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Hughes v. Lasalle Bank

July 14, 2006


The opinion of the court was delivered by: Michael B. Mukasey, U.S.D.J.


This action arises out of trustee LaSalle's decision to reinvest the Hughes trust assets in mutual funds established by LaSalle's parent corporation and managed by its subsidiary to the alleged detriment of the Hughes trust beneficiaries. In an opinion and order dated March 13, 2006, ("the Opinion") I dismissed all of plaintiffs' claims, because the applicable statutes of limitation barred plaintiffs' breach of fiduciary duty and tortious interference with contract claims, as well as Dion and Hal Hughes' unjust enrichment claims. Further, Holly Hughes's unjust enrichment and injunctive relief claims were barred under Illinois law by her consent and ratification of the Investment Conversion. Plaintiffs now move pursuant to Local Rule 6.3 for reconsideration and also ask that they be allowed to serve yet another amended complaint. For the reasons below, the motion for reconsideration is denied and an amended complaint may not be filed.


The facts relevant to this motion are stated fully in the Opinion, familiarity with which is assumed, and are restated or augmented here only to the extent necessary.

Dion, Hal, and Holly Hughes are the beneficiaries of a trust established by their grandfather (the "Hughes Trust"). (Compl. ¶ 16) LaSalle, a federally chartered bank that is a wholly owed subsidiary of ABN-AMRO, is the trustee of the Hughes Trust. (COMpl. ¶¶ 13, 17) ABN-AMRO Asset Management and its precursor LaSalle Street Capital Management, Ltd. ("LSCM") are subsidiaries of LaSalle. (Compl. ¶ 14)

Before 1993, LaSalle invested its trust assets in individually managed common trust funds. (Compl. ¶ 23) The Common trust funds were managed and directed by LaSalle or LSCM, and, although they received fees for serving as trustee, LaSalle and its affiliates received no investment advisory fees from the trust accounts. (Compl. ¶¶ 24-25) In 1992, LaSalle's parent company, ABN-AMRO established a family of mutual funds called the Rembrandt Funds; LSCM was the investment advisor and SEI Corporation was the distributor and administrator for the Rembrandt Funds. (Compl. ¶¶ 29, 30)

In December 1992, LaSalle sent plaintiffs a form letter, a question-and-answer sheet, a prospectus describing the Rembrandt Funds, and a form to authorize conversion of the trust assets from individual managed accounts and/or common trust funds to the Rembrandt Funds (the "Investment Conversion"). (Compl. ¶ 76) These documents did not disclose explicitly that the Investment Conversion would increase value for the shareholders of ABN-AMRO. (Compl. ¶ 77) The question-and-answer sheet, a boilerplate form produced by SEI of the sort used by many banks, stated that LaSalle was switching to the Rembrandt Funds because many customers had requested mutual fund investments. (Compl. ¶¶ 78, 80)

On January 4, 1993, LaSalle completed the Investment Conversion (Compl. ¶¶ 2, 36), which did not materially change the underlying stocks and bonds held by the fiduciary accounts or the management of those accounts; only the investment vehicle in which those securities were held was changed. (Compl. ¶ 49) LSCM managed the common trust funds prior to January 4, 1993, and it managed the Rembrandt Funds after January 4, 1993. (Compl. ¶ 50) The Investment Conversion benefited the defendants because the administrative expenses incurred by LaSalle could be passed on to the trusts as expenses. (Compl. ¶ 37) The Rembrandt Funds paid investment advisory fees to the defendants. (Compl. ¶ 4) Additionally, the Investment Conversion allegedly subjected the fiduciary accounts to premature and increased capital gains taxes. (Compl. ¶ 7) After the Investment Conversion, LaSalle reduced its fiduciary fees by .3 percent and charged the Rembrandt Funds investment advisory fees for LSCM, administrative fees for SEI, and other operating expenses that averaged between one and two percent. (Compl. ¶ 39)

The Rembrandt Funds underperformed when compared to similar funds and other benchmarks. (Compl. ¶ 92) LaSalle never moved the fiduciary account assets into more productive investments. (Compl. ¶ 109)

On May 6, 1993, Hal Hughes sent a letter to Joanne Braun, the Trust Officer at LaSalle, requesting that LaSalle resign as a trustee for the Hughes Trust ("the Hughes Letter"). (Budoff Decl. Ex. O) He wrote that LaSalle "has done a very poor job of investing the corpus when compared to any of the common measures of performance;" he is "extremely concerned about the excessive amount of investment LaSalle . . . has made with the corpus of [his] trust in mutual funds managed by [LSCM];" he believes the performance of the Rembrandt Funds is "mediocre at best;" and he alleges that LaSalle's fees have "increased" and LaSalle is "able to double-dip fees through investment in funds sponsored by [LSCM]." (Id.) Further, Hal Hughes concluded, "[i]t appears that [LaSalle] has breached its fiduciary duty to me." (Id.)

LaSalle responded to Hughes on June 2, 1993 in a letter written by Joanne Braun ("the Braun Letter"). (Budoff Decl. Ex. O) Braun stated that "trust management fees were also reduced, and additional benefits are realized from [the Rembrandt Funds]. These include 1) daily quotations, 2) daily liquidity, and 3) additional fund choices" and that she would reallocate the fees charged to the various accounts within the Hughes Trust. (Id.) Braun declined Hal Hughes's request that LaSalle resign as trustee and did not otherwise address his breach of fiduciary duty claims. Both Holly and Dion Hughes were copied on the Hughes Letter and the Braun Letter. (Id.)

Plaintiffs mentioned neither the Hughes Letter nor the Braun Letter in their complaint. The Court is aware of the letters only because defendants included them as exhibits to their papers filed in response to plaintiffs' summary judgment motion, which was not decided, and because plaintiffs now use the Braun Letter as evidence to support their motion for reconsideration.

Initially, plaintiffs sued as individuals in New York state court, Hughes v. LaSalle Bank, N.A., No. 105423/01; that action has been stayed by agreement of the parties pending determination of this action. (Compl. ΒΆ 8) Plaintiffs sued in federal court on August 12, 2002 and filed an amended complaint on January 6, 2004. Plaintiffs moved pursuant to Rule 56(c) and moved also for class certification, and defendants cross-moved pursuant to Rule 12(b)(6) to dismiss the claims against them. This court issued the Opinion in response to defendants' Rule 12(b)(6) motion, which concluded that the plaintiffs' breach of fiduciary duty and tortious interference claims were barred by the New York statute of limitations, Holly Hughes's unjust enrichment claim ...

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