Deem v. Baron
| Decision Date | 14 April 2016 |
| Docket Number | 2:15-CV-00755-DS |
| Parties | DARRELL L. DEEM, et. al., Plaintiffs, v. TRACEY BARON, et. al., Defendants. |
| Court | U.S. District Court — District of Utah |
Defendants have filed yet another motion to dismiss, this time for lack of standing and/or for failure to join indispensable parties.1 Defendants note that the plaintiffs are listed as plaintiffs individually and on behalf of their ROTH IRAs. Plaintiffs had previously submitted as exhibits to the Court a copy of a Promissory Note made payable to "American Pension Services, Inc. Administrator for David G. Law Roth IRA #11396;" and a Supplemental Loan Agreement between RenX Group, LLC, and "American Pension Services Inc., Administrator for David G. Law Roth IRA #11396" and "American pension Services, Inc., Administrator for Darrell L. Deem Roth IRA #14459." Defendants argue that the party to these agreements was American Pension Services, as the custodian/administrator for the ROTH IRAs, and not Mr. Deem and Mr. and Mrs. Law. The Court disagrees.
Fed. R. of Civ. P. 17(a) states that "An action must be prosecuted in the name of the real party in interest." The question before this court is who the real party in interest is. Defendants argue that American Pension Services, Inc., the administrator for the Roth IRAs is the real partyin interest. Defendants cite a handful of bankruptcy cases for the proposition that a Roth IRA is a trust created by the Internal Revenue Code, the income of which is treated in a special way. An individual person causes the ROTH IRA to be created and is usually declared to be its beneficiary. This individual appoints a custodian/administrator of the self-directed trust, in this case, American Pension Services, Inc. Defendants argue, without reference to any authority, that a ROTH IRA's actions/activities can only be carried out or affected by a "trustee," called a "custodian" or "administrator": "like all trusts, ROTH IRAs can only act by and through their duly appointed trustees/custodians/administrators," and "all actions taken by, and agreements entered into for and on behalf of, the ROTH IRA can only be done/executed by the properly appointed and acting custodian/administrator/trustee."2 Defendants conclude that because Mr. Deem and Mr. and Mrs. Law are the beneficiaries of their respective trusts/ROTH IRAs, not the trustees/custodians/administrators of them, they have no legal authority to act for their ROTH IRAs, and they lack standing to bring the claims in this lawsuit.
Plaintiffs, on the other hand, point out some persuasive federal cases stating that a self-directed IRA is not a trust and is not to be treated like a trust.3 At least two federal cases have found that an owner of a self-directed IRA has standing to sue on behalf of his or her own IRA. In the New York case of Vannest v. Sage, Rutty & Co., Inc.4, a plaintiff sued his securities broker for fraud and related activities. The broker argued that Plaintiff could not recover because it was not he who had purchased the securities, but his self-directed IRA. The court held that Plaintiff was the true purchaser and so he had standing: 5
The second federal case dealing with this issue, FBO David Sweet IRA v. Taylor,6 has a similar fact situation to this case. Plaintiff Sweet was the sole decision maker on all investments and actions on behalf of his IRA. Equity Trust Company (ETC), an independent company which was the holding company/administrator for the IRA, did not provide investment advice or related services. The court in FBO David Sweet IRA determined that 7 The court then found that for purposes of the case, ...
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