While acknowledging that North Carolina has not yet recognized that a broker-dealer, as a matter of law, owes fiduciary duties to their investors, a fiduciary relationship might nonetheless arises as a matter in fact (de facto) based, in part, on the fact that the company’s name contains the words “fiduciary” and “trust.”  Edwards v. Vanguard Fiduciary Trust Company, 2018 NCBH 134 (J. Robinson).  Even though Plaintiff failed to allege he was an unsophisticated investor, the Court nonetheless determined that the Defendant’s reputation and its name were enough to create a de facto fiduciary relationship so as to enable Plaintiff’s claim to survive a motion to dismiss.

In 2014, Plaintiff was referred to Russell J. Mutter (“Mutter”), who owned and operated  RJM Financial, an unincorporated sole proprietorship.  Plaintiff thereafter agreed to allow Mutter to invest his retirement savings, believing Mutter was an agent of Vanguard.  Plaintiff’s accounts were established with Vanguard after he deposited more than $400,000 with the company.  Plaintiff alleged that he believed he stood in a fiduciary relationship with Vanguard because the words “fiduciary” and “trust” were in its name.  (Opinion, ¶11).  In late 2014, Mutter sent Vanguard an electronic authorization that purported to allow Mutter to become Plaintiff’s “full agent,” a position which allowed Mutter to transfer funds out of Plaintiff’s Vanguard account without Plaintiff’s knowledge or approval.  The electronic authorization was submitted from an IP address that belonged to Mutter, not Plaintiff.   Between 2014 and 2017, Mutter withdrew all of Plaintiff’s funds, depositing them into his own personal account at Allegacy Federal Credit Union.  In January 2018, Plaintiff discovered Mutter had removed all of his funds from his Vanguard account without his permission.  Plaintiff filed suit against Mutter, Vanguard and Allegacy.  Plaintiff asserted claims against Vanguard for breach of contract, breach of fiduciary duty, negligence, and breach of the Uniform Fiduciaries Act (“UFA”).  Vanguard moved to dismiss.

The Court denied Vanguard’s motion to dismiss in its entirety.  In denying Vanguard’s motion to dismiss Plaintiff’s breach of fiduciary duty claim, the Court recognized that North Carolina has not yet recognized as a matter of law (i.e., de jure) that a broker-dealer stands in a fiduciary relationship to investors.   However, Plaintiff alleged that Vanguard had created a de facto fiduciary relationship with Plaintiff because of its reputation as a safe investment company and because its name included the words “fiduciary” and “trust,” which Plaintiff alleged should have caused Vanguard to know Plaintiff would put its trust in it.  (Opinion, ¶48).  Notwithstanding Plaintiff’s failure to allege that he was ignorant of financial affairs, the Court found that these allegations were sufficient to create a fiduciary relationship and survive a motion to dismiss.  (Id., ¶49).

A company with a name or reputation or even, perhaps, advertisements that include words that might evoke trust or a special relationship with members of the public would be wise to make clear that it does not stand in a fiduciary relationship with any customer.