MDS PORTFOLIO REVOCABLE
DEUTSCHE MORGAN GRENFELL, INC.,
Richard H. Battey, U.S. District Judge
[¶1] On November 17, 1999, MDS Portfolio Revocable Trust ("Plaintiff") filed suit against Deutsche Morgan Grenfell, Inc. ("Defendant"). Plaintiff's complaint alleges seven tort actions with the matter in controversy exceeding $75,000. See Complaint at 1-11. Plaintiff is a trust with its situs in South Dakota. See id. at 1. Defendant is a Delaware corporation and has its principal place of business in a state other than South Dakota. See id. at 1-2. Accordingly, this Court has jurisdiction to proceed pursuant to 28 USC § 1332.
[¶2] On March 17, 1998, plaintiff and defendant entered in to an investment management agreement. See Investment Management Agreement ("Agreement") (Docket #12), Exhibit 1. The agreement authorized defendant to manage and supervise plaintiff's investment accounts. See id. This case involves defendant's management of plaintiff's equity account. See Complaint at 1-5. According to plaintiff, the torts in this case arise from defendant's failure to abide by an oral instruction as well as defendant's failure to keep plaintiff informed of stock losses and other tortuous activity. See Complaint at 1-5. Because of defendant's alleged conduct, plaintiff claims to have lost approximately $500,000. See id.
[¶3] On January 10, 2000, defendant filed a motion to dismiss plaintiff's complaint for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). In testing the sufficiency of a complaint to withstand a motion for dismissal under Fed. R. Civ. P. 12(b)(6), the Court must accept factual allegations of the complaint as true. A complaint must be viewed in the light most favorable to the plaintiff and should not be dismissed merely because the Court doubts that a plaintiff will be able to prove all the necessary factual allegations. "Thus, as a practical matter, a dismissal under 12(b)(6) is likely to be granted only in the unusual case in which the plaintiff includes allegations which show on the face of the complaint that there is some insuperable bar to relief." (Citations omitted). "A court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Palmer v. Tracor, Inc., 856 F2d 1131, 1132 (8th Cir. 1988) (quoting Fusco v. Xerox Corp., 676 F2d 332, 334 (8th Cir. 1982) and Hishon v. King & Spalding, 467 US 69, 73, 104 SCt 2229, 2232, 81 LEd2d 59 (1984)). See also Neitzke v. Williams, 490 US 319, 109 SCt 1827, 104 LEd2d 338 (1989).
[¶4] Initially, the Court notes that defendant has provided evidence beyond the bare pleadings for this Court's consideration. Specifically, defendant attached a copy of the agreement entered into between the parties on March 17, 1998. See Agreement. The Court may consider this agreement, when deciding the motion to dismiss, if the document is undisputedly authentic and if plaintiff's claims are based on the document. See Parnes v. Gateway 2000, Inc., 122 F3d 539, 546 n. 9 (8th Cir. 1997) (quoting In re Donald J. Trump Casino Securities Litigation., 7 F3d 357, 368 n. 9 (3rd Cir. 1993)).
[¶5] In this case, plaintiff argues that the claims are not based on the agreement. (fn1) See Plaintiff's Brief in Opposition to Defendant's Motion to Dismiss ("Plaintiff's Brief") at 4. This argument is without merit, in paragraph 8 of the complaint plaintiff specifically refers to the agreement. See Complaint at 2-5. In addition, the actions which give rise to the alleged torts occurred while defendant was operating under the agreement. See id. Therefore, the claims are based on the agreement and the Court may consider the agreement when ruling on this motion. See Parnes, 122 F3d at 546 n.9.
[¶6] Choice of Laws
[¶7] Defendant argues that pursuant to the agreement (fn2) between the parties New York law applies to this case. See Defendant's Brief in Support of the Motion to Dismiss ("Defendant's Brief") at 1-15. Whereas, plaintiff argues for the application of South Dakota law. See Plaintiff's Brief at 6-7.
[¶8] A federal court sitting in a diversity case must apply the choice of law rules of the forum state, in this case, South Dakota. See Larken, Inc. v. Wray, 189 F3d 729, 732, 733 (8th Cir. 1999) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 US 487, 496, 61 SCt 1020, 85 LEd 1477 (1941)). South Dakota courts generally allow parties to agree to be bound by the law of another state. See State ex rel Meierhenry v. Spiegel, Inc., 277 NW2d 298, 300 (SD 1979). Despite this general practice, plaintiff argues that the choice of law clause is narrowly tailored to only cover contract claims and that the tort claims are not dependent on the interpretation of the contract, therefore this Court should apply South Dakota law. See Plaintiff's Brief at 7.
[¶9] According to Eighth Circuit law, contractual choice of law provisions apply to tort claims when the claims are closely related to the interpretation of the contract. See Northwest Airlines v. Astraea Aviation Services, Inc., 111 F3d 1386, 1392 (8th Cir. 1997) (plaintiff's claims for negligent performance, misrepresentation, deceptive trade practices, and unjust enrichment "are closely related to the interpretation of the contracts and fall within the ambit of the express agreement ..."). In this case, each count of the complaint refers to activities which defendant performed pursuant to the agreement. See id. For example, the agreement between the parties authorized defendant to manage plaintiff's equity account and count one of the complaint specifically refers to the management of this account. See Agreement at 1; Complaint at ¶ 24. Because of the references to activities performed pursuant to the agreement, the Court concludes that these claims are closely related to the interpretation of the agreement. See Northwest Airlines, 111 F3d at1392 (contractual choice of law provision covered tort claims which arose from work provided pursuant to the contract). Therefore, the agreement's choice of law clause applies to plaintiff's tort claims. See id.
[¶10] In the alternative, plaintiff argues that the choice of law clause is invalid because it violates South Dakota's public policy. See id. at 11-13. Specifically, plaintiff contends that: (1) New York's no oral modification policy conflicts with SDCL 53-8-7 which allows oral modification of contracts; (2) the agreement directly or indirectly exempts defendant from liability in violation of South Dakota law; and (3) the application of New York law would overturn the fiduciary duty that defendant owes to plaintiff under South Dakota law. See Plaintiff's Brief at 12.
[¶11] According to South Dakota law, foreign laws which are contrary to the settled public policy of the state are not enforceable. See State ex rel Meierhenry, 277 NW2d at 300. However, the Court has analyzed the laws of New York and South Dakota and concludes that the two states treat oral modifications of written contracts; (fn3) exemption from liability; (fn4) and fiduciary duty (fn5) in a similar manner. Therefore, applying the laws of the state of New York, in this case, would not be contrary to South Dakota's public policy. See id.
[¶12] Motion to Dismiss
[¶13] Defendant argues that according to New York law plaintiff's claims must be dismissed. See Defendant's brief at 6. As stated above the Court has concluded that New York law shall apply to this cause of action. It is, therefore, within the Court's discretion to dismiss any of plaintiff's claims which are not available under New York law. See Northwest Airlines 111 F3d at 1392, n. 4. (after concluding that the non-contract claims were covered by the parties choice of law clause the court did not err in dismissing claims not available under the laws of the chosen state). Currently, four of plaintiff's seven claims specifically refer to South Dakota law. See Complaint counts I, III, VI, VII. Violations of specific South Dakota statutes are not available under New York law, therefore the Court will grant a dismissal of these claims. See id. However, the Court will also grant plaintiff a reasonable amount of time to amend the complaint to include any causes of action which exist under New York law. Accordingly, it is hereby
[¶14] ORDERED that defendant's motion to dismiss plaintiff's complaint pursuant to Fed. R. Civ. P. 12(b)(6) (Docket #9) is granted as to counts I (Deceit, SDCL 20-10-1 & 20-10-2), III (South Dakota Uniform Securities Act, SDCL 47-31A-101, 47-31A-102, & 47-31A-410), VI (Deceptive Trade Practices, SDCL 37-24-6 & 37-24-31), and VII (Punitive Damages, SDCL 21-3-2) of plaintiff's complaint. The Court will reserve its ruling on counts II (Fraudulent Misrepresentation), IV (Breach of Fiduciary Duty), and V (Negligence), until plaintiff has had an opportunity to amend their complaint.
[¶15] IT IS FURTHER ORDERED that plaintiff shall file an amended complaint by April 24, 2000.
1. Plaintiff has not contested the authenticity of the agreement.
applicable portion of the agreement states, "[t]his agreement shall be
governed by and construed in accordance with the laws of the State of New
York." See Agreement at
3.New York law recognizes two exceptions to its no oral modification statute. See Rose v. Spa Realty Assocs., 366 N.E.2d 1279, 1283 (N.Y. 1977); N.Y. Gen. Oblig. Law § 15-301(1) (McKinney 1999). Oral modifications are allowed when a party induces another to rely on the oral modification and when either party performs under the terms of the oral modification. See id.
South Dakota statutes and case law treat
oral modifications in a similar manner. South Dakota law provides that an oral
agreement must be executed in order to modify the contract. See
SDCL 53-8-7 (Michie 1990)
In addition, the South Dakota Supreme Court has stated that an oral modification
will be enforced when the conduct of the parties reflects their intention to
enter into an enforceable contract. See
Kahler, Inc. v. Weiss, 539
NW2d 86, 98 (S.D. 1995).
4.South Dakota law provides that a contract which has as its object, directly or indirectly, to exempt anyone from liability for fraud or willful injury or from violation of law whether willful or negligent is unenforceable. See SDCL 53-9-3. Likewise, under New York law a contract clause which exempts a party from liability for willful or grossly negligent acts is void. See Gross v. Sweet, 400 N.E.2d 306, 308 (N.Y. 1979).
5.Under New York law the fiduciary duty between securities broker and customer is limited to affairs entrusted to the broker such as discretionary trading authority. See 937 F. Supp. 237, 246 (S.D.N.Y. 1996) (emphasis added) (citing Schenck v. Bear, Stearns & Co., 484 F. Supp. 937, 947 (S.D.N.Y. 1979), overruled on other grounds, Conway v. Icahn & Co., 16 F3d 504 (2d cir. 1994)). Likewise in South Dakota, the fiduciary duty between securities broker and customer is based upon the client entrusting the brokers with the authority to act for them. See Dinsmore v. Piper Jaffray, Inc., 1999 SD 56 ¶ 19, 593 NW2d 41, 46 (emphasis added).