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UBS Financial Services, Inc. v. Aliberti

Supreme Judicial Court of Massachusetts, Suffolk

October 22, 2019

UBS FINANCIAL SERVICES, INC.
v.
DONNA M. ALIBERTI.

          Heard: April 1, 2019.

          Civil action commenced in the Superior Court Department on August 4, 2015. Counterclaims were heard by Karen F. Green, J., on a motion for judgment on the pleadings.

         After review by the Appeals Court, the Supreme Judicial Court granted leave to obtain further appellate review.

          Carmen A. Frattaroli for the defendant.

          John K. Wells for the plaintiff.

          Glenn Kaplan, Assistant Attorney General, for the Attorney General, amicus curiae, submitted a brief.

          David Goldberg & Susan Light, of New York, Robert T. Smith & Mary C. Fleming, of the District of Columbia, Christian Kemnitz, of Illinois, & William C. Pericak, for Securities Industry and Financial Markets Association, amicus curiae, submitted a brief.

          Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, & Cypher, JJ.

          LOWY, J.

         On appeal from an order granting judgment on the pleadings, we are called upon to consider the legal relationship between the commercial custodian of three nondiscretionary individual retirement accounts (IRAs) and a named beneficiary of those accounts upon the death of the original account holder. Quasi familial conflict following the death of the IRAs' original account holder sparked a lengthy account beneficiary dispute between the plaintiff in counterclaim, Donna M. Aliberti, as a named IRA beneficiary, and the defendant in counterclaim, UBS Financial Services, Inc. (UBS), as IRA custodian. Allegedly fueled by a combination of bureaucratic indifference or incompetence and hypersensitivity to risk exposure, the feud festered for more than one and one-half years before resulting in legal action, commenced by UBS filing a complaint for interpleader.

         In counterclaim to UBS's interpleader complaint, Aliberti asserted claims of breach of contract; breach of fiduciary duty; violation of the consumer protection statute, G. L. c. 93A, § 9 (c. 93A); and intentional infliction of emotional distress. A Superior Court judge allowed UBS's motion for judgment on the pleadings as to all claims, but the Appeals Court reversed on all counts but intentional infliction of emotional distress. See UBS Fin. Servs., Inc. v. Aliberti, 94 Mass.App.Ct. 180, 192-193 (2018). More specifically, the Appeals Court concluded that the pleadings stated facially plausible claims that (1) Aliberti was an intended third-party beneficiary of contracts governing the IRAs with standing to sue for contractual breach, (2) UBS committed a breach of fiduciary duties owed to Aliberti, because IRAs are "trusts" under Federal tax law, and (3) the challenged conduct by UBS occurred in a business context and violated c. 93A.[1] We granted UBS's application for further appellate review.

         On review, we conclude that there is no plausible claim for breach of fiduciary duty, but the facts alleged do state a claim that UBS's conduct violated c. 93A. More specifically, we hold that the custodian of a nondiscretionary IRA does not owe a fiduciary duty to a named beneficiary of that IRA, where no special agreement or circumstances elevate their relationship above the consumer sphere, which the record here does not support. We also hold that the interactions between the commercial custodian of a nondiscretionary IRA and a named beneficiary of that IRA occur in a business context within the meaning of c. 93A, and that the injurious conduct of UBS alleged here plausibly constitutes a c. 93A violation. We therefore affirm the Superior Court judge's decision as to the breach of fiduciary duty claim and reverse the decision as to the violation of c. 93A.[2]

         Background.

         1. IRA background.

         This dispute arises from within that sector of the consumer financial services industry devoted to the sale, maintenance, and postmortem transfer of IRAs. IRAs are a widely used type of tax-advantaged account that provides incentives for individuals to accumulate retirement savings. See Clark v. Rameker, 573 U.S. 122, 124-125, 128 (2014); Investment Company Institute, Investment Company Fact Book 172 (59th ed. 2019), https://www.ici.org/pdf /2019_factbook.pdf [https://perma.cc/TX83-JFYP].[3] Congress first enacted the legal framework for IRAs in 1974, to make tax-deferred savings available to workers without access to an employer-sponsored retirement plan. Congressional Research Service, Traditional and Roth Individual Retirement Accounts (IRAs): A Primer 1 (updated May 11, 2018). While IRAs were designed to function primarily as tax-advantaged savings vehicles for the account holder's own future use and benefit, they have since become an important estate planning vehicle, as significant balances may remain upon an account holder's death. The Internal Revenue Service (IRS) contemplates that a typical account holder will establish an IRA "to provide [both] for his or her retirement and for the support of his or her beneficiaries." IRS Form 5305-A (model traditional IRA custodial account agreement).

         Although the income tax treatment of IRA assets is complex and dictated by Federal law, nearly all other legal aspects of these accounts are governed by State statutory and common law, and the contractual terms of account agreements as dictated by private financial institutions to consumers. See Sterk & Leslie, Accidental Inheritance: Retirement Accounts and the Hidden Law of Succession, 89 N.Y.U. L. Rev. 165, 174-175 (2014) (Sterk & Leslie).[4] The procedure for transferring ownership of the IRA upon an account holder's death is among the legal aspects of an IRA dictated by State law. IRAs are a type of "nonprobate" asset, meaning that upon the death of the owner, title passes in accordance with a contractual beneficiary designation rather than under the provisions of a will. See G. L. c. 190B, § 6-101 (contract for nonprobate transfer on death not testamentary, meaning valid without will's formalities); G. L. c. 167D, § 15 (IRA beneficiary designations take effect according to contractual terms, "notwithstanding any purported testamentary disposition allowed by statute, by operation of law or otherwise to the contrary").

         In Massachusetts, as in most other jurisdictions, State law does not provide regulations or guidelines standardizing or otherwise governing the form or content of IRA beneficiary designations, the procedure for amending them, or the default provisions in the event no beneficiary is designated. Sterk & Leslie, supra, at 175. Financial intermediaries each use their own "standard form instruments with fill-in-the-blank beneficiary designations," Langbein, The Nonprobate Revolution and the Future of the Law of Succession, 97 Harv. L. Rev. 1108, 1109 (1986), and typically, the contractual "framework keeps administrative costs down by limiting the inquiry required of the account custodian at the time of the accountholder's death." Sterk & Leslie, supra at 177.

         The contractual change in account ownership appears typically to occur "immediately and automatically" at the moment of the original account holder's death, yet it is not typical practice for a beneficiary to "be able to walk in to the IRA provider's office, present his identification, and get a check for the entire balance payable to himself." N.B. Choate, Life and Death Planning for Retirement Benefits 259 (8th ed. 2019). Rather, many IRA custodians will not accept instructions from a beneficiary-cum-owner until appropriate documents have been signed (typically a new account agreement) and, where applicable, the account has been "retitled" as an inherited IRA to formalize the change in ownership. Id.

         2. Factual background.

         We present the pertinent facts from the pleadings and exhibits that were before the motion judge, in the light most favorable to Aliberti. In 2008, Patrick Kenney opened three IRAs with UBS. The UBS financial advisor who assisted Patrick Kenney in establishing the IRAs, Margaret Kenney, was also his one-time sister-in-law.[5] At the time he established the IRAs, Patrick Kenney was involved in a long-term romantic but nonmarital relationship with Aliberti. When Patrick Kenney filled out the initial account paperwork, he designated Aliberti as the sole primary beneficiary of each IRA.[6]

         In establishing the IRAs, Patrick Kenney signed the "UBS Client Relationship Agreement" (CRA), which named Aliberti as sole primary beneficiary below the statement, "At your death, your IRA will be transferred to the beneficiary or beneficiaries whose name(s) are printed below," followed by the advisory, "You may change your beneficiary designation at any time by notifying UBS in writing of the change in a form acceptable to UBS." The CRA also incorporated terms and conditions of the "UBS IRA Custodial Agreement" (custodial agreement) and "IRA Disclosure Statement," two other documents allegedly included in the set of initial account paperwork mailed to Patrick Kenney for review and signature.

         In November 2013, Patrick Kenney completed two UBS "IRA Beneficiary Designation Update Forms" (update forms) in connection with two of the IRAs, one with an approximate balance of $18, 000 and the other with an approximate balance of $31, 000 (collectively, smaller IRAs). Kenney completed the two update forms in an identical manner, writing in the names of four individuals with the notation "25%" next to each. Those individuals are Aliberti, Aliberti's son, Patrick Kenney's niece, and a friend of Patrick Kenney named Craig Gillespie. Patrick Kenney completed each of the forms improperly, writing Gillespie's name on the line designated for a "primary beneficiary" and each of the three other names on a line designated for a "contingent beneficiary."

         UBS received the two update forms from Patrick Kenney, but declined to process them because they were not properly completed. Margaret Kenney arranged for new beneficiary update forms for each IRA to be sent to Patrick Kenney for completion. UBS never received any request from Patrick Kenney to update the beneficiary designation with respect to the third IRA, valued at approximately $276, 000 (larger IRA), and no additional forms were ever received with respect to the smaller IRAs. Patrick Kenney died unexpectedly on December 2, 2013.

         Approximately two weeks following Patrick Kenney's death, Aliberti contacted Margaret Kenney about the three IRAs. That evening, Margaret Kenney sent Aliberti a series of text messages, beginning with a request for her address, but followed by attacks on Aliberti's character, including references to her as "a whore" and "the . . . worst piece of filth I have ever encountered," and ultimately an accusation that Aliberti had failed to notice errors on Patrick Kenney's death certificate on account of being "too busy ransacking" and "so eager to grab the money." Two days later, Margaret Kenney sent Aliberti another text message stating, "Documents mailed to you today please sign and return ASAP for distribution."

         Near the end of December 2013, UBS received a letter from Gillespie's attorney, stating the attorney's understanding that Patrick Kenney had "changed the named beneficiaries on two of the IRA accounts and that he was in the process of changing beneficiaries with regard to the third IRA account at the time of his passing." The letter also stated that Gillespie intended "to have a court of law resolve the issue of whether or not he is a named beneficiary of the third IRA account" and asked UBS not to make any distributions therefrom.[7] The letter from Gillespie's counsel resulted in UBS's classification of the larger IRA as "disputed" in accordance with internal policy, which meant that UBS would take no action with regard to the larger IRA unless one of the following occurred: (1) receipt of a court order with instructions; (2) Gillespie's withdrawal of any claim to the funds; or (3) the expiration of all applicable statutes of limitations, eliminating any related risk for UBS.

         During the second week of January 2014, Aliberti telephoned the UBS client relations department to complain about the text messages received from Margaret Kenney. During the call, she stated her belief that she was the sole beneficiary of all three IRAs, and the UBS "Client Relations Telephone Log Sheet" generated in connection with that call references the account numbers of all three IRAs. Aliberti had no further communication with UBS until February 4, 2014, when she received an unsigned letter from UBS's "Early Dispute Resolution Group," stating that a case manager had been assigned to her complaint and would respond after review. On February 19, 2014, Aliberti sent completed beneficiary processing forms for all three IRAs, a copy of Patrick Kenney's death certificate, and a copy of her driver's license to UBS.

         Five days later, Aliberti telephoned UBS's client relations department to complain a second time, having received a package of new account paperwork indicating that Margaret Kenney remained in control of the IRAs. Aliberti again complained about Margaret Kenney's previous unprofessional text messages and demanded assignment of a new UBS financial advisor to administer the IRAs. Near the end of March 2014, UBS removed Margaret Kenney from oversight of all three IRAs, and Aliberti received another form letter from UBS stating that the IRAs had "been updated for Management access only" and that the UBS client relations department would respond to Aliberti's concerns "as soon as possible." Shortly thereafter, within five months of Patrick Kenney's death, UBS liquidated each of the smaller IRAs, in each instance making four equal distributions of funds to each of Aliberti, Aliberti's son, Gillespie, and Patrick Kenney's niece.[8] Neither Aliberti nor her son attempted to return funds to UBS.

         After receiving these distributions from the smaller IRAs, Aliberti retained counsel to communicate with UBS on her behalf. In early May 2014, Aliberti made a written request, through counsel, seeking information relating to the IRAs of which Aliberti was a named beneficiary, UBS's treatment of Aliberti's complaints, and details of any dispute as to Aliberti's beneficial interest in one or more of the IRAs.[9] This request was sent by certified mail to the UBS personnel who had previously assured her, first in early February and subsequently in late March, that a response to her concerns would be forthcoming. Although Aliberti's request expressly proposed delivery of materials within seven days, UBS failed to respond. Aliberti ultimately resorted to service of a keeper of the records deposition subpoena on UBS. UBS replied, "albeit late."[10]

         On August 29, 2014, nearly nine months following Patrick Kenney's death, Aliberti, through counsel, sent a second letter to the same UBS personnel. This letter contained a written demand for immediate distribution of the date-of-death balance of the larger IRA, with appropriate interest and dividends, to Aliberti; a statement of intent to sue failing delivery of those funds within ten business days; and a reservation of Aliberti's rights to contest the ...


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