Douglas McDaniel v. Wells Fargo Investments, Llc
717 F.3d 668
9th Cir.2013Background
- Four class actions allege California Labor Code § 450(a) forces employees to patronize their employer by restricting self-directed outside trading accounts.
- Plaintiffs are former Wells Fargo, Morgan Stanley, and Merrill Lynch employees who wished to open outside accounts but were prohibited.
- Defendants implemented policies requiring in-house accounts and, in some cases, mandated duplicate trade confirmations for outside accounts.
- District courts dismissed the claims as preempted by federal securities laws and SRO rules; the district decisions were appealed.
- The central issue is whether federal securities law preempts California’s forced-patronage statute under obstacle or impossibility preemption.
- The panel consolidated the four appeals for briefing and argument.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 450(a) claims are preempted by federal securities law. | McDaniel/Clark argue state law obstructs federal goals. | Firms contend federal regime preempts state forcing patronage. | Preemption upheld; § 450(a) claims precluded. |
| Whether Rice presumption applies to preemption analysis. | Presumption against preemption applies in field states traditionally regulate. | Fractions argue field is securities regulation, not labor. | Rice presumption applies; section 450(a) is a labor regulation, not preempted by presumption. |
| Whether the federal regime’s discretion over broker-dealer supervision preempts state coercion claims. | Discretion is not a significant federal objective on its own. | Discretion aids preventing insider trading and is a federal objective. | Discretion deemed significant; still preempted due to obstacle preemption. |
| Whether SRO rules can preempt state-law claims. | SRO rules cannot be read to permit forced patronage under state law. | SROs enforce federal policy and preempt state claims. | SROs contribute to preemption; claims barred. |
| Whether the doctrine of obstacle preemption applies to preclude the claims. | State law merely regulates supervision methods. | Federal framework blocks the state-law workaround. | Obstacle preemption applies; claims precluded. |
Key Cases Cited
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Ware, 414 U.S. 117 (U.S. 1973) (broker-dealer duty to prevent misuse of information)
- Wyeth v. Levine, 555 U.S. 555 (U.S. 2009) (presumption applies in preemption cases in traditionally regulated fields)
- Pac. Merch. Shipping Ass’n v. Goldstene, 639 F.3d 1154 (9th Cir. 2011) (presumption against preemption in traditional state-regulated areas)
- Chae v. SLM Corp., 593 F.3d 936 (9th Cir. 2010) (field of labor and consumer protections; traditional state enforcement)
- Williamson v. Mazda Motor of Am., Inc., 131 S. Ct. 1131 (U.S. 2011) (preservation of significant federal objectives in preemption analysis)
- Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (U.S. 1947) (presumption against preemption in areas traditionally regulated by the states)
- Dabit v. Merrill Lynch, Pierce, Fenner & Smith Inc., 547 U.S. 71 (U.S. 2006) (federal regulatory framework and market integrity considerations)
- Whistler Invs., Inc. v. Depository Trust & Clearing Corp., 539 F.3d 1159 (9th Cir. 2008) (SRO rules can preempt state law)
- Pac. Nat’l Bank v. Wozab, 800 P.2d 557 (Cal. 1990) (plain-meaning interpretation of statute)