Free Exhibits - District Court of California - California

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO WESTERN DIVISION Daniel J. Segal, et al, Plaintiffs, vs. Fifth Third Bank, N.A., et al, Defendants. : : : : : : : : : ORDER Before the Court is Defendants' motion to dismiss Plaintiff's Amended Class Action Complaint. (Doc. 22) Case No. 1:07-cv-348

Plaintiffs oppose the motion (Doc. 23), and Defendants have replied. (Doc. 25) Plaintiffs have also filed supplemental (Docs. 26, 28)

authorities in support of their opposition.

Plaintiff Daniel Segal is a beneficiary of a fiduciary trust account administered by Defendant Fifth Third Bank. First Third Bancorp is the Bank's corporate parent. Defendant Segal

generally alleges that the Bank breached its fiduciary duties, unjustly enriched itself at his expense, and breached its contract to properly administer the trust account in accordance with fiduciary duty principles. Segal alleges individual claims on his own behalf, and also brings claims on behalf of two defined Rule 23(b)(3) classes: (a) The Beneficiary Class, consisting of all beneficiaries of trust, estate, or other fiduciary accounts for which the Bank or any -1-

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of its predecessors acted as a trustee, executor, or other form of corporate fiduciary at any time from March 1, 2001 to the present (the "Class Period'); and (b) The Proprietary Funds Class, consisting of all Beneficiary Class members whose trust, estate, or other fiduciary accounts, for which the Bank or any of its predecessors acted as a trustee, had, directly or indirectly, Proprietary Fund assets allocated to any such account at any time during the Class Period. (Am. Complaint ¶57) According to the complaint, the Bank administers several types of fiduciary accounts and provides related services, including customized portfolio management. (¶10) The Bank

failed to exercise good faith by engaging in self-interested or imprudent asset placement decisions for those accounts, primarily the Bank's purchase of proprietary mutual funds. (¶8) The Bank

also failed to "undertake a trust-by-trust analysis" of each fiduciary account and instead, uniformly decided that trust assets be invested "to the extent feasible, in Fifth Third Funds." (¶¶23 & 24) The Bank's prior practice of offering

"highly individualized trust administration and asset management services" paid for with fiduciary account fees, was and is being replaced by a standardized portfolio management approach adopted due to various Bank acquisitions and expansions. This

standardized, lower-level approach "force-placed" the Bank's fiduciary accounts into the Bank's proprietary funds. This

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conduct violated the Bank's fiduciary obligations, and disregarded potential adverse tax consequences to the account beneficiaries. (¶¶25-28) This misconduct resulted in increased

income to the Bank from higher fees charged to the accounts for advisory, administrative, and other services. Investing the

fiduciary funds in the Bank's proprietary mutual funds also permitted the Bank to achieve economies of scale in its mutual fund operation that benefitted the Bank, to the detriment of the account beneficiaries. (¶¶29-32)

Plaintiff alleges that the objectionable conduct is ongoing, because the Bank is continuing to seek merger acquisitions, which will permit the Bank to further dilute the value of its fiduciary and trust services provided to the account beneficiaries. 38) Jurisdiction is alleged based on diversity between the parties. Segal is an Ohio resident, but he alleges that other The (¶¶37-

members of the putative class are residents of other states. Bank is a federally chartered bank and Bancorp is an Ohio corporation, both domiciled in Cincinnati. (¶¶43-46) Segal

alleges supplemental jurisdiction is proper over his individual claims under 28 U.S.C. §1367. He alleges state law claims for

breach of fiduciary duty (Count I), unjust enrichment (Count II), breach of contract premised on the underlying fiduciary instruments (Count III), and another fiduciary duty claim (Count

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IV) based on the improper investments of amounts segregated in the accounts to satisfy tax obligations. Segal brings an

individual claim for breach of fiduciary duty (Count V), arising out of other specific Bank actions taken as Trustee of the Segal Trusts. Defendants move to dismiss the complaint. They argue that

the class claims are pre-empted by the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"). Alternatively, they

argue that each of the state law claims should be dismissed on the merits because, for various reasons, they fail to state claims as a matter of law. DISCUSSION 1. Standard of Review. A Rule 12(b)(6) motion operates to test the sufficiency of the complaint. In considering such a motion, the court is

required to construe the complaint in the light most favorable to the Plaintiff, and accept as true all well-pleaded factual allegations. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974),

and Roth Steel Products v. Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir. 1983). The court need not accept as true legal Lewis v. ACB A

conclusions or unwarranted factual inferences.

Business Servs., Inc., 135 F.3d 389, 405 (6th Cir. 1998).

court will, though, accept all reasonable inferences that might be drawn from the complaint. Fitzke v. Shappell, 468 F.2d 1072,

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1076-77 at n.6 (6th Cir. 1972). As noted in Mayer v. Mylod, 988 F.2d 635, 637 (6th Cir. 1993): The purpose of Rule 12(b)(6) is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true. . . . As the court stated in Conley v. Gibson, 355 U.S. 41, 4546, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957), `[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.' The Supreme Court's decision in Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955 (2007) casts some doubt on these long-standing pleading requirements. While some

uncertainty exists in this Circuit on Twombly's reach,1 Twombly requires allegations "plausibly suggesting" the existence of a cognizable claim. Id. at 1964. However, Twombly does not alter

this Court's duty to construe the complaint in the light most favorable to plaintiff. 2. SLUSA Preclusion. Congress enacted SLUSA in 1998, in response to concerns that state law class actions were being utilized to circumvent the Private Securities Litigation Reform Act ("PSLRA"), enacted in 1995. PSLRA was intended to correct certain perceived abuses of

(6

th

See Weisbarth v. Geauga Park Dist., 499 F.3d 538, 541-542 Cir. 2007). -5-

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class action securities litigation by, among other things, imposing heightened pleading standards upon class complaints for securities fraud. SLUSA's preclusion provision states:

No covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any private party alleging (1) an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security; or (2) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security. 15 U.S.C. §77p(b). The statute also authorizes removal to

federal court of covered class actions originally filed in state court. The statute defines a "covered" class action as one

brought on behalf of more than 50 people; a "covered" security is one traded nationally, listed on a regulated exchange, and subject to the federal securities laws. In addition to these

requirements, a state law class action is precluded if the claims are based on a misrepresentation or omission of material fact (or the use of a deceptive device or scheme) "in connection with" the purchase or sale of a security. See Dudek v. Prudential Secs.,

Inc., 295 F.3d 875, 879 (8th Cir. 2002). It must be kept in mind that SLUSA does not actually or completely pre-empt any and all state law claims that may have something to do with the buying and selling of securities. -6See

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Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 87 (2006): "SLUSA does not actually pre-empt any state cause of action. It simply denies plaintiffs the right to use the The Act does

class action device to vindicate certain claims.

not deny any individual plaintiff, or indeed any group of fewer than 50 plaintiffs, the right to enforce any state-law cause of action that may exist." A. Misrepresentation or Omission.

Defendants contend that the class claims, while styled under state law, are in essence claims based on misrepresentations or omissions of material facts (or a fraudulent or deceptive scheme) concerning the purchase of Fifth Third mutual funds. They point

to Plaintiffs' original complaint in this case, which more squarely alleged a plan or scheme hatched by Defendants to shift fiduciary funds managed by the Bank into Fifth Third "Captive" mutual funds. (See, e.g., Doc. 1, ¶¶20-23) Defendants responded

to the original complaint with a motion to dismiss based on SLUSA preclusion, pointing out the specific allegations of the original complaint that required that result. (See Doc. 12) Plaintiffs

elected to amend, and removed most of the direct allegations of "misrepresentations," "omissions," and "schemes." Defendants now

argue that Plaintiffs may not "plead around" SLUSA by cloaking their claims with state law titles, as SLUSA is an exception to the well-pleaded complaint rule.

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A review of the 92 paragraphs pertaining to the amended complaint's class claims leads to the inescapable conclusion that Plaintiffs' action is premised upon a central factual allegation: that Fifth Third misrepresented or failed to disclose material facts, and/or engaged in a manipulative or deceptive course of conduct, when Fifth Third invested Plaintiffs' fiduciary funds into the Bank's proprietary mutual funds. That allegation is

clearly the gravamen of Plaintiffs' state law claims. Plaintiffs argue that their amended complaint disavows any such contention, because in paragraph 2 they specifically allege that their claims are not based upon any misrepresentation, or failure to disclose, or fraudulent scheme. They suggest they are

"only" alleging classic state law claims based on Defendants' alleged breach of fiduciary duties owed to Plaintiffs. disagrees. The fact that Plaintiffs avoid using the words "misrepresentation" and "omission" does not control the result. It is clear that the court can and should disregard the particular labels or titles Plaintiffs may affix to their claims when determining if SLUSA precludes those claims. It is the The Court

substance of the allegations about the defendants' conduct that is key to this determination. See, e.g., Professional Mgmt.

Assocs. Employees Profit Sharing Plan v. KPMG LLP, 335 F.3d 800, 803 (8th Cir. 2003) [holding that a negligence claim is

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"essentially" a precluded securities fraud claim]; Dudek v. Prudential Secs., 295 F.3d 875 (8th Cir. 2002), finding SLUSA precluded claims based on placement of tax-deferred annuities in plaintiffs' retirement accounts, and which alleged that the defendant-insurer benefitted from resulting higher fees and costs incurred. Here, similarly, Plaintiffs allege that increased account fees resulted from Defendants' "asset allocation" decisions (¶7); that the bank enriched itself by making those "asset allocations" (¶9); and that the Bank engaged in self-dealing by investing in its proprietary funds rather than "independently analyz[ing] and monitor[ing] trust assets." (¶14) Whatever the state law mold

these allegations may also fit, it is inescapable that the key conduct underlying all the claims is the Bank's misrepresentations or omissions about, or deceptive scheme involving, the Bank's purchase of its proprietary mutual funds with fiduciary assets. All of the class allegations of self-

dealing, breach of duty, or unjust enrichment, flow from that central fact. While the alleged misconduct may have breached a

contract or a fiduciary duty, it is also a "quintessential example of a fraudulent omission of a material fact under the federal securities laws." Felton v. Morgan Stanley Dean Witter &

Co., 429 F.Supp.2d 684, 693 (S.D.N.Y. 2006). Several district courts that have addressed almost identical

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allegations against different banks and investment firms have reached the same conclusion. See Kutten v. Bank of America,

N.A., 2007 U.S. Dist. LEXIS 63897 (E.D. Mo., August 29, 2007), finding SLUSA precluded breach of fiduciary duty and unjust enrichment claims against the bank; Siepel v. Bank of America, 239 F.R.D. 558 (E.D. Mo. 2006) [same]; Spencer v. Wachovia Bank, N.A., 2006 U.S. Dist. LEXIS 52374 (S.D. Fla., May 10, 2006) [same]; Rabin v. JP Morgan Chase Bank, N.A., 2007 U.S. Dist. LEXIS 57437 (N.D. Ill. Aug. 3, 2007) [same]. Plaintiffs have submitted an unpublished order from the Southern District of New York in Hughes v. LaSalle Bank, where the court concluded that SLUSA does not preclude claims for breach of fiduciary duty, tortious interference and unjust enrichment. (See Doc. 26, Exhibit 2) The district court's order

states that the court was responding to the Second Circuit's remand of the case for an evidentiary hearing on subject matter jurisdiction over the plaintiffs' original complaint. According

to the district court order, the Second Circuit posed questions about both the existence of diversity and whether SLUSA preclusion might apply. This Court is not bound by that district

court's conclusion about whether SLUSA applies to the pleadings and parties before the court in that case. There is no The

definitive guidance from the Sixth Circuit on this question.

Court finds the reasoning set forth in Kutten, Siepel, Spencer,

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and Rabin to be a correct application of SLUSA preclusion to the facts and claims alleged here. In addition, two district courts within this Circuit have followed similar reasoning to apply SLUSA preclusion in slightly different factual settings. Beary v. Nationwide Life Ins. Co.,

2007 U.S. Dist. LEXIS 83137 (S.D. Ohio, September 17, 2007) (Sargus, J.) involved breach of fiduciary duty and unjust enrichment claims brought by retirement and deferred compensation plans against Nationwide, which sponsored those plans. Nationwide had negotiated revenue sharing agreements with various mutual fund companies in return for investing the plans' assets in the mutual funds. The plaintiff plans alleged that Nationwide

breached its fiduciary duty to them by enriching itself with the revenue sharing fees, resulting in loss of value to the plans. The district court held: "Although Plaintiff does not

specifically use the words `untrue statement' or `omission' in the Complaint, the substance of Plaintiff's claim is that Nationwide misrepresented a relationship with Investment Advisors or, at a minimum, omitted to disclose material facts about the relationship. In the Court's view, Plaintiff's allegations fall Id. at *11.

within the scope of SLUSA."

In Horattas v. Citigroup Financial Markets Inc., 2007 U.S. Dist. LEXIS 67411 (W.D. Mich., September 12, 2007), the district court held SLUSA precluded a state law class action brought

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against the investment services provider to a cemetery owner. The owner allegedly depleted and absconded with millions of dollars of funds held in irrevocable endowment care accounts for the benefit of the cemeteries, looting the cemeteries' trust assets. The district court concluded that SLUSA precluded the

state law class claims against the investment advisor to the owner, finding that they alleged a fraudulent scheme concerning covered securities. The allegations of negligence or "imprudent

investment" did not immunize the class claims from preclusion. The same result applies here. Plaintiffs' allegation that

Fifth Third breached its fiduciary duty, or was unjustly enriched as a result of the investments in Fifth Third mutual funds, does not protect their class claims from SLUSA. B. "In Connection With" Covered Securities.

Plaintiffs do not dispute that Fifth Third's proprietary mutual funds are covered securities for SLUSA purposes. They

argue this is irrelevant, because Defendants' conduct was not "in connection with" the purchase or sale of those securities. Plaintiffs argue they had no knowledge of the purchases and made no purchases themselves, leaving all asset allocation decisions to the Defendants. They also argue that their claims are not

based on the purchase of the mutual funds per se, but upon the breach of fiduciary duty inherent in Fifth Third's decision to purchase those funds.

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This argument is foreclosed by Dabit.

There, the Supreme

Court held that SLUSA's phrase "in connection with" must be construed consistently with settled case law construing the same phrase used in Section 10b and Rule 10b5. While standing to

bring a private suit under those authorities is limited to purchasers and sellers, limitation was based on policy considerations raised by permitting any private right of action under the securities laws. See Dabit, 547 U.S. at 84

(discussing Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975)). The Section 10b standing limitation does not mandate

imposing a limiting construction of the phrase "in connection with" the purchase or sale of securities. cases,2 Citing its prior

the Court noted it is enough for 10b and 10b5 actions

that the fraud "coincide with a securities transaction ­ whether by the plaintiff or by someone else." Id. at 85. The Court then

noted that Congress "could hardly have been unaware" of this broad construction when it chose to use the same phrase in SLUSA. Id. Thus the Court reversed the Second Circuit's decision

finding that the plaintiffs - brokers who were fraudulently induced to retain or delay selling securities, and were not purchasers or sellers - fell outside of SLUSA's preclusive scope. Plaintiffs' reliance on pre-Dabit decisions such as Norman

SEC v. Zandford, 535 U.S. 813 (2002), and United States v. O'Hagan, 521 U.S. 642 (1997). -13-

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v. Salomon Smith Barney, Inc., 350 F.Supp.2d 382 (S.D.N.Y. 2004) is therefore misplaced. Norman was clearly driven by the fact

that plaintiffs were not purchasers or sellers of securities. Plaintiffs also cite LaSala v. UBS, 510 F.Supp.2d 213 (S.D.N.Y. 2007), a post-Dabit opinion finding that a claim against UBS for aiding and abetting a breach of fiduciary duty was not precluded by SLUSA. The specific allegation against UBS

in that case, as the district court's opinion makes clear, was the fact that UBS received money from two other private banks in Switzerland, and then transferred those funds to different accounts at the direction of the account holders. The holders

had perpetrated a massive fraudulent stock scheme and the funds in question were allegedly proceeds of illegal stock sales. But

the allegations against UBS were limited to the transfer of money from one account to another account. The district court noted

that if UBS had facilitated the sale of the stock, the result would likely have been different. Id. at 243-244. The facts at

issue in that case clearly differentiate it from the facts underlying Plaintiffs' claims in this case. Plaintiffs also rely on Burns v. Prudential Securities, Inc., 218 F.Supp.2d 911 (N.D. Ohio 2002), where the district court found that SLUSA did not apply to a claim for breach of fiduciary duty against a broker who sold the securities held in plaintiffs' accounts without their notice or consent. There was

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no allegation that the broker acted fraudulently, as the district court noted he sold the holdings because he was concerned that the market was about to crash. rising.) (It did not crash, but kept

Plaintiffs alleged that Prudential, the broker's

employer, failed to disclose material facts and made false statements about the broker's actions after the fact. The

district court found the claims were not pre-empted, because the false statement or omissions took place after, and independently of, the broker's sales, and had no relationship to his decision to sell. The claims against Prudential had nothing to do with

the securities in question, but rather were premised on Prudential's failure to honestly and accurately deal with plaintiffs about the situation caused by their broker. Thus the

claims were not "in connection with" the sale of the securities. Plaintiffs allegations here are far different, and distinguish the result in Burns. Plaintiffs allege a course of

fraudulent conduct involving Fifth Third's decision to purchase Fifth Third mutual funds, a course of conduct they allege is continuing with every acquisition or merger by Fifth Third. For these reasons, the Court concludes that the class claims alleged in Plaintiffs' Amended Complaint are precluded by SLUSA, and are therefore dismissed with prejudice. Given this result,

the Court does not reach Defendants' alternative arguments concerning the merits of the state law claims.

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Counts I through IV are also brought by Daniel Segal individually, and Count V is exclusively Segal's individual claim against the Defendants. by SLUSA. His individual claims are not precluded

However, Segal's allegations make clear that diversity The Court will

is lacking between Segal and the Defendants.

therefore dismiss Segal's individual claims without prejudice. CONCLUSION Counts I through IV brought on behalf of the defined class are dismissed with prejudice because they are precluded by SLUSA. Segal's individual claims in Counts I through V are dismissed without prejudice. SO ORDERED. THIS CASE IS CLOSED. Dated: March 25, 2008 s/Sandra S. Beckwith Sandra S. Beckwith, Chief Judge United States District Court

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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MISSOURI EASTERN DIVISION ELLEN JANE KUTTEN AND MARY ANN ARNOLD on behalf of themselves and all others similarly situated, Plaintiffs, v. BANK OF AMERICA, N.A And BANK OF AMERICA CORPORATION, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) )

Case No. 4:04CV00244 TIA JURY TRIAL DEMANDED

FIRST AMENDED COMPLAINT COME NOW Plaintiffs Ellen Jane Kutten and Mary Ann Arnold, for themselves and for all other members of the Classes hereinafter described, and Ellen Jane Kutten, individually on behalf of herself and her daughters, Alessandra Kutten Cottrell and Louise Kutten Cottrell, by and through counsel, and state and allege as follows: INTRODUCTION 1. (a) This Class Action is brought by plaintiffs on their own behalf and on behalf

of all other members of the Classes defined below and by plaintiff Ellen Jane Kutten individually on behalf of herself and her daughters against the defendants arising out of, inter alia, breaches of fiduciary and contractual duties owed by the defendants Bank of America, N.A. (the "Bank") and the Bank's parent, Bank of America Corporation, to beneficiaries of certain trusts and other fiduciary accounts within the Bank's care. In addition, certain claims are asserted by plaintiffs against the Bank on behalf of a California Sub-Class and a Missouri Sub-Class as defined below. Unless the context indicates otherwise, the term "Class" includes the members of the "California Sub-Class" and "Missouri Sub-Class." (b) The Bank prominently and falsely advertises its promise as to how it holds itself

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out to persons such as plaintiffs and the members of the Class who do business with its "Private Bank":

Bank Of America [Logo] Higher Standards THE PRIVATE BANK

Managing today's complex wealth. Balancing growth, risk, taxes and grandchildren
.

As your financial resources increase, perhaps you need more financial resources to manage them. The Private Bank of Bank of America has greater depth and breadth of wealth management expertise ­ across the financial spectrum ­ than any other private bank. Equally important, we bring this expertise together, creating more integrated solutions to your complex needs. And we provide these customized recommendations based on the extraordinary strength and stability of Bank of America. It's no wonder we've been entrusted to manage, protect and pass on wealth for more than 150 years.
The Private Bank is dedicated to serving affluent families and individuals with complex wealth management needs. Our experienced advisors customize unique and comprehensive solutions for each individual, integrating world-class investment management, trusts, credit and bank services. We welcome the opportunity to work with you. We invite you to call Caroline Grace at 800.863.9500 or visit www.bankofamerica.com/privatebank. [Emphasis in original]. (c) In fact, despite numerous substantially similar promises in the form of advertising, marketing pieces and direct representations to those who established fiduciary accounts with the Bank (and the beneficiaries thereof), as described herein, those promises have been and are being uniformly ignored or deliberately broken. 2. In particular, in order to maximize the Bank's profits earned from trusts,

guardianships, estates and other fiduciary accounts (collectively "Trusts") by which it acted as

2

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fiduciary, the Bank conspired with its affiliates and others presently unknown in a business decision to "double dip," by forcing trusts and other fiduciary accounts under the care of the Bank to have their assets re-directed from their historic allocations in individually managed accounts and/or so-called Common Trust Funds and/or other assets, to proprietary mutual funds controlled by subsidiaries of the Bank's parent, defendant Bank of America Corporation and its corporate affiliates and subsidiaries (collectively "BAC"). As used herein, the term "Conversion" refers to such wholesale asset re-direction by the Bank into shares of the Nations Funds. At no time has the Bank distributed to plaintiffs or to any member of the Class defined below or other appropriate recipient a final, annual, or periodic account or any other statement fully disclosing the Bank's wrongdoing as described in this Complaint. Further, the defendants' wrongdoing is continuing in nature. By August 16, 2000, BAC and its affiliates had increased the assets in their Funds to reach $100 billion. On that date the Bank stated: Banc of America Capital Management announced today that the Nations Funds family of funds has reached $100 billion in mutual fund assets. This growth was driven by increases in all three types of mutual funds: equity, fixed income and money market. 3. Historically, the Bank, either through its so-called "Private Bank," now based in

St. Louis, MO 1, or through the Trust Departments of it and its predecessors, promoted itself by touting its purportedly highly individualized trust administration and asset management services, all of which was intended to and did lure grantors (such as the parents of plaintiff Kutten), testators and others to designate the Bank as a fiduciary for estates, trusts and other fiduciary accounts. In a recent version of such representations, the Bank stated on its website as follows: "Customized Portfolio Management. We do not believe in one-size-fits-all.
1

To consolidate its own position in the Midwest, the Bank's predecessor, Nations Bank, acquired Boatmen's Bancshares, Inc., the parent of Boatmen's Trust Company ("Boatmen's"). The Bank used Boatmen's trust department as the core of its Private Bank, then proceeded to distribute its administrative functions to Private Bank Offices in various parts of the country.

3

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Rather, we understand that your unique needs require an investment portfolio that is specially tailored to meet them. A tailored approach: · Talk to us ­ tell us your investment goals and risk tolerance. · A tailored solution ­ we will design and recommend a portfolio strategy for you based upon your goals, time horizon, income and liquidity needs. Ongoing communication ­ we monitor your portfolio and communicate with you on a regular basis to ensure your goals are being met.

·

Our equity selection process. Our equity selection follows a core growth strategy with a focus on large cap stocks. The foundation of our process is proprietary research. We use a blend of qualitative and quantitative fundamental research to target companies that have long-term growth potential, proven earnings track records, competitive advantages and strong management. A perfect fit. We work with you to ensure your goals are being met and your total financial picture is being considered. Learn more about our investment management process by contacting a Private Banker in your area." In fact, the plans of the Bank, BAC and their respective predecessors, despite these and substantially similar representations over the years and the implicit incorporation of them in the documents governing the Bank's fiduciary accounts, have been to cut back substantially on such so-called "Customized Portfolio Management" and to direct fiduciary funds, once "captured," into standardized investments such as BAC's proprietary mutual funds, the Nations Funds as part of the Conversion as described herein and otherwise. Further, few if any of the grantors or others who established fiduciary relationships with predecessors of the Bank, such as the parents of plaintiff Kutten and the grandfather of plaintiff Arnold, envisaged the Bank in its present form; namely, a nationwide behemoth with few of the services typically offered by a fiduciary and implicit in the fiduciary relationship. The defendants have also utilized these captive accounts as targets to market other products and services sold by them, their subsidiaries and affiliates, 4

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including loans, credit cards and deposit accounts, all to defendants' enrichment.2 4. The Settlors of certain of the Trusts at issue, Joseph Kutten and Carolyn Yalem

Kutten (parents of plaintiff Kutten), in entrusting their assets to a local bank, in this case, Boatmen's Trust Company in St. Louis, did so based upon personal relationships with officers of Boatmen's, and its predecessors in interest, St. Louis Union Trust Company and Centerre Bank, built over many years. The fiduciary relationship was established because, inter alia, Boatmen's Trust Company and its predecessor banks, held itself out to the settlors and to other prospective customers of fiduciary serves as institutionally and personally suited not only to the stewardship of settlors' assets over multiple generations but looking after their descendants, the plaintiff in this litigation and her daughters. Similarly, the grandfather of plaintiff Arnold, John T. Crowley, through his Last Will and Testament, entrusted his bequeathed assets to a local bank in California, since acquired by a series of banks, now part of Bank of America ("the Crowley Trust"). 5. Over the years, the Bank and its corporate predecessors swallowed-whole

Boatmen's Trust Company, and numerous other financial institutions which had fiduciary responsibilities to plaintiffs and members of the Class. In the process of being digested by the Bank, these formerly independent institutions' fiduciary operations were transmogrified into just cogs in the fee-generating machinery of the Bank and its corporate parent. 6. In the course of the metamorphosis of Boatmen's Trust Company and other

acquired financial institutions into the Bank, the interests of plaintiffs and members of the Class were not represented by caring, knowledgeable trust officers but by so-called "Call Centers" in Dallas and elsewhere manned by lower-level fungible functionaries and other Bank personnel with little or no investment expertise. Except for the highest net worth fiduciary accounts, the
2

For a vivid history of the Bank's voracity for conversions of assets which it held as a fiduciary, see:

5

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"customized recommendations" and "wealth management expertise" promised by the Bank are fictions and have been fictions since the consolidation of the various acquired financial institutions began taking place. The purpose was clear. As stated by the Bank's own press release: We will win more business from existing Private Bank clients by proactively delivering cutting-edge solutions for wealth management, by continuing to win high marks for satisfaction and high touch service, and through the company's financial commitment to the Private Bank which will allow for increased marketing and heightened awareness of the value we bring to each relationship. 7. At or prior to the time that Boatmen's Trust Company was acquired by the Bank's

predecessor, Nations Bank, it was known by the parties to the acquisition negotiations that the successor entity (i.e. Nations Bank) would materially adversely affect the administration of plaintiff Kutten's and all other Boatmen's fiduciary accounts. Similarly, this was the plan of the defendants with respect to each of the acquired banks and their fiduciary functions. 8. To the best of plaintiff Kutten's knowledge, information and belief, neither

Boatmen's nor Nations Bank provided to her or other interested parties in connection with other fiduciary accounts venued in Missouri appropriate written notice as provided in §362.331 R.S.Mo. of Boatmen's transfer of fiduciary capacities to Nations Bank disclosing all material facts which disclosed the material adverse affect of such transfer or advising such interested parties (including plaintiff Kutten and members of the Missouri Sub-Class) that they had a right to object to the transfer and, inter alia, obtain a replacement fiduciary. 9. Plaintiff Kutten believes and therefore alleges that the Bank similarly failed to

provide such notice in each of the other instances where the fiduciary responsibilities of an acquired bank were taken over by the Bank or one of its predecessors. As such, all similarly affected beneficiaries were wrongly denied notice and the right to object to such transferred
http://www.bankofamerica.com/newsroom/press/archives.cfm?LOBID=1.

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fiduciary capacities. THE NATIONS FUNDS 10. The Nations Funds Trust ("NFT") holds a "family" of approximately 70 mutual

fund portfolios, which are proprietary funds nominally operated by NFT and its Board of Trustees. They are, in fact, directed and controlled by BAC and its subsidiaries. 11. The Nations Funds' portfolios cover a wide variety of investment disciplines,

strategies and types of asset categories including, inter alia, the Nations Municipal Income Funds, the Corporate Bond Portfolio; the Nations Small Company Fund; Nations Large Cap Index Funds and Nations Cash Reserves. 12. Certain of such Nations Funds were funded by BAC in substantial part by

transferring fiduciary assets pursuant to the Conversion. Such funding permitted the affected Nations Funds to have substantial asset bases, an important selling point to BAC in marketing shares in the Nations Funds to potential purchasers thereof through the Bank and other subsidiaries of BAC. The Nations Funds selected for investment of fiduciary assets by BAC pursuant to the Conversion were intended generally to "mirror" the categories of assets held by the Trusts pre-Conversion, all or most of which were liquidated immediately prior to the Conversion either as part of so-called "Common Trust Funds" or in individually-managed accounts. JURISDICTION AND VENUE

13. law. 14.

The claims asserted herein arise under and pursuant to state statutes and common

This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. § 1332 (diversity of citizenship) and 28 U.S.C. § 1367. The amount in dispute exceeds 7

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$75,000 exclusive of interest and costs and there is complete diversity of citizenship between plaintiffs, citizens of the states of California and Nevada, and each of the defendants. The conduct of the defendants as described herein occurred within the State of Missouri and Eastern District of Missouri. Accordingly, this Court has personal jurisdiction over all the defendants pursuant to §506.500 R.S.Mo. 15. Venue is proper in this District as many of the acts and practices complained of

herein occurred in substantial part in this District, including the establishment of trusts for the benefit of plaintiff Kutten and her daughters by plaintiff Kutten's late parents. Further, Boatmen's Trust Company, a corporate predecessor of the Bank, was based in this District, as is the Bank's Private Bank. Further, many of the most significant witnesses to the wrongdoing referred to herein are found in and/or did business within this District and will only be available for trial purposes in this District. In addition, a substantial amount of documents relevant to this dispute are located in this District. 16. In connection with the acts alleged in this Complaint, defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the national securities markets. THE PARTIES 17. (a) Plaintiff Ellen Jane Kutten is a California citizen who has varying interests

as beneficiary, contingent beneficiary, as well as co-trustee of several trusts which had been, until recently, managed and controlled by the Bank, its corporate parent and affiliates. In particular, plaintiff is a named beneficiary under trusts created by her parents in this District in 1981 as amended in 1983, 1987 and 1990, namely, the Joseph Kutten Indenture of Trust and the Carolyn J. Kutten Indenture of Trust. In addition, the plaintiff and her daughters were 8

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beneficiaries of trusts established in 1989, namely, the Joseph Kutten and Carolyn Y. Kutten 1989 Grandchildren's Trust (collectively referred to hereinafter as the "Kutten Trusts").3 Plaintiff' Kutten's family's relationship with the Bank and its predecessors, including her grandfather, noted St. Louisan and philanthropist, Charles H. Yalem, spans a period in excess of forty years. At relevant times, all of the investment decisions of the Kutten Trusts were made by the Bank or entities controlled by its parent, BAC. The handling of the assets of the Kutten Trusts by the Bank has not been materially different from the other trusts and fiduciary accounts of which the Bank was and/or is serving as corporate fiduciary with respect to the Conversion and otherwise as described in this Complaint. Although documents such as the trust agreements establishing the Kutten Trusts or other documents pursuant to which a fiduciary relationship with the Bank was established typically gave the Bank discretion in the investment of fiduciary assets (even in some cases, permitting investments in proprietary funds), none of such documents permitted the egregious behavior described herein.

3

The Original trustee bank under plaintiff's trust and the trust established by her parents for the benefit of plaintiff's daughters was Boatmen's Trust Company which, in turn, was acquired by and merged into Nations Bank, which, in turn, was acquired by and merged with Bank of America, N.A. following such acquisition. On a parallel track, North Carolina National Bank ("NCNB") was similarly making acquisitions until it merged, as Nations Bank with Bank of America, as reflected in the diagram below:

Notwithstanding the foregoing corporate sleight-of-hand, there is little substantive relationship, if any, between the original trustee bank, Boatmen's Trust Company and its successor, Bank of America. Even more significantly, there is virtually no identity of interest between the fiduciary relationship with Boatmen's Trust Company that existed between it and the Kutten Trusts and the one which existed until recently. These circumstances are true with respect to most if not all of the banks presently a part of the Bank.

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(b)

Plaintiff Mary Ann Arnold is a Nevada citizen who has varying interests

pursuant to the Crowley Trust referred to above including her status as a beneficiary thereof. 18. (a) On information and belief, the Bank is a federally chartered bank

domiciled in North Carolina, and is a wholly owned subsidiary of BAC also domiciled in North Carolina. BAC is a financial holding company, and the parent of the Bank. At all relevant times, BAC dictated and controlled the business activities of the Bank, including, inter alia, the wrongful business activities described herein within the Eastern District of Missouri, and wherever in the United States the Bank, BAC and/or their respective predecessors conducted business. (b) Although the Bank and BAC now have their principal places of business in

Charlotte, NC, BAC continues to conduct substantial business within this District in many locations through its "Private Bank" and elsewhere. Notwithstanding the fact that the Kutten Trusts have been under the fiduciary responsibility of the Bank in St. Louis, BAC and the Bank have bounced the beneficiaries of the Kutten Trusts around the country, most significantly to the Banks' Call Center in Dallas in November, 2002, losing their paper files and accounts for a period of months. When plaintiff Kutten sought to obtain a transfer of the Kutten Trusts' accounts to California in October, 2002, where she resides, the Bank refused. Similarly, the Crowley Trust has been bounced around and the beneficiaries thereof are now "serviced" by a Call Center, rather than fiduciary officers with knowledge of the beneficiaries of the Crowley Trust or their individual needs. As such, the following representations of Kenneth D. Lewis, Chairman and Chief Executive Officer of BAC and the Bank on November 3, 2003 in the context of a new acquisition of yet another bank are baseless: The people you know at your branch today will be there tomorrow, and will continue to strive to anticipate and meet your financial needs.

10

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At all relevant times, the Bank was successor Trustee of the Kutten Trusts of which plaintiff Kutten is a beneficiary of one and her daughters another. Similarly, the Bank is successor Trustee of the Crowley Trust, of which plaintiff Arnold is a beneficiary. The Bank is also Trustee or serving in another fiduciary role with respect to the other Trusts or similar groupings of assets of which the remaining members of the Class defined below are beneficiaries. 19. NFT, a non-party herein, is the holding/operating entity BAC formed to do

business as the Nations Funds. Its principal place of business is located in Charlotte, NC. Although nominally independent and supervised by its Board of Trustees, NFT has at all relevant times been operated as an alter ego of BAC and its subsidiaries. Upon information and belief, all the members of the Board of Trustees of NFT were selected and/or approved by BAC and its subsidiaries. 20. Defendant BAC (through its subsidiaries) and other business entities not owned

by defendant BAC individually and collectively, charge substantial fees and expenses to the Nations Funds for their purported services which, together with NFT's own operating expenses, have had and continue to have a substantial cost to the Kutten Trusts, the Crowley Trust and to each of the other fiduciary accounts, the assets of which have been invested in one or more of the Nations Funds. Defendants' Self-Serving Investment Decisions 21. (a) Historically, the Bank and its predecessors invested the assets comprising

the Kutten Trusts, the Crowley Trust and those of members of the Class primarily through individually managed portfolios and/or through so-called "Common Trust Funds." The cost of such investment and related administrative services was absorbed by the Bank out of its fees for serving as fiduciary. Beginning some time prior to 1998, in order to, inter alia compensate for

11

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massive losses it was incurring from its traditional lending business, the Bank and its predecessors developed various plans and schemes pursuant to which they sought to minimize their operating expenses with respect to fiduciary accounts and maximize their profit from fiduciary business. Defendants' plan included the consolidation and elimination of the previously existing trust departments of the acquired banks with the objective of "servicing" fiduciary accounts and the beneficiaries thereof with fewer and fewer personnel. Pursuant to such business plans, they decided, inter alia, to utilize the funds held by the Bank in fiduciary accounts to fund an initial group of mutual funds and/or to add assets to such funds controlled by the Bank's corporate parent, BAC, the Nations Funds, as well as other mutual funds merged into them. Thereafter, due to numerous acquisitions, mergers and other transactions referred to above, consistent with its longer-term plan and scheme, BAC determined that most or all of the assets in certain fiduciary accounts held by the Bank (and formerly held as fiduciary assets by the acquired banks) such as the accounts of the Kutten Trusts and Crowley Trust, would be converted again into proprietary funds such as the "family" of Nations Funds, the management and investment decisions of which were controlled by subsidiaries of BAC and by the Board of NFT. (b) Through a complicated and barely comprehensible grouping of advisors, sub-

advisors, subsidiaries and other affiliated and unaffiliated service providers, BAC engineered a scheme pursuant to which the Bank was able to abdicate many of its traditional fiduciary responsibilities, functions and services to beneficiaries of fiduciary accounts in favor of alternatives that resulted in higher total direct and indirect expense charges to the fiduciary accounts (such as those of the Kutten and Crowley Trusts) as compared to the trustee or similar fees historically paid to the Bank for, inter alia, active management of the Trusts' assets. As indicated below, beginning in February 2000 and continuing for some time thereafter, the Bank's 12

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"Private Bank" began sending out standardized form letters informing some co-trustees, beneficiaries of the fiduciary accounts and others of the Bank's planned closing of its "Common Trust Funds" and touting the so-called "benefits" of the Conversion, which was then anticipated to take place in May 2000 or at other dates on a carefully orchestrated plan nationwide based, in part, upon the level of integration of the previously acquired banks and other factors. Such letter, signed by David W. Fisher, President, also coerced the recipients of the letter to authorize the Conversion of the Trusts' assets into shares in the Nations Funds. In particular, the Bank's letter said:4 Using Nations Funds, we can provide trust and fiduciary accounts with an attractive mix of investments to pursue the accounts' investment goals. Nations Funds also offer the benefits of: Daily valuation and liquidity Newspaper performance listings Broader potential diversification Flexibility when making trust distributions In fact, there was little, if any, benefit that would flow to beneficiaries of the Bank's fiduciary accounts and this letter was a sham. Indeed, all such so-called "benefits," could have been accomplished by means of the Bank's "Common Trust Funds." Curiously, on or about August 16, 1999, the Bank announced that "Common Trust Funds will be valued at month-end instead of twice each month," despite the fact that computer software programs existed that could generate such valuations on a daily basis. The Bank's letter went on to threaten coercively: Any common trust fund units for which we have not received an authorization [by May 1, 2000] may be liquidated and the
4

It is not presently known whether the Bank sent such a letter to beneficiaries of all of its fiduciary accounts or, in the case of guardianships and similar accounts, to the appropriate courts overseeing such accounts. Further, not all co-trustees received such a letter nor were their consents sought by the Bank. While the manner in which the conversion was carried out by Defendants may have been different from state-to-state and/or based upon the identity of the acquired bank, such differences were immaterial.

13

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proceeds placed in a money market vehicle pending discussion about reinvestment. This liquidation could have adverse tax consequences depending upon the cost basis of the common trust fund units. 22. Although plaintiff Kutten did not receive such documents, in response to such

coercion and the deceptive and unclear information provided by the Bank, upon information and belief, co-trustees and beneficiaries of the Trusts who received it signed the enclosed form, thereby providing to the Bank their uninformed and fraudulently induced "consent" to the Conversion. 23. Enclosed with the Bank's letter sent to some Trust beneficiaries and/or co-

Trustees were various prospectuses and other documents which were drafted so as to conceal, inter alia, the motives of the Bank and BAC for the Conversion into BAC proprietary mutual funds, the benefits of the Conversion to them and their subsidiaries or the increased costs and expenses that would be incurred by the Trusts as a result of the Conversion. There was no explanation in plain English that would put the recipients of these documents on notice of the Bank's wrongdoing as referred to herein. In fact, one of those documents, (Form 3.05D 7/1999) entitled "Disclosure of Investment in Nations Funds," stated deceptively: The fee paid directly by the [Trust] Account to the Bank will be reduced (but not below zero) by the Account's pro rata share of the investment advisory fees paid by the Funds to the Service Providers; provided however, that the amount of the reduction will be based on Bank of America Corporation's percentage ownership of the Service Provider. From time to time, the Bank may elect to reduce the Account's fees in recognition of amounts paid by Nations Funds for other services (such as administrative services), but it is not obligated to do so, and the amount of any such fee reduction may vary. The Account will not be charged a sales "load" for buying or redeeming Fund shares described in the accompanying prospectuses. Such doubletalk-laden form went on to state: I acknowledge receipt of the current prospectuses for the Funds and a 14

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Nations Funds Fee Disclosure Statement. As co-fiduciary for this account, I understand that the Service Providers will be paid investment advisory and other fees by the Funds. I approve the method for reducing the investment management fees paid to the Bank by the Account. I understand and agree that the Bank may choose not to reduce the Account's fee on the account of the compensation paid by the Funds for other services, but the Bank is electing to do so at this time. [Emphasis added]. In fact, the Bank used such language to conceal the fact that although in many cases there was a credit for all of the Nations Fund post-Conversion investment advisory fees, the Bank intended to reduce or eliminate the credit as soon as practicable thereafter once consents were obtained. There was no credit for the substantial operating expenses of the Funds, which substantially reduced the net investment returns to fiduciary accounts. 24. Significantly, at no time did the foregoing "disclosure" documents disclose

clearly to a co-Trustee, a beneficiary or other person interested in the affected fiduciary accounts the true additional direct and indirect expenses of the Conversion (although many of such "disclosures" were buried in the Nations Fund prospectuses) nor, in fulfillment of the Bank's fiduciary responsibilities, did the Bank make any personal efforts to insure that plaintiffs or others similarly situated understood the extent to which the Bank and BAC would benefit from the Conversion and how the Kutten and Crowley Trusts and other fiduciary accounts would end up paying substantially more for the investment and related services that the Bank had historically supplied in partial consideration for the Bank's trustee and similar fees. Indeed, Mr. Fisher's letter of August 31, 2000 sent to beneficiaries of fiduciary accounts transmitting the Prospectus for the Nations Funds was "for information" only and recipients, including Plaintiff, were told: "you do not need to take any action." [Emphasized in original]. 25. Notwithstanding its overarching duty of loyalty to plaintiffs and members of the

Class, upon information and belief, at no time following the foregoing "disclosure" did the Bank 15

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make any complete and candid disclosure to the beneficiaries of the Trusts of the full extent of the damages caused to the Trusts or their beneficiaries by the Conversion, the true motives of BAC and the Bank in carrying out the Conversion or the full extent to which the Bank and BAC were profiting therefrom and, in particular, the additional assets which would flow into the Nations Funds, making them more saleable to the investing public generally. Even after the Bank applied a so-called credit against its fees for some portion of the Nations Funds advisory fees, in practical terms, it was (and is) impossible for co-trustees, executors, beneficiaries and others to understand and have knowledge of the true cost of the Conversion to the Trusts and the income earned upon the assets of the Trusts. Indeed, plaintiffs and other beneficiaries have sought to obtain such information from the Bank and have never received "straight" or any answers to their questions with respect thereto and have received misleading or downright deceptive information as to the impact of the Conversion upon them. 26. Upon information and belief, no analyses or determinations were made by the

Bank as to the suitability and/or propriety of the relative costs and benefits of investments in BAC's proprietary funds at the time or before the Conversions were carried out for each fiduciary account as compared to pre-Conversion investments including any comparisons with numerous other available mutual funds or investment vehicles in which the Bank could have invested prudently and at lower cost the funds of the Trusts in which plaintiffs and the members of the Class were beneficiaries. Even assuming that the Bank made a prudent decision to purchase shares in the Nations Funds, which plaintiffs do not, upon information and belief, the Bank did not negotiate the fees and expenses to be charged to the Trusts by the Nations Funds or comparison shop with other funds or families of funds in an attempt to obtain the same or better investment services elsewhere. Similarly, neither NFT nor its Board of Trustees, sought to obtain the lowest fees from the subsidiaries of BAC actually operating the Nations Funds. 16

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Indeed, as stated by New York's Attorney General Eliot Spitzer: "Fund directors do not ­ and cannot ­ negotiate hard on the fees." As such, NFT and the entire Board of Trustees of NFT, aided and abetted by defendants, breached the fiduciary duties owed to plaintiffs and the members of the Class. 27. Upon information and belief, BAC and the Bank specifically excluded alternate

investment vehicles (such as other families of funds such as the Vanguard and Fidelity mutual funds specifically requested by plaintiff Kutten) from their considerations in order to maximize their earnings and those of their corporate affiliates and did not give serious consideration to leaving the assets of fiduciary accounts invested as they were, pre-Conversion, and/or giving beneficiaries of such accounts a choice as to the various alternatives available. Similarly, at no time did BAC and the Bank give any consideration to making changes in the Bank's "Common Trust Funds" so as to provide any of the purported "benefits" that the Bank claimed would be forthcoming as a result of the Conversion. Plaintiff Kutten's requests for changes in investments were repeatedly rebuffed. 5 28. On information and belief, as a result of a conspiracy among the defendants and

others presently unknown, the Bank and BAC, as part of a corporate business decision, chose to invest the fiduciary assets of plaintiffs and the members of the Class in shares of the Nations Funds as part of the Conversion and otherwise in order, inter alia, to generate investment advisory fees and other fees for its various affiliates and to "bulk-up" the Nations Funds without regard to whether such investments were prudent and in the best interest of plaintiffs and the other beneficiaries of fiduciary accounts. 29. The foregoing Conversion of the assets of fiduciary accounts to the Nations Funds

and the investment of fiduciary assets therein generally was carried out in furtherance of BAC's

17

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corporate plan to reduce the Bank's expenses of managing fiduciary assets and increasing BAC's overall direct and indirect profits from fiduciary operations. The assets in the fiduciary accounts managed by the Bank, including the Kutten and Crowley Trusts, were particularly vulnerable to misuse since BAC and the Bank regarded the fiduciary accounts in their care as a "cookie jar" open for the taking. BAC and the Bank proceeded to carry out the Conversion since they would not merely profit from the Bank's trustee and similar fiduciary fees but "double dip" by generating additional revenues through BAC's related asset management business and otherwise. Additional profit was also generated by adding the assets in the Bank's fiduciary accounts to the Nations Funds following the Conversion, thereby making them more saleable at retail to the investing public. Further, the Conversion created an opportunity for the Bank to avoid the relatively low profitability of managing the fiduciary accounts (and the expenses related thereto) which the Bank had contracted to do when it (and/or its predecessors) agreed to serve as fiduciary thereof, and substitute ever-increasing fee income directly and through its corporate affiliates. 30. The Bank and its affiliates reaped many millions of dollars in purported money

management, investment advisory and other fees as a result of the Conversion and thereafter from the investment of fiduciary assets in the Nations Funds. The Bank also benefited by receiving Trustee or similar fees for serving as a fiduciary and by reason of the benefits which flowed from, inter alia, substantially reduced operating expenses of the Bank's fiduciary operations. Despite these benefits to the Bank and its affiliates, these investments have been of little benefit for the Bank's fiduciary accounts and the beneficiaries thereof, including plaintiffs and the members of the Class. On information and belief, all members of the Class suffered damages from the investment practices of the Bank as described above in an amount which
5

Plaintiff Kutten, although nominally a co-trustee with the Bank, was typically ignored in her role as such and her

18

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cannot presently be determined but which is capable of calculation. TRADING ACTIVITIES IN NATIONS FUND SHARES 31. Notwithstanding the fact that the Bank now states: "We have zero tolerance for

conduct that fails to protect the interests of our clients, associates and shareholders," the defendants for their own financial advantage agreed and conspired with each other and various third parties directly and/or through the operation of the Nations Funds