June 24, 2013
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC and PRUDENTIAL BANK & TRUST, FSB, Plaintiffs,
MICHAEL FORDE, et al., Defendants.
MEMORANDUM & ORDER
LORETTA A. PRESKA, Chief District Judge.
Plaintiffs Prudential Investment Management Services LLC and Prudential Bank & Trust, FSB (collectively, "Plaintiffs" or "Prudential") filed this interpleader action for the purpose of obtaining adjudication of the rights of certain claimants with respect to their claims of entitlement to certain assets held in an IRA ("Disputed Assets") in the custody or possession of Prudential. The Disputed Assets are held in the name of interpleader defendant Michael J. Forde. Mr. Forde and his wife Mary Jane Forde (collectively, the "Fordes" or "Defendants") seek release of the Disputed Assets. The Fordes have asserted four counterclaims against Prudential in their Answer to Prudential's Interpleader Complaint, [dkt. no. 26], which Prudential has moved to dismiss pursuant to Rule 12(b)(6). For the reasons set forth herein, Prudential's motion [dkt. no. 30] is GRANTED, and the Defendants' counterclaims are DISMISSED.
1. The Disputed Assets and Current Litigation
This is an interpleader action brought for the purpose of determining the rights of certain claimants with respect to their claims of entitlement to the Disputed Assets in the custody or possession of Prudential. In 2010, Mr. Forde opened an Individual Retirement Account ("IRA") with Prudential Investment Management Services LLC, which is in the custody of Prudential Bank & Trust, FSB. (See Memorandum of Law in Support of Plaintiffs' Motion to Dismiss, Sept. 14, 2012 [dkt. no. 31] ("Pl. Memo"), at 2.) Interpleader defendant New York City District Council of Carpenters Annuity Fund (the "Fund") is a jointly-administered employee benefit plan in which Mr. Forde was a participant in and with which he held a retirement account. (Id.) The Disputed Assets are those that were purchased by "rolling over" the assets that had been held in Mr. Forde's retirement account in the Fund into the IRA. (Id.)
Mr. Forde pled guilty to charges of criminal racketeering and racketeering conspiracy that involved the misuse of funds administered by the Fund. (Pl. Memo at 1.) The Fund is seeking restitution and claiming that Mr. Forde's IRA is reachable. In addition to seeking restitution, the Fund has also filed an amended complaint against Mr. Forde in a related action in this Court seeking monetary damages for injuries caused to the Fund. (N.Y. Dist. Council of Carpenters Pension Fund, et al. v. Forde, et al., 11-cv-5474 (LAP).)
The Fund asked Prudential to place a freeze on Mr. Forde's account until it can obtain a court order for restitution of the Disputed Assets. (Pl. Memo at 1.) Prudential complied with the request on March 24, 2010, and although Mr. Forde is currently permitted to inquire about his account and make investment and beneficiary changes, he is not able to withdraw any amounts from the IRA. (Id. at 3.) In May 2012, the Fordes executed a designation of power of attorney for Mary Jane Forde on behalf of Michael Forde. (Id.) In June 2012, Ms. Forde sought to withdraw the Disputed Assets, and the request was refused. (Id. at 3-4.) After several communications between Prudential, the Fordes, and the Fund, Prudential filed this interpleader action on July 2, 2012. (Id. at 3-5; see Interpleader Complaint [dkt. no. 1] ("Compl.").) Including the Fordes, the interpleader complaint names as defendants the Fund and several Trustees of the Funds ("Fund Trustee Defendants" or, collectively, "Fund Defendants"), as parties asserting claims to the Disputed Assets.
On August 13, 2012, the Fordes answered the complaint and asserted counterclaims against Prudential of breach of fiduciary duty, breach of contract, negligence, and conversion. ("Ans.") [Dkt. No. 26.] On the same day, the Fund answered on behalf of the Fund Defendants. [Dkt. No. 24.] On September 14, 2012, Prudential filed the instant motion to dismiss the Forde's counterclaims. [Dkt. No. 30.] The Fordes did not file an opposition to the motion to dismiss. Prudential filed a brief reply on October 5, 2012. [Dkt. No. 41.]
2. Conference and Subsequent Letter Motions
On April 29, 2013, a conference was held in this action and the related civil action. (See Transcript of Conference, Apr. 29, 2013 [11-cv-5474, dkt. no. 141] ("Trans.").) At that conference, this Court questioned Defendants as to their Rule 11 basis for opposing Prudential's motion to dismiss. (Trans. at 6.) The Court asked Defendants' counsel if there is a dispute over the funds held by Prudential, which counsel acknowledged there is. (Id. at 7.) The Court reminded Defendants' counsel that an interpleader action is a legal basis for not releasing the funds and urged counsel to confer and notify the Court whether they planned on filing a substantive opposition to the motion. (Id. at 9, 11-12.) Defendants were given two weeks to notify the Court by letter of their intentions. (Id. at 13.)
On May 13, the Fordes' counsel wrote to this Court requesting to file an amended answer so that they could re-plead their counterclaims. ("Fordes May 13 Letter") (attached). The Fordes did not indicate that they would be filing a substantive opposition to Prudential's motion to dismiss. Besides a lengthy fact-based argument as to why the Disputed Assets are not available to creditors, the Fordes conceded that Prudential is not a fiduciary, (id. at 5 & n.9), and also asserted a new claim that minimal diversity has not been plead (id. at 6-7). Prudential responded via letter on May 16, 2013. ("Prudential May 16 Letter") (attached). Prudential argued that the Fordes failed to present any legal arguments that would support a good faith basis to oppose the motion. (Id. at 2.) Prudential pointed out that although the Fordes' letter describes in detail why the Disputed Assets are protected, the issue underlying the interpleader action is whether or not there are competing claims to the Disputed Assets and not whether the Fund will ultimately be able to recover those assets. (Id.) Prudential also argued that the Fordes' request for leave to amend their counterclaims should be denied as futile. (Id. at 3.)
As to the Fordes' claim that the Court lacks subject matter jurisdiction, Prudential asserted in their letter that minimal diversity exists because Mr. Forde is a citizen of New York, and the Fund has admitted that Fund Trustee Defendant Paul O'Brien is a citizen of New Jersey. (Id.) The Fordes noted that certain of the Fund's Trustees had been replaced by the time the interpleader was filed. (Fordes May 13 Letter at 6.) Prudential argued that the changes did not impact diversity and request leave to file an amended complaint to correct the caption and substitute the new Trustees as defendants. (Prudential May 16 Letter at 4.)
The Fordes responded on May 17, 2013 via letter. ("Fordes May 17 Letter") (attached). In this letter, the Fordes withdraw their contract claims. (Id. at 2.) The Fordes now appear to be asserting solely tort-based claims, based on the duty imposed by the alleged "custodial relationship and the agency/principal relationship" between the Fordes and Prudential. (Id.) In support of this principle, the Fordes cite to a completely inapposite case regarding joint liability. (Id. (citing Rastelli v. Goodyear Tire & Rubber Co. , 79 N.Y.2d 289, 295 (1992).)
Prudential replied on May 22, 2013 via letter. ("Prudential May 22 Letter") (attached). Prudential reasserted that minimal diversity exists and that the Fordes have not, and cannot, dispute that there are competing claims to the Disputed Assets. (Id. at 1.) Prudential argues that the Fordes' additional legal claims are meritless and thus the motion to dismiss should be granted and leave to amend denied. (Id. at 2.)
1. Legal Standard
In assessing a motion to dismiss under Rule 12(b) (6), the Court must accept all non-conclusory factual allegations as true and draw all reasonable inferences in the plaintiff's favor. Goldstein v. Pataki , 516 F.3d 50, 56 (2d Cir. 2008). To survive the motion, "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 , 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570 (2007)). A pleading that offers "labels and conclusions" or "a formalistic recitation of the elements of a cause of action will not do." Twombly , 550 U.S. at 555. "Where a complaint pleads facts that are merely consistent with' a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.'" Iqbal , 556 U.S. at 678 (quoting Twombly , 550 U.S. at 557) (internal quotation marks omitted).
Leave to amend a complaint should be freely granted when justice so requires. Nerney v. Valente & Sons Repair Shop , 66 F.3d 25, 28 (2d Cir. 1995). Leave may be denied, however, if the amendment (1) has been delayed unduly, (2) is sought for dilatory purposes or is made in bad faith, (3) would prejudice the opposing party, or (4) would be futile. Foman v. Davis , 371 U.S. 178, 182 (1962); Nerney , 66 F.3d at 28. Granting leave to amend is futile if it appears that the movant cannot address the deficiencies identified by the Court and allege facts sufficient to support the claim. Joblove v. Barr Labs., Inc. , 466 F.3d 187, 220 (2d Cir. 2006).
2. Motion to Dismiss Fordes' Counterclaims
The Fordes asserted four counterclaims against Prudential in their answer. The Fordes assert claims for breach of fiduciary duty, negligence, conversion, and breach of contract. In their first letter to the Court, the Fordes concede that Prudential is not a fiduciary pursuant to the Fordes' contract with Prudential, and so their claim for breach of fiduciary duty is hereby considered withdrawn. (Fordes May 13 Letter at 5.) The Fordes confirm this in their follow-up letter. (Fordes May 17 Letter at 2 ("Prudential is not a fiduciary but is a mere custodian and agent under the customer agreement.").)
Similarly, the Fordes concede that "there is no contract provision which [they] can point to that Prudential specifically breached" and thus have withdrawn their claim for breach of contract. (Id.) For the reasons set forth in Prudential's memorandum in support of their motion to dismiss the Fordes' counterclaims, as well as those discussed at the April 29 conference, the fiduciary duty and contract claims would have been dismissed for failure to state a claim. Specifically, the Fordes cannot make a claim for breach of contract, because their contract explicitly gives Prudential the right to seek out judicial intervention under circumstances such as those currently pending. (See Pl. Memo at 11-12.) The customer agreement specifically notes that if, at any time, Prudential is made to "believe that any transaction requested is in dispute, [they] reserve the right to take no action until further clarification acceptable to [them] is received from [the Fordes] or the appropriate government or judicial authority." (Id. at 12 (citing the agreement, Declaration of Joy B. Erickson, Sept. 14, 2012 [dkt. no. 32], Ex. A at 5; Ex. B at 6).) Thus, the freeze and this interpleader action are well within the bounds of Prudential's contractual rights.
The claims remaining from the Fordes' answer are tort claims of negligence and conversion. Because the relationship between the Fordes and Prudential is solely one of contract, for the tort claims to stand the Fordes must allege that Prudential owed the Fordes a duty of care independent from those contractual duties imposed. See New York Univ. v. Cont'l Ins. Co. , 87 N.Y.2d 308, 316 (1995) (A "defendant may be liable in tort when it has breached a duty of reasonable care distinct from its contractual obligations, or when it has engaged in tortious conduct separate and apart from its failure to fulfill its contractual obligations."). The Fordes' tort claims arise from the same facts that underlie their breach of contract allegations. (See Ans. ¶¶ 43-53; id. ¶ 44 ("Prudential owes a duty of care to the Fordes as a custodian of the IRA").) Prudential is a custodian of the IRA pursuant to their customer agreement with the Fordes, and thus any "duty" imposed as custodian is a contractual one. (See Compl. ¶ 21.) Thus, the Fordes fail to assert a source of their injuries independent from one that arises out of Prudential's contractual obligations, and the tort claims must be dismissed. See, e.g., Wolf v. Nat'l Council of Young Israel , 694 N.Y.S.2d 424, 425 (1999) ("Since the appellant's conversion counterclaim does not stem from a wrong which is independent of the alleged breach of the [1 agreements, it was properly dismissed."); State Farm Mut. Ins. Co. v. Anikeyeva, 950 N.Y.S.2d 726 (Sup.Ct. 2012) (dismissing a negligence claim as duplicative of contract obligations).
Further, as Prudential points out in its letters, even considering the breach of contract claim withdrawn, the tort claims cannot stand independently. (See Prudential May 22 Letter at 3 ("Courts routinely dismiss negligence claims for failure to allege an independent, non-contractual duty of care even where the parallel contract claims have also been dismissed.") (citing cases).)
3. Amendment Would be Futile
The Fordes request in their opening letter leave to amend their counterclaims. (Fordes May 13 Letter.) In this letter, they offer the bases of their proposed new counterclaims, including that the "interpleader has been collusively manufactured by the Fund Defendants and Prudential" (id. at 3); the IRA is "no longer a Fund plan asset susceptible to an extra-judicial administrative hold'" (id. at 4); and, that "there can be no good-faith belief by either Prudential or the Fund Defendants that the latter have a genuinely adverse' claim to the IRA monies" (id. at 5). Without specifically identifying the tort claims on which the Fordes would be relying in their amended counterclaims, they imply that they are owed from Prudential "at least the basic duties of a custodian and agent, which Prudential's Customer Agreement acknowledges." (Id. at 4.) The Fordes also assert that minimal diversity has not been properly pled or proven. (Id. at 6.)
The Fordes' letter does not indicate any new or legitimate legal basis on which their amended counterclaims would rest. The Fordes' letter consists only of conclusory allegations as to Prudential's intentions, without answering any of the concerns raised by the Court in the April 29 conference. The Fordes' accusations as to Prudential and the Fund's collusive action are not supported by the summary of facts provided in their letter. As to legal arguments, which are at best sparse or at worst lacking completely, the only legal duty the Fordes articulate was owed to them from Prudential is one based on a "custodian and agent" relationship which they inadvertently admit is derived solely from their customer agreement with Prudential, despite the Fordes' insistence otherwise. (Compare Fordes May 13 Letter at 4 ("at least the basic duties of a custodian and agent, which Prudential's Customer Agreement acknowledges") (emphasis added), with, Fordes May 17 Letter at 2 ("The Fordes' tort claims arise from the custodian relationship and the agency/principle relationship... neither of which arise solely from the contract.").) As discussed, supra, tort claims must be based on a duty independent from that created by contract.
Finally, the Fordes fail to work around the only relevant question regarding this interpleader, which is that there are competing claims to the assets. (See Trans. at 7.) The Fordes repeat - again relying on conclusory statements only - as counsel did at the conference that the Disputed Assets are out of reach for the fulfillment of restitution or a civil judgment. (See Fordes May 13 Letter at 4-5.) However, as discussed at the conference, the basis for the interpleader action is whether or not there are competing claims to the Disputed Assets, and whether the Fund will ultimately be able to recover those assets is an issue for properly put to the Court via this interpleader. (Trans. at 6-7.)
4. The Court has Subject Matter Jurisdiction
The Fordes additionally argue in their letters that the Court lacks subject matter jurisdiction due to the failure to plead minimal diversity as required by 28 U.S.C. § 1335. (Fordes May 13 Letter at 6-7; Fordes May 17 Letter at 3.) 28 U.S.C. § 1335 - the Federal Interpleader Act - requires "minimal diversity" between at least two adverse claimants to establish jurisdiction. State Farm Fire & Cas. Co. v. Tashire , 386 U.S. 523, 530 (1967). The Fordes find issue with the fact that one of the Fund Trustee Defendants, Paul O'Brien, was stated as being a New York domiciliary in Prudential's Complaint, but his domicile was corrected to New Jersey domiciliary in the Fund's answer. (Fordes May 13 Letter at 6.) Prudential agrees that the Fund has admitted that Fund Trustee Defendant Paul O'Brien is a citizen of New Jersey in their answer, as the Fordes point out. (Prudential May 16 Letter at 3.) Because there appears to be no dispute about this, minimal diversity has been established, because Mr. Forde is a citizen of New York. (Ans. ¶ 5.) The Fund has the most accurate information about the Trustee Defendants. The fact that Prudential did not have the most accurate information when filing this interpleader action does not alter the existence of minimal diversity. Prudential shall be allowed leave to amend their interpleader complaint to correct the caption and substitute the new Trustees as defendants.
For the foregoing reasons, Prudential's motion to dismiss the Fordes' counterclaims [dkt. no. 30] is GRANTED, and the Fordes counterclaims asserted in their answer [dkt. no. 26] are DISMISSED. The Fordes' request to file an amended answer and re-plead their counterclaims is DENIED. Prudential may amend the Complaint within 30 days of this Order to correct the caption and substitute the new Trustees as defendants.