Full text
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 21-MD-2989-ALTONAGA/TORRES
In re:
JANUARY 2021 SHORT SQUEEZE
TRADING LITIGATION
_____________________________________/
This Document Relates to the Robinhood Tranche
DEFENDANTS ROBINHOOD MARKETS, INC., ROBINHOOD FINANCIAL LLC AND
ROBINHOOD SECURITIES, LLC’S MOTION TO DISMISS THE ROBINHOOD
TRANCHE COMPLAINT AND INCORPORATED MEMORANDUM OF LAW
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 1 of 48
i
TABLE OF CONTENTS
TABLE OF AUTHORITIES ......................................................................................................... iii
PRELIMINARY STATEMENT .....................................................................................................1
BACKGROUND .............................................................................................................................4
I.
The Contractual Relationship Between Robinhood and Its Customers. ..............................4
II.
The Mechanics of Securities Trading. .................................................................................6
III.
The Unprecedented Market Volatility of January 2021. .....................................................7
IV.
The Events of January 28, 2021 and Onward. .....................................................................9
LEGAL STANDARDS .................................................................................................................10
I.
Applicable Standard. ..........................................................................................................10
II.
Applicable Law. .................................................................................................................11
ARGUMENT .................................................................................................................................13
I.
PLAINTIFFS’ NEGLIGENCE (COUNT I) AND GROSS NEGLIGENCE
(COUNT II) CLAIMS FAIL BECAUSE PLAINTIFFS DO NOT
ADEQUATELY ALLEGE THAT ROBINHOOD OWED THEM A DUTY IN
TORT. ................................................................................................................................13
A.
Robinhood Owes Its Customers Contractual Obligations, Not Tort Duties ..........13
B.
Robinhood Does Not Owe Its Customers a Generalized Duty of Care .................17
C.
Plaintiffs Cannot Rely on Regulations and Self-Regulatory Rules for
Which There Are No Private Rights of Action to Impose a Tort Duty on
Robinhood ..............................................................................................................20
II.
ROBINHOOD DOES NOT OWE ITS CUSTOMERS A FIDUCIARY DUTY
(COUNT III). .....................................................................................................................23
A.
Robinhood Owed No Duty to Customer Plaintiffs To Make Its Brokerage
Services Available for Any Specific Security At All Times .................................23
B.
Robinhood Also Owed No Duty to Plaintiff Moody for Canceled Orders ...........28
III.
PLAINTIFFS CANNOT STATE A CLAIM FOR BREACH OF THE IMPLIED
COVENANT OF GOOD FAITH AND FAIR DEALING (COUNT V). .........................29
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 2 of 48
ii
IV.
PLAINTIFFS CANNOT STATE A CLAIM FOR BREACH OF AN IMPLIED
DUTY OF CARE (COUNT IV). .......................................................................................31
V.
PLAINTIFFS FAIL TO STATE A CLAIM OF TORTIOUS INTERFERENCE
AGAINST ROBINHOOD MARKETS (COUNT VI). .....................................................32
VI.
PLAINTIFFS FAIL TO STATE A CLAIM OF CIVIL CONSPIRACY (COUNT
VII). ....................................................................................................................................34
VII.
ROBINHOOD OWES NO DUTIES TO NON-ROBINHOOD CUSTOMERS—
ALL CLAIMS BROUGHT BY NON-ROBINHOOD CUSTOMERS
THEREFORE FAIL...........................................................................................................35
VIII. PLAINTIFFS’ AMENDED COMPLAINT SHOULD BE DISMISSED WITH
PREJUDICE. .....................................................................................................................36
CONCLUSION ..............................................................................................................................37
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 3 of 48
iii
TABLE OF AUTHORITIES
Page(s)
Cases
21st Century Ins. Co. v. Super. Ct., 213 P.3d 972 (Cal. 2009) ......................................................30
Aas v. Super. Ct., 12 P.3d 1125 (Cal. 2000) ..................................................................................15
Aoki v. Gilbert, No. 11-cv-02797-TLN-CKD, 2020 WL 6741693
(E.D. Cal. Nov. 17, 2020) ........................................................................................................26
Apollo Capital Fund LLC v. Roth Capital Partners LLC, 70 Cal. Rptr. 3d 199
(Ct. App. 2007) ........................................................................................................................24
Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 869 P.2d 454 (Cal. 1994) .........................34, 35
Arndt v. Twenty-One Eighty-Five, LLC, 448 F. Supp. 3d 1310 (S.D. Fla. 2020) ....................11, 12
Ashcroft v. Iqbal, 556 U.S. 662 (2009) ..........................................................................................11
Bankest Imports, Inc. v. ISCA Corp., 717 F. Supp. 1537 (S.D. Fla. 1989)..............................27, 28
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ..........................................................................11
Biakanja v. Irving, 320 P.2d 16 (Cal. 1958) ............................................................................18, 19
Bily v. Arthur Young & Co., 834 P.2d 745 (Cal. 1992) .................................................................13
Body Jewelz, Inc. v. Valley Forge Ins. Co., 241 F. Supp. 3d 1084 (C.D. Cal. 2017) ..............18, 19
Bombardier Cap. Inc. v. Progressive Mktg. Grp., Inc., 801 So. 2d 131
(Fla. 4th DCA 2001) ................................................................................................................14
Brown v. Cal. Pension Adm’rs & Consultants, Inc., 52 Cal. Rptr. 2d 788
(Ct. App. 1996) ............................................................................................................15, 23, 24
Burdick v. Bank of Am., N.A., 99 F. Supp. 3d 1372 (S.D. Fla. 2015) ............................................16
Caravan Mobile Home Sales v. Lehman Brothers Kuhn Loeb, Inc., 769 F.2d 561
(9th Cir. 1985) ..........................................................................................................................28
Carleton v. Tortosa, 17 Cal. Rptr. 2d 734 (Ct. App. 1993) .....................................................26, 28
Carma Devs. (Cal.), Inc. v. Marathon Dev. Cal., Inc., 826 P.2d 710 (Cal. 1992) ........................30
Centurion Air Cargo, Inc. v. United Parcel Serv. Co., 420 F.3d 1146
(11th Cir. 2005) ........................................................................................................................31
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 4 of 48
iv
Certain Underwriters at Lloyd’s of London, UK Subscribing to Pol’y No.
B1230AP56189A14 v. Ocean Walk Resort Condo. Ass’n,
No. 6:16-CV-258-ORL-37GJK, 2017 WL 3034069 (M.D. Fla. July 18, 2017) .....................20
Champion v. Feld Ent., Inc., No. 20-CV-2400-DMS-KSC, 2021 WL 1812764
(S.D. Cal. May 6, 2021) ...........................................................................................................13
City of Hope Nat’l Med. Ctr. v. Genentech, Inc., 181 P.3d 142 (Cal. 2008) .................................25
City Sols., Inc. v. Clear Channel Commc’ns, Inc., 201 F. Supp. 2d 1048
(N.D. Cal. 2002).......................................................................................................................26
Clanton v. Inter.Net Glob., L.L.C., 435 F.3d 1319 (11th Cir. 2006) .............................................11
Clay Elec. Co-op., Inc. v. Johnson, 873 So. 2d 1182 (Fla. 2003) ..................................................20
Cobos v. Robinhood Financial LLC, et al., No. 2:21-cv-00843-VAP-MRWx,
2021 WL 1035123 (C.D. Cal. Feb. 10, 2021)............................................................................3
Comm. on Children’s Television, Inc. v. Gen. Foods Corp., 673 P.2d 660
(Cal. 1983) ...............................................................................................................................27
Cooper v. Meridian Yachts, Ltd., 575 F.3d 1151 (11th Cir. 2009) ................................................12
Corral v. Select Portfolio Servicing, Inc., No. C-15-1542 EMC, 2015 WL
4149144 (N.D. Cal. July 9, 2015) ............................................................................................32
Curd v. Mosaic Fertilizer, LLC, 39 So. 3d 1216 (Fla. 2010).........................................................19
D.A.M. v. Barr, 474 F. Supp. 3d 45 (D.D.C. 2020) .........................................................................9
Deloitte & Touche v. Gencor Indus., Inc., 929 So. 2d 678 (Fla. 5th DCA 2006) .........................12
Elsayed v. Maserati N. Am., Inc., 215 F. Supp. 3d 949 (C.D. Cal. 2016) ...............................18, 19
Erlich v. Menezes, 981 P.2d 978 (Cal. 1999)...........................................................................14, 15
Estate of Johnson ex rel. Johnson v. Badger Acquisition of Tampa LLC,
983 So. 2d 1175 (Fla. 2d DCA 2008) ......................................................................................22
Ethyl Corp. v. Balter, 386 So. 2d 1220 (Fla. 3d DCA 1980) .........................................................35
Florida Fern Growers Ass’n v. Concerned Citizens of Putnam County,
616 So. 2d 562 (Fla. 5th DCA 1993) .......................................................................................35
Fox v. Lifemark Sec. Corp., 84 F. Supp. 3d 239 (W.D.N.Y. 2015) ...............................................21
Gochnauer v. A.G. Edward & Sons, Inc., 810 F.2d 1042 (11th Cir. 1987) ...................................27
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 5 of 48
v
Graham v. Scissor-Tail, Inc., 623 P.2d 165 (Cal. 1981)................................................................14
Gurfein v. Ameritrade, Inc., 312 F. App’x 410 (2d Cir. 2009) ......................................................21
Guz v. Bechtel Nat’l Inc., 8 P.3d 1089 (Cal. 2000)........................................................................30
Harper v. Wausau Ins. Co., 66 Cal. Rptr. 2d 64 (Ct. App. 1997)..................................................22
Hauptman v. Interactive Brokers, LLC, 349 F. Supp. 3d 292 (S.D.N.Y. 2018) ............................22
Holguin v. Dish Network LLC, 178 Cal. Rptr. 3d 100 (Ct. App. 2014) ........................................31
Hollingsworth v. Com. Union Ins. Co., 256 Cal. Rptr. 357 (Ct. App. 1989) ...........................16, 17
In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 155 F. Supp. 2d 1069
(S.D. Ind. 2001) .......................................................................................................................11
In re Series 7 Broker Qualification Exam Scoring Litig., 510 F. Supp. 2d 35
(D.D.C. 2007) ..........................................................................................................................21
In re Verifone Sec. Litig., 11 F.3d 865 (9th Cir. 1993) ..................................................................22
Integrated Storage Consulting Servs., Inc. v. NetApp, Inc., No. 5:12-CV-06209-
EJD, 2013 WL 3974537 (N.D. Cal. July 31, 2013) .................................................................30
Island Travel & Tours, Co. v. MYR Indep., Inc., 300 So. 3d 1236
(Fla. 3d DCA 2020) .................................................................................................................15
Ixchel Pharma, LLC v. Biogen, Inc., 470 P.3d 571 (Cal. 2020) ..............................................32, 33
J’Aire Corp. v. Gregory, 598 P.2d 60 (Cal. 1979)...................................................................18, 19
Jablon v. Dean Witter & Co., 614 F.2d 677 (9th Cir. 1980) .........................................................22
Kidder Peabody & Co. v. Unigestion Int’l, Ltd., 903 F. Supp. 479
(S.D.N.Y. 1995) .......................................................................................................................21
Kim v. Westmoore Partners, Inc., 133 Cal. Rptr. 3d 774 (Ct. App. 2011) ....................................16
Kipnis v. Bayerische Hypo- und Vereinsbank, AG, No. 13-23998-CIV,
2017 WL 11103938 (S.D. Fla. June 26, 2017) ........................................................................28
Korea Supply Co. v. Lockheed Martin Corp., 63 P.3d 937 (Cal. 2003) ........................................33
Kurtz-Ahlers, LLC v. Bank of Am., N.A., 262 Cal. Rptr. 3d 420 (Ct. App. 2020) .........................18
La Grasta v. First Union Sec., Inc., 358 F.3d 840 (11th Cir. 2004) ................................................7
Lamm v. State St. Bank & Tr., 749 F.3d 938 (11th Cir. 2014) ......................................................20
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 6 of 48
vi
Leib v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 461 F. Supp. 951
(E.D. Mich. 1978) ....................................................................................................................27
Marshall v. Galvanoni, No. 17-cv-00820-KJM-CKD, 2017 WL 5177764
(E.D. Cal. Nov. 8, 2017) ..........................................................................................................16
Meyers v. Guar. Sav. & Loan Ass’n, 144 Cal. Rptr. 616 (Ct. App. 1978)...............................26, 28
Misabec Mercantile, Inc. de Panama v. Donaldson, Lufkin & Jenrette ACLI
Futures, Inc., 853 F.2d 834 (11th Cir. 1988) ...........................................................................29
Mishiyev v. Alphabet, Inc., 444 F. Supp. 3d 1154 (N.D. Cal. 2020) .............................................31
N. Ctys. Eng’g, Inc. v. State Farm Gen. Ins. Co., 169 Cal. Rptr. 3d 726
(Ct. App. 2014) ........................................................................................................................16
Orey v. Super. Ct., 152 Cal. Rptr. 3d 878 (Ct. App. 2013) ............................................................13
Paszamant v. Ret. Accts., Inc., 776 So. 2d 1049 (Fla. 5th DCA 2001) ..........................................20
Peregrine Pharms., Inc. v. Clinical Supplies Mgmt., Inc., No. 12-cv-1608-JGB,
2015 WL 13309286 (C.D. Cal. June 22, 2015) .................................................................15, 18
Petersen v. Sec. Settlement Corp., 277 Cal. Rptr. 468 (Ct. App. 1991) ........................................24
Pinchasov v. Robinhood Financial LLC, No. 20-cv-24897-CMA (S.D. Fla.) ........................20, 29
Price (Tilley) v. Charles Schwab & Co., No. 14-cv-06194, 2015 WL 9694811
(C.D. Cal. Apr. 6, 2015)...........................................................................................................22
QBE Ins. Corp. v. Chalfonte Condo. Apartment Ass’n, 94 So. 3d 541 (Fla. 2012) .......................31
Raimi v. Furlong, 702 So. 2d 1273 (Fla. 3d DCA 1997) ...............................................................35
Richelle L. v. Roman Cath. Archbishop, 130 Cal. Rptr. 2d 601 (Ct. App. 2003) ....................25, 26
Robinson Helicopter Co. v. Dana Corp., 102 P.3d 268 (Cal. 2004) .............................................15
Rocks v. McLaughlin Eng’g Co., 49 So. 3d 823 (Fla. 4th DCA 2010) ..........................................17
Rosenfeld v. JPMorgan Chase Bank, N.A., 732 F. Supp. 2d 952 (N.D. Cal. 2010) ......................29
S. California Gas Leak Cases, 441 P.3d 881 (Cal. 2019) ..................................................17, 18, 19
Salit v. Ruden, McClosky, Smith, Schuster & Russell, P.A., 742 So. 2d 381
(Fla. 4th DCA 1999) ................................................................................................................34
Scolieri v. John Hancock Life Ins. Co. (U.S.A.), No. 2:16-CV-690-FTM-38CM,
2017 WL 700215 (M.D. Fla. Feb. 22, 2017) ...........................................................................28
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 7 of 48
vii
Series AGI W. Linn of Appian Grp. Invs. DE, LLC v. Eves, 158 Cal. Rptr. 3d 193
(Ct. App. 2013) ........................................................................................................................31
SFM Holdings, Ltd. v. Banc of Am. Sec., LLC, 600 F.3d 1334 (11th Cir. 2010)...........................24
Sheahan v. State Farm Gen. Ins. Co., 442 F. Supp. 3d 1178 (N.D. Cal. 2020) ............................19
Sheen v. Wells Fargo Bank, N.A., 250 Cal. Rptr. 3d 677 (Ct. App. 2019) ........................13, 14, 18
Siemonsma v. Mut. Diversified Emps. Fed. Credit Union, No. SACV 10-1093
DOC, 2011 WL 1485979 (C.D. Cal. Apr. 19, 2011) ...............................................................26
Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252 (11th Cir. 2009) ...................................................11
Sparta Surgical Corp. v. Nat’l Ass’n of Sec. Dealers, Inc., No. C-95-3926-MHP,
1997 WL 50223 (N.D. Cal. Jan. 30, 1997) ..............................................................................21
Strategic Income Fund, LLC v. Spear, Leeds & Kellogg Corp., 305 F.3d 1293
(11th Cir. 2002) ........................................................................................................................24
Sunset Beach Invs., LLC v. Kimley-Horn & Assocs., Inc., 207 So. 3d 1012
(Fla. 4th DCA 2017) ................................................................................................................17
Tank Tech, Inc. v. Valley Tank Testing, L.L.C., 244 So. 3d 383
(Fla. 2d DCA 2018) ...........................................................................................................20, 36
Thompson v. County of Alameda, 614 P.2d 728 (Cal. 1980) .........................................................13
Tiara Condo. Ass’n v. Marsh & McLennan Cos., 110 So. 3d 399 (Fla. 2013) .............................20
Twomey v. Mitchum, Jones & Templeton, Inc., 69 Cal. Rptr. 222 (Ct. App. 1968) ................23, 25
Underwriters at Int. v. All Logistics Grp., Inc., 483 F. Supp. 3d 1199
(S.D. Fla. 2020) ..................................................................................................................19, 20
Unity House, Inc. v. N. Pac. Inv., Inc., 918 F. Supp. 1384 (D. Haw. 1996) ..................................25
Univ. Express, Inc. v. SEC, 177 F. App’x 52 (11th Cir. 2006) ........................................................2
Valelly v. Merrill Lynch, Pierce, Fenner & Smith Inc., 464 F. Supp. 3d 634
(S.D.N.Y. 2020) .......................................................................................................................21
Whitesides v. E*Trade Securities, LLC, No. 20-CV-05803-JSC, 2021 WL 930794
(N.D. Cal. Mar. 11, 2021) ........................................................................................................18
World Vacation Travel, S.A., de C.V. v. Brooker, 799 So. 2d 410
(Fla. 3d DCA 2001) .................................................................................................................12
Wyatt v. Union Mortg. Co., 598 P.2d 45 (Cal. 1979) ....................................................................35
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 8 of 48
viii
Statutes & Rules
17 C.F.R. § 240.15c3-1 ..................................................................................................................21
17 C.F.R. § 240.17Ad-22 .................................................................................................................6
15 U.S.C. § 78bb(f)(1) ...................................................................................................................15
Fed. R. Civ. P. 10 ...........................................................................................................................11
Fed. R. Civ. P. 12(b)(6)..............................................................................................................1, 10
Fed. R. Evid. 201(b)(2) ....................................................................................................................9
FINRA Rule 2010 ..........................................................................................................................22
FINRA Rule 3110 ..........................................................................................................................22
FINRA Rule 4370 ..........................................................................................................................22
Securities Exchange Act of 1934 § 15(c)(3), 15 U.S.C. § 78o(c)(3) .............................................21
Securities Litigation Uniform Standards Act of 1998 ...................................................................15
Other Authorities
Market Activity, Nasdaq, https://www.nasdaq.com/market-activity (last visited
Aug. 24, 2021) .......................................................................................................................7, 8
Restatement (Second) of Contracts § 205 ......................................................................................29
Restatement (Third) of Torts: Phys & Emot. Harm § 7 (2010) .....................................................17
Restatement (Third) of Torts: Liab. for Econ. Harm § 4 (2020) ...................................................16
Restatement (Third) of Torts: Liab. for Econ. Harm § 4 cmt. b (2020) ........................................16
Restatement (Third) of Torts: Liab. for Econ. Harm § 3 cmt. d (Tent. Draft No. 1) .....................13
Securities and Exchange Comm’n, “Thinking About Investing in the Hot Stock?”
(Jan. 30, 2021), https://www.sec.gov/oiea/investor-alerts-and-bulletins/risks-
short-term-trading-based-social-media-investor-alert .........................................................2, 10
Virtual Hearing – Game Stopped? 117th Cong. at 10 (2021) (statement of
Vladimir Tenev, Chief Executive Officer, Robinhood Markets, Inc.),
https://financialservices.house.gov/uploadedfiles/hhrg-117-ba00-wstate-
tenevv-20210218.pdf ...........................................................................................................9, 10
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 9 of 48
Pursuant to Federal Rule of Civil Procedure 12(b)(6), Defendants Robinhood
Markets, Inc. (“Robinhood Markets”), Robinhood Financial LLC (“Robinhood Financial”) and
Robinhood Securities, LLC (“Robinhood Securities”) (together, “Robinhood”) respectfully
submit this memorandum of law in support of their Motion to Dismiss the Amended
Consolidated Class Action Complaint for the Robinhood Tranche (the “Amended Complaint” or
“Am. Compl.”) (ECF No. 409) for failure to state a claim.
PRELIMINARY STATEMENT
Robinhood’s obligations to its retail investor customers are defined by contract.
The rights and obligations between Robinhood and its customers are delineated in the Robinhood
Customer Agreement (“Cust. Agmt.” or “Customer Agreement” (Am. Compl., Exhibit A)),
which all Robinhood customers must review and accept when opening an account. The
Customer Agreement is attached to, and thereby incorporated into, the Amended Complaint.
The Customer Agreement expressly permitted Robinhood to implement the temporary
restrictions it imposed on January 28, 2021 and in the days thereafter, which are the basis of
Plaintiffs’ claims in this Action.
Specifically, Plaintiffs’ claims arise from the difficult decision that Robinhood
Securities made on January 28, 2021 to limit customer purchases of certain popular stocks,
including GameStop, Inc. (GME) and AMC Entertainment Holdings, Inc. (AMC). In the days
leading up to this decision, retail investors, spurred by social media and online forums, poured
into the stock markets in record numbers to trade in stocks for GME, AMC and certain other
popular issuers known as the “meme stocks.” This activity pushed trading volatility in the meme
stocks to record levels within a matter of days.
In late January 2021, this market volatility significantly affected the collateral
deposit requirements that clearinghouses impose on clearing brokers to protect investors, brokers
and the financial system as a whole. To ensure market stability in the event that a market
participant is unable satisfy its obligations with respect to a trade, clearing brokers, like
Robinhood Securities, are required to post collateral to clearinghouses, like the National
Securities Clearing Corporation (“NSCC”), at least daily to cover the cost and risk associated
with their customers’ trade orders. Deposit requirements are largely calculated based on net
order volume and volatility multipliers, with the requirements increasing dramatically as
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 10 of 48
2
volatility increases. The ultimate purpose of these deposits is to protect investors and the
financial system generally.
As the unprecedented volatility in late January 2021 grew, so too did brokers’
clearinghouse deposit requirements with the NSCC. This substantial increase in trading volume
and volatility led the NSCC on the morning of January 28, 2021 to issue a $3 billion collateral
deposit demand on Robinhood Securities—an approximately twenty-four fold increase from
earlier in the week, and more than four times what was required the day before. To remain in
compliance with its deposit requirements, Robinhood Securities made the difficult decision to
place limited restrictions on customer purchases on the small number of securities driving its
deposit requirements. Other brokers, which also saw dramatic increases in their deposit
requirements, imposed restrictions on a number of the securities experiencing trading volatility
as well.
Robinhood’s Customer Agreement expressly provides that Robinhood can impose
trading restrictions, stating inter alia that “Robinhood may at any time, in its sole discretion, and
without prior notice to [the customer], prohibit or restrict [the customer’s] ability to trade
securities.” (Cust. Agmt. § 5.F.) Robinhood reserves this right to restrict trading precisely
because of situations like the one that unfolded in late January 2021: extreme market volatility
can have unpredictable effects, and Robinhood, like all brokers, needs the flexibility to take
measures to satisfy its legal obligations so that it can continue serving its customers trading in
thousands of available securities. This authority to restrict trading was quickly reaffirmed by the
Securities and Exchange Commission (“SEC”); just two days after Robinhood imposed the
much-discussed restrictions, the SEC reiterated in an investor alert and bulletin that brokers have
the authority to restrict trading during periods of volatility and that brokers may reserve this
right, as Robinhood has done, in their customer agreements.1 Unsurprisingly, the only other
district court to consider the merits of these claims ruled that the plaintiff was unlikely to prevail
1 See Securities and Exchange Comm’n, “Thinking About Investing in the Latest Hot
Stock?” (Jan. 30, 2021) (“Jan. 30 SEC Statement”), https://www.sec.gov/oiea/investor-alerts-
and-bulletins/risks-short-term-trading-based-social-media-investor-alert. The Court may take
judicial notice of the Jan. 30 SEC Statement because it is a public record, the accuracy of which
cannot reasonably be questioned. See Univ. Express, Inc. v. SEC, 177 F. App’x 52, 53 (11th Cir.
2006) (taking judicial notice of public records at the motion to dismiss stage).
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 11 of 48
3
on claims arising from the restrictions at issue. See Cobos v. Robinhood Financial LLC, et al.,
No. 2:21-cv-00843-VAP-MRWx, 2021 WL 1035123, at *2-3 (C.D. Cal. Feb. 10, 2021).
Initially, and prior to centralization, many of the Plaintiffs named in this Amended
Complaint pleaded breach of contract claims. Presumably because they now recognize that they
have no such claim, Plaintiffs have abandoned any allegation that Robinhood breached its
contractual obligations to them and have instead attempted to fashion liability in tort where none
exists under contract law. Through their most recent amendment, they have also tried to create
implied contractual obligations that do not exist in, and instead contradict, the express terms of
the Customer Agreement. But the law does not permit Plaintiffs to take a losing breach of
contract claim and dress it up as a tort claim or a claim for breach of an implied contractual
obligation in order to avoid the governing provisions of the Customer Agreement. This is
particularly so where, as here, Plaintiffs do not contest the validity of the Customer Agreement,
and in fact rely upon that very agreement to support their claims.
All of Plaintiffs’ claims must therefore be dismissed. Counts I (negligence) and II
(gross negligence) fail because Plaintiffs do not identify—and cannot identify—any duty under
tort law that arises independent of Robinhood’s contractual obligations to its customers. (See
infra Argument, Section I.) Count III (breach of fiduciary duty) fails because, as a non-
discretionary broker-dealer that does not provide investment advice, Robinhood owes no general
fiduciary duty to its customers. (See infra Argument, Section II.) Counts IV (implied duty of
care) and V (implied covenant of good faith and fair dealing) fail because the implied obligations
Plaintiffs allege Robinhood owed its customers are contradicted by the terms of the Customer
Agreement, which expressly permit Robinhood to restrict trading. (See infra Argument,
Sections III, IV.) Count VI (tortious interference with contract), which is asserted only against
Robinhood Markets, fails because Plaintiffs do not allege facts to support a breach of contract by
Robinhood Financial or Robinhood Securities, as the Customer Agreement expressly permitted
them to restrict trading, and do not allege facts to support intentional interference by Robinhood
Markets. (See infra Augment, Section V.) Count VII (civil conspiracy) fails because there is no
separate cause of action for civil conspiracy and because contractual parties, such as Robinhood
Financial and Robinhood Securities, cannot be liable as a matter of law for conspiring to
interfere with their own contract. (See infra Argument, Section VI.) Finally, those claims that
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 12 of 48
4
are brought on behalf of non-Robinhood customers fail because Robinhood owed no tort duties
or contractual obligations to non-Robinhood customers. (See infra Argument, Section VII.)
This is Plaintiffs’ third attempt to plead a viable cause of action against
Robinhood: each filed a complaint before centralization, and they have now filed two
complaints since centralization. Plaintiffs have also had the benefit of more than 18,000 pages of
discovery from Robinhood in drafting this complaint. Robinhood respectfully submits that
Plaintiffs’ continued failure to identify a cognizable claim means that the Amended Complaint
should be dismissed with prejudice. (See infra Argument, Section VIII.)
BACKGROUND
I.
The Contractual Relationship Between Robinhood and Its Customers.
Robinhood is an industry-changing financial services company founded on the
ethos of putting financial power into the hands of everyday people. (Am. Compl. ¶¶ 1, 108,
136.) Started in 2013, Robinhood’s securities business currently comprises three entities:
Robinhood Markets, Inc. (“Robinhood Markets”), which wholly owns Robinhood Financial LLC
(“Robinhood Financial”), the customer-facing introducing broker, and Robinhood Securities,
LLC (“Robinhood Securities”), the clearing broker. (Id. ¶¶ 85-94.)
Robinhood is not an investment adviser and did not give any of the Plaintiffs here
any investment recommendations concerning any securities at issue; instead, Robinhood
provides an online trading platform on which customers self-direct their finances. (Id. ¶¶ 314,
319.) Robinhood periodically publishes simple investment tutorials and basic financial
information for the public to peruse on its website, known as “Robinhood Learn,” and
summarizes new, publicly available market information through a newsletter called “Robinhood
Snacks.” (Id. ¶ 123.) Plaintiffs do not allege—nor could they—that this information is available
only to Robinhood customers. (Id.) For those customers who subscribe to Robinhood’s “Gold”
service, Robinhood also provides access to certain market research and data prepared by leading
research firms, such as Morningstar and NASDAQ. (Id.; Am. Compl. Ex. B at 2.) Plaintiffs do
not allege—nor could they—that any of this information (or anything else that Robinhood may
provide to its customers) constitutes investment advice. On the Robinhood platform, it is the
customers such as Plaintiffs who make their own independent decisions about which securities to
buy and sell, and they do so without paying any commissions or being required to maintain any
account minimum. (Id. ¶¶ 109, 319.)
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 13 of 48
5
When Robinhood customers sign up for a Robinhood account, they first agree to
the terms of the Customer Agreement between the customer, Robinhood Financial and
Robinhood Securities.2 (Id. ¶ 30-84, 311-16; Cust. Agmt. at 1.) The Customer Agreement
addresses, among other things, the nature of the customer’s relationship with Robinhood and its
rights and obligations vis-à-vis its customers. (See Cust. Agmt.)
Through the Customer Agreement, Robinhood and its customers—including
Plaintiffs—confirm the hands-off role that Robinhood plays in its customers’ trading activity.
Customers agree that their accounts are “self-directed” and that Robinhood does not “(1) provide
investment advice in connection with [Plaintiffs’] Account[s]; (2) recommend any security,
transaction or order; (3) solicit orders; (4) act as a market maker in any security; [or] (5) make
discretionary trades.” (Id. § 5.A.) Further, Plaintiffs agree that “Robinhood may at any time, at
its sole discretion and without prior notice to [the customer] . . . (ii) refuse to accept any of [the
customer’s] transactions, [or] (iii) refuse to execute any of [the customer’s] transactions.” (Id.
§ 16; see also id. § 5.F.)
The Customer Agreement also expressly provides that Robinhood can impose
trading restrictions like those at issue here:
•
“Robinhood may at any time, in its sole discretion, and without prior notice to
[the customer], prohibit or restrict [the customer’s] ability to trade securities.”
(Id. § 5.F);
•
“Robinhood may, in its discretion, prohibit or restrict the trading of securities, or
the substitution of securities, in any of [the customer’s] Accounts.” (Id. § 16);
and
•
“Robinhood may at any time, at its sole discretion and without prior notice to [the
customer]: (i) prohibit or restrict [the customer’s] access to the use of the App or
the Website or related services and [customer’s] ability to trade, (ii) refuse to
accept any of [the customer’s] transactions, (iii) refuse to execute any of [the
customer’s] transactions, or (iv) terminate [the customer’s] Account.” (Id.)
The Customer Agreement was in effect at the time Robinhood imposed the
limited purchase restrictions at the end of January 2021. (See Am. Compl. ¶ 311.)
2 As discussed in Legal Standards, Section II, Plaintiffs attached the Customer Agreement to
the Amended Complaint, and the Customer Agreement is part of the Amended Complaint for
purposes of this Motion.
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 14 of 48
6
II.
The Mechanics of Securities Trading.
A securities transaction is a multi-step process. (See generally Am. Compl.
¶¶ 90-93, 137, 152-56.) When a Robinhood customer places an order to buy or sell a security,
Robinhood Financial, as the introducing broker, may first choose to accept the order; should it do
so, it then sends the order to Robinhood Securities, the clearing broker. (Id. ¶¶ 90, 93.)
Robinhood Securities then routes the order for execution to a market maker; following execution,
Robinhood Securities then submits the resulting trade to a clearinghouse for clearance and
settlement. (Id. ¶¶ 140, 152-53, 156.) The main clearinghouse for equities traded in the U.S. is
the National Securities Clearing Corporation (“NSCC”), part of a larger clearing organization
called Depository Trust & Clearing Corporation (“DTCC”). (Id. ¶¶ 152-53.) Clearinghouses
such as NSCC and DTCC are regulated by the SEC. See 17 C.F.R. § 240.17Ad-22.
As this multi-step process unfolds, there is some risk that market participants will
be unable to satisfy their obligations in connection with a trade. (See generally Am. Compl.
¶¶ 137-44.) To mitigate this risk, clearing brokers, such as Robinhood Securities, are required to
post collateral with NSCC to cover the risk until the trade “settle[s].” (Id. ¶ 156.) These
collateral requirements are often referred to as deposit requirements. (Id.) To clear and settle
customer transactions, each trading day by 10:00 AM ET, Robinhood Securities must meet the
deposit requirements set by NSCC. (Id.) Depending on NSCC’s calculation of the day’s deposit
requirements, Robinhood Securities may be able to withdraw money that it left on deposit the
previous day, or may be required to deposit additional money. (See generally id. ¶¶ 156, 208-
15.) Indeed, NSCC can even require additional deposits during a trading day. (Id. ¶¶ 209, 212.)
In setting the deposit requirements, NSCC considers volatility in the market; if
NSCC perceives certain securities as being particularly risky or volatile, NSCC may assign a
volatility multiplier or special charge that can increase deposit requirements. (Id. ¶¶ 156, 158.)
While NSCC calculates its daily deposit requirements according to set formulas, it also can
exercise discretion in setting the requirements. (See, e.g., id. ¶ 223.) If Robinhood Securities
were to be unable to meet its deposit requirements on a given day, NSCC could liquidate
Robinhood Securities’ entire portfolio, which could significantly damage Robinhood’s
customers. (Id. ¶¶ 155, 158.)
In addition to deposit requirements, Robinhood Securities must also comply with
the SEC’s Net Capital Rule when clearing and settling customer transactions. (Id. ¶ 161.) This
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 15 of 48
7
rule requires brokers to maintain sufficient liquid assets to meet all obligations to their
customers. (Id.) Together, the clearinghouse deposit requirements and the Net Capital Rule
require clearing brokers to monitor liquidity. (Id. ¶¶ 158, 161.) The purpose of these rules and
regulations is to ensure market stability and protect investors. (Id.)
III.
The Unprecedented Market Volatility of January 2021.
January 2021 was marked by a series of unprecedented events in the securities
markets. (Am. Compl. ¶¶ 183-237.) Retail investors, banding together through online forums
such as WallStreetBets on Reddit, drove a massive short squeeze involving certain stocks they
perceived to be the target of short selling by hedge funds (the “meme stocks”).3 (Id. ¶¶ 10, 183-
90, 198, 201.) Their activity resulted in extreme market volatility, with dramatic increases in
trading prices. (Id. ¶¶ 185, 191.) For example, on January 27, GME’s price closed at $347.51
per share, a 707.6% increase from just five trading days earlier.4
3 Plaintiffs claim the “Suspended Stocks” are: GameStop Corporation (GME), BlackBerry
Ltd. (BB), Nokia (NOK), AMC Entertainment Holdings, Inc. (AMC), American Airlines Group,
Inc. (AAL), Bed Bath & Beyond, Inc. (BBBY), Castor Maritime Inc. (CTRM), Express, Inc.
(EXPR), Koss Corporation (KOSS), Naked Brand Group Ltd. (NAKD), Sundial Growers, Inc.
(SNDL), Tootsie Roll Industries, Inc. (TR), and Trivago NV (TRVG). (Am. Compl. ¶ 4.)
4 See Market Activity, Nasdaq, https://www.nasdaq.com/market-activity (last visited
Aug. 24, 2021). The Court may take judicial notice of this stock information. See La Grasta v.
First Union Sec., Inc., 358 F.3d 840, 842 (11th Cir. 2004) (taking judicial notice of stock
information at the motion to dismiss stage).
$39.36
$39.12
$43.03
$65.01
$76.79
$147.98
$347.51
$20
$60
$100
$140
$180
$220
$260
$300
$340
$380
1/19/2021
1/20/2021
1/21/2021
1/22/2021
1/25/2021
1/26/2021
1/27/2021
Close Price ($)
GME: Daily Low/High Price and Closing Price
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 16 of 48
8
Indeed, in the span of just five trading days (from January 21 to January 27,
2021), the total daily trading volume for the meme stocks increased eightfold from 863 million to
6.95 billion shares.5
While these unprecedented events were taking place, Robinhood Securities
considered how the volatility could affect its deposit requirements and risk exposure. (Id.
¶¶ 193-202.) In the days leading up to January 28, to mitigate the volatility, Robinhood
Securities increased margin requirements for volatile securities like GME to 100%, which in
effect meant that a customer needed sufficient funds to pay for such shares in full, rather than
being able to buy shares on credit, and that customers could not use such shares as collateral to
buy other securities on credit. (See id. ¶¶ 194, 249.)
As volatility involving the meme stocks increased, so too did Robinhood
Securities’ daily deposit requirements. (Id. ¶¶ 208-15.) On the days leading up to January 28,
Robinhood Securities’ approximate daily deposit requirements were as follows:
5 See Market Activity, Nasdaq, https://www.nasdaq.com/market-activity (last visited
Aug. 24, 2021). The Court may take judicial notice of stock information. See supra note 4.
774M
715M
863M
1,078M
2,134M
1,863M
6,958M
0M
1,000M
2,000M
3,000M
4,000M
5,000M
6,000M
7,000M
8,000M
1/19/2021
1/20/2021
1/21/2021
1/22/2021
1/25/2021
1/26/2021
1/27/2021
Total Daily Trading Volume (Shares)
GME
AMC
BBBY
BB
EXPR
KOSS
NOK
TR
TRVG
AAL
CTRM
NAKD
SNDL
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 17 of 48
9
•
January 25, 2021, 5:19 AM UTC deposit requirement: $125 million;6
Robinhood Securities had a deposit surplus of $11,397,650.77 (Am.
Compl. ¶ 208).
•
January 26, 2021, 8:34 AM UTC deposit requirement: $291 million
(Tenev Testimony at 10); Robinhood Securities had a deposit deficit of
$84,930,632.62 (Am. Compl. ¶ 210).
•
January 27, 2021, 8:20 AM UTC deposit requirement: $282 million
(Tenev Testimony at 10); Robinhood Securities had a deposit surplus of
$11,348,423.58 (Am. Compl. ¶ 211).
•
January 27, 2021, 8:03 PM UTC deposit requirement: $690 million
(Tenev Testimony at 10); Robinhood Securities had a deposit deficit of
$407,770,190.70 (Am. Compl. ¶ 213).
IV.
The Events of January 28, 2021 and Onward.
At approximately 5:11 AM EST on January 28, 2021, Robinhood Securities
received an email notice from NSCC stating that its deposit requirements had jumped
dramatically from the previous days: Robinhood Securities’ deposit deficit was over $3 billion.
(Am. Compl. ¶ 215.) Robinhood Securities did not have the cash on hand to satisfy a deposit
requirement of that size. (Id. ¶ 221.) In light of the massive capital call, Robinhood Securities
decided after more than an hour of deliberation to set a small number of the meme stocks to a
“position close only” (“PCO”), which would enable (but not require) Robinhood customers to
exit their positions in those symbols if they wished, but restricted new purchases of those volatile
securities. (Id. ¶¶ 219, 240.)
6 See Virtual Hearing – Game Stopped? Who Wins and Loses When Short Sellers, Social
Media, and Retail Investors Collide, 117th Cong. at 10 (2021) (statement of Vladimir Tenev,
Chief Executive Officer, Robinhood Markets, Inc.), available at
https://financialservices.house.gov/uploadedfiles/hhrg-117-ba00-wstate-tenevv-20210218.pdf
(“Tenev Testimony”). The Court may take judicial notice of the approximate deposit
requirements described in Mr. Tenev’s testimony in the days leading up to January 28, 2021.
See D.A.M. v. Barr, 474 F. Supp. 3d 45, 55 n.12 (D.D.C. 2020) (taking judicial notice of
Congressional testimony because Congressional testimony “is not subject to reasonable dispute”)
(quoting Fed. R. Evid. 201(b)(2)). Indeed, Plaintiffs themselves cite Mr. Tenev’s testimony to
support their allegations regarding Robinhood’s decision to impose limited purchase restrictions.
(See Am. Compl. ¶ 235.) The times regarding the deposit requirements referenced herein refer to
the time that Robinhood Securities received an email notice from NSCC stating the deposit
requirement.
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 18 of 48
10
Shortly after 9:00 AM EST, and after Robinhood Securities put in place the
majority of the restrictions, NSCC reduced Robinhood Securities’ deposit requirements to
approximately $1.4 billion. (Id. ¶ 223.) The revised requirements remained hundreds of millions
of dollars above typical levels, but Robinhood Securities promptly complied with and paid its
NSCC deposit requirements that morning. (Id. ¶ 235.)7 Robinhood Securities was far from the
only clearing broker to impose restrictions on the meme stocks during this period of
unprecedented volatility. (Tenev Testimony at 8.) Apex Clearing Corporation, for example,
imposed restrictions on several of the meme stocks, which impacted the downstream customers
of Apex’s introducing broker partners, including customers of Ally, Dough, Public.com, SoFi,
Stash, Tastyworks and WeBull. (Robinhood and Other Broker Tranche Consolidated Class
Action Complaint, ECF No. 359 ¶¶ 234, 236.) Charles Schwab was one of numerous other
brokers to impose restrictions on the meme stocks as well. (Id. ¶ 256.)
Robinhood worked quickly to remove the restrictions, easing them by market
open on January 29, 2021, and lifting all purchase limits by February 5, 2021. (Am. Compl.
¶¶ 256, 266.) The company also spoke with investors and lenders to raise new capital and
expand its line of credit to accommodate the historic market volatility and the unprecedented
deposit requirements; by February 1, 2021, several days after Robinhood first imposed the
restrictions, Robinhood had raised $3.4 billion from investors. (Id. ¶ 234.)
On January 30, 2021, amid much public discussion about Robinhood Securities’
and other brokers’ trade restrictions, the SEC released an investor alert and bulletin warning
about the risks of short-term trading based on social media and acknowledging that “broker-
dealers may reserve the ability to reject or limit customer transactions” for “legal, compliance, or
risk management reasons” and that such ability is “typically discussed in the customer account
agreement.” (See Jan. 30 SEC Statement, supra note 1.)
LEGAL STANDARDS
I.
Applicable Standard.
“To survive a motion to dismiss [under Rule 12(b)(6)], a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
7 Plaintiffs do not allege that Robinhood at any point violated the SEC Net Capital Rule.
(Id. ¶¶ 161-63.)
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 19 of 48
11
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007)) (alterations added). “[O]nly a complaint that states a plausible claim for relief
survives a motion to dismiss.” Id. at 679 (citing Twombly, 550 U.S. at 556). “To meet this
‘plausibility standard,’ a plaintiff must ‘plead[ ] factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.’” Arndt v. Twenty-
One Eighty-Five, LLC, 448 F. Supp. 3d 1310, 1314 (S.D. Fla. 2020) (alteration in original)
(quoting Iqbal, 556 U.S. at 678). “The mere possibility the defendant acted unlawfully is
insufficient to survive a motion to dismiss.” Id. at 1314-15 (quoting Sinaltrainal v. Coca-Cola
Co., 578 F.3d 1252, 1261 (11th Cir. 2009)).
II.
Applicable Law.
A “federal district court sitting in diversity must apply the choice of law rules of
the forum state.” Arndt, 448 F. Supp. 3d at 1315 (quoting Clanton v. Inter.Net Glob., L.L.C., 435
F.3d 1319, 1323 (11th Cir. 2006)). When sitting in diversity, this Court applies Florida’s choice-
of-law rules. Id. In a multidistrict litigation where (as here) the parties have agreed that a master
complaint will serve as the operative and superseding complaint, the court applies the forum’s
choice-of-law rules. See In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 155 F. Supp.
2d 1069, 1078 (S.D. Ind. 2001); (ECF No. 322 at 2 (Parties agreed that the “Master Complaints
will supersede the individual complaints filed to date and will constitute the operative pleadings
with respect to those claims”)). Under Florida’s choice-of-law rules, it is well settled that
“Florida courts are obligated to enforce choice-of-law provisions unless a showing is made that
the law of the chosen forum contravenes strong public policy or that the clause is otherwise
unreasonable or unjust.” Arndt, 448 F. Supp. 3d at 1315 (citations omitted). “Simply put, when
an unambiguous, valid choice-of-law provision exists, as it does here, there is no need for the
court to engage in a further conflict of laws analysis.” Id. at 1321 (citations omitted).
The twelve Plaintiffs allege that they were Robinhood customers as of January 28,
2021. (See Am. Compl. ¶¶ 30, 34, 42, 47, 51, 55, 61, 65, 69, 73, 77, 81.) California law applies
to the claims of all Plaintiffs because, as Robinhood customers, their claims are subject to a valid
contractual choice-of-law provision. The Customer Agreement is attached to the Amended
Complaint and therefore is considered part of the Amended Complaint for purposes of this
motion. See Fed. R. Civ. P. 10 (“A copy of a written instrument that is an exhibit to a pleading is
a part of the pleading for all purposes.”). Each Plaintiff entered into the Customer Agreement
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 20 of 48
12
with Robinhood Financial and Robinhood Securities. (See Am. Compl. ¶¶ 30, 34, 42, 47, 51, 55,
61, 65, 69, 73, 77, 81.) The Customer Agreement provides that “[t]his Agreement and all
transactions made in [a customer’s] Account shall be governed by the laws of the State of
California (regardless of the choice of law rules thereof).” (Cust. Agmt. § 37.K.) Plaintiffs’
alleged claims all arise from their use of and interactions with their Robinhood brokerage
accounts. (See Am. Compl. ¶¶ 29-84.) The choice-of-law provision in the Customer Agreement
(“this Agreement and all transactions made in [a customer’s] Account”) is a broad provision that
applies to tort claims as well as breach of contract claims. See Cooper v. Meridian Yachts, Ltd.,
575 F.3d 1151, 1162-63 (11th Cir. 2009) (finding choice of law provisions encompassing more
than “this [agreement]” apply to tort claims); see also Arndt, 448 F. Supp. 3d at 1315-21
(applying choice of law provision to all claims relating to the agreement). Accordingly, all of
Plaintiffs’ claims are governed by California law.8 (See infra Argument, Sections I to VI.)
While Florida’s choice-of-law rules make clear that California law applies to the
Plaintiffs’ claims, for the reasons set forth below, analyzing Plaintiffs’ claims under Florida law
would yield the same result—dismissal. (See infra Argument, Sections I to VI.) As a result,
Plaintiffs cannot prevail under any potentially applicable law in this case.
Finally, although Plaintiffs are all Robinhood customers, Plaintiffs purport to
bring certain claims on behalf of a putative “Nationwide Investor Class,” which apparently
includes all persons trading securities in the United States, including those who are not
Robinhood customers. For the reasons set forth below, non-Robinhood customers cannot state a
claim against Robinhood. (See infra Argument, Section VII.)
8 Robinhood Financial and Robinhood Securities are parties to the Customer Agreement, but
their parent, Robinhood Markets, is not. Plaintiffs’ claims against Robinhood Markets should
still be analyzed pursuant to the Agreement’s choice-of law provision. Florida courts have
recognized that forum selection terms can be enforced by non-signatories where, as here, there is
a close relationship between the non-signatory and the parties. See, e.g., World Vacation Travel,
S.A., de C.V. v. Brooker, 799 So. 2d 410, 412-13 (Fla. 3d DCA 2001) (finding non-signatory
could enforce a forum selection clause due to the “nature of the commercial relationship of the
parties” and the fact that the claims against the non-signatories arose from the agreement); see
also Deloitte & Touche v. Gencor Indus., Inc., 929 So. 2d 678, 683 (Fla. 5th DCA 2006)
(reaching the same conclusion where the non-signatory was the corporate parent of a signatory).
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 21 of 48
13
ARGUMENT
Plaintiffs bring seven claims against Robinhood: (1) negligence, (2) gross
negligence, (3) breach of fiduciary duty, (4) breach of the implied duty of care, (5) breach of the
implied covenant of good faith and fair dealing, (6) tortious interference with contract and
business relationship and (7) civil conspiracy. Each should be dismissed.
I.
PLAINTIFFS’ NEGLIGENCE (COUNT I) AND GROSS NEGLIGENCE
(COUNT II) CLAIMS FAIL BECAUSE PLAINTIFFS DO NOT ADEQUATELY
ALLEGE THAT ROBINHOOD OWED THEM A DUTY IN TORT.
To prevail on their negligence claim, Plaintiffs must establish (1) that Robinhood
had a legal duty to use due care, (2) the breach of such legal duty and (3) that the breach was the
proximate or legal cause of injury. Orey v. Super. Ct., 152 Cal. Rptr. 3d 878, 886 (Ct. App.
2013). Gross negligence requires establishing each of the elements of negligence as well as
“extreme conduct” by the defendant that rises to the level of “either a want of even scant care or
an extreme departure from the ordinary standard of conduct.” Champion v. Feld Ent., Inc., No.
20-CV-2400-DMS-KSC, 2021 WL 1812764, at *2 (S.D. Cal. May 6, 2021) (citations omitted).
Whether a defendant owes any duty to a plaintiff is a “threshold” question of law
to be resolved by the court. Bily v. Arthur Young & Co., 834 P.2d 745, 760-61 (Cal. 1992).
“Courts . . . have invoked the concept of duty to limit generally ‘the otherwise potentially infinite
liability which would follow from every negligent act . . . .’” Id. at 761 (quoting Thompson v.
County of Alameda, 614 P.2d 728, 732 (Cal. 1980)). Here, Plaintiffs fail to allege that
Robinhood owed its customers any cognizable tort duty—as opposed to contractual
obligations—and, as a result, their negligence and gross negligence claims should be dismissed.
A.
Robinhood Owes Its Customers Contractual Obligations, Not Tort Duties.
Robinhood Financial and Robinhood Securities and their customers are parties to
a contract. (Am. Compl. ¶ 311.) “[T]he duties of care between parties who negotiate contracts
are not governed by the law of tort.” Sheen v. Wells Fargo Bank, N.A., 250 Cal. Rptr. 3d 677,
684 (Ct. App. 2019) (quoting Rest. 3d Torts, Liability for Economic Harm (Tent. Draft No. 1)
§ 3, cmt. d). Rather, the obligations between contractual parties, such as Robinhood Financial
and Robinhood Securities and their customers, are defined by the terms of the relevant contract.9
9 Robinhood Markets is not a party to the contract and therefore does not owe Robinhood
customers contractual obligations. However, as explained in Part I.B, Robinhood Markets still
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 22 of 48
14
See id. This is because “[i]f every negligent breach of contract gives rise to tort damages the
limitation would be meaningless, as would the statutory distinction between tort and contract
remedies.” Erlich v. Menezes, 981 P.2d 978, 984 (Cal. 1999).10
Prior to opening an account and using Robinhood’s services, Plaintiffs were
required to review and accept the terms of the Customer Agreement. (See Cust. Agmt.; Am.
Compl. ¶¶ 29-80.) Even assuming as true Plaintiffs’ contention that the Customer Agreement is
a contract of adhesion (e.g., id. ¶ 311), this standard-form agreement is still fully enforceable
under both California and Florida law. See Graham v. Scissor-Tail, Inc., 623 P.2d 165, 172 (Cal.
1981) (“[A] contract of adhesion is fully enforceable according to its terms.”); Bombardier Cap.
Inc. v. Progressive Mktg. Grp., Inc., 801 So. 2d 131, 135 (Fla. 4th DCA 2001) (finding
allegations that a contract is one of adhesion does not “in itself . . . render the contract[] void”).
Indeed, Plaintiffs do not allege that the Customer Agreement is procedurally or substantively
“unconscionable” and in fact bring claims that are premised on the very enforceability of the
Agreement (e.g., Counts IV-VII). The Customer Agreement expressly addresses, and explicitly
authorizes, Robinhood to put in place the trading restrictions that are the basis of Plaintiffs’
claims. Specifically, the Customer Agreement provides:
•
“Robinhood may at any time, in its sole discretion, and without prior notice to
[the customer], prohibit or restrict [the customer’s] ability to trade securities.”
(Cust. Agmt. § 5.F);
•
“Robinhood may, in its discretion, prohibit or restrict the trading of securities, or
the substitution of securities, in any of [the customer’s] Accounts.” (Id. § 16);
and
•
“Robinhood may at any time, at its sole discretion and without prior notice to [the
customer]: (i) prohibit or restrict [the customer’s] access to the use of the App or
the Website or related services and [the customer’s] ability to trade, (ii) refuse to
accept any of [the customer’s] transactions, (iii) refuse to execute any of [the
customer’s] transactions, or (iv) terminate [the customer’s] Account.” (Id.)
does not owe any tort duties to its customers irrespective of the fact that it is not a party to the
Customer Agreement.
10 Some courts permit a separate tort claim, in a limited fashion, arising from a breach of
contract claim where the plaintiff alleges a special relationship with the defendant. For the
reasons set forth in Argument, Section I.B, infra, no such relationship exists here.
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 23 of 48
15
Because Plaintiffs’ negligence claims are premised on the imposition of
restrictions that were expressly permitted by the Customer Agreement, Plaintiffs have done
nothing more than attempt to convert a losing breach of contract claim into a tort claim. The law
does not allow Plaintiffs to use such a maneuver to evade the governing contract. See Aas v.
Super. Ct., 12 P.3d 1125, 1136 (Cal. 2000) (“A person may not ordinarily recover in tort for the
breach of duties that merely restate contractual obligations.”) (superseded by statute on other
grounds); Brown v. Cal. Pension Adm’rs & Consultants, Inc., 52 Cal. Rptr. 2d 788, 795 (Ct.
App. 1996) (dismissing negligence claim in part because it was “simply a relabeling of
[appellants’] breach of contract claims as tort claims”).
Neither of the limited exceptions that could permit contractual parties to recover
on a negligence claim applies here. First, Plaintiffs cannot invoke the independent tort doctrine,
a limited exception permitting a plaintiff to recover in tort against a contractual counterparty
where the plaintiff alleges a tort that is “independent of the [contractual] breach.” See Robinson
Helicopter Co. v. Dana Corp., 102 P.3d 268, 360 (Cal. 2004). Courts have limited this exception
to cases involving intentional torts, such as fraud, which Plaintiffs do not attempt to allege
here.11 See Peregrine Pharms., Inc. v. Clinical Supplies Mgmt., Inc., No. 12-cv-1608-JGB, 2015
WL 13309286, at *11 (C.D. Cal. June 22, 2015) (“Unintentional acts and misrepresentations are
clearly not the type that the California Supreme Court had in mind as forming the basis of
an independent tort duty . . . . [Instead,] the court narrowly tailored [the exception] to include
only intentional conduct.”). In other words, the exception does not apply in cases, such as this
one, where a plaintiff brings a negligence claim against a contractual counterparty. See id.; see
also Erlich, 981 P.2d at 984 (“[M]ore than mere negligence has been involved in each case
[between contractual parties] where tort damages have been permitted.”). Although California
law applies to Plaintiffs’ claims, as explained above, there is no conflict between California and
Florida law on this issue. See Island Travel & Tours, Co. v. MYR Indep., Inc., 300 So. 3d 1236,
11 Any fraud claim Plaintiffs might allege would be precluded by the Securities Litigation
Uniform Standards Act of 1998 (“SLUSA”), which provides that “[n]o 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.” 15 U.S.C. § 78bb(f)(1).
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 24 of 48
16
1239 (Fla. 3d DCA 2020) (“It is a fundamental, long-standing common law principle that a
plaintiff may not recover in tort for a contract dispute unless the tort is independent of any breach
of contract.”); see also Burdick v. Bank of Am., N.A., 99 F. Supp. 3d 1372, 1378 (S.D. Fla. 2015)
(dismissing negligence claims because the claims “should have been brought in contract rather
than in Negligence”; defendants’ purported negligence was not “‘independent of any breach of
contract claim’ as Florida law requires” (citation omitted)).
Second, Plaintiffs cannot assert a cognizable negligence claim against Robinhood
based on a breach of a professional duty. See Restatement (Third) of Torts: Liab. for Econ.
Harm § 4 (2020). “Professional services” that can give rise to professional duties are defined as
those arising out of an occupation involving “specialized knowledge, labor, or skill, and the labor
or skill involved is predominantly mental or intellectual.” N. Ctys. Eng’g, Inc. v. State Farm
Gen. Ins. Co., 169 Cal. Rptr. 3d 726, 749 (Ct. App. 2014) (citation omitted); see also
Restatement (Third) of Torts: Liab. for Econ. Harm § 4 cmt. b (explaining that professional
services often entail providing “complex discretionary judgments”). Professional services are
typically performed “for remuneration.” Hollingsworth v. Com. Union Ins. Co., 256 Cal. Rptr.
357, 360 (Ct. App. 1989). Here, Robinhood does not provide any such professional services for
remuneration (or otherwise). Instead, Robinhood serves only as a platform through which its
customers may place self-directed trade orders. The operative Customer Agreement expressly
provides that Robinhood does not “provide investment advice,” “recommend any security,”
“make discretionary trades” or “provide first-party research providing [] specific investment
strategies.” (Cust. Agmt. § 5.A.) The parties thus expressly agreed that Robinhood does not
provide the kind of investment services that a professional would provide, and Robinhood owes
no professional duties. See Kim v. Westmoore Partners, Inc., 133 Cal. Rptr. 3d 774, 788 (Ct.
App. 2011) (finding no professional duty because the relevant agreement “unambiguously
establish[ed] that the relationship between [the parties] was simply one of creditor-debtors,” and
defendant was not acting as an “investment broker”); Marshall v. Galvanoni, No. 17-cv-00820-
KJM-CKD, 2017 WL 5177764, at *6 (E.D. Cal. Nov. 8, 2017) (dismissing a claim that the
defendant provided professional investment broker services because the “[p]laintiff has pled
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 25 of 48
17
neither the requisite agreement to provide professional services nor the details to support a claim
such services were provided”).12
The same conclusion would result under Florida law. In considering whether an
individual is a “professional,” Florida courts consider whether individuals engaged in the
profession are required to be licensed and whether the profession is one requiring “special
education, training, [and] skill.” Sunset Beach Invs., LLC v. Kimley-Horn & Assocs., Inc., 207
So. 3d 1012, 1014 (Fla. 4th DCA 2017). Courts also consider whether the service performed is
“solely under [the professional’s] control and competence” and whether the client “specif[ies]
their manner of performance.” Rocks v. McLaughlin Eng’g Co., 49 So. 3d 823, 828 (Fla. 4th
DCA 2010). More control and direction on the part of the client suggests the defendant is not
engaged in a professional service. See id. As explained above, Robinhood customer accounts
are entirely self-directed, meaning it is the customer, not Robinhood, that “specif[ies] the[]
manner of performance,” id., and Plaintiffs make no allegations that would otherwise be
sufficient to invoke the professional duty cases under Florida law.
Because Robinhood Securities and Robinhood Financial owe their customers only
contractual obligations and owe no professional or tort duty independent of those obligations,
Plaintiffs cannot recover against those entities in tort.
B.
Robinhood Does Not Owe Its Customers a Generalized Duty of Care.
In addition to the bar to tort recovery from the contract that governs the
relationship between Robinhood and its customers, Plaintiffs also cannot recover under a
negligence theory against any of the three Robinhood entities because Robinhood does not owe
its customers a general duty of care. A general tort duty of care exists only “when the actor’s
conduct creates a risk of physical harm.” See Restatement (Third) of Torts: Phys. & Emot. Harm
§ 7 (2010) (emphasis added). Specifically, a plaintiff may recover based on a negligence theory
only if the defendant’s conduct created a “foreseeable” danger of physical harm or damage to
real property. See S. California Gas Leak Cases, 441 P.3d 881, 885, 888 (Cal. 2019). Plaintiffs
seek incorrectly to impose such a tort duty against Robinhood by claiming that their risk of
12 Moreover, Robinhood falls outside the scope of “professional services” because it
provides its services free of commission, rather than for compensation. See Hollingsworth, 256
Cal. Rptr. at 360 (explaining that professional services are often understood as “activit[ies] done
for remuneration”).
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 26 of 48
18
economic harm was “foreseeable” from Robinhood’s actions. (Am. Compl. ¶¶ 160, 285, 298.)
Plaintiffs’ theory is wrong as a matter of law. Courts routinely reject the proposition that
“foreseeability of harm” for economic losses is sufficient to impose a duty of care and negligence
liability on a defendant. See S. California Gas Leak Cases, 441 P.3d at 889 (dismissing
plaintiffs’ negligence claim because “consensus cuts sharply against imposing a duty of care to
avoid causing purely economic losses in negligence cases”); Kurtz-Ahlers, LLC v. Bank of Am.,
N.A., 262 Cal. Rptr. 3d 420, 426 (Ct. App. 2020) (“We begin our duty analysis by
acknowledging a fundamental rule in tort law: liability in negligence for purely economic losses
. . . is the exception, not the rule.”) (internal quotations omitted); Sheen, 250 Cal. Rptr. 3d at 682
(dismissing plaintiff’s negligence claim because it was based on a “financial transaction gone
awry and nothing more: [plaintiff] suffered neither personal injury nor property damage”).
Plaintiffs’ claims, all of which are for economic losses against Robinhood, are no exception.
The limited “special relationship” exception, under which a plaintiff may recover
for economic losses under a negligence theory, is also unavailable to Plaintiffs. See Peregrine
Pharms., 2015 WL 13309286, at *9. For this limited exception to apply, California courts
consider: “(1) the extent to which the transaction was intended to affect the plaintiff, (2) the
foreseeability of harm to the plaintiff, (3) the degree of certainty that the plaintiff suffered injury,
(4) the closeness of the connection between the defendant’s conduct and the injury suffered,
(5) the moral blame attached to the defendant’s conduct, and (6) the policy of preventing future
harm.” Id. (citing J’Aire Corp. v. Gregory, 598 P.2d 60, 63 (Cal. 1979) (internal citations
omitted)). The special relationship exception applies only where the parties are not in
contractual privity. See, e.g., Body Jewelz, Inc. v. Valley Forge Ins. Co., 241 F. Supp. 3d 1084,
1092 (C.D. Cal. 2017) (holding that the two California Supreme Court cases addressing the
“special relationship exception”—J’Aire, 598 P.2d 60, and Biakanja v. Irving, 320 P.2d 16 (Cal.
1958)—applied it only to parties that were not in contractual privity); Elsayed v. Maserati N.
Am., Inc., 215 F. Supp. 3d 949, 963 (C.D. Cal. 2016) (“The Court refuses to extend the special
relationship exception to encompass direct [contractual] relationships.”).13 Because Robinhood
13 Even if the Court were to apply the J’Aire factors, however, dismissal would still be
required as courts have found the J’Aire factors weigh against finding a special relationship
between a non-discretionary broker and its customers. See Whitesides v. E*Trade Securities,
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 27 of 48
19
Financial and Robinhood Securities are in contractual privity with Plaintiffs, the special
relationship exception does not permit Plaintiffs to recover against either entity. See Body
Jewelz, 241 F. Supp. 3d at 1092; Elsayed, 215 F. Supp. 3d at 963.
Nor does the special relationship exception give Plaintiffs a right to recover
against Robinhood Markets. The California Supreme Court judicially created the special
relationship exception to permit, in limited circumstances, strangers to a contract to recover for
economic losses in tort where they are foreseeable victims of tortious conduct between
contractual parties. See J’Aire, 598 P.2d 60; Biakanja, 320 P.2d 16. But Plaintiffs here are
contractual parties with Robinhood Financial and Robinhood Securities. The rationale that
motivated the courts in J’Aire and Biakanja to permit recovery in tort—i.e., that the plaintiffs
could only recover in tort because they were not contractual parties—does not apply here. The
“special relationship” exception is therefore inapplicable.14 See, e.g., Sheahan v. State Farm
Gen. Ins. Co., 442 F. Supp. 3d 1178, 1187 (N.D. Cal. 2020) (“J’Aire is inapposite because there
is no alleged contract between [defendants] to which Plaintiffs can claim to be a third-party
beneficiary.”). In the absence of any allegations of physical harm, and any legally-recognized
and well-pleaded “special relationship” between any of the Robinhood entities and Robinhood
customers, Plaintiffs cannot recover for economic losses under a negligence theory. See S. Cal.
Gas Leak Cases, 441 P.3d at 896.
Robinhood would not owe its customers general tort duties even if Florida law
applied. Under Florida law, regardless of whether parties are in contractual privity, “plaintiffs
are generally not permitted to recover ‘for purely economic losses when the plaintiff has
sustained no bodily injury [or] property damage.’” Underwriters at Int. v. All Logistics Grp.,
Inc., 483 F. Supp. 3d 1199, 1211 (S.D. Fla. 2020) (quoting Curd v. Mosaic Fertilizer, LLC, 39
So. 3d 1216, 1223-24 (Fla. 2010)), appeal dismissed, No. 20-14453-JJ, 2021 WL 2190226 (11th
Cir. Mar. 4, 2021). A defendant therefore owes a general duty in negligence only for “physical
LLC, No. 20-CV-05803-JSC, 2021 WL 930794, at *8 (N.D. Cal. Mar. 11, 2021) (finding no
“special relationship” between E*Trade and its retail investor customers).
14 Moreover, Robinhood Markets is entirely unlike the defendants in J’Aire and Biakanja in
that Robinhood Markets is merely the corporate parent of parties who allegedly engaged in
tortious conduct, rather than a perpetrator of tortious conduct itself.
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 28 of 48
20
harm.” Clay Elec. Co-op., Inc. v. Johnson, 873 So. 2d 1182, 1186 (Fla. 2003).15 “[T]o proceed
on a common law negligence claim based solely on economic loss, there must be some sort of
link between the parties or some other extraordinary circumstance that justifies recognition of
such a claim.” Tank Tech, Inc. v. Valley Tank Testing, L.L.C., 244 So. 3d 383, 393 (Fla. 2d DCA
2018).16 Plaintiffs plead no such exception here, and none exists. Moreover, Florida courts have
specifically recognized that where, as here, a financial institution has stated in a contract that it
has “no discretionary role in investing [plaintiff’s] assets,” the plaintiff cannot recover for
economic losses under a negligence theory. See Lamm v. State St. Bank & Tr., 749 F.3d 938,
948 (11th Cir. 2014) (concluding that where custodial bank customers held non-discretionary
accounts, the custodial bank owed its customers no generalized tort duties under Florida law);
Paszamant v. Ret. Accts., Inc., 776 So. 2d 1049, 1053 (Fla. 5th DCA 2001) (same).
In sum, Plaintiffs cannot prevail on a negligence theory that is premised on an
alleged generalized duty of care that Robinhood owes to its customers.
C.
Plaintiffs Cannot Rely on Regulations and Self-Regulatory Rules for Which
There Are No Private Rights of Action to Impose a Tort Duty on Robinhood.
Plaintiffs cite various SEC and FINRA regulations as well as rules of self-
regulatory organizations such as the DTCC and NSCC (Am. Compl. ¶¶ 152-73) and contend that
15 While this Court cited Clay Electric to sustain a negligence claim in Pinchasov v.
Robinhood Financial LLC, No. 20-cv-24897-CMA (S.D. Fla.), the decision in Pinchasov is
inapplicable to the instant Action because the Robinhood Customer Agreement was not attached
to the complaint in Pinchasov, which meant the Court could not consider the California choice-
of-law provision or the well-established California precedent discussed herein that bars
Plaintiffs’ recovery under tort law. (See Order Denying Motion to Dismiss, Pinchasov v.
Robinhood Financial LLC, No. 20-cv-24897-CMA (S.D. Fla.), ECF No. 48 at 4-6.) Moreover,
Robinhood respectfully submits that the parties in Pinchasov did not raise—and the Court
therefore did not consider—that a general duty of care in negligence under Florida law arises
only to claims of physical harm. (Id. at 5-6.)
16 This principle is distinct from the economic loss doctrine, which Florida courts have
limited to the products liability context. See Tiara Condo. Ass’n v. Marsh & McLennan Cos.,
110 So. 3d 399, 407 (Fla. 2013); see also Certain Underwriters at Lloyd’s of London, UK
Subscribing to Pol’y No. B1230AP56189A14 v. Ocean Walk Resort Condo. Ass’n, No. 6:16-CV-
258-ORL-37GJK, 2017 WL 3034069, at *10 (M.D. Fla. July 18, 2017) (collecting post-Tiara
cases where courts have reaffirmed the barriers in recovering against a contractual counterparty
in tort); Underwriters, 483 F. Supp. 3d at 1211 (concluding, post-Tiara, that a plaintiff generally
cannot recover for economic losses absent injury or property damage, regardless of whether the
parties are in privity).
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 29 of 48
21
violations of such regulations and rules can serve as evidence of negligence (id. ¶ 167).
However, not one of the regulations or rules cited by Plaintiffs gives rise to a private right of
action. As the cases discussed in this section demonstrate, a statute, regulation or rule that does
not create a private right of action cannot be used to create a duty in tort.
Courts have widely recognized that a plaintiff cannot create from whole cloth a
private right of action where none exists simply by fashioning their claims as tort claims. See
Sparta Surgical Corp. v. Nat’l Ass’n of Sec. Dealers, Inc., No. C-95-3926-MHP, 1997 WL
50223, at *3 & n.3 (N.D. Cal. Jan. 30, 1997) (dismissing tort claim based on purported violations
of NASD Rules (predecessor to the current FINRA rules), finding it improper “to circumvent the
lack of a private right of action under the Exchange Act”), aff’d, 159 F.3d 1209 (9th Cir. 1998);
Valelly v. Merrill Lynch, Pierce, Fenner & Smith Inc., 464 F. Supp. 3d 634, 645 (S.D.N.Y. 2020)
(dismissing a negligence claim, premised on an SEC regulation and a FINRA Rule, because the
“[p]laintiff cannot circumvent the lack of a private right of action for violations of industry rules
merely by recasting her claim as a violation of a common law duty”); Fox v. Lifemark Sec.
Corp., 84 F. Supp. 3d 239, 245 (W.D.N.Y. 2015) (holding that “FINRA does not provide a
private right of action” and therefore “plaintiff cannot recover for negligence based on the
alleged violation” of a FINRA Rule).17
None of the rules or regulations Plaintiffs cite in their Amended Complaint has an
associated private right of action that would create a duty by Robinhood to Plaintiffs. First,
Plaintiffs note that Robinhood is subject to the SEC’s Uniform Net Capital Rule, 17 C.F.R.
§ 240.15c3-1, without alleging any specific violation of that rule. (Am. Compl. ¶ 161.)
Regardless, Plaintiffs do not have a private right of action for that rule. See Kidder Peabody &
Co. v. Unigestion Int’l, Ltd., 903 F. Supp. 479, 495 (S.D.N.Y. 1995) (concluding there is no
private cause of action under Section 15(c)(3) of the Securities Exchange Act—the section under
which the Net Capital Rule was promulgated).
17 See also In re Series 7 Broker Qualification Exam Scoring Litig., 510 F. Supp. 2d 35, 47
(D.D.C. 2007) (rejecting plaintiffs’ argument that their claims were “distinctly derived from
duties created at common law” because “courts have logically concluded that the Exchange Act
preempts common-law claims that are nothing more than disguised actions to enforce regulatory
duties”), aff’d, 548 F.3d 110 (D.C. Cir. 2008); Gurfein v. Ameritrade, Inc., 312 F. App’x 410,
414 (2d Cir. 2009) (“[Plaintiff] is precluded from creating a private cause of action for violations
of these rules and regulations by fashioning her claim as one for breach of contract based on
violations of rules and regulations impliedly incorporated into the agreement.”).
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 30 of 48
22
Second, Plaintiffs also refer obliquely to “FINRA Rules,” specifying only FINRA
Rules 2010, 3110 and 4370. (Am. Compl. ¶¶ 167-69.) However, there is also no private right of
action for violations of FINRA Rules or NASD Rules, the predecessor to FINRA Rules. See In
re Verifone Sec. Litig., 11 F.3d 865, 870 (9th Cir. 1993) (“It is well established that violation of
an exchange rule will not support a private claim.”); Jablon v. Dean Witter & Co., 614 F.2d 677,
681 (9th Cir. 1980) (“[T]here is no implied right of action for an NASD rule violation.”); Price
(Tilley) v. Charles Schwab & Co., No. 14-cv-06194, 2015 WL 9694811, at *4 (C.D. Cal. Apr. 6,
2015) (“Case law establishes such violations [of NASD rules] do not give rise to a private right
of action.”); Hauptman v. Interactive Brokers, LLC, 349 F. Supp. 3d 292, 296 (S.D.N.Y. 2018)
(no private right of action for violation of FINRA Rules).
Third, Plaintiffs refer vaguely to NSCC and DTCC rules. (Am. Compl. ¶¶ 152-
65.) But Plaintiffs do not have a private right of action for purported violations of DTCC or
NSCC rules. Indeed, DTCC and NSCC rules are simply contractual agreements between the
DTCC and NSCC and their members. If Robinhood had breached a DTCC or NSCC rule—
which Plaintiffs fail to plead with any particularity—that would amount to a breach of
Robinhood’s contractual obligations to DTCC or NSCC, not a breach of any duty to Plaintiffs.
See Harper v. Wausau Ins. Co., 66 Cal. Rptr. 2d 64, 68 (Ct. App. 1997) (“A third party should
not be permitted to enforce covenants made not for his benefit” unless the contract is “expressly
made for his benefit.”) (citations omitted).
The same principle holds true under Florida law. Florida courts have recognized
that while an alleged violation of a rule or regulation can inform the applicable standard of care
in a negligence action, or even serve as evidence of breach, it cannot provide the source of duty
itself. See Estate of Johnson ex rel. Johnson v. Badger Acquisition of Tampa LLC, 983 So. 2d
1175, 1182 (Fla. 2d DCA 2008) (“[T]he violation of a statute may be evidence of negligence, but
such evidence only becomes relevant to a breach of a standard of care after the law has imposed
a duty of care.”).
Therefore, the SEC Regulations, FINRA Rules and DTCC or NSCC rules that
Plaintiffs reference in their Complaint do not provide a cognizable tort duty on which Plaintiffs
can premise their negligence claims. Because Plaintiffs have not identified any cognizable tort
duty—either professional, generalized, or provided by statute or regulation—that could support
its negligence claims, Plaintiffs’ negligence and gross negligence claims should be dismissed.
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 31 of 48
23
II.
ROBINHOOD DOES NOT OWE ITS CUSTOMERS A FIDUCIARY DUTY
(COUNT III).
To plead a breach of fiduciary duty claim under California law, Plaintiffs must
allege adequately (1) the existence of a fiduciary duty, (2) its breach, and (3) damage
proximately caused by that breach. See Brown v. California Pension Administrators &
Consultants, Inc., 52 Cal. Rptr. 2d 788, 796 (Ct. App. 1996). “The absence of any one of these
elements is fatal to the cause of action.” Id. (citation omitted). Plaintiffs’ claims fail here
because they do not (and cannot) allege facts to support the conclusion that Robinhood owes any
fiduciary duty. As explained below, courts routinely hold that non-discretionary brokers like
Robinhood that do not provide customers with investment advice do not owe a fiduciary duty.
Therefore, the two theories on which Plaintiffs base their claims—(i) where Plaintiffs could not
place “buy” orders on the Robinhood platform for the Suspended Stocks, and (ii) where one
named Plaintiff’s pending trade order was canceled—do not give rise to a breach of fiduciary
duty.
A.
Robinhood Owed No Duty to Customer Plaintiffs To Make Its Brokerage
Services Available for Any Specific Security At All Times.
Eleven of the twelve Plaintiffs allege that Robinhood Financial and Robinhood
Securities breached a fiduciary duty by imposing limited purchase restrictions, which allegedly
led to their inability to submit purchase orders for the meme stocks on the Robinhood platform
on January 28, 2021. (See Am. Compl. ¶¶ 29-79, 304, 306.) Specifically, these Plaintiffs allege
that Robinhood “deactivated the ‘buy’ button as a feature,” which prevented Plaintiffs and other
investors from purchasing the meme stocks on the Robinhood platform for a certain time,
thereby allegedly “depress[ing] prices” of the meme stocks. (Id. ¶¶ 3, 241-42.) However, as
explained below, Robinhood owed no fiduciary (or other) duty to any customer to make its
brokerage services available for any particular security at all times. Accordingly, Plaintiffs have
no claim for breach of fiduciary duty because where there is no duty, there can be no breach.
Under California law, it is well settled that only securities brokers managing a
discretionary account (i.e., making trading decisions on their customers’ behalf) or providing
investment advice to their customers owe a fiduciary duty. See Twomey v. Mitchum, Jones &
Templeton, Inc., 69 Cal. Rptr. 222, 242 (Ct. App. 1968) (“It is contended that the sole obligation
of the broker-dealer is to carry out the stated objectives of the customer. This may well be true
when the broker is acting merely as [an] agent to carry out purchases or sales selected by the
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 32 of 48
24
customer, with or without the broker’s recommendation. Here, however, there is evidence to
sustain the finding that [the broker’s] recommendations, as invariably followed, were for all
practical purposes the controlling factor in the transactions.”); see also Petersen v. Sec.
Settlement Corp., 277 Cal. Rptr. 468, 472-73 (Ct. App. 1991) (noting that the duties described
“in Twomey and Duffy are predicated expressly on evidence a broker’s recommendation was the
controlling factor in the customer’s stock purchases,” and concluding that those duties do not
apply where the relationship is non-discretionary and the broker issues no investment advice).
By contrast, where—as here—the relationship between a broker and a customer is
“confined to the simple performance of transactions ordered by a customer” a fiduciary duty
“do[es] not arise.” Id. at 473; see also Brown, 52 Cal. Rptr. 2d at 797 (finding that a non-
discretionary broker did not have “an expansive fiduciary relationship giving rise to a duty to
notify the customer of the risky nature of an investment, or . . . of the poor performance of
similar investments held by different customers”); Apollo Capital Fund LLC v. Roth Capital
Partners LLC, 70 Cal. Rptr. 3d 199, 214 (Ct. App. 2007) (finding no fiduciary duty where the
stockbroker was not an “adviser to the customer about investment decisions”).18
Plaintiffs (like all customers) acknowledged when they signed the Customer
Agreement that Robinhood serves as a non-discretionary broker. (See Cust. Agmt. § 5.A.)
Through the Customer Agreement, Plaintiffs (like all customers) agreed that their accounts are
self-directed and that Robinhood neither provides investment advice nor recommends any
securities, transactions or other orders to its customers:
[N]either Robinhood nor any of its employees, agents, principals, or
representatives (1) provide investment advice in connection with
this Account; (2) recommend any security, transaction or order;
(3) solicit orders; (4) act as a market maker in any security; (5) make
discretionary trades; and (6) produce or provide first-party research
providing [] specific investment strategies such as buy, sell or hold
recommendations, first-party ratings and/or price targets.
18 Robinhood Securities, as the clearing broker, could not, by definition, owe any such
duties. See Petersen, 277 Cal. Rptr. at 473 (noting that “it would be unfair to impose upon [a
clearing broker] disclosure duties which can only be performed by a broker with direct access to
customers”). The same holds under Florida law. See SFM Holdings, Ltd. v. Banc of Am. Sec.,
LLC, 600 F.3d 1334, 1338-39 (11th Cir. 2010) (“[C]learing brokers ordinarily owe no fiduciary
duty to the customers of introducing brokers.”); Strategic Income Fund, LLC v. Spear, Leeds &
Kellogg Corp., 305 F.3d 1293, 1296 n.12 (11th Cir. 2002) (same).
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 33 of 48
25
(Cust. Agmt. § 5.A.) Accordingly, Plaintiffs agree that Robinhood’s “sole obligation . . . is to
carry out the stated objectives of the customer”; as a result, Robinhood does not owe a fiduciary
duty to its customers. Twomey, 69 Cal. Rptr. at 242. Robinhood therefore had no fiduciary duty
to make its brokerage services available to customers for all securities at all times—which is the
basis for Plaintiffs’ complaint here. (Am. Compl. ¶¶ 241-42.) Holding otherwise has no basis in
the law and “would impose unjustifiably onerous burdens on [non-discretionary] brokers.” Unity
House, Inc. v. N. Pac. Inv., Inc., 918 F. Supp. 1384, 1393 (D. Haw. 1996) (applying California
law).19
Nor can Plaintiffs state a claim for breach of fiduciary duty based on a premise
that fiduciary obligations arose as a result of a “special” or “confidential” relationship between
Robinhood and its customers. (See Am. Compl. ¶¶ 121-23, 303, 305). Under California law,
“fiduciary relations arise out of certain canonical relationships that are legally defined and
regulated,” while confidential relations—sometimes called special relations—“do not fall into
well-defined categories of law and depend heavily on the circumstances.”20 Richelle L. v.
Roman Cath. Archbishop, 130 Cal. Rptr. 2d 601, 610 (Ct. App. 2003). To establish a
confidential relationship that gives rise to a fiduciary duty, a plaintiff must establish “1) [t]he
vulnerability of one party to the other which 2) results in the empowerment of the stronger party
by the weaker which 3) empowerment has been solicited or accepted by the stronger party and
4) prevents the weaker party from effectively protecting itself.” Id. at 611. “[B]efore a person
can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf
and for the benefit of another, or must enter into a relationship which imposes that undertaking
as a matter of law.” City of Hope Nat’l Med. Ctr. v. Genentech, Inc., 181 P.3d 142, 150 (Cal.
2008) (citation omitted).
19 Plaintiffs’ allegation in passing that Robinhood “retain[s] discretion to execute certain
transactions within Plaintiffs’ . . . accounts” and that this discretion somehow gives rise to a
fiduciary duty is entirely conclusory. (See Am. Compl. ¶ 305.) Plaintiffs do not cite any
provision in the Customer Agreement nor any other documents indicating that Robinhood retains
any such discretion sufficient to give rise to a fiduciary duty. Plaintiffs also do not allege that
Robinhood exercised any such discretion within any Plaintiff’s account.
20 To clarify, this type of “special relationship” is distinct from the J’Aire special
relationship discussed in Part I.B.
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 34 of 48
26
Here, Plaintiffs do not allege facts that would support the existence of a
confidential relationship. First, Plaintiffs have not pleaded the type of relationship in which
confidential relationships are typically found—that is, personal relationships involving a power
imbalance. For example, confidential relationships have been found in relationships between
attorneys and their individual clients, see Aoki v. Gilbert, No. 11-cv-02797-TLN-CKD, 2020 WL
6741693, at *25 (E.D. Cal. Nov. 17, 2020), as well as relationships between elderly individuals
in weakened mental and physical conditions and acquaintances who advise them on financial
transactions, see Richelle, 130 Cal. Rptr. 2d at 610 (collecting cases). Plaintiffs here instead
allege a purported confidential relationship between Robinhood and its millions of customers,
who self-direct their trade orders with Robinhood Financial primarily through the use of
Robinhood’s web or mobile application. (Am. Compl. ¶ 116.) Courts have declined to find
confidential relationships in similar circumstances. See Siemonsma v. Mut. Diversified Emps.
Fed. Credit Union, No. SACV 10-1093 DOC, 2011 WL 1485979, at *3 (C.D. Cal. Apr. 19,
2011) (finding no confidential relationship between a credit union and customer because “[t]o
find a confidential relationship arising out of the mere depositing of funds would make
confidential relationships ubiquitous in the lending industry, which strikes the Court as contrary
to the meaning of a confidential relationship”).
Second, even if Plaintiffs had adequately alleged they are vulnerable and that they
placed trust in Robinhood, they have not alleged—nor could they allege—that Robinhood
“accepted” any fiduciary obligations. See City Sols., Inc. v. Clear Channel Commc’ns, Inc., 201
F. Supp. 2d 1048, 1050 (N.D. Cal. 2002). Here, Robinhood expressly disclaimed—and Plaintiffs
expressly agreed—that Robinhood does not “provide investment advice.” (Cust. Agmt. § 5.A.)
California courts have recognized the validity of contract provisions, such as the one in the
Customer Agreement, that disclaim fiduciary obligations. See Meyers v. Guar. Sav. & Loan
Ass’n, 144 Cal. Rptr. 616, 620 (Ct. App. 1978); Carleton v. Tortosa, 17 Cal. Rptr. 2d 734, 740
(Ct. App. 1993). Robinhood’s provision of information to the public through Robinhood Learn
and Robinhood Snacks does not change this result. Those educational tools are not limited to
Robinhood customers and do not constitute providing investment advice. (See Am. Compl.
¶ 123.) Similarly, Robinhood Gold provides subscribers access to special features and
information, none of which include investment advice. (Id.; Am. Compl. Ex. B at 2.) To the
extent Plaintiffs are alleging that a fiduciary duty arose because Robinhood advertised and
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 35 of 48
27
promoted its product (Am. Compl. ¶ 121), Plaintiffs cannot do so. See Comm. on Children’s
Television, Inc. v. Gen. Foods Corp., 673 P.2d 660, 676 (Cal. 1983) (declining to find a fiduciary
relationship between sellers of cereal and their customers in the context of advertising because
“[w]e believe the various statutory and common law doctrines fashioned to protect the consumer
from overreaching and deception are strong and flexible enough to accomplish that purpose, and
that it is unnecessary to call upon the law of fiduciary relationships to perform a function for
which it was not designed and is largely unsuited”). Plaintiffs therefore have failed to allege
facts that would support the existence of a confidential relationship that could give rise to a
fiduciary duty.
Plaintiffs cannot state a claim for breach of fiduciary duty under Florida law
either. Courts applying Florida law impose fiduciary duties on brokers only to the extent that
such brokers provide investment advice. See Gochnauer v. A.G. Edward & Sons, Inc., 810 F.2d
1042, 1049 & n.9 (11th Cir. 1987) (“The discretionary account is when the broker has a
continuous obligation to manage the account; a nondiscretionary account was defined as an
account where the customer and broker confer as to a particular transaction but the broker has
no continuing management duty over the account once the single transaction is complete.”
(emphasis added) (citing Leib v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 461 F. Supp. 951,
952-53 (E.D. Mich. 1978))). Under Gochnauer, “the focus of the inquiry is how the fiduciary
acted in his selection of the investment.” Id. at 1050. Moreover, authorities on which Florida
courts rely emphasize that “[i]n a non-discretionary account each transaction is viewed singly”
and that “duties to the customer cease when the transaction is closed.” Leib, 461 F. Supp. at 952-
53. As stated above, Plaintiffs (and all customers) acknowledge that Robinhood does not
provide any advice, nor does it confer with its customers concerning their trades. (See Cust.
Agmt. § 5.A.) Additionally, Plaintiffs themselves allege that on the morning of January 28 they
did not engage in a transaction, because they were unable to place “buy” orders. For all of these
reasons, Robinhood does not owe a fiduciary duty to Plaintiffs.
Plaintiffs also have not alleged facts that would support a claim under Florida law
that any fiduciary duty could have arisen as a result of a special or confidential relationship
between Robinhood and its customers. Under Florida law, “[t]o establish a fiduciary
relationship, a party must allege some degree of dependency on one side and some degree of
undertaking on the other side to advise, counsel, and protect the weaker party.” Bankest Imports,
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 36 of 48
28
Inc. v. ISCA Corp., 717 F. Supp. 1537, 1541 (S.D. Fla. 1989). “[T]he fact that one party places
its trust in the other does not create a confidential relationship in the absence of some
recognition, acceptance, or undertaking of the duties of a fiduciary on the part of the other
party.” Id. Here, even if Plaintiffs could allege they depended on Robinhood and placed trust in
Robinhood, they have not alleged a “recognition” or “acceptance” of fiduciary obligations by
Robinhood that could give rise to a fiduciary duty. Robinhood expressly disclaimed fiduciary
obligations in the Customer Agreement and Florida courts recognize that such disclaimers bar a
finding of a fiduciary duty. Kipnis v. Bayerische Hypo- und Vereinsbank, AG, No. 13-23998-
CIV, 2017 WL 11103938, at *11 (S.D. Fla. June 26, 2017) (“As the breach of fiduciary duty
claim is barred by contract, the Court need not address whether Plaintiffs allege a ‘special
relationship’”); Scolieri v. John Hancock Life Ins. Co. (U.S.A.), No. 2:16-CV-690-FTM-38CM,
2017 WL 700215, at *5 (M.D. Fla. Feb. 22, 2017) (finding no fiduciary relationship because
“any expectations Plaintiffs may have for advice from [defendant] were expressly and
unequivocally disclaimed” by the relevant contract). Moreover, as explained above, even if there
were no contract disclaiming fiduciary obligations, Plaintiffs still have not sufficiently alleged a
confidential relationship because the services Plaintiffs allege Robinhood provides do not
amount to “advis[ing], counsel[ing], and protect[ing]” Robinhood customers. See Bankest
Imports, 717 F. Supp. at 1541. Therefore, Plaintiffs have failed to allege facts to support the
existence of a confidential relationship under either California or Florida law that could give rise
to a fiduciary duty.
B.
Robinhood Also Owed No Duty to Plaintiff Moody for Canceled Orders.
Plaintiff Moody separately alleges that Robinhood breached its fiduciary duty to
her by canceling a previously confirmed stock purchase order that she had placed. She alleges
that she placed a stock purchase order on the evening of January 27, to be executed the following
day, and Robinhood canceled the order before the market opened on the morning of January 28.
(See Am. Compl. ¶¶ 80-84, 243-44.) To the extent that Robinhood owed any duty to execute
Moody’s trade order, such a duty arose under agency law. Caravan Mobile Home Sales v.
Lehman Brothers Kuhn Loeb, Inc., 769 F.2d 561, 567 (9th Cir. 1985) (“A stockbroker is an agent
of his client.”). It is clearly established, however, that the duties owed by the agent (Robinhood)
to the principal (Moody) are “limited to the scope of the agency set forth in the agreement.”
Meyers, 144 Cal. Rptr. at 620; see also Carleton, 17 Cal. Rptr. 2d at 740 (same).
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 37 of 48
29
As set forth above, the Customer Agreement provides that “Robinhood may at
any time, in its sole discretion and without prior notice to Me, prohibit or restrict My ability to
trade securities.” (Cust. Agmt. § 5.F (emphasis added).) The Customer Agreement further
provides that “Robinhood may at any time, at its sole discretion and without prior notice to
Me . . . (ii) refuse to accept any of My transactions, [or] (iii) refuse to execute any of My
transactions.” (Id. § 16.) Because the Customer Agreement expressly permitted—and Plaintiffs
expressly agreed—that Robinhood could restrict or cancel trades, Robinhood acted within the
scope of its agency with its customers, and Plaintiff Moody’s claims fail as a result.
Applying Florida law would yield the same result, because where a broker
“carrie[s] out its preexisting, agreed upon tasks properly . . . , [it] forecloses [a] breach of
fiduciary duty claim.” See Misabec Mercantile, Inc. de Panama v. Donaldson, Lufkin & Jenrette
ACLI Futures, Inc., 853 F.2d 834, 839 (11th Cir. 1988). The Court did not have occasion to
consider this critical point in Pinchasov v. Robinhood Financial LLC because it was unable to
consider the contents of the Robinhood Customer Agreement. (See Order Denying Motion to
Dismiss, Pinchasov v. Robinhood Financial LLC, No. 20-cv-24897-CMA (S.D. Fla.), ECF No.
48 at 5-6.) Here, Plaintiffs have attached the Customer Agreement to the Amended Complaint
and incorporated it into the pleadings. (See supra Legal Standards, Section II.) The terms of the
agency relationship in the Customer Agreement supplant any purported tort duty Robinhood may
have owed to Plaintiff Moody to execute her trades. Therefore, Plaintiffs cannot state a claim for
breach of fiduciary duty under any of the theories they advance.
III.
PLAINTIFFS CANNOT STATE A CLAIM FOR BREACH OF THE IMPLIED
COVENANT OF GOOD FAITH AND FAIR DEALING (COUNT V).
Plaintiffs’ claim that Robinhood Financial and Robinhood Securities breached the
implied covenant of good faith and fair dealing by “exercis[ing] [] discretion” to impose a “one-
sided halt on trading on the Suspended Stocks” fails. (Am. Compl. ¶ 330.) To state a claim for a
breach of the covenant, a plaintiff must allege: “(1) the parties entered into a contract; (2) the
plaintiff fulfilled his obligations under the contract; (3) any conditions precedent to the
defendant’s performance occurred; (4) the defendant unfairly interfered with the plaintiff’s rights
to receive the benefits of the contract; and (5) the plaintiff was harmed by the defendant’s
conduct.” Rosenfeld v. JPMorgan Chase Bank, N.A., 732 F. Supp. 2d 952, 968 (N.D. Cal. 2010).
The covenant of good faith and fair dealing is an implied term of every contract. See
Restatement (Second) of Contracts § 205. But the covenant “exists merely to prevent one
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 38 of 48
30
contracting party from unfairly frustrating the other party’s right to receive the benefits of the
agreement actually made.” Guz v. Bechtel Nat’l Inc., 8 P.3d 1089, 1110 (Cal. 2000) (emphasis
in original). It does not “impose substantive duties or limits on the contracting parties beyond
those incorporated in the specific terms of their agreement.” Id. Thus, a claim for breach of the
implied covenant of good faith and fair dealing necessarily fails if the conduct at issue was
expressly permitted by the contract.
That is the case here. The Customer Agreement expressly permitted Robinhood
to put in place the trading restrictions at issue. (See Cust. Agmt. § 5.F.) Specifically, it states
that “Robinhood may at any time, in its sole discretion, and without prior notice to [the
customer], prohibit or restrict [the customer’s] ability to trade securities.” (Id.) Plaintiffs cannot
“invoke the implied covenant [of good faith and fair dealing] to prohibit conduct that a contract
expressly allows.” 21st Century Ins. Co. v. Super. Ct., 213 P.3d 972, 982 (Cal. 2009); see also
Carma Devs. (Cal.), Inc. v. Marathon Dev. Cal., Inc., 826 P.2d 710, 728 (Cal. 1992) (“We are
aware of no reported case in which a court has held the covenant of good faith may be read to
prohibit a party from doing that which is expressly permitted by an agreement.”). Because the
purchase restrictions at issue were expressly permitted by the Customer Agreement, there was no
breach of the implied covenant of good faith and fair dealing.
In an attempt to circumvent the express plain-text “discretion” reserved by
Robinhood in the Customer Agreement, Plaintiffs—while claiming Robinhood breached the
implied covenant by “exercis[ing] [its] discretion” (Am. Compl. ¶ 330)—allege at the same time
that Robinhood did not exercise discretion to put in place the trading limits because it was
“forced” to do so (id. ¶ 178). This is both contradictory and nonsensical. Such a reservation of
discretion allows Robinhood to put in place purchase limitations when it is necessary to do so,
such as during the extreme market events in late January 2021.21 Because the Customer
Agreement expressly permitted the conduct at issue, Plaintiffs cannot state a claim for breach of
the covenant. See Integrated Storage Consulting Servs., Inc. v. NetApp, Inc., No. 5:12-CV-
21 Equally nonsensical is Plaintiffs’ claim that a March 23, 2021 Robinhood blog post shows
that the January 2021 PCO restrictions constituted a breach. (Am. Compl. ¶ 177.) This blog
post—published two months after the events at issue—identifies some circumstances in which
Robinhood (or any broker) might impose trading restrictions in the ordinary course of business.
(Id. ¶ 177 n.10.) This does not negate Robinhood’s discretion to impose such restrictions during
extraordinary market events, such as in late January 2021.
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 39 of 48
31
06209-EJD, 2013 WL 3974537, at *8 (N.D. Cal. July 31, 2013) (dismissing plaintiff’s claim for
breach of the covenant of good faith and fair dealing where the plaintiff’s allegations of breach
were “inconsistent with the terms of the [agreements]”). This claim therefore fails under
California law.
Applying Florida law yields the same result. The Florida Supreme Court has been
clear that a plaintiff cannot prevail “(1) where application of the covenant would contravene the
express terms of the agreement; and (2) where there is no accompanying action for breach of an
express term of the agreement.” QBE Ins. Corp. v. Chalfonte Condo. Apartment Ass’n, 94 So.
3d 541, 548 (Fla. 2012). Both factors are present here. Plaintiffs’ claim must be dismissed. See
id.; see also Centurion Air Cargo, Inc. v. United Parcel Serv. Co., 420 F.3d 1146, 1152 (11th
Cir. 2005) (where a defendant “[does] not breach the express terms of the [contract], Florida law
precludes a finding of breach of the implied covenant of good faith and fair dealing”).
IV.
PLAINTIFFS CANNOT STATE A CLAIM FOR BREACH OF AN IMPLIED
DUTY OF CARE (COUNT IV).
In Count IV, Plaintiffs allege that “Robinhood Financial and Robinhood
Securities failed to use reasonable care in performing their brokerage services and failed to
perform those services competently.” (Am. Compl. ¶ 323.) This implied duty of care claim fails
for the same reason as their good faith and fair dealing claim: it is contradicted by the express
terms of the Customer Agreement.
In certain circumstances, California courts will read an implied duty of care into a
contract, giving rise to a breach of contract claim for breach of that implied duty. See Holguin v.
Dish Network LLC, 178 Cal. Rptr. 3d 100, 113-14 (Ct. App. 2014) (affirming judgment of
breach of contract based on implied duty to install satellite TV equipment properly); Mishiyev v.
Alphabet, Inc., 444 F. Supp. 3d 1154, 1160 (N.D. Cal. 2020) (explaining that to the extent an
“implied duty to perform [] contractual duties competently” arose, it was a contractual
obligation, not a tort duty), aff’d, 857 F. App’x 907 (9th Cir. 2021). However, it is the “express
contractual terms [that] give rise to implied duties, violations of which may themselves
constitute breaches of contract.” Holguin, 178 Cal. Rptr. 3d at 114 (emphasis added).
Therefore, no implied duty claim can lie if the express terms of the contract permit the conduct
constituting the alleged breach. See Series AGI W. Linn of Appian Grp. Invs. DE, LLC v. Eves,
158 Cal. Rptr. 3d 193, 203 (Ct. App. 2013) (explaining that implied terms “are justified only
when they are not inconsistent with some express term of the contract”) (citation omitted);
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 40 of 48
32
Corral v. Select Portfolio Servicing, Inc., No. C-15-1542 EMC, 2015 WL 4149144, at *4 (N.D.
Cal. July 9, 2015) (declining to read an implied duty into a contract where the language of the
contract indicated no duty existed), vacated on other grounds, 878 F.3d 770, 776 (9th Cir. 2017).
As described above, the express terms of the contract between Plaintiffs and Robinhood
permitted the very conduct at issue. (See Cust. Agmt. § 5.F.) Therefore, Plaintiffs’ implied duty
of care claim must be dismissed.22
V.
PLAINTIFFS FAIL TO STATE A CLAIM OF TORTIOUS INTERFERENCE
AGAINST ROBINHOOD MARKETS (COUNT VI).
For all of the reasons discussed so far, Plaintiffs have no claim against
Robinhood: Robinhood does not owe tort duties to its customers in negligence or fiduciary duty
(see supra Sections I and II); Plaintiffs have declined to assert a breach of contract claim against
Robinhood because the Customer Agreement expressly permitted Robinhood to put temporary
purchase restrictions in place; and Plaintiffs’ claims for breach of implied contractual obligations
fail because the express terms of the Customer Agreement preclude any such implied terms (see
supra Sections III and IV).
Plaintiffs are left pleading a perplexing claim in the alternative that Robinhood
Markets tortiously interfered in Plaintiffs’ contractual relationship with both Robinhood
Financial and Robinhood Securities. (Am. Compl. ¶¶ 335-41.) Under California law, “[t]ortious
interference with contractual relations requires ‘(1) the existence of a valid contract between the
plaintiff and a third party; (2) the defendant’s knowledge of that contract; (3) the defendant’s
intentional acts designed to induce a breach or disruption of the contractual relationship;
(4) actual breach or disruption of the contractual relationship; and (5) resulting damage.’” Ixchel
Pharma, LLC v. Biogen, Inc., 470 P.3d 571, 575 (Cal. 2020) (citation omitted). Plaintiffs claim
that Robinhood Markets “procured the breaches of implied contractual duties” by forcing
Robinhood Financial and Robinhood Securities “to stop performing their legal obligations with
respect to the Customer Agreement.” (Id. ¶¶ 335, 338.) This claim too fails as a matter of law,
for two reasons.
22 Plaintiffs concede that California law, rather than Florida law, applies to their implied
duty of care claim. (Am. Compl. ¶ 321.) If Florida law did apply, the claim would also fail
because Florida law does not recognize an implied duty of care.
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 41 of 48
33
First, Plaintiffs fail to plead any “actual breach or disruption of the contractual
relationship” between Robinhood Financial and Robinhood Securities and Plaintiffs. Ixchel, 470
P.3d at 575. Without a breach or disruption of contract, there can be no claim for tortious
interference with contract. See id. As set forth above, Plaintiffs have abandoned any breach of
contract claim against Robinhood Financial or Robinhood Securities. (See supra Sections I and
II.) Nor have Plaintiffs stated a claim that either Robinhood Financial or Robinhood Securities
breached any “implied” contractual duties. (See supra Sections III and IV.) As a result,
Plaintiffs fail to plead any “actual breach or disruption of” their business relationship and their
tortious interference claim against Robinhood Markets therefore fails. Ixchel, 470 P.3d at 575.
Second, Plaintiffs fail to plead that Robinhood Markets engaged in any
“intentional acts designed to induce a breach or disruption of the contractual relationship.” Id.
At the outset, Plaintiffs concede that the decision to implement a PCO on the Suspended Stocks
was made by Robinhood Securities, and not by the parent entity, Robinhood Markets. (Am.
Compl. ¶ 28.) This leaves Plaintiffs to plead that Robinhood Markets should be liable for a
tortious interference claim predicated on “mismanagement of its subsidiaries,” which allegedly
“forced its subsidiaries to stop performing their obligations under the Customer Agreement.”
(Id. ¶ 339.) Plaintiffs allege a litany of purported actions and inactions by Robinhood Markets,
including “forcing the Suspended Stocks into PCO” and other alleged failures to anticipate and
prepare for the extreme market volatility. (Id. ¶ 338.) Putting aside that Plaintiffs concede that
putting “the Suspended Stocks into PCO” was a decision made by Robinhood Securities, and not
Robinhood Markets, nowhere do Plaintiffs allege that any of these were “intentional acts” by
Robinhood Markets “designed to induce a breach or disruption of the contractual relationship,”
Ixchel, 470 P.3d at 575. By their own terms, the failures that Plaintiffs allege, such as failure to
have a supervisory control system or back-up plans, are at most alleged to have been negligent,
not intentional acts that could form the basis of a tortious interference claim. Plaintiffs neither
allege that Robinhood Markets acted with specific intent to disrupt the contractual relationship
nor do they plead that Robinhood Markets “[knew] that the interference [was] certain or
substantially certain to occur as a result of [its] action.” Korea Supply Co. v. Lockheed Martin
Corp., 63 P.3d 937, 952 (Cal. 2003) (citation omitted). Thus, Plaintiffs’ tortious interference
claim against Robinhood Markets fails on these bases under California law.
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 42 of 48
34
Plaintiffs would face the same outcome under Florida law. A tortious interference
claim under Florida law requires Plaintiffs to plead “(1) the existence of a business relationship,
not necessarily evidenced by an enforceable contract, under which the plaintiff has legal rights;
(2) the defendant’s knowledge of the relationship; (3) an intentional and unjustified interference
with the relationship by the defendant; and (4) damage to the plaintiff as a result of the
interference.” Salit v. Ruden, McClosky, Smith, Schuster & Russell, P.A., 742 So. 2d 381, 385
(Fla. 4th DCA 1999) (citations omitted). As set out above, Plaintiffs do not plead a breach of
contract (express or implied) against Robinhood Securities or Robinhood Financial, nor do they
plead that any of Robinhood Markets’ purported acts (see Am. Compl. ¶ 338) were “intentional
and unjustified.” Salit, 742 So. 2d at 385. Thus, Plaintiffs’ tortious interference claim against
Robinhood Markets similarly fails under both California and Florida law.
VI.
PLAINTIFFS FAIL TO STATE A CLAIM OF CIVIL CONSPIRACY
(COUNT VII).
Plaintiffs further contend that Robinhood Markets, Robinhood Financial and
Robinhood Securities “unlawfully conspired to tortiously interfere with Plaintiffs and the
Robinhood Class’s contractual and business relationships with Robinhood Financial and
Robinhood Securities.” (Am. Compl. ¶ 343.) The tortious interference claim in Count VI is the
sole basis for the conspiracy claim that Plaintiffs allege in Count VII. (See id.) This cause of
action fails for two reasons.
First, under California law, civil “[c]onspiracy is not a cause of action, but a
legal doctrine that imposes liability on persons who, although not actually committing a tort
themselves, share with the immediate tortfeasors a common plan or design in its perpetration.”
Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 869 P.2d 454, 457 (Cal. 1994). As stated
above, Plaintiffs fail to state a predicate tort claim—here, tortious interference; therefore, their
effort to impose conspiracy liability also fails.
Second, even if Plaintiffs did state a claim of tortious interference against
Robinhood Markets in Count VI, Plaintiffs’ civil conspiracy claim in Count VII fails because
Robinhood Securities and Robinhood Financial are both parties to the Customer Agreement.
“Because a party to a contract owes no tort duty to refrain from interference with its
performance, he or she cannot be bootstrapped into tort liability by the pejorative plea of
conspiracy.” Id. at 459. On top of the fact that the PCO restrictions were permitted under the
Customer Agreement (supra Argument, Section I), Robinhood Financial and Robinhood
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 43 of 48
35
Securities “assumed only the obligation to perform the contract or pay damages for breach,” not
the “independent tort obligation not to interfere with the performance of [their] own contract.”
Applied Equip., 869 P.2d at 462. Accordingly, Robinhood Financial and Robinhood Securities
cannot be “bootstrapped into tort liability by the pejorative plea of conspiracy.” Id. at 459.
Thus, Plaintiffs’ civil conspiracy claim is left with only Robinhood Markets (already the
defendant on the tortious interference claim in Count VI)—and a conspiracy cannot be asserted
against only a single actor. See Wyatt v. Union Mortg. Co., 598 P.2d 45, 51 (Cal. 1979). For this
separate reason, Plaintiffs’ civil conspiracy claim must be dismissed.
Applying Florida law would yield the same result. Under Florida law, a plaintiff
must plead, “(a) an agreement between two or more parties, (b) to do an unlawful act or to do a
lawful act by unlawful means, (c) the doing of some overt act in pursuance of the conspiracy,
and (d) damage to plaintiff as a result of the acts done under the conspiracy.” Raimi v. Furlong,
702 So. 2d 1273, 1284 (Fla. 3d DCA 1997). Plaintiffs plead a civil conspiracy claim predicated
on their underlying tortious interference claim. (Am. Compl. ¶ 343.)23 For the reasons above,
this claim fails because Plaintiffs fail to state a tortious interference claim against Robinhood
Markets. But even if Plaintiffs did state a tortious interference claim against Robinhood
Markets, as under California law, Florida law also provides that “a cause of action for
interference does not exist against one who is himself a party to the contract allegedly interfered
with.” Ethyl Corp. v. Balter, 386 So. 2d 1220, 1224 (Fla. 3d DCA 1980). Because Plaintiffs
cannot state a claim for the predicate tortious interference claim nor can they allege a conspiracy
with contracting parties, they cannot state a claim for civil conspiracy.
VII.
ROBINHOOD OWES NO DUTIES TO NON-ROBINHOOD CUSTOMERS—ALL
CLAIMS BROUGHT BY NON-ROBINHOOD CUSTOMERS THEREFORE
FAIL.
Plaintiffs further purport to bring their negligence and gross negligence claims
against Robinhood on behalf of a putative “Nationwide Investor Class,” which includes non-
23 Plaintiffs claim would fail under Florida law for the additional reason that they have not
pleaded “some peculiar power of coercion possessed by the conspirators by virtue of their
combination, which power an individual could not possess.” Florida Fern Growers Ass’n v.
Concerned Citizens of Putnam County, 616 So. 2d 562, 565 (Fla. 5th DCA 1993) (citation
omitted).
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 44 of 48
36
Robinhood customers. (Am. Compl. ¶¶ 273, 292, 301.)24 These claims fail because—in
addition to the grounds for dismissal set forth above in Section I, and the fact that none of the
Plaintiffs is a non-Robinhood customer who could meet the typicality and adequacy
requirements to represent such a class—Robinhood does not owe non-Robinhood customers any
duties.
Assuming for purposes of this motion, as Plaintiffs do not plead otherwise, that
Florida law would apply to non-Robinhood Customer plaintiffs’ claims,25 Robinhood does not
owe them a generalized duty of care for the reasons set forth above (see Argument, Section I.B).
Additionally, even if Robinhood did owe tort duties to its customers—it does not—Robinhood
still would not owe tort duties to non-Robinhood customers with whom it has no relationship
whatsoever. To conclude otherwise would defy longstanding principles that an actor does not
owe a tort duty with respect to economic losses in instances where there is no “link between the
parties” and there is no “other extraordinary circumstance” that would justify imposition of a
duty. See Tank Tech, 244 So. 3d at 393. Robinhood had no preexisting relationship with non-
Robinhood Customers, knew nothing about what securities they bought or sold, and indeed had
no reason to know of their existence. Therefore, Plaintiffs’ negligence-based claims fail to the
extent that they are brought by or on behalf of non-Robinhood customers.
VIII. PLAINTIFFS’ AMENDED COMPLAINT SHOULD BE DISMISSED WITH
PREJUDICE.
The Court should dismiss Plaintiffs’ Amended Complaint with prejudice.
Plaintiffs have had two opportunities to state a claim against Robinhood and many months more
to consider their arguments and legal theories against Robinhood since the first complaints were
filed at the end of January 2021. Unlike the vast majority of plaintiffs at the pleading stage,
Plaintiffs have also had the opportunity to review thousands of pages of internal Robinhood
communications and documents regarding the facts and issues in this case. Indeed, Plaintiffs
received a two-week extension of the deadline to file their initial Complaint so they could have
24 Plaintiffs limit their other five claims to the purported Robinhood class. (See Am. Compl.
¶¶ 308, 325, 333, 341, 346.)
25 Robinhood takes no position on which state’s law would apply to any non-Robinhood
customers’ claims. However, Robinhood acknowledges that non-Robinhood customers would
not be bound to the contractual choice-of-law provision, which applies California law and
governs Robinhood customers’ claims. (See supra Legal Standards, Section II.)
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 45 of 48
37
more time to review and incorporate those documents into their Complaint. (See ECF No. 335.)
Plaintiffs then had an additional eight weeks between when they filed their initial Complaint and
when they filed their Amended Complaint, with the benefit of seeing Robinhood’s motion to
dismiss the original Robinhood Tranche consolidated complaint (ECF No. 406), to further refine
their legal theories and incorporate information they obtained from the thousands of pages of
documents Robinhood produced to them. With all of these considerations in their favor,
Plaintiffs still have failed to state a claim on which relief can be granted, and any further
amendment would be futile. Therefore, Robinhood respectfully submits that this Action should
be dismissed with prejudice.
CONCLUSION
For the foregoing reasons, Robinhood respectfully submits that the Amended
Consolidated Class Action Complaint for the Robinhood Tranche should be dismissed with
prejudice for failure to state a claim.
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 46 of 48
38
Dated: October 15, 2021
/s/ Samuel A. Danon
HUNTON ANDREWS KURTH LLP
Samuel A. Danon (FBN 892671)
Gustavo Javier Membiela (FBN 513555)
María Castellanos Alvarado (FBN 116545)
333 S.E. 2 Avenue, Suite 2400
Miami, FL 33131
Telephone: (305) 810-2500
Facsimile: (305) 810-2460
sdanon@huntonak.com
gmembiela@huntonak.com
mcastellanos@hunton.com
CRAVATH, SWAINE & MOORE LLP
Antony L. Ryan
Kevin J. Orsini
Brittany L. Sukiennik
825 Eighth Avenue
New York, NY 10019
Telephone: (212) 474-1000
Facsimile: (212) 474-3700
aryan@cravath.com
korsini@cravath.com
bsukiennik@cravath.com
Counsel for Defendants Robinhood Markets,
Inc., Robinhood Financial LLC and
Robinhood Securities, LLC
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 47 of 48
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on October 15, 2021, I electronically filed the
foregoing document with the Clerk of the Court using CM/ECF. I further certify that the
foregoing document is being served this day on all counsel of record via transmission of Notices
of Electronic Filing generated by CM/ECF or in some other authorized manner for those counsel
or parties who are not authorized to receive Notices of Electronic Filing.
Dated: October 15, 2021
/s/ Samuel A. Danon
Samuel A. Danon (FBN 892671)
Case 1:21-md-02989-CMA Document 421 Entered on FLSD Docket 10/15/2021 Page 48 of 48