As we get older many of us own Individual Retirement Accounts (IRAs). These can hold money contributed directly during our working lives, or through a “rollover” from a 401K plan when we retire from a job. Either way, the money in IRA accounts (which in the U.S. totals more than $2.5 trillion), is held by financial institutions (such as Fidelity, Vanguard and Schwab) who act as custodians for this money. We rely on these custodians to transfer this money to our designated beneficiaries upon our death.
A recent case decided by the Massachusetts Supreme Judicial Court, UBS v. Aliberti, shows how this after-death transfer can go awry, and how difficult it can be to punish an IRA custodian that acts improperly or negligently.
The facts are convoluted, but in essence are as follows.
UBS acted as custodian for a large IRA owned by Patrick Kenney. After Kenney died in 2013 his friend, Craig Gillespie, sent UBS a letter informing UBS that Gillespie had a claim on the money in the IRA. UBS may have been confused (at least at first), since Kenney had attempted to make Gillespie a beneficiary to two other much smaller IRAs. However, it should have quickly become apparent to UBS that Gillespie had no claim on the money in the large IRA, and the money should have been promptly transferred to the sole proper beneficiary, Kenney’s longtime girlfriend, Donna Aliberti.
A family conflict may have played some part in this situation. The UBS financial advisor who had originally assisted Patrick Kenney in setting up his IRAs and who was responsible for transferring the IRA to Donna Aliberti was Patrick Kenney’s one-time sister-in-law — Margaret Kenny. When Margaret Kenny first received Donna Aliberti’s request for disbursement of the IRAs she responded by attacking Donna Aliberti as “”a whore” and “the . . . worst piece of filth I have ever encountered.”
Regardless of motive, there then ensued what the Massachusetts Supreme Judicial Court (the SJC) described as one and one-half years of “bureaucratic indifference or incompetence and hypersensitivity to risk exposure” by UBS. After 18 months UBS added insult to injury by filing a lawsuit asking the court to determine ownership of the IRA.
Ms. Aliberti counterclaimed for breach of fiduciary duty and violation of M.G.L. c. 93A, the Massachusetts “little FTC act,” which allows successful plaintiffs to recover up to three times their actual damages plus attorney’s fees.
Finally, after two and one-half years, UBS transferred the IRA to Ms. Aliberti. However, Mr. Kenney’s girlfriend was not appeased, and she refused to dismiss her case against UBS. As improbable as it seems, her case ultimately ended up before the highest appeals court in Massachusetts.
The SJC was faced with two legal issues: did UBS have a fiduciary duty to Ms. Aliberti, and did Ms. Aliberti have a valid claim for violation of 93A?
The court concluded that the answer to the first question was no. The relationship between UBS and Ms. Aliberti was merely a “retail consumer relationship governed by contract.” The fact that the UBS custodial agreement expressly disclaimed a fiduciary relationship was a factor in the court’s conclusion on this issue. In fact, although the court was not called upon to decide it in this case, based on the court’s reasoning UBS (or any other IRA custodian that uses a similar contract), would have a strong argument that it never owed Mr. Kenney a fiduciary duty.
However, Ms. Aliberti was not out-of-court yet. Surprisingly, the court held that UBS could be liable for a violation of 93A, and it remanded the case for a trial on this issue. Surprising, because Chapter 93A is alleged in almost every civil lawsuit in Massachusetts, but it is rarely successful. It hits the mark in cases involving fraud or deception, but infrequently where (as here), the facts suggest negligence or incompetence in the performance of a contract.
At the heart of Chapter 93A is its prohibition of “unfair or deceptive acts or practices.” However, the statute provides no definition of what constitutes an unlawful unfair or deceptive act. The SJC has held that conduct is “unfair” in violation of Chapter 93A if it lies “within at least the penumbra of some common-law, statutory, or other established concept of unfairness;… whether it is immoral, unethical, oppressive, or unscrupulous; [and] whether it causes substantial injury to consumers …” (link) UBS argued that it’s conduct fell outside this definition – rather Ms. Aliberti’s 93A claim amounted to nothing more than an “‘unsatisfactory experience’ in the beneficiary payment process.” (link) The Superior Court judge that heard the case had agreed and dismissed the case.
The SJC reversed, holding that UBS’s conduct may have met the standard for unfairness. UBS dragged its feet in informing Ms. Aliberti that it was freezing the proceeds, willfully failed to communicate with her, forced her to retain counsel, filed an implausible lawsuit, and held back funds to which Gillepsie (Mr. Kenney’s friend), had no valid claim, all of which may rise to the level of “unfairness” under 93A. The case will now go back to the Massachusetts trial court for trial , but the SJC has sent a message that it views UBS’s conduct as violative of Chapter 93A.
More broadly, the case may have expanded the scope of chapter 93A liability where consumers are the subject of bureaucratic indifference and ill treatment at the hands of large corporations like UBS. As UBS argued (unsuccessfully) “allowing someone who merely had an ‘unsatisfactory experience’ to pursue a Chapter 93A claim would establish a dangerous precedent and flood the courts of Massachusetts with disgruntled customers (or, in this case, non-customers) complaining of bad customer service experiences in the guise of ‘unfair or deceptive’ acts or practices.” (link)
While the SJC didn’t go so far as to create a new legal test for bad customer service, it did seem to open the door to 93A claims based on extreme customer mistreatment. The implication of its decision is that this is a fact-based inquiry, and to some extent it is in the eye of the beholder. Here, there were two beholders – the Superior Court judge (who dismissed the 93A claim), and the SJC, which reinstated it. Going forward, I would expect Superior Court judges to take a more pro-consumer look at 93A claims like the one in this case, and perhaps for corporations to be a bit less bureaucratically indifferent to avoid the risk of 93A liability.
Update: the case settled out of court in December 2021