Kagan et al v. Wachovia Securities, LLC et al

Filing 66

ORDER by Judge Samuel Conti in case 3:09-cv-05337-SC; denying (58) Motion to Dismiss; granting (66) Motion to Consolidate Cases in case 3:11-cv-00412-SC (sclc1, COURT STAFF) (Filed on 7/5/2011)

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1 2 3 4 IN THE UNITED STATES DISTRICT COURT 5 FOR THE NORTHERN DISTRICT OF CALIFORNIA 6 7 8 9 For the Northern District of California United States District Court 10 11 12 13 14 15 16 17 18 19 20 21 22 BRENT BALKEMA, as Trustee for the Jesse J. Balkema Rev Trust, on behalf of himself and all others similarly situated, ) ) ) ) ) Plaintiff, ) ) v. ) ) WACHOVIA SECURITIES, LLC, a North ) Carolina limited liability ) company; WACHOVIA SECURITIES ) FINANCIAL NETWORK, LLC, a North ) Carolina limited liability ) company; WELLS FARGO ADVISORS, ) LLC, a Delaware limited liability ) company; and WELLS FARGO ) SECURITIES FINANCIAL NETWORK, LLC, ) a Delaware limited liability ) company, ) ) Defendants. ) ) I. Case No. 11-412 SC ORDER DENYING DEFENDANTS' MOTION TO DISMISS AND GRANTING PLAINTIFF'S MOTION TO CONSOLIDATE INTRODUCTION Before the Court is a Motion to Dismiss filed by Defendants 23 Wells Fargo Advisors, LLC (sued under this name and under the name 24 "Wachovia Securities, LLC") and Wells Fargo Advisors Financial 25 Network, LLC (sued under this name and under the name "Wachovia 26 Securities Financial Network, LLC") (collectively, "Defendants"). 27 ECF No. 58 ("Mot."). 28 an Opposition, and Defendants filed a Reply. Plaintiff Brent Balkema ("Plaintiff") filed ECF No. 68 ("Opp'n"), 1 69 ("Reply"). 2 consolidate this case with another action before this Court, Kagan 3 v. Wachovia Securities, LLC, No. 09-5337 (N.D. Cal., filed Nov. 10, 4 2009) ("Kagan"). 5 their Motion to Dismiss, if granted, would render Plaintiff's 6 Motion moot, but do not oppose Plaintiff's Motion in the event 7 their Motion to Dismiss is denied. 8 reasons, the Court DENIES Defendants' Motion to Dismiss, GRANTS 9 Plaintiff's Motion to Consolidate, and CONSOLIDATES this action United States District Court For the Northern District of California 10 Also before the Court is Plaintiff's motion to ECF No. 66 ("Pl.'s Mot."). Defendants argue that ECF No. 67. For the following with Kagan. 11 12 13 II. BACKGROUND As it must on a Federal Rule of Civil Procedure 12(b)(6) 14 motion, the Court assumes the truth of the well-pleaded facts in 15 Plaintiff's Complaint. 16 "Wachovia Securities," which he claims is "a trade name that was 17 owned at varying times by each of the four Defendants." 18 ("Compl.") ¶ 6. 19 Asia Pulp and Paper Company ("APP") through his account with 20 Wachovia Securities. 21 custom in the industry that when a client buys securities through a 22 brokerage firm, the firm holds the securities in its own name 23 (referred to as "street name"), rather than in the client's name. 24 Id. ¶ 22. 25 owner of the securities and the broker is the record owner of the 26 securities. 27 an accommodation to the brokerage firm, in order to allow 28 securities to be easily transferred between parties. Plaintiff maintained an account with ECF No. 1 In 1998, Plaintiff purchased securities issued by Id. ¶ 21. Plaintiff alleges that it is a Under this arrangement, the client is the beneficial Id. Plaintiff alleges that this practice serves "as 2 By holding 1 the securities in street name, the brokerage firm can avoid delays 2 associated with the transfer of ownership and quickly settle 3 trades." 4 the broker has the responsibility to forward to the client 5 "information related to that security, such as proxy statements or 6 Class Action Notices." 7 Id. ¶ 23. Plaintiff alleges that under this arrangement, Id. ¶ 24. In 2001, APP was sued in the Southern District of New York for 8 violation of securities law. In Re Asia Pulp & Paper Sec. Lit., 9 No. 01-CV-7451 (filed Aug. 8, 2001) ("APP"). A settlement was United States District Court For the Northern District of California 10 reached around November 30, 2005; under the settlement, APP agreed 11 to pay around $46 million to investors who purchased certain APP 12 securities during the period August 28, 1998 to April 4, 2001. 13 Compl. ¶¶ 19, 20. 14 APP securities through Wachovia Securities on September 11, 1998, 15 he is a member of the settlement class. 16 Plaintiff alleges that because he purchased the Id. ¶ 21. Plaintiff alleges that the APP court ordered record owners, 17 such as Defendants, to provide a copy of the notice of class action 18 settlement to the beneficial owners. 19 that Defendants failed to provide such notice, and as a result, 20 Plaintiff was denied the opportunity to benefit from the 21 settlement. 22 against Defendants: breach of contract, negligence, and breach of 23 fiduciary duty. 24 Plaintiff alleges that "[b]y titling securities belonging to Named 25 Plaintiff and Class Members in street name, Wachovia agrees to 26 provide Named Plaintiff and Class Members with all relevant 27 communications pertaining to those securities." 28 pleading its negligence claim, Plaintiff alleges that Defendants Id. ¶ 26. Id. ¶ 25. Plaintiff alleges Plaintiff brings three causes of action See id. As to the breach of contract claim, 3 Id. ¶ 28. In 1 were "under a duty to either forward the Notice to Named Plaintiff 2 and Class Members" or provide their contact information to the 3 settlement administrator, Analytics, Inc., and alleges that 4 Defendants breached this duty. 5 fiduciary duty claim, Plaintiff alleges that Defendants owed 6 Plaintiff a fiduciary duty to forward communications concerning 7 securities held in street name, and breached this duty by failing 8 to forward the notice to Plaintiff. 9 Id. ¶¶ 31-34. As to his breach of Id. ¶ 35-37. Plaintiff filed suit in the District Court for the Southern See Compl. On January United States District Court For the Northern District of California 10 District of Indiana on November 23, 2009. 11 25, 2011, Plaintiff filed a motion to transfer the case to the 12 Northern District of California, citing Kagan, an earlier-filed 13 action which Plaintiff claims to be a nearly identical suit "based 14 upon the same facts which gave rise to Mr. Balkema's claim." 15 No. 41. at 1-2. 16 district court in Indiana ordered the case transferred to this 17 Court. 18 ECF Defendants did not oppose the Motion, and the ECF No. 42. Now Defendants move to dismiss the action. Defendants admit 19 that the arguments they raise in their Motion were made in a 20 similar motion filed in Kagan and were subsequently rejected by the 21 Court. 22 Kagan, Indiana law should apply to this action, and that under 23 Indiana law, Plaintiff's Complaint is time-barred. 24 additionally argue that Plaintiff's breach of fiduciary duty claim 25 should be dismissed because "Plaintiff pleads no facts giving rise 26 to a fiduciary relationship" and that the breach-of-contract claim 27 should be dismissed because "Plaintiff does not plead sufficient 28 factual detail concerning the alleged contract." They argue that whereas the Court applied California law in 4 Defendants 1 III. LEGAL STANDARD A motion to dismiss under Federal Rule of Civil Procedure 2 3 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. 4 Block, 250 F.3d 729, 732 (9th Cir. 2001). 5 on the lack of a cognizable legal theory or the absence of 6 sufficient facts alleged under a cognizable legal theory. 7 Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 8 1990). 9 should assume their veracity and then determine whether they Dismissal can be based "When there are well-pleaded factual allegations, a court United States District Court For the Northern District of California 10 plausibly give rise to an entitlement to relief." Ashcroft v. 11 Iqbal, 129 S. Ct. 1937, 1950 (2009). 12 court must accept as true all of the allegations contained in a 13 complaint is inapplicable to legal conclusions. 14 recitals of the elements of a cause of action, supported by mere 15 conclusory statements, do not suffice." 16 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). 17 allegations made in a complaint must be both "sufficiently detailed 18 to give fair notice to the opposing party of the nature of the 19 claim so that the party may effectively defend against it" and 20 sufficiently plausible such that "it is not unfair to require the 21 opposing party to be subjected to the expense of discovery." 22 v. Baca, 633 F.3d 1191, 1204 (9th Cir. 2011). However, "the tenet that a Threadbare Iqbal, 129 S. Ct. at 1950 The Starr 23 24 25 IV. DISCUSSION Defendants admit that Plaintiff's Complaint is "substantively 26 similar" to Kagan, and additionally admit that Kagan survived a 27 motion to dismiss raising similar statute-of-limitations and Rule 28 12(b)(6) arguments. Mot at. 1. Defendants argue that whereas the 5 1 Court's order denying the Kagan motion to dismiss applied 2 California law, the Court should apply Indiana law to this action, 3 citing Ferens v. John Deere Co., 494 U.S. 516, 519 (1990) (holding 4 that when a case is transferred on a plaintiff's motion under 28 5 U.S.C. § 1404(a), the transferee forum should apply the law of the 6 transferor court). 7 Plaintiff's claims are time-barred. 8 Indiana law applies, writing: "Named Plaintiff believes the Court 9 will choose to apply either the law of California or the state Defendants allege that under Indiana law, Id. Plaintiff disputes that United States District Court For the Northern District of California 10 specified in the choice of law provision, if any, contained in the 11 parties' brokerage agreement, a copy of which will be obtained in 12 discovery." 13 even if the Court determines that Indiana law applies, Defendants' 14 Motion should be denied. Opp'n at 2 n.2. Plaintiff additionally alleges that Id. Plaintiff cites no law to challenge the applicability of 15 16 Ferens. 17 California enforces choice-of-law provisions in brokerage 18 agreements. 19 the Court assumes Indiana law, rather than California law, applies. Nor does he cite any law to support his proposition that Therefore, for the purposes of ruling on this Motion, In Indiana, "[a] cause of action accrues, and the statute of 20 21 limitations begins to run, when the plaintiff knew or in the 22 exercise of ordinary diligence could have discovered that an injury 23 had been sustained as a result of the tortious act of another." 24 Del Vecchio v. Conseco, Inc., 788 N.E. 2d 446, 449 (Ind. Ct. App. 25 2003). 26 settlement by February 27, 2006, when notice of the settlement was 27 published in the Wall Street Journal and the Financial Times. 28 at 8. Defendants allege that Plaintiff had notice of the Mot. Defendants argue that Plaintiffs could have "discovered," 6 1 2 through ordinary diligence, the alleged tortious conduct." Id. Plaintiff argues that notice by publication alone is not 3 enough to provide him with notice of the settlement; Plaintiff 4 alleges that the APP court approved an "entire notice scheme, 5 including the requirement that the brokerage firms holding the 6 securities in street name make arrangements for beneficial owners 7 to receive direct notice of the settlement." 8 9 The Court agrees with Plaintiff. Opp'n at 5-6. Plaintiff alleges that Defendants failed to provide Plaintiff with direct notice of the United States District Court For the Northern District of California 10 settlement, and this forms the basis of his claims. 11 unchallenged that notice of the settlement was published in the 12 Wall Street Journal and the Financial Times does not establish that 13 Plaintiff could have discovered a sustained injury as a result of 14 Defendants. 15 Plaintiff learned of the alleged injury is a factual matter not 16 appropriate for determination on this Motion to Dismiss. 17 That it is As such, the Court finds that the issue of when Defendants additionally argue that Plaintiff's breach of 18 fiduciary duty claim fails because the Complaint pleads no facts 19 giving rise to a fiduciary relationship. 20 allege that "Indiana courts 'have never held' that a 'special 21 fiduciary trust' exists between a broker and its client." 22 (quoting Dolatowski v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 23 808 N.E. 2d. 676, 681-82 (Ind. Ct. App. 2004)). 24 that a fiduciary relationship between a broker and client exists 25 "only in specific factual circumstances." 26 Mot. at 9. Defendants Id. Defendants allege Mot. at 9. Plaintiff responds that he has pleaded sufficient facts to 27 establish the existence of a fiduciary relationship based on the 28 "simple proposition that one who holds title to property for the 7 1 benefit of another owes a fiduciary duty to the beneficial owner, 2 as a trustee." 3 Opp'n at 7. The Court agrees with Plaintiff; Plaintiff has adequately 4 pleaded a claim for breach of fiduciary duty given the allegation 5 that as the record owner of Plaintiff's securities, Defendants held 6 title to Plaintiff's securities for the benefit of Plaintiff. 7 Finally, Defendants argue that Plaintiff's breach of contract 8 claim fails because Plaintiff does not plead sufficient factual 9 detail concerning the alleged contract. Mot. at 10. Defendants United States District Court For the Northern District of California 10 argue that "Plaintiff's conclusory allegation of an implied 11 contract . . . is not sufficient to state a claim for breach of 12 contract." 13 establish that an implied contract existed between the parties, a 14 plaintiff "must show that the parties' actions evidenced a mutual 15 agreement and an intent to promise." 16 Ltd. Med. Research, 675 N.E. 2d 704, 709 (Ind. Ct. App. 1996)). 17 Defendants allege that to state a claim under Rule 12(b)(6), 18 Plaintiff must plead (1) what promises defendant made to plaintiff, 19 (2) how these promises were communicated, (3) what plaintiff 20 promised in return, or (4) how these promises created an implied 21 contract. 22 Id. Defendants claim that under Indiana law, to Id. (citing Ahuja v. Lynco Mot. at 10. Plaintiff counters that he has properly pleaded "the grounds 23 upon which the contract was formed, and the nature of the promises 24 made." 25 "By titling securities belonging to Named Plaintiff and Class 26 Members in street name, Wachovia agrees to provide Named Plaintiff 27 and Class Members with all relevant communications pertaining to 28 those securities." Opp'n at 9. In support, Plaintiff cites to his Complaint: Compl. ¶ 28. 8 The Court agrees with Plaintiff. 1 Plaintiff has identified a 2 specific bargain between Plaintiff and Defendants giving rise to a 3 claim for breach of an implied contract: Defendants titled 4 Plaintiff's securities in street name "as an accommodation to the 5 brokerage firm, in order to allow securities to be easily 6 transferred between parties." 7 agreed to provide Plaintiff with all relevant communications 8 pertaining to these securities. 9 Plaintiff's breach-of-contract claim to be adequately pleaded. Opp'n at 9. In exchange, Defendants As such, the Court finds United States District Court For the Northern District of California 10 11 V. CONCLUSION 12 For the foregoing reasons, the Court DENIES the Motion to 13 Dismiss brought by Defendants Wells Fargo Advisors, LLC (sued under 14 this name and under the name "Wachovia Securities, LLC") and Wells 15 Fargo Advisors Financial Network, LLC (sued under this name and 16 under the name "Wachovia Securities Financial Network, LLC"). 17 Court GRANTS Plaintiff Brent Balkema's unopposed motion to 18 consolidate, and CONSOLIDATES this action with Kagan v. Wachovia 19 Securities, LLC, No. 09-5337 (N.D. Cal., filed Nov. 10, 2009), 20 pursuant to Rule 42(a) of the Federal Rules of Civil Procedure. 21 22 IT IS SO ORDERED. 23 24 25 Dated: July 5, 2011 UNITED STATES DISTRICT JUDGE 26 27 28 9 The

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