Grund v. Delaware Charter Guarantee & Trust Co.
788 F. Supp. 2d 226
S.D.N.Y.2011Background
- Plaintiffs Grund et al. and others filed a Consolidated Amended Complaint alleging multiple contractual, fiduciary, negligence, unjust enrichment, and ERISA-related claims against Principal Financial Group and Principal Trust.
- Plaintiffs allege the SIRTA formed the basis of traditional IRAs and that defendants managed investments in the Westgate Fund, a Ponzi scheme run by James Nicholson.
- Defendants moved to dismiss the CAC under Rule 12(b)(6), arguing lack of federal claims, standing, and preemption concerns.
- The CAC lists twenty-six claims across federal and state law, including breach of contract, negligence, fiduciary duty, unjust enrichment, and ERISA-related theories, with focus on fiduciary and custodial duties under IRC § 408.
- The Court follows Iqbal and Twombly to evaluate plausibility, and groups claims for analysis, addressing federal claims, contract claims, negligence, fiduciary duties, and unjust enrichment separately.
- The Court determines that some claims survive, some are dismissed, and grants leave to amend state-law claims within 60 days.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether IRC § 408 creates a private right of action | Plaintiffs contend § 408 imposes fiduciary duties actionable under private law | Defendants argue § 408 does not create a private right of action and limits remedies to the tax code | § 408 provides no private right of action |
| ERISA standing to sue | Plaintiffs seek ERISA-based claims as participants/beneficiaries | ERISA claims lack standing and ERISA does not cover IRAs | ERISA claims dismissed for lack of standing |
| SLUSA preemption of state-law claims | Plaintiffs' state-law claims relate to fiduciary duties and contracts within an IRA context | SLUSA preempts state-law securities-class actions | State-law claims are not precluded by SLUSA; claims do not turn on fraud in connection with purchase/sale of a covered security |
| Choice of law governing contract vs tort claims | Choice-of-law clause may compel applying Delaware law to contract claims and potentially other states for tort | Delaware law for contract; New York/Jersey/California for tort | Delaware law applies to contract claims; tort claims apply New York, New Jersey, and California law per interest-analysis |
| Whether breach of fiduciary duty claims are duplicative of contract claims | Fiduciary duties arise independently from the contractual relationship | Fiduciary duties may be duplicative of contract and should be dismissed | Breach of fiduciary duty claims survive where independent duties exist |
Key Cases Cited
- New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308 (N.Y. 1995) (interpretation of duty to perform insurance contract; choice-of-law and preemption context)
- Dabit v. Merrill Lynch, Pierce Fenner & Smith, Inc., 547 U.S. 71 (U.S. 2006) (SLUSA preemption; fraud must relate to purchase/sale of securities)
- English v. Gen. Elec. Co., 496 U.S. 72 (U.S. 1990) (federal preemption and field preemption concepts; respect for state-law domains)
- Erie R. Co. v. Tompkins, 304 U.S. 64 (U.S. 1938) (establishing Erie doctrine; no federal general common law)
- Cooney v. Osgood Mach., 81 N.Y.2d 66 (N.Y. 1993) (application of choice-of-law and conduct-regulating analysis in tort)
- Ackerman v. Price Waterhouse, 252 A.D.2d 179 (N.Y. App. Div. 1st Dept. 1998) (fiduciary duty pleading standards and duplicative contract considerations)