Lesavoy v. Lane
| Decision Date | 22 January 2004 |
| Docket Number | No. 02 Civ.10162 RWS.,02 Civ.10162 RWS. |
| Citation | 304 F.Supp.2d 520 |
| Parties | Lisa LESAVOY, as Successor Trustee of the Trust under Agreement dated 11/9/93 f/b/o Stephanie Mennen Petit; as Successor Trustee of the Trust under Agreement dated 11/9/93 f/b/o Craig Mennen Keefer, Plaintiff, v. John B. LANE, Rufus F. Land, Comart, Inc., Renee Gatullo-Wilson, Solomon Smith Barney, Inc., Kestrel, LLC and John Doe # 1 To John Doe # 10, the last ten names being fictitious and unknown to the Plaintiff, the persons or parties intended being the owners, directors, officers or other persons or corporations, if any, having participated in the matters described in the complaint, whose identity is as yet unknown to the Plaintiff, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Richard Bonfiglio, Brooklyn, NY, for Plaintiff.
O'Keeffe & Lindgren, White Plains, NY (Richard J. O'Keeffe, of counsel), for Defendants John B. Lane and Kestrell, LLC.
Joel W. Collins, Jr., Columbia, SC, for Defendants John B. Lane and Kestrell, LLC.
Cleary, Gottlieb, Steen & Hamilton, New York, NY (Mitchell A. Lowenthal, Jeffrey A. Rosenthal, Rupa Mitra, Jonathan T. Salomon, of counsel), for Defendants Citigroup Global Markets, Inc. and Renee Gattullo-Wilson.
Defendants Citigroup Global Markets, Inc., sued as "Solomon Smith Barney, Inc." ("SSB"), and Renee Gatullo-Wilson ("Gatullo-Wilson") (collectively the "SSB Defendants") have moved, pursuant to Fed.R.Civ.P. 12(b)(6) and 9(b), to dismiss plaintiff Lisa Lesavoy's claims against them ("Lesavoy"). Defendants John B. Lane ("Lane") and Kestrell, LLC ("Kestrell") have also moved, pursuant to Fed.R.Civ.P. 9(b), 12(b)(3), and 12(b)(6), for an order dismissing Lesavoy's complaint.
For the reasons set forth below, the SSB Defendants' motion is granted, as is Lane's and Kestrell's motion.
A related action has been filed in the United States District Court for the District of South Carolina against defendants John Lane ("Lane"), Rufus Land ("Land"), and others in May 2002.
This action was commenced on December 23, 2002. The instant motions were heard and marked fully submitted on September 17, 2003.
From November 9, 1993 through approximately January 23, 2001, Lane served as Trustee of two South Carolina inter vivos trusts established respectively by Stephanie Mennen Petit (the "Petit Trust") and Craig Mennen Keefer (the "Keefer Trust") (collectively, the "Trusts"). (Compl.¶¶ 16-18.) Lane hired defendant Rufus Land to serve as a financial advisor to the Trusts. Id. ¶ 32. Lane and Land (the "Trust Managers") collaborated with others on the development of the computerized trading software (the "System") intended to predict profitable trades in commodity futures and options. Id. ¶ 63.
In or before January 1995, the Trust Managers opened commodity trading accounts at Merrill Lynch for each of the Trusts and used a portion of the Trusts' assets to make commodity trades pursuant to the System. Id. ¶¶ 75, 80. The Trust Managers engaged in commodity futures and commodity options trades for at least two years through Merrill Lynch accounts. Id. ¶¶ 80-82. The Trusts' beneficiaries approved this trading. Id. ¶ 48.
In January 1997, Lane closed the Trusts' accounts at Merrill Lynch and opened accounts at SSB, with Gatullo-Wilson as the broker. Id. ¶¶ 82-83. Comart, Inc. ("Comart") was the "introducing broker." Id. ¶ 111. Lane executed customary agreements with SSB and furnished SSB with copies of the Petit and Keefer Trust Agreements.
As they had at Merrill Lynch, the Trust Managers traded in commodity futures and options through the Trusts' SSB accounts. The Trust Managers made all trading decisions, and the SSB Defendants executed and cleared the trades. Id. ¶¶ 121, 129, 142, 148, 160, 166, 179, 186.
During Defendants' management of the Trust, an excess of $22 million of trust assets were dissipated.
Lane and Land were terminated on or about January 23, 2001. Lesavoy was subsequently appointed as Successor Trustee.
Lesavoy has charged the SSB Defendants with acting directly and indirectly to aid Lane in breaching the Trust and in unnecessarily interposing Comart as an introducing broker, thereby effectively increasing the cost of executing each trade without conferring any additional benefit. Id. ¶¶ 84-90.
In considering a motion to dismiss pursuant to Rule 12(b)(6), the court should construe the complaint liberally, "accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff's favor." Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir.2002) (citing Gregory v. Daly, 243 F.3d 687, 691 (2d Cir.2001)). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir.1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 235-236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)). Dismissal is only appropriate when "it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him or her to relief." Sweet v. Sheahan, 235 F.3d 80, 83 (2d Cir.2000).
In determining which state's laws to apply, a court must look to the choice of law rules of the state in which it sits. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). According to New York choice of law rules, controlling effect should be given to the law of the jurisdiction with the most significant interest in the dispute. Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir.1996). Here, New York law governs as (i) Plaintiff, SSB, and Gatullo-Wilson are all New York residents, (ii) the agreements involving SSB Defendants are all governed by New York law, (iii) the SSB Defendants' actions took place exclusively in New York, and (iv) Plaintiff chose New York as the forum for this action. See Krock, 97 F.3d 640; Indosuez Int'l Fin. B.V. v. Nat'l Reserve Bank, 98 N.Y.2d 238, 746 N.Y.S.2d 631, 774 N.E.2d 696 (2002).
In any case, New York and South Carolina law are identical in all material respects in this case. As Lesavoy concedes, South Carolina law has the same essential requirements as New York law with regard to claims of aiding and abetting fraud. (Lesavoy's Opp. Mem. at 9, 15, 19-21.)
At all times, the SSB Defendants acted merely as clearing brokers and owed no duty to the Trusts' beneficiaries. There is no general fiduciary duty owed by a broker to its customer with respect to a non-discretionary account. De Kwiatkowski v. Bear, Stearns & Co., 306 F.3d 1293, 1302 (2d Cir.2002) (); Rozsa v. May Davis Group, Inc., 152 F.Supp.2d 526, 531 (S.D.N.Y.2001) (). Lesavoy's complaint itself concedes that the SSB Defendants acted merely as clearing brokers, executing trades directed by the Trust Managers, pursuant to trust instruments that specifically held the SSB Defendants harmless and removed them from any requirement "to investigate the authority of the Trustees for entering into any transaction." (Compl., Ex. A at 13.)
A claim for aiding and abetting a breach of fiduciary duty requires the plaintiff to prove "(1) the existence of a violation committed by the primary (as opposed to the aiding and abetting) party; (2) `knowledge' of this violation on the part of the aider and abettor; and (3) `substantial assistance' by the aider and abettor in achievement of the violation." Briarpatch Ltd. L.P. v. Geisler Roberdeau, Inc., No. 99 Civ. 9623, 2002 WL 31426207, at *7 (S.D.N.Y. Oct.30, 2002). See also Future Group, II v. Nationsbank, 324 S.C. 89, 99, 478 S.E.2d 45, 50 (S.C.1996).
Actual knowledge of a violation is necessary as New York "has not adopted a constructive knowledge standard for imposing aiding and abetting liability." Kolbeck v. LIT Am., Inc., 939 F.Supp. 240, 246 (S.D.N.Y.1996), aff'd, 152 F.3d 918, 1998 WL 406036 (2d Cir.1998); see also Briarpatch, 2002 WL 31426207, at *10. It is thus insufficient to assert that the SSB Defendants should have known of misdeeds by the Trust Managers. Clark v. TRO Learning, Inc., No. 97 C 8683, 1998 WL 292382, at *5 (); Harris v. IVAX Corp., 998 F.Supp. 1449, 1454-55 (S.D.Fla.1998) (same).
Thus, Lesavoy must allege and prove that the SSB Defendants had actual knowledge that the Trust Managers breached their fiduciary duties and intentionally provided them with assistance in this connection. Kolbeck, 939 F.Supp. at 246; Briarpatch Ltd., 2002 WL 31426207 at *7; Future Group, II, 478 S.E.2d at 50. However, the complaint only alleges the SSB Defendants' knowledge that Lane and Land were fiduciaries, not that there were breaches. Mere knowledge of a fiduciary duty is insufficient as it is not equivalent to knowledge of a breach of that duty.
Lesavoy alleges upon "information and belief" that "Gatullo-Wilson, and accordingly SSB, knew of the $1,000,000.00 limitation on assets to be committed to commodities futures and commodities options transactions represented by Lane and Land to Petit and Keefer." (Compl.¶ 49.) The basis of this cap was an alleged oral discussion between Lane and the Trust's beneficiaries. Id. However, no facts are pled regarding where, when, or how the Trust Managers advised the SSB Defendants of this cap. Furthermore, if Lane and Land were really exceeding oral limitations on...
To continue reading
Request your trial
-
U.S. v. International Longshoremen's Ass'n
...be incorporated loosely from a previous narration, but must be tightly particularized and connected in a complaint." Lesavoy v. Lane, 304 F.Supp.2d 520, 532 (S.D.N.Y.2004) (quoting Zaro Licensing, Inc. v. Cinmar, Inc., 779 F.Supp. 276, 284 (S.D.N.Y.1991)), aff'd in relevant part sub nom. Le......
-
Bear, Stearns Funding v. Interface Group-Nevada
...were made to its legal team. "Conclusory pleadings `on information and belief' are inadequate as a matter of law." Lesavoy v. Lane, 304 F.Supp.2d 520, 527 (S.D.N.Y.2004); Lovely Peoples Fashion, Inc. v. Magna Fabrics, Inc., 95 Civ. 8450, 1996 WL 732634, at *5 (S.D.N.Y.Dec.19, 1996) (dismiss......
-
Crab House of Douglaston, Inc. v. Newsday, Inc.
...plead the "`[p]erformance of tasks that are "necessary or helpful" to the enterprise.'" (Defs.' Mem. at 13 (quoting Lesavoy v. Lane, 304 F.Supp.2d 520, 534 (S.D.N.Y. 2004) (quoting United States v. Viola, 35 F.3d 37, 40-41 (2d Cir.1994))).) Plaintiffs simply counter that "[t]he SAC identifi......
-
Rosner v. Bank of China
...purpose.") (internal quotations omitted) (citing United States v. Maher, 108 F.3d 1513, 1525-28 (2d Cir.1997)); Lesavoy v. Lane, 304 F.Supp.2d 520, 533 (S.D.N.Y.2004) ("To establish a violation of section 2314, it must be shown (1) that the defendant transported `goods, wares, or merchandis......