Trust Updates Archive

Management Fee Overcharges
Bank of America Still Paying

(Feb. 20, 2004, CHICAGO, IL)--Though Bank of America in late 2000 agreed to pay some $35 million to settle litigation involving management fee overcharges, the issue of whether simple or compound interest should have been used to compute beneficiaries’ reimbursement remained on appeal.

On Thursday, Feb. 19, the bank reached a final settlement with plaintiffs, for an additional $33 million, bringing the total the bank has paid to reimburse trusts to nearly $110 million.

The litigation stems from BofA’s acquisition of Security Pacific. BofA was sued after having reimbursed some $41 million--$23 million in overcharges and $18 million in interest--to accounts, both open and closed, dating back to 1975. BofA based it reimbursement on an Arthur Andersen audit of its trusts accounts.

In 1994, Carol Nickel sued the bank charging that BofA provided beneficiaries with inadequate disclosure when it reimbursed them.Further, Nickel charged, the bank did not correctly “determine the reimbursement”--whether simple or compound interest should be used. The $35 million settlement in 2002 covered punitive damages and administrative expenses. It did not resolve the issue of which rate of interest should have been used as the court had separated the interest issue from the other claims.

The district court eventually ruled that under the California Probate Act, simple interest was the appropriate remedy. Plaintiffs appealed. Based on the terms of the 2002 settlement, if the appeals court found that simple interest should have been used, the bank would pay an additional $12.5 million; if it found compound interest should have been used, an additional $40 million would be paid. Yesterday’s settlement ends this dispute.

Carol Nickel v. Bank of America, 94-CV-2716 (N.D. Cal), 01-15452 (U.S. Court of Appeal Ninth Circuit)

Other litigation related to this acquisition of Security Pacific includes Fisher v. Bank of America which BofA settled in December 1998 for some $20 million. The Fisher case dealt with Security Pacific’s investment of fiduciary assets in limited partnerships allegedly originated and underwritten by the bank’s trust department.

Wells Fargo in 2002 settled a management fee case for $42 million.
Seamans v. Wells Fargo Bank, No. 984497 (Cal. Super. Ct., San Francisco County).

For more details, see the upcoming March issue of TRN.

-- Copyright ©2004 A.M. Publishing, Inc., Trust Regulatory News

No statement in this issue is offered as or should
be construed as legal opinion or advice.

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