Zola v. TD Ameritrade, Inc.
172 F. Supp. 3d 1055
D. Neb.2016Background
- Five related putative class actions by TD Ameritrade customers allege the broker routed retail orders to venues that paid the highest payment-for-order-flow or liquidity rebates rather than to venues providing "best execution."
- Plaintiffs asserted various state-law claims (breach of contract, breach of fiduciary duty, fraud, unjust enrichment, consumer-protection claims) in Zola, Verdieck, Lerner, and Sarbacker; Klein asserted federal securities claims under §10(b)/Rule 10b-5 and §20(a) plus state claims.
- TD Ameritrade moved to dismiss, arguing SLUSA preclusion of state-law class claims, regulatory preclusion, and failure to state federal securities claims under Rule 12(b)(6)/PSLRA standards.
- The magistrate judge recommended dismissal on SLUSA and for failure to state claims; the district court adopted the SLUSA ruling but disagreed about dismissal of Klein’s federal securities claim.
- The court dismissed all state-law class claims as precluded by SLUSA, but denied dismissal of Klein’s federal §10(b) claim, finding the amended complaint adequately alleged misleading statements/omissions, scienter, economic loss, and loss causation at the pleading stage.
- Plaintiffs in the state-law cases were given leave to amend within 21 days to assert federal securities claims if they choose; individual state-court claims remain available.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether state-law class claims are precluded by SLUSA | Plaintiffs: claims are state-law (contract, fiduciary, consumer-protection) and not removable to federal securities scheme | TD Ameritrade: allegations rest on misrepresentations/omissions "in connection with" purchase/sale of nationally traded securities, so SLUSA bars class actions | Held: SLUSA precludes the state-law class claims; dismissed; leave to amend to assert federal claims allowed |
| Whether Klein's §10(b)/Rule 10b-5 claim satisfies PSLRA/Tellabs pleading standards | Klein: complaint specifies misleading statements about "best execution," alleges systemic routing to maximize rebates, cites empirical studies, loss to retail customers, and corporate profits showing motive | TD Ameritrade: allegations speculative; plaintiff fails to plead that order routing prioritized rebates over other execution factors, scienter, or plausible economic loss/loss causation | Held: District court rejects dismissal — Klein plausibly pleaded misstatements/omissions, scienter, economic loss, and loss causation; §10(b) claim survives dismissal |
| Whether scienter and motive are adequately pleaded under the PSLRA | Klein: motive/inference supported by large payments for order flow (>$600M–$1B), timing of routing changes, regulatory scrutiny of venues, and CEO involvement | TD Ameritrade: revenue motive alone insufficient; need stronger particularized facts showing conscious intent to deceive | Held: Allegations collectively give rise to a strong and cogent inference of scienter at pleading stage; dismissal denied |
| Whether leave to amend should be granted | Plaintiffs: seek opportunity to assert federal securities claims if state claims are dismissed | TD Ameritrade: opposes additional amendment as unnecessary or prejudicial | Held: Court grants leave to amend for Zola, Verdieck, Lerner, Sarbacker (21 days); Klein’s state-law claims dismissed but federal claim remains live |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (pleading standard for scienter; evaluate allegations collectively)
- Ashcroft v. Iqbal, 556 U.S. 662 (Twombly/Iqbal standard for plausible claims)
- Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (elements of private §10(b) claim; loss causation discussion)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (economic loss requirement in securities fraud)
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (SLUSA purpose and scope)
- Kircher v. Putnam Funds Trust, 547 U.S. 633 (SLUSA as preclusion and its effect on state claims)
- S.E.C. v. Zandford, 535 U.S. 813 (when breaches of fiduciary duty are "in connection with" securities transactions)
- Kurz v. Fidelity Mgmt. & Research Co., 556 F.3d 639 (best-execution allegations fall within SLUSA; broker duties regulated federally)
- Lustgraaf v. Behrens, 619 F.3d 867 (control-person liability standards)