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Plaintiffs Secure Significant Early Victory in Class Action Against The Bank of New York Mellon Corp. and its Affiliates in Light of the District Court Rendering a Decision Largely Denying their Motion to Dismiss Claims Stemming from their Alleged Breach of Wealth Management Agreements and Deceptive Bank Practices Involving Discretionary Client Accounts

CHICAGO – On June 7, 2021, Chief Magistrate Judge Eddy of the U.S. District Court for the Western District of Pennsylvania, largely denied the motion to dismiss the class action against Bank of New York Mellon Corp. (“BNY Corp”) and its wholly-owned subsidiary, BNY Mellon, N.A. (“BNY Mellon”) (collectively, “BNY”).  The class action alleges that BNY, among other things, committed multiple breaches of client agreements by directing millions of dollars of their wealth management clients’ funds into conflicted, underperforming investment vehicles and prioritizing their own financial interests over those of these clients.  The lawsuit seeks to recover hundreds of millions of dollars in advisory and investment management fees that plaintiffs and other class members paid to BNY Mellon while it engaged in the allegedly wrongful conduct, as well as other damages authorized by law. 

Plaintiffs’ co-lead counsel in this case, Bruce Bernstein of DiCello Levitt Gutzler LLC, stated that:  “[w]e are pleased that the Court largely sustained Plaintiffs’ state law claims, and we’re looking forward to continuing to seek redress on behalf of BNY discretionary account customers, who we believe incurred losses of hundreds of millions of dollars as a result of the alleged misconduct set forth in Plaintiffs’ complaint.”    

Notably, the court rejected BNY’s contention that the class action complaint should be dismissed because it is preempted by the Securities Litigation Uniform Standards Act (“SLUSA”).  In doing so, the court looked to Third Circuit precedent in ruling that the alleged misrepresentations at issue sound in breach of contract and breach of fiduciary duty, rather than “material misrepresentations about the securities transactions.”  Accordingly, in its decision, the court concluded that BNY had failed to satisfy the “in connection with” element that is necessary for SLUSA preemption.

In response to this aspect of the court’s decision, Plaintiffs’ co-lead counsel, Josh Gunnemann of Councill, Gunnemann & Chally, commented:  “[w]e are pleased that the court confirmed what we believe is the main point of this case:  Banks cannot escape class liability for their alleged breaches of quintessential state law claims by, what we believe is, a mischaracterization of them as falling under the federal securities laws.”

In sustaining Plaintiffs’ breach of contract claims, the court held that, at this preliminary state of the proceedings, Plaintiffs are entitled to conduct discovery to determine whether the breach of contract claims are viable against both BNY Corp. (the parent company) and BNY Mellon (the subsidiary).  The court also ruled that Plaintiffs had satisfied the pleading requirements by alleging that BNY had breached the subject agreements by, among other thigs, purchasing affiliated funds that “generated secret, self-dealing payments” and placing “substantially all of Plaintiffs’ assets in these underperforming affiliated funds.”

The court also sustained Plaintiffs’ consumer protection law claim (filed pursuant to Pennsylvania’s Unfair Trade Practices Consumer Protection Law), which seeks to protect the public from unfair or deceptive business practices.   Should Plaintiffs ultimately prevail on such claims, the court, in it its discretion, may award up to three times the actual damages incurred.

While the court dismissed Plaintiffs’ breach of fiduciary duty and negligence claims, it did so without prejudice, thereby allowing Plaintiffs to amend the complaint to address the issues cited in the court’s decision.   Plaintiffs have until June 28, 2021, to file an amended pleading.

The case is Walden v. The Bank of New York Mellon Corporation and BNY Mellon, N.A., Case No. 2:20-cv-01972, pending in the United States District Court for the Western District of Pennsylvania.  A copy of the decision is available here.