BNY Mellon Trust Beneficiaries Win Class Cert. In Fees Suit

By Chris Villani

Law360, Boston (September 14, 2018, 6:01 PM EDT) — A group of trust beneficiaries accusing Bank of New York Mellon NA of charging excessive and undisclosed fees on tax returns was granted class certification by a Massachusetts federal judge Friday, who also kept on the lead plaintiff despite a history of disagreements between her and lead class counsel.

Chief U.S. District Judge Patti B. Saris narrowed the scope of the class to only those who had paid “line-item” fees to BNY Mellon and denied summary judgment victories for both the class and the bank. The judge allowed Ashby Henderson, despite past clashes between her personal counsel Brian McTigue and lead counsel firms Bailey & Glasser LLP and the Derek G. Howard Law Firm Inc., to be the lead plaintiff.

BNY Mellon has fought Henderson’s adequacy to represent the class, pointing to the fact that she objected to an otherwise largely unchallenged $35 million proposed settlement in March. But Judge Saris, despite seeing “signs of turbulence” between Henderson, McTigue and lead class counsel, said she feels confident in Henderson’s ability to lead the class after an August ex parte lobby conference with no lawyers present.

“One result of that conference was that Henderson agreed to communicate solely with lead class counsel and not with McTigue with respect to this case,” Judge Saris wrote in Friday’s order. “The court also inquired as to Henderson’s understanding of the claims in this case and her desire to continue as class representative. Given Henderson’s representations to the court, under oath, during that conference, the court is satisfied — despite some bumps in the road — that Henderson and lead counsel will ‘fairly and adequately protect the interests of the class.’”

Henderson originally filed the complaint in 2015 and amended it in 2016. The claims in it, which Judge Saris allowed to proceed for some plaintiffs, center on whether the bank marked up tax prep fees that PricewaterhouseCoopers LLP charged for its services to other trusts.

In its effort to defeat the class certification motion, BNY Mellon argued the differences in the trusts and how their fees were calculated and collected from year to year makes establishing a common link impossible, but Judge Saris said certain common questions of fact prevail.

“Did BNY Mellon charge trusts more than PwC charged it for tax preparation? If such a markup existed, did it violate BNY Mellon’s fiduciary duties? To what extent did BNY Mellon disclose the costs of tax preparation fees and the amounts charged by PwC? Was that disclosure sufficient to fulfill BNY Mellon’s fiduciary duties and/or to provide the proposed class members sufficient notice such that they ratified the fees by failing to contest them? If there was a breach of fiduciary duty, what is the proper remedy and how are damages calculated?” the judge wrote, ticking off a list of issues that remain to be decided.

The different laws governing the 18 states in which plaintiffs may live is also not enough to defeat the class certification motion, Judge Saris wrote, because “the bank has not pointed to a single state statute that would even arguably permit the bank to charge the undisclosed tax-fee markup alleged in the complaint.”

For trusts that paid a line-item fee for their tax returns, it would also be relatively easy to calculate damages, the judge added.

“The court finds that common questions of fact and law will predominate over the individual issues that BNY Mellon predicts,” Judge Saris wrote.

BNY Mellon did score a summary judgment win for any proposed class members who used a “bundled” fee structure to pay the bank for their tax returns because they cover a wide variety of services and, unlike the line-item fee, it is not a simple process to demonstrate whether the trusts were secretly charged more than they should have been. Many of the trusts were the same, and the bank began phasing in the bundled fees in place of the line-item fees in 2012.

John Roddy of Bailey & Glasser told Law360 Friday afternoon he was pleased that they were able to get a class certified and is prepared to go to trial, if needed. He said he was disappointed not to obtain class certification for the bundled trusts, but still said approximately 15,000 trusts would be included in the suit.

The road to class certification has been anything but direct. On the same day in March that lead counsel submitted the $35 million settlement proposal to the court, Henderson submitted a letter expressing her dissatisfaction with the settlement over concerns that it would allow the bank to resume charging excessive tax prep fees two years after the settlement was approved. Judge Saris said she ended up finding Henderson’s objections “compelling” and rejected the settlement.

The other lead plaintiff, Thomas Hershenson, was also found to be an adequate representative by the judge despite BNY Mellon’s claims that he is using the case to force it to artificially hold a trust in his father’s name open. Without the suit, the trust would have closed when Hershenson’s father died in November 2015, the bank said.

“The termination of the Hershenson trust is not germane to Hershenson’s adequacy as a class representative,” Judge Saris wrote. “Hershenson’s stake in the class pertains only to the 2008 to 2010 time period, during which he was charged a line-item tax-preparation fee.”

Counsel for the bank did not immediately respond to requests for comment Friday evening.

Henderson is represented by J. Brian McTigue of McTigue Law LLP.

The class is represented by John Roddy, Elizabeth Ryan, Benjamin P. Lajoie and Gregory Y. Porter of Bailey & Glasser LLP, and Derek G. Howard of Derek G. Howard Law Firm Inc.

BNY Mellon is represented by Mary J. Hackett, K. Issac deVyver, Melissa M. Taylor and Nellie E. Hestin of McGuireWoods LLP.

The case is Henderson et al. v. The Bank of New York Mellon Corp. et al., case number 1:15-cv-10599, in the U.S. District Court for the District of Massachusetts.

–Additional reporting by Dan Seal and Jon Hill. Editing by Adam LoBelia.

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