Berenson v. National Financial Services, LLC

403 F.Supp.2d 133

Joan BERENSON and David Berenson, individually and on behalf of others similarly situated, Plaintiffs, v. NATIONAL FINANCIAL SERVICES, LLC, Fidelity Brokerage Services, LLC and Does 1-50 Defendants

No. CIV.A. 04-11311-WGY.

United States District Court, D. Massachusetts.

October 31, 2005.

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Kenneth L. McWilliams, Johanson, Berenson LLP, Great Falls, VA, Douglas Andrew Rubel, Johanson, Berenson, LLP, Cary, NC, Susan E. Stenger, Perkins, Smith & Cohen, LLP, Boston, MA, for Plaintiffs.

David E. Cole, Foley Hoag LLP, William W Fick, Foley Hoag LLP, Boston, MA, Lawrence Hedrick Martin, Foley Hoag LLP, Washington, DC, John A. Shope, Foley Hoag LLP, Nicholas C. Theodorou, Foley Hoag LLP, Boston, MA, for Defendants.

MEMORANDUM

YOUNG, Chief Judge.

By Order dated July 13, 2005 [Doc. No. 79], this Court ALLOWED in part and DENIED in part a motion for summary judgment [Doc. No. 60]. This Memorandum sets forth the analysis leading to the Court's order.

I. INTRODUCTION

This is a putative class action involving an electronic bill payment service provided by National Financial Services LLC and Fidelity Brokerage Services, LLC (collectively, "Fidelity").¹ Compl. ¶¶ 6, 12, 20-22 [Doc. No. 1, Attach. 1]. David Berenson and Joan Berenson (the "Berensons") contend that they, and others similarly situated, lost interest owed them as a result of their participation in Fidelity's electronic bill payment service, and that those losses constituted "fees" or charges that were not disclosed as required under federal and state law. Id. ¶ 22. The Berensons sue Fidelity under several theories of liability.

First, the Berensons contend that Fidelity has violated the Electronic Funds Transfer Act, 15 U.S.C. § 1693 et seq. (the "Act"). They allege in Count I that any interest gained by Fidelity between the transaction date and the date an intended payee actually receives the funds is a "fee" that Fidelity was legally required to disclose. Compl. ¶¶ 57-63. Counts II and III allege that Fidelity's failures to disclosure constituted intentional or negligent misrepresentation. Id. ¶¶ 64-68, 69-73. Count IV alleges both a breach of contract and breach of fiduciary duty by Fidelity.² Id. ¶¶ 74-77, 78-82. Count V alleges a violation of the Massachusetts Truth in Savings Law. Id. ¶¶ 83-86. Count VI alleges a violation of the Massachusetts Consumer Protection Act. Id. ¶¶ 87-90. Count VII in the original complaint alleged a violation of the District of Columbia Consumer Procedures Protection Act. Compl. ¶¶ 91-94.

A. Procedural Posture

The Berensons filed this case on September 26, 2003, in the United States District Court for the District of Columbia. Compl. at 1. Upon Fidelity's motion, on May 14, 2004 the case was transferred to this Court pursuant to 28 U.S.C. § 1404(a). Berenson v. National Fin. Servs., L.L.C., 319 F.Supp.2d 1 (D.D.C.2004). District Judge Walton noted that the claims arose in Massachusetts, Massachusetts law governed, and Massachusetts had a greater interest in deciding this suit since the majority of the potential class members reside in Massachusetts. Id. at 5.

Prior to the transfer, on November 7, 2003, Fidelity filed a motion to dismiss and for summary judgment. [Doc. No. 1, Attach. 12]. In its supporting memorandum, Fidelity "reserve[d] the right to compel arbitration" if class certification was denied. Defs.' Mem. in Supp. of Mot. to Dismiss and for Summ. J. [Doc. No. 1 Attach. 13] ("Defs.' Nov. 2003 Mem.") at 2 n. 1.

On October 13, 2004, this Court allowed the motion to dismiss the Massachusetts Truth in Savings claim (Count V) and the breach of contract claim (one of the Counts IV). Tr. of Hr'g of 10/13/04 at 15. Ultimately the Court denied the motion to dismiss as to the other counts, and denied the motion for summary judgment.³ Tr. of Hr'g of 2/16/05 at 5-6.

The Berensons filed a motion for class certification on January 25, 2005. [Doc. No. 25]. On February 16, 2005, this Court deferred its ruling as to class certification until after the trial of the Berensons' individual claims, which was scheduled for September of 2005. Tr. of Hr'g of 2/16/05 at 18.

On February 8, 2005, Fidelity filed a motion for partial summary judgment asserting that the Electronic Funds Transfer Act claim was barred by the statute of limitations. [Doc. No. 24]. At a hearing on March 3, 2005, the Court granted the motion for summary judgment as to the "fee disclosure" aspect of the claim but denied summary judgment as to the "error resolution" portion of the claim. Tr. of Hr'g of 3/3/05 at 12.

On May 26, 2005, Fidelity filed the motion for summary judgment that is the subject of this memorandum. [Doc. No. 60]. On July 13, 2005, this Court issued an order allowing in part and denying in part Fidelity's motion, and dismissing the Berensons' class claims. [Doc. No. 79]. This memorandum explains the underlying reasoning for this order.

Once this Court dismissed the class claims, Fidelity filed a motion to compel arbitration and to dismiss. [Doc. No. 82]. On August 22, 2005, the Court allowed Fidelity's motion to compel arbitration and administratively closed the case. [Doc. No. 88].

B. Facts

The following facts have been compiled from the Complaint, the Defendants' Statement of Undisputed Facts ("Defs.' Facts") [Doc. No. 62] and the exhibits attached thereto [Doc. Nos. 66-68], Plaintiffs' Memorandum in Response to Defendants' Statement of Undisputed Facts ("Pls.' Facts") [Doc. No. 72] and the exhibits attached thereto [Doc. Nos. 73-75], Defendants Memorandum in Support of Summary Judgment ("Defs.' Mem.") [Doc. No. 61], and Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion for Summary Judgment ("Pls.' Opp'n") [Doc. No. 71].

In deciding Fidelity's motions for summary judgment, where a factual dispute exists this Court takes the Berensons' version of the facts, where supported by record evidence, as true, and draws all reasonable inferences in their favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

1. The Parties

David Berenson is an experienced business person with "an extensive business career." Defs.' Facts ¶ 3; Pls.' Facts ¶ 3. His wife, Joan Berenson, likewise was a "sophisticated businessperson" with experience in the business world. See Pls.' Facts ¶ 4.

The defendants National Financial Services LLC and Fidelity Brokerage Services LLC are subsidiaries of FMR Corporation and are part of the Fidelity Investments family of companies. Aff. of Daniel Stickney [Doc. No. 1, Attach. 14] ¶ 4. Both are limited liability companies organized in the State of Delaware, with principal places of business in Boston, Massachusetts. Id. ¶ 3.

2. Fidelity's BillPay Service

Fidelity established a bill payment service named BillPay in the 1980s. Defs.' Facts ¶ 8; Aff. of Camille Zaslau, Defs.' Mem. Ex. 9 ("Zaslau Aff.") [Doc. No. 67] ¶ 3. Through BillPay, Fidelity makes payments to third party payees on behalf of customers. Zaslau Aff. ¶ 3. Although most customer requests for BillPay payments must be made by way of Fidelity's website certain "premium" customers — like the Berensons — are allowed to arrange BillPay payments over the phone. Id. The Berensons contend that the BillPay "service established in the 1980s is not" the same as the service currently provided.⁴ Pls.' Facts ¶ 8a.

In June of 2000, Fidelity began using CheckFree Corporation as its electronic bill payment service provider. Fidelity describes the operation of this service:

On the Transaction Date scheduled by the customer ("Day 1"), Fidelity's system (i) informs CheckFree that a particular payment is to be made, (ii) verifies that there are adequate funds in the customer's Core Account, and (iii) debits the customer's Core Account for the amount of the transaction. Mutual fund shares are redeemed to satisfy the debit amount.

Defs.' Facts at 17 (internal citations omitted).

Fidelity decided to use CheckFree's "good funds" model. Under that model, "Fidelity debits payments from a customer's account on the date selected by the customer, the funds are transferred briefly to an internal Fidelity account on which Fidelity earns no interest, Fidelity then transfers the funds to CheckFree, and CheckFree in turn remits the payment electronically or by check from its own account." Id. ¶ 14. In other words, the funds leave the customers' accounts before they are received by the ultimate payee.⁵ Rather than transferring individual payments, "CheckFree makes these payments either by [an] Automated Clearinghouse ... transfer to those payees with whom it has established an electronic payment relationship or by corporate check sent by mail." Id. ¶ 11. The benefit of this model is the elimination of the risk that a check will "bounce." Id. The downside is that the customer stops earning interest on the funds before they are actually delivered to the intended payee.

The speed at which funds are delivered to the intended payee depends on whether the payee accepts payment via automatic clearinghouse transfer. If the payee accepts payment by electronic transfer, funds may be received by the intended payee on the day after the Transaction Date. See Defs.' Facts ¶ 18; Defs.' Mem. at 5. If CheckFree issues a check, however, several days may transpire before the intended payee receives funds. See Defs.' Facts ¶ 21; Defs.' Mem. at 5. During the intermediate time, CheckFree earns interest on the monies in its account.

3. The Berensons' Relationship with Fidelity

The Berensons started to use the BillPay electronic bill payment service in the mid-1980s. Pls.' Facts ¶ 36a; Defs.' Facts ¶ 36. According to David Berenson, the service at that time was akin to a check writing service and operated as did a checking account. Defs.' Facts App., Ex. 4 [Doc. No. 66] (deposition of David Berenson) at 58-59. In 1993, the Berensons completed and signed a Bill...