Bass, Berry & Sims attorney Chris Lazarini discussed a case centered around three IRA accounts and the duty that UBS had to the beneficiary following the death of the client/IRA account holder. Prior to the client’s death, the client had attempted to change the beneficiary designations on the accounts, but failed to properly complete the paperwork. Left in a quandary over how to proceed, UBS failed to distribute the funds in one IRA account for over a year. The defendant ultimately filed a claim against UBS alleging breach of contract, breach of fiduciary duty, intentional infliction of emotional distress, and unfair and deceptive acts under the Massachusetts consumer protection act. The court found that UBS owed defendant at least a duty of due care, which it allegedly failed to meet in refusing to provide defendant with information and in delaying distribution. The final ruling confirms that a financial institution holding a self-directed IRA owes no fiduciary duty to the account owner; however, when the owner dies, a fiduciary relationship arises between the financial institution and the owner’s beneficiary.
Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SOLA, please visit the SOLA website to sign up for the newsletter.
UBS Financial Services, Inc. vs. Aliberti, No. 17-P-1169 (Mass. App., 10/4/18)
A financial institution holding a self-directed IRA owes no fiduciary duty to the account owner; however, when the owner dies, a fiduciary relationship arises between the financial institution and the owner’s beneficiary.
Following the death of a client, UBS found itself in a quandary over three IRA accounts. The client had named Defendant, his former romantic partner, as beneficiary when he opened the accounts. Shortly before his death, however, the client attempted to change the designations on two accounts. He marked the change forms incorrectly; naming a new primary beneficiary and three contingents (one of which was Defendant), but marking the form so that each beneficiary would receive a 25% share. He died before signing corrected forms. UBS distributed the assets in the two accounts equally among the four named beneficiaries, but held the assets in the account for which no change had been attempted for over a year, purportedly ignoring Defendant’s and her counsel’s requests for information.
Making matters worse, the client’s former sister-in-law, the UBS broker who managed the accounts, was not fond of Defendant and sent her several off-color text messages when Defendant requested that all assets be distributed to her as sole beneficiary on the accounts. UBS filed an interpleader action against Defendant and the person whom the client attempted to name as primary beneficiary on the accounts already distributed. Asserting her beneficiary status, Defendant counterclaimed and cross-claimed. After another year passed, the parties agreed that UBS would distribute the assets in the third account to Defendant. Unappeased, Defendant amended her counterclaim against UBS to allege breach of contract, breach of fiduciary duty, intentional infliction of emotional distress, and unfair and deceptive acts under the Massachusetts consumer protection act. The trial court granted judgment on the pleadings for UBS, and Defendant appealed.
Conducting a de novo review and accepting Defendant’s factual allegations as true, the Court affirms the judgment on the emotional distress claims, but reverses on all others. The Court finds Defendant sufficiently plead her breach of contract claims. UBS, itself, attached the client agreements to its complaint, and the Court finds Defendant has standing to sue under them as an intended beneficiary. The Court also finds the allegations of undue delay in making distributions and making distributions to improper persons sufficient to support the claim that UBS breached the agreements and caused Defendant damages.
Similarly, the Court finds Defendant sufficiently plead her breach of fiduciary duty claim. Upon the client’s death, UBS became a trustee, which is a fiduciary under New York law, holding the assets for Defendant’s sole benefit. As such, UBS owed Defendant at least a duty of due care, which it allegedly failed to meet in refusing to provide Defendant with information and in delaying distribution. The Court rejects UBS’ argument that the fiduciary duty claim duplicated the breach of contract claim because punitive damages are allowed for breach of a fiduciary duty, but not in an ordinary breach of contract.
Finally, the Court finds Defendant sufficiently plead her consumer protection act claim. Under both its contractual and fiduciary obligations, UBS was engaged in “trade or commerce” and committed an “unfair or deceptive act” by denying Defendant the funds to which she was entitled for multiple years, without good reason, and forcing her to take legal action and incur attorneys’ fees and costs.
EIC: Interpleader actions, while casting the holder of the corpus as neutral, are fraught with liability issues for the actions taken by the holder. If one foresees the ultimate necessity for an interpleader action, it’s best to “bite the bullet” and file early.