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In re Bank of New York Mellon Corp. Forex Transactions Litigation

United States District Court, S.D. New York

July 2, 2013

In re: BANK OF NEW YORK MELLON CORP. FOREX TRANSACTIONS LITIGATION. This document relates to: In re the Bank of New York Mellon Corporation Shareholder Derivative Litigation, 11 Civ. 8471 (LAK)

For Plaintiffs: Brian J. Robbins, Felipe J. Arroyo, Shane P. Sanders, Gina Stassi, ROBBINS ARROYO LLP.

For Nominal Defendant The Bank of New York Mellon Corporation: Reid M. Figel, Rebecca A. Beynon, Andrew E. Goldsmith, KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL, P.L.L.C.

For the Individual Defendants: Lawrence Portnoy, Lindsey T. Knapp, Bryan McArdle, DAVIS POLK & WARDWELL LLP.

OPINION

Page 458

Lewis A. Kaplan, United States District Judge.

Plaintiffs bring this consolidated shareholder derivative action against current and former officers and directors of the Bank of New York Mellon Corporation (" BNY Mellon Corp" or the " Company" ). The complaint alleges that these individual defendants are liable in connection with the foreign exchange standing instruction service of the Company's subsidiary, Bank of New York Mellon (" BNY Mellon" ). Based on the same underlying allegations, this Court has held that one of BNY Mellon's customers adequately pled claims of breach of contract and breach of fiduciary duty[1] and that the United States adequately pled, in certain respects, a claim that BNY Mellon and one of its employees committed mail and wire fraud.[2]

Defendants move to dismiss, contending that plaintiffs were obligated to make a demand on the Company's board to pursue the action in its own right. Plaintiffs argue that a demand would have been futile because the directors consciously allowed the alleged misconduct to occur. In the last analysis, this case is a " replay of other similar cases where the plaintiff failed to allege with particularity any facts from which it could be inferred that particular directors knew or should have been on

Page 459

notice of alleged [misconduct], and any facts suggesting that the board knowingly allowed or participated in a violation of law." [3] The motion is granted.

Background

The Court assumes familiarity with its prior opinions that lay out the principal allegations against BNY Mellon and the Company.[4] In brief, plaintiffs allege that BNY Mellon deceived its customers from 2000 to 2011 about the nature of its standing instruction service for foreign exchange trading.[5] In standing instruction (" SI" ) trading, BNY Mellon automatically converted its customers' funds from one currency to another as such needs arose, informing the customer of the executed price only after the fact.[6] It described the service, among other things, as providing " best execution." [7] Plaintiffs in this and other actions have alleged, however, that this term had an industry meaning inconsistent with the Bank's actual pricing practices.[8] These practices, which were not disclosed to customers, were to price the trades at or near the least favorable interbank market rate of a given trading day.[9] SI trading was highly profitable for BNY Mellon and the Company, as its margins well exceeded those of directly negotiated FX transactions.[10]

Without making demand on the board, plaintiffs Iron Workers Mid-South Pension Fund and Marilyn Clark filed separate derivative complaints on November 22, 2011 and December 2, 2011, respectively, purportedly on behalf of the Company.[11] The cases were consolidated and then transferred to this Court by the Judicial Panel on Multidistrict Litigation. Plaintiffs filed their consolidated complaint on June 15, 2012,[12] and then filed an amended consolidated complaint (" AC" ) on January 31, 2013, at this Court's invitation.[13]

The AC brings claims of breach of fiduciary duty, corporate waste, and unjust enrichment against current and former members of the Company's management, including chief executive officer and chairman of the board Gerald L. Hassell,[14] and against twelve current or former non-management directors (the " Outside Directors" ).[15] The AC alleges that ...


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