Hawkins v. Lynch, B190196 (Cal. App. 10/25/2007), B190196
|25 October 2007
|California Court of Appeals
|TAKAKO HAWKINS et al., Plaintiffs and Appellants, v. MERRILL LYNCH, PIERCE FENNDER & SMITH, INC. et al., Defendants and Respondents.
Plaintiffs, Takako Hawkins, Clive Hawkins, and Stan Mandell, the conservator of the Estate of Thelma Jean Fenter, appeal from a final judgment resulting from the entry of two orders in favor defendants: Merrill Lynch, Pierce, Fenner & Smith, Inc.; Merrill Lynch Co. Inc.; Merrill Lynch Life Agency, Inc.; Merrill Lynch Insurance Group Services, Inc. (sometimes referred to collectively as "the Merrill Lynch defendants"); and John H. Pardee. Plaintiffs challenge an order sustaining the demurrer to certain causes of action in the first amended complaint. Plaintiffs also challenge a later order granting defendants' summary judgment motion. This litigation involves Treasury Investment Growth Receipts. The Third Circuit described Treasury Investment Growth Receipts as follows: "Zero-coupon bonds are debt securities on which no interest is paid prior to maturity. At maturity, a one-time payment incorporating the principal repayment and accrued interest is made. These securities are therefore sold at a discount from face value. [¶] [Treasury Investment Growth Receipts] . . . are a proprietary product of Merrill Lynch. [Treasury Investment Growth Receipts] consist of United States Treasury bonds that have been repackaged by Merrill Lynch into zero-coupon securities. Specifically, a [Treasury Investment Growth Receipt] is a receipt that evidences ownership of a future payment of interest or principal on Treasury bonds which are purchased by Merrill Lynch and are held by a custodian for the benefit of the [Treasury Investment Growth Receipt] holder." (Ettinger v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (3rd Cir. 1987) 835 F.2d 1031, 1032, fn. 1.) We conclude: the demurrers to the first amended complaint should not have been sustained as to the sixth, seventh, eighth, and eleventh causes of action; the order granting summary judgment as to the Merrill Lynch defendants should not have been entered; and the order granting summary judgment as to Mr. Pardee must be deemed to be an order entering summary adjudication of the fifth cause of action in the second amended complaint.
In 1969, Robert and Ray Schultz founded IBAR which engaged in the business of arranging structured settlements funded by annuities or United States Treasury Bonds held in trust. The structured settlements were designed to comply with Internal Revenue Code section 130 in order to provide tax benefits to settling plaintiffs. So as to assure the safety of settlements funded by United States Treasury Bonds, IBAR placed them in trust. On March 31, 1982, Merrill Lynch Life Agency, Inc. acquired the stock of IBAR from the Schultzes. The company was renamed Merrill Lynch IBAR Inc. In February, 1984, the Schultzes left Merrill Lynch IBAR, Inc. Thereafter, the company was renamed Merrill Lynch Settlement Services, Inc.
On February 10, 1981, Thelma Fenter filed suit against the County of Los Angeles. A guardian ad litem was appointed for Ms. Fenter. A settlement was entered into between Ms. Fenter's guardian ad litem and the County of Los Angeles (the county). The first amended complaint alleges: "Pursuant to the settlement, Ms. Fenter's claims against the county were assigned to Merrill Lynch IBAR, Inc., and pursuant to a separate written Assignment Agreement to which Ms. Fenter and Merrill Lynch IBAR, Inc. were parties, Merrill Lynch IBAR, Inc. assumed the obligation to make settlement payments over time to Ms. Fenter, or, in the event of her death, to her estate. Some of the structured settlement payments owed to Ms. Fenter were funded with United States Treasury Bonds purchased at the time of settlement and placed into trust for the sole purpose of providing principal and income sufficient to make these payments to Ms. Fenter; the settlement payments that were backed by a Treasury Bond Trust were the subject of separate litigation before this Court."
Additionally, part of the structured settlement called for a deferred payment stream of $3,750, payable twice a year concluding on November 15, 2010. On that date, an additional $60,000 was to be paid to Ms. Fenter. This deferred payment stream was not to be funded by either annuities of United States Treasury Bonds. Rather, this payment stream was to be funded by the purchase of Treasury Investment Growth Receipts. Treasury Investment Growth Receipts were a proprietary investment product of Merrill Lynch & Company, Inc. or Merrill Lynch, Pierce, Fenner & Smith, Inc., which were trademarked and offered for public sale. Treasury Investment Growth Receipts were "a zero-coupon or stripped treasury bond derivative," which were "sold at a discount and redeemed for face value at maturity." According to the settlement agreement, the Treasury Investment Growth Receipts were to assure the deferred payments due to Ms. Fenter were paid. Unlike the treasury bonds, the Treasury Investment Growth Receipts were not placed in trust. Rather, they were held in a "brokerage and/or cash management" account managed by the Merrill Lynch defendants or their agents.
On August 21, 1979, Ms. Hawkins and her minor son, Clive, filed a wrongful death suit against American Airlines (the airline), McDonnell Douglas and (the manufacturer), and other defendants arising from an airplane crash in Chicago. Thereafter, a settlement was reached. A separate written assignment agreement was entered into in which "plaintiffs and Merrill Lynch IBAR Inc." were parties. Pursuant to the settlement, Ms. Hawkins and her son Clive were to receive monthly payments between November 1, 1982, and October 1, 2002. The settling defendants in the Hawkins litigation, the airline and the manufacturer, paid Merrill Lynch IBAR, Inc. $1.014 million to fund certain payments. Those payments are not the subject of the present litigation. In addition, on November 15, 2002, Ms. Hawkins and her son Clive were to receive $2,466,232.50 and $1,231,267.50 respectively. In order to fund these final lump sum payments, the settling defendants and their insurers transferred to Merrill Lynch IBAR, Inc., additional funds. The first amended complaint alleges, "According to the terms of the settlement agreement, the [Treasury Investment Growth Receipts] were to `serve as a medium for payment of' the structured settlement payments `and to assure the payment of such funds' to Takako and Clive Hawkins." As in the case of the Fenter settlement, the Treasury Investment Growth Receipts were not placed in trust. Rather, the Treasury Investment Growth Receipts were placed in brokerage accounts maintained by the Merrill Lynch defendants or their agents.
The first amended complaint alleged that the various defendants acted in concert with one another. According to the first amended complaint: "In committing the wrongful acts alleged herein, the defendants have at various times pursued or joined in the pursuit of, a common course of conduct and acted in concert with and conspired with one another, in furtherance of their common plan, scheme or design. In addition to the wrongful conduct herein alleged as giving rise to primary liability, the defendants further aided and abetted and knowingly assisted each other in breach of their respective duties as herein alleged. . . ." The first amended complaint also alleged: all defendants "conspired to commit, aided and abetted and rendered substantial assistance in the wrongs complained of herein"; defendants conspired to "commit, and substantially assist in the commission" of the alleged wrongdoing; defendants acted with knowledge of the wrongdoing of each other; and each of the acts engaged in were in furtherance of the conspiracy and a common course of conduct.
Moreover, the first amended complaint contained allegations concerning joint marketing conduct: "In marketing to the plaintiffs and to the general public the settlement services offered by Merrill Lynch IBAR, Inc. and Merrill Lynch Settlement Services, Inc. . . . , Defendant Merrill Lynch authorized, consented to and/or ratified the use of its name, its logo, and its trademarks by the [Merrill Lynch IBAR, Inc. and Merrill Lynch Settlement Services, Inc]. In addition to the name of [Merrill Lynch IBAR, Inc. and Merrill Lynch Settlement Services, Inc.], the correspondence, checks and brokerage trade receipts and used and issued by [Merrill Lynch IBAR, Inc. and Merrill Lynch Settlement Services, Inc.] in providing its structured settlement services to plaintiffs displayed the name `Merrill Lynch' next to depictions of the globally recognized Merrill Lynch bull logo. [Merrill Lynch IBAR, Inc. and Merrill Lynch Settlement Services, Inc.] also expressly represented [themselves] to the public as a wholly-owned subsidiary of Merrill Lynch & Co. Inc. and the checks used by [Merrill Lynch IBAR, Inc. and Merrill Lynch Settlement Services,...
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