Opinion
10-P-2251
11-22-2011
JOHN D. TOPHAM & others, [FN1] v. STATE STREET CORPORATION.
NOTICE: Decisions issued by the Appeals Court pursuant to its rule 1:28 are primarily addressed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, rule 1:28 decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28, issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
Summary judgment was granted to the defendant, State Street Corporation (State Street), on the plaintiffs' claim that State Street breached a contract to refrain from assessing redemption fees in connection with the plaintiffs' purchase and subsequent sale of shares in the State Street Global Advisors Emerging Markets Fund (fund). After consideration of the plaintiffs' appeal, we affirm.
Facts. Viewed in the light most favorable to the plaintiffs, see, e.g., Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117, 120 (1991), the relevant facts may be summarized as follows. The plaintiff Jeffrey Topham (Topham) has invested in mutual funds for over twenty-five years on behalf of himself and various relatives, including his parents, the plaintiffs John D. and Ruth J. Topham. From October 2 to October 4, 2011, Topham purchased a total of $12,760,895 worth of shares in the fund for himself and his parents, through their broker, TD Waterhouse, which effectuated the purchases by making trades in an omnibus account that it maintained with the fund. The fund's prospectus stated that redemptions within sixty days of purchase were subject to a two percent redemption fee and that, in the case of shareholders participating in an omnibus account arrangement, the fee would be charged by the omnibus account provider. According to his affidavit, Topham 'did not have, on or before October 2, 2001, a copy of the prospectus for [the fund], which was later mailed to [him] after the purchase of the shares.'
Prior to investing in the fund, Topham made several inquiries into the fund's resale policy. He inquired of a broker at TD Waterhouse, who told him that the fund did not appear to assess a penalty. He then inquired of a broker at Fidelity, where he also maintained an account, and was told that the fund featured a two percent redemption fee charged on short-term trades. After this conversation, Topham called the toll-free number for the fund and, without giving his name, spoke with Kathy Monahan, an employee in the marketing department. Looking at her records, Monahan told Topham that she did not see that an early redemption fee would be assessed. When he then asked to speak to someone with more authority to answer his question, Monahan replied that such an individual would speak only with a broker. Topham then instructed his broker at TD Waterhouse to contact the fund. After the broker did so, Topham went ahead with the purchase.
There is no admissible evidence of the content of any conversations between the broker and State Street.
On October 12, 2001, less than sixty days from the dates of purchase, the plaintiffs sold some of their shares in the fund. They were charged a two percent redemption fee, in the amount of $181,691.03. When they complained to TD Waterhouse, they were offered the opportunity to rescind the entire transaction and get back their investment, but they declined to do so. The plaintiffs then brought arbitration claims against TD Waterhouse under the auspices of the National Association of Securities Dealers (NASD). These claims were denied and dismissed with prejudice. The instant case against State Street, over whom NASD had no jurisdiction, was brought in the Superior Court, and resolved adversely to the plaintiffs on State Street's motion for summary judgment.
The plaintiffs netted more than $192,000 from the October 12 sales, even after subtracting the amount of the redemption fees.
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Discussion. The plaintiffs' sole theory of recovery is breach of contract. In essence, they claim that Topham's anonymous telephone conversation with Monahan created a contract whereby State Street promised not to charge a redemption fee on the early sale of shares purchased by the plaintiffs. This claim fails as matter of law. See Mass.R.Civ.P. 56(c), as amended, 436 Mass. 1404 (2002); Community Natl. Bank v. Dawes, 369 Mass. 550, 553 (1976).
The terms of State Street's offer to sell shares in the fund were contained in the fund's prospectus, which, as required by law, delineated the terms and conditions of purchase, including applicable redemption fees. See Saphier v. Devonshire St. Fund, Inc., 352 Mass. 683, 689 (1967) (prospectus incorporated by reference in letters of transmittal constituted parties' contract). Under the Securities Act of 1933 (Securities Act), sales of stock are prohibited until the Securities and Exchange Commission (SEC) has approved the company's registration statement, which includes the prospectus. See 15 U.S.C. § 77e(c) (2006). The prospectus has been described as 'the single most important document and perhaps the primary resource an investor should consult.' Brown v. E.F. Hutton Group, Inc., 991 F.2d 1020, 1032 (2d Cir. 1993). See generally Bulldog Investors Gen. Partnership v. Secretary of the Commonwealth, 460 Mass. 647, 652-653 (2011) (discussing Security Act's objective of requiring disclosures necessary for informed decision-making).
Particularly given his level of sophistication, Topham cannot claim ignorance of the redemption terms contained in the prospectus, whether or not he possessed a copy at the time of his purchase. Since 1996, companies have been required, absent an exemption, to post all SEC filings on a website, known as the EDGAR system. See In re Keyspan Corp. Sec. Litigation, 383 F. Supp. 2d 358, 374 (E.D.N.Y. 2003). 'Whether or not it was ever true that filing hard copies of documents with the SEC did not, ipso facto, constitute 'public disclosure,' in today's world it is unrealistic to argue that documents available on the SEC website are not readily accessible to the investing public.' Id. at 373. 'Accordingly, courts have recognized the SEC website as a 'recognized channel of distribution,' and have charged investors with knowledge of documents posted there.' Id. at 374, and cases cited. We do so here.
Any suggestion that Topham's telephone conversation with Monahan created a contract modifying the terms of the prospectus is baseless. Not only did Topham recognize that Monahan did not have the authority to give him a definitive answer, but he made the phone call anonymously. The absence of any agreement is further evidenced by the fact that, after speaking with Monahan, Topham continued to make inquiries about the redemption fee. In short, there is no interpretation of the facts that would support a finding that the parties entered into a binding contract that early redemption fees would be waived.
Judgment affirmed.
By the Court (Rapoza, C.J., McHugh & Cohen, JJ.),