Nat'lConsumerCoop.Bankv.MorganStanley&Co.

Background
NCBandMurrayenteredintoapledgeagreementtosecurealoan.
Ascollateralforthisloan,MurrayassignedtoNCBandgrantedtoNCBasecurityinterestinthecontentsoftwobrokerage
accountsheheldwithMorganStanley,whichatthetimewasoperatingasDeanWitterReynolds,Inc.
The pledge agreement Murray signed required that the market value of his accounts with defendant be at minimum
$1,000,000.00.
NCBsentalettertoJohnEganofDeanWitterReynoldsinconnectionwiththispledgeagreement.
ThisletteradviseddefendantthatMurraycouldtransferpropertyfreelyfromtheaccountsaslongasthevalueoftheaccounts
didnotfallbelow$1,000,000.00.
Ifsuchtransferswouldreducethevalueoftheaccountstolessthan$1,000,000.00,DeanWitterReynolds,Inc.wasrequiredto
obtainNCB'swrittenconsent.
Theletteralsorequireddefendantto"notetheexistenceofNCB'ssecurityinterestwithrespecttotheseaccountsinitsbooks
andrecords"and"promptly"to"notifyNCBofanyattempttotransfertheaccountsorreducethevalueoftheaccountsbelow
OneMillionandNo/dollars($1,000,000)ofwhichithasknowledge."
Egan,managerofthebranchwheretheaccountswereadministeredandmaintained,acknowledgedandagreedtothetermsof
theletterondefendant'sbehalf.
NCBandMurrayInsurancerenegotiatedthetermsoftheloanagreementsin2004.Asaresultofthesenegotiations,Murray
Insurancewasrequiredtomaintain$400,000intheaccountsratherthan$1,000,000.
OnMarch1,2004,NCBsentaControlAgreementandAcknowledgmentofPledgeandSecurityInteresttoMorganStanley
(the"ControlAgreement").TheControlAgreementprovidesthatMurrayhasgrantedNCB:"apledgeandsecurityinterestin
$400,000of[Murray's]interestin"theaccountsthatdefendantmaintainedinMurray'sname,aswellastheirassets.The
Control Agreement further "notified" Morgan Stanley of NCB's security interest in those accounts and provided that
"[d]ividendsincash,stock,stocksplitsandotherproceedsarenottobepaidtoanyoneotherthanto[NCB]untilandunless
youreceivefurtherwrittennoticefrom[NCB]."
MorganStanleyacknowledgedreceiptoftheControlAgreementonAugust13,2004.JohnEganagainsignedthisagreement.
OnOctober22,2009,NCBreceivedastatementwithrespecttooneoftheaccountscoveredbytheControlAgreementstating
thatasofJanuary31,2009,theassetsintheaccounthadavalueof$43,609.69.
StatementsconnectedtothataccountrevealthatonJune1,2006,$400,000waswithdrawnfromtheaccountbywayofa
check.Sincethatwithdrawal,thefundsintheaccountshavenevertotalmorethan$400,000,asrequiredbythepledgeand
controlagreements.NCBneverconsentedinwritingorotherwisetothistransfer.
NCBfiledtheinstantcomplaintonFebruary26,2010,raisingthreecausesofaction.
CountIallegesthatdefendantviolatedthecontrolagreementbyallowingMurraytoemptytheaccountsofless
than $400,000 without obtaining plaintiff's written permission. This action, plaintiff contends, constituted a
breachofcontract.
CountIIallegesnegligencebythedefendantinfailingtomarkrecordsindicatingNCB'ssecurityinterestinthe
accountsandallowingMurraytotransferfundswithoutobtainingplaintiff'spermission.
CountIIIclaimsdefendantcommittedabreachoffiduciarydutybynotcomplyingwithplaintiff'sinstructionsin
thecontrolagreement.
i.BreachofContract
Intermsofthealleged"controlagreement,"thePennsylvaniacodeprovidesthat"[a]purchaserhas'control'ofasecurity
entitlementif:(2)thesecuritiesintermediaryhasagreedthatitwillcomplywithentitlementordersoriginatedbythepurchaser
withoutfurtherconsentbytheentitlementholder."
Defendantagreesthatitisasecuritiesintermediarywithinthemeaningofthelaw.
An"entitlementorder"is"[a]notificationcommunicatedtoasecuritiesintermediarydirectingtransferorredemptionofa
financialassettowhichtheentitlementholderhasasecurityentitlement."
Thecomplaintallegesthatthebankprovideddefendantwithtwoagreementsrelatedtotheaccountshereinquestion.On
March27,1997,FrancesNwachuku,anAssistantVicePresidentatNCB,wroteJohnM.Egan"toconfirmcertaintermsand
restrictionspertaining"totheaccounts.JohnEgansignedtheagreementonMarch31,1997.
Egan'spurportedsignatureacknowledgedreceiptoftheletterandpromisedtomarkthedefendant'srecordstoindicatethe
plaintiff'ssecurityinterest.Defendantalsoacknowledgedthatthecollateralhadbeenkeptondefendant'sbooksinMurray's
name,thatNCB'sinterestinthepropertyhadbeennoted,thatnooneelsehadaninterestintheproperty,andthattherewereno
claimsagainstthepropertyexcepttoplaintiff.Thedefendantalsoagreed"nottoeffectanytransferoftheOwner'sinterestin
anyoftheCollateralwithoutLender'spriorwrittenconsent."Finally,"shouldwereceivefurtherwrittennoticefromLender,
wewillholdtheCollateralandalldividends,distributions,andotherproceedsrelatingtotheCollateral(whetherincash,
securitiesorotherproperty)subjecttoLender'swritteninstructions.Wewillcomplywithallwritteninstructionsoriginatedby

LenderconcerningtheCollateralwithoutfurtherconsentbytheOwner."Apartyaddedanexceptiontotheseinstructions:"will
copyallrequeststoaccountowner."
ThepartiesdisagreeoverwhetherthesewritingscreatedavalidcontrolagreementunderSection8106(d)(2).Plaintiffcontends
thatlanguageintheagreementdirectsMorganStanleytotransferpropertyfromtheaccountsatplaintiff'srequestandwithout
furtherconsentfromMurray.Assuch,plaintiffargues,theagreementobligesdefendanttocomplywithanentitlementorder
andavalidcontrolagreementexists.
Thecourtagreeswiththeplaintiff.Defendantcitestonocaselawwhichestablishesthatthewords"entitlementorder"mustbe
containedinthewritingtocreateavalidcontrolagreement,andthusthecourtrejectsthatportionofdefendant'sargument.
Second,asdemonstratedabove,bothagreementscontainlanguagewhichcreateentitlementorders.Theyallowtheplaintiffto
directatransferofpropertyintheaccounttoitselfwithoutfirstobtainingconsentfromtheaccountholder,andwhichobliges
thedefendanttocomplywithsucharequest.Thefirstagreement,forinstance,requiresthedefendantto"deliver"upto$1
millioninsecuritiestoplaintiffattheplaintiff'srequest,anddoesnotprovideanymeansforMurraytoobject.Thesecond
agreementprovidesthatdefendantmust"complywith"allofplaintiff's"writteninstructions"regardingthe"collateral"without
consent from the account holder. Thus,plaintiff alleges that the writingscreate a control agreement between the parties
pursuantto13Pa.C.S.8106(d)(2)andthecourtwilldenythemotiononthesegrounds.