BofA Agrees to $8M Trust Account Investment Class Action Settlement

Bank of America Corp. has agreed to settle a class action lawsuit that alleges the company improperly placed trust assets in its own affiliated mutual funds, breaching its fiduciary duties owed to the plaintiffs and violating state trust law. Under the terms of the proposed class action settlement, BofA has agreed to pay $8 million through a fee reduction or credit to the class trusts. The plaintiffs moved for preliminary approval of the class action settlement on Friday.

The class action lawsuit was initially filed by Ellen Stoody-Broser on May 25, 2008. She alleged that BofA breached its fiduciary duties and engaged in unfair business practices by investing trust assets in affiliated mutual funds. BofA sought to dismiss the class action lawsuit, claiming that the Securities Litigation Uniform Standards Act of 1998 precluded the action. After the court granted the motion to dismiss, Stoody-Broser appealed.

The Ninth Circuit Court of Appeals upheld the dismissal, but allowed Stoody-Broser to amend her class action lawsuit, explaining that “a complaint may allege a violation of a trust administrator’s fiduciary duty to the trust’s beneficiaries even where that violation involves trading in covered securities so long as the complaint does not allege, either expressly or implicitly, misrepresentations, omissions, or fraudulent practices coincidental to the violation.”

Stoody-Booser filed an amended class action lawsuit on Sept. 16, 2011. Again, BofA filed a motion to dismiss the lawsuit, but the court denied the motion, finding that “the amended complaint omits reference to and does not seek to recover from any potential misrepresentation and that by changing the language, plaintiffs have necessarily altered the gravamen of their claims as well.”

The amended class action lawsuit alleges that the affiliated mutual funds were underperforming when compared to other available options that were not affiliated with BofA. BofA has denied the allegations, claiming that the investments were made on an individual basis, consistent with their fiduciary obligations. BofA claims that the funds were appropriate investments that performed well.

The proposed class action settlement was reached after a day-long mediation and weeks of negotiations. Approximately 25,000 trusts will receive benefits from the settlement. Under the terms of the class action settlement, each Class Member’s trust will receive a fee credit, which will be valued at a total of approximately $8 million. On average, trust accounts will receive about $320, but the actual benefit will vary based on certain factors, including the length of time the assets are invested in the affiliated mutual funds.

Under the terms of the proposed class action settlement, the estimated $8 million will be distributed exclusively to the Class Members’ trust accounts. There will be no claims process required for Class Members as the proceeds from the class action settlement will be directly credited to the trust accounts.

The plaintiffs are represented by Niall P. McCarthy and Eric J. Buescher of Cotchett Pitre & McCarthy LLP, Derek G. Howard of Minami Tamaki LLP, and J. Brian McTigue of McTigue Law LLP.

The BofA Trust Account Investment Class Action Lawsuit is Ellen Stoody-Broser v. Bank of America NA, et al., Case No. 3:08-cv-2705-JSW, in the U.S. District Court for the Northern District of California.