United States District Court, D. Massachusetts
PETER L. KNOX, as attorney-in-fact for Margaret A. Knox under power of attorney, Plaintiff,
THE VANGUARD GROUP, INC.; VANGUARD FIDUCIARY TRUST COMPANY; and VANGUARD MARKETING CORPORATION, Defendants.
MEMORANDUM AND ORDER ON PLAINTIFF'S MOTION TO
STRIKE AND CROSS-MOTIONS FOR SUMMARY JUDGMENT
Dennis Saylor IV United States District Judge.
a dispute concerning the handling of an individual retirement
account (“IRA”). 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
(collectively, “Vanguard”) improperly refused to
comply with his instructions concerning his mother's
account. Jurisdiction is based on diversity of citizenship.
heart of this dispute is a seemingly trivial disagreement
over the execution of the paperwork necessary to distribute
the funds from an IRA.
Knox is the son of Kenneth and Margaret Knox. He is a lawyer
who lives in Massachusetts; his mother is elderly and lives
in Ohio. In 2009, Peter obtained a general power of attorney
from his mother that permitted him to conduct her financial
Knox had an IRA at Vanguard. When he established the account
in 1999, Kenneth named his wife Margaret as the beneficiary
in the event of his death. Kenneth died in 2012, at which
point the IRA had a balance of more than $44, 000.
Kenneth's death, at Peter's request Vanguard created
a new IRA account in Margaret's name and transferred the
funds to that account. Peter was unhappy with the way
Vanguard handled the transfer, and attempted-using the 2009
power of attorney-to withdraw the funds in order to transfer
them to a new account at Fidelity Investments.
that point, things became problematic. In essence, Vanguard
insisted that Peter use its own power-of-attorney form, and
otherwise comply with its requirements, in order to have
access to Margaret's account. Because Peter had signed
his mother's name to a document naming him as
beneficiary, Vanguard became suspicious, and insisted on
strict enforcement of its policies. Peter insisted that his
own documentation was sufficient. Neither party was willing
to yield. As a result, the funds were not distributed for
more than three years. Because nothing was distributed during
that time, Margaret suffered various adverse tax consequences
and other alleged financial injuries.
as attorney-in-fact for his mother, has moved for summary
judgment on Counts 3 (breach of fiduciary duty) and 5
(consumer fraud), and Vanguard has cross-moved for summary
judgment on all counts. In addition, Peter has moved to
strike two exhibits offered by Vanguard in support of its
principal questions before the Court are (1) whether there
was a contract that allowed Vanguard to impose its own
requirements on the distribution of funds to someone who is
not the named account holder; (2) whether Vanguard breached
the terms of that contract; (3) whether Vanguard violated the
implied covenant of good faith and fair dealing; and (4)
whether Vanguard otherwise acted improperly. For the reasons
set forth below, the Court concludes that such a contract
existed, that it was not breached, and that Vanguard cannot
be held liable on any other theory of recovery.
Plaintiff's motion to strike and motion for partial
summary judgment will be denied, and defendants' motion
for summary judgment will be granted.
otherwise noted, the following facts are undisputed.
Knox is the son of Margaret Knox and Kenneth Knox. (Docket
No. 65, Ex. 1 ¶ 8). He is a tax attorney who practices
in Massachusetts. (Docket No. 94, Ex. C at 13). He has been a
member of the Massachusetts bar since 1976. (Docket No. 65,
Ex. 1 ¶ 3). Margaret is approximately 98 years old; she
has resided in Ohio since 1964 and currently lives in an
assisted-living facility there. (Id. at ¶ 5;
Compl. ¶ 2).
Vanguard Group, Inc.; Vanguard Fiduciary Trust Co.; and
Vanguard Marketing Corporation are Pennsylvania corporations
with principal places of business in that state. (Compl.
¶ 7). Vanguard is an investment advisor that provides
mutual funds, brokerage services, asset management services,
and a variety of other investment products and services.
(Id. ¶ 9).
1999, Kenneth opened an IRA account with Vanguard (the
“Kenneth IRA”). (Docket No. 61, Ex. 1). In the
process of doing so, he executed an IRA Adoption Agreement
(the “IAA”). (Id.). By signing the
IAA, Kenneth acknowledged “having received and read the
Vanguard IRA Disclosure Statement.” (Id. at
5). In addition, by signing the IAA, Kenneth agreed to the
terms of the standard Vanguard Individual Retirement
Custodial Account Agreement, which was incorporated by
reference. (Id.). The IRA Disclosure Statement and
the IRA Custodial Account Agreement are contained in a single
continuously paginated document, and will be referred to for
convenience as the “1999 CAA.” (Id., Ex.
provided that “Vanguard will transfer ownership of your
IRA to your primary beneficiaries following your
death.” (Id., Ex. 1 at 4). When he opened the
account, Kenneth named Margaret as the sole beneficiary.
1999 CAA provided that Vanguard “is authorized to amend
the Agreement in any respect and at any time . . . to comply
with the applicable provisions of the [Tax] Code” and
that “[a]ny other amendment . . . shall require the
consent of [Vanguard] and the Depositor.”
(Id., Ex. 2 at 32). It continues: “[f]or these
purposes, the Depositor shall be deemed to have consented to
any amendment . . . if [he] fails to object thereto within 30
days after having received written notice of the
time Kenneth died in 2012, the 1999 CAA had been amended.
Section 4.1(b) of the 2012 version (the “2012
CAA”) provided that “[t]he Investor's or
Beneficiary's request [for distribution of account
assets] must be made in a form and manner acceptable to
[Vanguard].” (Id., Ex. 3 at 19). Section
4.5(b) likewise provided that “[Vanguard] shall not
have any responsibility to make any distribution . . . until
it receives . . . directions [from the Investor or
Beneficiary] in form and manner acceptable to
[Vanguard].” (Id. at 22).
generally requires that requests for distributions from
accounts be executed on its own forms. (Id., Ex.
7-9). It has specific forms and requirements
when the person requesting the distribution is not the
account holder, and is acting under a power of attorney or
similar grant of authority. (Id., Ex. 8). It will
accept externally drafted powers of attorney on a
transaction-by-transaction basis, subject to its own
determination that the person in fact has the authority to
act on behalf of the account holder. (Id. at 2). It
requires, under some circumstances, that such a power of
attorney be certified independently (such as by outside
counsel) that it is valid and in force. (Id.).
According to Vanguard, its policies and requirements have
been established in order to protect itself, its account
holders, and the rightful beneficiaries of those accounts
from potential fraud. (Defs.' SMF ¶ 17).
7, 2009, in Ohio, Margaret signed a 2009 Durable General
Power of Attorney (the “2009 DGPOA”) appointing
Peter as her attorney-in-fact. (Docket No. 65, Ex. 33 at
5-6). The 2009 DGPOA in essence provided that Margaret
granted to Peter the authority to perform any action on her
behalf that she could personally perform. (Id.).
That authority specifically included the power to “sign
checks, withdraw funds, and to open and close and manage
bank, brokerage, mutual fund, and other retirement
accounts.” (Id. at 5).
September 30, 2009, Peter sent Vanguard a letter enclosing a
copy of the 2009 DGPOA. (Id., Ex. 8). Peter had
apparently obtained a copy of Vanguard's standard Agent
Authorization form, but declined to execute the form.
(Id.). According to his letter, Peter believed that
the 2009 DGPOA was sufficient to authorize any of the actions
that Vanguard's form would authorize.
September 30, 2012, Kenneth died. At that point, the Kenneth
IRA held investments totaling approximately $44, 896. (Compl.
October 2, 2012, after Kenneth's death, Peter called
Vanguard employee Joseph McHugh to discuss transferring the
assets in the Kenneth IRA to an inherited IRA in
Margaret's name. (Docket No. 65, Ex. 6). McHugh told Peter
that he would send the necessary forms to him to effect the
transfer, including a Vanguard Agent Authorization form.
(Id. at 36-37). McHugh further told him that in
Vanguard's view, the 2009 DGPOA was good only for
“a onetime transaction” and that if he wanted
“permanent or ongoing authority” for
Margaret's account, he would need “to complete an
agent authorization.” (Id. at
35-36). During the October 2 phone call, McHugh
acknowledged that Peter had been granted a power of attorney
under the 2009 DGPOA, but stated if Vanguard did not have an
executed Agent Authorization form on file, it could not
accept his signature in lieu of Margaret's.
then sent its IRA application package to Margaret to effect
the transfer of the Kenneth IRA assets to a new inherited IRA
in Margaret's name. (Id., Ex. 1 ¶ 10; Ex.
11). The package was sent to Margaret's address of
record, which was Peter's address in Massachusetts.
(Id.). The Inherited IRA Form, which was part of the
package, required the new account owner to sign the form and
to confirm, among other things, “that I am signing
below to identify myself as the beneficiary of the
account(s).” (Id., Ex. 9 at 7).
received the package at his address. (Id., Ex. 1
¶ 10; Ex. 11). He signed Margaret's name on the
forms. (Id., Ex. 1 ¶ 16). However, he did not
indicate on the forms that he was signing her name in his
capacity as her attorney or agent. (Id. ¶ 18).
He named himself and his sister as the beneficiaries on the
account. (Id., Ex. 9 at 5). He then mailed the forms to
Vanguard on October 30, 2012. Because Peter believed that
Vanguard had the 2009 DGPOA on file, he did not include
another copy. (Id., Ex. 1 ¶¶ 21-24).
Inherited IRA Form executed by Peter on behalf of Margaret
included the following language: “I have elected to
inherit/assume the IRA(s) of the decedent . . . and I agree
to the terms set forth in this Inherited/Assumed IRA Form for
Spouse Beneficiaries. I hereby adopt the [2012 CAA] that is
incorporated herein by reference and that I acknowledge
having received and read.” (Id., Ex. 9 at 7).
package that he mailed to Vanguard, Peter included a Vanguard
IRA Distribution Form. (Id., Ex. 10). Although the
form indicated that it was not to be used “to establish
required minimum distributions, ” Peter handwrote
various instructions and alterations on the form, including
the notation, “minimum required distribution based on
inherited DOB.” (Id. at 2-3). He signed his
mother's name to the form. (Id. at 8; Ex. 1
November 2, 2012, Vanguard received the forms from Peter.
That day, Vanguard electronically created an inherited IRA
account titled “Margaret A. Knox BENEF Kenneth L.
Knox” (the “Margaret IRA”). (Compl. ¶
29). All of the funds in the Kenneth IRA were then
transferred to the Margaret IRA. (Docket No. 65, Ex.
November 5, 2012, McHugh called Peter. (Id., Ex.
15). McHugh advised him that his handwritten notations on the
IRA Distribution Form were unclear. (Id. at 12).
Peter expressed frustration with what he perceived to be
Vanguard's delays and repeated mistakes, and indicated
that he wanted to transfer all of the funds in the Margaret
IRA to a new account at Fidelity Investments. (Id.
at 27-28). He therefore requested that Vanguard make a
distribution of all of the funds in the Margaret IRA.
(Id. at 18). McHugh advised him that he could send
written instructions with a power of attorney, and that if it
was in good order, the transaction would be processed.
(Id. at 23).
the conversation with McHugh, Peter e-mailed written trade
instructions to Vanguard. (Id., Ex. 16). He attached
the 2009 DGPOA, but without any form of certification.
following day, November 6, Vanguard issued check no. 19198616
in the amount of $44, 504.12 payable to “MARGARET A.
KNOX BENEF KENNETH L. KNOX” and mailed it to
Margaret's address of record (that is, Peter's
address in Massachusetts). (Id., Ex. 63). However,
on November 7, Vanguard stopped payment on that check.
(Id., Ex. 20). Vanguard then returned the $44,
504.12 distribution to the account. (Id., Ex.
contends that after the check had been issued it had
determined that the uncertified 2009 DGPOA was insufficient
authorization to process the transaction. (Id., Ex.
23). At some point, Vanguard's Fraud
Prevention Department had become involved, and expressed
concern that Margaret herself had not signed the Inherited
IRA form and that one of the named beneficiaries, Peter, had
instead signed her name. (Id., Ex.
22). On November 7, Vanguard froze the
Margaret IRA account. (Id.).
November 12, 2012, Vanguard employee Patrick Rogan telephoned
Peter and informed him that the check had been stopped
because Vanguard believed that the proper procedures had not
been followed. (Id., Ex. 25 at 5). He stated that
the 2009 DGPOA was ineffective because “the power of
attorney would [need to] be certified by an authorized
officer of a commercial bank . . . [or] brokerage firm or a
practicing attorney, which could not be you . . . .”
(Id. at 19). During the call, Peter acknowledged
that Margaret had not actually signed the forms to open the
inherited IRA. He told Rogan, “I signed it for her
under the power of attorney. She's not here. She lives in
Cincinnati and I take care of this stuff.”
(Id. at 18).
conversation, and in a subsequent e-mail sent on November 13,
2012, Rogan advised Peter that Vanguard would not accept his
signature on the Inherited IRA Form. (Id. at 19; Ex.
27). In the November 13 e-mail, he stated that “we
would encourage you and your mother to complete the Vanguard
Agent Authorization Form to avoid any potential delays in
sending in a certified power of attorney, ” and that
“[y]our mother can designate you as a full or limited
agent, and it requires your mother to receive a notarized
signature.” (Id., Ex. 27). He also noted that
because Peter had signed his mother's name to the
Inherited IRA Form, his mother would need to sign a new copy
of that form, and that Vanguard would not accept his
signature even if he completed the Agent Authorization Form.
(Id.). Rogan attached blank copies of the two forms
to the e-mail. (Id.).
November 15, Rogan sent Peter another e-mail, in which he
noted that Peter had “admitted” to signing the
Inherited IRA Form for his mother, and that “[a]s a
result, we must receive a new form signed by [Margaret]
before any distributions or transfers out of Vanguard could
occur.” (Id., Ex. 26 at 2). The e-mail
explained Vanguard's policy with regard to powers of
attorney and indicated that an externally prepared
power-of-attorney form could be used, but would need to be
certified each time and would be subject to Vanguard's
internal approval. (Id.). Rogan also advised that he
had sent blank copies of the Agent Authorization Form and the
Inherited IRA Form for Peter and his mother to execute.
(Id. at 3).
November 16, 2012, Rogan sent Peter a letter that essentially
repeated the contents of the two e-mails. (Id., Ex.
30 at 4). Among other things, the letter repeated that
Margaret needed to sign the Inherited IRA Form, and suggested
that Peter should fill out a “Vanguard Agent
Authorization Form” so he could have “ongoing
authority” to manage Margaret's account.
(Id.). Alternatively, Peter could use a power of
attorney that had been certified. (Id. at 5).
However, Vanguard would only accept certified externally
drafted powers of attorney for one-off transactions because
they vary greatly and state laws differ in interpreting
durable powers of attorney. (Id.). Vanguard
“require[d] a new certification with each [DGPOA]
submission” to ensure that the power of attorney was
still in effect. (Id.).
response, on November 17, 2012, Peter sent another letter to
Vanguard that simply included a copy of the 2009 DGPOA.
(Id., Ex. 40). Again, however, the 2009 DGPOA was
not accompanied by a current certification that it remained
valid. (Id.; Defs.' Resp. ¶ 85).
November 22, 2012, Peter mailed a signed letter to Vanguard
demanding immediate payment of funds held in the Margaret
IRA. (Docket No. 65, Ex. 33). The letter itself was purported
to have been signed by Margaret. (Id. at 4). The
letter did not include an executed copy of the Inherited IRA
December 4, 2012, Peter wrote to Vanguard stating that
Margaret's distribution needed to occur during the
current tax year to avoid significant penalties.
(Id., Ex. 34 at 4). The letter included another copy
of the 2009 DGPOA, which again was not certified.
(Id. at 5-6). Instead, Peter simply stated that
“[y]ou may rely on my representation that this DGPOA
remains in full force and effect.” (Id. at 4).
replied in a letter dated December 7, 2012, reiterating that
Margaret had to sign the relevant Vanguard forms before
Vanguard would “update her beneficiaries, or process a
monetary transaction or asset transfer.” (Id.,
Ex. 52 at 2). Peter sent follow-up e-mails on December 13 and
19, 2012, stating that “[t]he tax consequences of
[Vanguard's] delaying the IRA distribution beyond the end
of 2012 are horrendous.” (Id., Ex. 35 at 3-4;
Ex. 36 at 3).
this process, Peter never advised Vanguard that his mother
was incompetent or otherwise unable or unwilling to execute
the necessary forms. He did have his mother sign her name to
at least one letter (on November 22, 2012) and at least one
Vanguard form, as set forth below (on February 3, 2013). At
no point did he request that his mother execute the Inherited
IRA Form or the Agent Authorization Form, as Vanguard had
December 21, 2012, Vanguard employee Brian Arletti wrote a
letter to Peter stating that if Margaret was unable to
complete and sign the relevant forms, Peter would have to
submit an Agent Certification for Incapacitation Form
including both a valid durable power of attorney along with a
physician's certification of incapacity. (Id.,
Ex. 32 at 7). In addition, if the durable power of attorney
did not state the authority for the request, Vanguard would
require an opinion letter from an attorney. (Id.).
February 15, 2013, Peter sent Vanguard an executed IRA
Distribution Form, accompanied by a letter from Margaret
instructing Vanguard to cash out the Margaret IRA.
(Id., Ex. 38, 39). The IRA Distribution Form, as
submitted to Vanguard, sought distribution of all of the
funds in the Margaret IRA in the form of a check made payable
to her at her address of record. (Id., Ex. 38 at 4).
It was filled out by hand, with a variety of provisions
crossed out. It contained three signatures: (1)
“Margaret A Knox by Peter L Knox as her attorney in
fact”; (2) “Margaret A Knox by Peter L Knox as
her [illegible]”; and (3) “Margaret A.
Knox.” (Id. at 8). Under the latter signature
is written the inscription, “Margaret A. Knox, by her
own hand”; next to it is the date “Feb. 3,
2013.” (Id.). Peter contends that the
signature is that of his mother.
sent additional letters to Vanguard between March 1, 2013,
and November 21, 2014. (Id., Ex. 46-50). However, no
distributions were made from the Margaret ...