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National Consumer Cooperative Bank v. Morgan Stanley & Co.

October 8, 2010


The opinion of the court was delivered by: Judge Munley


Before the court is defendant's motion to dismiss. Having been fully briefed, the matter is ripe for disposition.


This case arises out of a loan agreement between Plaintiff National Consumer Cooperative Bank ("NCB") and the Murray Insurance Agency of Scranton, Pennsylvania, owned by Brian Murray. (Complaint (Doc. 1) (hereinafter "Complt.") at ¶ 1). Plaintiff alleges that Brian Murray entered into a pledge agreement with NCB to secure a loan on March 7, 1997. (Id. at ¶ 8). As collateral for this loan, Murray assigned to NCB and granted to NCB a security interest in the contents of two brokerage accounts he held with defendant, which at the time was operating as Dean Witter Reynolds, Inc. (Id.). The pledge agreement Murray signed required that the market value of his accounts with defendant be at minimum $1,000,000.00. (Id. at ¶ 9).

On March 27, 1997, NCB sent a letter to John Egan of Dean Witter Reynolds in connection with this pledge agreement. (Id. at ¶ 10). This letter addressed the pledge agreement and terms and restrictions that pertained to Murray's accounts with Defendant. (Id.). The letter advised defendant that Murray could transfer property freely from the accounts as long as the value of the accounts did not fall below $1,000,000.00. (Id. at ¶ 11). If such transfers would reduce the value of the accounts to less than $1,000,000.00, however, plaintiff was required to obtain NCB's written consent. (Id.). The letter also required defendant to "note the existence of NCB's security interest with respect to these accounts in its books and records" and "promptly" to "notify NCB of any attempt to transfer the accounts or reduce the value of the accounts below One Million and No/dollars ($1,000,000) of which it has knowledge." (Id. at ¶ 12). Egan, manager of the branch where the accounts were administered and maintained, acknowledged and agreed to the terms of the March 27, 1997 letter on defendant's behalf. (Id. at ¶ 13).

NCB and Murray Insurance renegotiated the terms of the loan agreements in 2004. (Id. at ¶ 14). As a result of these negotiations, Murray Insurance was required to maintain $400,000 in the accounts rather than $1,000,000. (Id.). On March 1, 2004, NCB sent a Control Agreement and Acknowledgment of Pledge and Security Interest to Morgan Stanley (the "Control Agreement"). (Id.). The Control Agreement provides that Murray has granted NCB: "a pledge and security interst in $400,000 of [Murray's] interest in" the accounts that defendant maintained in Murray's name, as well as their assets. (Id. at ¶ 16). The Control Agreement further "notified" Morgan Stanley of NCB's security interest in those accounts and provided that "[d]ividends in cash, stock, stock splits and other proceeds are not to be paid to anyone other than to [NCB] until and unless you receive further written notice from [NCB]." (Id.).

Morgan Stanley acknowledged receipt of the Control Agreement on August 13, 2004. (Id. at ¶ 17). This acknowledgment stated that Morgan Stanley would "mark our records, by book-entry or otherwise, to indicate the pledge of, and [NCB's] security interest in, the Collateral." (Id.). Morgan Stanley also stated that it had "identified on our books and records the Collateral as being pledged to [NCB]." (Id. at ¶ 18). The Control Agreement also required Morgan Stanley "not to effect any transfer of [Murray's] interest in any of the Collateral without [NCB's] prior written consent." (Id. at ¶ 19). If defendant received any further written notice from NCB, it would "hold all the Collateral and all dividends, distribution, and other proceeds relating to the Collateral... subject to [NCB's] written instructions." (Id.). Morgan Stanley would "comply with all written instructions originated by [NCB] concerning the Collateral without further consent by [Murray]." (Id.). John Egan again signed this agreement. (Id. at ¶ 20).

On October 22, 2009, NCB received a statement with respect to one of the accounts covered by the Control Agreement stating that as of January 31, 2009, the assets in the account had a value of $43,609.69. (Id. at ¶ 32). Statements connected to that account reveal that on June 1, 2006, $400,000 was withdrawn from the account by way of a check. (Id. at ¶ 33). On May 31, 2006, the assets in the account totaled $413,304.62. (Id.). Following that withdrawal, the account contained $13,457.38. (Id.). Since that withdrawal, the funds in the accounts have never total more than $400,000, as required by the pledge and control agreements. (Id. at ¶ 34). NCB never consented in writing or otherwise to this transfer. (Id. at ¶ 35).

Plaintiff filed the instant complaint on February 26, 2010, raising three causes of action. Count I alleges that defendant violated the control agreement by allowing Murray to empty the accounts of less than $400,000 without obtaining plaintiff's written permission. This action, plaintiff contends, constituted a breach of contract. Count II alleges negligence by the defendant in failing to mark records indicating NCB's security interest in the accounts and allowing Murray to transfer funds without obtaining plaintiff's permission. Count III claims defendant committed a breach of fiduciary duty by not complying with plaintiff's instructions in the control agreement.

After being served with the complaint, defendant filed the instant motion to dismiss. The parties then briefed the issues, bringing the case to its present posture.


Plaintiff is a District of Columbia banking institution with its principal place of business in Washington, D.C. Defendant is a Delaware Corporation with its principal place of business in New York State. The amount in controversy exceeds $75,000. As such, the court has jurisdiction pursuant to 28 U.S.C. § 1332. The court is sitting in diversity, and therefore the substantive law of Pennsylvania shall apply. Chamberlain v. Giampapa, 210 F.3d 154, 158 (3d Cir. 2000) (citing Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938)).

Legal Standard

Defendant seeks dismissal of the complaint pursuant to both Federal Rule of Civil Procedure 12(b)(6) and Federal Rule of Civil Procedure 9(b). When a defendant files a motion pursuant to Rule 12(b)(6), all well-pleaded allegations of the complaint must be viewed as true and in the light most favorable to the non-movant to determine whether "under any reasonable reading of the pleadings, the plaintiff may be entitled to relief." Colburn v. Upper Darby Township, 838 F.2d 663, 665-66 (3d Cir. 1988) (citing Estate of Bailey by Oare v. County of York, 768 F.3d 503, 506 (3d Cir. 1985), (quoting Helstoski v. Goldstein, 552 F.2d 564, 565 (3d Cir. 1977) (per curium)). The court may also consider "matters of public record, orders, exhibits attached to the complaint and items appearing in the record of the case." Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 n.2 (3d Cir. 1994) (citations omitted). The court does not ...

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