Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-01224/USCOURTS-cand-3_06-cv-01224-2/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:1332 Diversity-Fraud

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

JULIE ANN MORRIS, and THE MORRIS

FAMILY QTIP TRUST, by and through

its trustees, JULIE ANN MORRIS and

TERESA MORRIS FRANC,

Plaintiffs,

 v.

CHOICEPOINT SERVICES, INC.,

EQUISEARCH SERVICES, INC., LEE

ROTHMAN, an individual, and MELLON

INVESTOR SERVICES, LLC, 

Defendants. 

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

No. C-06-1224 SC

ORDER GRANTING IN

PART AND DENYING IN

PART THE MOTION TO

DISMISS 

I. INTRODUCTION

Plaintiffs Julie Ann Morris, The Morris Family QTIP Trust et

al. ("Plaintiffs") brought this action in The Superior Court of

the State of California in the County of Marin, against

Choicepoint Services, Inc. et al., ("Defendants"), alleging, inter

alia, fraud and elder abuse. Defendants timely removed the action

to the U.S. District Court for the Northern District of California

on the basis of diversity jurisdiction. 

Presently before the Court is Defendants' motion to dismiss

Case 3:06-cv-01224-SC Document 23 Filed 08/28/06 Page 1 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1 Although this document is in fact the First Amended

Complaint, the Court, for purposes of this Order, will refer to it

as the Complaint.

2

 For purposes of clarity, the Court will refer to Plaintiff

Julie Ann Morris as Julie in this Order.

3

 Qualified Terminable Interest Property.

-2-

certain causes of action pursuant to Federal Rule of Civil

Procedure ("FRCP") 12(b)(6). 

The Court, having reviewed the parties' submissions, hereby

GRANTS in part and DENIES in part Defendants' motion to dismiss. 

The Court also STRIKES Julie Ann Morris from the action in her

role as beneficiary. Julie Ann Morris remains a party to the

suit, but only in her role as trustee. 

II. BACKGROUND

The following facts are taken from the Complaint and will be

assumed as true for purposes of this Order.1

Plaintiff Julie Ann Morris ("Julie") is the widow of James

Morris, who arranged for a living trust to benefit the surviving

spouse of the couple's marriage. See Complaint ("Compl.") ¶ 7.2

Julie was 67 at all relevant times. See id. ¶ 7. James Morris

purchased 2,600 shares of Northern Empire Bancshares ("Stocks"),

registering himself as owner and listing his medical office as the

address of the registered shareholder. See id. ¶ 7. 

At his death in 1993, a QTIP3 trust ("Trust") came into

existence, naming Julie and Teresa Morris Franc as trustees, and

Julie as beneficiary. See id. ¶ 9. The Stocks were part of the

Case 3:06-cv-01224-SC Document 23 Filed 08/28/06 Page 2 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -3-

Trust. See id. 

After James Morris's death, the transfer agent of the Stocks,

Defendant Mellon Investor Services LLC ("Mellon"), found that mail

it had been sending to James Morris was being returned to Mellon. 

See id. ¶ 11. In an attempt to locate James Morris, Mellon hired

Defendants Choicepoint and Equisearch to find James Morris's

correct address. See id. 

An employee of Choicepoint and Equisearch, Defendant Lee

Rothman ("Rothman"), contacted Julie and told her that he had

discovered "abandoned property" that Julie was entitled to recover

on behalf of her husband's estate. See id. ¶¶ 12-13. Though

Rothman refused to specify what this abandoned property was, this

"abandoned property" was the Stocks. See id. ¶ 15. Rothman

informed Julie that in order to recover the property, Julie must

sign a fee agreement which would grant Choicepoint 35% of the

recovered property. See id. After being pressed by Julie, Rothman

said that the property was worth $17,000.00. See id. Because of

Rothman's repeated efforts to persuade her, Julie signed the

agreement. See id. Rothman's subsequent letter to Julie finally

identified the property as the Stocks and stated that Choicepoint

would "pay ALL FEES required to complete the recovery of the

shares of stock." See id. ¶ 16. 

Rothman informed Julie that the Stocks were sold for

$339,286.10, from which Choicepoint and Equisearch paid themselves

$118,240.68 in contract fees and $1,513.24 in brokerage fees. 

See id. ¶ 18. The balance of $219,589.83 was delivered to Julie. 

See id. 

Case 3:06-cv-01224-SC Document 23 Filed 08/28/06 Page 3 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -4-

The accountant for the Trust found that because the Stocks

were already a part of James Morris's estate plan, they were held

with a low tax basis. See id. ¶ 19. The sale generated a capital

gain of $197,107.18, which had to be recognized for tax purposes. 

See id. This recognition resulted in the elimination of a tax

loss carry-forward in the amount of $47,897.04. See id. 

In response to these events, Plaintiffs filed suit in The

Superior Court of California for the County of Marin. Defendants

timely removed the action to the U.S. District Court for the

Northern District. The First Amended Complaint lists nine causes

of action: (1) violation of the unclaimed property law; 

(2) rescission for illegality; (3) rescission for mutual mistake; 

(4) rescission for unilateral mistake; (5) conversion; (6) elder

financial abuse; (7) fraud; (8) negligent misrepresentation; and

(9) violation of the unfair competition law. See Compl.

At present, Defendants move to dismiss five of these causes

of action, specifically the first, sixth, seventh, eighth and

ninth. Defendants also allege that Julie cannot bring this action

as both a beneficiary and a trustee of the Trust. 

III. LEGAL STANDARD

"[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." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). "In

reviewing a 12(b)(6) motion, this Court must accept the factual

allegations of the complaint as true and must draw all reasonable

inferences in favor of the plaintiff." Bernheim v. Litt, 79 F.3d

Case 3:06-cv-01224-SC Document 23 Filed 08/28/06 Page 4 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -5-

318, 321 (2d Cir. 1996); see also Usher v. City of Los Angeles,

828 F.2d 556, 561 (9th Cir. 1987). The complaint need not set out

the facts in detail; what is required is a "short and plain

statement of the claim showing that the pleader is entitled to

relief." FRCP 8(a); see also La Salvia v. United Dairymen, 804

F.2d 1113, 1116 (9th Cir. 1986). Thus, the Court's task "is

merely to assess the legal feasibility of the complaint, not to

assay the weight of the evidence which might be offered in support

thereof." Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir. 1998). 

IV. DISCUSSION

A. First Cause of Action: Violation of the Unclaimed

Property Law

Plaintiffs allege that the Stocks should have escheated to

the Controller of the State of California, as decreed by

California Civil Procedure § 1516(b). See Compl. ¶ 21. 

Defendants, Plaintiffs allege, violated the law by not reporting

the Stocks to the Controller. See id. 

Defendants contend that Plaintiffs have not alleged a

sufficient factual basis for this claim. See Defendants'

Memorandum in Support of Motion to Dismiss ("Defs'. Mem.") at 4. 

CCP § 1516(b) states that items such as the Stocks escheat to

the State of California if (1) item is owned by a person who for

more than three years has neither claimed a dividend or other sum

referred to in CCP § 1516(a) nor corresponded with the business

association who issued the item (in this case Northern Empire

Bancshares) or otherwise indicated an interest with the

association and (2) the association does not know the location of

Case 3:06-cv-01224-SC Document 23 Filed 08/28/06 Page 5 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -6-

the owner at the end of the three-year period.

The Court finds that Plaintiffs have stated a claim for

relief. Specifically, it does not appear beyond doubt that

Plaintiffs can prove no set of facts in support of their claim

which would entitle them to relief. Reading the Complaint

broadly, Plaintiffs have alleged - however sloppily - that at

least three years passed during which the owner did not claim a

dividend or corresponded with the association. The Court also

finds that Plaintiffs have alleged that the business association

did not know James Morris's address at the end of the period, as

evidence by the return of his mail to Mellon. Accordingly, the

Court DENIES the motion to dismiss this cause of action.

B. Sixth Cause of Action: Elder Abuse

Plaintiffs allege that Defendants took, secreted and retained

the personal property of an elder (Julie) to a wrongful use within

the meaning of Welfare and Institutions Code § 15610.30. See

Compl. ¶¶ 51-56. 

Defendants contend that Plaintiffs have not sufficiently pled

a claim for relief because the Stocks were the property of the

Trust, not of Julie. See Defs'. Mem. at 6-7. 

California Welfare and Institutions Code § 15610.30 states

that financial abuse of an elder or dependent person occurs when a

person or entity takes, secretes, appropriates or retains real or

personal property of a person who is 65 or older to a wrongful use

or with intent to defraud. 

Only a real party in interest has the right to file a suit

under any substantive law. See Saks et al. v. Damon Raike and

Case 3:06-cv-01224-SC Document 23 Filed 08/28/06 Page 6 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -7-

Company, et al., 7 Cal. App. 4th 419, 427 (Cal. Ct. App. 1992). 

The trustee of a trust, not the beneficiary, has legal title to

the assets of a trust and is therefore the real party in interest

- not the beneficiary - and may sue in the name of the trust. 

See id. 

The Court finds that Plaintiffs have stated a claim for

relief. As trustee, Morris holds legal title to the assets of the

trust, which includes the Stocks, and, therefore, when Defendants

allegedly took the Stocks, they may have been taking the property

of an elder.

Accordingly, the Court DENIES Defendants' motion to dismiss

this cause of action.

However, Morris cannot proceed in this action as a

beneficiary because, in that role she is not the real party in

interest. See id. The Court, then, STRIKES her from the action

in her role as beneficiary. Morris, however, remains a party to

the case as a trustee of the Trust. 

C. Seventh, Eighth and Ninth Causes of Action

Defendants contend that claim of fraud against Mellon should

be dismissed because the allegedly fraudulent statements were made

by Rothman on behalf of Choicepoint and Equisearch and not by

Mellon. See Defs.' Mem. at 7-8. Defendants also contend that the

eighth and ninth claims must be dismissed as to Defendant Mellon

because the alleged acts of negligent misrepresentation and unfair

competition were committed by Rothman on behalf of his employers. 

See id. at 9-10. 

Plaintiffs contend that discovery may yield facts sufficient

Case 3:06-cv-01224-SC Document 23 Filed 08/28/06 Page 7 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -8-

to raise these claims against Mellon. See Pls'. Mem. at 6. 

The Court finds that these claims against Mellon must be

dismissed. Plaintiffs have not alleged that anyone but Rothman

committed the fraudulent acts on behalf of Choicepoint and

Equisearch. Because of this failure to allege necessary facts,

the Court will dismiss these claims. 

Accordingly, the motion to dismiss the seventh, eighth and

ninth causes of action is GRANTED. The Court DISMISSES these

claims, but GRANTS Plaintiffs thirty days from the date of this

Order to amend them. If Plaintiffs fail to so file, the Court

will deem these claims waived. 

V. CONCLUSION

The Court DENIES Defendants' motion as to the first and sixth

causes of action. 

The Court GRANTS Defendants' motion as to the seventh, eighth

and ninth claims. These claims are hereby DISMISSED WITH LEAVE TO

AMEND. If Plaintiffs fail to file amended claims within thirty

days from the date of this Order, the Court will deem Plaintiffs

to have waived these claims.

The Court STRIKES Julie Ann Morris from the action in her

role as beneficiary. Morris remains a party to the suit, but only

in her role as trustee. 

IT IS SO ORDERED.

Dated: August 28, 2006

 

UNITED STATES DISTRICT JUDGE

Case 3:06-cv-01224-SC Document 23 Filed 08/28/06 Page 8 of 8