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Knox v. The Vanguard Group, Inc.

United States District Court, D. Massachusetts

May 2, 2016

PETER L. KNOX, as attorney-in-fact for Margaret A. Knox under power of attorney, Plaintiff,
v.
THE VANGUARD GROUP, INC.; VANGUARD FIDUCIARY TRUST COMPANY; and VANGUARD MARKETING CORPORATION, Defendants.

MEMORANDUM AND ORDER ON DEFENDANTS’ MOTION TO DISMISS

F. Dennis Saylor, IV United States District Judge.

This is an action for breach of contract. Plaintiff Peter Knox, acting as attorney-in-fact for his mother, Margaret A. Knox, alleges that defendants The Vanguard Group, Inc.; Vanguard Fiduciary Trust Company; and Vanguard Marketing Corporation improperly refused to comply with his instructions concerning an inherited individual retirement account held in his mother’s name.

Vanguard has moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(6). For the following reasons, the motion will be denied in part and granted in part.

I. Background

A. Factual Background

Plaintiff Peter Knox is the son of Margaret Knox and her late husband Kenneth Knox. (Compl. ¶¶ 1, 3). At all times relevant to the complaint, Peter has served as agent for Kenneth and Margaret under various durable general powers of attorney. (Id. ¶ 4). Margaret is 96 years old and resides in Cincinnati, Ohio; however, she maintains a business address “of record” in Brookline, Massachusetts, where, “acting through her attorney-in-fact, [she] transacts her personal business.” (Id. ¶¶ 2, 6).

Defendants The Vanguard Group, Inc.; Vanguard Fiduciary Trust Co.; and Vanguard Marketing Corporation (collectively, “Vanguard”) “transact[] business with and provide[] fiduciary, agent, investment, individual retirement account, custodial account, and brokerage account services . . . .” (Id. ¶ 9). The complaint alleges that Kenneth maintained an individual retirement account with Vanguard for “many years prior to his death, ” and that Kenneth named his wife, Margaret, as his sole death beneficiary of the account. (Id. ¶ 13).

On May 7, 2009, Kenneth and Margaret executed a new set of durable general powers of attorney (“DGPOAs”) granting Peter “the broadest possible general agency authority including to do for them in their names any and all things that they might do themselves if personally present.” (Id. ¶ 14). Among other things, the 2009 DGPOAs specifically granted Peter the power “to deal in any way with retirement plan and the like; to do business with . . . financial institutions, ” and “to sign checks, withdraw funds, and to open and close and manage bank, brokerage, mutual fund, and other financial accounts.” (Compl. Ex. 1).

Peter mailed the 2009 DGPOAs to Vanguard on September 30, 2009. (Compl. ¶ 18). Vanguard confirmed, in a telephone call on October 3, that it received the 2009 DGPOAs. (Id.).

Kenneth died on September 30, 2012. At that time, the value of the funds held in his IRA at Vanguard was $44, 896. (Id. ¶ 19). In October 2012, Peter contacted Vanguard to inquire about submitting an application for an inherited individual retirement account for Margaret, the sole beneficiary of Kenneth’s IRA. (Id. ¶ 21).[1] Vanguard then sent a “Vanguard Inherited/Assumed IRA Kit for Spouse Beneficiaries” to Margaret at her business address in Massachusetts. (Id. ¶ 21). That kit included “a 12 page Vanguard IRA ‘Disclosure Statement’, a 20 page Vanguard IRA ‘Custodial Account Agreement’, and Vanguard’s Inherited/Assumed IRA Form For Spouse Beneficiaries.” (Id.). The complaint refers to this package of documents as the “Inherited IRA Application.”

Acting as Margaret’s attorney-in-fact, Peter completed the application and signed the name “Margaret A. Knox” to the application form. (Id. ¶ 22).[2] Peter “designated Mrs. Knox’s living children (including [Peter]) in equal shares as her IRA beneficiaries; designated Kenneth L. Knox’s date of birth for Mrs. Knox’s annual Required Minimum Distribution (“RMD”) withdrawal rate; and enclosed an original death certificate” in accordance with the “Legal Requirements” listed in the application. (Id. ¶ 24). The complaint states that the “Legal Requirements” section of the application did not require him to enclose a copy of the 2009 DGPOA or otherwise contain a prohibition against an applicant acting as an attorney-in-fact. (Id. ¶¶ 25-27). Peter mailed the completed application to Vanguard on October 30, 2012. (Id. ¶ 28).

Vanguard received the application on November 2, 2012, and opened an inherited IRA in the name of “Margaret A. Knox BENEF Kenneth L. Knox.” (Id. ¶ 29). The complaint alleges that the inherited IRA was created pursuant to Vanguard’s Custodial Account Agreement. (Id.).[3]

On November 5, 2012, Peter “instructed Vanguard via e-mail under [Peter’s] signature . . . to make a full distribution to [Margaret] of the inherited IRA.” (Id. ¶ 31). At Vanguard’s request, Peter included a copy of the 2009 DGPOA as an attachment to the e-mail. (Id.). In response, on November 6, 2012, Vanguard issued a check in the amount of $44, 504.12 payable to “Margaret A. Knox BENEF Kenneth L. Knox, ” which Peter received at Margaret’s address of record in Massachusetts. (Id.). Peter then endorsed and deposited the check. (Id. ¶ 33).

After sending the check, however, Vanguard stopped payment without informing either Peter or Margaret. (Id. ¶ 32). On November 16, 2012, Patrick Rogan, a Vanguard representative, notified Peter by letter that Vanguard had reversed the distribution and stopped payment on the check because “the proper procedures weren’t followed to process your mother’s distribution.” (Id. ¶ 34; Ex. 5 at 1). Specifically, the letter stated that because Peter had signed the IRA application form for Margaret’s inherited IRA, Vanguard “must receive a new form signed by Ms. Margaret Knox before any distributions or transfers out of Vanguard can occur.” (Compl. Ex. 5 at 1).[4] In response, Margaret “personally” signed a letter to Vanguard demanding payment of the funds held in the IRA. (Compl. ¶ 36). When Vanguard continued to refuse, Peter wrote to Vanguard in December 2012, to inform them that the distribution “needs to be received in the current tax year in order to avoid huge and expensive tax problems.” (Id. ¶ 37).

The complaint alleges that Vanguard “refused to distribute to Mrs. Knox any of the funds held in her Inherited IRA . . . including refusing to make the annual ‘required minimum distributions’” as required by federal tax law. (Id. ¶ 40). It further alleges that Vanguard “also refused to honor and to effectuate Mrs. Knox’s selection of her living children as the beneficiaries of her Inherited IRA and Vanguard has eliminated her children and replaced them with beneficiaries selected by Vanguard . . . .” (Id. ¶ 41). And it alleges that Vanguard has “stated several apparently pretextual, unfair, deceptive, confusing, and confused ‘reasons’ for dishonoring the check, refusing to obey Mrs. Knox’s direct written instructions, refusing to honor her selection of her living children as her desired beneficiaries, refusing to pay out her IRA to her upon her written demands (both directly and through her agent), refusing to pay her annual [required minimum distributions] (for which no written demand is needed, but for which multiple written demands have been made), and for refusing to honor and for failing to comply with the instructions given to Vanguard under the 2009 DGPOA (as well as under the earlier DGPOAs.” (Id. ¶ 42). Specifically, it alleges that Vanguard gave the following “reasons” for its actions:

a. That its IRA application cannot be signed by an agent;
b. That Attorney Knox did not have ‘the ability to accept the terms and conditions of the ...

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