Merrill Lynch Trust Company, FSB v. Campbell

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COURT OF CHANCERY OF THE STATE OF DELAWARE JOHN W. NOBLE VICE CHANCELLOR 417 SOUTH STATE STREET DOVER, DELAWARE 19901 TELEPHONE: (302) 739-4397 FACSIMILE: (302) 739-6179 September 28, 2011 Dennis A. Meloro, Esquire Greenberg Traurig LLP 1007 North Orange Street, Suite 1200 Wilmington, DE 19801 Re: Jeffrey S. Goddess, Esquire Rosenthal, Monhait & Goddess, P.A. 919 Market Street, Suite 1401 P.O. Box 1070 Wilmington, DE 19899-1070 Merrill Lynch Trust Company, FSB v. Campbell C.A. No. 1803-VCN Date Submitted: June 3, 2011 Dear Counsel: -trial memorandum opinion had resolved this matter when it was issued in September 2009.1 Counterclaim Plaintiff Mary F.C. Campbell appealed. The Supreme Court recognized that this ,2 1 Merrill Lynch Trust Co. FSB v. Campbell, 2009 WL 2913893 (Del. Ch. Sept. 2, 2009) (the A few issues focused on fees remained for decision. See Merrill Lynch Trust Co. FSB v. Campbell, 2010 WL 1366992 (Del. Ch. Mar. 31, 2010). For convenience, defined terms from the Memorandum Opinion are used here. 2 Merrill Lynch Trust Co. FSB v. Campbell, 2007 WL 2069867 (Del. Ch. July 11, 2007) (the Merrill Lynch Trust Company, FSB v. Campbell C.A. No. 1803-VCN September 28, 2011 Page 2 3 of the Trust on the ground of laches, The matter was remanded to this Court for reassessment of its laches decision that had then concluded that its earlier laches decision suffered from a failure to appreciate sequences of the unusual payout terms of the trust a factual hearing on the defense of laches should have been held.4 After the Court reported that conclusion, the Supreme Court vacated this 5 Campbell now seeks to amend her counterclaim. MLTC, although acknowledging that leave 3 Campbell v. Merrill Lynch Trust Co. FSB, No. 302, 2010 (Del. Nov. 24, 2010) (ORDER) (the 3. Stated perhaps too simplistically, the core of the balance of the Memorandum Counterclaim Defendant Merrill Lynch Trust investment strategies because those riskier strategies were driven by the high payout specified in the Trust Agreement for the charitable remainder trust. The order implementing the Letter Opinion, process of establishing the Trust Agreement, was viewed as precluding her attack on those investment strategies. 4 Merrill Lynch Trust Co. FSB v. Campbell, 2011 WL 383928, at *3 (Del. Ch. Jan. 24, 2011) (the 5 Campbell v. Merrill Lynch Trust Co. FSB, 12 A.3d 1153, 2011 WL 397899 (Del. 2011) e worth noting that the Remand Order did not affirm, Merrill Lynch Trust Company, FSB v. Campbell C.A. No. 1803-VCN September 28, 2011 Page 3 6 motion. Much of the debate turns on the meaning and intent of the Remand Order. Some of proposed changes clarify or expand the factual aspects of the Counterclaim.7 Those have not elicited serious opposition. Instead, MLTC under 6 Del. C. § 2513 to Count I challenging the CRUT formation; (2) to seek a payout rate to justify its investment decisions; and (3) to assert a claim for treble damages, a consumer fraud remedy, under all three counts. MLTC contends that the proposed amendments would be both futile and First, MLTC asserts that it was not responsible (or liable) for the decisions leading up to the formation of the CRUT. It invokes the law of the case doctrine based upon the Memorandum Opinion: 6 Ct. Ch. R. 15(a). E.g., Proposed Second Amended Counterclaim of Mary F.C. Campbell at ¶¶ 7, 8, 9, & 23. Generally, Count I of the Counterclaim deals with the formation of the CRUT; Count II asserts a Del. C. § 3302; Count III raises breaches of fiduciary duties. 7 Merrill Lynch Trust Company, FSB v. Campbell C.A. No. 1803-VCN September 28, 2011 Page 4 As distasteful as the facts are, none of the decisions surrounding the formation of the Trust can now be fairly charged to MLTC. . . . While the specter of incentivized cross-selling can be gleaned from the record, no evidence has been developed showing that the relationship between Pierce and MLTC was improper, or misrepresented. Most importantly, any claims Campbell may have had concerning the formation of the Trust are time-barred.8 same court should be adopted without relitigation, and once a matter has been addressed in a procedurally appropriate way by a court, it is generally held to be the law of that case and will not be disturbed by that court unless compelling 9 In this instance, the Court, in noting that MLTC would not be held liable for the formation of the charitable remainder unitrust, placed primary -bar defense.10 Moreover, the question of was not fairly addressed at trial because Count I had, by that time, been dismissed. or the matters alleged in 8 Mem. Op., 2009 WL 2913893, at *6 (internal citation omitted). Whittington v. Dragon Group L.L.C., 2011 WL 1457455, at *7 n.56 (Del. Ch Apr. 15, 2011) (citing Taylor v. Jones, 2006 WL 1510437, at *5 (Del. Ch. May 25, 2006)). 10 ever, needs to be tested in a trial setting. 9 Merrill Lynch Trust Company, FSB v. Campbell C.A. No. 1803-VCN September 28, 2011 Page 5 Count Opinion, which, as noted, focused on laches precluded by the law of the case doctrine. Second, MLTC questions the appropriateness of combining common law fraud and statutory consumer fraud in the same count. It, not inaccurately, argues that the two are distinct theories and may not fully parallel one another. The claim was time-barred. That claim has been revived and nothing forbids its expansion to include statutory consumer fraud as well. Under the generally flexible standard governing amendments, this poses no insurmountable obstacle. Third, MLTC argues that any amendment of Count II or Count III of would be futile because this Court already adjudicated those claims in the Memorandum Opinion, and the Remand Order did not disturb those dismissals. MLTC makes a plausible argument based on the wording of the Remand Order but ignores the greater context. The Supreme Court noted in the Merrill Lynch Trust Company, FSB v. Campbell C.A. No. 1803-VCN September 28, 2011 Page 6 Count II and Count III at trial. Moreover, the Supreme Court held in that same ideration of th[e] appeal until the Court of Chancery 11 This Court has not ruled on the laches defense; it merely concluded that the record did not support the answer given based on the methodology used. of that defense remains to be decided. What effect the proposed amendment would have necessarily depends upon the ultimate fate of the laches defense. Whether the time-bar is reinstituted, or whether the record conclusion then, even without factoring in the time-bar, may be questions that need answering. Finally, MLTC asserts that treble damages are not attainable because they may only be awarded for a violation of subchapter 8 of 6 Del. C. ch. 25.12 The subchapter which MLTC cites does not have separate violations. Instead, it simply assists in determining what appropriate penalty should be imposed. Thus, the subsection upon which MLTC has relied cannot be construed to limit its application to a subchapter that contains no definition of a remediable violation. 11 12 Order at 3. 6 Del. C. § 2583(b). Merrill Lynch Trust Company, FSB v. Campbell C.A. No. 1803-VCN September 28, 2011 Page 7 impose sanctions for conduct and those other provisions clearly incorporate harm Del. C. ch. 25. suf Consumer fraud claims may be based on of the use of deception in arising out 13 MLTC asserts that alleged fiduciary breaches and trustee shortcomings under Title 12 of the Delaware Code are conduct will not cause imposition of consumer fraud liability, but, under a futility standard, it suffices to note that 14 For current purposes, the Court cannot conclude from the pleadings that MLTC has not been brought within the ambit of the consumer fraud statute.15 13 6 Del. C. § 2513(a). 6 Del. C. § 2511(6). 15 Futility for Court of Chancery Rule 15(a) purposes tracks the familiar standard found in Court of Chancery Rule 12(b)(6). See Zimmerman v. Braddock, 2005 WL 2622698, at *1 n.1 (Del. Ch. 14 or one to dismiss would se Merrill Lynch Trust Company, FSB v. Campbell C.A. No. 1803-VCN September 28, 2011 Page 8 to amend is granted, and she may file and serve her Second Amended Counterclaim. IT IS SO ORDERED. Very truly yours, /s/ John W. Noble JWN/cap cc: Register in Chancery-K

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