2012 IL App (1st) 103303
Ill. App. Ct.2012Background
- Plaintiffs opened IRAs with Soy Capital Bank and Trust, which acted as custodian and charged fees.
- Hubadex operated pooled investments (Quarter, Symmetry, Trimester Funds) later alleged to be a Ponzi scheme; SEC filed suit in 2009 naming Hubadex and owner.
- Plaintiffs’ documents stated Soy had no duty to investigate the value of investments and included a release holding Soy harmless for losses from investment directions.
- Investment directions directed funds to Hubadex and Soy registered investments in Soy’s name for the benefit of the IRAs.
- Financial disclosures warned the value of IRA assets could not be reasonably projected and expressly released Soy from duties to investigate or verify values.
- Circuit court dismissed all counts; appellate court affirmed, ruling exculpatory provisions controlled and release bar claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Soy owe a fiduciary duty to investigate values? | Tucker argues a fiduciary duty to verify Hubadex values. | Soy contends no such duty exists due to the exculpatory agreement. | No fiduciary duty; releases control. |
| Do the IRA documents release claims even if a fiduciary duty existed? | Documents show implied duties despite releases. | Explicit releases negate duties and claims. | Exculpatory provisions bar claims. |
| Are the Illinois Trusts and Trustees Act claims viable when an express contract exists? | Act governs trust duties, potentially imposing prudent-investor duties. | No express trust; exculpations apply; Act limitations. | Act claims dismissed; exculpation controls. |
| Is professional negligence viable against a bank custodian? | Bank duties arise from professional standard. | Bank not a professional; no such duty. | Dismissed; no professional relationship. |
| Do contract, conspiracy, bailment, or willful misconduct claims survive? | Allege breach of contract and related torts. | Contracts and releases foreclose duties; no torts shown. | All counts dismissed. |
Key Cases Cited
- Neade v. Portes, 193 Ill. 2d 433 (2000) (elements of fiduciary duty and damages)
- First Midwest Bank/Joliet v. Dempsey, 157 Ill. App. 3d 307 (1987) (no extra duties added to contractual bank-customer duties)
- Masi v. Ford City Bank & Trust Co., 779 F.2d 397 (7th Cir. 1985) (IRAs as trust relationships; fiduciary duties discussed)
- In re Estate of Davis, 225 Ill. App. 3d 998 (1992) (IRA not express trust absent intent; custodial accounts as property issue)
- Mandelbaum v. Fiserv, Inc., 787 F. Supp. 2d 1226 (D. Colo. 2011) (IRAs under 408 IRS code; no federal private right action; exculpatory IRA contracts)
- Sirna v. Prudential Securities, Inc., No. 95 CIV. 8422, 1997 WL 53194 (S.D.N.Y. 1997) (statutory IRA tax framework not creating private action)