Blue Cross and Blue Shield of Minnesota, as Administrator of the Blue Cross and Blue Shield of Minnesota Pension Equity Plan; CentraCare Health System, on Behalf of Itself and the Sisters of the Order of Saint Benedict Retirement Plan; Supplemental Benefit Committee of the International Truck and Engine Corp. Retiree Supplemental Benefit Trust, as Administrator of the International Truck and Engine Corp. Retiree Supplemental Benefit Trust; Jerome Foundation; Meijer, Inc., as Administrator of the Meijer OMP Pension Plan and Meijer Hourly Pension Plan, Participants in the Meijer Master Pension Trust; Nebraska Methodist Health System, Inc., on Behalf of Itself, and as Administrator of the Nebraska Methodist Hospital Foundation, the Nebraska Methodist Health System Retirement Account Plan, and the Jennie Edmundson Memorial Hospital Employee Retirement Plan; North Memorial Health Care; The Order of Saint Benedict, as the St. John's University Endowment and the St. John's Abbey Endowment; The Twin Cities Hospitals-Minnesota Nurses Association Pension Plan Pension Committee, as Administrator of the Twin Cities Hospitals-Minnesota Nurses Association Pension Plan, Plaintiffs,
Wells Fargo Bank, N.A., Defendant.
Michael V. Ciresi, Esq., Munir R. Meghjee, Esq., Stephen F. Simon, Esq., Vincent J. Moccio, Esq., and Brock J. Specht, Esq., Robins Kaplan Miller & Ciresi LLP, counsel for Plaintiffs.
Lawrence T. Hofmann, Esq., Michael R. Cashman, Esq., Daniel J. Millea, Esq., James S. Reece, Esq., Lindsey A. Davis, Esq., Richard M. Hagstrom, Esq., and Rory D. Zamansky, Esq., Zelle Hofmann Voelbel & Mason LLP; Brooks F. Poley, Esq. and William A. McNab, Esq., Winthrop & Weinstine, PA, counsel for Defendant.
MEMORANDUM OPINION AND ORDER
DONOVAN W. FRANK, District Judge.
This matter is before the Court on Defendant Wells Fargo Bank, N.A.'s ("Wells Fargo") Motion for Partial Summary Judgment and to Certify Question to the Minnesota Supreme Court (Doc. No. 237), Plaintiffs' Motion for Partial Summary Judgment on Wells Fargo's Affirmative Defenses Based on the Business Trust (Doc. No. 231), and Plaintiffs' Motion to Exclude the Expert Opinions of John J. McConnell (Doc. No. 224). For the reasons set forth below, the Court denies all three motions.
Plaintiffs are a group of institutional investors who participated in Wells Fargo's Securities Lending Program ("SLP") and suffered substantial losses during the course of their participation in the SLP. (Doc. No. 200, Third Am. Compl. ¶¶ 11-24.) This action stems from Wells Fargo's purported improper and imprudent investment of Plaintiffs' funds. As such, Plaintiffs assert the following claims against Wells Fargo: (1) Breach of Fiduciary Duty (Non-ERISA and ERISA); (2) Breach of Contract; (3) Intentional and Reckless Fraud and Fraudulent Nondisclosure/Concealment; (4) Negligent Misrepresentation; (5) Violation of Minnesota Prevention of Consumer Fraud Act Minn. Stat. §§ 325F.69 and 8.31; (6) Unlawful Trade PracticesMinn. Stat. §§ 325D.13 and 8.31; and (7) Deceptive Trade PracticesMinn. Stat. §§ 325D.44 and 8.31. (Third Am. Compl. ¶¶ 256-328.)
I. Securities Lending Program and Business Trust
Wells Fargo established its SLP in 1982, and its participants have included large, institutional investors with combined portfolios totaling billions of dollars. (Doc. No. 240 ("Adams Aff. I") ¶ 9.) As part of the SLP, Wells Fargo held the participants' securities in custodial accounts and made temporary loans of those securities to brokers. ( See, e.g., Doc. No. 244 ("Cashman Aff. I") ¶ 5, Exs. 1-2.) The brokers then posted collateral, generally cash, which Wells Fargo invested until such time as the securities were returned. ( Id. )
Wells Fargo entered into Securities Lending Agreements ("SLAs") and other contractual agreements with each of the participants whereby Wells Fargo agreed to act as the participants' agent and agreed to follow certain restrictions with respect to its investment of the cash collateral. (Doc. No. 250 ("Moccio Aff. II") ¶ 3, Exs. 7-18.) In particular, the SLAs stated that "[t]he prime considerations for the investment portfolio shall be safety of principal and liquidity requirements." ( Id. ) The Confidential Memoranda and Investment Guidelines distributed to Plaintiffs also include similarly worded investment objectives regarding safety of principal and daily liquidity requirements. (Cashman Aff. I ¶ 5, Ex. 60, 62, 63.)
On October 24, 2000, Wells Fargo formed a Business Trust pursuant to the Maryland Business Trust Act "for the investment and reinvestment of money" in connection with the SLP. (Cashman Aff. I ¶ 5, Ex. 61.) Three Trust Series were developed after the creation of the Trust, including the two at issue here: the Enhanced Yield Fund ("EYF") and the Collateral Investment for Term Loans Trust ("CI Term"). On June 1, 2001, Wells Fargo sent notice to its SLP participants that it was "establishing a business trust format" that would "function as an unregistered mutual fund" in order to "contribute to better returns for [Wells Fargo's] clients by increasing the effectiveness of [Wells Fargo's] daily process." ( See, e.g., Moccio Aff. II ¶ 3, Ex. 20.) According to Wells Fargo, investors participating in the SLP at the time were given 30 days to opt out of the Business Trust. (Doc. No. 261, Hruska-Claeys Aff. ¶ 23.) Thereafter, several Plaintiffs signed Subscription Agreements with respect to a particular Trust Series, whereby they consented to be bound by the terms of the Declaration of Trust. (Cashman Aff. I ¶ 5, Exs. 16-38.)
The Declaration of Trust states in part:
Section 8.1 Limitation of Liability. All persons contracting with or having any claim against the Trust or a particular Series shall look only to the assets of the Trust or such Series, respectively, for payment under such contract or claim; and neither the Trustee nor any of the Trust's officers, employees or agents, whether past, present or future (each a "Covered Person" and collectively the "Covered Persons"), shall be personally liable therefor. No Covered Person shall be liable to the Trust or to any Shareholder for any loss, damage, or claim incurred by reason of any act performed or omitted by such Covered Person in good faith on behalf of the Trust, or a Series thereof, and in a manner reasonably believed to be within the scope of authority conferred on such Covered Person by this Declaration, except that a Covered Person shall be liable for any loss, damage or claim incurred by reason of such Covered Person's bad faith, gross negligence, willful misconduct or reckless disregard of the duties involved in the conduct of his or her office.
Section 8.4 Contractual Modification of Duties. To the extent that, at law or equity, a Covered Person has duties (including fiduciary duties) and liabilities relating to the Trust or any Series thereof or to any Shareholder, any such Covered Person acting under this Declaration shall not be liable to the Trust or any Series or to any Shareholder for the Covered Person's good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict or limit the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such Covered Person.
(Cashman Aff. I ¶ 5, Ex. 61 §§ 8.1, 8.4.)
The Trust subsequently began investing on July 1, 2001. ( Id. ¶ 26.) At all relevant times, the SLP's business was conducted through Wells Fargo, as trustee. ( See Moccio Aff. II ¶ 3, Ex. 54 at 29.) The Trust was subject to a number of investment guidelines established by Wells Fargo, as well as guidelines that were specific to each Series. (Cashman Aff. I ¶ 5, Exs. 62-63.) The Trust invested strictly in fixed income securities, whose interest rates changed throughout the investment period. (Adams Aff. I ¶¶ 80-81.) Those securities could be purchased from corporations, investment banks, or structured investment vehicles ("SIVs"). (Adams Aff. I ¶ 57; Cashman Aff. I ¶ 5, Exs. 62-63.) Up to 30% of all assets were held in SIVs in 2007 and 2008, and were largely backed by real estate. (Moccio Aff. II ¶ 3, Ex. 36 at 74.) A substantial number of the securities in the Trust were issued by three ...