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Patricia Gallagher, Individually and As Beneficiary of the Patricia A. v. Keybank National

September 22, 2011

PATRICIA GALLAGHER, INDIVIDUALLY AND AS BENEFICIARY OF THE PATRICIA A. GALLAGHER CHARITABLE REMAINDER TRUST, PLAINTIFF,
v.
KEYBANK NATIONAL ASSOCIATION, AS TRUSTEE OF THE PATRICIA A. GALLAGHER CHARITABLE REMAINDER TRUST, DEFENDANT. KEYBANK NATIONAL ASSOCIATION, AS TRUSTEE OF THE PATRICIA A. GALLAGHER CHARITABLE REMAINDER TRUST, THIRD-PARTY PLAINTIFF,
v.
LOUIS J. DEMPH; TOBIN & DEMPH, LLC; MICHELLE COVELL STRENK; SCOTT RICHARD COVELL; AND THOMAS COVELL, THIRD-PARTY DEFENDANTS.



ORDER

I. INTRODUCTION

On March 27, 2009, Plaintiff Patricia Gallagher ("Plaintiff Gallagher" or "Gallagher") commenced this action against Defendant and Third-Party Plaintiff Keybank ("Keybank") by filing a Summons and Complaint in the State of New York Supreme Court in Saratoga County. Dkt. No. 1-2. On April 22, 2009, Keybank removed the action to the United States District Court in the Northern District of New York pursuant to 28 U.S.C. § 1332(a)(1). Dkt. No. 1. On December 16, 2009, Keybank brought a Third-Party Complaint against Third-Party Defendants Louis J. Demph ("Demph"), Tobin & Demph, LLC ("T&D"), Michelle Covell Strenk ("Strenk"), Scott Richard Covell ("Scott Covell"), and Thomas Covell. Dkt. No. 16 ("Third-Party Complaint"). Keybank alleged causes of action of negligence and indemnification against Third-Party Defendants Demph and T&D, and joined Strenk, Scott Covell, and Thomas Covell as necessary parties without asserting any affirmative claims against them. Id. ¶¶ 1, 12.

Presently before the Court are: (1) a Motion to dismiss the Third-Party Complaint filed by Third-Party Defendants Demph and T&D (Dkt. No. 21) ("Motion to Dismiss"); (2) a Letter motion filed by Third-Party Plaintiff Keybank requesting that the Court deny the opposition's request to deem certain facts as admitted (Dkt. No. 26) ("Letter Motion"); and (3) a Cross-motion for leave to amend its Third-Party Complaint filed by Third-Party Plaintiff Keybank (Dkt. No.24) ("Motion to Amend"). For the reasons that follow, the Motion to dismiss and the Letter motion are granted, and the Motion to amend is denied.

II. BACKGROUND

Plaintiff Gallagher is a beneficiary of the Patricia A. Gallagher Charitable Remainder Trust ("Trust") (Dkt. No. 16-1), which was executed on June 8, 2001 with Keybank as trustee. Compl. ¶¶ 6-7. Third-Party Defendants Demph and T&D drafted the Trust, which was intended to qualify as a charitable remainder annuity trust ("CRAT") under the United States Tax Code ("Tax Code"). Third-Party Compl. ¶¶ 15-20. The Trust was funded on March 20, 2002 with 4,549.627 shares of Wyeth stock, which had a fair market value of $298,550.87, or $65.025 per share. Compl. ¶ 9. Keybank later determined that the Trust did not in fact qualify as a proper CRAT under the Tax Code, and advised Gallagher, Demph, and T&D of this problem in either May or June of 2002. Third-Party Compl. ¶ 26; Compl. ¶ 10. Demph and T&D then drafted an amendment to the Trust (Dkt. No. 16-2), which was signed by Gallagher on June 26, 2002, and by Keybank as trustee on July 5, 2002. Compl. ¶ 11; Third-Party Compl. ¶ 29.

The value of the Wyeth stock had dropped to $49.24 per share by the time the Trust was amended on July 5, 2002. Third-Party Compl. ¶ 30. The Wyeth stock closed at $49.24 per share again on July 8, 2002, and dropped further to close at $37.30 per share on July 9, 2002. Id. ¶¶ 31-32. According to Plaintiff, through December of 2002 Keybank only sold the Wyeth stock in amounts necessary to allow for required annuity payments under the Trust. Compl. ¶¶ 12, 16-17. Plaintiff also alleges that Keybank failed to properly diversify the Trust assets pursuant to the Trust agreement, and that the Wyeth stock continued to represent 85% of the Trust assets until July 31, 2003. Id. ¶ 17. By October 31, 2008, the value of the Trust had fallen to $66,058.11.Id. ¶ 18.

Plaintiff's Summons states that the action is for "breach of contract." Dkt. No. 1-2 at 2. Plaintiff's Complaint alleges four causes of action: (1) that "Keybank's failure to pursue an overall investment strategy in administering the trust constitutes a breach of fiduciary and contractual duty to plaintiff"; (2) that Keybank negligently failed to employ the diligence required of a fiduciary that has claimed to have "special investment skills"; (3) that Keybank breached the Trust agreement by failing to conform to the terms of the Trust; and (4) that Keybank failed to properly administer the trust and should therefore return any commissions and expenses received. Compl. ¶¶ 25, 31-34, 38-40, 45. Plaintiff seeks money damages of $216,449.40 due to the diminished value of the Trust assets.

Third-Party Plaintiff Keybank initially brought negligence and indemnity actions against Demph and T&D, claiming that their failure to properly draft the Trust as a qualifying CRAT prevented Keybank from selling the Wyeth stock in a timely manner. Third-Party Compl. ¶ 43. Keybank further demanded "judgment for contribution and/or full and complete indemnification" from Demph and T&D for any damages awarded to Plaintiff Gallagher. Id. ¶¶ 46-47. In its Proposed amended third-party complaint, Keybank deleted both its negligence and indemnity claims against Demph and T&D, substituting a single cause of action for contribution. Dkt. No. 23-5 ("Proposed Amended Complaint").

III. STANDARD OF REVIEW

In reviewing a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must "accept all [factual] allegations in the complaint as true and draw all inferences in the light most favorable to" the non-moving party. In re NYSE Specialists Sec. Litig., 503 F.3d 89, 95 (2d Cir. 2007). "Documents that are attached to the complaint or incorporated in it by reference are deemed part of the pleading and may be considered." Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2007) (citations omitted). To survive a motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This plausibility standard "is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 570). Facial plausibility exists "when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1249.

Additionally, the "tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Id.

IV. DISCUSSION

A. Letter Motion

As a threshold matter, the Court considers the Letter motion filed by Keybank. Dkt. No.26. As part of their Motion to dismiss, Demph and T&D included a Statement of Material Facts ("Statement"). Dkt. No. 21-5. Keybank responded to Third-Party Defendants' Motion, but did not specifically reply to the Statement. See Memorandum of law in opposition to Third-Party Defendants' motion to dismiss (Dkt. No. 23-1). In their Reply and opposing affirmation, Third-Party Defendants asserted that, pursuant to Local Rule 7.1(a)(3), the Court should "deem admitted ...


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