unable to tell him how much he was under-secured and did not instruct him that he needed to deposit additional collateral, or that he needed to take any specific action. Conte further avers that he informed Brody he was away on business, but would address the issue immediately upon his return. On September 9, 1998, Conte and U.S. Alliance did not communicate. As of the close of business on September 9, 1998, defendant avers that Conte's Stock Secured Loan Account balance had dropped drastically, approaching 100 percent under-collateralization. However, Conte avers he never received any further communication from U.S. Alliance or Affina.

Also in dispute is how much additional collateral Conte possessed at the time he became undersecured, which Conte believes could have been used to cure his default. The parties agree that from July 1, 1998, through September 16, 1998, Conte did not have a mortgage or other realty line of credit at U.S. Alliance. In September, 1998, Conte owned his principal residence, but had not taken another mortgage or refinanced his existing mortgage in order to increase his collateral with U.S. Alliance. Conte also had an IRA and Money Market account at U.S. Alliance which he avers were worth approximately $150,000.00 at the time defendant liquidated his account. He further avers that John Walsh, a U.S. Alliance employee, was not aware of the existence of these assets when Walsh began selling his stock. In response, U.S. Alliance contends that these assets were irrelevant to their decision to sell Conte's stock because they were not transferable and U.S. Alliance could not have used these assets to offset the deficiency in his loan account.¹

On September 10 and 11, 1998, Conte spoke with Walsh, John Petrie, Norman Jackson, and various other U.S. Alliance employees regarding the under-collateralization of his account. Plaintiff avers that Petrie and Jackson worked in the brokerage services department and were joint employees of U.S. Alliance and of Affina. Walsh told Conte that he had been ordered to sell out his stocks, and such orders had already been placed. Walsh could not inform Conte as to the decisionmaking process involved in which stocks were sold and, in fact, commented that it was done "arbitrarily" and that "theoretically, we're liquidating your whole portfolio which is what they can do." Conte informed Walsh that he wanted to reactivate his home equity loan in order to offset the default. At that point, Walsh attempted to get in touch with Bob Ambrose, the Vice President who had ordered him to sell Conte's stock. When Walsh could not reach Ambrose, he gave Conte a list of the stocks that had already been sold upon market opening.

It was not until later in the day on September 11, 1998, that Conte was able to speak with Al Menard, one of the Vice Presidents in charge of Conte's account. Once Conte began taking steps to try to cure his...