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Wells Fargo Bank, N.A. v. Superior Court (Richtenburg)
Filed January 25, 2008, First District, Division One
Cite as 2008 SOS 584

Plaintiffs to Amend Complaint against Bank in Class Action Lawsuit
 
The issue on the case stemmed from an initial complaint filed by Mary L. Richtenburg and C. Kathleen Sipes against Wells Fargo Bank N.A.. Richtenburg and Sipes are both beneficiaries of personal trusts maintained by the bank.  

In filing the lawsuit, the two said they are also making the complaint on behalf of themselves and 50 other individuals “ who are or were beneficiaries or successor trustees of trusts whose principal and/or income is or was managed by Wells Fargo as a corporate trustee, in which trusts Wells Fargo collected fees, proceeds or similar compensation or benefits for services provided by affiliates of Wells Fargo in connection with Wells Fargo’s investment or management of trust assets, and/or collected fees, proceeds or similar compensation or benefits from third parties in connection with Wells Fargo’s investment or management of trust assets.”

In the complaint, Richtenburg and the others alleged that the bank violated California law by the following acts:

1.    Investing trust assets in proprietary mutual funds in order to collect various fees for itself and its affiliates, including “investment and advisory” fees
2.    Investing trust assets in nonproprietary mutual funds from which the Bank and its affiliates receive undisclosed compensation
3.    Implementing a “securities lending program” by which it places trust assets in a common trust fund so that it can lend securities held in the fund to third parties, charge the third parties fees and interest, and “misappropriate” from plaintiffs 40 percent of the fees and interest received
4.    Charging unreasonable fees for the preparation of tax returns.  

According to the plaintiffs, Wells Fargo bank violated its duties as trustee by these acts to avoid conflicts of interests, to make investments solely in the interests of the beneficiaries, and to charge only a disclosed trustee fee for administering the trust. They also alleged the bank failed to provide full disclosure of its actions, including disclosure of payments received from its investments, the nature and extent of any conflicts of interests, and other material facts.
    
As a result, the plaintiffs filed an amended complaint which contained six causes of action:

1.    Reach of fiduciary duty
2.    Concealment
3.    Violation of the Consumers Legal Remedies Act
4.    Conversion
5.    Violation of Business and Professions Code section 17200 et seq.
6.    Common count for misappropriation.


In response, the bank filed a general demurrer to each of the six causes of action in the second amended complaint, asserting, among other things, that the entire action was preempted by Securities Litigation Uniform Standards Act of 1998 (SLUSA). The act “precludes state-law action by beneficiaries of trust administered by bank from suing bank for alleged misrepresentations and omission of material facts with respect to investment practices; such action was ‘in connection with the purchase or sale’ of securities even though beneficiaries lacked investment authority”.  

The trial court overruled the demurrer.

Following this, the bank filed a petition for a writ of mandate in the appeals court, seeking a ruling for the same reason that the action was preempted by SLUSA.  

In review, the First District court of appeals summarily denied the petition.  The bank filed a petition to the Supreme Court, which granted review and transferred the matter back to the appeals court, directing it to issue an order to show the cause why the relief sought by the bank should not be granted.  

The appeals court therefore decided that in the situation where plaintiffs’ action was precluded by SLUSA, plaintiffs were entitled to amend complaint to assert state claims.
In ruling, it vacated the prior decision overruling the bank’s demurrer, and issued a new and different order sustaining the demurrer with leave to amend.  

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