Valelly v. Lynch

• Decision Date: 03 June 2020
• Docket Number: 19-CV-7998 (VEC)
• Citation: 464 F.Supp.3d 634
• Parties: Sarah VALELLY, on behalf of herself, individually, and on behalf of all others similarly-situated, Plaintiff, v. MERRILL LYNCH, PIERCE, FENNER & SMITH INC., Defendant.
• Court: U.S. District Court — Southern District of New York

464 F.Supp.3d 634

Sarah VALELLY, on behalf of herself, individually, and on behalf of all others similarly-situated, Plaintiff,

v.MERRILL LYNCH, PIERCE, FENNER & SMITH INC., Defendant.

19-CV-7998 (VEC)

United States District Court, S.D. New York.

Signed June 3, 2020

Adam Joseph Blander, Robert Craig Finkel, Wolf Popper LLP, New York, NY, for Plaintiff.

Lara Samet Buchwald, Paul Steel Mishkin, Alexa B. Lutchen, Davis Polk & Wardwell LLP, Rebecca L. Martin, Fried, Frank, Harris, Shriver & Jacobson LLP, New York, NY, for Defendant.

OPINION AND ORDER

VALERIE CAPRONI, United States District Judge:

This case involves the "sweep" feature of three Merrill Edge Self-Directed Investing Accounts owned by Plaintiff. The sweep feature allowed Defendant to sweep Plaintiff's uninvested cash into a Bank of America money market account. Plaintiff alleges that Defendant failed to adequately disclose the sweep feature of her three accounts, did not obtain her consent to the sweep program, and failed to inform her of higher-yielding investment options for her cash. Plaintiff asserts claims for quasi contract, breach of contract, breach of suitability standards, and breach of the Massachusetts Consumer Protection Law on behalf of herself and three putative classes. Defendant moves to dismiss the complaint in its entirety for failure to state a claim. Dkt. 16. For the following reasons, Defendant's motion to dismiss is GRANTED.

BACKGROUND

In August 2017, Plaintiff Sarah Valelly opened three self-directed accounts at Merrill Lynch: (i) a Cash Management Account ("CMA"); (ii) a Roth Individual Retirement Account ("Roth IRA"); and (iii) a Traditional Individual Retirement Account ("Traditional IRA"). Complaint ("Compl."), Dkt. 1 ¶¶ 24, 43, 108-09. These accounts are "self-directed" accounts, designed for investors "who wish to make their own investment choices in a [ ] brokerage account." Mishkin Declaration, Dkt. 18 ("Mishkin Decl."), Ex. A § 2. The Client Relationship Agreement ("CRA"), which governs all three accounts, indicated that Defendant would not provide any "investment advice, including any recommendations, or offer any opinion regarding the suitability of any security, order, transaction, or strategy in a [Merrill Edge] account." Id. ; see also Compl. ¶ 37.

Plaintiff used an iPad, provided by Defendant, to complete the account-opening process for each of her three accounts. Id. ¶¶ 43-44, 108. The first several steps of the process required Plaintiff to enter basic personal, employment, and financial information. See Mishkin Decl., Ex. E at 9-15. The final step, which is most relevant to the pending motion, included three pages entitled "Terms & Conditions." Id. at 15-17.

The first page of Defendant's Terms & Conditions instructed Plaintiff to review the Electronic Communications Disclosure, which allows Defendant to provide subsequent disclosures and communications electronically. Id. at 15; Compl. ¶¶ 50-51. The page included a blue hyperlink prompting Plaintiff to "Download [the] Electronic Communications Disclosure (PDF)" as well as a text window displaying the Disclosure. Id. The text window included a scroll bar on the right-hand side, indicating that Plaintiff should scroll down for the complete agreement. Id. At the bottom of the page, before moving on to the next step, Plaintiff was required to click a box indicating that she had reviewed and consented to electronic disclosure. Id. The second page of the Terms & Conditions was a Tax Certification Form; Plaintiff was required to certify that the four tax certification statements displayed in the text box were accurate. Id. at 16; Compl. ¶ 53.

The third page of Defendant's Terms & Conditions instructed Plaintiff to "review important account terms, disclosures, [ ] notices and account attestations." Mishkin Decl., Ex. E at 17; Compl. ¶¶ 54-56. The page directed Plaintiff to "[s]elect the links to review each item, or print and save copies for your records" and stated that "[t]hese documents apply to your new account." Mishkin Decl., Ex. E at 17 (emphasis in original). Directly below those instructions was a heading entitled "Brokerage Account Documents," followed by blue hyperlinks directing Plaintiff to PDFs of the CRA, the Cash Management Account Disclosures and Account Agreement, the Merrill Edge Self-Directed Terms of Service, and a Mutual Fund Disclosure Document. Id. There was also a hyperlink prompting Plaintiff to download all of the documents at once. Id. The page indicated that although the CRA and the Terms of Service are the "general agreements governing the Merrill Edge Self-Directed Investing services," users are also "subject to additional agreements and disclosures that cover other products, services or account features for which [they] may be enrolled." Id.

Finally, the page included a text box with twelve, individually numbered additional attestations, instructing Plaintiff in boldfaced type that her signature would manifest agreement to each of the terms. Id. The text box had a scroll bar on the right-hand side indicating that users should scroll down to read all twelve terms. Id. ; Compl. ¶ 68. Paragraph twelve of the text box stated that Plaintiff "affirmatively consent[s] to having [her] available cash balances deposited or invested through the Sweep Program in accordance with Section 13 of the Merrill Edge Self-Directed Investing Client Relationship Agreement." Compl. ¶ 72. As noted supra , the CRA is one of the PDFs with a hyperlink on the same page; Section 13 of the CRA explained that cash balances would be automatically deposited in a bank deposit program unless the customer opts out. Id. ¶ 57; Mishkin Decl., Ex. A at 5. Before Plaintiff could submit her application, she was required to check a box indicating that she "agree[d] to these terms and conditions." Mishkin Decl., Ex. E at 17. Plaintiff does not deny that she checked that box, thereby agreeing to the terms and conditions.

Plaintiff asserts claims for (i) quasi contract; (ii) breach of contract; (iii) breach of suitability standards¹ and negligence; and (iv) violation of the Massachusetts Consumer Protection Law.

DISCUSSION

To survive a motion to dismiss for failure to state a claim upon which relief can be granted, "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). On a motion to dismiss, the Court may consider any "written instrument attached to [the complaint] as an exhibit or any statements or documents incorporated in it by reference" as well as materials "integral to plaintiffs’ claims." Cortec Indus., Inc. v. Sum Holding L.P. , 949 F.2d 42, 47, 48 (2d Cir. 1991).

A. Plaintiff's Binding Contract with Defendant Bars Her Quasi Contract Claim

Under well-settled New York law, when a valid contract governs the subject matter of a plaintiff's claims, a plaintiff may not recover in quasi contract; a quasi contract claim may only be brought "in the absence of an express agreement." Clark-Fitzpatrick, Inc. v. Long Island R.R. Co. , 70 N.Y.2d 382, 388, 521 N.Y.S.2d 653, 516 N.E.2d 190 (1987) ; Gemma Power Sys., LLC v. Exelon W. Medway II, LLC , No. 19-CV-0705, 2019 WL 3162088, at *5 (S.D.N.Y. July 1, 2019).

"While new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract," Register.com, Inc. v. Verio, Inc. , 356 F.3d 393, 403 (2d Cir. 2004) ; "[m]utual manifestation of assent" remains a touchstone of contract formation. Specht v. Netscape Commc'ns Corp. , 306 F.3d 17, 29 (2d Cir. 2002). So-called clickwrap agreements are an increasingly common type of web-based contract; they are formed when a user is presented with "a message on his or her computer screen" and is required to "manifest [ ] her assent to the terms." Fteja v. Facebook, Inc. , 841 F. Supp. 2d 829, 837 (S.D.N.Y. 2012). By contrast, "browsewrap" agreements generally do not require the user to expressly assent to the agreement's terms and conditions. See Nicosia v. Amazon.com, Inc. , 834 F.3d 220, 233 (2d Cir. 2016). The Second Circuit routinely enforces clickwrap agreements as valid and binding contracts, "for the principal reason that the user has affirmatively assented to the terms of agreement by clicking ‘I agree.’ " Meyer v. Uber Techs., Inc. , 868 F.3d 66, 75 (2d Cir. 2017) ; Fteja. , 841 F. Supp. 2d at 837 (collecting cases); Forrest v. Verizon Commc'ns, Inc. , 805 A.2d 1007, 1011 (D.C. 2002) ("A contract is no less a contract simply because it is entered into via a computer."); Moore v. Microsoft Corp. , 293 A.D.2d 587, 741 N.Y.S.2d 91, 92 (1st Dept. 2002).²

Mere classification of a web-based contract as a "clickwrap agreement" or a "browsewrap agreement," however, does not necessarily determine the contract's enforceability.³ See Schnabel v. Trilegiant Corp. , 697 F.3d 110, 124 (2d Cir. 2012). Instead, in the context of clickwrap agreements, in addition to verifying that the user was required to indicate her assent, the court must consider whether the agreement's terms and conditions were "reasonably conspicuous." Meyer , 868 F.3d at 76 ; Moore , 741 N.Y.S.2d at 92. Even if there is "no evidence that the offeree had actual notice of the terms of the agreement, the offeree will still be bound by the agreement if a reasonably prudent user would be on inquiry notice of the terms." Meyer , 868 F.3d at 74–75. Whether a reasonably prudent user would be on inquiry notice depends on the "[c]larity and conspicuousness" of the terms and conditions; in the context of web-based contracts this is often a function of the "design and content of the relevant interface." Id. at 75 ; see also Nicosia , 834 F.3d at 233 ; Specht , 306 F.3d at 30.

Although a clickwrap agreement's terms and conditions must be clear...