Appert v. Morgan Stanley Dean Witter, Inc.
2012 U.S. App. LEXIS 4834
| 7th Cir. | 2012Background
- Morgan Stanley charged an HPI fee of $2.35 per transaction (later raised to $5.00 and $5.25) under the Client Account Agreement.
- The HPI fee allegedly covered handling, postage, and insurance for sending trade confirmations and was not tied to actual costs.
- Appert alleged the HPI fee exceeded Morgan Stanley's costs and wasn't reasonably related to costs or disclosed costs.
- The district court dismissed the initial and amended complaints; Appert amended to add unjust enrichment.
- The parties litigated under CAFA for jurisdiction and SLUSA for removal; court addressed jurisdiction before merits.
- New York law governs contract interpretation and the unjust enrichment claim was argued but found deficient in light of the contract.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SLUSA bars the claim | Plaintiff contends misstatements tied to a security were not material. | SLUSA precludes state-law securities claims; misrepresentation about fees is a securities misstatement. | SLUSA does not apply to this suit. |
| Whether CAFA provides jurisdiction and the securities exception applies | CAFA jurisdiction is adequate; securities exception not applicable. | CAFA jurisdiction proven; §1332(d)(9) exception argued but not satisfied. | CAFA jurisdiction exists; §1332(d)(9) not satisfied to defeat removal. |
| Whether the HPI fee breaches the Agreement by not relating to costs | HPI fee bears no relationship to actual costs. | Agreement sets a fixed fee not required to reflect costs; no breach." | Amended complaint fails to state a breach of contract. |
| Whether Appert’s unjust enrichment claim survives | There is a gap between fee and costs, suggesting unjust enrichment. | Existence of a valid contract precludes quasi-contract claims. | Unjust enrichment claim dismissed as precluded by contract. |
| Whether the fee relates to a “security” under CAFA §1332(d)(9) | Alleged mispricing relates to securities and may fall under CAFA carve-out. | Claim does not relate to terms of a security; does not fall within CAFA(d)(9)(C) or (A). | Fee does not concern a security; CAFA exception not triggered. |
Key Cases Cited
- Feinman v. Dean Witter Reynolds, Inc., 84 F.3d 539 (2d Cir.1996) (materiality of misstatements in securities trading claims)
- Cardarelli v. Estate of Pew, 527 F.3d 25 (2d Cir.2008) (§1332(d)(9) aims to limit jurisdiction over security terms disputes)
- Greenwich Fin. Servs., LLC v. Corwin, 603 F.3d 23 (2d Cir.2010) (subsection (d)(9) applies to suits enforcing terms of instruments creating/defining securities)
- Katz v. Gerardi, 552 F.3d 558 (7th Cir.2009) (treats securities-related CAFA exclusions as exceptions to removal)
- Dabit v. Merrill Lynch, Pierce, Fenner & Smith, 547 U.S. 71 (2006) (SLUSA preemption framework for fraud in securities actions)
- Lincoln Nat. Life Ins. Co. v. Bezich, 610 F.3d 448 (7th Cir.2010) (CAFA securities exception applied to particular contexts)
- Feinman v. Dean Witter Reynolds, Inc., 84 F.3d 539 (2d Cir.1996) (materiality in broker fee labeling cases)