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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 plaintiffs motion for leave to file an amended complaint. The plaintiff filed his original complaint in May 2017, alleging gross negligence, negligence, and fraud. The plaintiff voluntarily withdrew his fraud claim, leaving only the two negligence claims. He now moves for leave to file an amended complaint to add eight additional counts and requests a hearing on this motion. These counts do nothing more than reiterate his theory that Merrill Lynch has somehow cheated him out of some of his father's money. The plaintiff has unsuccessfully raised these claims over and over before various tribunals, and they do not succeed here anymore than they did anywhere else.

         The Court denies the motion for leave to amend because the proposed amendments are futile.

         I. BACKGROUND

         This case arises from financial accounts that Fredrick W. Herold, Sr. ("Fredrick") opened in 2004 with Merrill Lynch. A Customer Relationship Agreement ("CRA") governed the accounts and named Fredrick's wife, Kristina C. Herold, as the sole beneficiary. After Fredrick's death in January 2014, Merrill Lynch transferred the accounts to Kristina. Fredrick's son, Fredrick W. Herold, Jr. ("Skip"), says the CRA is a forgery. Skip claims that the accounts belong in Fredrick's estate, of which Skip is a beneficiary.

         Skip has complained in many fora about his father's assets. He began in May 2014, by contacting Merrill Lynch about the account transfer to Kristina. According to the amended complaint, Merrill Lynch "failed to reasonably scrutinize the [CRA]." (Dk. No. 38, Exh. 2, at ¶ 2.) Skip then took his complaint to a Merrill Lynch Vice President, Bradford E. Bugher, who oversaw the accounts. Bugher found nothing out of the ordinary about the transaction and said 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 complained to the Securities Division of the Maryland Attorney General's Office, which asked Merrill Lynch about the transfer. According to the amended complaint, Merrill Lynch's response to the Attorney General showed that Merrill Lynch "either neglected to conduct a reasonable inquiry" or "concealed information." (Dk. No. 38, Exh. 2, 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 filed a lawsuit in Maryland. In response to a subpoena, Merrill Lynch provided Skip with "an incomplete, nearly illegible copy of a fraudulent photocopied" CRA. (Dk. No. 38, Exh. 2, at ¶ 10.) Skip says it was all wrong: 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. 38, Exh. 2, at ¶ 13.) Finally, the amended complaint alleges that Bugher lied in his declaration in support of Merrill Lynch's motion for summary judgment.


         Courts should "freely give" leave to amend "when justice so requires." Fed.R.Civ.P. 15(a)(2). In making this determination, courts may deny leave to amend in cases of apparent or declared undue delay, bad faith, repeated failure to cure pleading deficiencies, undue prejudice to the opposing party, or futility. Foman v. Davis, 371 U.S. 178, 182 (1962). Courts have focused on prejudice, bad faith, and futility as "the only legitimate concerns in denying leave to amend, since only these relate to protection of the judicial system or other litigants." Davis v. Piper Aircraft Corp., 615 F.2d 606, 613 (4th Cir. 1980).

         Futility arises where an amendment cannot withstand a motion to dismiss. Perkins v. United States, 55 F.3d 910, 917 (4th Cir. 1995) (citing Glick v. Koenig, 766 F.2d 268-69 (7th Cir. 1985)). Courts must grant a motion to dismiss where a pleading fails to state a claim for relief under the applicable Federal Rules of Civil Procedure standards, including 12(b)(6) and 9(b).[1] United States ex. rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir. 2008). In this case, the plaintiffs proposed amendments are futile because they could not withstand a motion to dismiss as a matter of law.[2]


         The first new claim, Count III, alleges that Merrill Lynch breached a fiduciary duty it owed to Skip as a third-party beneficiary to the contractual relationship between Merrill Lynch and his father. "To state a claim for breach of a fiduciary duty, a plaintiff must establish three elements: (1) the existence of a fiduciary duty; (2) a breach of that duty; and (3) subsequent damages attributable to the breach." DCG & T ex rel. Battaglia/IRA v. Knight, 68 F.Supp.3d 579, 586 (E.D. Va. 2014) (citing Carstensen v. Chrisland Corp., 247 Va. 433, 443-46, 442 S.E.2d 660, 666-68 (1994)).

         Virginia law recognizes a third-party beneficiary to a contract only where "the parties to the contract clearly and definitely intended to confer a benefit upon him." Ward v. Ernst & Young,246 Va. 317, 330, 435 S.E.2d 628, 634 (1993) (quoting Prof I Realty v. Bender,216 Va. 737, 739, 222 S.E.2d 810, 812 (1976)). The courts generally look to the "four corners" of the contract to determine whether a person is an intended third-party beneficiary. Obenshain v. Halliday, 504 F.Supp. 946, 956 (E.D. Va. 1980) (citing Richmond Shopping Or., Inc. v. Wiley N. Jackson Co.,220 Va. 135, 142, 255 S.E.2d 518, 523 (1979)). The amended complaint fails to show that the contract between Fredrick and Merrill Lynch "clearly and definitely intended" to establish Skip as a third-party beneficiary. Ward, 246 Va. at 330, ...

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