Knox v. Vanguard Grp., Inc.

Decision Date05 January 2018
Docket NumberCivil Action No. 15-13411-FDS
PartiesPETER L. KNOX, as attorney-in-fact for Margaret A. Knox under power of attorney, Plaintiff, v. THE VANGUARD GROUP, INC.; VANGUARD FIDUCIARY TRUST COMPANY; and VANGUARD MARKETING CORPORATION, Defendants.
CourtU.S. District Court — District of Massachusetts



This is a dispute concerning the handling of an individual retirement account ("IRA"). Plaintiff Peter Knox, acting as attorney-in-fact for his mother, Margaret A. Knox, alleges that defendants The Vanguard Group, Inc.; Vanguard Fiduciary Trust Company; and Vanguard Marketing Corporation (collectively, "Vanguard") improperly refused to comply with his instructions concerning his mother's account. Jurisdiction is based on diversity of citizenship.

At the heart of this dispute is a seemingly trivial disagreement over the execution of the paperwork necessary to distribute the funds from an IRA.

Peter Knox is the son of Kenneth and Margaret Knox. He is a lawyer who lives in Massachusetts; his mother is elderly and lives in Ohio. In 2009, Peter obtained a general power of attorney from his mother that permitted him to conduct her financial affairs.

Kenneth Knox had an IRA at Vanguard. When he established the account in 1999, Kenneth named his wife Margaret as the beneficiary in the event of his death. Kenneth died in 2012, at which point the IRA had a balance of more than $44,000.

After Kenneth's death, at Peter's request Vanguard created a new IRA account in Margaret's name and transferred the funds to that account. Peter was unhappy with the way Vanguard handled the transfer, and attempted—using the 2009 power of attorney—to withdraw the funds in order to transfer them to a new account at Fidelity Investments.

From that point, things became problematic. In essence, Vanguard insisted that Peter use its own power-of-attorney form, and otherwise comply with its requirements, in order to have access to Margaret's account. Because Peter had signed his mother's name to a document naming him as beneficiary, Vanguard became suspicious, and insisted on strict enforcement of its policies. Peter insisted that his own documentation was sufficient. Neither party was willing to yield. As a result, the funds were not distributed for more than three years. Because nothing was distributed during that time, Margaret suffered various adverse tax consequences and other alleged financial injuries.

Peter, as attorney-in-fact for his mother, has moved for summary judgment on Counts 3 (breach of fiduciary duty) and 5 (consumer fraud), and Vanguard has cross-moved for summary judgment on all counts. In addition, Peter has moved to strike two exhibits offered by Vanguard in support of its motion.

The principal questions before the Court are (1) whether there was a contract that allowed Vanguard to impose its own requirements on the distribution of funds to someone who is not the named account holder; (2) whether Vanguard breached the terms of that contract; (3) whether Vanguard violated the implied covenant of good faith and fair dealing; and (4) whetherVanguard otherwise acted improperly. For the reasons set forth below, the Court concludes that such a contract existed, that it was not breached, and that Vanguard cannot be held liable on any other theory of recovery. Plaintiff's motion to strike and motion for partial summary judgment will be denied, and defendants' motion for summary judgment will be granted.

I. Background

Unless otherwise noted, the following facts are undisputed.

A. Factual Background1

Peter Knox is the son of Margaret Knox and Kenneth Knox. (Docket No. 65, Ex. 1 ¶ 8). He is a tax attorney who practices in Massachusetts. (Docket No. 94, Ex. C at 13). He has been a member of the Massachusetts bar since 1976. (Docket No. 65, Ex. 1 ¶ 3). Margaret is approximately 98 years old; she has resided in Ohio since 1964 and currently lives in an assisted-living facility there. (Id. at ¶ 5; Compl. ¶ 2).

The Vanguard Group, Inc.; Vanguard Fiduciary Trust Co.; and Vanguard Marketing Corporation are Pennsylvania corporations with principal places of business in that state. (Compl. ¶ 7). Vanguard is an investment advisor that provides mutual funds, brokerage services, asset management services, and a variety of other investment products and services. (Id. ¶ 9).

In 1999, Kenneth opened an IRA account with Vanguard (the "Kenneth IRA"). (Docket No. 61, Ex. 1). In the process of doing so, he executed an IRA Adoption Agreement (the "IAA"). (Id.).2 By signing the IAA, Kenneth acknowledged "having received and read the Vanguard IRA Disclosure Statement." (Id. at 5). In addition, by signing the IAA, Kennethagreed to the terms of the standard Vanguard Individual Retirement Custodial Account Agreement, which was incorporated by reference. (Id.). The IRA Disclosure Statement and the IRA Custodial Account Agreement are contained in a single continuously paginated document, and will be referred to for convenience as the "1999 CAA." (Id., Ex. 2).3

The IAA provided that "Vanguard will transfer ownership of your IRA to your primary beneficiaries following your death." (Id., Ex. 1 at 4). When he opened the account, Kenneth named Margaret as the sole beneficiary. (Id.).

The 1999 CAA provided that Vanguard "is authorized to amend the Agreement in any respect and at any time . . . to comply with the applicable provisions of the [Tax] Code" and that "[a]ny other amendment . . . shall require the consent of [Vanguard] and the Depositor." (Id., Ex. 2 at 32). It continues: "[f]or these purposes, the Depositor shall be deemed to have consented to any amendment . . . if [he] fails to object thereto within 30 days after having received written notice of the amendment." (Id.).

By the time Kenneth died in 2012, the 1999 CAA had been amended. Section 4.1(b) of the 2012 version (the "2012 CAA") provided that "[t]he Investor's or Beneficiary's request [for distribution of account assets] must be made in a form and manner acceptable to [Vanguard]." (Id., Ex. 3 at 19). Section 4.5(b) likewise provided that "[Vanguard] shall not have any responsibility to make any distribution . . . until it receives . . . directions [from the Investor or Beneficiary] in form and manner acceptable to [Vanguard]." (Id. at 22).4

Vanguard generally requires that requests for distributions from accounts be executed on its own forms. (Id., Ex. 7-9).5 It has specific forms and requirements when the person requesting the distribution is not the account holder, and is acting under a power of attorney or similar grant of authority. (Id., Ex. 8). It will accept externally drafted powers of attorney on a transaction-by-transaction basis, subject to its own determination that the person in fact has the authority to act on behalf of the account holder. (Id. at 2). It requires, under some circumstances, that such a power of attorney be certified independently (such as by outside counsel) that it is valid and in force. (Id.). According to Vanguard, its policies and requirements have been established in order to protect itself, its account holders, and the rightful beneficiaries of those accounts from potential fraud. (Defs.' SMF ¶ 17).

On May 7, 2009, in Ohio, Margaret signed a 2009 Durable General Power of Attorney (the "2009 DGPOA") appointing Peter as her attorney-in-fact. (Docket No. 65, Ex. 33 at 5-6). The 2009 DGPOA in essence provided that Margaret granted to Peter the authority to perform any action on her behalf that she could personally perform. (Id.). That authority specifically included the power to "sign checks, withdraw funds, and to open and close and manage bank, brokerage, mutual fund, and other retirement accounts." (Id. at 5).

On September 30, 2009, Peter sent Vanguard a letter enclosing a copy of the 2009 DGPOA. (Id., Ex. 8). Peter had apparently obtained a copy of Vanguard's standard Agent Authorization form, but declined to execute the form. (Id.). According to his letter, Peter believed that the 2009 DGPOA was sufficient to authorize any of the actions that Vanguard'sform would authorize. (Id.).6

On September 30, 2012, Kenneth died. At that point, the Kenneth IRA held investments totaling approximately $44,896. (Compl. ¶ 19).

On October 2, 2012, after Kenneth's death, Peter called Vanguard employee Joseph McHugh to discuss transferring the assets in the Kenneth IRA to an inherited IRA in Margaret's name. (Docket No. 65, Ex. 6).7 McHugh told Peter that he would send the necessary forms to him to effect the transfer, including a Vanguard Agent Authorization form. (Id. at 36-37). McHugh further told him that in Vanguard's view, the 2009 DGPOA was good only for "a one-time transaction" and that if he wanted "permanent or ongoing authority" for Margaret's account, he would need "to complete an agent authorization." (Id. at 35-36).8 During the October 2 phone call, McHugh acknowledged that Peter had been granted a power of attorney under the 2009 DGPOA, but stated if Vanguard did not have an executed Agent Authorization form on file, it could not accept his signature in lieu of Margaret's. (Id.).

Vanguard then sent its IRA application package to Margaret to effect the transfer of the Kenneth IRA assets to a new inherited IRA in Margaret's name. (Id., Ex. 1 ¶ 10; Ex. 11). The package was sent to Margaret's address of record, which was Peter's address in Massachusetts. (Id.). The Inherited IRA Form, which was part of the package, required the new account owner to sign the form and to confirm, among other things, "that I am signing below to identify myself as the beneficiary of the account(s)." (Id., Ex. 9 at 7).

Peter received the package at his address. (Id., Ex. 1 ¶ 10; Ex. 11). He signed Margaret's name on the forms. (Id., Ex. 1 ¶ 16). However, he did not indicate on the forms that he was signing her name in his capacity as her attorney or agent. (Id. ¶ 18). He named himself and...

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