Kutak Rock attorney Gil Boyce won a significant summary judgment for a major financial services client and one of its financial advisers who were accused of providing inaccurate advice to three annuity beneficiaries about their disbursement options.
In Berkenfeld et al v. Lenet et al, decided on January 4, 2018 in the U.S. District Court for the District of Maryland, Judge Paula Xinis stated that while the financial adviser provided inaccurate information regarding annuity distributions, he instructed the plaintiffs to obtain independent tax advice before making a distribution election. Judge Xinis found that although the plaintiffs had previous experience with annuity distributions, they did not investigate further regarding distribution options, nor did they seek advice from a tax professional before taking the annuity distributions. Additionally, the signed annuity distribution forms had other distribution options available. Therefore, the loss of approximately $300,000 in tax liabilities was due to the plaintiffs’ contributory negligence, defined as the “failure to observe ordinary care for one’s own safety.” Maryland is one of only five jurisdictions in the United States that recognizes contributory negligence as a defense which bars recovery for plaintiffs.
The plaintiffs argued that the question of contributory negligence goes to a jury, but in this case the evidence, as well as the law, were so clear, the court granted summary judgment.
The court wrote, “No reasonable finder of fact could ignore that plaintiffs’ own dereliction in failing to read the relevant forms and seek advice on the tax implications of their decisions contributed to their losses. Accordingly, plaintiffs cannot recover from [the financial adviser] as a matter of law.”
Though brokers may know there are multiple options available for annuities, they may not know all of the tax implications. This decision highlights the importance of obtaining financial advice from both a money manager and a separate tax professional.