Couple Cannot Rescind Contract Over Bank’s Nazi Past

Friday, April 11, 2008

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Couple Cannot Rescind Contract Over Bank’s Nazi Past—C.A.

By STEVEN M. ELLIS, Staff Writer

A couple who allege that a bank concealed its Nazi past in order to keep their business is not entitled to rescind an agreement with the bank setting up a charitable trust or recover losses the trust suffered, the First District Court of Appeal ruled yesterday.

Affirming the judgment of Marin Superior Court Judge Lynn Duryee, Div. One ruled in an unpublished opinion that Regina and Lamonte Lawrence could not rely on Deutsche Bank National Trust Company’s alleged concealment of its past to rescind the agreement or recover losses that occurred while the bank administered the trust because they could not show that the alleged deception caused the losses.

Regina Lawrence, who is of Jewish descent, and Lamonte Lawrence, the founder of Lawrence Semiconductor, brought causes of action for “rescission and fraud in the concealment” against the bank in 2006, alleging that it deliberately failed to inform them that it had provided financial services to the Nazi regime during the time of the Holocaust in Germany.

The Lawrences had set up a trust containing assets of approximately $15 million in common stock for the benefit of a charity called the Jewish Community Federation in 1999. Bankers Trust of California was designated trustee and financial manager of trust assets, and the terms of the trust provided that the Lawrences were to receive income until their deaths, at which point the remainder of the trust corpus would be given to the federation.

However, allegedly unbeknownst to the Lawrences, Deutsche Bank had previously acquired Bankers Trust.

In 2004, Deutsche Bank resigned as trustee, and the Lawrences terminated the trust shortly thereafter. By then, the trust corpus had lost over $4 million as a result of the bank’s alleged mismanagement and overly aggressive investment strategy.

The Lawrences then brought suit in early 2006 allegedly after learning that Deutsche Bank had publicly acknowledged and taken moral responsibility for assisting the activities of the Nazi regime during World War II, including financing the construction of the Auschwitz death camp.

Claiming that bank employees intentionally concealed Deutsche Bank’s ownership of Bankers Trust from them and other Jewish customers, and that they would not have allowed the bank to administer their trust had they known of its past, the Lawrences alleged that the bank’s failure to disclose its role in the Holocaust constituted a breach of its fiduciary duty.

Explicitly relying on the case of Earl v. Saks & Co. (1951) 36 Cal.2d 602, where the California Supreme Court held that a man who had agreed to purchase a mink coat from a store for his wife for $4,000—instead of the listed price of $5,000—was entitled to rescind the contract after he discovered that his wife had entered into a secret agreement with the employees to return later and pay them the other $1,000, the Lawrences claimed that they were entitled to rescind the trust agreement and recover lost assets, management fees, interest, and punitive damages.

In Earl, the California Supreme Court had opined that “anyone who is fraudulently induced to enter into a contract is ‘injured’; his ‘interest in making a free choice and in exercising his own best judgment in making decision with respect to economic transactions and enterprises has been interfered with.”

However, Duryee, after having granted Deutsche Bank’s request to take judicial notice of widespread media reports between 1995 and 2005 pertaining to its World War II activities and its 1999 acquisition of Bankers Trust, sustained the bank’s demurrer to the charges after finding that the Lawrences had failed to show the allegedly concealed facts caused any loss or legal injury.

On appeal, Justice Douglas E. Swager wrote for the Court of Appeal to reject the application of Earl to the case and affirm Duryee’s decision.

“The problem here is that the [complaint] does not set forth how respondent’s past caused the trust to underperform,” he wrote. “While appellants allege that the trust failed to thrive due to respondent’s mismanagement and overly aggressive investment strategy, they do not allege how respondent’s ties to the former Nazi regime played a role in the trust’s poor performance.”

Swager also question the premise that business entities should be required to disclose historical facts such as those at issue to potential customers.

He wrote:

“To take a commonplace example, is it necessary for dealerships selling automobiles manufactured by Mitsubishi or Volkswagen either to disclose to every potential customer that they supplied machinery used against American forces during World War II or run the risk of having their sales contracts rescinded by buyers with relatives who perished during that War?...

“While these atrocities should be acknowledged and accounted for, we do not believe they should be used as a means of voiding otherwise valid business contracts that have no direct relationship to the historically wrongful conduct.”

Concluding that that “the burden falls on the consumer to investigate the background and values of the entities with which he or she does business,” Swager wrote:

“In this country, consumers are not ordinarily forced to do business with companies that they do not approve of. As long as their operations are conducted in a legal, nondiscriminatory manner, any business, even a business with a checkered past, is entitled to participate in economic activities.”

Presiding Justice James J. Marchiano and Justice William D. Stein joined Swager in his opinion.

Redwood City attorney Ted J. Hannig, who represented the Lawrences, was not available for comment.

However, Deutsche Bank’s counsel, John A. Sturgeon of White & Case in Los Angeles, applauded the court for affirming Duryee’s ruling that there was no causation between the allegedly concealed facts and the damages the Lawrences alleged.

The case is Lawrence v. Deutsche Bank National Trust Company, No. A117811.