Francis X FLEMING, Jr., Plaintiff-Appellant, v. The CHARLES SCHWAB CORPORATION; Charles Schwab & Co., Inc.; Walter W. Bettinger II; UBS Securities LLC, Defendants-Appellees. Louis Lim, Individually and on Behalf of all others Similarly Situated, Plaintiff-Appellant, v. Charles Schwab & Co., Inc., Defendant-Appellee.
No. 16-15179, No. 16-15189
United States Court of Appeals, Ninth Circuit
December 29, 2017
878 F.3d 1146
Here, the proportionate share approach governed the damages Foss sought from AKA and Corvus. Fault-based tort damages are apportioned by proportionate fault. See AmClyde, 511 U.S. at 207-08, 114 S.Ct. 1461; United States v. Reliable Transfer Co., 421 U.S. 397, 411, 95 S.Ct. 1708, 44 L.Ed.2d 251 (1975). We have held that strict product liability damages are also apportioned by proportionate fault in the personal injury context, see Pan-Alaska Fisheries v. Marine Const. & Design Co., 565 F.2d 1129, 1138 (9th Cir. 1977), and we see no reason why that rule should not extend to property damage. See GIC Services v. Freightplus USA, 866 F.3d 649, 663-64 (5th Cir. 2017). Unlike in Evanow v. M/V Neptune, 163 F.3d 1108 (9th Cir. 1998), a case on which Corvus relies heavily, there was no salvage contract here that determined the division of damages and no judge- or jury-imposed damage award. See id. at 1119.
Therefore, Corvus‘s assertion that it is not at fault but still could have been held liable under contract or strict liability theories is not persuasive in the maritime context. See Reliable Transfer Co., 421 U.S. at 411, 95 S.Ct. 1708. Moreover, its failure to litigate against Foss, as plaintiff, precludes Corvus from disrupting AKA‘s settlement with Foss for all claims related to AKA‘s wrongdoings. To hold otherwise, would “discourage[] settlement and lead[ ] to unnecessary ancillary litigation.” AmClyde, 511 U.S. at 211, 114 S.Ct. 1461 (emphasis added).
Therefore, because (1) Corvus settled with Foss and no fact-finder made a determination of fault, (2) Foss explicitly released all claims against Corvus related to AKA‘s wrongdoing, and (3) allowing Corvus‘s indemnity action would dissuade settlement, contrary to the Supreme Court‘s rationale in AmClyde, we will not disturb the district court‘s ruling.
Costs are awarded to Appellee.
AFFIRMED.
Andrew Love (argued) and Susan K. Alexander, Robbins Geller Rudman & Dowd LLP, San Francisco, California;
Leslie E. Hurst (argued), Paula R. Brown, Thomas J. O‘Reardon II, and Timothy G. Blood, Blood Hurst & O‘Reardon LLP, San Diego, California; Leonid Kandinov, Ashley R. Rifkin, Kevin A. Seely, and Brian J. Robbins, Robbins Arroyo LLP, San Diego, California; David J. Harris Jr., William R. Restis, and Jeffrey R. Krinks, Finkelstein & Krinsk LLP, San Diego, California; for Plaintiff-Appellant Louis Lim.
David C. Bohan (argued), Patrick M. Smith, Peter G. Wilson, and Allison M. Freedman, Katten Muchin Rosenman LLP, Chicago, Illinois, for Defendant-Appellee UBS Securities LLC.
Gilbert R. Serota (argued) and Erica M. Connolly, Arnold & Porter LLP, San Francisco, California; Lowell Haky and Mai Klaassen, Charles Schwab & Co. Inc., San Francisco, California; for Defendants-Appellees The Charles Schwab Corp., Charles Schwab & Co. Inc., and Walter W. Bettinger II.
Before: SANDRA S. IKUTA and ANDREW D. HURWITZ, Circuit Judges, and DONALD W. MOLLOY,** District Judge.
OPINION
HURWITZ, Circuit Judge:
The issue for decision is whether the
I. Background
Charles Schwab Corporation is a financial services firm that trades securities for its clients. In 2004, Schwab agreed to route 95% of its “non-directed trades” (trades for which clients have not selected another trading venue) to UBS Securities LLC (“UBS“).
Louis Lim and Charles Fleming (“Plaintiffs“) are Schwab retail customers. Their Account Agreements state that “Schwab routes equity and options orders for execution to” UBS and note that “Schwab may receive remuneration ... from a market center to which orders are routed.” Nonetheless, Plaintiffs alleged in separate complaints that Schwab breached various state-law duties by routing trades to UBS. Plaintiffs claimed that Schwab could have routed trades to many other venues, and that its arrangement with UBS sometimes resulted in unfavorable executions, both in terms of price and speed.
A. The Complaints
On May 8, 2005, Lim filed a putative class action complaint in the Northern District of California alleging that Schwab‘s routing of order executions to UBS (1) violated the
On June 24, 2015, Fleming filed a similar putative class action complaint in the same court against Schwab and UBS. Fleming alleged that Schwab (1) breached its contract; (2) violated the
B. Procedural Background
After the two cases were assigned to the same district judge, Schwab and UBS moved to dismiss the complaints, asserting that Plaintiffs lacked Article III standing or, in the alternative, that SLUSA deprived the district court of subject matter jurisdiction. The district court upheld the Plaintiffs’ standing, but dismissed both actions pursuant to SLUSA. See Hampton v. Pac. Inv. Mgmt. Co., 869 F.3d 844, 847 (9th Cir. 2017) (“[D]ismissals under SLUSA are jurisdictional.“).
II. Discussion
A. Standing
We must examine at the outset our power under Article III of the Constitution to resolve these cases. See No GWEN All. of Lane Cty., Inc. v. Aldridge, 855 F.2d 1380, 1382 (9th Cir. 1988). Article III requires that a plaintiff “show (1) she has suffered an ‘injury in fact’ that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.” Bernhardt v. Cty. of L.A., 279 F.3d 862, 868-69 (9th Cir. 2002). The district court found that “plaintiffs have adequately alleged the existence of an injury in fact” and rejected the defendants’ standing arguments. We agree and review
The seminal inquiry is whether the alleged injury “is both ‘concrete and particularized.‘” Spokeo, Inc. v. Robins, — U.S. —, 136 S.Ct. 1540, 1545, 194 L.Ed.2d 635 (2016) (quoting Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180-81, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000)). Although related, concreteness and particularity are distinct concepts. Id. at 1548. Particularized injuries “affect the plaintiff in a personal and individual way,” while a “concrete injury must be de facto; that is, it must actually exist.” Id. (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 n.1, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)) (internal quotation marks omitted).
Fleming‘s complaint alleged that because of the Schwab-UBS agreement, he “missed opportunities to profit when [his] trades failed to be executed or failed to obtain the best price,” and cited academic work supporting his contention that the agreement affected execution prices. Similarly, Lim‘s complaint alleged “Schwab‘s routing of nearly all [Plaintiffs‘] non-directed orders to UBS does not allow [Plaintiffs] to receive the most advantageous prices for their trades” and that UBS “regularly and routinely executes [Plaintiffs‘] trades at price less favorable than the best price available in the broader marketplace.”
The complaints alleged both particularized and concrete injuries—higher execution prices than might have occurred with a different market center. The complaints thus alleged the required injury in fact. That the eventual monetary damage arising from Schwab‘s conduct may be small does not negate Plaintiffs’ standing. See Czyzewski v. Jevic Holding Corp., — U.S. —, 137 S.Ct. 973, 983, 197 L.Ed.2d 398 (2017).
Schwab asserts that Article III is not satisfied because Plaintiffs have not identified particular trades that caused them losses. But, the complaints alleged that at least some of the Plaintiffs’ trades were more costly and less expeditious than they would have been if not routed to UBS. Whether the Plaintiffs can identify those trades at a later stage of litigation does not deprive them of standing to sue. At the motion to dismiss stage, “we presume[] that general allegations embrace those specific facts that are necessary to support the claim.” Lujan, 504 U.S. at 561, 112 S.Ct. 2130 (alteration in original) (quoting Lujan v. Nat‘l Wildlife Fed‘n, 497 U.S. 871, 889, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990)) (internal quotation marks omitted).
Contrary to the defendants’ assertions, Spokeo does not require a contrary result. Spokeo merely reiterated longstanding Article III jurisprudence requiring both concrete and particularized harms. See 136 S.Ct. at 1548 (“We have made it clear time and time again that an injury in fact must be both concrete and particularized.” (italics in original)). Thus, “a bare [statutory] procedural violation,” such as an improperly reported zip code by a consumer reporting agency, cannot by itself give rise to concrete harm. Id. at 1550. But here, Plaintiffs alleged more—overpaying for securities trades and losses from trades not executed promptly. Those concrete injuries, if proved, are redressable through monetary damages.1
1. Background
In the early 1990s, Congress became concerned that “private securities litigation was ... being used to injure the entire U.S. economy.” Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 81, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006) (internal quotation marks and citations omitted). To stem abuses from “nuisance filings, targeting of deep-pocket defendants, vexatious discovery requests, and manipulation by class action lawyers of the clients whom they purportedly represent,” Congress passed the
Seeking “to prevent state class actions alleging fraud ‘from being used to frustrate the objectives’ of [] PSLRA,” Congress enacted SLUSA in 1998. Freeman Inv., L.P. v. Pac. Life Ins. Co., 704 F.3d 1110, 1114 (9th Cir. 2013) (quoting H.R. Conf. Rep. 105-803 (1998)). “SLUSA bars private plaintiffs from bringing (1) a covered class action (2) based on state law claims (3) alleging that defendant made a misrepresentation or omission or employed any manipulative or deceptive device (4) in connection with the purchase or sale of (5) a covered security.” Id. (citing
Plaintiffs concede that their complaints involve “covered” class actions based on state-law claims involving “covered” securities. See
2. The Scope of SLUSA‘s bar
The text of SLUSA is substantially similar to that of
However, a claim is not automatically SLUSA-barred merely because it involves securities. See SEC v. Zandford, 535 U.S. 813, 820, 122 S.Ct. 1899, 153 L.Ed.2d 1 (2002) (admonishing courts not to interpret
In determining whether the SLUSA bar applies, substance governs over form. Freeman, 704 F.3d at 1115 (“[P]laintiffs cannot avoid preclusion through artful pleading that removes the covered words ... but leaves in the covered concepts.“) (second alteration in original) (quoting Segal v. Fifth Third Bank, N.A., 581 F.3d 305, 311 (6th Cir. 2009)). Thus, we must determine if the Plaintiffs’ claims, stripped of formal legal characterization, could have been pursued under
1. Misrepresentation or omission prong
The gravamen of each of Plaintiffs’ complaints, no matter how legally characterized, is that defendants intentionally breached a duty of “best execution.” We have not yet addressed whether breach of the duty of best execution violates federal securities law. But, four of our sister circuits have held that breach of that duty can violate
To be sure, however, not every breach of the best execution duty violates
Examining “the substance of the allegations” of Plaintiffs’ complaints, Freeman, 704 F.3d at 1115, we conclude that all of the pleaded causes of action allege deceptive conduct. Fleming alleged that Schwab, putting its own financial interests above those of the putative class, “defrauded their clients by purporting to obtain best execution for their clients’ trading orders while omitting to disclose to their clients that nearly all trades are routed to UBS, regardless of any best execution consideration.” Likewise, Lim charged that “Schwab lets its contractual obligations [to UBS] determine its order routing decision,” indicating that Schwab misleadingly failed to disclose its intention to favor its own interests over those of its clients. The district court correctly characterized the gravamen of these complaints as “Schwab either misrepresented that best execution would be achieved for its customers, or failed to disclose that best execution was no longer possible.” “In either case,” the district court properly concluded, “plaintiffs are accusing Schwab of engaging in deceptive conduct.”
Plaintiffs’ pleadings carefully allege at least several causes of action whose elements do not include manipulative conduct. But, the substance of all their allegations is that Schwab, motivated by a conflict of interest, deceived Plaintiffs into believing it would deliver best execution of their trades but knew that sending all trades to UBS would breach that duty. The complaints thus alleged a deceptive practice actionable under federal securities law. See Holtz v. JPMorgan Chase Bank, N.A., 846 F.3d 928, 932 (7th Cir. 2017) (“A fiduciary
Plaintiffs protest that “[l]abeling a willful failure to meet a contract‘s terms as deceptive conduct for SLUSA‘s purposes ... would subject virtually every breach of contract claim in the securities context to a SLUSA bar.” However, complaints merely involving contract interpretation that do not allege deception or manipulation are not covered by SLUSA even if they involve securities. Freeman, 704 F.3d at 1115-16. And, only actions filed on behalf of a covered class (more than fifty people) fall within SLUSA‘s purview. See Kircher v. Putnam Funds Tr., 547 U.S. 633, 636 n.1, 126 S.Ct. 2145, 165 L.Ed.2d 92 (2006) (noting that SLUSA “does not itself displace state law with federal law but makes some state-law claims nonactionable through the class-action device“).
2. In connection with prong
Plaintiffs assert that even if their complaints allege deceit, their claims are not SLUSA-barred because the challenged conduct did not occur “in connection with the purchase or sale of” a security.
That test is satisfied here. As the district court observed, the complaints alleged that “the false promise of best execution ... induce[d] [Plaintiffs] to purchase or sell securities through Schwab for a fee, and [] caused losses directly resulting from what clients believed to be legitimate securities transactions.” The net price obtained when purchasing or selling a security is plainly material to a buyer or seller, and the alleged breach here coincided with securities transactions. See Kurz, 556 F.3d at 641 (finding that an argument “that the duty of best execution is not in connection with the purchase or sale of securities ... is frivolous, given Dabit“) (internal quotation marks omitted); Newton, 135 F.3d at 270 (holding breach of best execution duty is “a material misrepresentation in connection with the purchase or sale of the securities“); Rayner, 248 F.Supp.3d at 504 (holding that alleged breach of best execution duty “plainly coincided with the securities transactions at issue“); Zola v. TD Ameritrade, Inc., 172 F.Supp.3d 1055, 1071 (D. Neb. 2016) (“Claims involving alleged violations of the duty imposed on a broker to obtain best execution for customers in executing portfolio transactions are claims ‘in connection with’ the purchase or sale of securities for SLUSA purposes.“).5
Finally, Plaintiffs assert that the misrepresentation must relate to the “nature of the securities.” Although misrepresentations about the nature of a security are surely “in connection with” that security, Falkowski, 309 F.3d at 1129-31, the in-connection prong can be satisfied otherwise. “[T]he fraud in question need not relate to the investment value of the securities themselves” but need only “have more than some tangential relation to the securities transaction.” Id. at 1131 (quoting Ambassador Hotel Co. v. Wei-Chuan Inv., 189 F.3d 1017, 1026 (9th Cir. 1999)). The allegations here overcome that slim hurdle.
3. Fleming‘s claims against UBS
Fleming alleged that UBS violated the
III. Conclusion
The judgment of the district court is AFFIRMED.
Notes
(f) Limitations on remedies
(1) Class action limitations
No covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any private party alleging—
(A) a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security; or
(B) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.