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

Background

Sarah Valelly opened three Merrill Edge self-directed accounts in August 2017: a Cash Management Account, a Roth Individual Retirement Account, and a Traditional Individual Retirement Account. Merrill Lynch’s sweep feature moved uninvested cash into a Bank of America money market account. Valelly alleged that Merrill Lynch did not adequately disclose the sweep feature, did not obtain her consent, and did not tell her about higher-yielding investment options.

Valelly brought claims for quasi contract, breach of contract, breach of suitability standards, negligence, and violation of the Massachusetts Consumer Protection Law. She asserted the claims on behalf of herself and three proposed classes. Merrill Lynch moved to dismiss the complaint for failure to state a claim.

Binding online agreement

The court held that Valelly entered into a binding “clickwrap” agreement. The account-opening process directed her to account agreements and disclosures through clearly identified hyperlinks, included twelve numbered attestations in a scrollable text box, and required her to check a box stating that she agreed to the terms and conditions. One attestation stated that she affirmatively consented to the sweep program under Section 13 of the Client Relationship Agreement.

The court concluded that the terms were reasonably conspicuous even though some documents were available through hyperlinks and some text required scrolling. The court also held that a user’s failure to read the terms does not make an otherwise enforceable clickwrap agreement invalid.

Claims

The court dismissed the quasi-contract claim because a valid contract governed the subject matter of the dispute. Under the law applied by the court, quasi-contract recovery is unavailable when an express agreement covers the relevant subject.

The breach-of-contract claim concerned the Client Relationship Agreement’s promise that retirement-account assets would receive at least a “reasonable rate” of interest. The court held that Valelly did not allege facts showing that the rate paid on cash in a money market deposit account was unreasonable. The rates cited in the complaint involved different types of accounts, including money market mutual funds.

The court dismissed the breach-of-suitability-standards claim because the cited New York Stock Exchange, Securities and Exchange Commission, and Financial Industry Regulatory Authority rules do not provide a private right to sue. The negligence claim also failed because it was derivative and duplicative of the suitability claim. Separately, the court held that Valelly had not adequately alleged a common-law duty to recommend suitable investments for self-directed accounts, whose agreement stated that Merrill Lynch would not provide investment advice or recommendations.

The court dismissed the Massachusetts Consumer Protection Law claim because it was entirely based on the unsuccessful quasi-contract, contract, and suitability theories.

Disposition

Judge Caproni granted Merrill Lynch’s motion to dismiss. The complaint was dismissed without prejudice. Valelly could move for leave to amend Count Three by June 29, 2020, with a redlined proposed amended complaint. The court denied leave to amend the other counts as futile and directed the clerk to close the motion at docket entry 16.