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Debra Ruderman, et al v. Bank of America

June 1, 2011

DEBRA RUDERMAN, ET AL., PLAINTIFF,
v.
BANK OF AMERICA, N.A., DEFENDANT.



The opinion of the court was delivered by: Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

Before the Court is Defendant Bank of America's motion [13] to dismiss Plaintiff's complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons stated below, Defendant's motion is denied.

I. Background*fn1

Debra Ruderman (Plaintiff) and her two siblings owned a real estate business ("the Freed business") that was founded by their father, the late Joseph Freed. DDL, LLC ("DDL") is the principal entity through which the business holds its ownership interests in real estate. As of January 1, 2006, fifty percent of DDL was owned by Plaintiff's brother, Laurance, the sole manager of the Freed business; Plaintiff and her other brother, Daniel, each owned twenty-five percent of DDL. Plaintiff's interest in DDL was owned through the Debra Freed Ruderman Declaration of Trust ("the Trust") and through trusts for the benefit of Plaintiff's children.

La Salle Bank, which was acquired by Bank of America in 2007, began providing financial advisory and investment management services to Plaintiff and to the Trust in 2006 (in the interest of simplicity, this opinion refers to both La Salle Bank and Bank of America as "Defendant"). Plaintiff alleges that Defendant held out its Wealth Management Group as having special skills, sophisticated knowledge, and expertise in financial planning and investment management. Plaintiff also alleges that her knowledge and skills in these matters were inferior to Defendant's and that she trusted and relied on Defendant to advise her on the matters. Plaintiff states that Defendant was already a major lender to the Freed business when Defendant began serving as an investment advisor to Plaintiff.

During the spring of 2006, Defendant told Plaintiff that her wealth was overly concentrated in the Freed business, that her investments lacked liquidity and predictable cash flow, and that they were at risk due to the volatility of the commercial real estate market. Defendant advised Plaintiff to sell a portion of her ownership in DDL and entrust the proceeds to Defendant, which would invest the proceeds in safer and more diverse investments. In June of 2006, Plaintiff, as trustee of the Trust, established investment accounts ("the Trust Investment Accounts") that were managed by Defendant. Plaintiff alleges (and Defendant acknowledges) that Defendant had discretionary authority over the investment of the assets held in the Trust Investment Accounts. In December 2006, DDL made a distribution to the trust of approximately $4.3 million. Plaintiff alleges that, at Defendant's recommendation, Plaintiff directed those funds to be deposited in the Trust Investment Accounts.

DDL and its affiliate, Freed Investment Management, LLC, ("FIM") entered into a loan agreement with Defendant ("the Bank Loans") to provide capital for the Freed business. In late 2007, DDL and FIM negotiated with Defendant for an extension of the Bank Loans. Plaintiff alleges that Defendant agreed to the extension only on the condition that DDL and FIM provided additional collateral.

According to Plaintiff, Defendant prepared a Pledge Agreement to itself of the Trust Investment Accounts ("the Pledge Agreement") as collateral for the extension of the Bank Loans. The Pledge Agreement was dated September 30, 2007, and bears the purported signature of Plaintiff. However, Plaintiff alleges that she was not aware of the Pledge Agreement, did not sign it, and did not authorize anyone to sign it on her behalf. Plaintiff alleges that Defendant was familiar with her signature, and therefore knew or should have known that the signature on the Pledge Agreement was a forgery. Plaintiff also claims that Defendant knew that the Pledge Agreement undermined the financial and investment plan that Defendant had developed for Plaintiff and the trust. Plaintiff alleges that Defendant never informed Plaintiff of its conflict of interest with respect to the Pledge Agreement, on the one hand, and its investment planning for Plaintiff and the Trust, on the other.

During the summer of 2008, the Freed business experienced financial difficulties and fell into arrears in its loan payments to Defendant. Defendant agreed to extend the loan payment dates. Accordingly, Defendant prepared two Forbearance Agreements concerning the two Bank Loans in or around July 2008. The Forbearance Agreements provided that Defendant would forbear on collection of the Bank Loans from June 19, 2008, to August 27, 2008. The Forbearance Agreements included a recital of the September 30, 2008, Pledge Agreement, and stated that they incorporated the Pledge Agreement as a term of the forbearance. Plaintiff alleges that, upon Defendant's request, she signed the Forbearance Agreements in July 2008.

Plaintiff alleges that when she signed the Forbearance Agreements, she was unaware of the existence of the Pledge Agreement and did not know that the Forbearance Agreements incorporated the Pledge Agreement as a term of the forbearance. Plaintiff also alleges that she did not understand the implications of that incorporation. Plaintiff states that she had "no reason to believe that the Bank sought or would seek her signature on documents reaffirming an earlier forged document that fundamentally undermined the financial plan that the Bank had recommended and that she had implemented." [1, at 11.] Plaintiff alleges that she first learned of the existence of the Pledge Agreement in August 2008, when an employee of Defendant informed her that she would be unable to use funds in the Trust Investment Accounts to pay for her children's college tuition because those funds had been pledged to Defendant. Plaintiff alleges that when she asked the employee why Defendant had not made her aware of the Pledge Agreement, the employee told Plaintiff that his supervisor at the Bank had instructed him not to do so. Plaintiff thus charges that Defendant not only failed to inform her of the Pledge Agreement that purported to bear her signature, but deliberately concealed the Pledge Agreement from her.

The Freed businesses presumably defaulted on the Bank Loans after expiration of the forbearance period. Plaintiff alleges that she received a Notice of Disposition of Collateral in June 2009 that stated that Defendant would sell or redeem the Trust Investment Accounts on or after May 20, 2009. Plaintiff alleges that she received a Second Notice of Disposition of Collateral in December 2009 stating that the Trust Investment Accounts could be liquidated on or after December 14, 2009.

Plaintiff alleges that she informed Defendant by letter on December 11, 2009, that the Pledge Agreement was not signed or authorized by Plaintiff. In the same letter, Plaintiff demanded that the Trust Investment Accounts be released from the Pledge Agreement and returned to the Trust. Defendant at some point thereafter sent a Third Notice of Disposition of Collateral to Plaintiff. On May 27, 2010, Defendant liquidated the Trust Investment Accounts and transferred the proceeds of that liquidation (approximately $4.3 million) to itself.

Plaintiff filed a complaint against Defendant in this Court on September 24, 2010, asserting six claims: conversion (Count I), breach of fiduciary duty (Count II), unjust enrichment (Count III), fraudulent concealment (Count IV), professional negligence ...


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