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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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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For the Northern District of California

United States District Court

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BRENT BALKEMA, as Trustee for the
Jesse J. Balkema Rev Trust, on
behalf of himself and all others
similarly situated,

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Plaintiff,
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v.
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WACHOVIA SECURITIES, LLC, a North )
Carolina limited liability
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company; WACHOVIA SECURITIES
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FINANCIAL NETWORK, LLC, a North
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Carolina limited liability
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company; WELLS FARGO ADVISORS,
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LLC, a Delaware limited liability )
company; and WELLS FARGO
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SECURITIES FINANCIAL NETWORK, LLC, )
a Delaware limited liability
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company,
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Defendants.
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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

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Wells Fargo Advisors, LLC (sued under this name and under the name

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"Wachovia Securities, LLC") and Wells Fargo Advisors Financial

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Network, LLC (sued under this name and under the name "Wachovia

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Securities Financial Network, LLC") (collectively, "Defendants").

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ECF No. 58 ("Mot.").

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an Opposition, and Defendants filed a Reply.

Plaintiff Brent Balkema ("Plaintiff") filed
ECF No. 68 ("Opp'n"),

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69 ("Reply").

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consolidate this case with another action before this Court, Kagan

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v. Wachovia Securities, LLC, No. 09-5337 (N.D. Cal., filed Nov. 10,

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2009) ("Kagan").

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their Motion to Dismiss, if granted, would render Plaintiff's

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Motion moot, but do not oppose Plaintiff's Motion in the event

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their Motion to Dismiss is denied.

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reasons, the Court DENIES Defendants' Motion to Dismiss, GRANTS

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Plaintiff's Motion to Consolidate, and CONSOLIDATES this action

United States District Court

For the Northern District of California

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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.

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II.

BACKGROUND
As it must on a Federal Rule of Civil Procedure 12(b)(6)

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motion, the Court assumes the truth of the well-pleaded facts in

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Plaintiff's Complaint.

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"Wachovia Securities," which he claims is "a trade name that was

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owned at varying times by each of the four Defendants."

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("Compl.") ¶ 6.

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Asia Pulp and Paper Company ("APP") through his account with

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Wachovia Securities.

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custom in the industry that when a client buys securities through a

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brokerage firm, the firm holds the securities in its own name

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(referred to as "street name"), rather than in the client's name.

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Id. ¶ 22.

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owner of the securities and the broker is the record owner of the

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securities.

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an accommodation to the brokerage firm, in order to allow

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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

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By holding

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the securities in street name, the brokerage firm can avoid delays

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associated with the transfer of ownership and quickly settle

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trades."

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the broker has the responsibility to forward to the client

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"information related to that security, such as proxy statements or

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Class Action Notices."

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Id. ¶ 23.

Plaintiff alleges that under this arrangement,

Id. ¶ 24.

In 2001, APP was sued in the Southern District of New York for

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violation of securities law.

In Re Asia Pulp & Paper Sec. Lit.,

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No. 01-CV-7451 (filed Aug. 8, 2001) ("APP").

A settlement was

United States District Court

For the Northern District of California

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reached around November 30, 2005; under the settlement, APP agreed

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to pay around $46 million to investors who purchased certain APP

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securities during the period August 28, 1998 to April 4, 2001.

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Compl. ¶¶ 19, 20.

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APP securities through Wachovia Securities on September 11, 1998,

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he is a member of the settlement class.

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Plaintiff alleges that because he purchased the

Id. ¶ 21.

Plaintiff alleges that the APP court ordered record owners,

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such as Defendants, to provide a copy of the notice of class action

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settlement to the beneficial owners.

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that Defendants failed to provide such notice, and as a result,

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Plaintiff was denied the opportunity to benefit from the

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settlement.

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against Defendants: breach of contract, negligence, and breach of

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fiduciary duty.

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Plaintiff alleges that "[b]y titling securities belonging to Named

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Plaintiff and Class Members in street name, Wachovia agrees to

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provide Named Plaintiff and Class Members with all relevant

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communications pertaining to those securities."

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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,

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Id. ¶ 28.

In

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were "under a duty to either forward the Notice to Named Plaintiff

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and Class Members" or provide their contact information to the

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settlement administrator, Analytics, Inc., and alleges that

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Defendants breached this duty.

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fiduciary duty claim, Plaintiff alleges that Defendants owed

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Plaintiff a fiduciary duty to forward communications concerning

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securities held in street name, and breached this duty by failing

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to forward the notice to Plaintiff.

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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

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District of Indiana on November 23, 2009.

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25, 2011, Plaintiff filed a motion to transfer the case to the

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Northern District of California, citing Kagan, an earlier-filed

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action which Plaintiff claims to be a nearly identical suit "based

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upon the same facts which gave rise to Mr. Balkema's claim."

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No. 41. at 1-2.

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district court in Indiana ordered the case transferred to this

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Court.

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ECF

Defendants did not oppose the Motion, and the

ECF No. 42.

Now Defendants move to dismiss the action.

Defendants admit

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that the arguments they raise in their Motion were made in a

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similar motion filed in Kagan and were subsequently rejected by the

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Court.

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Kagan, Indiana law should apply to this action, and that under

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Indiana law, Plaintiff's Complaint is time-barred.

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additionally argue that Plaintiff's breach of fiduciary duty claim

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should be dismissed because "Plaintiff pleads no facts giving rise

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to a fiduciary relationship" and that the breach-of-contract claim

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should be dismissed because "Plaintiff does not plead sufficient

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factual detail concerning the alleged contract."

They argue that whereas the Court applied California law in

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Defendants

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III. LEGAL STANDARD
A motion to dismiss under Federal Rule of Civil Procedure

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12(b)(6) "tests the legal sufficiency of a claim."

Navarro v.

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Block, 250 F.3d 729, 732 (9th Cir. 2001).

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on the lack of a cognizable legal theory or the absence of

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sufficient facts alleged under a cognizable legal theory.

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Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.

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1990).

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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

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plausibly give rise to an entitlement to relief."

Ashcroft v.

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Iqbal, 129 S. Ct. 1937, 1950 (2009).

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court must accept as true all of the allegations contained in a

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complaint is inapplicable to legal conclusions.

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recitals of the elements of a cause of action, supported by mere

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conclusory statements, do not suffice."

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(citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

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allegations made in a complaint must be both "sufficiently detailed

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to give fair notice to the opposing party of the nature of the

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claim so that the party may effectively defend against it" and

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sufficiently plausible such that "it is not unfair to require the

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opposing party to be subjected to the expense of discovery."

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v. Baca, 633 F.3d 1191, 1204 (9th Cir. 2011).

However, "the tenet that a

Threadbare

Iqbal, 129 S. Ct. at 1950
The

Starr

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IV.

DISCUSSION
Defendants admit that Plaintiff's Complaint is "substantively

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similar" to Kagan, and additionally admit that Kagan survived a

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motion to dismiss raising similar statute-of-limitations and Rule

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12(b)(6) arguments.

Mot at. 1.

Defendants argue that whereas the

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Court's order denying the Kagan motion to dismiss applied

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California law, the Court should apply Indiana law to this action,

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citing Ferens v. John Deere Co., 494 U.S. 516, 519 (1990) (holding

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that when a case is transferred on a plaintiff's motion under 28

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U.S.C. § 1404(a), the transferee forum should apply the law of the

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transferor court).

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Plaintiff's claims are time-barred.

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Indiana law applies, writing: "Named Plaintiff believes the Court

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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

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specified in the choice of law provision, if any, contained in the

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parties' brokerage agreement, a copy of which will be obtained in

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discovery."

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even if the Court determines that Indiana law applies, Defendants'

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Motion should be denied.

Opp'n at 2 n.2.

Plaintiff additionally alleges that

Id.

Plaintiff cites no law to challenge the applicability of

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Ferens.

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California enforces choice-of-law provisions in brokerage

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agreements.

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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

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limitations begins to run, when the plaintiff knew or in the

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exercise of ordinary diligence could have discovered that an injury

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had been sustained as a result of the tortious act of another."

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Del Vecchio v. Conseco, Inc., 788 N.E. 2d 446, 449 (Ind. Ct. App.

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2003).

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settlement by February 27, 2006, when notice of the settlement was

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published in the Wall Street Journal and the Financial Times.

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at 8.

Defendants allege that Plaintiff had notice of the

Mot.

Defendants argue that Plaintiffs could have "discovered,"

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through ordinary diligence, the alleged tortious conduct."

Id.

Plaintiff argues that notice by publication alone is not

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enough to provide him with notice of the settlement; Plaintiff

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alleges that the APP court approved an "entire notice scheme,

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including the requirement that the brokerage firms holding the

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securities in street name make arrangements for beneficial owners

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to receive direct notice of the settlement."

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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

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settlement, and this forms the basis of his claims.

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unchallenged that notice of the settlement was published in the

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Wall Street Journal and the Financial Times does not establish that

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Plaintiff could have discovered a sustained injury as a result of

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Defendants.

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Plaintiff learned of the alleged injury is a factual matter not

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appropriate for determination on this Motion to Dismiss.

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That it is

As such, the Court finds that the issue of when

Defendants additionally argue that Plaintiff's breach of

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fiduciary duty claim fails because the Complaint pleads no facts

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giving rise to a fiduciary relationship.

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allege that "Indiana courts 'have never held' that a 'special

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fiduciary trust' exists between a broker and its client."

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(quoting Dolatowski v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

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808 N.E. 2d. 676, 681-82 (Ind. Ct. App. 2004)).

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that a fiduciary relationship between a broker and client exists

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"only in specific factual circumstances."

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Mot. at 9.

Defendants

Id.

Defendants allege

Mot. at 9.

Plaintiff responds that he has pleaded sufficient facts to

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establish the existence of a fiduciary relationship based on the

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"simple proposition that one who holds title to property for the

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benefit of another owes a fiduciary duty to the beneficial owner,

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as a trustee."

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Opp'n at 7.

The Court agrees with Plaintiff; Plaintiff has adequately

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pleaded a claim for breach of fiduciary duty given the allegation

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that as the record owner of Plaintiff's securities, Defendants held

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title to Plaintiff's securities for the benefit of Plaintiff.

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Finally, Defendants argue that Plaintiff's breach of contract

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claim fails because Plaintiff does not plead sufficient factual

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detail concerning the alleged contract.

Mot. at 10.

Defendants

United States District Court

For the Northern District of California

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argue that "Plaintiff's conclusory allegation of an implied

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contract . . . is not sufficient to state a claim for breach of

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contract."

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establish that an implied contract existed between the parties, a

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plaintiff "must show that the parties' actions evidenced a mutual

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agreement and an intent to promise."

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Ltd. Med. Research, 675 N.E. 2d 704, 709 (Ind. Ct. App. 1996)).

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Defendants allege that to state a claim under Rule 12(b)(6),

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Plaintiff must plead (1) what promises defendant made to plaintiff,

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(2) how these promises were communicated, (3) what plaintiff

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promised in return, or (4) how these promises created an implied

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contract.

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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

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upon which the contract was formed, and the nature of the promises

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made."

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"By titling securities belonging to Named Plaintiff and Class

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Members in street name, Wachovia agrees to provide Named Plaintiff

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and Class Members with all relevant communications pertaining to

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those securities."

Opp'n at 9.

In support, Plaintiff cites to his Complaint:

Compl. ¶ 28.

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The Court agrees with Plaintiff.

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Plaintiff has identified a

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specific bargain between Plaintiff and Defendants giving rise to a

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claim for breach of an implied contract: Defendants titled

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Plaintiff's securities in street name "as an accommodation to the

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brokerage firm, in order to allow securities to be easily

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transferred between parties."

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agreed to provide Plaintiff with all relevant communications

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pertaining to these securities.

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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

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V.

CONCLUSION

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For the foregoing reasons, the Court DENIES the Motion to

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Dismiss brought by Defendants Wells Fargo Advisors, LLC (sued under

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this name and under the name "Wachovia Securities, LLC") and Wells

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Fargo Advisors Financial Network, LLC (sued under this name and

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under the name "Wachovia Securities Financial Network, LLC").

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Court GRANTS Plaintiff Brent Balkema's unopposed motion to

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consolidate, and CONSOLIDATES this action with Kagan v. Wachovia

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Securities, LLC, No. 09-5337 (N.D. Cal., filed Nov. 10, 2009),

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pursuant to Rule 42(a) of the Federal Rules of Civil Procedure.

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IT IS SO ORDERED.

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Dated: July 5, 2011
UNITED STATES DISTRICT JUDGE

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The