MEMORANDUM
SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NASSAU
PRESENT:
Hon. Burton S. Joseph,
Justice.
DR. THEODORE DAVANTZIS and RITTA
DAVANTZIS,
Trial/IAS
Part 19
Index No.
20032/2000
Motion No. 00 1
Motion Date May 1,200l
Plaintiffs,
- against PAINEWEBBER INCORPORATED,
Defendant.
Papers Numbered
Notice of Motion, Affirmation & Exhibits Annexed.. ..............................
Affirmation.. ..............................................................................................
Memoranda of Law.. .................................................................................
Authorities Cited.. .....................................................................................
Reply Memorandum.. ...............................................................................
1
2
3, 4
5
6
Upon the foregoing papers and for the following reasons, the motion by
Defendant PaineWebber Inc., for a dismissal of the complaint both individually and as a class
action, is granted.
,
The following facts are deemed true. In January, 1995, Plaintiffs Dr. and Mrs.
Theodore Davantzis opened joint and IRA accounts ‘with PaineWebber, a well known
stockbrokerage firm. Neither of these accounts were “discretionary accounts”- i.e, an account in
which PaineWebber has the authority to trade securities on the Plaintiffs ’ behalf without
obtaining prior approval of the customer. At all relevant times, Plaintiffs maintained their
accounts at PaineWebber’s Garden City branch office, but became dissatisfied with the services
provided and the fees and commissions charged by that office. As a result, the Plaintiffs closed
their accounts with PaineWebber in 1999, and in 2000, they commenced the instant action,
individually and on behalf of a purported class of all others customers similarly situated, to
recover damages against PaineWebber for its alleged violation of fiduciary duties owed to them
and breach of the contract existing between the parties. Specifically, the Plaintiffs claim, inter
alia, that PaineWebber improperly charged
“excessive commissions on the purchase and sale of
securities ” without disclosing less expensive alternatives and accounts.
By Notice of Motion; returnable May 1,2001, PaineWebber moves for an order,
pursuant to CPLR 321 l(a)(l), (5) and (7), dismissing the complaint in its entirety or, in the
alternative, dismissing the class action allegations of the complaint on the ground that under the
pled facts, PaineWebber did not breach any contract between the parties or owe a specific
fiduciary duty to the Plaintiffs as the accounts were not discretionary. In opposition to the
motion, the Plaintiffs contend that the complaint alleges facts sufficient to withstand dismissal at
this early juncture. This Court disagrees with Plaintiffs
’ contentions.
Although, generally, on a motion to dismiss for failure to state a cause of action
pursuant to CPLR 321 l(a)(7), the facts pleaded in the complaint are presumed to be true in order
to determine whether the allegations fit within any cognizable legal claim (Morone v Morone, 5 1
NY2d 48 1,484; Perl v Smith Barney Inc., 230
AD2d 664, 666), when the complaint is
“replete
with legal conclusions and devoid of any factual allegation of the underlying wrongful conduct
for which plaintiff seeks to hold defendant * * * liable, it is not entitled to the benefit of the
favorable inferences usually accorded
Inc., 207
(Kamhi
v Tay, 244
”
AD2d 266; Ullmann v Norma
Kamali,
AD2d ‘691, 692). Here, because the Plaintiffs - both individually and as a purported
class action, have merely pled certain allegations in a conclusory manner against PaineWebber,
they are not entitled to the favorable inferences normally accorded. In any event, PaineWebber
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appears entitled to a dismissal of the causes of action in the complaint.
With respect to the claim of a breach of PaineWebber ’sfiduciary duties to the
Plaintiffs, it is well settled that a stockbroker buying and selling securities for a customer does
not, in the ordinary conduct of business, owe a general fiduciary duty to the purchaser of
securities (Fekety v Grunthal & Co., 191 AD2d 370,371; see, Levitin v Paine Webber, Inc.,
F3d 698,707; Sirna v Prudential Sec., Inc., 964
159
F Supp 147, 152). Only when the customer
delegates discretionary trading authority to the broker - i.e., freedom as to which stocks to buy or
what price to pay - does a fiduciary relationship come into being (Press v Chem.
Corp., 988
Invest.~Servs.
F Supp 375,386-387, affd 166 F3d 529; B&sell vMerril1 Lynch & Co., 937
F Supp
237,246).
Applying these principles to the matter at bar, the allegations of a violation of a
fiduciary duty in Plaintiffs ’ complaint fail. The complaint does not allege the existence of any
fiduciary, or in any way special, relationship between the Plaintiffs and PaineWebber other than
that of an ordinary broker-client relationship. Indeed, there are no allegations in the complaint,
much less proof, that the Plaintiffs ever granted, or even considered granting, PaineWebber
discretionary trading authority over their Joint Account or their IRA account, whereby a
fiduciary relationship would come into being. As such, the Plaintiffs
breach of fiduciary duty appears to lack merit.
’ cause of action alleging a
,
Even if a duty somehow exists, the mere conclusory allegations in the complaint
that PaineWebber failed to
“place ” or “enroll ” Plaintiffs into a certain type of account and failed
to investigate customer complaints in good faith, do not state a cause of action for breach of
fiduciary duty. In those circumstances in which a broker is deemed to owe a fiduciary duty to a
customer, that duty does not extend beyond the specific
“scope of affairs entrusted to the
broker, ” which are “generally limited to the completion of a transaction (Press
” v Chem Invest.
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Sews. Corp., supra,
& Co., 484
at 386; Bissell v Merrill Lynch
& Co., supra,
at 246; Schenck v Bear Stearns
F Supp 937,946). This Court does not find that PaineWebber had the authority to
choose what type of account the Plaintiffs would have, but rather it was entirely the Plaintiffs
decision. Contrary to the Plaintiffs ’ allegations, a broker ’s decision whether or not to
customers into a particular type of account or to throughly
“place ”
“investigate ” customer complaints
does not appear to fall within the narrow parameters of completing a securities transaction.
Moreover, the claim for breach of fiduciary duty has not been pleaded with the factual detail
required by CPLR 30 16(b) (see, Bardee v Zafir, 63 NY2d 850; Gall v Summit, Rovins and
Feldesman,
222 AD2d 225,226; Moss v Moche, 160 AD2d 785). As such, that claim must be
dismissed.
Similar failures plague the Plaintiffs
’ cause of action alleging a breach of
contract. In an action to recover damages for breach of contract, the complaint must,
inter aZia,
set forth the terms of the agreement upon which liability is predicated, either by express
reference or by attaching a copy of the contract, and allege the special damages sustained
(Chrysler Capital Corp. v Hilltop Egg Farms, Inc.,
AD2d 1009; Lupinski v Village
129 AD2d 927; Griffin Bros. v Yatto, 68
ofIZion, 59 AD2d 1050). It is axiomatic that where there is no
contractual obligation between two parties or when the essential elements of the contract are not
specified, there can be no breach of contract claim (see, Fleissler v Bayroff; 266 AD2d 34, 3435; Sud v Sud, 211 AD2d 423,424). The allegations and statements in the complaint shall also
be sufficiently particular to give notice of transactions and all the elements of the cause of action
(CPLR 3013).
In the instant case, the Plaintiffs
’ complaint does not identify or annex any written
agreement between them or the purported class and PaineWebber; nor does the complaint set
forth with specificity the terms upon which liability is predicated. In the absence of an express
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’
contract between the parties, the Plaintiffs then rely on a purported
“implied contractual duty ”
under the customer/stockbroker relationship to follow the National Association of Securities
Dealers ’ (hereinafter “NASD”) rules and regulations. However, courts applying New York law
have expressly rejected breach of contract claims based on alleged violations of securities
brokers failing to comply with private exchange rules and regulations - such as NASD rules - as
mere “attempts to circumvent the decisions that hold that plaintiffs do not have a private right of
action under [self-regulatory organizations] rules
Supp 189,195-196; Frota v Prudential-Bathe
” v Prudential-Bathe
(Bloch
Sec., Inc., 639
Sec. Inc., 707
F
F Supp 1186,119O). Under these
circumstances, the Plaintiffs ’ claim of breach of contract also fails.
Finally, these conclusions with respect to the individual Plaintiffs also warrant the
dismissal of the complaint insofar as it purports to represent a class of similarly situated
customers of PaineWebber. Where, as here, it appears conclusively from the complaint that
there is no basis for class action relief, it is appropriate to dismiss the class action allegations on
a CPLR 32 11 (a)(7) motion to dismiss for failure to state a cause of action ( Wajciechowski
Republic Steel Corp., 67
applies a fortiori
AD2d 830; Cornell Univ. v Dickerson,
v
100 Mist 2d 198,202). This
when the claims of the individual class members are not cognizable as a matter
of law.
Accordingly, PaineWebber ’smot&n to dismiss is granted and the complaint is
hereby dismissed in its entirety. This constitutes the decision, order and judgment of the Court.
Dated: Mineola, New York
July 23,200l
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JUL 30 20M