Hawkins v. Lynch, B190196 (Cal. App. 10/25/2007)
Decision Date | 25 October 2007 |
Docket Number | B190196 |
Court | California Court of Appeals Court of Appeals |
Parties | TAKAKO HAWKINS et al., Plaintiffs and Appellants, v. MERRILL LYNCH, PIERCE FENNDER & SMITH, INC. et al., Defendants and Respondents. |
Appeal from a judgment of the Superior Court of Los Angeles County, No. BC279691, Peter D. Lichtman, Judge. Affirmed in part; reversed in part.
Robins, Kaplan, Miller & Ciresi, Bernice Conn, and Roman M. Silberfeld for Plaintiffs and Appellants.
Munger, Tolles & Olson LLP, Marc T.G. Dworsky, Mark H. Epstein, and Randall G. Sommer for Defendants and Respondents Merrill Lynch, Pierce, Fenner & Smith, Inc., Merrill Lynch & Co., Inc., Merrill Lynch Life Agency Inc., and Merrill Lynch Insurance Group Services, Inc.
Tatro Tekosky Sadwick LLP, René P. Tatro and Juliet A. Markowitz for Respondent Jonathan H. Pardee.
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: (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:
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: 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: ...
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