Lamm v. State Street Bank & Trust Co.
889 F. Supp. 2d 1321
S.D. Fla.2012Background
- Plaintiff hired TAG (and TAG Virgin Islands) as advisers in 2001, authorizing discretionary trading.
- Two custody accounts were created: Chase Agreement (2001) and IRA Agreement (2002).
- State Street became custodian for both accounts in 2007 and assumed custody obligations.
- From 2007–2009, TAG engaged in fraudulent micro-cap and related loans; State Street transmitted funds per TAG’s instructions.
- April 28, 2011, State Street advised it would stop valuing certain illiquid assets due to TAG’s lack of current valuations, setting asset values to zero in statements.
- Plaintiff sues State Street for seven tort and contract counts, alleging breaches of contract, fiduciary duties, negligence, and aiding/abetting fraud/fiduciary breaches; State Street moves to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Governing law and contract interpretation | Plaintiff seeks duties beyond written contracts. | State Street’s duties are limited to express contract terms. | New York law governs contract claims; Florida law for torts where applicable; contract limits apply. |
| Breach of contract viability | Custodian breached duties by processing transactions and misreporting values. | Duties are limited to explicit terms; no obligation to supervise investments or validate values. | No breach; duties are limited to instructions and stated obligations; discovery of fraud not a contractual duty. |
| Economic loss rule and tort claims | State Street’s negligence/fiduciary duties caused economic loss. | Economic loss rule bars tort recovery when contract governs; no independent fiduciary duty. | Tort claims barred by economic loss rule; no fiduciary duty independent of contract. |
| Aiding and abetting and knowledge required | State Street knowingly aided fraud/fiduciary breach. | Plaintiff fails to show actual knowledge and substantial assistance. | Aiding and abetting claims fail for lack of actual knowledge and absence of duty to disclose. |
| Rule 9(b) and pleading standards | Fraud-based allegations meet heightened pleading requirements. | Pleading too conclusory; lacks particularized facts of fraud. | Rule 9(b) satisfied to the extent alleged; but overall claims fail on merits. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility standard for pleadings; not mere speculation)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (reaffirms plausibility standard; rejects purely conclusory allegations)
- Greenfield v. Philles Records, Inc., 98 N.Y.2d 562 (N.Y. 2002) (contracts interpreted by intent and plain meaning)
- Acme Supply Co., Ltd. v. City of New York, 39 A.D.3d 331 (N.Y. App. Div. 2007) (contract interpretation; avoid reading into contract beyond text)
- Western World & Banc of Am. Sec., LLC (SFM Holdings), 600 F.3d 1334 (11th Cir. 2010) (economic loss rule; fiduciary duties not implied by contract)
- Monreal v. Fleet Bank, 95 N.Y.2d 204 (N.Y. 2000) (duty to examine statements; timely notice defense)
- Puerto Rico Tel. Co. v. SprintCom, Inc., 662 F.3d 74 (1st Cir. 2011) (specific contract provisions trump general ones)
- Greenfield v. Philles Records, Inc., 98 N.Y.2d 562 (N.Y. 2002) (contract interpretation; purpose of agreement)