On January 30, the U.S. District Court for the District of Minnesota dismissed with prejudice a proposed class action lawsuit brought by two investment-account holders challenging the interest rates paid through a “cash-sweep” program. The plaintiffs claimed that the program, which automatically transferred uninvested cash balances into interest-bearing deposit accounts, paid unreasonably low and below-market interest rates. They asserted state law claims for breach of fiduciary duty, negligence, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, violations of consumer protection statutes, and unjust enrichment.

The court found that the defendants had fully disclosed the terms and operation of the cash-sweep program, including the interest-payment arrangement and the absence of any provision committing to pay a “reasonable” or minimum interest rate. Applying Minnesota’s independent-duty rule, which states that tort claims accompanying breach of contract claims must arise from a duty independent of the contract, the judge concluded that because the alleged duties stemmed solely from the contractual relationship between the parties, the negligence claim was barred. The court further held that the plaintiffs failed to plausibly allege a fiduciary relationship, noting that broker-customer relationships are not fiduciary absent “special circumstances” and that the defendants had disclosed their financial interests and potential conflicts.

The judge rejected claims based on misrepresentation and fraud, finding the bank’s disclosures were adequate and there was no actionable omission. The court also ruled that the implied covenant of good faith and fair dealing was not breached, and that unjust enrichment did not apply because a valid contract governed the conduct in question. The dismissal was entered with prejudice, as the court determined amendment would be futile given the facts and procedural history.