146 F. Supp. 3d 438
D. Mass.2015Background
- Plaintiff Henderson is an income beneficiary of the Wesson Trust; BNY Mellon served as trustee with exclusive investment discretion and beneficiaries could not remove the trustee without court approval.
- Trustee allegedly invested trust assets primarily in BNY Mellon–affiliated (proprietary) mutual funds and other affiliated vehicles, even where non‑affiliated funds allegedly performed better or charged lower fees.
- Alleged misconduct: imprudent investing, self‑dealing (favoring proprietary funds to generate affiliate fees), failure to evaluate or divest underperforming funds, and nondisclosure of policies favoring affiliated funds.
- Plaintiff sues on behalf of a putative nationwide class asserting state‑law claims: breach of fiduciary duty (imprudent investing), unjust enrichment/restitution, and an accounting.
- Defendants moved to dismiss on SLUSA preemption grounds and argued certain BNY entities are not liable; court denied dismissal as to BNY Mellon, N.A. and BNY Mellon Trust Company, N.A., but allowed dismissal as to BNY Mellon Corporation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SLUSA preempts the state‑law class action | Henderson argues claims are garden‑variety breach of fiduciary duty, not fraud in connection with purchase/sale of covered securities | Defendants contend allegations of nondisclosure/self‑dealing are fraud "in connection with" covered securities and thus SLUSA‑preempted | Court: SLUSA does not preempt these claims; plaintiff alleges imprudence/self‑dealing by a trustee who alone controlled trades, and Troice limits preemption where only the fraudster decides the securities transaction |
| Whether allegations of nondisclosure convert breach claims into SLUSA‑covered fraud | Henderson: disclosures/omissions support breach, not securities fraud; beneficiaries lacked ability to buy/sell | Defendants: nondisclosure of conflicts surrounding purchases of covered securities amounts to fraud in connection with sales | Court: Even if framed as fraud, Troice narrows "in connection with"—where only the trustee (fraudster) is the actor in the relevant purchase/sale, SLUSA preemption fails |
| Corporate liability of BNY Mellon affiliates for trustee decisions | Henderson alleges affiliates participated and are directly liable for trust management | Defendants: parent/subsidiaries are separate; parent not liable absent direct involvement or veil piercing | Court: Complaint fails to plausibly plead direct liability or veil piercing as to BNY Mellon Corporation (dismissed); allegations (including an accounting letter) are sufficient to proceed against BNY Mellon Trust Company, N.A. |
| Pleading sufficiency under Rule 12(b)(6) | Henderson contends factual allegations meet plausibility standard for fiduciary breach and affiliate involvement | Defendants argue facts are insufficient to show fraud or corporate control/liability | Court: Claims against BNY Mellon, N.A. and BNY Mellon Trust Company, N.A. survive; claims against BNY Mellon Corporation dismissed for failure to plead direct involvement or meet veil‑piercing standard |
Key Cases Cited
- Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71 (2006) (SLUSA preemption applies where alleged fraud "coincides" with securities transactions)
- Chadbourne & Parke LLP v. Troice, 571 U.S. 377 (2014) (limits Dabit: misrepresentations are "in connection with" a covered security only if someone other than the fraudster made a buy/sell decision based on the lie)
- United States v. Bestfoods, 524 U.S. 51 (1998) (parent corporation generally not liable for subsidiary acts absent direct involvement)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (complaint must state plausible claim to survive Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for pleadings)
- Segal v. Fifth Third Bank, N.A., 581 F.3d 305 (6th Cir. 2009) (pre‑Troice case holding beneficiary trust claims preempted by SLUSA)
- Seipel v. Bank of Am., N.A., 526 F.3d 1122 (8th Cir. 2008) (pre‑Troice decision finding SLUSA preemption for trustee’s alleged conflicts in selecting nationally traded securities)