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HUGHES v. JP MORGAN CHASE & CO.

June 21, 2004.

DEREK HUGHES, Plaintiff,
v.
JP MORGAN CHASE & CO., d/b/a/ CHASE MANHATTAN PRIVATE BANK, JOHN T. CORRY, FREDERICK BUDDENHAGEN, Defendants.



The opinion of the court was delivered by: BARBARA JONES, District Judge

OPINION

Before the Court is Defendants' motion for summary judgment, which seeks dismissal of Plaintiff's case on the grounds that the claims are barred by the statute of limitations and that Plaintiff suffered no damages. Defendants' motion is granted in part and denied in part.

FACTS

  a. Background

  The following are the undisputed facts of the case, except where otherwise noted.

  Plaintiff Derek Hughes opened a discretionary investment management account at JP Morgan Chase & Co. ("Chase") on January 15, 1986 with a deposit of $615,131. At that time, he signed an Investment Management Discretionary Agreement ("Agreement") authorizing Chase to open the account for him, and to manage, hold, invest and reinvest securities in that account. On February 11, 1986, Chase sent Plaintiff a letter stating that, "[a]pproximately 85% of the account will be committed to . . . high quality, fixed income securities . . . [such as] U.S. Treasury and government agency securities, high quality corporate bonds and various money market instruments. . . . The balance of the portfolio will consist of up to 15% common stocks." (Hughes Decl. Ex. A). Plaintiff alleges that he informed Chase that his primary goal was "preserving the capital in the account." (Pl's Br. at 2).

  From the inception of the account until August 1990, Plaintiff did not withdraw any funds. In 1990, Plaintiff retired and advised defendant Fredrick Buddenhagen, who was employed in the Chase Investment Office, that he wanted to withdraw $7,500 per month from his account. Buddenhagen explained that he would accommodate these withdrawals by investing a larger percentage in real estate investment trusts ("REITs"), which are considered equities. (Hughes Dep. at 49-50; Defs' Br. at 3; Decl. of Mario Aieta, Ex. E). According to Plaintiff, however, Buddenhagen "did not disclose to Hughes the risks associated in investing in REITs and [] did not disclose to Hughes that change in the investment strategy would be inconsistent with Hughes's stated investment objectives." (Compl. ¶ 21; see also Pl's Br. at 3; Hughes Decl. ¶¶ 4-5). Plaintiff claims he was not familiar with REITs, although formerly he was president and chief financial officer of the Brazilian subsidiary of Arco Chemicals, which had annual sales of $200 million. Plaintiff did not ask for an explanation of what REITs were. There is no writing that memorialized any change in Chase's investment strategy or Plaintiff's investment objectives.

  Beginning in 1991, the portion of Plaintiff's account invested in REITs increased substantially, from 7% to 28% in 1991, to 59% at the end of 1996, to 70% at the end of 1997. Plaintiff was aware of the investments in his account through monthly and annual statements. As of December 31, 1997, the market value of Plaintiff's account was $967,847.00. Shortly thereafter, REITs fell out of favor with the market, and REIT equities and fixed income issues began to lose value. By July 31, 1999, the value of the account declined to $661,969.00.

  During the period between January 1998 and November 1999, Chase changed the designated "Investment Officer," who has primary responsibility for the account, several times. Plaintiff produced deposition testimony of two of the Investment Officers that showed that they either were unaware that they were the primary decision-maker on the account, (see Angelica Dep. at 15-16) or else were unfamiliar with Plaintiff's investment objectives.*fn1 (See Porta Dep. at 15, 17). These two Investment Officers also indicated during internal reviews of Plaintiff's account in 1998 and 1999 that the heavy concentration in REITs might be in violation Chase's guidelines for the type of account. (See Aieta Decl. Exs. E, F; Angelica Dep. at 19-22; Porto Dep. at 60, 70-71).

  Plaintiff also consulted with various Investment Officers at Chase in 1998 and the beginning of 1999, and was told not to be concerned about the asset allocation. (See Porto Dep. at 25; Hughes Decl. ¶ 12). Plaintiff alleges that, in or around July 1999, he contacted Buddenhagen, who was again in charge of Plaintiff's account, and who stated that he would send some information concerning other investment options. The information never arrived. Plaintiff closed the account on November 30, 1999, withdrawing the final balance of $610,076.

  It is undisputed that, over the entire life of the account, Plaintiff profited from Chase's investment strategy. Specifically, although Plaintiff initially deposited $615,131 and withdrew a closing balance of $610,076, he also withdrew approximately $900,000 during the life of the account.*fn2

  2. Procedural History

  Plaintiff filed a Complaint in this Court on July 5, 2001 ("Complaint"), against Chase, Buddenhagen, and John T. Corry, who managed his account from 1986 until 1990. The Complaint asserts claims for: 1) breach of fiduciary duty, 2) negligence, 3) negligent supervision, and 4) breach of contract. Plaintiff alleges that he suffered $366,000 in damages, which represents "out-of-pocket losses and the loss of income and appreciation that the Rollover Account would have earned had it [been] managed appropriately by defendants." (Compl. ¶ 36; see also Compl. ¶¶ 40, 44, 47).

  Defendants filed a Motion for Summary Judgment on March 29, 2002, arguing that Plaintiff could not assert his causes of action because 1) the statute of limitations had run on each of the claims, and 2) over the life of the account, ...


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