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

Background

This putative class action concerns the “sweep” feature of Merrill Edge Self-Directed Investing Accounts. The feature automatically moved uninvested cash into a Bank of America deposit account. Sarah Valelly opened a Cash Management Account, a Roth individual retirement account, and a Traditional individual retirement account at Merrill Lynch. The agreement governing the accounts included a provision requiring Merrill Lynch to pay at least a reasonable interest rate on uninvested cash in the retirement accounts.

Valelly alleges that Merrill Lynch breached that agreement by paying an unreasonable rate on swept cash. She also alleges that Merrill Lynch breached the implied covenant of good faith and fair dealing by failing to treat certain retirement accounts as linked, which allegedly would have produced a higher rate. The court had denied class certification without prejudice to refiling after resolving Merrill Lynch’s motion to exclude the expert evidence. The court later set a schedule for summary judgment and stated that Valelly could renew her class-certification motion if she defeated that motion.

The Expert Evidence and Earlier Ruling

Valelly offered the report and testimony of Dr. Micah Officer in support of class certification. Dr. Officer proposed that damages could be calculated by comparing the amount account holders actually received with the amount they should have received at a “reasonable” rate. For the reasonable-rate determination, he discussed two possible approaches: comparing rates paid by Treasury and government money market mutual funds with rates on bank deposits, and using a “pass-through” method previously used by Bank of America.

On March 21, 2023, the court granted Merrill Lynch’s motion to exclude Dr. Officer’s opinion and testimony under Federal Rule of Evidence 702 and the standards commonly called Daubert. The court found that the proposed methods lacked sufficient support from specialized knowledge or principles that would help a factfinder determine what factors a bank should consider when setting a reasonable deposit rate.

Motion for Reconsideration

Valelly moved for reconsideration. Under the standard applied by the court, reconsideration generally requires an intervening change in controlling law, newly available evidence, or a need to correct clear error or prevent manifest injustice. The court emphasized that reconsideration is not a way to relitigate old issues or present the case under new theories.

The court rejected Valelly’s argument that it had improperly considered the merits while evaluating the expert evidence. Because Merrill Lynch’s pending motion was a motion to exclude expert evidence, the court said it was required to conduct a complete admissibility inquiry. The court also rejected the argument that it should have decided class certification first and treated the exclusion motion as unnecessary. Valelly had not shown that the court clearly erred by deciding the exclusion motion before class certification.

The court likewise declined to reconsider its rejection of Dr. Officer’s proposed reasonable-rate methodologies. It stated that Valelly would have to prove both that the rate Merrill Lynch paid was unreasonable and what a reasonable rate would have been. In the court’s view, Dr. Officer’s comparison of different investment vehicles did not explain why a lower rate on a bank deposit necessarily was unreasonable, and the pass-through method assumed that Bank of America’s earlier method produced a reasonable rate without providing an expert explanation for that assumption.

The court specifically maintained its conclusion that rates paid on government money market mutual funds were not appropriate comparators for deciding whether the rate on an FDIC-insured bank deposit was reasonable. It stated that the two types of instruments could have similar risk from a depositor’s perspective but still could carry different reasonable rates. The court also distinguished Valelly’s contractual claim from a different possible claim that Merrill Lynch should have placed the cash in a money market mutual fund or another investment producing a higher return. The court noted that excluding Dr. Officer’s opinion about money market mutual funds did not prevent Valelly from pursuing her claim that the rate was unreasonable because it was below average rates paid by other FDIC-insured banks on certain cash balances.

Request for Clarification and Disposition

Valelly alternatively asked the court to clarify whether it accepted Dr. Officer’s view that government money market mutual funds were at least as secure as bank deposits and whether comparing the two types of instruments was a jury question. The court said its earlier opinion and the current discussion sufficiently explained its ruling. It therefore denied the request for clarification.

The court denied Valelly’s motion for reconsideration and denied her request for clarification. Judge Valerie Caproni directed the clerk to terminate the motion at docket entry 159. This opinion did not decide the pending class-certification or summary-judgment issues.