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Merrill Lynch Pierce Fenner & Smith Inc. v. Nora-Johnson

May 23, 2002

MERRILL LYNCH PIERCE FENNER & SMITH INCORPORATED, AND NICHOLAS DENUCCI, PLAINTIFFS-APPELLANTS,
v.
JACQUELINE NORA-JOHNSON, TTE U/A DTD 6/27/94, DEFENDANT-RESPONDENT.



On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-760-01.

Before Judges Conley, Lefelt and Lisa.*fn1

The opinion of the court was delivered by: Lefelt, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued May 1, 2002

Defendant Jacqueline Nora-Johnson is co-trustee, with her brother Frank Nora, of the Elizabeth Nora Trust. Jacqueline contends that with Frank's consent, but without her knowledge or approval, various unsuitable trades were executed by plaintiffs Merrill Lynch, Pierce, Fenner & Smith and Nicholas Denucci, a registered representative of Merrill Lynch. To challenge these trades, which caused losses to be incurred by the trust, Jacqueline, without Frank's consent, began an arbitration that plaintiffs sought to enjoin by verified complaint and order to show cause. Plaintiffs now appeal from Judge David Cramp's May 15, 2001 order, which denied the injunction and dismissed the complaint. We affirm.

I.

The trust benefits Elizabeth Nora, the 91 year-old mother of the co-trustees. Elizabeth Nora lives alone and "relies on the Trust to pay her property taxes, homeowner's insurance and other home-related expenses." According to Jacqueline, the investment objective of the trust was to preserve the capital with investments that would provide income and retain $10,000 to $20,000 in liquid cash for expenses.

In April 1999, the trust account was transferred to the Morristown office of Merrill Lynch where plaintiff Nicholas Denucci became its financial consultant. At that time, the account held $100,539 in certificate of deposits and $131,537 in money market accounts.

When the account was transferred, Jacqueline and Frank signed a Trustee Certification Form advising Merrill Lynch that under the trust the company could accept orders and other instructions only from "[a]ll [the] trustees [who] must act jointly."

According to Jacqueline, after the transfer to Merrill Lynch, various trades were completed by Denucci with Frank's consent, but without her consent or knowledge. These trades were made to purchase, for example, shares of AT&T, J.P. Morgan, Federated Government Income Securities, John Hancock Strategic Income Fund, State Street Research High Income Fund, Nokia and Wal-Mart. Jacqueline contends that as a result of these trades, the trust lost thousands of dollars.

When Jacqueline discovered in mid-2000 that these trades had been made and that trust losses were sustained, she commenced her arbitration action against Merrill Lynch and Denucci. Jacqueline charged Denucci with making unsuitable trades that compromised the interests of the trust beneficiary. Jacqueline also alleged that Merrill Lynch failed to supervise Denucci's trading activities and that both Merrill Lynch and Denucci engaged in trades without her consent, contrary to the Trust Certification Form which required consent from both co-trustees.

Jacqueline did not name her co-trustee Frank as a defendant in the arbitration nor did Frank join as co-plaintiff when Merrill Lynch sought to enjoin the arbitration. Instead, Frank provided an affidavit stating that Jacqueline did not consult him or obtain his permission "to initiate the instant arbitration." Moreover, he added that he did not "believe that there is any legal merit to any of the alleged claims raised in the Statement of Claim in this case" and he was "totally opposed to permitting this action to proceed."

While Jacqueline in her arbitration contended the trades were illegal because she never consented, Merrill Lynch argued that the arbitration should be enjoined because Frank as co-trustee never consented to that action. Judge Cramp in dismissing Merrill Lynch's complaint seeking to enjoin the arbitration explained that he did not "think that the [trust] agreement intends to prohibit one of the trustees to take an action to protect[] the assets of the trust." The judge emphasized that in his opinion there was "almost an obligation on the part of the ...


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