935 F. Supp. 2d 240
D. Mass.2013Background
- Five Custody Account Agreements governed by NY and MA law under which State Street held assets for Szulik family and TAG managed investments; TAG allegedly defrauded clients by shifting from safe, high-quality assets to high-risk, illiquid securities with kickbacks; plaintiffs allege State Street breached contract, acted negligently, enriched itself unjustly, and breached fiduciary duties; contracts included explicit liability limitations and sole reliance on TAG for investment decisions; plaintiffs seek damages and disgorgement of fees.
- State Street successors Chemical Bank and IBT allegedly assumed duties as custodian; the Szulik Trusts and Szulik Children Trusts were beneficiaries; custody accounts included Joint Account Agreement (1996), Raymond Trust Agreement (2004), and Szulik Children Trust Agreements (2008).
- TAG operated with plaintiffs’ approval but liquidated conservative holdings and invested in defective assets; State Street allegedly disbursed funds in accordance with TAG’s instructions without proper custody or verification.
- The court granted in part and denied in part State Street’s Motion to Dismiss, recommending counts I–IV survive in part, Count V (fiduciary duty) be dismissed, and certain waiver/alternative theories affect which counts proceed.
- The action proceeded under Rule 12(b)(6) standards with consideration of contract interpretations, waiver provisions, and the economic loss/civil tort distinctions.
- The recommended disposition was issued on February 6, 2013, with further briefing and 14-day objection window Pursuant to Fed. R. Civ. P. 72.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Contract duty scope | Szuliks: custodian duties exceed self-imposed limits and include safeguarding assets | State Street: agreements limited duties; no obligation to verify investments | Counts I–II survive in part; some duties recognized, others barred by contract terms |
| Untimely delivery and custody of assets | Delays in taking custody or delivering securities breached agreements | Agreements allowed reliance on TAG and did not require timely receipt | Untimely delivery claims dismissed for Joint Account Agreement; some misreporting claims survive under same counts |
| Misreporting and fake identifiers | State Street inflated asset values and used phony CUSIPs to mislead | Statements and waivers limit claims; reliance on external standards | Waiver bars Raymond Trust/Szulik Children Trust claims; joint account misreporting and CUSIP claims may proceed |
| Excessive fees | Fees charged based on inflated values due to improper asset valuations | Fees governed by schedule; no improper basis stated | Count IV (unjust enrichment) survives; fee-based contract claims remain viable |
| Fiduciary duty | State Street owed fiduciary duties due to custody relationship and client reliance | No fiduciary relationship; contractual duties control | Count V dismissed (no fiduciary relationship found) |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading standard requires plausible claims, not mere conclusory assertions)
- Twombly v. Bell Atl. Corp., 550 U.S. 544 (U.S. 2007) (claims must be plausible, not merely possible)
- Maldonado v. Fontanes, 568 F.3d 263 (1st Cir. 2009) (guide to pleading standards in the First Circuit)
- Burns v. Del. Charter Guar. & Trust Co., 805 F. Supp. 2d 12 (S.D.N.Y. 2011) (economic loss doctrine and the duty of care under contracts)
- Xpedior Creditor Trust v. Credit Suisse First Boston (USA) Inc., 341 F. Supp. 2d 258 (S.D.N.Y. 2004) (tort claims arising from contractual relationships; pleading alternatives)