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Herold v. Lynch

United States District Court, E.D. Virginia, Richmond Division

April 25, 2018




         This matter comes before the Court on the motion for summary judgment of the defendant, Merrill Lynch, Pierce, Fenner & Smith, Inc. The plaintiff has filed a complaint alleging negligence and gross negligence.[1] Merrill Lynch has moved for summary judgment, and the plaintiff moved for certain discovery that he deemed necessary to respond to the summary judgment motion. Because the plaintiff fails to demonstrate that Merrill Lynch owes him a duty, the Court grants the defendant's motion for summary judgment and denies the plaintiffs motion for discovery.

         I. BACKGROUND

         This case arises from financial accounts that Fredrick W. Herold, Sr. ("Fredrick"), opened in 2004 with Merrill Lynch. Fredrick is the father of the plaintiff, Fredrick W. Herold, Jr., known as Skip. The accounts created a joint tenancy with right of survivorship between Fredrick and his wife, Kristina C. Herold. According to the summary judgment motion, Fredrick told Merrill Lynch he wanted to designate Kristina as sole beneficiary and specifically exclude his children as beneficiaries on all of his accounts. Merrill Lynch Vice President and Wealth Management Advisor Bradford E. Bugher drafted a Customer Relationship Agreement ("CRA") reflecting Fredrick's instructions. Merrill Lynch submitted a declaration by Bugher stating that Fredrick continued to hold and manage his accounts over a ten-year period, and never indicated to Merrill Lynch an intent to remove or change Kristina as the sole beneficiary on the accounts.

         Fredrick died in January 2014. Kristina then gave Merrill Lynch the necessary documentation to transfer the accounts to her name, which included Kristina's transfer authorization as co-owner. After reviewing all relevant documentation, and considering statements Fredrick had made to Bugher instructing the transfer, Merrill Lynch transferred account ownership to Kristina.

         Not surprisingly, Skip was unhappy that Kristina received the assets in his father's Merrill Lynch account. In May 2014, Skip contacted Merrill Lynch about the allegedly improper transfers to Kristina. Skip says that Merrill Lynch gave the documents the quick once over, but otherwise "failed to reasonably scrutinize the document." (Dk. No. 1, Compl., at ¶ 2.) Skip then took his complaint to Bugher. Bugher told Skip that he saw nothing out of the ordinary about the transaction and that Kristina was the sole beneficiary on the accounts. Bugher also told Skip that he knew about the legal dispute between Skip and Kristina and that he could provide only limited information to Skip due to privacy laws. Skip next brought his complaint to Bugher's supervisor, to no avail.

         Skip then went to the Securities Division of the Maryland Attorney General's Office, again to no avail. Skip's complaint says that Merrill Lynch "either neglected to conduct a reasonable inquiry" or "concealed information" in response to the Attorney General's inquiry. (Dk. No. 1, Compl., at ¶ 6.) Skip then contacted Merrill Lynch's customer service line to request that they place a fraud alert on the accounts, but they failed to do so.

         Skip says that Merrill Lynch gave him "an incomplete, nearly illegible copy of a fraudulent photocopied" CRA in response to a subpoena Skip issued in a related Maryland case. (Dk. No. 1, Compl., at ¶ 10.) According to the complaint, Merrill Lynch "accepted and processed" the CRA through "unknown employees/agents, at an unknown time and place, " failed to show that Merrill Lynch had the original CRA on file, and provided "no signed disclosures" and "no documents that were countersigned by a registered representative of Merrill Lynch." (Dk.No. 1, Compl., at ¶ 13.)

         In short, Skip has continually protested that he and his siblings should have the assets that went to Kristina. Having received unfavorable answers, he turns to this Court.


         Courts may grant summary judgment where the movant establishes that no genuine dispute of any material fact exists, entitling the movant to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the movant satisfies its showing for summary judgment, the burden shifts to the non-moving party to establish a genuine issue of material fact. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-88 (1986). The non-movant may not rest on claims within its pleading, but "must come forward with specific facts showing that there is a genuine issue for trial." Id. at 587 (internal quotation and emphasis omitted).

         After adequate opportunity to respond to a motion, Rule 56(c) requires courts to grant summary judgment "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp., 477 U.S. at 322. The Court resolves all genuine factual disputes and inferences in favor of the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).

         III. DISCUSSION[2]

         Virginia law requires three elements to prove negligence: (1) a legal duty that the defendant owes the plaintiff; (2) a breach of that duty; and (3) that the breach proximately caused injury to the plaintiff. Talley v. Danek Med, Inc., 179 F.3d 154, 157 (4th Cir. 1999). Courts in numerous jurisdictions have held that a bank owes no legal duty to a noncustomer with whom no direct relationship exists.[3]Eisenberg v. Wachovia Bank, N.A.,301 F.3d 220, 225 (4th Cir. 2002); MLSMK Inv. Co. v. JP Morgan Chase & Co.,431 Fed.Appx. 17, 20 (2d Cir. 2011) ("Banks generally do not owe non-customers a duty to protect them from fraud perpetrated by customers."); ...

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