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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Court of Chancery Dismisses Consumer's Fiduciary Duty Claim Against Online Brokerage, Stating that the Scope and Existence of any Duty is Governed by Their Contract
Posted In Fiduciary DutyWeil v. Morgan Stanley DW Inc., 877 A.2d 1024 (Del. Ch. 2005). Plaintiff consumer brought an action on behalf of himself and others similarly situated alleging that defendant Morgan Stanley breached its fiduciary duties and that HarrisDirect, the buyer of its online brokerage business, aided and abetted in the breach. The two defendants moved to dismiss under Rule 12(b)(6) for failure to state a claim. Morgan Stanley sold its online brokerage business and customer accounts to HarrisDirect and, in the process, gave its customers the option to open a money market sweep account (like the one offered by Morgan Stanley) with HarrisDirect. Plaintiff, a Morgan Stanley customer, opted to use the HarrisDirect sweep account and did so for a year before closing his account. After closing his account, plaintiff brought a suit alleging that Morgan Stanley breached fiduciary duties it owed to him, alleging that that Morgan Stanley was disloyal to its customers by selling its customer accounts to HarrisDirect because it profited by selling an expectation to HarrisDirect that some of the Morgan Stanley customers would use their sweep account services. The court rejected this claim and granted defendants' motion to dismiss, stating that under California law, which governed the contract, Morgan Stanley did not owe wide-ranging fiduciary duties to the plaintiff, and it was only because of his contract with Morgan Stanley that any fiduciary relationship existed. And in the application to open an account, Morgan Stanley clearly reserved the right to sell its brokerage accounts to a buyer like HarrisDirect. Thus, plaintiff failed to state a claim for breach of fiduciary duty, and as a result, plaintiff also failed to state a claim that HarrisDirect aided and abetted in Morgan Stanley's breach of fiduciary duty. Authored by: R. Christian Walker 302-888-6974 firstname.lastname@example.org