Mehlman v. Ameriprise Financial, Inc.

Background

This is a putative (proposed) class action brought by five named plaintiffs — Susanne Mehlman, Joy Hultman, Mindy Bender, Robert Sullivan, and Frank R. Tripson — against Ameriprise Financial, Inc. (AFI), Ameriprise Financial Services, LLC (AFS), and American Enterprise Investment Services, Inc. (AEIS) (collectively, Ameriprise). Plaintiffs held brokerage accounts (including Individual Retirement Accounts), investment advisory accounts, or both, with Ameriprise since at least July 29, 2018.

The dispute centers on Ameriprise's Bank Sweep Programs, which automatically transfer clients' uninvested cash daily into interest-bearing deposit accounts insured by the Federal Deposit Insurance Corporation (FDIC). Ameriprise offers two primary programs: the Ameriprise Insured Money Market Account (AIMMA), available to most accounts, and the Ameriprise Bank Insured Sweep Account (ABISA), available only for certain investment advisory accounts. In both programs, client cash is swept primarily to Ameriprise Bank, FSB, a wholly owned subsidiary of AFI. The aggregate cash sweep balance at Ameriprise Bank was approximately $21.5 billion as of June 2024, with average client balances ranging from $6,000 to $8,000.

Plaintiffs allege that Ameriprise set the interest rates paid on swept cash unreasonably low — between 0.25% and 0.30% — while comparable brokerages that swept cash to unaffiliated banks paid rates ranging from 1.58% to 5% during the 2022–2024 period. They allege Ameriprise thereby earned outsized profits at its clients' expense. Notably, during a 2023 Securities and Exchange Commission investigation into industry-wide cash sweep practices, Ameriprise temporarily removed contractual language authorizing it to invest clients' cash in accounts bearing a "reasonable rate of interest," then apparently restored the language after this lawsuit was filed.

Contracts at Issue

Two sets of contracts govern the parties' relationship. The Brokerage Contract (comprising the Ameriprise Brokerage Client Agreement, Brokerage Disclosures, and account applications) contains an arbitration clause requiring individual arbitration of disputes, but expressly exempts class actions from that requirement. The Brokerage Contract states that interest rates on deposit accounts "will be tiered and will vary based upon prevailing economic and business conditions" and discloses that rates may be higher or lower than those available elsewhere.

The Advisory Agreements (the Custom Advisory Relationship Agreement and Select Separate Account Agreement) govern investment advisory accounts. Their arbitration clause is broader and more restrictive: it requires any controversy or claim "arising out of the investment advisory services offered or delivered pursuant to" the agreements to be resolved solely by individual arbitration, with no class-action option. The Advisory Agreements also authorize Ameriprise to invest clients' swept cash "in deposits of itself or its affiliates, including Ameriprise Bank, FSB, that bear a reasonable rate of interest, determined solely by" Ameriprise.

Motion to Compel Arbitration

Ameriprise moved to compel arbitration of all claims relating to investment advisory services under the Advisory Agreements' arbitration clause. The validity of the arbitration clause was undisputed; the only question was which claims fell within its scope.

Judge Tunheim applied the standard that arbitration clauses using "arising out of" language are broad, and that any doubt should be resolved in favor of arbitration. The court found that the Amended Complaint repeatedly referenced Ameriprise's investment advisory role and that, given this ambiguity, the court could not say with certainty that the arbitration clause did not cover the asserted disputes. The court therefore held that claims relating to Ameriprise's investment advisory services must be submitted to individual arbitration.

The court further held that the arbitration obligation extends to AFI and AEIS even though they did not sign the Advisory Agreements (i.e., they are nonsignatories), because of the interchangeable relationship among the three Ameriprise entities and under the principle that a signatory cannot rely on a contract against a nonsignatory without submitting to the contract's arbitration clause.

The motion to compel arbitration was granted. Plaintiffs were given leave to amend to remove facts and claims arising out of investment advisory services.

Motion to Dismiss — Rule 12(b)(6) Standard

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests whether the complaint states a legally sufficient claim. The court accepts all factual allegations as true, draws reasonable inferences in the plaintiff's favor, and asks whether the claim is "plausible on its face." Legal conclusions dressed as facts are not accepted.

Claims Against AFI Specifically

Ameriprise argued that AFI, as the parent company, played no direct role in the alleged misconduct and should be dismissed. Judge Tunheim disagreed. Under the doctrine of respondeat superior (an employer's legal responsibility for its employees' and agents' actions), a parent can be liable for a subsidiary's conduct if there is a sufficient showing of control, improper conduct, fraud, or bad faith. The Amended Complaint alleged that AFI conducts its business primarily through AFS and AEIS, that those entities are AFI's agents, that AFI's CFO made statements about AFI's control of and financial benefits from the Bank Sweep Programs, and that the relevant contract documents bear AFI's logo and copyright. The court found these allegations sufficient to raise a fact question about AFI's control, making dismissal inappropriate at this stage. The motion as to AFI was denied.

Breach of Contract (Counts 1 and 2)

Count 1 (all plaintiffs) alleges that Ameriprise failed to set and pay interest rates that properly account for prevailing economic, market, and business conditions as the Brokerage Contract requires. Ameriprise argued it had no obligation to track any particular market rate. The court held that the Brokerage Contract's language requiring rates to "vary based upon prevailing economic and business conditions" plausibly imposes an obligation to actually consider those conditions — not simply maintain flat rates. Disclosures that rates might differ from other options did not eliminate this potential obligation. Count 1 survived.

Count 2 (subclass of IRA and investment advisory account holders) alleges that the Advisory Agreements required Ameriprise to invest swept cash in accounts bearing a "reasonable rate of interest." The court found this language plausibly creates a contractual duty to secure reasonable rates. Plaintiffs' comparisons — showing Ameriprise's rates of 0.25%–0.30% against other brokerages' 1.58%–5.00% rates — were found sufficient to plausibly allege unreasonableness, even if discovery might later show the comparisons are imperfect. Reasonableness under Minnesota law is a question of fact not resolvable at this stage. The court noted that to the extent Count 2 rests on investment advisory services, those claims must go to arbitration. Count 2 otherwise survived.

The motion to dismiss Counts 1 and 2 was denied.

Breach of the Implied Covenant of Good Faith and Fair Dealing (Count 3)

Minnesota law implies a covenant of good faith and fair dealing in every contract, prohibiting a party from unjustifiably hindering the other's ability to receive the benefits of the bargain. It cannot be used to add obligations beyond what the contract already provides.

Plaintiffs alleged Ameriprise abused its discretion over rate-setting to benefit itself at clients' expense. The court found this does not improperly expand the contract because the contracts themselves already contemplate that rates will reflect market conditions and be reasonable — Ameriprise did not have unfettered discretion to set any rate it chose. The court further found that plaintiffs plausibly alleged bad faith: the claim that Ameriprise deliberately kept rates artificially low to funnel profits to itself, despite contractual obligations to the contrary, goes beyond an honest mistake and plausibly reflects an ulterior motive. The motion to dismiss Count 3 was denied.

Breach of Fiduciary Duty (Count 4)

A fiduciary duty requires a relationship in which one party reposes trust and confidence in another who holds superior knowledge and authority. Minnesota recognizes both per se fiduciary relationships (such as attorney-client) and de facto fiduciary relationships arising from circumstances.

Plaintiffs argued a fiduciary relationship existed because Ameriprise acted as their agent and had discretionary control over swept cash. Judge Tunheim rejected this. Under Minnesota law, a standard broker-dealer relationship is not sufficient to create a fiduciary duty; plaintiffs must show something more than the typical broker-customer contract. The court found no adequate allegation of a special relationship beyond the ordinary brokerage relationship. Moreover, Ameriprise's contracts explicitly disclosed that Ameriprise does not act as a fiduciary in brokerage and commission-based contexts, and Ameriprise disclosed that its financial interests in the Bank Sweep Programs diverged from clients' interests. A fiduciary relationship cannot be established where the plaintiff should have known the defendant was representing an adverse interest.

The court also noted that to the extent the fiduciary duty claim rested on the investment advisory relationship, that claim must go to arbitration in any event.

The motion to dismiss Count 4 was granted with prejudice.

Unjust Enrichment (Count 5)

Unjust enrichment (an equitable claim meaning the defendant received a benefit it would be unjust to keep without paying for it) is generally not available when there is an adequate legal remedy. However, under federal pleading rules, a plaintiff may plead unjust enrichment as an alternative to contract claims, and may maintain both until it is conclusively determined that a valid, enforceable contract governs the dispute.

Plaintiffs explicitly brought the unjust enrichment claim in the alternative. The court found that was permissible at this stage. The court also found the substance of the claim sufficient: plaintiffs plausibly alleged that Ameriprise accepted clients' swept cash, owed obligations regarding how it was invested, and instead prioritized its own profits by paying unreasonably low rates — a scenario that could be morally wrong and unjust even if Ameriprise disclosed it profits from the programs. The motion to dismiss Count 5 was denied.

Summary of Dispositions

- Motion to Compel Arbitration: Granted. Claims arising out of investment advisory services must be submitted to individual arbitration. Plaintiffs may amend to remove those claims from the lawsuit. - Motion to Dismiss Count 4 (Breach of Fiduciary Duty): Granted with prejudice. - Motion to Dismiss Counts 1, 2, 3, and 5 (Breach of Contract, Implied Covenant of Good Faith, Unjust Enrichment): Denied.