Deem et al v. Baron et al

Filing 32

MEMORANDUM DECISION and Order-denying 19 Motion to Dismiss Due to Lack of Standing and/or Failure to Join Indispensable Parties. See Order for details Signed by Judge David Sam on 4/14/16. (jmr)

UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION

DARRELL L. DEEM, et. al.,
Plaintiffs,

MEMORANDUM DECISION
AND ORDER

v.
TRACEY BARON, et. al.,
Defendants.

2:15-CV-00755-DS
District Judge David Sam

Defendants have filed yet another motion to dismiss, this time for lack of standing and/or
for failure to join indispensable parties. 1 Defendants note that the plaintiffs are listed as
plaintiffs individually and on behalf of their ROTH IRAs. Plaintiffs had previously submitted as
exhibits to the Court a copy of a Promissory Note made payable to “American Pension Services,
Inc. Administrator for David G. Law Roth IRA #11396;” and a Supplemental Loan Agreement
between RenX Group, LLC, and “American Pension Services Inc., Administrator for David G.
Law Roth IRA #11396” and “American pension Services, Inc., Administrator for Darrell L.
Deem Roth IRA #14459.” Defendants argue that the party to these agreements was American
Pension Services, as the custodian/administrator for the ROTH IRAs, and not Mr. Deem and Mr.
and Mrs. Law. The Court disagrees.
Fed. R. of Civ. P. 17(a) states that “An action must be prosecuted in the name of the real
party in interest.” The question before this court is who the real party in interest is. Defendants
argue that American Pension Services, Inc., the administrator for the Roth IRAs is the real party

1

Dkt. No. 19.

in interest. Defendants cite a handful of bankruptcy cases for the proposition that a Roth IRA is
a trust created by the Internal Revenue Code, the income of which is treated in a special way.
An individual person causes the ROTH IRA to be created and is usually declared to be its
beneficiary. This individual appoints a custodian/administrator of the self-directed trust, in this
case, American Pension Services, Inc. Defendants argue, without reference to any authority, that
a ROTH IRA’s actions/activities can only be carried out or affected by a “trustee,” called a
“custodian” or “administrator”: “like all trusts, ROTH IRAs can only act by and through their
duly appointed trustees/custodians/administrators,” and “all actions taken by, and agreements
entered into for and on behalf of, the ROTH IRA can only be done/executed by the properly
appointed and acting custodian/administrator/trustee.” 2 Defendants conclude that because Mr.
Deem and Mr. and Mrs. Law are the beneficiaries of their respective trusts/ROTH IRAs, not the
trustees/custodians/administrators of them, they have no legal authority to act for their ROTH
IRAs, and they lack standing to bring the claims in this lawsuit.
Plaintiffs, on the other hand, point out some persuasive federal cases stating that a selfdirected IRA is not a trust and is not to be treated like a trust. 3 At least two federal cases have
found that an owner of a self-directed IRA has standing to sue on behalf of his or her own IRA.
In the New York case of Vannest v. Sage, Rutty & Co., Inc. 4, a plaintiff sued his securities broker
for fraud and related activities. The broker argued that Plaintiff could not recover because it was
not he who had purchased the securities, but his self-directed IRA. The court held that Plaintiff
was the true purchaser and so he had standing: “Because Vannest controlled the investment

2

Dkt. No. 19, 5.
See Lewis v. Delaware Charter Guarantee & Trust Co., 2015 WL 1476403 (E.D. N.Y. 2015).
4
2015 WL 1476430 (E.D. N.Y. 2015)
3

decisions, he certainly was a purchaser/seller for all practical purposes. Investors in self-directed
IRAs have standing as “purchasers/sellers” to assert claims under the securities laws.” 5
The second federal case dealing with this issue, FBO David Sweet IRA v. Taylor, 6 has a
similar fact situation to this case. Plaintiff Sweet was the sole decision maker on all investments
and actions on behalf of his IRA. Equity Trust Company (ETC), an independent company which
was the holding company/administrator for the IRA, did not provide investment advice or related
services. The court in FBO David Sweet IRA determined that “a Self-Directed IRA, like the one
at issue here, is unique in that the owner or beneficiary of the IRA acts as a trustee for all intent
and purposes. While the IRS and SEC require that all IRA’s be placed with a holding company
that serves as a trustee or custodian of the account, it is the owner of the Self-Directed IRA who
manages, directs, and controls the investments.” 7 The court then found that for purposes of the
case, “ETC served as merely a holding company while Sweet acted as trustee of his SelfDirected IRA. Accordingly, Sweet’s suit on behalf of David Sweet IRA is proper.” 8
In the case before the court, the actual agreement between Plaintiff David Law, and the
custodian, American Pension Services, clearly states that the owner, David Law, not the
custodian, has sole responsibility for decisions. The custodian was to have “no responsibility.” 9
Following the logic of the Vannest case and the FBO David Sweet IRA case, which this court
finds compelling, the Plaintiffs, not the holder or custodian of the IRA are the true parties in
interest. Since the custodian/holder has not been involved in the decision-making process, it
lacks the knowledge of the facts which would allow it to bring this action.

5

Vannest, at 658.
4 F.Supp.3d 1282 (E.D. Ala. 2014) .
7
FBO David Sweet IRA, at 1285.
8
Id.
9
Dkt. No. 21-2, Exhibit 2
6

Since the Plaintiffs named in this action are the true and real parties in interest on every
contract which form the basis of this action and since they are the ones most knowledgeable of
all of the facts and circumstances surrounding those contracts, and since they are also the ones
for whose benefit all of the transactions were performed, they are the appropriate parties to
prosecute the case. For the above reasons, and for good cause appearing, the court hereby denies
Defendants’ Motion to Dismiss (A) For Lack of Standing and/or (B) for Failure to Join
Indispensable Parties. 10
DATED this 14th day of April, 2016.

BY THE COURT:

DAVID SAM
United States District Judge

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Dkt. No. 19.