Hughes v. Lasalle Bank, N.A.
| Decision Date | 13 March 2006 |
| Docket Number | No. 02 CIV.6384(MBM).,02 CIV.6384(MBM). |
| Citation | 419 F.Supp.2d 605 |
| Parties | Holly HUGHES, Hal Hughes and Dion Hughes, on behalf of themselves and all others similarly situated, Plaintiffs, v. LASALLE BANK, N.A., ABN-AMRO Bank N.V., ABN-AMRO Holding N.V., ABN-AMRO Asset Management (USA), Inc., and Lasalle Street Capital Management, Ltd., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Richard D. Greenfield, Esq., Greenfield & Goodman LLC, Easton, MD, for Plaintiffs.
Daniel Cobrinik, Esq., New York City, for plaintiffs.
Kenneth A. Lapatine, Esq., Mark H. Budoff, Esq., Greenberg Traurig, LLP, New York City, for Defendants.
Plaintiffs Dion, Hal, and Holly Hughes, on behalf of themselves and all others similarly situated, sue LaSalle Bank, N.A. ("LaSalle"), ABN-AMRO Bank, N.V., ABN-AMRO Holding, N.V., ABN-AMRO Asset Management, Inc., and LaSalle Street Capital Management, Ltd. ("LSCM"), alleging that LaSalle breached its fiduciary duty to the beneficiaries of certain accounts under its care, ABAMRO Asset Management tortiously interfered with that fiduciary duty, and all the defendants unjustly enriched themselves at plaintiffs' expense. Plaintiffs move for class certification under Fed. R.Civ.P. 23 and partial summary judgment under Fed.R.Civ.P. 56(c). Defendants cross-move to dismiss the complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief may be granted. For the reasons set forth below, defendants' motion to dismiss the complaint is granted. Plaintiffs' motions are denied as moot.
Dion, Hal, and Holly Hughes are the beneficiaries of a trust established in 1988 by their grandfather John E. Hughes (the "Hughes Trust"). (Compl. ¶ 16) LaSalle, a federally chartered bank that is a wholly owned subsidiary of Dutch bank ABAMRO, is the trustee of the Hughes trust. (Compl. ¶¶ 13, 17) ABN-AMRO Asset Management and its precursor LSCM are subsidiaries of LaSalle. (Compl. ¶ 14)
Before 1993, LaSalle invested its trust assets in individually managed portfolios and/or common trust funds. (Compl. ¶ 23) Common trust funds were in-house investment groups, similar to mutual funds, which were managed and directed by LaSalle or LSCM. (Compl. ¶ 24) LaSalle and its affiliates received no investment advisory fees from the trust accounts; LaSalle did receive fees for serving as trustee. (Compl. ¶ 25) Until 1992, LaSalle allegedly discouraged its customers from investing in mutual funds, partly because of what LaSalle suggested was a duplication of fees. (Compl. ¶ 28)
In 1992, LaSalle's parent company, ABN-AMRO, decided to establish its own family of mutual funds called the Rembrandt Funds; LSCM was the investment advisor for the Rembrandt Funds and SEI Corporation was the distributor and administrator for the Rembrandt Funds. (Compl. ¶¶ 29, 30) The Rembrandt Funds had trouble finding investors, because they had no investment track record, LSCM had never previously managed a mutual fund, and the investment advisor fees were higher than those of most mutual funds. (Compl. ¶¶ 32-35) Additionally, LaSalle needed at least 1,000 participants in each Rembrandt Fund to list the fund on NADAQ and have its market price published in newspapers. (Compl. ¶ 43)
In December 1992, LaSalle sent plaintiffs a form letter, a question-and-answer sheet, a prospectus describing the Rembrandt Funds, and a form to authorize conversion of the trust assets from individual managed accounts and/or common trust funds to the Rembrandt Funds (the "Investment Conversion"). (Compl. ¶ 76) These documents did not disclose explicitly that the Investment Conversion would increase value for the shareholders of ABAMRO. (Compl. ¶ 77) The question-and-answer sheet stated that LaSalle was switching to the Rembrandt Funds because many customers had requested mutual fund investments; it was a boilerplate form produced by SEI of the sort used by many different banks. (Compl. ¶¶ 78, 80)
On January 4, 1993, LaSalle completed the Investment Conversion. (Compl. ¶¶ 2, 36) The Investment Conversion did not materially change the underlying stocks and bonds held by the fiduciary accounts or the management of those accounts; only the investment vehicle in which those securities were held was changed. (Compl. ¶ 49) LSCM managed the common trust funds prior to January 4, 1993, and it managed the Rembrandt Fund after January 4, 1993. (Compl. ¶ 50) The Investment Conversion benefited the defendants because the administrative expenses incurred by LaSalle could be passed on to the trusts as expenses of the Rembrandt Funds. (Compl. ¶ 37) The Rembrandt Funds paid investment advisory fees to the defendants. (Compl. ¶ 4) Additionally, the Investment Conversion allegedly subjected the fiduciary accounts to premature and increased capital gains taxes. (Compl. ¶ 7) After the Investment Conversion, LaSalle reduced its fiduciary fees by .3 percent and charged the Rembrandt Funds investment advisory fees for LSCM, administrative fees for SEI, and other operating expenses that averaged between one and two percent. (Compl. ¶ 39)
The Rembrandt Funds underperformed when compared to similar funds and other benchmarks. (Compl. ¶ 92) During the five years before the commencement of this action, the Rembrandt Asian Tigers Com Fund performed worse than 94 percent of comparable funds, the Rembrandt Value Com Fund performed worse then 73 percent of comparable funds, the Rembrandt Small Cap Com Fund performed worse then 67 percent of comparable funds, and the Rembrandt Growth Tr Fund performed worse then 57 percent of comparable funds. (Compl. ¶¶ 94-95, 100-101, 103-104, 106-107) During the three years before the commencement of this action, the Rembrandt Latin American Equity Com Fund performed worse than 87 percent of comparable funds. (Compl. ¶¶ 97, 98) However, the Rembrandt Funds generated millions of dollars in income for defendants and their affiliates. (Compl. ¶ 93) LaSalle never moved the fiduciary account assets into more productive investments. (Compl. ¶ 109)
LaSalle allegedly never analyzed whether the trust beneficiaries would have earned more from the common trust funds or the Rembrandt Funds. (Compl. ¶ 51) It also never considered any mutual fund except the Rembrandt Funds for the trust accounts or any investment advisor for the Rembrandt Funds other than LSCM. (Compl. ¶¶ 52, 53) The decision to undertake the Investment Conversion was made by LaSalle's senior management on a class-wide basis for all trusts that had assets invested in common trust funds. (Compl. ¶ 55) Senior managers allegedly did not read any documents regarding the Investment Conversion before approving it. (Compl. ¶ 63)
The written agreement governing plaintiffs' trust provides that the trust "shall be construed and regulated in all respects in accordance with the laws of the State of New York." (Compl. ¶¶ 18-19) Before suing here, plaintiffs sued as individuals in New York state court, Hughes v. LaSalle Bank, N.A., No. 105423/01; that action has been stayed by agreement of the parties pending determination of this action. (Compl. ¶ 8) Plaintiffs are seeking money damages and injunctive relief permitting them to remove LaSalle as the trustee of the Hughes Trust.
Diversity jurisdiction exists pursuant to 28 U.S.C. § 1332 (2000). Plaintiff Holly Hughes is a New York resident. (Compl. ¶ 10) Plaintiff Hal Hughes is an American citizen with a current residence in Milan, Italy and a former residence in Texas. (Compl. ¶ 11) Plaintiff Dion Hughes is a Texas resident. (Compl. ¶ 12) Defendant LaSalle is a federally chartered bank that is a wholly owned subsidiary of a Dutch Bank, ABN-AMRO, with a principal place of business in Illinois. (Compl. ¶ 13) Defendants ABN-AMRO Asset Management and LSCM are Illinois corporations with their principal places of business in Chicago. (Compl. ¶ 14) Plaintiffs seek damages in excess of $75,000. (Compl. ¶ 15)
Plaintiffs allege that LaSalle should be held liable for breaching its fiduciary duties to the beneficiaries of the trust accounts, ABN-AMRO Asset Management and its predecessor LSCM for tortiously interfering with that fiduciary duty, and that all defendants are liable for unjustly enriching themselves. Plaintiffs move for class certification and partial summary judgment. Defendants move to dismiss the plaintiffs' amended complaint for failure to state a claim on the ground that it is barred by the statute of limitations or, in the alternative, that it is barred by the plaintiffs' consent to and subsequent ratification of the Investment Conversion. The court must first analyze defendants' motion to dismiss. Schweizer v. Trans Union Corp., 136 F.3d 233, 239 (2d Cir.1998) ().
Defendants argue that the statute of limitations has run on plaintiffs' claims because the Investment Conversion took place in January and February 1993, more than nine years before they asserted their current claims. Dismissal for failure to state a claim based on a statute of limitations is appropriate only if a complaint shows clearly that a claim is not timely. See Harris v. City of New York, 186 F.3d 243, 251 (2d Cir.1999).
New York procedural law is applied to determine the applicable statute of limitations, because, "where jurisdiction rests upon diversity of citizenship, a federal court in New York must apply the New York choice-of-law rules and statutes of limitations." Stuart v. Am. Cyanamid Co., 158 F.3d 622, 626 (2d Cir.1998). Generally, New York courts apply New York's statute of limitations, even when the injury giving rise to the claims occurred outside New York, subject to N.Y. C.P.L.R. § 202. Id. at 627. Under N.Y. C.P.L.R. § 202, the claims of a plaintiff who is not a New York...
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