In Re Wells Fargo Cash Sweep Litigation

Background

The plaintiffs challenged Wells Fargo’s cash-sweep program, alleging that Wells Fargo paid interest rates of about 0.01% to 0.14% from 2021 through 2024 even though comparable firms allegedly paid substantially higher rates. The complaint also alleged that Wells Fargo breached contractual promises, violated the implied covenant of good faith and fair dealing, breached fiduciary duties, and was unjustly enriched.

Statute of Limitations and Waiver

The court held that the claims were not barred by New York’s six-year statute of limitations. The contracts’ choice-of-law provision selected New York law, including New York’s limitations period. The court also rejected Wells Fargo’s argument that the plaintiffs waived their contract claims by opening their accounts years earlier and not objecting to the interest rates. The complaint did not show that the plaintiffs knowingly, voluntarily, and intentionally abandoned their rights.

Claims That Remain

The court held that the plaintiffs adequately pleaded a breach-of-contract claim based on a promise to pay a reasonable interest rate. The court concluded that a consumer could interpret statements in the relevant disclosures and agreements as promising a reasonable rate. The alleged comparison with other firms’ rates, the increase in the federal funds rate, Wells Fargo’s allegedly limited response, and Wells Fargo’s later rate increase made the alleged breach plausible at the motion-to-dismiss stage.

The court also allowed the claim for breach of the implied covenant of good faith and fair dealing to continue because the parties disputed the meaning of the contract terms concerning a reasonable interest rate. The court allowed the breach-of-fiduciary-duty claim for advisory clients to continue, finding that the complaint adequately alleged both a contractual fiduciary duty and a breach based on placing cash in the sweep program instead of recommending a better investment vehicle.

Claims and Defendants Dismissed

The court dismissed the breach-of-contract theory based on Wells Fargo’s alleged violation of a promise not to charge excessive commissions and other fees. The cited provision referred to fees that were not clearly connected to the cash-sweep program.

The court dismissed the breach-of-fiduciary-duty claim for non-advisory clients. The contracts did not expressly create a fiduciary relationship for those clients, and the complaint did not adequately allege that Wells Fargo provided investment advice or had discretionary authority to move customers’ cash. The court also concluded that a disclosure acknowledging Wells Fargo’s incentive to recommend more profitable sweep vehicles did not itself show that Wells Fargo made such recommendations.

The court dismissed the unjust-enrichment claim because the parties agreed that valid, enforceable written contracts covered their relationship, even though they disputed the meaning of some contract terms.

The court dismissed Wells Fargo & Company and FiNet. The order states that WFC was the parent company and that the complaint did not plead enough facts for liability under an alter-ego or agency theory. It dismissed FiNet for lack of standing because no plaintiff had an account with FiNet or alleged a relationship with it. One paragraph refers to the parent company as “WEC,” creating an apparent inconsistency in the order’s initials.

Disposition

The motion to dismiss was granted in part and denied in part. The dismissed claims and defendants were dismissed with leave to amend, except for the unjust-enrichment claim, which was dismissed without leave to amend. Any amended complaint was due within 21 days of the order. The court also stated that, if discovery on the surviving claims later produced supporting evidence, the plaintiffs could seek permission to add back claims then being dismissed. The court granted Wells Fargo’s request for judicial notice as to Exhibits 1–14 and 22–24 and the plaintiffs’ request as to Exhibits A, B, and E, but denied Wells Fargo’s request concerning Exhibits 15–21.