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Henderson v. Bank of New York Mellon Corp.

United States District Court, D. Massachusetts

November 23, 2015

ASHBY HENDERSON, Individually and on Behalf of Others Similarly Situated, Plaintiff,
v.
THE BANK OF NEW YORK MELLON CORPORATION, et al., Defendants

          For Ashby Henderson, Individually and on Behalf of All Others Similarly Situated, Plaintiff: Aron K Liang, Jack W Lee, LEAD ATTORNEYS, PRO HAC VICE, Minami Tamaki, LLP, San Francisco, CA; Derek G. Howard, LEAD ATTORNEY, PRO HAC VICE, Howard Law Firm, Mill Valley, CA; Gregory Y. Porter, LEAD ATTORNEY, PRO HAC VICE, Bailey & Glasser LLP, Washington, DC; John J. Roddy, LEAD ATTORNEY, Bailey & Glasser LLP, Boston, MA; J. Brian McTigue, Regina M. Markey, PRO HAC VICE, McTigue Law, LLP, Washington, DC.

         For The Bank of New York Mellon Corporation, The Bank of New York Mellon Trust Company, National Association, BNY Mellon, National Association, Defendants: K. Issac deVyver, LEAD ATTORNEY, PRO HAC VICE, Reed Smith LLP, Pittsburgh, PA; Nellie E. Hestin, LEAD ATTORNEY, Reed Smith LLP, Pittsburgh, PA; Mary J. Hackett, Melissa M. Taylor, PRO HAC VICE, Reed Smith LLP, Pittsburgh, PA.

         MEMORANDUM AND ORDER

         Patti B. Saris, Chief United States District Judge.

         INTRODUCTION

         In this proposed nationwide class action, plaintiff Ashby Henderson, a trust beneficiary, alleges that the defendants, the Bank of New York Mellon, N.A. (BNY Mellon) and associated entities,[1] breached their fiduciary duty to thousands of beneficiaries of trusts for which BNY Mellon serves as trustee by imprudently investing the trust assets in poorly performing proprietary financial instruments. The state-law causes of action are breach of fiduciary duty by failing to invest prudently (Count 1), allegations of unjust enrichment as a result of management fees and a request for restitution (Count 2), and a request for an accounting (Count 3).

         The defendants have moved to dismiss on the ground that the claims are precluded by the Securities Litigation Uniform Standards Act (SLUSA), 15 U.S.C. § 77p. BNY Mellon Trust Company, N.A. and BNY Mellon Corporation also contend that they are separate corporate entities that are not directly or indirectly liable to the plaintiff. After hearing, the Court concludes that the state-law claims are not preempted and the defendants' motion to dismiss Henderson's claims against BNY Mellon, N.A. (Docket No. 23) is DENIED. The motion to dismiss the plaintiff's claims against BNY Mellon Trust Company, N.A. and BNY Mellon Corporation (Docket No. 25) is ALLOWED as to BNY Mellon Corporation.

         FACTUAL BACKGROUND

         The complaint alleges the following facts which are taken as true for the purposes of a motion to dismiss. Many of the facts are disputed.

         The plaintiff is an income beneficiary of the Wesson Trust, managed by BNY Mellon as trustee.[2] The trustee had complete investment discretion and control over the trust assets, and the beneficiaries were unable to influence the investment decisions or remove the trustee without court intervention.

         BNY Mellon invested the plaintiff's trust assets almost exclusively in proprietary mutual funds such as the BNY Mellon Municipal Opportunities Fund, managed by BNY Mellon Fund Advisors; the Dreyfus High Yield Fund, managed by a BNY Mellon subsidiary; and the TCW Emerging Markets Income Fund, managed by a company with a longstanding relationship with BNY Mellon. These investment decisions were motivated by BNY Mellon's own financial benefit rather than the best interests of the trust beneficiaries.

         The trustee invested in proprietary funds even if non-affiliated funds were better performing or lower cost. Some of these proprietary funds were ranked one or two stars out of five by Morningstar, a well-respected fund rating company. The trustee failed to move assets from investments when they were no longer prudent, and discouraged staff from changing the investments, even if they were of inferior quality to non-related investments, performed worse, or had higher costs. The Bank concealed its self-dealing by failing to disclose its policies and practices of investing in securities issued by mutual funds, hedge funds, and other investment vehicles that pay fees to its affiliates for investment management and other services.

         In contrast to these investments in poorly performing funds, BNY Mellon approved non-proprietary investments for their brokerage customers, who could veto investment decisions or remove their money if dissatisfied with the defendants' investment choices.

         DISCUSSION

         I. Rule 12(b)(6) ...


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