Davis v. Conn. Cmty. Bank, N.A.

• Decision Date: 26 March 2013
• Docket Number: Civil Action No. 3:10cv261(VLB).
• Citation: 937 F.Supp.2d 217
• Court: U.S. District Court — District of Connecticut
• Parties: Sol DAVIS, Individually and as Trustee of the Sol Davis Retirement Plan, et al., Plaintiffs, v. CONNECTICUT COMMUNITY BANK, N.A., Owner of Westport National Bank, Defendant.

937 F.Supp.2d 217

Sol DAVIS, Individually and as Trustee of the Sol Davis Retirement Plan, et al., Plaintiffs,

v.CONNECTICUT COMMUNITY BANK, N.A., Owner of Westport National Bank, Defendant.

Civil Action No. 3:10cv261(VLB).

United States District Court, D. Connecticut.

March 26, 2013.

Daniel S. Jo, David S. Golub, Jonathan M. Levine, Marilyn J. Ramos, Silver, Golub & Teitell, Stamford, CT, for Plaintiffs.

Jenny R. Chou, Jonathan M. Freiman, Joseph C. Merschman, Wiggin & Dana, New Haven, CT, Scott D. Corrigan, Wiggin & Dana, LLP, New York, NY, for Defendant.

MEMORANDUM OF DECISION DENYING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. # 178] AND GRANTING IN PART AND DENYING IN PART DEFENDANT'S PARTIAL MOTION FOR SUMMARY JUDGMENT [DKT. # 185] AND DENYING AS MOOT PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. # 181] AS TO DEFENDANT'S FIRST COUNTERCLAIM

VANESSA L. BRYANT, District Judge.

This is an action filed against Connecticut Community Bank, N.A. (“CCB”) as owner of Westport National Bank (“WNB”) (collectively referred to herein as the “Bank”) arising out of the Ponzi scheme perpetrated by Bernard L. Madoff (“Madoff”). Plaintiffs have brought this action alleging WNB's mismanagement of custodial accounts Plaintiffs maintained with WNB in order to meet the asset value threshold to qualify to open an account with Bernard L. Madoff Investment Securities, LLC (“BLMIS”). After Madoff admitted his fraud, the Plaintiffs realized that their investments were lost and they commenced this action. The Plaintiffs have brought claims against the Bank for (1) breach of contract, (2) breach of fiduciary duty, (3) negligence, (4) violations of Connecticut Unfair Trade Practices Act (“CUTPA”), Conn.Gen.Stat. § 42–110b, (5) unjust enrichment, (6) conversion, (7) civil theft, and (8) fraud. The Plaintiffs have moved, pursuant to Federal Rule of Civil Procedure 56, for partial summary judgment on one of their breach of contract claims, on the Bank's eighth affirmative defense for unjust enrichment and the Bank's first counterclaim for unjust enrichment. [Dkt. # 178]. WNB has moved for partial summary judgment on several of Plaintiffs' breach of contract, breach of fiduciary duty, CUTPA, conversion, civil theft and fraud claims. [Dkt. # 185]. For the foregoing reasons the Court DENIES Plaintiffs' partial motions for summary judgment and DENIES IN PART AND GRANTS IN PART Defendant's partial motion for summary judgment.

Background

In December 2008, when Madoff admitted his Ponzi scheme and BLMIS collapsed, the Plaintiffs had been investors with BLMIS for up to two decades, and WNB had served as custodian of their investment accounts with BLMIS since 1999, having succeeded the original custodian bank. The Plaintiffs opened custodial accounts with the original custodian bank which pooled the proceeds of the accounts and opened a single investment account with BLMIS. When WNB succeeded the original custodian, each Plaintiff entered into a custodial agreement with WNB who became the legal owner of the BLMIS account for the benefit of the Plaintiffs. The gravamen of the Plaintiffs' claims is that, during its time as custodian, WNB breached its contractual and common law custodial duties to the Plaintiffs by impermissibly commingling their assets, relying on information provided by BLMIS and making no effort to monitor BLMIS or verify this information. In addition, the Plaintiffs take issue with the Bank's handling of the customers' contributions and redemptions. WNB administered the custodial services accounts in a manner which minimized the number of transfers which took place between WNB and BLMIS; when a customer deposited cash, WNB adjusted that customer's pro rata interest in the common pool of assets invested with Madoff but typically did not send the money to BLMIS. Instead, the money stayed in the custodial services account in order to fund distributions and fee payments. Plaintiffs argue this practice resulted in the improper use of one customer's contribution to fund another's redemptions and fees.

This action is one of three related actions against the Bank by investors who maintained custodial accounts with the Bank for the purpose of pooling their funds to qualify to invest their assets with BLMIS. See Levinson et al. v. PSCC Svc Inc. et al., 3:09–cv–269 and Short et al. v. Connecticut Community Bank NA, 3:09–cv–1955. The Plaintiffs in all three actions have brought substantially identical claims on identical facts and evidence. This Court has already ruled on cross-motions for summary judgment in both the Levinson and Short matters. Both the Plaintiffs and the Bank have acknowledged that the facts and evidence presented in the present matter are essentially identical to the facts and evidence, which the Court considered in Levinson. See [Dkt. # 219, Pl. Mem. p. 57] (noting that the Court in Levinson ruled on “identical facts”); [Dkt. # 191, Def. Mem. p. 14–15] (arguing that the Court's reasoning in Levinson applies equally to the present case). Indeed, much of the parties' arguments either expressly adopt the Court's rationale in its decision in Levinson or attempt to distinguish the claims asserted in the present matter from the claims asserted and ruled upon in Levinson. As the parties principally rely on this Court's decision in Levinson and have accepted the facts as found in Levinson, this Court hereby adopts the facts as articulated in the Levinson decision. For the convenience of the parties, the Court has attached to this ruling a copy of its decision in Levinson. See Levinson et al. v. PSCC Svc Inc. et al., 3:09–cv–269, Docket no. 457.

In its motion for summary judgment, the Bank acknowledges that the Court's ruling in Levinson applies to the present matter. See Levinson et al. v. PSCC Svc. Inc. et al., 900 F.Supp.2d 143 (D.Conn.2012). Therefore, the Bank has declined to move for summary judgment on the identical claims which survived summary judgment in Levinson and has moved for summary judgment based on the Court's rationale in Levinson on the identical claims which did not survive summary judgment. In Levinson, the Court granted summary judgment in favor of the Bank on the plaintiffs' breach of contract claims based on (i) WNB's administration of the custodial clearing accounts through the comingling of funds and (ii) WNB's alleged breach of Paragraph 7 of the Custodian Agreement. Levinson, 900 F.Supp.2d 143. The Court found there were triable issues with respect to the plaintiffs' (i) breach of contract claim based WNB's calculation of fees based on “assets”; (ii) breach of contract claim based WNB's failure to maintain adequate records and statements; (iii) breach of fiduciary duty claim based on WNB's investment discretion; (iv) breach of fiduciary duty claim based on WNB's calculation of fees; and (v) negligence claim. In addition, the Court granted summary judgment in favor of the Bank on one of Plaintiff's CUTPA claims but denied it on their other CUTPA claim. Lastly, the Court granted summary judgment in favor of plaintiffs on their unjust enrichment claim. As will be discussed further below, the Levinson plaintiffs' CUTPA and unjust enrichment claims significantly differ from the Davis Plaintiffs' claim and therefore the Court's analysis in Levinson is inapplicable to the present matter on those claims.

Legal Standard

The standard for deciding the cross-motions for summary judgment is familiar. Summary judgment is appropriate only when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). No genuine disputes as to any material fact exist, and summary judgment is therefore appropriate, when “the record taken as a whole could not lead a rational trier of fact to find for the non-moving party.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A material fact is one which “might affect the outcome of the suit under the governing law,” and an issue is genuine when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). But “[c]onclusory allegations will not suffice to create a genuine issue.” Delaware & Hudson Ry. Co. v. Consolidated Rail Corp., 902 F.2d 174, 178 (2d Cir.1990).

On cross-motions for summary judgment, the same standard applies. See Morales v. Quintel Entm't, Inc., 249 F.3d 115, 121 (2d Cir.2001). “The court must consider each motion independently of the other and, when evaluating each, the court must consider the facts in the light most favorable to the non-moving party.” Natural Res. Def. Council v. Evans, 254 F.Supp.2d 434, 438 (S.D.N.Y.2003) (citing Morales, 249 F.3d at 121).

AnalysisA. Breach of Contract

As noted above, the Bank has declined to move for summary judgment on the Plaintiffs' identical breach of contract claims as in Levinson. Therefore in the present matter, the Davis Plaintiffs' identical breach of contract claim grounded on WNB's calculation of fees based on BLMIS's reported assets values and their breach of contract claim based WNB's failure to maintain adequate records and statements remain extant for trial. The Bank has moved for summary judgment based on the Court's rationale in Levinson as to the Davis Plaintiffs' identical claims for breach of contract based on (i) WNB's administration of the custodial clearing accounts through the comingling of funds and (ii) WNB's alleged breach of Paragraph 7 of the Custodian Agreement. For the same reasons as articulated in Levinson, the Court grants summary judgment on these two breach of contract claims. Levinson, 900 F.Supp.2d at 156–63.

The Davis Plaintiffs' assert three additional breach of contract claims that they claim differ from the claims asserted in Levinson. These theories are largely premised on the...