Judge Dismisses Class Action Claim Against Merrill Sweep Program

Merrill Lynch has defeated a putative class action lawsuit from a client who claimed it failed to make proper disclosures about cash sweeps from Merrill Edge brokerage accounts into low-yield Bank of America deposit accounts.

Judge Valerie Caproni of the Southern District of New York on Wednesday granted Merrill’s motion to dismiss after finding that disclosures about its cash sweep policies and rates via hyperlinks in online account opening agreements were “sufficiently conspicuous.” Although the terms were “lengthy and must be reached by hyperlink,” the section detailing the sweep program was boldfaced and in a distinctive color font, Caproni noted.

“An individual’s failure to read the terms of a clickwrap agreement, even if they are only available through a hyperlink, does not render the agreement unenforceable,” Caproni wrote.

Any attempt by the investor, Sarah Valelly, to revive and refile breach of contract claims would be futile although she can do so by focusing on suitability violations and negligence, she ruled.

Robert C. Finkel, a New York-based lawyer with Wolf Popper who represents Valelly, said he could not immediately comment on whether his client will refile or appeal the decision.

Valelly, who opened her accounts in 2017 in Boston, accused Merrill Lynch, Pierce, Fenner & Smith, the broker-dealer for Merrill Wealth and Merrill Edge customers, of breach of contract as well as violations of industry suitability rules and negligence. She argued that disclosures on the cash sweep programs, which paid a “paltry” 0.05% to 0.14% annual percentage yield, were “buried” in “voluminous” PDF files.

She put $675,000 into an “unsuitable, low-interest bearing” Bank of America account and was underpaid approximately $22,400 in interest, based on offers at rival banks, she alleged in the initial August 2019 complaint.

The judge said Valelly would have a difficult time pressing a suitability argument because there is no private right of action over the industry standard. She also wrote that suitability does not appear to apply to a self-directed investor who by definition is not receiving investment advice.

In its response to the initial lawsuit, Merrill said that Valelly’s citation of unreasonably low rates was misleading because she was comparing the return on her bank deposit accounts to those on money market funds, which are “an entirely distinct investment option.”

Valelly had sought to represent three classes of Merrill customers: brokerage account investors whose cash was defaulted into Merrill’s direct deposit sweep account since March 2014; retirement account investors whose client relationship agreements allegedly require them to be paid “reasonable rates”; and customers who were advised by an “account representative” to deposit more than $25,000 into a Bank of America low-interest deposit or checking account for at least 30 days.

A Merrill spokesman declined to comment.