Estate of Bernard J. Sherlip v. Morgan Stanley

Background

The plaintiffs allege that Morgan Stanley and Morgan Stanley Smith Barney LLC paid unreasonably low interest rates on clients’ uninvested cash held through Morgan Stanley’s Bank Deposit Program, a “cash sweep” program that automatically transfers cash into interest-bearing accounts at banks affiliated with Morgan Stanley. The plaintiffs assert claims involving contracts, fiduciary duties, and implied contractual obligations. The case is a putative class action, meaning that the plaintiffs had proposed to represent a larger group whose claims are similar, but the court had not yet decided whether to certify a class.

After the court consolidated this case with a separate action brought by Safron Capital Corp., it directed the competing law firms to seek appointment as interim class counsel. Robbins Geller Rudman & Dowd LLP, which represents Safron, moved for appointment. Bernstein Litowitz Berger & Grossmann LLP, Berger Montague PC, and Williams Dirks Dameron LLC, collectively called the Sherlip-Barrett Group in the opinion, cross-moved on behalf of the Estate of Bernard J. Sherlip and the Barrett Living Trust. The court had declined to consolidate a third related action involving E*TRADE’s Bank Deposit Program.

Legal standard

Under Federal Rule of Civil Procedure 23(g)(3), a court may appoint interim class counsel before deciding whether to certify a class. The court considered the factors generally used to assess class counsel: the work each group had done to identify and investigate possible claims; its experience with class actions, complex litigation, and the relevant types of claims; its knowledge of the applicable law; and the resources it would commit. The court could also consider any other matter relevant to the lawyers’ ability to fairly and adequately represent the putative class.

Court’s analysis

The court found that the Sherlip-Barrett Group had performed the stronger investigation. Robbins Geller generally reported examining Morgan Stanley’s sweep program and researching industry practices, relationships, and agreements. The Sherlip-Barrett Group identified more specific work, including interviews with nine former Morgan Stanley employees and consultations with former Securities and Exchange Commission officials.

The court also compared the complaints filed by the two groups. It noted that Safron’s complaint supported its claim about Morgan Stanley’s low interest rates by citing rates from three competitors. By contrast, the amended complaint filed by the Sherlip-Barrett Group used an index covering 300 competitors and analyzed specific data. The court considered that broader industry analysis particularly valuable.

The court viewed Robbins Geller’s efforts to centralize numerous cash-sweep cases in one federal proceeding less favorably. The Judicial Panel on Multidistrict Litigation had denied that request, finding only superficial commonality among cases involving different programs, contractual terms, rates, fees, financial instruments, customer types, and disclosures. The court concluded that Robbins Geller’s effort had caused further delay rather than improving efficiency.

The court found no meaningful difference between the groups regarding experience, knowledge, or resources. It described both as qualified, well-funded, and experienced in significant class actions, with each having more than 200 attorneys and committing substantial resources to the case. The court was not persuaded that Robbins Geller’s decision to plead additional possible claims showed superior legal ability, particularly because the Sherlip-Barrett Group gave professional explanations for not asserting those claims.

The court also rejected Robbins Geller’s arguments that the Sherlip-Barrett Group’s three-firm structure would necessarily create duplication or inefficiency. Robbins Geller presented no evidence that a three-firm arrangement was inherently problematic, and the Sherlip-Barrett Group identified prior successful collaboration and procedures for working efficiently. The court stated that it could address any actual duplication later if the plaintiffs prevailed and sought attorneys’ fees.

Finally, the court rejected Robbins Geller’s argument that Safron’s claimed size and sophistication made it better positioned to pursue a long-term strategy. The court found that argument speculative because Robbins Geller had not provided evidence comparing the plaintiffs’ losses. The court also viewed Robbins Geller’s filing of related cases after earlier similar cases had already been filed, and its unsuccessful consolidation efforts, as evidence against its claimed efficiency advantage.

Ruling and effect

Judge Valerie Caproni granted the Sherlip-Barrett Group’s motion for appointment as interim class counsel and denied Robbins Geller’s motion. The Clerk was directed to terminate the two open motions. The plaintiffs were given until August 15, 2025, to file a Second Amended Complaint incorporating Safron’s allegations, and defendants were given until September 12, 2025, to answer or otherwise respond. The opinion selected interim counsel but did not decide the merits of the plaintiffs’ claims against Morgan Stanley.