Cash sweep litigation
In re: Wells Fargo & Co.
Date: June 27, 2025
Issue: Whether Wells Fargo failed to meet its contractual obligations and unjustly enriched itself through its cash sweep program.
Case Summary: A California federal judge partially granted Wells Fargo’s motion to dismiss a lawsuit alleging the bank breached its contract and unjustly enriched itself through its cash sweep program.
Wells Fargo’s cash sweep program allows clients to have their temporarily uninvested cash held in an interest-bearing account. Each business day, available cash balances in all eligible customer accounts are swept out of the accounts and into one of the program banks.
In July 2024, a class of Wells Fargo customers (plaintiffs) sued Wells Fargo, alleging the bank’s cash sweep investment program generates “enormous” fees for itself at the expense of its customers by sweeping cash into accounts managed by affiliated banks. Plaintiffs alleged breach of their fiduciary duties, negligence, breach of contract, unjust enrichment, and violation of the New York General Business Law.
On April 24, 2025, Wells Fargo moved to dismiss, arguing that it disclosed in signed agreements with customers the bank’s intentions to secure financial gains for itself through the program. Further, Wells Fargo argued that it did not enrich itself because Plaintiffs failed to show that the bank benefited at their expense.
Judge Vince Chhabria of the Northern District of California trimmed plaintiffs’ lawsuit. Wells Fargo argued plaintiffs waived their right to sue by failing to dispute their interest rates for years after opening their accounts. However, the court disagreed, explaining that waiver occurs only when a party knowingly, voluntarily, and intentionally gives up a contractual right. The court found nothing in the complaint suggesting plaintiffs knew about the alleged breach and chose to accept the interest rates anyway.
The court also rejected Wells Fargo’s claim that the implied covenant claim should be dismissed as duplicative of the breach of contract claim. The court clarified that while a party cannot recover under both theories based on the same facts, a plaintiff may pursue both claims in the alternative when the meaning of the contract’s express terms remains in dispute.
The court also ruled that plaintiffs plausibly alleged a breach of contract because Wells Fargo promised to provide a reasonable interest rate through its cash sweep program. Consumers could reasonably interpret several documents—including IRA agreements and regulatory disclosures—as contractual promises to pay a reasonable rate, even if Wells Fargo issued those documents to satisfy regulatory requirements.
Wells Fargo argued these materials did not create enforceable obligations and maintained the complaint did not adequately allege a breach. But the court rejected those arguments. Plaintiffs noted that Wells Fargo paid much lower rates (0.01–0.14%) from 2021 to 2024 compared to firms like Vanguard and Fidelity, and they did not raise rates in line with increasing federal funds rates. Plaintiffs also referenced SEC findings and Wells Fargo’s later rate increases as evidence the bank failed to act reasonably. Still, the court dismissed a separate contract claim that challenged allegedly excessive fees, explaining that the cited provision did not apply to the cash sweep program.
Finally, the court dismissed plaintiffs’ claims for breach of fiduciary duty, unjust enrichment, and all claims against Wells Fargo’s subsidiary, FiNet. Although the court recognized that Wells Fargo owed fiduciary duties to its advisory clients, it held that the bank did not owe such duties to non-advisory clients, because their contracts did not expressly create a fiduciary relationship. The court also ruled that a valid and enforceable contract — whether express or implied — precludes an unjust enrichment claim when it governs the same subject matter. In this case, both parties agreed that valid contracts governed the relationship between Wells Fargo and its cash sweep clients, despite their dispute over the contracts’ precise meaning.
Bottom Line: The court granted leave to amend all dismissed claims within 21 days, except for the unjust enrichment claim, which was dismissed with prejudice.
Document Type: Order
