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Susan Appert, Individually and On Behalf v. Morgan Stanley Dean Witter

December 9, 2010


The opinion of the court was delivered by: Honorable David H. Coar


Plaintiff Susan Appert ("Appert") brings an action against Defendant Morgan Stanley Dean Witter, Inc. ("Morgan Stanley"), for breach of contract due to Morgan Stanley's conduct in charging "Order Handling" fees for the delivery of confirmation slips in securities transactions. Before the Court is Morgan Stanley's motion to dismiss Appert's first amended complaint [Dkt. 65]. Morgan Stanley argues that Appert fails to state a claim for breach of contract or unjust enrichment. In the alternative, Morgan Stanley submits that Appert's claim is precluded by the Securities Litigation Uniform Standards Act. For the reasons stated below, the motion is GRANTED.


Morgan Stanley is a financial services firm that provides, among other things, brokerage and investment advisory services. Plaintiff Susan Appert maintained an investment account with Morgan Stanley from at least 1999 through September 2006. Appert seeks to represent a class of Morgan Stanley customers who had an "Order Handling" fee deducted from their accounts upon the delivery of certain trade confirmations, in accordance with their Client Account Agreements. The contract states, "[o]ther miscellaneous account fees and charges include: handling, postage, and insurance (HPI) at $2.35 per transaction . . . . All fees are subject to change and you will be notified in the event of any changes." Am. Compl. Ex. B at 3.In 2002, Morgan Stanley raised the fee from $2.35 to $5.00 per applicable confirmation. In 2005, Morgan Stanley again raised the fee to $5.25 per confirmation. Appert alleges that the fee was applied without regard to whether insurance was needed, the amount of postage required, the size of the order, the type of the order, or if handling took place. Appert asserts that Defendant's retainer of "Order Handling" fees was, in fact, unrelated to any actual handling, insurance, or postage associated with a specific transaction. The Client Account Agreement is governed by New York law.

II.Standard of Review

A complaint's factual allegations must suggest a plausible, rather than merely speculative, entitlement to relief. Tamayo v. Blagojevich, 526 F.3d 1074, 1083 (7th Cir. 2008); see also Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, (2007). When ruling on a motion to dismiss, the court generally considers only the well-pleaded allegations of a complaint, construed in the light most favorable to the plaintiff. Tamayo, 526 F.3d at 1081. However, contracts attached as exhibits may also be considered when ruling on a motion to dismiss. See INEOS Polymers, Inc. v. BASF Catalysts, 553 F.3d 491, 498 (7th Cir. 2009); Centers v. Centennial Mortg., Inc., 398 F.3d 930, 933 (7th Cir. 2005);Fed. R. Civ. P. 10(c). Where the terms of an attached contract conflict with the plaintiff's allegations, the contract controls. See Rosenblum v. Ltd., 299 F.3d 657, 661 (7th Cir. 2002) ("The court is not bound to accept the pleader's allegations as to the effect of the exhibit, but can independently examine the document and form its own conclusions as to the proper construction and meaning to be given the material.") (quoting 5 Wright & Miller, Federal Practice & Procedure: Civil 2d § 1327 at 766 (1990)); Ogden Martin Sys. of Indianapolis, Inc. v. Whiting Corp., 179 F.3d 523, 529 (7th Cir. 1999) ("[A] plaintiff may plead himself out of court by attaching documents to the complaint that indicate that he or she is not entitled to judgment.") (internal citations omitted).


A.Breach of Contract Claim

In asserting a claim for breach of contract, Appert alleges that the actual costs for the handling, postage, and insurance of the trade confirmation delivery were substantially less than the fee charged by Morgan Stanley. Appert asserts that the average total cost of these services amounted to approximately 42 cents per confirmation. Appert argues that Morgan Stanley therefore overcharged her and every potential class member by retaining $2.35, $5.00, and $5.25 per delivery. Appert submits that this overcharge constitutes a breach of the Client Account Agreement, which she attached to her complaint.

To state a claim for breach of contract under New York law, a plaintiff must allege (a) the existence of a contract; (b) performance of the plaintiff's obligations; (c) the defendant's failure to perform; and (d) resulting damage. Furia v. Furia, 116 A.D.2d 694, 695 (N.Y. App. Div. 1986). Accordingly, Appert would have stated a claim entitling her to relief had she alleged that Morgan Stanley failed to perform its obligations by either charging an amount higher than the sum outlined in the contract, or increasing the "Order Handling" fee without notifying Appert beforehand. See Compl. Ex. B at 3. Yet, Appert does not allege that Morgan Stanley did either of these things. Rather, she expresses dissatisfaction with the amount of profit Morgan Stanley gained from each handling charge. New York law does not recognize such a claim.

In Jacobs v. Citibank, N.A., 61 N.Y.2d 869 (N.Y. 1984), the plaintiffs sued their bank for imposing service charges for bounced checks that exceeded the actual cost of processing them. The New York Court of Appeals held:

Plaintiffs' . . . claim that the imposition of these charges constitutes a breach by defendant of the terms of the parties' agreements because they exceed the actual cost of processing the overdrafts is without merit. When plaintiffs opened their accounts, each of them agreed to pay the charges specified for the services listed in the agreement, including the processing of overdrafts. Plaintiffs also agreed that those charges would be subject to change. Inasmuch as plaintiffs do not now contend that they were not notified of subsequent changes in the schedule of fees, they cannot be heard to say that defendant breached the agreements.

Id. at 871.*fn1 Misleadingly, Appert appeals to language in Jacobs pertaining to a separate provision of the parties' agreement, which vested the defendant with "discretion to determine what amount is necessary to compensate itself for services rendered" after a check bounced. Id. Where a company has the ability to exercise such discretion, allegations that the charges were "grossly disproportionate to processing costs usually incurred . . . or otherwise imposed in bad faith" state a cognizable claim. Id. The Client Account Agreement did not grant Morgan Stanley the discretion to belatedly determine on a case-by-case basis the amount of its "Order Handling" fee, however. As a result, the language in Jacobs relied upon by Appert to defend her breach of contract claim is inapplicable.

As in Jacobs, Appert assented to the terms of the Client Account Agreement, which described service charges accurately. Notably, the Agreement did not oblige Morgan Stanley to assess "Order Handling" fees that precisely mirrored the costs of shipping, handling, or insurance. Rather, the Agreement cited a fixed sum to be charged and Morgan Stanley followed ...

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