claim that some other banks do it hardly measures a market value for the service. Defendant's expert's survey was not a persuasive survey of the market. Mellon was not meeting competition. It was taking advantage of a lack of competition. An irrevocable trust or even a revocable trust naming Mellon as trustee is in a rather inelastic demand position.
It begs the question to say that sweeping earned some benefits for the trust. Rather, the issue is whether Mellon deprived the trusts of a portion of the benefits to which they were entitled by charging an unreasonable fee for sweeping. Mellon had a fiduciary duty to invest idle cash. The sweeping was the most simple and economical way to satisfy Mellon's fiduciary responsibilities. The sweep fee was bad form, but it was Mellon's form. The sweep fee was bad substance on this record because there was no rational justification for it. One of Mellon's sophisticated managers suggested in his trial testimony that the notion of sweep fees was on its way out at least for some portion of the Bank's business. Simply to say it is a reasonable charge does not make it so.
With the greatest respect for the Orphans Court of Montgomery County, I must decide this matter on the record before me. On that record, I find Mellon's sweep fees unreasonable.
Sweeping is jargon for crediting trusts with income the Bank has earned with the trusts' money on deposit. One can imagine a reasonable charge for making such an appropriate bookkeeping entry on the trusts' accounts, but this is not it. Mellon has used its authority to charge a reasonable fee for the purpose of imposing an unreasonable one. The sweep fees, combined with Mellon's standard and specially negotiated fees, are unreasonable to the extent of the sweep fees.
Punitive damages are particularly appropriate here because Mellon's most significant rationale for charging sweep fees, i.e., the Bank was "losing" interest on trust funds which do not even belong to it, is outrageous. The bank's stated intention to "double dip" shows a bad motive for the charges. Punitive damages, awarded to the class representative who initiated the action, are an appropriate way to deter such conduct in the future. While the other members of the class have a colorable claim for such damages, such an award would be excessive.
CONCLUSIONS OF LAW:
This court has subject matter jurisdiction over this diversity action because the amount in controversy, exclusive of costs and interest, is in excess of $ 50,000. Punitive damages may be considered in determining whether the jurisdictional amount requirement has been satisfied. Klepper v. First American Bank, 916 F.2d 337, 341 (6th Cir. 1990).
This court is not bound by the accounting in the Orphans Court regarding the reasonableness of the sweep fees. Under Pennsylvania law, the doctrine of collateral estoppel applies only if there has been a final judgment on the merits. Schroeder v. Acceleration Life Ins. Co. of Pa., 972 F.2d 41 (3d Cir. 1992). There is no such final judgment here, until state court appeals are exhausted. Mellon's lawyer suggested that he expected the Orphans Court to rule on pending exceptions momentarily. Plaintiffs' attorney has made clear his intention to appeal any adverse result in the Orphans Court.
For the reasons articulated in the court's Orders of May 29, 1992 and June 24, 1992, plaintiff class was properly certified. However, the court's Order of May 29, 1992, is modified as follows: The plaintiff class is limited to beneficiaries of trust accounts for which defendant charges a management fee of which defendant is trustee.
As a fiduciary, Mellon owes a duty of loyalty and candor to the trust beneficiaries: it must deal with them fairly, administering the trust funds solely in their interest, and disclose all facts that it knows or reasonably should know regarding all transactions involving their accounts. Comerford 's Estate, 388 Pa. 278, 130 A.2d 458 (1957).
Mellon's belated disclosure of the sweep fees in meaningful terms is a breach of its fiduciary duty of candor. Mellon also breached its fiduciary duty of loyalty by charging excessive sweep fees, in addition to its management fee.
Punitive damages may be recoverable from a self-dealing trustee. Mosser v. Darrow, 341 U.S. 267, 95 L. Ed. 927, 71 S. Ct. 680 (1951); Schoenholtz v. Doniger, 657 F. Supp. 899, 913-15 (S.D.N.Y. 1987); see also Dean Witter Reynolds, Inc. v. Genteel, 346 Pa.Super. 336, 499 A.2d 637 . The finder of fact has determined that there has been conduct which, in light of the circumstances, including the wrongdoer's motivation and its relationship to the aggrieved parties, is especially egregious. An award for punitive damages is appropriate to deter future overcharges to its trust accounts by Mellon.
BY THE COURT:
MARVIN KATZ, J.
AND NOW, this 7th day of August, 1992, judgment is entered in favor of plaintiff, John B. Upp, and against defendant Mellon Bank, N.A. in the amount of $ 75,000 for punitive damages. Defendant Mellon Bank, N.A. shall reimburse the trusts of which the members of plaintiff class are beneficiaries its sweep fees charged to those trusts plus the interest that would have been earned by the trusts on those sweep fees to the date of such reimbursement.
The enforcement of the second sentence of this judgment is stayed during the period after its entry and while a timely appeal is taken and during the pendency of the appeal.
BY THE COURT:
Marvin Katz, J.
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