City of Farmington Hills Emps. Ret. Sys. v. Wells Fargo Bank, N.A.

979 F.Supp.2d 981

The CITY OF FARMINGTON HILLS EMPLOYEES RETIREMENT SYSTEM, individually and on behalf of all others similarly situated, Plaintiff,

v.WELLS FARGO BANK, N.A., Defendant.

Civil No. 10–4372 (DWF/JJG).

United States District Court, D. Minnesota.

Signed Sept. 17, 2013.

Opinion Denying Reconsideration Jan. 14, 2014.

David M. Cialkowski, Esq., Carolyn G. Anderson, Esq., Brian C. Gudmundson, Esq., and June Pineda Hoidal, Esq., Zimmerman Reed, P.L.L.P.; Peter A. Binkow, Esq., Kara M. Wolke, Esq., Leanne E. Heine, Esq., Casey E. Sadler, Esq., Elizabeth M. Gonsiorowski, Esq., Jill Duerler, Esq., and Robin Bronzaft Howald, Esq., Glancy Binkow & Goldberg LLP; Thomas C. Michaud, Esq., Vanoverbeke, Michaud & Timmony P.C.; Christopher D. Kaye, Esq., E. Powell Miller, Esq., Jayson E. Blake, Esq., and Sharon S. Almonrode, Esq., The Miller Law Firm, P.C.; and Avraham Noam Wagner, Esq., The Wagner Firm, for Plaintiff.

William A. McNab, Esq., John N. Sellner, Esq., Justin H. Jenkins, Esq., and Brooks F. Poley, Esq., Winthrop & Weinstine, PA; and Lindsey A. Davis, Esq., Daniel J. Millea, Esq., Michael R. Cashman, Esq., Lawrence T. Hoffman, Esq., Richard M. Hagstrom, Esq., James S. Reece, Esq., Michael E. Jacobs, Esq., Rory D. Zamansky, Esq., Zelle Hofmann Voelbel & Mason LLP, for Defendant.

MEMORANDUM OPINION AND ORDER

DONOVAN W. FRANK, District Judge.

INTRODUCTION

This matter is before the Court on Plaintiffs' Motion to Exclude the Reports and Testimony of Defendant's Proposed Experts (Doc. No. 302), Plaintiffs' Motion for Partial Summary Judgment on Certain of Wells Fargo's Affirmative Defenses (Doc. No. 309), Wells Fargo Bank, N.A.'s Motion for Partial Summary Judgment (Doc. No. 315), and Wells Fargo Bank, N.A.'s Motion to Decertify the Class (Doc. No. 322). For the reasons set forth below, the Court denies the motion to exclude expert testimony and grants in part and denies in part the remaining motions.

BACKGROUND

The City of Farmington Hills Employees Retirement System (“CFHERS”) and other similarly situated institutional investors (together, “Plaintiffs”) participated in a securities lending program (“SLP”) offered through Wells Fargo Bank, N.A. (“Wells Fargo” or “Defendant”). As part of Wells Fargo's SLP, participants would allow Wells Fargo to loan their securities to third-party borrowers in return for cash collateral. (Doc. No. 277, Am. Compl. ¶ 5.) Wells Fargo would then invest the cash collateral. ( Id.) Plaintiffs entered into Securities Lending Agreements (“SLAs”) with Wells Fargo, which governed their relationships with Defendant. ( See, e.g., Doc. No. 312, Binkow Decl. ¶ 2, Ex. 10.) On Plaintiffs' behalf, Wells Fargo lent securities to Cheyne Finance LLC (“Cheyne”), Stanfield Victoria Finance, Ltd. (“Victoria”), White Pine Finance/Whistlejacket Finance (“Whistlejacket”), and Lehman Brothers Holdings, Inc. (“Lehman”), among others. (Doc. No. 346, Davis Aff. ¶ 2, Ex. 13 ¶ 24.)

Plaintiffs assert the following six counts against Wells Fargo: (1) Breach of Fiduciary Duty; (2) Breach of Contract; (3) Violation of Minnesota Prevention of Consumer Fraud Act—Minn.Stat. § 325F.69 (“MCFA claim”); (4) Unlawful Trade Practices—Minn.Stat. § 325D.13 (“UTPA claim”); (5) Deceptive Trade Practices—Minn.Stat. § 325D.44 (“DTPA claim”); and (6) Civil Theft—Minn.Stat. § 604.14. (Am. Compl. ¶¶ 50–88.) On March 27, 2012, the Court granted Plaintiffs' motion for class certification with respect to the breach of fiduciary duty, breach of contract, and MCFA claims. (Doc. No. 120 at 19.)

Plaintiffs and Wells Fargo now both move for partial summary judgment. Wells Fargo also moves for decertification of the Class, and Plaintiffs move to exclude opinions of three of Wells Fargo's experts.

I. Wells Fargo's Securities Lending Program and Business Trust

In October 2000, Wells Fargo established the Wells Fargo Trust for Securities Lending (the “Trust”). (Davis Aff. ¶ 2, Ex. 16 ¶ 16.) The Trust is a Maryland Business Trust governed by a Declaration of Trust, for which Wells Fargo served as Trustee. (Davis Aff. ¶ 2, Ex. 1 at 1.) The Trust contained three series, or funds: the Enhanced Yield Fund (the “EY Fund”), the Collateral Investment Trust (the “CI Trust”) and the Collateral Investment for Term Trust (the “CI Term Trust”). (Davis Aff. ¶ 2, Ex. 16 ¶ 19.) The majority of Class members, including CFHERS were Trust securities shareholders. ( Id. ¶ 20.)

The Declaration of Trust describes the powers of the Trustee, Wells Fargo, as follows:

The Trustee shall have full, exclusive and complete power and discretion to manage and control the business and affairs of the Trust, and to make all decisions affecting the business and affairs of the Trust. No Shareholder or assignee of Shares, as such, shall have any authority, right or power to bind the Trust or to manage or control, or to participate in the management or control of, the business and affairs of the Trust.... To the fullest extent permitted by applicable law, the Trustee shall not in any way be bound by current or future laws or customs applicable to trust investments, but shall have full power and authority to make any investments, which in its sole discretion, deems proper to accomplish the purposes of the Trust, consistent with the investment objectives established but the Trustee for the Trust and/or the separate Series of the Trust. The Trustee may exercise all of its powers without recourse to any court or other authority.

(Davis Aff. ¶ 2, Ex. 1 § 3.1.) The Declaration of Trust explains that “[a]ny action by the Trustee in its capacity as Trustee shall be deemed an action on behalf of the Trust or applicable Series, and not an action in an individual capacity.” ( Id.) The Declaration of Trust also sets forth a “Standard of Care for ERISA Shareholders”:

[T]he Trustee hereby acknowledges that it is a fiduciary of such plan to the extent of the investment of assets of such plan in any Shares of the Trust. As such, the Trustee shall perform its duties herein with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character with like aims.

( Id. § 3.3.)

All members of the Class, including CFHERS entered into SLAs with Wells Fargo. (Am. Compl. ¶ 22; see, e.g., Binkow Decl. ¶ 2, Exs. 10–12.) All of the SLAs include the language, “[t]he prime considerations for the investment portfolio shall be safety of principal and liquidity requirements.” (Binkow Decl. ¶ 2, Exs. 10–12.) ¹

The SLAs indicate that Wells Fargo acts as the agent for participants and that as the agent, Wells Fargo's “[p]rime considerations for the investment portfolio shall be safety of principal and liquidity requirements.” (Binkow Decl. ¶ 2, Exs. 10 ¶ 2f; 11 ¶ 2f & 12 ¶ 2f.) The SLA describes that a program participant may “terminate any loan of securities for any reason at any time.” ² (Binkow Decl. ¶ 2, Exs. 10 ¶ 4; 11 ¶ 4 & 12 ¶ 4.) The SLA further states:

In the event that the Borrower fails to return the lent security, the Bank will indemnify the Participant's accounts in the following amounts: (a) The difference between the closing market value of the security on the date it should have been returned to the account and the cash collateral substituted for the lent securities, or (b) In the case of collateral received in kind, the difference between the closing market value of the security on the date it should have been returned to the account and the closing market value of the collateral in kind on the same date.

(Binkow Decl. ¶ 2, Exs. 10 ¶ 8; 11 ¶ 8 & 12 ¶ 8.) The SLA further states that the “Participant assumes all risk of loss arising out of collateral investment loss and any resulting collateral deficiencies. The Bank expressly assumes the risk of loss arising from negligent or fraudulent operation of its Securities Lending Program.” (Binkow Decl. ¶ 2, Exs. 10 ¶ 8; 11 ¶ 8 & 12 ¶ 8.)

Each series or fund within the Trust has a corresponding Subscription Agreement. ( See Davis Aff. ¶ 2, Exs. 3, 5 & 8.) Wells Fargo asserts that each Plaintiff became a participant in the EY Fund and/or the CI Term Trust by signing a Subscription Agreement and/or by purchasing shares in the Trust. (Davis Aff. ¶ 2, Ex. 16 ¶ 20.) Each of the three Subscription Agreements included a Representations and Warranties section. (Davis Aff. ¶ 2, Exs. 3 § 5; 5 § 5 & 8 § 5.)

Though they somewhat differ in language, upon signing Subscription Agreements for the EY Fund and CI Term Trust, CFHERS represented, among other things, that it: (a) was an “accredited investor”; (b) relied “solely on the facts and terms set forth in the Subscription Agreement, the Confidential Memorandum and any additional documents furnished or made available by the Trustee including the Declaration of Trust” and that “no person has made any representation of any kind or nature to induce the Subscriber to enter into this Subscription Agreement or to purchase Shares except as specifically set forth in such documents”; (c) made “an independent investigation of the pertinent facts relating to the proposed business and operations of the Trust, has reviewed carefully the terms of the Confidential Memorandum and this Subscription Agreement to the extent the Subscriber deems necessary in order to be fully informed ... and understands the nature of an investment in the Trust”; (d) had not been offered or sold shares by the Trust, Trustee or anyone representing the Trust “by means of any form of general solicitation or general advertising,” and “has not received, paid or given, directly or indirectly, any commission or remuneration for or on account of any sale, or the solicitation of any sale, or any Shares to it”; and (e) had “adequate means of providing for ... financial needs and possible contingencies and has assets or sources of income that, taken together are more than sufficient so that [it]...