Valelly v. Merrill Lynch, Pierce, Fenner & Smith Incorporated

Background

Sarah Valelly opened a Cash Management Account, a Roth individual retirement account, and a Traditional individual retirement account with Merrill Lynch in 2017. Merrill’s Retirement Asset Savings Program automatically deposited uninvested retirement-account cash into an affiliated bank. The program paid interest at different tiers based on the customer’s assets, including assets in accounts enrolled in Merrill’s Statement Link service.

Two claims remained. First, Valelly alleged that Merrill breached its Client Relationship Agreement by failing to pay a reasonable interest rate on her retirement-account assets. Second, she alleged that Merrill breached the implied promise of good faith and fair dealing and violated the Massachusetts Consumer Protection Law by failing to automatically enroll customers in the Statement Link service or affirmatively tell them that enrollment could produce a higher interest rate.

Merrill moved for summary judgment. Summary judgment is granted when the evidence shows that no genuine factual dispute requires a trial and that the moving party is entitled to judgment under the law.

Reasonable-Rate Claim

The court denied summary judgment on Valelly’s claim that Merrill failed to pay a reasonable interest rate. The parties did not dispute that a valid contract existed, that Valelly performed her obligations, or that she suffered damages if Merrill breached the contract. The disputed issue was whether Merrill’s rates were reasonable.

Merrill’s expert compared the program’s rates with rates from other brokerage sweep programs and concluded that Merrill’s rates were generally in line with the industry. Valelly challenged the comparison group and the expert’s methodology. Her expert compared Merrill’s rates with rates from online savings accounts, non-sweep money-market deposit accounts, and Merrill’s own Preferred Deposit accounts, and concluded that Merrill’s rates were generally lower.

The court held that the appropriate comparison products, the proper method for evaluating reasonableness, and the significance of the competing rate evidence were factual questions for a jury. The court also rejected Valelly’s argument that Merrill had to prove the rates were reasonable under the Employee Retirement Income Security Act. This was a breach-of-contract claim, not an Employee Retirement Income Security Act claim; at trial, Valelly would bear the burden of proving breach. At the summary-judgment stage, however, Merrill had to show that no reasonable fact finder could conclude that its rates were unreasonable, and Merrill did not meet that burden.

Statement Link Claim

The court granted summary judgment to Merrill on the statement-link claim. The account disclosures stated that customers “may elect” to enroll in the Statement Link service, explained that linked accounts could affect the customer’s asset tier and interest rate, and provided a telephone number for enrollment information. The court concluded that these statements made clear that enrollment was not automatic.

Valelly had signed the disclosures but admitted that she did not read them. She also never called Merrill to enroll in the service or ask how to enroll. The court found no evidence that Merrill’s failure to automatically enroll her, or its failure to provide additional notice, showed bad faith or constituted an unfair or deceptive practice under Massachusetts law. The court also rejected Valelly’s reliance on the small percentage of customers who used the service and on differing testimony from Merrill employees about why customers might not enroll.

Disposition and Next Steps

The court denied in part and granted in part Merrill’s motion for summary judgment. The reasonable-rate claim remained pending, while summary judgment was granted to Merrill on the statement-link claim. Because the reasonable-rate claim remained, the court directed the parties to meet and confer about a schedule for a class-certification motion and to submit a joint letter or separate proposals. The court also directed that the opinion be filed under seal temporarily and required Merrill to show cause why any part should remain sealed.