Defendant’s Motion to Dismiss

Date: 2022-07-06

Full text

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 21-2989-MDL-ALTONAGA/TORRES
In re:
JANUARY 2021 SHORT SQUEEZE
TRADING LITIGATION
_________________________________/
This Document Relates to the Other Broker Tranche

PLAINTIFFS’ OPPOSITION TO
DEFENDANT’S MOTION TO DISMISS

GROSSMAN ROTH YAFFA
COHEN, P.A

2525 Ponce de Leon Blvd., Ste 1150

Coral Gables, FL 33134-6040

Tel: 305-442-8666

rwf@grossmanroth.com

Plaintiffs’ Liaison Counsel

SAFIRSTEIN LAW LLC

45 N. Broad Street, Suite 100

Ridgewood, NJ 07450

Tel: (917) 952-9458

psafirstein@safirsteinlaw.com

Plaintiffs’ Lead Counsel for the

Other Broker Tranche

KANTROWITZ, GOLDHAMER

& GRAIFMAN, P.C.
135 Chestnut Ridge Road
Montvale, New Jersey 07645
Tel: (201) 391-7000
ggraifman@kgglaw.com
dedelman@kgglaw.com

Additional Plaintiffs’ Counsel for the

Other Broker Dealer Tranche
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TABLE OF CONTENTS

I. INTRODUCTION............................................................................................................................1

II. FACTUAL BACKGROUND..........................................................................................................3

A. Apex’s Roles As a Broker-Dealer and Clearing Broker-Dealer And Its Attendant
Duties.........................................................................................................................................3

B. The Events of January 28, 2021................................................................................................6

III. ARGUMENT.................................................................................................................................12

A. Standard of Review.................................................................................................................13

B. Plaintiffs Jang and Chavez Have Article III Standing............................................................13

1. Plaintiffs Allege an Injury in Fact Which Apex Attempts to Mischaracterize as
Speculative.......................................................................................................................14

2. Plaintiffs Allege a “Legally Protected Interest................................................................15

3. Plaintiffs Have Standing To Bring Claims on Behalf of Direct Customers....................17

C. New York Substantive Law Applies.....................................................................................19

D. Plaintiffs Have Stated A Claim For Negligence (Count I)...................................................21

1. Apex Owes Duties to Both “Introduced” Customers and “Direct” Customers.............22

2. Apex’s Own Customer Agreement Requires Adherence to the Applicable Industry
Rules and Regulations...................................................................................................27

3. Clearing Broker Liability..............................................................................................29

4. The Economic Loss Rule Does Not Undermine Defendant’s Negligence Nor

Plaintiffs’ Ability to Recover in Tort...........................................................................32

5. Apex Breached its Tort Duty To Plaintiffs..................................................................35

6. The Complaint Properly Alleges that Apex’s Actions Proximately Caused Plaintiffs’
Alleged Injury..............................................................................................................39

E. Plaintiffs State a Claim For Breach of Fiduciary Duty (II).................................................40

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iii

F. Alternatively, Plaintiffs State A Claim For Breach of the Implied Covenant of Good
Faith and Fair Dealing (Count III)....................................................................................44

G. Plaintiffs Have Properly Stated An Alternative Claim for Tortious Interference With
Business Relationships (Count IV)...................................................................................45

H. Plaintiffs State Law Claims Are Not Preempted By Federal Securities Laws................46

I. Plaintiffs’ Claims Are Viable As Pleaded on Behalf of Apex’s Shared Customers and
Investors Who Were Foreseeably Harmed by Apex........................................................47

IV. SHOULD THE COURT DISMISS THE COMPLAINT IN WHOLE OR IN PART,
LEAVE SHOULD BE GRANTED TO REPLEAD..............................................................49

V. CONCLUSION......................................................................................................................49

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TABLE OF AUTHORITIES

Cases Page(s)

A.I.A. Holdings, S.A. v. Lehman Bros., Inc.,
2002 WL 88226 (S.D.N.Y. Jan. 23, 2002) ................................................................................ 31

Aaron Private Clinic Mgmt. LLC v. Berry,
912 F.3d 1330 (11th Cir. 2019) ................................................................................................. 15

AMBAC Assur. Corp. v. U.S. Bank N.A.,
328 F. Supp. 3d 141 (S.D.N.Y. 2018) ....................................................................................... 33

Appert v. Morgan Stanley Dean Witter, Inc.,
2009 WL 3764120 (N.D. Ill. Nov. 6, 2009) .............................................................................. 47

Arkin v. Innocutis Holdings, L.L.C.,
188 F. Supp. 3d 1304 (M.D. Fla. 2016)..................................................................................... 17

Arnold v. Nat’l County Mut Fire Ins. Co.,
725 S.W.2d 165 (Tex. 1987) ..................................................................................................... 45

Ashcroft v. Iqbal,
556 U.S. 662 (2009) .................................................................................................................. 13

Atkins v. Glen Falls City Dist.,
53 N.Y.2d 325 (N.Y. 1981) ....................................................................................................... 22

Beckwith v. Hart,
263 F. Supp. 2d 1018 (D. Md. 2003) ......................................................................................... 32

Bell Atl. Corp. v. Twombly,
550 U.S. 544 (2007) .................................................................................................................. 13

Berwecky v. Bear Stearns & Co.,
197 F.R.D. 65 (S.D.N.Y. 2000) ................................................................................................. 30

Bradley Center, Inc. v. Wessner,
250 Ga. 199, 296 S.E.2d 693 (Ga. Supreme Court 1982) ......................................................... 48

Brink v. James,
341 F.Supp.3d 1314 (S.D. Fla. 2018) ........................................................................................ 25

Brown v. SCI Funeral Servs. of Fla., Inc.,
212 F.R.D. 602 (S.D. Fla. 2003)................................................................................................ 18

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Cannizaro v Bache, Halsey, Stuart, Shields, Inc.,
81 F.R.D. 719 (S.D.N.Y. 1979) ................................................................................................. 30

Carvel Corp. v. Noonan,
3 N.Y.3d, 182 (N.Y. 2004) .................................................................................................. 45, 46

Champlain Enterprises, Inc. v. United States,
945 F. Supp. 468 (N.D.N.Y. 1996)...................................................................................... 20, 21

Clements v. Withers,
437 S.W. 2d 818 (Tex. 1969) .................................................................................................... 46

Conway v. Icahn & Co., Inc.,
16 F.3d 504 (2d Cir. 1994) .................................................................................................. 23, 41

D. Houston v. Love,
92 S.W.3d 450 (Tex. 2002) ....................................................................................................... 22

Davis v. S. Bell Tel. & Tel. Co.,
1993 WL 593999 (S.D. Fla. Dec. 23, 1993) .................................................................. 18, 30, 32

de Kwiatkowski v. Bear Stearns,
126 F. Supp. 2d 672 (S.D.N.Y. 2000) ................................................................................. 28, 42

de Kwiatkowski v. Bear, Stearns & Co.,
306 F.3d 1293 (2d Cir. 2002) .................................................................................. 22, 23, 28, 42

Dept. of Labor v McConnell,
305 Ga. 812, 828 S.E.2d 352 (Ga. 2019) ................................................................................... 48

Derdiarian v. Felix Contr. Corp.,
51 NY2d 308 (N.Y. 1980) ......................................................................................................... 39

EBC I v. Goldman Sachs & Co.,
5 N.Y. 3d 11 (N.Y. 2005) .......................................................................................................... 41

ERI Consulting Eng’rs, Inc. v. Swinnea,
318 S.W.3d 867 (Tex. 2010) ..................................................................................................... 34

Etzel v. Hooters of America, LLC,
2016 WL 8604317 (N.D. Ga. Nov. 15, 2016) ........................................................................... 17

Eva Rioseco and Nilda Cruz v. Gamco Asset Management, Inc.,
2011 N.Y. Misc. LEXIS 7279 (N.Y. Sup. Ct. Sept. 23, 2011)................................................. 25

Case 1:21-md-02989-CMA Document 494 Entered on FLSD Docket 07/06/2022 Page 5 of 62

Fernandez v. Sch. Bd. Of Miami-Dade Cnty.,
201 F.Supp.3d 1353 (S.D. Fla 2016) ........................................................................................... 7

First Assembly Of God, Inc. v. Texas Utilities Elec. Co.,
52 S.W. 482 (Tex. 2001) ........................................................................................................... 40

First Nat. Bank of Eagle Pass v. Levine,
721 S.W.2d 287 (Tex, 1986) ..................................................................................................... 46

Fuller v. SunTrustBanks, Inc.,
744 F.3d 685 (11th Cir. 2014) ..................................................................................................... 7

Glob. Enter. Grp. Holding, S.A. v. Ottimo,
2010 WL 11629556 (E.D.N.Y., June 8, 2010) .............................................................. 30, 31, 43

Gochnauer v. A.G. Edwards & Sons, Inc.,
810 F.2d 1042 (11th Cir. 1987) ................................................................................................. 41

Goldman v. Belden,
754 F. 2d 1059 (2d Cir. 1985) ................................................................................................... 13

Goldman v. McMahan, Brafman, Morgan & Co.,
1987 WL 12820 (S.D.N.Y. 1987) ....................................................................................... 31, 43

Hain v. Jamison,
28 N. Y. 3d 524 (N Y. 2016) ............................................................................................... 39, 40

King City v. IKB Deutsche Industriebank AG,
863 F. Supp. 2d (S.D.N.Y. 2012) .............................................................................................. 33

In re Arris Cable Modem Cons. Litig.,
327 F.R.D. 334 (N.D. Cal. 2018) .............................................................................................. 19

In re Blech Sec. Litig.,
961 F. Supp. 569 (S.D.N.Y. 1997) ............................................................................................ 30

In re Checking Account Overdraft Litig.,
275 F.R.D. 666 (S.D. Fla. 2011)................................................................................................ 18

In re Equifax, Inc. Customer Data Sec. Breach Litig.,
362 F.Supp.3d 1295 (N.D. Ga. 2019) ........................................................................................ 48

In re Letterman Bros. Energy Securities Litigation,
799 F.2d 967 (5th Cir. 1986) ..................................................................................................... 41

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vii

In re Series 7 Broker Qualification Exam Scoring Litig.,
510 F. Supp. 2d 35 (D.D.C. 2007) ............................................................................................. 47

In re Worldcom, Inc. Sec. Litig.,
219 F.R.D. 267 (S.D.N.Y. 2003) ............................................................................................... 19

Independent Order of Foresters v. Donald, Lufkin & Jenrette, Inc.,
157 F. 3d 933 (2d Cir. 1998) ..................................................................................................... 42

Jim Walter Homes, Inc. v. Reed,
711 S.W.2d 617 (Tex.1986) ...................................................................................................... 35

Joy Pipe USA, L.P. v. Fremak Indus. Inc.,
CV H-13-2153, 2014 WL 12599328 at *2 (S.D. Tex. Nov. 10, 2014) report and
recommendation adopted, CV H-13-2153, 2014 WL 12597848 (S.D. Tex. Dec. 8, 2014) ..... 34

Kinsey v. N.Y. Times Co.,
991 F.3d 171 (2d Cir. 2021) ...................................................................................................... 19

Klock v. Lehman Bros. Kuhn Loeb Inc.,
584 F. Supp. 210 (S.D.N.Y. 1984) ............................................................................................ 21

Kneese v. Pershing, LLC,
2012 WL 13019677 (S.D. Tex. 2012) ....................................................................................... 31

Knieriemen v. Bache Halsey Stuart Shields, Inc.,
74 A.D.2d 290 (N.Y. App. Div. 1980) ...................................................................................... 21

Kornberg v. Carnival Cruise Lines, Inc.,
741 F.2d 1332 (11th Cir. 1984) ................................................................................................. 19

Krock v. Lipsay,
97 F.3d 640, 1996 WL 552453 (2d Cir. 1996) .......................................................................... 21

Kuoruga v. Fiserv Correspondent Servs.,
183 F. Supp. 2d 1245 (D. Or. 2001) .......................................................................................... 30

Kurtzman v. Bergstol,
835 N.Y.S. 2d 644 (2nd Dep’t 2007) ........................................................................................ 40

LAN/STV v. Martin K. Eby Const. Co.,
435 S.W.3d 234 (Tex. 2014) ..................................................................................................... 34

Lange v. H. Heinze & Co.,
418 F. Supp. 1376 (N.D. Tex. 1976) ......................................................................................... 25

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viii

Levitt v. J.P. Morgan Sec., Inc.,
710 F.3d 454 (2d Cir. 2013) ...................................................................................................... 43

Lujan v. Defenders of Wildlife,
504 U.S. 555 (1992) .................................................................................................................. 14

MacDonald v. Follett,
180 S.W. 2d 334 (Tex. 1944) .................................................................................................... 41

Magnum Corp. v. Lehman Bros. Kuhn Loeb, Inc.,
794 F.2d 198 (5th Cir. 1986 ) .............................................................................................. 23, 41

Mars v. Wedbush Morgan,
283 Cal. Rptr. 238 (Cal. Ct. App. 1991) .................................................................................... 32

Martinez Tapia v. Chase Manhattan Bank, NA,
149 F.3d 404 (5th Cir. 1998) ..................................................................................................... 42

McCarthy v. Dun & Bradstreet Corp.,
482 F.3d 184 (2d Cir. 2007) ...................................................................................................... 13

McDaniel v. Bear Stearns & Co., Inc.,
196 F. Supp. 2d. 343 (S.D.N.Y. 2002) .......................................................................... 29, 30, 31

McLean v. Triboro Coach Corp.,
302 N.Y. 49 (N.Y. 1950) ........................................................................................................... 22

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Cheng,
697 F. Supp. 1224 (D.D.C. 1988) ........................................................................................ 23, 24

Miley v. Oppenheimer & Co., Inc.,
637 F. 2d 318 (5th Cir. 1981) .................................................................................................... 24

Mills v. Foremost Ins. Co.,
511 F.3d 1300 (11th Cir. 2008) ................................................................................................. 17

MM&S Fin., Inc. v. Nat’l Ass’n of Sec. Dealers, Inc.,
364 F.3d 908 (8th Cir. 2004) ..................................................................................................... 47

Palsgraf v. Long Island R. Co.,
248 N.Y. 339 (N.Y. 1928) ........................................................................................................... 2

Paris v. Progressive Am. Ins. Co.,
2020 WL 7039018 (S.D. Fla. Nov. 13, 2020) ........................................................................... 19

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Paterson v. Deeb,
473 So.2d 1210 (Fla. 1st DCA 1985) ........................................................................................ 22

Piazza v. Ebsco Indus., Inc.,
273 F.3d 1341 (11th Cir. 2001) ................................................................................................. 18

Pinchinat v. Graco Children’s Prod., Inc.,
390 F.Supp.2d 1141 (M.D. Fla. 2005)....................................................................................... 22

Press v. Chem. Inv. Servs. Corp.,
166 F. 3d 529 (2d Cir. 1999) ..................................................................................................... 42

Pulka v. Edelman,
358 N.E.2d 1019 (N.Y. 1976) ................................................................................................... 32

R2 Investments LDC v. Phillips,
401 F. 3d 638,fn. 2 (5th Cir. 2005) .............................................................................................. 6

Remington v. Newbridge Sec. Corp.,
2013 WL 2444719 (S.D. Fla. June 5, 2013) ........................................................................ 24, 25

Riggs v. Schappell,
939 F. Supp. 321 (D.N.J. 1996) ................................................................................................. 32

Robins Dry Dock & Repair Co. v. Flint,
275 U.S. 303 (1927) .................................................................................................................. 34

Robinson v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
337 F. Supp. 107 (N.D. Ala. 1971)............................................................................................ 23

Ross v. Bolton,
904 F.2d 819 (2d Cir. 1990) ...................................................................................................... 32

Rozsa v. May Davis Group, Inc.,
152 F. Supp. 2d 526 (S.D.N.Y. 2001) ....................................................................................... 30

Rozsa v. May Davis Grp., Inc.,
187 F. Supp. 2d 123 (S.D.N.Y. 2002) ....................................................................................... 32

Schenck v. Bear, Stearns & Co.,
484 F. Supp. 937 (S.D.N.Y. 1979) ............................................................................................ 42

Scott v. Dime Sav. Bank of New York, FSB,
886 F.Supp. 1073 (S.D.N.Y. 1995) ........................................................................................... 25

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Shahar v. Bowers,
120 F.3d 211 (11th Cir. 1997) ................................................................................................... 20

Sierra v City of Hallandale Beach, Florida,
996 F.3d 1110 (11th Cir. 2021) ................................................................................................. 18

Spinelli v. Nat'l Football League,
903 F.3d 185 (2d Cir. 2018) ...................................................................................................... 44

Stern v. Legent Clearing LLC,
2009 WL 2244616 (N.D. Ill. July 28, 2009) ....................................................................... 31, 43

Stevenson v. Rochdale Investment Management, Inc.,
2000 U.S. Dist. LEXIS 13110 (N.D. Tex. 2000) ..................................................................... 25

Strategic Income Fund, L.L.C. v. Spear, Leeds & Kellogg Corp.,
305 F.3d 1293 (11th Cir. 2002) ................................................................................................. 32

Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
127 S. Ct. 2499, 168 L. Ed. 2d 179 (2007) ................................................................................ 20

Thropp v. Bache Halsey Stuart Shields, Inc.,
650 F.2d 817 (6th Cir. 1981) ..................................................................................................... 41

Travis v. Mesquite,
830 S.W.2d 94 (Tex. 1992) ....................................................................................................... 39

Trumpet Vine Investments v. Union Capital Partners,
92 F.3d 1110 (11th Cir. 1996) ................................................................................................... 19

Turk v. Pershing LLC,
2014 WL 12572906 (N.D. Tex. Dec. 8, 2014) .................................................................... 31, 32

Venerus v. Avios Budget Car Rental, LLC,
723 Fed. App’x 807 (11th Cir.2018) ......................................................................................... 19

Walco Invs., Inc. v. Thenen,
168 F.R.D. (S.D. Fla. 1996)....................................................................................................... 18

Weatherly v. Pershing,
2015 U.S. Dist. LEXIS 197128 (N.D. Tex. June 23, 2015) ............................................... 25, 32

West v. Cruz,
251 P.2d 311 (Ariz. Sup. Ct. 1952) ........................................................................................... 32

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Western Investments Inc. v. Urena,
162 S.W.3d 547 (Tex. 2005) ..................................................................................................... 39

Statutes

17 C.F.R. § 240.15c3-1 ................................................................................................................. 26
Regulatory,
Notice 21-12 ...................................................................................................................... 5, 6, 26
Regulatory,
Notice 21-16 ........................................................................................................................ 21, 29
Restatement (Second) of Torts § 874............................................................................................ 41
Restatement, Torts, 2d, § 282 ....................................................................................................... 49

Rules

Fed. R. Civ. P. 12(b)(6)................................................................................................................. 13
Federal Rule of Civil Procedure 23 .............................................................................................. 19
Federal Rule of Evidence 201 ................................................................................................... 6, 20
FINRA Rule 2010 ............................................................................................................... 4, 25, 28
FINRA Rule 2268 ................................................................................................................... 21, 29
FINRA Rule 3110 ..................................................................................................................... 4, 26
FINRA Rule 4370 ..................................................................................................................... 4, 26
Rule 23(a)................................................................................................................................ 17, 19

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I.
INTRODUCTION

Securities brokers have a duty to act in good faith and in the best interest of their customers.
On January 28, 2021, Defendant Apex Clearing Corporation (“Apex”) violated its fundamental,
well-established duties by taking unprecedented action. It prevented its customers from buying
certain highly liquid, in-demand stocks for approximately 3-1/2 hours1 (the “Market Suspension”)
for their own financial self-interest and to the financial detriment of their customers. This
unprecedented Market Suspension was designed to and did cause Apex’s own customers to lose
money on the very same stocks that Apex had previously sold to those customers. Apex concedes
that if the trading price of AMC, GME and/or KOSS went up, Apex perceived a risk to its ability
to meet a potential increased collateral funding obligation. Even though Apex was advised by
regulators on January 28 that its collateral requirements would be within Apex’s tolerance, Apex
nevertheless took affirmative steps to directly interfere with market forces to the detriment of its
customers, and foreseeably impeded the price movement of these stocks in the market for its own
self-serving purposes.
Much of Apex’s defense rests on the proposition that it is a clearing broker-dealer. Apex
argues that inasmuch as many of its customers, including Plaintiffs, traded through introducing
brokers, such as Webull and Ally, Apex is shielded from liability. But Apex is wrong because, as
demonstrated below, the law only protects clearing broker-dealers in connection with their
ministerial, back-office type functions. Plaintiffs’ Amended Complaint alleges that Apex’s
Market Suspension, which it imposed on all of Apex’s direct customers and on its network of
captive introducing broker- dealers (including shared customers, such as Plaintiffs), went far
beyond the ministerial functions that shield clearing broker-dealers from liability. Moreover,
Apex’s customer agreements cannot protect Apex from the misconduct alleged here, as it is
black letter law that tortfeasors such as Apex cannot contract themselves out of tort liability.
Apex’s purported justification for its unprecedented unilateral Market Suspension is
demonstrably false. Apex claims it acted to avoid a possible regulatory collateral call “if Apex
clients were permitted to continue” to purchase the Suspended Stocks. Def. Mem. 8-9. But even
if Apex’s purported justification for its unilateral Market Suspension was true (which it is not),

1 Those securities were AMC Entertainment Holdings, Inc. (“AMC”), GameStop Corp.
(“GME”), and Koss Corporation (“KOSS”) (collectively the “Suspended Stocks”).

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then Apex improperly failed to prepare itself for the possibility of a regulatory collateral call in
violation of industry rules. However, as Plaintiffs pre-filing investigation has revealed, and as
alleged in the Amended Complaint, at or about the time that Apex implemented its
unprecedented Market Suspension, it had already been advised by the regulators that no such
heightened collateral call would be forthcoming. Moreover, even after Apex confirmed with the
regulators that no collateral call would be required on January 28, Apex inexplicably continued
to restrict its customers’ ability to purchase the Suspended Stocks for hours, artificially driving
down prices and ensuring market losses on the part of Plaintiffs and others. AC ¶¶ 79-84.
Multitudes of stock transactions occur every second involving multi-millions of dollars. In this
market, particularly with the downward spiraling Suspended Stocks, hours of an unjustified
restriction was an eternity.
Plaintiffs and the classes they seek to represent allege that Apex should be accountable
for its unprecedented actions. Accordingly, Plaintiffs allege claims for Negligence, Breach of
Fiduciary Duty, and, alternatively, Breach of the Implied Covenant of Good Faith and Fair
Dealing and, also, alternatively Tortious Interference.2
Contrary to Defendant’s strawman argument, Plaintiffs do not allege that broker-dealers
have an unlimited duty to sell all securities to all people. See, e.g., AC ¶ 57. The industry, the
regulators and the courts recognize limiting principles. For example, broker-dealers are not
obligated to sell securities to people suspected of using stolen or laundered funds. But a broker-
dealer cannot engage in self-serving affirmative acts such as the Market Suspension knowing
that such action is at the direct and immediate financial expense of its customers while at the
same time the broker-dealer gains the advantage of its’ own customers’ losses for its own
financial benefit through reduced collateral requirements. Clearing broker-dealers who direct
actions designed to cause losses for their customers for the clearing broker-dealer’s own
financial benefit are not shielded from liability. Apex’s Market Suspension was not a mere
ministerial function. Apex’s refusal to sell securities is not at issue – they can do that in the
abstract. The fact that Apex sought to limit its collateral exposure is also not improper. What

2 Apex misapplies Palsgraf v. Long Island R. Co., 248 N.Y. 339, 341 (1928) (Cardozo, C.J.), See
Defendant’s Motion To Dismiss…filed June 22, 2022 (“Def. Mem.”) at 2. Apex’s imposition of
the Market Suspension foreseeably caused the price decrease and suppression of those stocks and
caused Plaintiffs and other members of the putative class to suffer damages. Plaintiffs are
victims and not remote bystanders harmed by Defendant’s innocent action.
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they cannot do is what Apex did here: refuse to allow its customers to purchase while allowing
sales to continue where the purpose of the action is to drive down the price of the securities so as
to advantage itself – particularly when those securities are the same stocks that Apex sold to
those very same investors. This is the prism through which Apex’s actions must be viewed.
Finally, to the extent that Apex relies on this Court’s dismissal of the Robinhood Tranche
complaint, such reliance is unwarranted. Apex’s conduct differed materially from Robinhood in
that, among other distinctions, Apex maintained the Market Suspension for hours despite
satisfying itself that it had no reason to maintain the Market Suspension. Beyond that, the law
and the facts pled here differ materially from those pled in Robinhood.
As to damages, Apex argues that Plaintiffs and all investors could have sold their stock.
True, but saying that a customer can sell stock after Apex had already taken action that was
designed to and did force the price of the Suspended Stocks to go down means that those
customers suffered damages proximately caused by Apex.
II. FACTUAL BACKGROUND
A. Apex’s Roles As a Broker-Dealer and Clearing Broker-Dealer And Its Attendant Duties
It is important to set the record straight as to Apex’s role on January 28, 2021. Apex is
charged in connection with its dual role as a broker-dealer and as a clearing broker-dealer.
Its role as a broker-dealer is straightforward. Apex is a broker-dealer3 that provides
broker-dealer services directly to investors that buy and sell securities. AC ¶¶ 23, 25, 43.
Various investor customers have broker-dealer accounts with Apex to directly purchase and sell
securities through Apex’s platform. On January 28th Apex suspended the ability of each of these
customers to purchase shares of and call options to buy shares of the Suspended Stocks for three
hours and twenty-five minutes. AC ¶¶ 2, 29.
Apex’s role as a clearing broker-dealer is also straightforward. Apex provides back-
office ministerial services to generally smaller correspondent Introducing Broker-Dealers, such
as Webull Financial LLC (“Webull”) and Ally Invest (“Ally”). AC ¶¶ 25-26, 28. Customers
introduced to Apex by those Introducing Broker-Dealers are shared customers as between Apex

3 Apex as a broker-dealer is registered with and subject to the rules and regulations of industry
regulators such as the SEC and FINRA. AC ¶¶23, 43. Apex is also a member of the National
Securities Clearing Corporation (“NSCC”). AC ¶27.

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and the introducing broker-dealers (“Shared Customers”). Apex services approximately one
hundred Introducing Broker-Dealers. AC ¶ 1. See also Declaration of Jack E. Pace III In
Support of “Apex” Rule 12 Motion To Dismiss…, ECF 491-1 (“Pace Decl.), Ex. 1 at 2.
When opening accounts with the Introducing Broker-Dealers, investors simultaneously
enter into agreements with and become customers of Apex, as the clearing broker-dealer.
Typically, these Shared Customers enter their trading orders through the Introducing Broker-
Dealer which are then processed through the clearing broker-dealer. AC ¶ 25; Pace Decl. Ex. 2.
Although called a “clearing” broker, Apex itself is not a clearinghouse. It is the National
Securities Clearing Corporation (“NSCC”) that is the SEC-regulated clearinghouse that clears
and settles transactions in equity securities traded in the United States. The NSCC is a subsidiary
of the Depository Trust and Clearing Corporation (“DTCC”). Broker-dealers such as Apex are
members of the NSCC. AC ¶¶ 31–32. As a member of NSCC, Apex must abide by certain risk
management obligations and must post collateral and meet daily deposit requirements. AC ¶¶ 33
-35. Although Apex knows that DTCC may assign a volatility multiplier on certain securities
which it perceives as having more risk, Apex has tools to and is able to “(i) monitor its
anticipated DTCC deposit requirements in real time (or near real time); and (ii) monitor its
ability to meet anticipated or actual DTCC deposit requirements in real time (or near real time).”
AC ¶¶ 35-36. Accordingly, broker-dealers and clearing broker-dealers such as Apex are required
to meet industry “net capital” requirements which are “designed to require broker-dealers to
maintain sufficient liquid assets to meet all obligations to customers.” AC ¶ 40.
Because Apex is a broker-dealer registered with FINRA, it must abide by industry rules
governing broker-dealers that are designed primarily for the protection of Plaintiffs and class
members who are customers and investors. AC ¶ 46. The industry rules are meant to protect
“efficient markets.” AC ¶¶ 43-44. FINRA broker-dealers, such as Apex, have the duty to
establish, maintain, and enforce a supervisory system which includes monitoring its technology
and other risks, including credit and other systemic risks (FINRA Rule 3110, “Supervision”), and
to engage in continual risk management to ensure continuation of its trading and financial
“mission critical systems.” (FINRA Rule 4370, “Business Continuity Plans”). But that is not all.
FINRA Rule 2010 sets forth the guiding principle that Apex must adhere to, providing that “in
the conduct of its business, [brokerages] shall observe high standards of commercial honor and
just and equitable principles of trade.” The relevant interpretative material from the securities
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regulators states, “[i]Implicit in all member and registered representative relationships with
customers and others is the fundamental responsibility for fair dealing. Sales efforts must
therefore be undertaken only on a basis that can be judged as being within the ethical standards
of [FINRA’s] Rules, with particular emphasis on the requirement to deal fairly with the public.”
AC ¶ 44. Additionally, FINRA reiterates in Regulatory Notice 21-12, “the foundation of the
securities industry is fair dealing with customers. . . even during times of market stress.”
(emphasis added). Id.
Moreover, Apex, as a broker-dealer, owes Plaintiffs and members of the Class the
common law duty of due care and loyalty, including, inter alia, a duty to reasonably ensure that
they can continue to provide investors access to the securities markets during times of extreme
market volatility. AC ¶¶47, 50. This duty was reiterated by FINRA in Regulatory Notice 21-12,
issued on March 18, 2021, directly in response to the events giving rise to this action. FINRA
reminded that: “[m]ember firms should maintain strong procedures, thoughtfully crafted in
advance, to reasonably ensure that they can continue to provide investors access to the securities
markets during times of extreme market volatility, as in the past several months.” These include
“liquidity management practices to ensure the firm is able to continue to provide customers with
access to the markets despite abnormal liquidity demands.” See, Regulatory Notice 21-12,
available at https://www.finra.org/rules-guidance/notices/21-12. AC ¶51. Here, Apex is
alleged to have undertaken the Market Suspension, an extraordinary measure on January 28,
2021, without a plan reasonably designed to correlate its supposed reduction of risk to its
extraordinary action. AC ¶68.
While FINRA member broker-dealers do have discretion to refuse particular trades,
broker-dealers do not have the right to refuse all orders to buy certain stocks for hours, while
permitting sales with the intent of driving the market price of those stocks down, without facing
potential liability. In instances where there is excess volatility in the marketplace, the regulatory
structure has established safeguards. Those safeguards include temporary “circuit breakers”
where all trading in a particular security is halted for a limited time period. There are no rules
nor industry customs that contemplate allowing any “lone wolf” broker-dealer to shut down one
side of the trading for hours, or days, in order to force the price of a stock down, without
consequence. AC ¶¶ 52-54, 56. In short, if the standard applied to Apex is to have “liquidity
management practices to ensure the firm is able to continue to provide customers with access to
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the markets despite abnormal liquidity demands,” the facts demonstrate that Apex miserably
failed in its obligations. See, supra, Regulatory Notice 21-12.
B. The Events of January 28, 2021
Apex misstates the facts leading up to and occurring on January 28th, misstates the
allegations in the Amended Complaint and resorts to a narrative of its own creation, now debunked
by the SEC staff itself in its report examining some of the events at issue here.4
Plaintiffs allege that there was volatility surrounding the Suspended Stocks in the days
leading up to and on January 28th. Plaintiffs also allege that volatility is not an unusual
phenomenon in the securities markets, nor are “short squeezes,” and, that Apex knew or had reason
to know in advance of January 28th of investor demand for the Suspended Stocks. AC ¶ 58. As
the SEC staff has noted, while there was market volatility on January 28, 2021 and in the
immediately preceding days, the cause for such volatility is not known. “The SEC Staff Report
noted as to GME [one of the Suspended Stocks] and the increased trading volume in January 2021,
‘[t]he underlying motivation of such buy volume cannot be determined; perhaps it was motivated
by the desire to maintain a short squeeze. Whether driven by a desire to squeeze short sellers and
thus to profit from the resultant rise in price, or by belief in the fundamentals of GameStop, it was
the positive sentiment, not the buying-to-cover, that sustained the weeks-long price appreciation
of GameStop stock.’” AC ¶ 67. Apex knew, or should have known of the demand for these stocks.
AC ¶ 58.
As to the stock price movements, the SEC staff report noted, “[y]et while the swings in
GME’s [a Suspended Stock] share price and volume attracted significant attention, they were not
unusual for January 2021. For instance, single-day price changes on January 27 from the closing
prices on January 26 for KOSS (480.0%) [a Suspended Stock], AMC (301.2%) [a Suspended

4 See, SEC “Staff Report on Equity and Options Market Structure Conditions in Early 2021” dated
October 14, 2021 (“SEC Report”) available at https://www.sec.gov/files/staff-report-equity-
options-market-struction-conditions-early-2021.pdf. Attached to the Declaration of Peter
Safirstein In Opposition to Apex’s Rule 12 Motion to Dismiss Filed June 22, 2022, (“Safirstein
Decl.”) Exh. 1.The Court may take judicial notice of this SEC Report in its entirety, particularly
where excerpts are included in the Complaint (as here) pursuant to Federal Rule of Evidence 201.
A court may take judicial notice of documents in the public record, including documents filed with
the SEC, and may consider such documents in determining a motion to dismiss. R2 Investments
LDC v. Phillips, 401 F. 3d 638,639-640 fn. 2 (5th Cir. 2005).

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Stock], NAKD (252.3%), and Express, Inc. (symbol: EXPR) (214.1%) were larger than any single-
day GME price change… In fact, since 2020 began, 134 common stocks had at least one one-
day price increase greater than GME’s largest one-day price increase…(internal citations
omitted).” AC ¶ 66 (emphasis added).
Apex attempts to create its own narrative of events that supposedly justified its unjustifiable
action despite the uncontested facts that: 1) market volatility is not uncommon; 2) the SEC Report
noted that swings in GME’s market price “were not unusual for January 2021” and that in the year
preceding January 28, 2021, “134 common stocks had at least one one-day price increase greater
than GME’s largest one-day price increase”; 3) no broker-dealer, including Apex, had ever
implemented a purchase-only halt of highly liquid, much in demand stocks despite market
volatility greater than here; and 4) no broker-dealer, other than Robinhood, reacted to the events
of January 28, 2021 and restricted purchases. Its “poor Apex – woe is me” defense should be
rejected given the facts alleged herein.
But Plaintiffs do not plead that there was “unprecedented ‘manic buying’” (Def. Mem. at
4) much less admit, that “the astronomical increase in trading volume was due ironically to
meme stock purchasers themselves engaging in ‘online discussions’ and agreeing to purchase
more and more shares in these stocks for the purpose of raising the stock price.” Id. Apex, in
making up its own version of the facts, which do not comport with the AC, cannot cite to any
such reference in the Amended Complaint for that proposition.5 To the extent that Apex refers to
a Congressional Staff Report of February 2021 (Def. Mem. at 4-5), Apex draws conclusions not
contained in that report. Moreover, that Congressional report was submitted without the benefit
of a full investigation just days following the events of January 28th. And, importantly, the SEC

5Defendant cannot rely on pleadings not contained in the Operative Complaint. See, Fuller v.
SunTrustBanks, Inc., 744 F.3d 685, 695 (11th Cir. 2014) (“In general, [courts] do not consider
anything beyond the face of the complaint and documents attached thereto when analyzing a
motion to dismiss under Rule 12(b)(6).”) Moreover, Paragraph 169 of the Original Complaint
contained no admission of responsibility for colluding to drive up the price of the stocks. It reads
“Leading up to January 28, 2021, the Suspended Stocks became increasingly popular as, among
other things, investors engaged in online discussions regarding the undervaluation of the
Suspended Stocks and began purchasing shares.” Defendants rely on Fernandez v. Sch. Bd. Of
Miami-Dade Cnty., 201 F.Supp.3d 1353, 1361, n.1 (S.D. Fla 2016), (Def. Mem. at 15), but that
case reinforces Plaintiffs’ position that the general rule is to not rely on superseded complaints
except in rare circumstances not present here.

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Report disagrees with Apex’s narrative. See, AC ¶ ¶ 66, 67. But even were it to be true that
volatility on January 28th was created by retail investors viewing information online, it is still
true that market volatility is common, sometimes even more volatile than on January 28th and
that Apex stands uniquely in having taken the unnecessary and unprecedented action it took on
January 28th. Apex’s statement that “Plaintiffs admit that they sought to exploit artificial market
conditions, unforeseeable but to those creating those conditions for financial gain” (Def. Mem. at
5) crystallizes Apex’s defense strategy. Apex makes up facts (there is no such admission of this
patently false proposition), never accepts responsibility for its own actions, and always blames
the victims, even if the victims are its own customers.
Apex cannot justify its three-and a-half hour trading suspension. The Amended
Complaint sufficiently alleges that Apex should have had adequate risk measures already in
place to avoid such market disruption. Moreover, Apex was informed by DTCC no later than
11:47 a.m. Eastern on January 28th that the collateral requirement was lower than previously
communicated and within the range found acceptable by Apex. AC ¶82. Apex ignores this
communication from the DTCC, but acknowledges that it was informed by the DTCC no later
than 12:00 p.m. (noon) Eastern of this information. Def. Mem. at 9.6
But Apex did not lift the Market Suspension until 2:55 p.m. Eastern. In short, if Apex’s
then President is to be believed that Apex never faced a cash crisis on January 28th (AC ¶ 87),
then Apex’s implementation of an approximately three and one half-hour suspension of the
ability to purchase the Suspended Stocks was unjustified. If Apex’s President was misinformed,
and Apex did not have “headroom,” Apex still cannot explain why the Market Suspension lasted
for approximately three hours after the DTCC informed Apex that the collateral requirement was
at a level that Apex admittedly found to be acceptable. The supposed thirteen minute discrepancy
(11:47 a.m. Eastern when Plaintiffs allege DTCC informed Apex of the acceptable collateral
amount in accordance with Apex’s expectations (AC ¶82) and 12:00 p.m. Eastern when Apex
admits it was so informed) (Def. Mem. at 9) does not affect Plaintiffs’ allegation that an
approximate three hour Market Suspension (lasting until 2:55 p.m.), knowingly without

6 By Apex’s own telling, it was upon learning that the collateral requirement was less than
originally communicated that led Apex to lift the Market Suspension. AC ¶80.

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justification yet with devastating financial consequences is actionable misconduct as alleged
herein.
A review of the critical events of January 28, 2021 is in order. On that morning, Apex
unilaterally and abruptly blocked its direct customers and directed its Introducing Broker-Dealers
to block their Shared Customers from purchasing shares of the Suspended Stocks for a time period
lasting approximately three hours and twenty-five minutes. Apex’s decision to implement this
unilateral, one-way Market Suspension—unprecedented in the long history of securities trading in
this country for liquid in-demand securities—foreseeably impeded additional price appreciation
and decreased and suppressed the prices of the Suspended Stocks, AMC, GME, and KOSS.
Predictably, Apex’s unprecedented Market Suspension adversely affected the market
prices for shares of the Suspended Stocks. Apex knew of investor demand for those stocks and
that such demand was causing the price of those stocks to increase. AC ¶¶ 58-68. Apex’s Market
Suspension caused the price of those securities “to go down and to trade at lower prices than they
would have traded for absent Apex’s misconduct.” AC ¶68. The SEC Report observed the market
decline as well. (“After peaking in late January, the volume of trading in GME shares and GME’s
price declined substantially. GME’s decline coincided with several brokerages’ decision to restrict
trading in GME on January 28…”). SEC Report at 21, Safirstein Decl. Ex. 1. Apex did not merely
“restrict” trading, they took action deliberately calculated to force the market price of stocks it had
sold to go down.
Not only did the unprecedented unilateral Market Suspension cause the price of the
Suspended Stocks to go down, the Market Suspension “foreseeably impeded additional price
appreciation and suppressed the prices of the Suspended Stocks during and beyond the Class
Period causing ascertainable damages and injury.” AC ¶¶ 68, 70. Apex does not and cannot deny
that the action it took to suspend one-way trading in the Suspended Stocks was to adversely affect
the price of the Suspended Stocks. In fact, Apex admits it was concerned that the collateral
requirement would go up because of the volatility surrounding the Suspended Stocks and that Apex
then took action to affect the volatility, suspending all purchases but not sales, so as to decrease
the price of the Suspended Stocks. See fn. 31, infra.
Apex’s claimed reasons for ordering the unprecedented Market Suspension and the timing
surrounding such suspension do not comport with the chronology revealed by the pre-filing
investigation and by Apex’s narrative.
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On January 28, 2021, at 9:30 a.m. Eastern (“ET”), Apex received a report from the NSCC
increasing Apex’s collateral requirement. AC ¶ 79. At approximately 11:31 a.m. ET (10:31 a.m.
Central), “Apex sent a client communication to all clients instructing them to restrict the purchase
of new buy positions in AMC, GME and KOSS… The restrictions were imposed uniformly across
all Apex clients.” Id. But Apex ignores that record evidence produced in this case by DTCC (and
not Apex) shows that DTCC certainly knew by 11:41 a.m. ET that Apex’s collateral exposure was
going down and that there was a call between DTCC and Apex senior management six minutes
later at 11:47 a.m. ET. AC. ¶ 82, see also Safirstein Decl., Exh. 2. The reasonable inference to be
drawn is that DTCC and Apex communicated about the lower collateral exposure at 11:47 a.m.,
just moments after Apex imposed its Market Suspension. Then, by Apex’s admission, “[a]t 12:00
p.m. [ET], Apex received an updated NSCC report, estimating that its collateral deposit
requirement, while still elevated, would be reduced significantly from the NSCC’s 9:30 a.m. ET
estimate. See AC ¶ 79 and Def. Mem. at 9. In fact, that report indicated more than that the
collateral would be “reduced significantly”, as Apex’s memorandum of law reports, but that the
“potential collateral deposit requirement… was elevated but lower than the 9:30 a.m. report
and in line with reports Apex had received from NSCC prior to 9:30 a.m. that day.” See AC
¶ 79 and Pace Exh. 1 at 6.7
Put differently, Apex knew, by its own admission no later than noon (ET) that the collateral
requirements were in line with the collateral requirements it was prepared for prior to receiving
the notice from the DTCC that apparently alarmed it into mandating the Market Suspension. AC
¶ 80. Despite knowing at noon that there would not be any dramatic collateral increase, Apex
nevertheless kept in place its unprecedented and unjustified Market Suspension for nearly three
hours – until 2:55 p.m. (ET). AC ¶ 79, Def. Mem. at 9.
Apex argues that “Plaintiffs omit material information” in an email chain “sent at 12:20
p.m. ET [on January 28, 2021], that Apex implemented its trading restrictions in response to
collateral requirements communicated from NSCC and that Apex actively was working with the

7 Apex accuses Plaintiffs’ counsel of manipulating time zones as between Central Time and
Eastern (fn 12). That is not true as there is a legitimate ambiguity as to which time zone is at
issue as to this particular communication (Compare Pace Ex. 1 reporting the communication at
11:00 a.m. (while reporting all time zones as Eastern with Pace Ex. 6 not correcting the time
zone for this particular communication).
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DTCC to find “solutions” for customers. Pace Decl. Ex. 10 (APEX-MDL00002375–377 at 376).
Two important points in response. First, the email Apex refers to speaks to Apex’s talking points
– “The message back to the client is…” Id. Plaintiffs’ allegations do not concern Apex’s “talking
points” but concern when Apex knew that they had no reason at all to maintain the Market
Suspension. To that end, the very next email in the email chain Apex refers to is instructive and
troubling. In that email, the same William Brennan (as in the previous email in the chain cited by
Apex) writes “[w]e are opening back up shortly…go ahead and give [the selected customer]
clearance.” Id. The time on that email is indicated to be 11:08 a.m. That is presumably not Eastern
as the email immediately preceding this email in the chain is at 12:20 p.m. and Apex has confirmed
that that 12:20 p.m. time is Eastern time. Def. Mem. 9. Since the time-stamp on the email following
the email at 11:08 a.m. is 1:09 p.m., it is reasonable to assume that the 11:08 a.m. email is sent at
1:08 p.m. ET. This means, again by Apex’s admission, that Apex knew at 1:08 p.m. Eastern that
they were going to be “opening back up shortly,” yet delayed until 2:55 p.m. ET (an inexplicable
delay of one hour and 47 minutes which equates to many lifetimes in securities market action).
Apex has maintained that “[a]fter confirming with NSCC that the new report was accurate,
Apex communicated to all clients the lifting of the restriction of new purchases of AMC, GME
and KOSS at approximately [2:55 p.m. ET] 1:55 p.m. [Central Time] on January 28, 2021.” AC ¶
79, Def. Mem. at 9. Not only was the communication to all clients of the lifting of the restrictions
unreasonably delayed by hours, this email chain that Apex seeks to exculpate itself demonstrates
that Apex apparently gave “clearance” to certain preferred customer’s – as no other customer is
seen to have received “clearance.”8
In seeking to provide cover for its inexcusable action, Apex mischaracterizes the SEC
Office of Investor Education and Advocacy’s January 30, 2021 Investor Alert and Bulletin (the
investor “Bulletin”) as “endors[ing] trade restrictions during the weeks’ volatility,” (Def. Mem. 2,
n.1), ignoring the fact that the SEC, in the same Bulletin reminded broker-dealers of the approved
regulatory procedure for addressing market volatility, which Apex failed to follow. That approved
regulatory procedure envisions a full market shutdown as a temporary (typically measured in

8 For argument’s sake, it really makes no difference what time zone is reflected in this email.
Assuming that the earliest the email was sent was 11:08 a.m. Eastern, and the latest it was sent
was 2:08 p.m. Eastern, these emails still show that Apex unreasonable delayed lifting the Market
Suspension until 2:55 p.m. Moreover, to the extent there is a dispute as to the timing of these
communications, such factual disputes preclude dismissal.
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minutes) halting of purchases and sales by all broker-dealers.9 Importantly, the SEC has never
stated that investors cannot sue the brokerage houses for damages for the conduct undertaken by
Apex.

Apex’s Market Suspension drew the ire of the Introducing Broker-Dealers. AC ¶ 75. Apex
knew its conduct was wrong. When volatility hit the market just one day later, on January 29th, it
opted not to restrict trading, with a senior executive noting, “we can’t shut down access to the
names. We are getting killed in the press. I told Bill to have Matt raise a few hundred in capital
this weekend.” AC ¶¶90-91. Other than Robinhood, no other broker-dealer or clearing broker-
dealer suspended one-sided trading in the manner that Apex did. AC ¶¶ 92-93. Apex asserts, “[f]ar
from negligence, the email chain quoted by Plaintiffs confirms Apex’s careful and reasonable
response to extraordinary market events, as described further herein.” Def. Mem. at 9 citing Pace
Ex. 10. In fact it is just the opposite as a jury could easily find. As the email chain and other facts
evidence, Apex’s careless and unreasonable response to market events that Apex should have been
well prepared for, but was not, set forth the factual predicate for Plaintiffs’ allegations of
negligence.
III. ARGUMENT

9 See SEC Office of Investor Education and Advocacy, “Thinking About Investing in the Latest
Hot Stock? Understand the Significant Risks of Short-Term Trading Based on Social Media,
Investor Alerts and Bulletins (Jan. 30, 2021) available at https://www.investor.gov/introduction-
investing/general-resources/news-alerts/alerts-bulletins/investor-alerts/investor-62 (last visited
July 6, 2022) In that Bulletin, under the same heading regarding “Market and broker-dealer
protections for volatile stocks,” the SEC explains:

The national securities exchanges and FINRA have rules designed to address
market volatility in stocks listed on a national securities exchange. The “Limit
up-Limit Down” rules are designed to prevent trades in these stocks from
occurring outside a specified price band. This price band is set at a percentage
level above and below the average price of the stock over the immediately
preceding five-minute trading period. If a stock’s price moves outside these
price bands for more than 15 seconds, trading in the stock will be paused for
five minutes. For additional information on the “Limit Up-Limit Down” rules,
read our investor bulletin: “Measure to Address Market Volatility.” Nothing in
the SEC’s Release approved of the comprehensive market shutdown imposed
by Apex (and Robinhood).

Id.
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A. Standard of Review

“In reviewing a motion to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim
upon which relief can be granted, we accept as true all factual statements alleged in the complaint
and draw all reasonable inferences in favor of the non-moving party.” McCarthy v. Dun &
Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007).

The Court's function on a motion to dismiss is “not to weigh the evidence that might be
presented at a trial but merely to determine whether the complaint itself is legally sufficient.”
Goldman v. Belden, 754 F. 2d 1059, 1067 (2d Cir. 1985). A complaint should not be dismissed if
the plaintiffs have stated ‘enough facts to state a claim to relief that is plausible on its face. Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

“A claim has facial plausibility when the plaintiff[s] plead[] factual content that allows the
court to draw the reasonable inference that the defendant[s] [are] liable for the misconduct
alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While factual allegations should be
construed in the light most favorable to the plaintiffs, “the tenet that a court must accept as true all
of the allegations contained in a complaint is inapplicable to legal conclusions." Id.

B. Plaintiffs Jang and Chavez Have Article III Standing
Apex’s challenge to Plaintiffs’ Article III standing arises from a set of facts of its own
making, laced with unvarnished contempt for Apex’s own customers and investors in general.
Plaintiffs’ allegations look nothing like the speculation with which Apex attacks them. Instead,
Plaintiffs have pled direct, non-speculative, injury directly resulting from Defendant’s action.
Specifically Plaintiffs allege that “[w]hen Apex undertook the extraordinary measure on
January 28, 2021 of suspending and directing the suspension of the purchasing of the Suspended
Stocks, stocks that were in great demand, Apex caused the price of each of the Suspended Stocks
to go down and to trade at lower prices than they would have traded for absent Apex’s
misconduct.” AC ¶ 68. Moreover, Apex’s Market Suspension foreseeably impeded additional
price appreciation and suppressed the prices of the Suspended Stocks during and beyond the Class
Period causing ascertainable damages and injury.” AC ¶ 70.
Not only have Plaintiffs alleged as such, Defendant’s Memorandum confirms that Apex’s
one-sided trading halt was done for the purpose of adversely affecting the price of the stocks. (“As
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Apex explained in its letter to the N.J. Securities Bureau, Apex temporarily halted additional
purchasing of shares in those three stocks ‘to manage the risk that it would not be able to meet
potential increased NSCC collateral funding obligations if Apex clients were permitted to continue
to engage in additional purchases of AMC, GME and KOSS.’”) Def. Mem. at 8-9. In other words,
if the trading price of AMC, GME and/or KOSS went up, Apex perceived a risk to its ability to
meet a potential increased NSCC collateral funding obligation. Thus, Apex took affirmative steps
to directly interfere with market forces and foreseeably impeded the price movement of these
stocks in the market for its own self-serving purposes. The SEC observed in its Report that the
price of one of the Suspended Stocks went down following the imposition of such action. (“After
peaking in late January, the volume of trading in GME shares and GME’s price declined
substantially. GME’s decline coincided with several brokerages’ decision to restrict trading in
GME on January 28.”). SEC Report at 21.
As a consequence of Apex’s actions, both Plaintiffs, Chavez and Jang, alleged that the
price of the securities they purchased as Shared Customers of Apex and the Introducing Brokers,
went down in value such that when they did sell, the price at which they sold was less than it
would have been had Apex not engaged in the alleged misconduct. AC ¶¶ 13-16; 21 (Chavez:
607 shares of AMC (purchased through Webull as Shared Customer with Apex); sold on
February 2, 2021 “for less than he would have sold for but for the conduct alleged here”) AC ¶¶
17-21; (Jang: 401 shares of GME (purchased through Ally as Shared Customer with Apex); sold
on February 4, 2021 “for less than he would have sold for but for the conduct alleged here”). Just
as one cannot unring a bell, Apex cannot undo the harm it did to the marketplace. Having
contaminated the securities market on January 28th, Apex is accountable for the foreseeable
consequences of its action that adversely affected the price of the securities.

1. Plaintiffs Allege an Injury in Fact Which Apex
Attempts to Mischaracterize as “Speculative”
For Article III standing, a Plaintiff must allege an injury in fact, being an invasion of a
legally protected interest, that is (1) concrete, particularized, and actual or imminent, not
conjectural or hypothetical; (2) a causal connection between the injury and the conduct
complained of (meaning fairly traceable to the defendant’s conduct), and (3) it must be likely,
as opposed to merely speculative, that a favorable decision will redress the injury. Lujan v.
Defenders of Wildlife, 504 U.S. 555, 560–61 (1992). Plaintiffs sufficiently plead injury to a
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protected, concrete and particularized legal interest in their respective shares of AMC and GME
shares. Plaintiffs allege a direct causal connection between Apex’s unprecedented, unilateral,
unwarranted one-sided market shutdown and the foreseeable decrease in the value of their
AMC and GME shares.

Plaintiffs’ claims do not require, or rest upon, any speculative or hypothetical conduct as
Apex argues. The conduct which caused the harm, as alleged, has already occurred and the losses
have already been suffered and are unconcerned with future events or intentions or plans of
future conduct (such as was the case in Aaron Private Clinic Mgmt. LLC v. Berry, 912 F.3d
1330, 1336 (11th Cir. 2019) referred to by Apex. Def. Mem. at 38). 10
Apex mischaracterizes Plaintiffs’ Amended Complaint. Their claimed injury is not based
upon any allegation that Mr. Chavez and Mr. Jang had a plan, which was thwarted, to have sold
at the top of the market. Rather, they owned shares of a certain value in a free and open market,
and Apex’s Market Suspension foreseeably caused a drop in share values and market
suppression, causing Plaintiffs’ losses. The fact that both Mr. Chavez and Mr. Jang could have
sold their shares is irrelevant to legal damages. The market price of the relevant securities was
adversely affected when Apex acted in its impermissible way to force the price of the securities
down. As to the measure of damages, that is to be determined at a later time with the use of
experts.
2. Plaintiffs Allege a “Legally Protected Interest”
Plaintiffs satisfy the “injury-in-fact” prong of Article III in alleging, for example, that
“Apex caused the price of each of the Suspended Stocks to go down and to trade at lower
prices than they would have traded for absent Apex’s misconduct.” AC . ¶ 68. Yet Apex
argues against the “straw person” of a non-existent, never pled, “scheme” supposedly
contrived by Plaintiffs to manipulate the market. Not only was no such scheme alleged, the
SEC Report of the events of January 28, 2021 does not even hint at such a “scheme.” From
this false premise, Apex argues that Plaintiffs should not benefit from their wrongdoing. Def.
Mem. at 39-40. True to form, Apex makes up facts, shirks all responsibility for its own

10 See Def. Mem. at 13. Apex’s Article III standing argument is similar to the argument
Robinhood advanced, and the Court rejected in the Robinhood “Outage” case. See, In re
Robinhood Outage Litigation, 3:20-cv-01626-JD, Minute Order (N.D.Cal Feb. 18, 2021).

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actions and castigates its customers, the victims of its misconduct.
Apex engages in fabrication of facts which are not in the Amended Complaint and
deliberately excerpts snippets from the Superseded Complaint in a disingenuous attempt to
suggest that the Plaintiffs were involved in illegal market manipulation. For example, Apex puts
the following falsity before the Court: “The Plaintiffs unabashedly admitted in their original
complaint that this litigation arises from the Plaintiff purchasers own coordinated ‘short squeeze’
working collusively as a group to purchase stocks to pump up ‘the value of the stock they
purchased.” Def. Mem. at 39. Despite citing to the “original complaint,” Apex cites to ¶ 64 of
the Amended Complaint for support for this proposition. Paragraph 64 alleges nothing of the
sort.11 Then, compounding their misstatement, Apex states, “Plaintiffs admitted that the increase
in value of the meme stocks was the product of online discussions that resulted in unprecedented
and coordinated purchasing of shares of those stocks.” Original Complaint ¶ 169.” Not only is it
improper for Apex to rely on the Superseded Complaint12, they misstate the pleading.13 It is
from these threads of a false reading of Plaintiffs’ allegations that Apex preposterously
concludes, “[s]imply put, Plaintiffs cannot allege the invasion of a legally protected interest in

11 Paragraph 64 reads: “In a ‘short squeeze,’ individual investors like Plaintiffs and the Class
stand to benefit (absent one-sided market restrictions) as the value of the stocks they purchased
increases. Short sellers, on the other hand, risk further losses, as stock prices rise as a natural
consequence of market forces.” This pleading makes economic sense and reflects market reality.
It does not “unabashedly admit” that Plaintiffs participated in an illegal conspiracy.

12 It is well established law that Defendants must contest the operative complaint and not cite to
earlier superseded pleadings. See fn 5. Apex seeks to avoid the plain reading of the law by
suggesting that Plaintiffs are engaging in a transparent attempt to manipulate the allegations to
avoid a dispositive defense. Plaintiffs’ pleadings do not and have never admitted of any
participation by any plaintiff in any market manipulation scheme. Such insinuation is just a
continuation of Apex’s attempt to misdirect the Court from its own actions, while casting
contempt on its own customers and investors generally.

13 Paragraph 169 of the Superseded Complaint reads, under the rubric, “Price Volatility Ahead
of January 28, 2021 Was Well Known To Defendants” “Leading up to January 28, 2021, the
Suspended Stocks became increasingly popular as, among other things, investors engaged in
online discussions regarding the undervaluation of the Suspended Stocks and began purchasing
shares.” That is not an allegation of a nefarious scheme orchestrated by Plaintiffs to engage in a
market manipulation. In fact, in the next Paragraph of the Superseded Complaint, Plaintiffs
further described the market forces by reflecting that “[s]ome institutional investors also
increased demand for the Suspended Stocks.” Superseded Compl. ¶ 170. The same allegation is
in the Amended Complaint, at ¶ 59.
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their lost profits from a partially-blunted market manipulation scheme.” Def. Mem. at 39. They
even go so far as to improperly infer that Plaintiffs are participating in a pump and dump scheme.
These arguments result from a misreading of both the operative complaint and a now
superseded complaint. There are no allegations in the Amended Complaint (or the Superseded
Complaint) which allege, or even support any inference, that Plaintiffs were engaged in, or
admitted to coordinating or working as a group to “pump” up stock values as part of a market
manipulation scheme to achieve ill-gotten gains. There are no allegations in the Amended
Complaint that allege, or even support an inference, that Plaintiffs were engaged in anything other
than legal free market activity. 14

3.
Plaintiffs Have Standing To Bring
Claims on Behalf of Direct Customers
Apex mistakenly argues that Plaintiffs lack Article III standing to bring claims on behalf
of Apex’s direct customers.” Def. Mem. at 40. However, Defendant improperly conflates
“standing” with the class action Rule 23(a) elements of commonality, typicality and adequacy.
The reason Defendant attempts to frame the issue as “standing” is obvious—Courts are usually
hesitant to dismiss class allegations at the motion to dismiss stage and generally find such
attempt premature.15 Thus, Defendant instead attempts to improperly recast its argument as a
standing issue. However, given that Plaintiffs have clearly asserted a tangible injury to support
standing to assert their claims on behalf of the class of those similarly injured purchasers of the
Suspended Stocks— be they direct Apex customers or Shared Apex customers— they have

14 Reprehensibly, and without any basis, Apex sinks to the level of trying to defend its own
unlawful conduct by suggesting that the retail investors it harmed are a modern example of the
litigating thieves in The Highwayman’s Case, 9 L. Q. Rev. 197 (1893) who the Court determined
were unworthy of resort to the courts but were worthy of being hanged. Def. Mem. at 39.

15 As the Eleventh Circuit in Mills v. Foremost Ins. Co., 511 F.3d 1300, 1309 (11th Cir. 2008)
noted with approval, “[s]everal of our sister circuits have reversed denials of class certification
that were made without the opportuntiy for discovery, when the pleadings on their face did not
show non-compliance with Rule 23 or when the satisfaction of the Rule 23 requirements may have
depended on factual matters within the knowledge or possession of the defendant.” Id. at n.1; See
also, Etzel v. Hooters of America, LLC, 2016 WL 8604317 (N.D. Ga. Nov. 15, 2016); Arkin v.
Innocutis Holdings, L.L.C., 188 F. Supp. 3d 1304 (M.D. Fla. 2016).

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satisfied the threshold issue of standing to bring suit.16

As the Eleventh Circuit observed in Sierra v City of Hallandale Beach, Florida, 996 F.3d
1110, 1112-13 (11th Cir 2021), there are three elements the Court looks at to determine “whether
a plaintiff has standing to sue: (1) injury in fact, (2) causation, and (3) redressability. To establish
an injury-in-fact, the plaintiff must demonstrate that he or she suffered ‘an invasion of a legally
protected interest which is (a) concrete and particularized; and (b) actual or imminent, not
conjectural or hypothetical.’ [quoting Lujan,504 U.S. at 560].” Putting aside the fact that
Plaintiffs have pled a concrete and particularized injury here, none of these three elements (i.e.,
injury, causation and redressability) are implicated in whether they are typical of a class that may
include direct and Shared Customers.

“Typicality” merely “requires that ‘the claims or defenses of the representative parties
[be] typical of the claims or defenses of the class.’” [internal citations omitted]. In re Checking
Account Overdraft Litig., 275 F.R.D. 666, 674 (S.D. Fla. 2011).

As the In re Checking Account Overdraft court held:
Like the commonality requirement, the typicality requirement is
permissive: representative claims are ‘typical’ if they are reasonably
co-extensive with those of absent class members; they need not be
substantially identical. Brown v. SCI Funeral Servs. of Fla.,
Inc., 212 F.R.D. 602, 605 (S.D. Fla. 2003). Moreover, if “the same
unlawful conduct was directed at or affected both the class
representatives and the class itself, the typicality requirement is
usually met irrespective of varying fact patterns which underlie the
individual claims.” Davis v. S. Bell Tel. & Tel. Co., No. 89–2839,
1993 WL 593999, *4 (S.D. Fla. Dec. 23, 1993). To defeat typicality,
a defendant must show that conflict between the named
representative and the class members is “such that the interests of
the class are placed in significant jeopardy.” Walco, 168 F.R.D. at
326. (emphasis added).17

Id. at 674. See also Piazza v. Ebsco Indus., Inc., 273 F.3d 1341, 1346 (11th Cir. 2001) (“Typicality,
along with the related requirement of commonality, focuses on whether a sufficient nexus exists
between the legal claims of the named class representatives and those of individual class members
to warranty class certification.”) (emphasis added).

16 The existence of Plaintiffs’ tangible injuries is addressed elsewhere in this brief, supra at Point
III. Subd. B., Subparts 1 and 2.
17 Id. at 674
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Relevant to Plaintiffs representing both direct and Shared Customers, the Eleventh Circuit
held in Kornberg v. Carnival Cruise Lines, Inc., 741 F.2d 1332, 1337 (11th Cir, 1984), that “[a]
sufficient nexus is established if the claims or defenses of the class and the class representatives
arise from the same event or pattern or practice and are based on the same legal theory. Typicality,
however, does not require identical claims or defenses. A factual variation will not render a class
representative’s claim atypical unless the factual position of the representative markedly differs
from that of other members of the class. [citations omitted].”

Courts have admonished defendants for conflating constitutional “standing” arguments
with class action Rule 23 elements or even merits challenges. Venerus v. Avios Budget Car Rental,
LLC, 723 Fed. App’x 807, 813-14 (11th Cir.2018) (finding error where “the district court conflated
Article III standing with the Federal Rule of Civil Procedure 23 requirements for class
certification.”); Paris v. Progressive Am. Ins. Co., 19-21761-civ, 2020 WL 7039018, at * 4 (S.D.
Fla. Nov., 13, 2020) (“Defendant’s arguments as to Paris’s standing to bring his individual claim
are really arguments contesting Paris’s adequacy to represent the interests of the class, which the
Court addresses below.”); In re Arris Cable Modem Cons. Litig., 327 F.R.D. 334, 351 (N.D. Cal.
2018) (defendant erroneously conflates standing with challenges to the merits of plaintiff’s claim);
In re Worldcom, Inc. Sec. Litig., 219 F.R.D. 267, 283 (S.D.N.Y. 2003) (injured bond purchaser
claim analyzed under Rule 23(a) requirements, whether characterized as adequacy or typicality
concerns).

Accordingly, this Court should reject Defendant’s misbegotten “standing” argument which
concerns whether Plaintiffs can later, at the motion for class certification stage, demonstrate
typicality, commonality and adequacy, all of which are properly pled.
C. New York Substantive Law Applies
There is no dispute that New York is the transferor forum. Plaintiffs agree with
Defendant that this MDL Court is to apply New York’s choice of law rules. Def. Mem. at 11. See
also, Trumpet Vine Investments v. Union Capital Partners, 92 F.3d 1110, 1115 (11th Cir. 1996).
“Under New York choice-of-law rules, ‘the first step in any choice of law inquiry is to determine
whether there is an 'actual conflict'" between the rules of the relevant jurisdictions.” Kinsey v.
N.Y. Times Co., 991 F.3d 171, 176 (2d Cir. 2021).
Here, substantive New York law applies whether or not there is an actual conflict between
New York law or Texas law. If there is no conflict, as here, where Apex is liable under both New
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York and Texas law, New York law applies. If there is arguably a conflict, New York law would
still apply because in tort cases, such as here, New York “applies the law of the state with the most
significant interest in the litigation.” Kinsey., 991 F.3d at 176.18 That state is New York.
Under New York law, an examination of the state with the most significant interest
focuses on where the parties are domiciled as well as the locus of the tort. See, Champlain
Enterprises, Inc. v. United States, 945 F. Supp. 468, 472-473 (N.D.N.Y. 1996).
Here, the domicile and the locus of the tort is New York. Apex is a New York corporation,
with offices in Manhattan. AC ¶ 22. Its parent is headquartered in New York (Manhattan). Id.
“Many of the acts complained of, on information and belief, were directed from New York. Apex’s
key personnel are New York based. Apex CEO William Capuzzi identifies his “Contact info” on
his Linked-In page under “New York City Metropolitan Area.” Apex Chief Administrative Officer
William Brennan lists a “Summit, New Jersey” location and lists work locations as both Dallas
(May 2016 - Present) and Greater New York City Area (September 2019-Present). And an Apex
Chief Compliance Officer recent job posting is listed for an Apex New York office at 28 Liberty
Street, New York, NY.” AC ¶ 10. Two of the Suspended Stocks, AMC and GME, are listed on the
New York Stock Exchange which is in New York. The third Suspended Stock, KOSS, is listed on
Nasdaq. Nasdaq’s principal executive offices are in New York. And, DTCC is headquartered in
New York. Safirstein Decl. at ¶¶ 5-7.19 Thus, New York law satisfies New York’s most significant
relationship test.

18 New York’s choice-of-law methodology requires that “the law of the jurisdiction having the
greatest interest in the litigation . . . be applied.” This is a change from the earlier traditional
choice of law rule for torts which had been lex loci delicti, which mandates that a court apply the
law of the state where the tort occurred. See discussion in Champlain Enterprises, Inc. v. United
States, 945 F. Supp. 468, 471-472 (N.D.N.Y. 1996).
19 The court can take judicial notice under Federal Rule of Evidence 201 of such facts that are
not subject to reasonable dispute because the fact is either generally known within the territorial
jurisdiction of the Court or capable of accurate and ready determination by resort to sources
whose accuracy cannot reasonably be questioned. Shahar v. Bowers, 120 F.3d 211, 214 (11th Cir.
1997). In particular, the Eleventh Circuit has noted that the types of facts a court can take judicial
notice of are things like scientific facts, matters of geography, or matters of political history. Id.
Here, Plaintiffs submit that the Court can take judicial notice of listings on various securities
exchanges and geographical matters. In addition, the Court may consider matters of which it
takes judicial notice of in considering a motion to dismiss. See, Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551. U.S. 308, 322, 127 S. Ct. 2499, 2509, 168 L. Ed. 2d 179 (2007).

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In comparison, Apex notes that its headquarters are in Texas (Def. Mem. at 12), even
though none of the events that are at issue are said to have taken place in Texas. In reality, the
Texas physical connection is to what was then a likely empty headquarters building during the
midst of an international health crises. To the extent Apex relies on a customer agreement as a
basis for enforcing Texas law, the law Apex cites makes clear that the customer agreement does
not compel the application of Texas law. For example, in Champlain Enterprises, Inc. v. United
States, 945 F. Supp. 468, 472 (N.D.N.Y. 1996), cited by Apex (Def. Mem at 12), the Court held,
“[u]nder New York law, a choice-of-law provision indicating that a contract will be governed by
a certain body of law does not dictate the law that will govern non-contract based claims. See
Krock v. Lipsay, 97 F.3d 640, 1996 WL 552453, at *4 (2d Cir. 1996); Klock v. Lehman Bros. Kuhn
Loeb Inc., 584 F. Supp. 210, 215 (S.D.N.Y. 1984) ("It has been held in New York that a contractual
choice of law provision governs only a cause of action sounding in contract.") (citing Knieriemen
v. Bache Halsey Stuart Shields, Inc., 74 A.D.2d 290, 427 [**6] N.Y.S.2d 10, 12-13 (1st Dep't
1980), lv. denied, 50 N.Y.2d 1021, 431 N.Y.S.2d 812, 410 N.E.2d 745 (1980)).” Here, the claims
that do not sound in contract are governed by New York law. Moreover, as to the content of
Apex’s customer agreement, the reference to Texas law only applies with regard to the agreement
and an action seeking to enforce the customer agreement. See Pace Decl., Ex. 2 at Par. 15; That
is not this action. See, Champlain Enterprises, Inc., 945 F. Supp. at 472. Also, importantly, FINRA
rules prohibit member firms such as Apex from using “choice of law” provisions in customer
agreements to “[include] a choice of law or governing law clause in a customer agreement without
an adequate nexus, which suggests an intent to limit an award, or otherwise including provisions
that attempt to limit the ability of a customer to file a claim or the authority of arbitrators to make
an award, is a prohibited condition under FINRA Rule 2268(d).” See, Regulatory Notice 21-16,
p. 4, available at https://www.finra.org/sites/default/files/2021-04/Regulatory-Notice-21-16.pdf.
Here, the “customer agreement” is a predispute arbitration agreement and Apex cannot use a
“choice of law” clause to limit the ability of its customers to recover under the law.
Weighing the two choices, it is clear that New York is more central to and has a more
significant relationship to this action.
D. Plaintiffs Have Stated A Claim For Negligence (Count I)
Plaintiffs allege that Apex was negligent because it was not properly prepared to address
market volatility on January 28, 2021 with regard to its DTCC requirements; that it was negligent
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in addressing the communications from DTCC on January 28th by implementing the Market
Suspension for nearly three and one-half hours when it did not need to, and then was negligent in
persisting in the Market Suspension for hours after DTCC informed Apex that the increased
collateral deposit that prompted the trading halt was not required. Apex undertook such draconian
steps designed to force down the price of the securities it had sold to its customers when there were
other reasonable steps available to it to mitigate its risk (such as raise additional capital). See AC
¶¶ 105-113.
The New York Court of Appeals describes negligence as the “failure to employ
reasonable care – the care which the law’s reasonably prudent [person] should use under the
circumstances of a particular case.” McLean v. Triboro Coach Corp., 302 N.Y. 49, 51 (1950). To
establish a claim for negligence under New York law, a plaintiff must show: (1) the existence of
a duty on defendant’s part as to plaintiff; (2) a breach of this duty; and (3) injury to the plaintiff
as a result thereof. Atkins v. Glen Falls City Dist., 53 N.Y.2d 325,333 (1981).
As Defendant concedes, the elements of a negligence claim are substantially similar in
other states. Def. Mem. at 12-13. For example, to establish a claim for negligence under Texas
law, a plaintiff must similarly show: (1) a legal duty owed by one person to another, (2) a breach
of that duty, and (3) damages proximately caused by the breach. D. Houston v. Love, 92 S.W.3d
450, 454 (Tex. 2002). 20

1. Apex Owes Duties to Both “Introduced”
Customers and “Direct” Customers.

Apex owed and owes duties as a broker-dealer to both its direct customers and to its
Shared Customers. Apex’s duty of care that it owed to its customers is grounded in common
law. As courts in New York and elsewhere have recognized, a duty of care arises by virtue of
the broker-client relationship itself. de Kwiatkowski v. Bear, Stearns & Co., 306 F.3d 1293,
1305 (2d Cir. 2002) (“No doubt, a duty of reasonable care applies to the broker's performance of
its obligations to customers with nondiscretionary accounts.”). This standard of care is
recognized to be a duty to act in accordance with the standard of care used by other professionals
in the community, and the professional duty brokers have to act in the best interests of the client

20 See also, Pinchinat v. Graco Children’s Prod., Inc., 390 F.Supp.2d 1141, 1149 (M.D. Fla.
2005) (citing to Paterson v. Deeb, 473 So.2d 1210, 1214 (Fla. 1st DCA 1985).
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and not put its own financial interests first. Conway v. Icahn & Co., Inc. 16 F.3d 504, 510 (2d
Cir. 1994) (“the relationship between a stock-broker and its customer is that of principal and
agent and is fiduciary in nature, according to New York law (internal cites omitted).”); As the
Second Circuit has noted, this broker-dealer duty to nondiscretionary accounts is limited. It is
transactional based (“transaction-by-transaction duties”). de Kwiatkowski, 306 F.3d at 1305.
Here, the duties alleged are transactional in that the duties arose in connection with the sale of
securities to Plaintiffs and the Class. Apex had a duty in connection with those sales to not then
turn around and force the price of those very same securities down for its own financial benefit.
There are no cases that cite to the specific misconduct alleged here because no broker-dealer
(other than Robinhood) had ever taken such brazen, unthinking and harmful action before (or
since). To the extent the broker’s duty can be read as ending with the consummation of the
transaction, that reading only applies because no one has contemplated before that a securities
broker could sell a security and then subsequently take action adverse to its customer in
connection with the very sale that the broker has participated in. To that extent, the transaction
remains open until the broker has concluded its actions in connection with the sale of securities.
In reversing the judgment of the District Court, the Second Circuit in de Kwiatkowski noted that
it was error to hold that a reasonable duty of care in connection with a nondiscretionary account
“entailed the rendering of market advice and the issuance of risk warnings on an ongoing basis.”
Id. at 1302. No such open ended duty is alleged here, the duty of care here is limited to the sale
of securities to Plaintiff.21
Texas law is consistent with this finding. See, Magnum Corp. v. Lehman Bros. Kuhn
Loeb, Inc., 794 F.2d 198, 200 (5th Cir. 1986) (“The relationship between a securities broker and
its customer is that of principal and agent,” see, e.g., Robinson v. Merrill Lynch, Pierce, Fenner
& Smith, Inc., 337 F. Supp. 107, 110 (N.D. Ala. 1971), aff'd, 453 F.2d 417 (5th Cir. 1972)).
Apex contests Plaintiffs’ negligence allegations based on its own rewriting of the
Amended Complaint. Apex argues, “[c]ourts nationwide have disclaimed any common law or
general duty of clearing brokers to investors to accept trades or to guard against unforeseeable

21 To the extent that the pleadings raise one or more issues of first impression under New York or
Texas law, Plaintiffs respectfully request that this MDL court certify the issue(s) to the Eleventh
Circuit Court of Appeals for resolution by the highest court in New York or Texas.

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events.” Def. Mem. 13. But that is not what Plaintiffs allege. Broker-dealers and clearing broker-
dealers, such as Apex violate their duties of care to their customers when, as here, they sell
securities to their customers and then take action contrary to those very sales, as done here by
imposing the Market Suspension with the intent to harm those customers by forcing the price of
those very same securities down for Apex’s own financial benefit. This is particularly so when
not only are the events that supposedly caused the Market Suspension, foreseeable, as they were
here, but Apex had specific information from the regulators that the Market Shutdown was
unnecessary as there was no dramatic collateral increase. Despite knowing that the Market
Suspension was unnecessary, Apex negligently persisted in maintaining the Market Suspension
for a prolonged period of time causing harm to Plaintiffs.22
FINRA Rules set out general standards of industry conduct that Apex has agreed to abide
by and are evidence of the standard of care governing brokers conduct in dealing with their clients.
See, e.g., Remington v. Newbridge Sec. Corp., 2013 WL 2444719, at *5–6 (S.D. Fla. June 5, 2013)
(finding that failure to comply with a FINRA Rule is evidence of a breach of duty to comply with
applicable standard of care). In Remington, defendants argued, as Apex does here, that the
violation of FINRA rules do not create a private right of action for negligence. The court, in
rejecting this analysis, found that “even if the [FINRA] Rules did not provide a private cause of
action, the negligence claim was nonetheless properly brought because ‘violation by [the
defendant] of the rule will not automatically result in his being held liable for negligence; it would
simply be a factor for consideration by the jury as to whether he acted as a `reasonable' person in
his conduct toward [the plaintiffs] and their account. . . .’" (citing, Merrill Lynch, Pierce, Fenner
& Smith, Inc. v. Cheng, 697 F. Supp. 1224,1228 (D.D.C. 1988). Following Cheng, the Remington
court held, “[w]hile there may not be a private right of action for violation of Rule 2430, Plaintiffs
are not suing merely for a violation of Rule 2430. Rather, they allege that Newbridge's failure to
comply with the rule is evidence that they breached their duty of care, which includes a duty to act
in accordance with the standard of care used by other professionals in the community.” Id.
The Remington court agreed with the salient reasoning of the Fifth Circuit, governing
Texas. See, Miley v. Oppenheimer & Co., Inc. 637 F. 2d 318, 333 (5th Cir. 1981) (finding that

22 Revealingly, the one thing Apex does not contest, is that it was a foreseeable result of its
actions that the price of its customer’s stock holdings in the Suspended Stocks would drop
immediately and precipitously.
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"NYSE and NASD rules are excellent tools against which to assess in part the reasonableness or
excessiveness of a broker's handling of an investor's account."). Remington at*5-6.
Courts applying New York law and Texas law have agreed with the analysis expressed in
Remington et al. See, Eva Rioseco and Nilda Cruz v. Gamco Asset Management, Inc., 2011 N.Y.
Misc. LEXIS 7279 at *79-*80 (N.Y. Sup. Ct. Sept. 23, 2011); Scott v. Dime Sav. Bank of New
York, FSB, 886 F.Supp. 1073, 1080-81 (S.D.N.Y. 1995) (violations of industry rules and practices
give rise to common law claims of negligence); Lange v. H. Heinze & Co., 418 F. Supp. 1376,
1384 (N.D. Tex. 1976) (NASD rules can be used as evidence as to standard of care in the industry
and holding “[i]t is therefore the decision of this Court that the NASD Rules may be used as
evidence of the present standard of care which the NASD member should achieve.”); Stevenson v.
Rochdale Investment Management, Inc., 2000 U.S. Dist. LEXIS 13110 at *29 (N.D. Tex. 2000)
(violation of the rules may be evidence of standard of care).
Nonetheless, Apex persists in arguing that violations of industry rules do not create a
private right of action,23 thus ignoring that the allegations pled here are based in common law
tort, which may nonetheless be informed by the industry rules which set a uniform industry-
accepted standard of care. In fact, Defendant cites case law agreeing with Plaintiffs’ proposition
that “the [FINRA] rules may be used to determine whether a breach has occurred once it has
been established that a duty of care existed.” Weatherly v. Pershing, 2015 U.S. Dist. LEXIS
197128 at *10–11 (N.D. Tex. June 23, 2015). See also, Brink v. James, 341 F.Supp.3d 1314,
1325 (S.D. Fla. 2018) (FINRA rules may be used as evidence to establish negligence in that
plaintiff may proffer expert testimony on the standard of care owed by similar professionals in
the community of broker-dealers to customer/account holders such as Plaintiff.). Def. Mem. at
15.
Here, Plaintiffs allege that Apex owed them a common law duty of care “in accordance
with the standard of care used by other broker-dealer professionals.” (AC ¶ 47, 106). In considering
whether Apex breached its common law duty of care, the Court can look to, inter alia, the duties
that Apex as a member of FINRA has undertaken to abide by including the duty to: “observe high
standards of commercial honor and just and equitable principles of trade” (FINRA Rule 2010, AC
¶ 44). As FINRA has reiterated, and as Plaintiffs have alleged, Rule 2010 is the foundation of a

23 Def Mem. at 15.
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broker-dealer’s relationship with its customers, to wit, “[i]mplicit in all member and registered
representative relationships with customers and others is the fundamental responsibility for fair
dealing. Sales efforts must therefore be undertaken only on a basis that can be judged as being
within the ethical standards of [FINRA’s] Rules, with particular emphasis on the requirement to
deal fairly with the public.” FINRA reiterates in Regulatory Notice 21-12, “the foundation of the
securities industry is fair dealing with customers. . . even during times of market stress.” (emphasis
added); see also FINRA By-Laws, Article XI (authorizing the Board to adopt rules or amendments
to, among other things, “protect investors and the public interest, . . . promot[e] [] fair practices . .
.”). AC ¶ 44.
Moreover, FINRA rules provide that member broker-dealers must “establish, maintain, and
enforce a supervisory system, which includes monitoring its technology and other risks, including
credit and other systemic risks” (FINRA Rule 3110, AC ¶ 45); and, “engage in continual risk
management to ensure continuation of its trading and financial ‘mission critical systems’” (FINRA
Rule 4370, AC ¶ 45).

In addition, Apex owed Plaintiffs the duty in common law tort to comply with FINRA rules
and to “maintain strong procedures, thoughtfully crafted in advance, to reasonably ensure that they
can continue to provide investors access to the securities markets during times of extreme market
volatility, as in the past several months” including “liquidity management practices to ensure the
firm is able to continue to provide customers with access to the markets despite abnormal liquidity
demands.” (FINRA Regulatory Notice 21-12; AC ¶ 51).
Moreover, Apex was statutorily required, pursuant to 17 C.F.R. § 240.15c3-1 (the “Net
Capital Rule”), to maintain an appropriate level of “net capital” such as to maintain sufficient
liquid assets to meet all obligations to customers. AC ¶ 40. These are, inter alia, standards Apex
is alleged to have violated.
Apex argues that it had no duty to trade securities for Plaintiffs, citing to its standard
customer agreement. Def. Mem. at 15-16.24 Apex is not charged with turning down any particular

24 Apex’ argument, that it is not a “public utility” under Texas law, is irrelevant to this matter.
Its argument that it has no duty of “constant availability” is similarly irrelevant and misses the
mark entirely. Def. Mem. at 16. Plaintiffs’ allegations that Apex should not have shut down its
customers’ ability to purchase the Suspended Stocks for hours on January 28th, when only one
other broker-dealer acted similarly, cannot be fairly read as an alleged duty of “constant
availability.” No such duty is pled. Moreover, Apex’ supposed defense that had it allowed for
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trade from an individual customer for a particular reason. Apex is charged with breaching its duty
of care to customers to whom it had sold securities by taking action in connection with those sales,
to directly drive the price of those securities down for Apex’s own financial benefit. Apex
accomplished this breach of care by shutting down its entire platform, for hours, to prohibit all of
its customers (direct and introduced) from purchasing in-demand stocks and options with the
foreseeable consequence that the price of those stocks would go down. No client, or customer
agreement, ever authorized Apex to do that.
In any event, Apex misapplies its own customer agreement. Apex argues essentially that
it contractually has the right to do whatever it wants, to any customer whenever it wants to. And
without consequence. In particular, Apex claims that it “has an absolute right to refuse to execute
a customer’s transactions.” Def. Mem at 16. But that is not Plaintiffs’ complaint. Here, Apex did
execute Plaintiffs’ transactions to purchase shares of stock that Apex later restricted. It is the
execution of those purchase orders that triggers Apex’s duty of care to Plaintiff purchasers. Apex
breached that duty of care by taking affirmative steps in connection with those same purchases to
drive the price of those securities down for its own financial benefit and to the financial detriment
of Plaintiffs. As alleged, Apex’s Market Suspension was designed to and did drive down the price
of the securities at issue here. Plaintiffs do not dispute that in the abstract Apex was under no
obligation to sell securities to all customers at all times. But having sold securities to Plaintiffs,
Apex could not harm those investor customers as it did here. Apex’s actions are inconsistent with
its duties as a broker-dealer to act ethically, fairly, consistently with comparable broker-dealer
professionals and, in a manner that put its clients’ interests first. Apex had no contractual
permission to affirmatively act and directly hurt its own customers in connection with Apex’s sale
of securities to those customers.

2. Apex’ Own Customer Agreement Requires Adherence
to the Applicable Industry Rules and Regulations.

In fact, what Apex ignores in its argument is that Apex’s standard customer agreement
contractually binds Apex to the duty of care in its dealings with Plaintiffs that it now pretends it
does not have. Paragraph 1 to the standard customer agreement provides, “1. Applicable Rules
and Regulations. All transactions for the Account shall be subject to the constitution, rules,

ordinary business operations it would have been hazardous to its business has no support in the
record and is contrary to Plaintiffs’ allegations.
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regulations, customs and usages of the exchange or market and its clearinghouse, if any, upon
which such transactions are executed, except as otherwise specifically provided in this
Agreement.” Pace Decl. Ex. 2, at ¶1. Suspended Stocks GMC and AMC are traded on the New
York Stock Exchange. The rules of the New York Stock Exchange, explicitly incorporated into
the customer agreement that is referenced by both Plaintiffs and Defendant, provides for in Rule
2010 (same as FINRA Rule 2010), that “[a] member or member organization, in the conduct of its
business, shall observe high standards of commercial honor and just and equitable principles of
trade.” Apex is a member of the New York Stock Exchange. Safirstein Decl. at ¶4; Suspended
Stock KOSS is traded on the Nasdaq Exchange. This exchange has a similar rule as FINRA and
the New York Stock Exchange in establishing a duty of care owed by member broker-dealers.
Specifically, Nasdaq Conduct Rule 2110 provides that, “[a] member, in the conduct of his
business, shall observe high standards of commercial honor and just and equitable principles of
trade.” Apex is a member of Nasdaq. Safirstein Decl. at ¶4.
Apex also argues that its standard customer agreement shields it from financial liability to
Plaintiffs. Apex points to language in the agreement that states, in relevant part that Apex, “shall
not be liable for losses caused directly or indirectly by any events beyond your reasonable control,
including without limitation, . . . suspension of trading or unusually heavy trading in securities . .
. .” Pace Decl. Ex. 1, at 3 (emphasis added); Pace Decl. Ex. 2, at ¶ 3. Def. Mem. at 16. But Apex’s
actions render this language irrelevant. The decision to impose the unprecedented, unilateral one-
sided trading restriction was Apex’s decision that it then maintained for hours despite knowing
that it had no obligation to meet any significantly increased collateral obligation. The events that
caused Plaintiffs’ losses were far from “events beyond [Apex’s] reasonable control.” It was Apex
that made an affirmative decision that harmed Plaintiffs and that decision, was fully within Apex’s
“reasonable control.”
Moreover, and importantly, Apex as a broker-dealer that owes a duty of care, cannot
contract itself out of liability for its own actions. The law provides that “[C]ontractual
commitments cannot serve to excuse carelessness or shield a defendant from liability for injury
that a breach of the duty of due care may engender. See Restatement (Second) of Torts § 4c.” De
Kwiatkowski v. Bear Stearns, 126 F. Supp. 2d 672, 694 (S.D.N.Y. 2000), rev’d on other grounds,
De Kwiatkowski v. Bear Stearns, 306 F.3d 1293 (2d Cir. 2002). Apex is also prohibited from
contracting itself out of liability by virtue of its membership in FINRA. What Apex
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characterizes as a “Customer Account Agreement” is a predispute arbitration agreement. See,
Pace Decl. Ex. 2 at Par. 8. “FINRA Rule 2268 prohibits any predispute arbitration agreement
from including any condition that: (1) limits or contradicts the rules of any self-regulatory
organization (SRO);4 (2) limits the ability of a party to file any claim in arbitration; (3) limits the
ability of a party to file any claim in court permitted to be filed in court under the rules of the
forums in which a claim may be filed under the agreement; or (4) limits the ability of arbitrators
to make any award … These requirements make clear that predispute arbitration agreements
must preserve customers’ rights under FINRA rules.” See, FINRA Regulatory Notice 21-16, p.
2, available at https://www.finra.org/sites/default/files/2021-04/Regulatory-Notice-21-16.pdf.

In any event, any interpretation of Apex’s customer agreement is disputed and not ripe for
adjudication on a motion to dismiss.

3. Clearing Broker Liability
Neither New York nor Texas law exempt clearing brokers from liability when they, as
alleged here, play a non-ministerial role and directly interfere with the trading of their customers.
Apex persists in the charade that it has no liability to Plaintiffs as a “clearing broker” in
that clearing brokerage firms perform largely ministerial functions.25 But that is not this case. No
allegations are made charging Apex in connection with any ministerial functions. The allegations
are that Apex processed the purchases of Plaintiffs’ shares of the Suspended Stocks through the
Introducing Brokers (pursuant to the three-way customer agreement by which the Plaintiffs are
Shared Customers with the Introducing Brokers and Apex) and then, in connection with those
same purchases, Apex undertook for itself and directed the Introducing Brokers under its control
to take steps that would force the price of the shares down. Those steps that Apex undertook for
itself and commanded its captive Introducing Brokers to undertake shut down the ability of the
100 plus Introducing Brokers (and their Shared Customers such as the Plaintiffs) to allow

25 “In a typical clearing arrangement, a clearing firm provides many backroom and administrative
functions for another broker-dealer's customer accounts. See Gerald B. Cline and Raymond L.
Moss, Liability of Clearing Firms: Traditional and Developing Perspectives, 1062 PLI/Corp. 139,
143 (1998). Generally, the clearing firm is responsible for maintaining records and mailing
customer account documentation, as well as receiving, maintaining and delivering customers'
securities and funds. See id.; Henry F. Minnerop, The Role and Regulation of Clearing Brokers,
48 Bus. Law. 841, 841 (1993).” McDaniel v. Bear Stearns & Co., Inc., 196 F. Supp. 2d. 343, 347
(S.D.N.Y. 2002).

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purchases of the three Suspended Stocks for hours. The foreseeable consequence was the decrease
and suppression of the price of those securities to the detriment of Apex’s Shared Customers and
for its own financial benefit. In taking affirmative steps to deliberately harm Plaintiffs’ investments
and forcing its captive Introducing Brokers to unilaterally close their trading platforms to
purchases only while allowing for sales, Apex stepped outside the role of performing traditional
clearing functions and shed the protections against liability reserved for clearing brokers
performing ministerial functions.
To state the obvious: The law is clear that where a clearing firm, as Apex here, moves
beyond performing mere ministerial or routine clearing functions (such as acting as a mere
conduit) and becomes actively and directly involved in the introducing broker's actions, it exposes
itself to liability. McDaniel v. Bear Stearns & Co., Inc., 196 F. Supp. 2d. 343, 347 (S.D.N.Y.
2002). See also, Berwecky v. Bear Stearns & Co., 197 F.R.D. 65 (S.D.N.Y. 2000) (complaint
against clearing broker Bear Stearns viable where allegation is that Bear Stearns “shed [its] role
as a mere clearing broker for and with actual knowledge, directly participated in described
scheme."); Kuoruga v. Fiserv Correspondent Servs., 183 F. Supp. 2d 1245, 1247 (D. Or. 2001)
(arbitration award confirmed where panel made specific factual findings that clearing firm and
introducing broker were directly involved in the challenged transaction and materially participated
in the wrongdoing.); In re Blech Sec. Litig., 961 F. Supp. 569, 585 (S.D.N.Y. 1997)(complaint
against clearing firm viable where plaintiffs alleged that Bear engaged in activities that did not
"reflect ... the standard practice of [a] clearing broker."); Cannizaro v Bache, Halsey, Stuart,
Shields, Inc., 81 F.R.D. 719, 721 (S.D.N.Y. 1979) (denying motion to dismiss aiding and abetting
claim against clearing firm where facts might show that clearing firm performed more than mere
mechanical functions for introducing broker).26
Moreover, in those instances, as here, where the clearing broker is part of a three-way
written brokerage agreement, it exposes itself to liability to the brokerage customer. See Glob.
Enter. Grp. Holding, S.A. v. Ottimo, No. 07-CV-4904-TCP-WDW, 2010 WL 11629556 at *5

26 Clearing firms, only “when acting within the scope of their traditional clearing functions” owe
no fiduciary duties to securities purchasers. Rozsa v. May Davis Group, Inc., 152 F. Supp. 2d
526, 531 (S.D.N.Y. 2001); See also, Stern v Legent Clearing LLC, 09 C 794, 2009 WL 2244616,
at *3 (N.D. Ill. July 28, 2009).
.
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(E.D.N.Y., June 8, 2010) (holding that “where an agreement exists between the clearing agent and
investor, fiduciary duties may arise.”).
The court’s analysis in Global Enter. Grp. is on point:
In ‘extenuating circumstances,’ where clearing firms act beyond traditional
ministerial clearing functions, ‘fiduciary duties may exist where a clearing
broker asserts control over the introducing broker's business, or becomes
actively and directly involved in an introductory broker's actions.’ See Stern
v. Legent Clearing LLC, No. 09-CV-0794, 2009 U.S. Dist. LEXIS 65053,
2009 WL 2244616, at *3 (N.D. Ill. July 28, 2009)…. Extenuating
circumstances were found in Goldman, where the court determined that there
were sufficient allegations because the clearing agent ‘actively engaged’ with
an investment company to create fraudulent trading losses. Goldman, 1987
U.S. Dist. LEXIS 5356, 1987 WL 12820, at *22. Moreover, the Southern
District held that where there were allegations that a clearing broker
undertook more than mere clearing duties, and became aware of the
investment broker's fraud, then it could be held liable for a breach of its
fiduciary duties. A.I.A. Holdings, S.A. v. Lehman Bros., Inc., No. 97-CV-
4978, 2002 U.S. Dist. LEXIS 980, 2002 WL 88226, at *4 (S.D.N.Y. Jan. 23,
2002). Furthermore, where a clearing firm moves beyond performing mere
ministerial or routine clearing functions and becomes actively and directly
involved in the introductory broker's actions, it may expose itself to liability
with respect to the introductory broker's misdeeds. McDaniel, 196 F. Supp.
2d at 353.

Glob. Enter. Grp Holding, S.A., 2010 WL 11629556 at *5.

Texas courts similarly hold that clearing firms may be liable where the alleged activity of
the clearing broker “went beyond the provision of mere ministerial or clerical services.” Turk v.
Pershing LLC, No. 3:09-CV-2199-N, 2014 WL 12572906 at *3 (N.D. Tex. Dec. 8, 2014); see
also, Kneese v. Pershing, LLC, No. 3:10-CV-1908-N, 2012 WL 13019677, at *5 (N.D. Tex, Nov.
14, 2012 (dismissal inappropriate where Plaintiffs alleged that clearing broker performed “more
than routine financing” including “ensuring that that the introducing broker was meeting net capital
and other regulatory requirements.”).
Apex relies on inapplicable case law that generally stands for the proposition that investors
have no recourse against clearing brokers for the misconduct of introducing brokers. See, e.g., Def.
Mem. at 12-15. Those cases do not address the liability of clearing brokers for their own
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misconduct. Apex tries to hide behind a line of cases where a clearing firm merely performs
ministerial functions.27
4. The Economic Loss Rule Does Not Undermine Defendant’s
Negligence Nor Plaintiffs’ Ability to Recover in Tort

The economic loss rule does not apply to the instant situation under either New York or
Texas law.

Apex argues that it does not owe Plaintiffs (or its direct customers) a general duty of care
to prevent economic losses, particularly when those losses are governed by contract, citing to the
economic loss doctrine in New York and the economic loss rule in Texas. Def. Mem. at 17. Apex
misses the mark in both instances.
Apex’s own citations to New York law undermine its attempt to escape liability in that
Apex acknowledges that the touchstone of its argument centers on the issue of whether Apex owes
a duty to Plaintiffs. As to New York law Apex proclaims, “[u]nder the economic loss doctrine, a
defendant is not liable in tort for purely economic loss unless the plaintiff demonstrates that the
defendant owed a duty, which ‘may arise from a special relationship[.] . . . to protect against the

27 All of the cases Apex cites in support of the proposition that clearing firms owe no duty to
Plaintiffs are in the context of investors seeking to hold clearing firms liable for the acts of the
Introducing Broker. These cases are factually distinguishable to the situation here where the
clearing firm is charged with misconduct. See Riggs v. Schappell, 939 F. Supp. 321,326 (D.N.J.
1996) (vicarious liability of clearing firm denied on allegations that clearing firm “provided
plaintiffs the impression” that clearing firm backed the wrongdoing introducing broker); Mars v.
Wedbush Morgan Sec.,283 Cal. Rptr. 238, 241–42 (Cal Ct. App. 1991) (no liability when
allegations against clearing broker are no more than simply transmitting reports of trade); Ross v.
Bolton, 904 F.2d 819, 824 (2d Cir. 1990), (no liability for clearing firm for wrongs committed by
the introducing broker); Rozsa v. May Davis Grp., Inc., 187 F. Supp. 2d 123, 131–32 (S.D.N.Y.
2002) (clearing broker not liable for misdeeds of introducing broker). Similarly, Apex cites to
irrelevant cases as to foreseeability. All of its cases are factually distinguishable. Pulka v.
Edelman, 358 N.E.2d 1019, 1022–23 (N.Y. 1976) (no clearing firm at issue, no liability in
vehicular accident where “regardless of the measures taken, there is little expectation that the one
made responsible could prevent the negligent conduct.”); Beckwith v. Hart, 263 F. Supp. 2d
1018, 1023 (D. Md. 2003)(no clearing firm at issue, not foreseeable that prisoner would be
injured “by the simple act of closing a door”); West v. Cruz, 251 P.2d 311, 315 (Ariz. 1952 ( no
clearing firm at issue in this automobile accident case); Weatherly v. Pershing, 2015 U.S. Dist.
LEXIS 197128 (N.D. Tex. June 23, 2015) (No liability against clearing broker for misdeeds of
introducing broker); Turk v. Pershing LLC, 2014 WL 12572906 (viable negligence claim pled
against clearing firm where allegation is that its conduct went beyond mere ministerial role);
Strategic Income Fund, L.L.C. v. Spear, Leeds & Kellogg Corp., 305 F.3d 1293, 1296 n.12 (11th
Cir. 2002)(clearing firm not liable for alleged misdeeds of bankrupt introducing firm).
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risk of harm to plaintiff.’” AMBAC Assur. Corp. v. U.S. Bank N.A., 328 F. Supp. 3d 141, 159
(S.D.N.Y. 2018) (emphasis added). The court in AMBAC explained that “the economic loss
doctrine centers on whether the defendant owed a duty to protect against the risk of harm to the
plaintiff.” Id. Def. Mem. at 17. Apex’s emphasis on the exception is well placed, the exception to
the doctrine is present here where Apex owes a duty to Plaintiffs and the putative class (including
its direct customers).
Judge Pauley’s thoughtful analysis in AMBAC well explains the inapplicability of the
economic loss rule under New York law. The law stands for the proposition that “the economic
loss rule limits the end-purchaser of a product to contract remedies and precludes a recovery in
tort for purely economic losses — without personal injury or property damage — against a
manufacturer.” Id. at 158-59. (internal citations omitted) “The rule reflects the premise that
‘damages arising from the failure of the bargained-for consideration to meet the expectations of
the parties are recoverable in contract, not tort, unless a legal duty independent of the contract itself
has been violated.’" Id. at 159. (internal citations omitted).

Judge Pauley explains the distinction between the “economic loss rule” and the “economic
loss doctrine” in New York. “Under the economic loss doctrine, a defendant is not liable in tort
for purely economic loss unless the plaintiff demonstrates that the defendant owed a duty, which
"may arise from a special relationship[,] ... to protect against the risk of harm to plaintiff." Id.
(internal citations omitted). “Like the economic loss rule, this doctrine rests on the principle that
economic losses arising from injury to expectancy interests created by contract ought to be brought
as contract claims, but also ‘reflects a policy interest in protecting defendants from
disproportionate, and potentially limitless, liability.’" Id. (internal citations omitted).

Judge Pauley concluded, “[h]ere, Ambac's breach of fiduciary duty claim survives U.S.
Bank's motion to dismiss regardless of which principle is applied. As discussed, the economic loss
doctrine centers on whether the defendant owed a duty to protect against the risk of harm to the
plaintiff. Ambac has sufficiently alleged that U.S. Bank owes a fiduciary duty of undivided loyalty
to the Trusts and their beneficiaries…. As for the economic loss rule, this Court notes as an initial
matter that the applicability of the economic loss rule outside the product-liability context from
which it originated is doubtful… See, IKB Deutsche Industriebank AG, 863 F. Supp. 2d at
301 (observing that in Finlandia, "the New York Court of Appeals cautioned that the `economic
Case 1:21-md-02989-CMA Document 494 Entered on FLSD Docket 07/06/2022 Page 44 of 62

loss rule' has no application outside the product-liability context"). (additional internal citations
omitted).” Id. at 159-160.
Plaintiffs’ ability to recover for economic loss under their tort claims are also not foreclosed
under Texas’ view of the “economic loss rule.” In Texas, the “economic loss doctrine” is premised
on the notion that a challenged loss arises “only through their contract.” LAN/STV v. Martin K.
Eby Const. Co., 435 S.W.3d 234, 238 (Tex. 2014) quoting Robins Dry Dock & Repair Co. v. Flint,
275 U.S. 303, 308 (1927). Moreover, the Texas Supreme Court has recognized, "[t]he underlying
purpose of the economic loss rule is to preserve the distinction between contract and tort theories
in circumstances where both theories could apply." LAN/STV, 435 S.W.3d at 240 (internal
citations omitted), and that the economic loss doctrine is “not generally applicable in every
situation; it allows recovery of economic damages in tort, or not, according to its underlying
principles” LAN/STV, 435 S.W.3d at 235-36. This rule has historically only been applied in cases
involving strict product liability and failure to perform a contract. In interpreting both the
“economic loss rule” and Texas precedent, the Texas federal district court noted;
“…LAN/STV and Sharyland expressly confirm that the economic loss rule is applicable in two
situations: (1) where the loss is the subject of a contract; and (2) where the only damage from a
defective product is to the product itself.” Joy Pipe USA, L.P. v Fremak Indus., Inc., CV H-13-
2153, 2014 WL 12599328, at *2 (S.D. Tex. Nov. 10, 2014), report and recommendation
adopted, CV H-13-2153, 2014 WL 12597848 (S.D. Tex. Dec. 8, 2014).
Importantly “pure economic loss” is still recoverable under Texas law for breach of
fiduciary duty, ERI Consulting Eng’rs, Inc. v. Swinnea, 318 S.W.3d 867, 873–74 (Tex. 2010).
Moreover, under Texas law, the “economic loss rule” “reflects a preference for allocating some
economic risks by contract rather than by law.” LAN/STV, supra. Here, because Plaintiffs’ alleged
breach of duties, including breach of fiduciary duty, and, because there is no contract that Plaintiffs
could have enforced, Texas law does not bar economic recovery.
Here, Plaintiffs only allege a breach of the implied covenant of good faith and fair dealing
as an alternative pleading to Plaintiffs’ Negligence Claim and Claim for Breach of Fiduciary Duty.
AC ¶ 123. In any event, even as to Plaintiffs’ alternative pleading, Plaintiffs do not (and cannot)
seek to enforce any contract. In fact, the “customer agreement” Apex cites to is not the type of
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contract for goods or services to which Defendant cites. In each case cited by Apex in support of
its argument, there existed, unlike here, an underlying contract amenable to performance.28
Moreover, as a FINRA member, Apex is barred, by rule, from utilizing its customer
agreement to contract itself out of liability. (Section D1infra). And, notably, Apex did not provide
any examples of the economic loss rule barring claims against broker dealers in Texas (or New
York) for misdeeds amounting even remotely related to Apex’s alleged misdeeds.
5.
Apex Breached its Tort Duty To Plaintiffs

Having sold shares of the stocks to Plaintiffs, pursuant to its three-way customer
agreement, rendering the Plaintiffs Shared Customers as between itself and the Introducing
Brokers, Apex breached its duty of care to Plaintiffs by taking the draconian and unprecedented
action of suspending purchases, but not sales, of those very same securities for hours with the
express purpose of driving down the price of those securities.

What makes this breach even more devastating is that Apex knew up front that there was
no reason that could possibly justify the Market Suspension, and then persisted in maintaining the
Market Suspension for hours despite being specifically informed by the regulators that there would
be no large collateral increase, which was the ostensible reason for Apex’s implementation of the
Market Suspension.
The events of January 28th place Apex on the horns of a dilemma, the response to which
only support Plaintiffs’ allegations. Either Apex was concerned or was not concerned that it would
be able to satisfy an increased collateral requirement on January 28th.
If it did not have such concern, as its President claimed, stating that Apex had “headroom
in terms of the capital available to us on our balance sheet” and “lines of credit that we can call on
as needed,” (AC ¶87) then Apex had no justification for engaging in the unprecedented, unilateral,
one-way trading halt. Such an unjustified trading halt was in violation of Apex’s duty of care as
reflected by the rules and customs of the securities industry described herein and pled.

28 Def. Mem. at 24 LAN/STV, 435 S.W.3d at 236, 248 (“The issue in this case is whether the rule
permits a general contractor to recover the increased costs of performing its construction
contract”; “In fact, construction disputes ... are good candidates for precluding recovery under
the ‘economic loss’ rule, because the parties are in a position to protect themselves through
bargaining.); Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex.1986) (case involves
the sale and construction of a house).
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If Apex was concerned about satisfying its collateral requirements on January 28th, as it
told regulators (AC ¶¶ 4, 80), and as it argues here (Def. Mem. at 1) then Apex breached its duties
to Plaintiffs in several ways. As Plaintiffs allege, Apex had no plan in place to address DTCC’s
request for additional collateral on January 28th (AC ¶ 68) despite its obligation to maintain
sufficient liquidity to satisfy its regulatory “net capital” requirement (AC ¶ 40) and despite it being
foreseeable that Apex’s collateral requirement would increase as the events leading up to January
28th unfolded. AC ¶¶ 34-39. Defendant’s Memorandum does not reference or explain any plan to
address its collateral requirements that week. This was a breach of Apex’s duties.
Then, assuming that Apex learned for the first time of an increased collateral requirement
on the morning of January 28th, it was a breach of Apex’s duty of care to implement the
consequential, unprecedented, unilateral one-way trading halt without at least exploring an
alternative mechanism by which it could satisfy its collateral requirement. Moreover, Apex itself
provides the impetus for the accusation of misconduct by taking the position that once it was
informed by DTCC that the collateral requirement was lower, and at an acceptable amount that
would not require it to suspend trading, it could not lift the self-imposed trading restriction without
confirming the lower number with DTCC. AC ¶ 79; Def. Mem. at 9. This position, of course, begs
the question as to why Apex needed to confirm the lower number with DTCC before lifting the
suspension, but Apex did not bother to even attempt to confirm the higher number with DTCC,
which Apex supposedly did not anticipate, before implementing the Market Suspension. Id. This
failure on Apex’s part to confirm the higher number and at least attempt to first negotiate with
DTCC is striking in light of the fact that brokers such as Apex should have known that the
regulators had the rules-based power to waive the additional collateral that was indicated as a result
of market volatility, as in fact was done here. See fn. 30, infra. Under Apex’s own reasoning, a
reasonable response to the higher collateral number DTCC initially demanded would have been to
confirm that higher number, first received at 9:30 a.m. (ET) before taking the unprecedented,
unilateral action of halting one-sided trading two hours later at 11:31 a.m. (ET) that caused
tremendous damage to Plaintiffs and the class. AC ¶¶ 77-79, 110. Then, as Plaintiffs allege, even
after Apex did confirm the lower collateral number with DTCC at 11:47 a.m. ET/10:47 a.m.
Central (AC ¶ 82, and Safirstein Decl, Ex. 2) as demonstrated by documents produced by DTCC,
Apex continued to impose its unprecedented, unilateral one-sided traded halt until 2:55 p.m. ET/
1:55 p.m. Central. The trading halt continued for approximately three hours with no justification
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whatsoever. Apex breached its duties of care to Plaintiffs with its unprecedented, unilateral, one-
sided, foreseeably harmful and unjustified Market Suspension.
Apex disputes Plaintiffs timeline by offering an email plucked from a larger chain
ostensibly showing that “at 12:20 p.m. ET, that Apex implemented its trading restrictions in
response to collateral requirements communicated from NSCC and that Apex actively was
working with the DTCC to find “solutions” for customers. Pace Decl. Ex. 10 (APEX-
MDL00002375–377 at 376).” Def. Mem. at 9, 20. However, read contextually within the string
of emails now referenced by Apex, those emails not only are harmful to Apex’s defense, they are
devastating. First, with regard to the email Apex cites, it selectively quotes from an email that
refers to internal talking points (“The message back to the client is…).” But, for argument’s sake,
let’s afford Apex every affirmative inference that can be drawn from this email (although, as a
matter of law Apex is entitled to no such inference). While these emails refer to a customer’s
complaint regarding Apex’s Market Suspension, referenced in the Amended Complaint at
Paragraph 76, Apex senior Executive William Brennan (AC ¶¶ 10, 90) states in the email
immediately following the email that Apex cites to in the chain, “[w]e are opening back up
shortly..go ahead and give them clearance.” (Opening up email”) Pace Decl. Ex. 10 (APEX-
MDL00002375–377 at 375-376). The plain meaning of this email is that at the time it was sent,
Apex already knew that it was going to lift the Market Suspension – and – it was giving preferential
treatment to the customer in question as they were apparently to be given clearance prior to the
lifting of the suspension. The Apex exhibit (10) shows a time sent of 11:08 a.m. Since Apex
regularly conflates time zones in its production, (see Pace Decl. Ex. 6 compared with Pace Decl.
Ex. 2; see also Pace Decl. Ex. 10), but blames Plaintiffs for any confusion, one is left to use best
estimates as to which time zone is reflected in the email chain produced as Apex Exhibit 10. Based
on the two emails following the Opening up email, and the preceding email, it appears likely that
the Opening up email was sent at 1:08 p.m. ET. Given Apex’s representation that they in fact
lifted the Market Suspension at 2:55 pm. ET (AC ¶ 79; Def. Mem. at 20), this would mean that
Apex dithered for at least one hour and forty seven minutes between knowing that it was going to
lift the Market Suspension and lifting the Market Suspension. We say “at least” because Apex
obviously knew before Mr. Brennan sent his email that Apex would lift the Market Suspension.
Such dithering by a major market player such as Apex with one hundred captive Introducing
Broker-Dealers strangled by its unprecedented one-way Market Suspension, and thousands of
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customers, direct and Shared, adversely affected by its actions, is the definition of negligence. If,
in the event Apex replies with evidence that it has yet failed to produce that the 11:08 a.m. time
on the Opening up email translates into 2:08 p.m. E.T., then taking into account that the Apex
learned earlier that it was going to lift the Market Suspension, it still negligently dithered for
approximately one hour – multiple lifetimes in the world of securities trading.
Moreover, contrary to Apex’s protestations, there is nothing ministerial about shutting
down a controlled trading platform so that thousands of investors (if not more) could not purchase
certain securities as evidenced by the communication Apex sent to its Introducing Broker-Dealers
at 10:30:40 a.m. Central:
EMERGENCY NOTICE: GME, AMC, and KOSS Liquidations Only
Apex would like to inform you that the below listed stocks should be
liquidation only on your systems whether proprietary or through a 3rd party.
This would include both equities and all option series, most importantly the
January 29th 2021 expiration. These positions have been previously set at
100% margin and will continue for the foreseeable future. GME: GameStop
AMC: AMC Entertainment KOSS: Koss Corp. Please note that there might
be additional securities added to this restriction list before market close today,
additional messages may follow. If you have any questions please contact our
Risk
Department
(risk@apexclearing.com),
or
your
Client
Partner/Relationship Manager. Thank you, Apex Clearing Corporation

AC at ¶ 78.
Apex’s breach of its duties of care is further confirmed by the facts that: 1) its own captive
Introducing Brokers criticized Apex for the Market Suspension (AC ¶ 75); 2) other than
Robinhood, no other broker-dealer, or clearing broker-dealer, engaged in a similar one-sided
trading halt, even though the SEC confirms that 18 brokerage houses received similar special
DTCC charges (AC ¶¶ 92-93)29; 3) facing similar market circumstances the very next day, Apex

29 As the SEC confirmed, “[o]n January 27, 2021, in response to market activity during the trading
session, NSCC made intraday margin calls from 36 clearing members totaling $6.9 billion,
bringing the total required margin across all members to $25.5 billion. Of the $6.9 billion, $2.1
billion were intraday mark-to-market calls, while the remaining $4.8 billion was a special ECP
charge. Specifically, NSCC observed unusual volatility in certain securities, including GME,
which presented heightened risk to the clearinghouse and its members.86 As a result, it calculated
and assessed against certain affected members the remaining $4.8 billion as an additional special
charge pursuant to its established rules. PPP NSCC imposed this charge on 18 members, all of
whom provided the additional margin. NSCC subjected one additional member to the special
charge, but that member ultimately did not have to meet that charge after offsetting its exposure
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opted to avoid imposing the unprecedented, unilateral one-sided trading halt (AC ¶ 90); 4) there
was a specific industry practice in place to address market volatility such as existed on January
28th that did not countenance the extreme actions taken by Apex, (AC ¶¶ 52-56); and 5) Apex
could have employed numerous mitigation strategies to minimize any perceived risk that did not
involve the Market Suspension such as tapping into available capital. (AC¶¶ 88-89).
To distract from Apex’s appalling misconduct, Apex invents “straw person” pleadings
suggesting that Plaintiffs have pled “duties” that Apex could not and did not breach. But Plaintiffs
do not allege any duty to “dicker,” “rush” or “supply infinite capital” and Apex’s entire analysis
on these points is irrelevant (Def. Mem. at 18-23) that Plaintiffs have already addressed. Plaintiffs,
as described above, have set forth Apex’s common law duty of care and how its unpreparedness
and dithering led Apex to take steps in breach of such duty. Apex’s limited duty here was to not
affirmatively harm Plaintiffs for its own financial benefit. See, supra, at Point III, Subd. D, subparts
1 through 4.
6.
The Complaint Properly Alleges that Apex’s
Actions Proximately Caused Plaintiffs’ Alleged Injury

Whether under New York or Texas law, Plaintiffs satisfy the “proximate cause” element
of their negligence claim by plausibly alleging that Defendant’s conduct was a substantial factor
in bringing about the harm or injury and that the harm was foreseeable . Hain v. Jamison, 28 N.
Y.3d 524, 528-29 ( 2016); Derdiarian v. Felix Contr. Corp., 51 NY2d 308, 315 (1980):Western
Investments Inc. v. Urena, 162 S.W.3d 547, 551 (Tex. 2005); Travis v. Mesquite, 830 S.W.2d 94,
98 (Tex. 1992). Plaintiffs need not exclude all possibilities, and need only demonstrate that the
greater probability is that the defendant’s conduct, either alone or together with the conduct of

with a transfer from an affiliate. In addition, several NSCC members were subject to an ECP charge
based on the ratio of the excess risk in their portfolios relative to their capital. Because these
members’ ratios of excess risk versus capital were not driven by individual clearing member
actions, but by extreme volatility in individual cleared equities, NSCC exercised its rules-
based discretion to waive the ECP charge for all members on January 28, 2021. Absent this
waiver, one retail broker-dealer would have had an additional ECP charge of more than double its
margin requirement of $1.4 billion on January 28, 2021…” SEC Report at 31. (emphasis added)

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others, was the cause of the harm. First Assembly Of God, Inc. v. Texas Utilities Elec. Co., 52 S.W.
482, 493 (Tex. 2001).
While a defendant will not be held liable as the proximate cause of the injury if the damage
caused by the defendant’s act was not foreseeable, foreseeability does not require anticipation of
the precise manner in which the injury will occur. Travis, 830 S.W.2d 94, 98; First Assembly Of
God, Inc., 52 S.W. 482, 493. The determination of proximate cause is generally left to the trier of
fact if a prime facie case is made, and is not decided as a matter of law unless only one conclusion
can be drawn from the established facts. Hain, 28 N.Y.3d at 528.

Here, the Amended Complaint alleges that “Apex caused the price of each of the
Suspended Stocks to go down and to trade at lower prices than they would have traded for absent
Apex’s misconduct,” and that “Apex’s decision to implement this unilateral one-way trading
suspension (halting of the buying, but not the selling) foreseeably impeded additional price
appreciation and suppressed the prices of the Suspended Stocks during and beyond the Class
Period causing ascertainable damages and injury.” AC ¶¶ 68, 70. Nothing more is required to
satisfy Plaintiffs’ pleading of proximate cause.
Apex argues that Plaintiffs fail to show more than what is required in pleadings. Def. Mem.
at 33-36. Evidence as to how Apex’s actions caused losses as compared with other actions taken
by other brokers, among other market factors is precisely the type of evidence that will be
developed with the assistance of experts. Contrary to Apex’s argument, Plaintiffs’ allegations are
not speculative and do not rely on clairvoyance or guessing. Def. Mem. at 34. The allegations
plainly state that Plaintiffs purchased securities and sold them on a date certain and at an amount
certain that was less than what Plaintiffs would have sold the securities for but for Apex’s
misconduct which foreseeably caused the harm. (AC ¶¶ 13-21; 68, 70). These allegations are text-
book proximate causation.
E. Plaintiffs State A Claim For Breach of Fiduciary Duty (Count II)

Plaintiffs have alleged in Count II that Apex breached fiduciary duties to both its Shared
Customers and to its direct broker-dealer customers. AC ¶¶ 114-121. In New York, “[i]n order to
establish a breach of fiduciary duties, a plaintiff must prove the existence of a fiduciary
relationship, misconduct by the defendant, and damages that were directly caused by the
defendant’s misconduct.” Kurtzman v. Bergstol, 835 N.Y.S. 2d 644 (2nd Dep’t 2007). A claim for
breach of fiduciary duty under Texas law requires the plaintiff to plead “(1) the existence of a
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fiduciary duty, (2) breach of the duty, (3) causation, and (4) damages.” First United Pentacostal
Church of Beaumont v. Parker, 514 kS.W.3d 214, 220 (Tex. 2017).” The existence of a fiduciary
relationship is a question of fact under both New York law, (see, EBC I v. Goldman Sachs & Co.,
5 N.Y. 3d 11, 19 (2005) and Texas law, (see, MacDonald v. Follett, 180 S.W. 2d 334 (1944)).
Plaintiffs have already set forth the facts and the law supporting the breach of fiduciary
claim as part of the duties owed by Apex that were breached as part of the negligence claim. See
supra Point III, Subd. D.
In short, Plaintiffs have alleged that Apex provided broker-dealer services to its direct
customers and clearing broker-dealer services to its Shared Customers. Apex, in breach of its
fiduciary duties took action against Plaintiffs and its other customers by implementing the Market
Suspension without valid justification and then persisted in the Market Suspension for a prolonged
period of time despite knowing that there was no justification for the Market Suspension. These
facts support an allegation of breach of fiduciary duty.
"A fiduciary relation exists between two persons when one of them is under a duty to act
for or to give advice for the benefit of another upon matters within the scope of the relation.").
Restatement (Second) of Torts § 874 cmt. a. Securities brokers stand in a fiduciary relationship
with their customers. Conway v. Icahn & Co., Inc. 16 F.3d 504, 510 (2d Cir. 1994) (“the
relationship between a stock-broker and its customer is that of principal and agent and is fiduciary
in nature, according to New York law (internal cites omitted).”); Gochnauer v. A.G. Edwards &
Sons, Inc., 810 F.2d 1042, 1049 (11th Cir. 1987) (“The law is clear that a broker owes a fiduciary
duty of care and loyalty to a securities investor.”). Texas law is similar. See In re Letterman Bros.
Energy Securities Litigation, 799 F.2d 967, 972 (5th Cir. 1986) (“A broker is within the category
of those who owe a special fiduciary duty to one who purchases securities from the broker or upon
the broker's advice.”); Magnum Corp. v. Lehman Bros. Kuhn Loeb, Inc., 794 F. 2d 198, 200 (5th
Cir. 1986) (“The relationship between a securities broker and its customer is that of principal and
agent.”).
An agent breaches a fiduciary duty to the principal and is liable for damages when the
agent’s lack of due professional care leads to the loss of his principal’s money. Thropp v. Bache
Halsey Stuart Shields, Inc., 650 F.2d 817 (6th Cir. 1981). “Since the fiduciary duties of a broker
[or financial advisor] include the duty to use the skill and diligence necessary to protect his
customer’s interests, negligent conduct may be a breach of fiduciary duty. In this regard, it is
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normally not sufficient for a broker to exercise ordinary care and judgment in discharging his
duties; he must employ such care, skill, prudence, diligence, and judgment as might be reasonably
expected of persons skilled in his calling.” Norman S. Poser, Broker Dealer Law and Regulation
(3rd Ed. 2002 Supplement). “From this quality follows that certain duties deemed fiduciary may
be associated with the broker's obligation to the client. These obligations may arise from and be
defined by agreements, by course of conduct or business dealings reflecting matters entrusted to
the broker, or by laws that specifically govern the relationship.” de Kwiatkowski v. Bear Stearns
& Co., Inc., 126 F. Supp. 2d 672, 693 (S.D.N.Y. 2000).
New York recognizes that brokers and customers may be in a fiduciary relationship even
if the account is nondiscretionary (meaning that the customer does not rely upon the broker to
make the securities trade on the customer’s behalf). See, e.g., de Kwiatkowski v. Bear, Stearns &
Co., 306 F. 3d 1293, 1302, 1305 (2d Cir. 2002) (“On a transaction-by-transaction basis, the broker
owes duties of diligence and competence in executing the client's trade orders…. No doubt, a duty
of reasonable care applies to the broker's performance of its obligations to customers with
nondiscretionary accounts.”); Press v. Chem. Inv. Servs. Corp., 166 F. 3d 529, 536 (2d Cir. 1999)
(broker's fiduciary duty is limited to the "narrow task of consummating the transaction requested");
Independent Order of Foresters v. Donald, Lufkin & Jenrette, Inc., 157 F. 3d 933, 940-41 (2d Cir.
1998) (in a nondiscretionary account, "the broker's duties are quite limited," including the duty to
obtain client's authorization before making trades and to execute requested trades); Schenck v.
Bear, Stearns & Co., 484 F. Supp. 937, 947 (S.D.N.Y. 1979) (noting that the "scope of affairs
entrusted to a broker is generally limited to the completion of a transaction").
Texas also recognizes that fiduciary duties extend to holders of non-discretionary
brokerage accounts. See, Martinez Tapia v. Chase Manhattan Bank, NA, 149 F.3d 404, 412 (5th
Cir. 1998) (“While the nature of the duty owed by a broker will vary depending on the relationship
between the broker and the investor, where the investor controls a nondiscretionary account and
retains the ability to make investment decisions, the scope of any duties owed by the broker will
generally be confined to executing the investor's order.”).
Apex’s unprecedented, unilateral, one-sided, consequentially harmful and unjustified shut
down qualifies as a breach of fiduciary duty.
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As discussed previously, clearing brokers may owe fiduciary duties to their customers as
well. See, Glob. Enterp. Grp. Holding, S.A., 2010 WL 11629556, at *5 (“where an agreement
exists between the clearing agent and investor, fiduciary duties may arise.”).
As the court noted in Global Enterp Group, in “extenuating circumstances,” where clearing
firms act beyond traditional ministerial clearing functions, “fiduciary duties may exist where a
clearing broker asserts control over the introducing broker's business, or becomes actively and
directly involved in an introductory broker's actions.” Id.; see also Stern v. Legent Clearing LLC,
No. 09-CV-0794, 2009 WL 2244616, at *3 (N.D. Ill. July 28, 2009).
Apex argues that as the Clearing Broker-Dealer it does not owe fiduciary duties to
Plaintiffs. Def. Mem. at. 25-26. But Plaintiffs have shown otherwise and Apex largely repeats its
earlier arguments and badly misstates the law. Apex notes that clearing firms are generally not
liable for the misdeeds of the introducing brokers, but Apex ignores that clearing firms are liable
for their own misdeeds. Their own legal citations say so. For example, Apex cites to Levitt v. J.P.
Morgan Sec., Inc., 710 F.3d 454, 465 (2d Cir. 2013) for the proposition that clearing brokers do
not owe common law duties to investors. Def. Mem. at 24. But Levitt fully supports clearing firm
liability here. Apex ignores the remainder of the Levitt opinion where the Court notes: “district
courts in this Circuit have distinguished two categories of cases. First, in cases where a clearing
broker was simply providing normal clearing services, district courts have declined to ‘impose []
liability on the clearing broker for the transgressions of the introducing broker.’…. In the second,
much more limited category of cases, district courts have found plaintiffs’ allegations to be
adequate – and so have permitted claims to proceed – where a clearing broker is alleged effectively
to have shed its role as clearing broker and assumed direct control of the introducing firm’s
operations and its manipulative scheme. (internal citations omitted).” Levitt, 710 F. 3d at 466.
Curiously, Apex argues that Apex was not Plaintiffs’ agent, Def. Mem. at 24-25, but Apex,
as alleged, facilitated each and every trade placed by Plaintiffs and Apex’s direct and Shared
Customers. AC ¶¶ 14, 18, 115, 116. Moreover, Apex itself supplied the standard Customer
Agreement which states that the customers’ transactions are cleared through Apex. See, Pace Decl,
Ex. 2.
Apex also cites Texas law for the proposition that Apex is not a public utility and does not
owe a duty of “constant availability. Def. Mem. at 16. But the relevant law is New York law, and
Apex once again makes up its own pleadings to suit its argument. There is no pleading of a
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generalized duty to accept any and all orders. Apex persists in ignoring that Plaintiffs’ allegations
are contextual, not general. The pleading is that under the circumstances, Apex breached its duties
to its direct and Shared Customers to whom it sold stock by its unprecedented, unilateral,
unwarranted, consequentially harmful one-sided shut down designed to financially harm its direct
and Shared Customers for its own financial gain. Such conduct was in breach of Apex’s fiduciary
duties to its direct and Shared customers.
F. Alternatively, Plaintiffs State A Claim For Breach of the
Implied Covenant of Good Faith and Fair Dealing (Count III)

Plaintiffs alternatively allege that Apex compelled Plaintiffs to enter into 3-way customer
agreements making each clearing customer a customer of the Introducing Broker and Apex in
connection with each transaction entered. AC ¶¶ 123-24. The customer agreement, in keeping
with all customer agreements, “imposes upon each party a duty of good faith and fair dealing in
the performance of the agreement such that neither party shall do anything which will have the
effect of destroying or interfering with the right of the other party to receive the benefits of the
agreement.” AC ¶ 125. Here, Apex directly interfered with the rights of Plaintiffs by selling them
securities (each purchase, by Apex’s admission, is made pursuant to the Customer Agreement) and
then taking steps to directly ensure that the price of those securities would go down by imposing
and then maintaining the Market Shutdown without justification. AC ¶ 127. As Plaintiffs further
allege, “[t]he implied covenant of good faith and fair dealing herein were not in conflict with the
express terms of the agreement and, in fact, were wholly consistent with both the terms of the
agreement and the intent of the agreement.” AC ¶ 126. Plaintiffs do not contest Apex’s ability to
refuse to sell shares in the abstract, but challenge the specific conduct employed here under these
limited circumstances.
Under New York law, "implicit in every contract is a covenant of good faith and fair
dealing…which encompasses any promises that a reasonable promisee would understand to be
included." Spinelli v. Nat'l Football League, 903 F.3d 185, 205 (2d Cir. 2018) (internal quotation
marks omitted). The implied covenant of good faith and fair dealing includes a promise that
"neither party to a contract shall do anything that has the effect of destroying or injuring the right
of the other party to receive the fruits of the contract, or to violate the party's presumed intentions
or reasonable expectations." Id. (internal quotation marks and brackets omitted). Texas law
generally does not recognize an implied covenant of good faith and fair dealing in every contract,
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but does recognize that a duty of good faith and fair dealing may arise as a result of “a special
relationship between the parties.” Arnold v. Nat’l County Mut Fire Ins. Co., 725 S.W.2d 165, 167
(Tex. 1987). The circumstances here present just such a “special relationship.” Moreover, under
conflict of law principles, New York law applies here to this supposed “contract” claim – although
a tort claim – in that FINRA members such as Apex are prohibited from using contractual choice
of law provisions to the detriment of its customers (cite from above).
In contesting Plaintiffs’ allegations, Apex challenges Plaintiffs supposedly conclusory
allegation “that Apex had the ‘intent of causing the trading price of the Suspended Stocks to go
down.’” AC ¶ 12730. Def. Mem. at 28. But Apex itself admitted to the regulators (and to this Court)
that it engaged in the Market Suspension to suppress the price of the Suspended Stocks. See, Pace
Decl. Ex. 1 at p. 731
G. Plaintiffs Have Properly Stated An Alternative Claim
for Tortious Interference With Business Relationship (Count IV)

Plaintiffs allege, alternatively, that Apex tortiously interfered with Plaintiffs’ business
relationship with the Introducing Brokers in shuttering the Introducing Brokers’ trading platform
for hours so as to prohibit purchases of the Suspended Stocks. AC ¶¶ 128-136. Plaintiffs satisfy
the elements required to plead such claims by alleging the existence of an ongoing business
relationship, tortious interference with said relationship, causation and damages.
Plaintiffs have pled that by directing the shutdown of the Introducing Broker’s trading
platform, Apex engaged in “wrongful conduct” by preventing Plaintiffs and members of the Class
from being able to purchase the Suspended Stocks from the Introducing Brokers. That claim has
been found to be viable under New York law by the New York Court of Appeals in Carvel Corp.
v. Noonan, 3 N.Y.3d, 182, 189 (2004). (“We have recognized that inducing breach of a binding
agreement and interfering with a nonbinding "economic relation" can both be torts.”). In
considering a tortious interference claim, alleging unlawful interference with the relationships

30 See also AC ¶¶ 68,70
31 “Apex took these steps to manage the risk that it would not be able to meet potential increased
NSCC collateral funding obligations if Apex clients were permitted to continue to engage in
additional purchases of AMC, GME and KOSS - thereby potentially further increasing Apex's
clearing deposit requirement to NSCC. NSCC intraday margin increase as of 10:00 a.m. ET on
AMC and GME alone went from 25% and 0% of market value to 118% and 78.3% of market
value, respectively. Meaning that for every $1.00 of AMC purchased by an end customer, Apex
was required to deposit $1.18 with NSCC.”
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between franchisees and their customers, the Carvel Court found in responding to a certified
question from the Second Circuit, following a jury trial, that “Carvel's conduct, which did not
constitute a crime or an independent tort and was not aimed solely at harming franchisees, was
also not the sort of egregious wrongdoing that might support a tortious interference claim in the
absence of such an independently unlawful act or evil motive.” Carvel Corp., 3 N.Y.3d at 188.

However, here Apex is charged with not one, but two independent torts – negligence and
breach of fiduciary duty. Accordingly, a jury could find liability for tortious interference.32
Texas also recognizes a cause of action for tortious interference with business relations.
This tortious interference occurs when there is an unjust act by “someone” getting in the way of
business dealings with another party. First Nat. Bank of Eagle Pass v. Levine, 721 S.W.2d 287
(1986) (explaining that the tort is rooted in common law “trespass” jurisprudence). While Texas
law is more developed for tortious interference with contractual rights, Texas law also recognizes
that tortious interference can occur with an unenforceable contract (as Plaintiffs allege, AC ¶ 116).
Clements v. Withers, 437 S.W. 2d 818, 821 (Tex. 1969) (“the unenforceability of a contract is no
defense to an action for tortious interference with its performance.”). Here, Plaintiffs do not allege
that the “customer agreement” is an enforceable contract, but it does set out “legal rights” (AC ¶¶
129-130; Pace Decl. Ex. 2) that form the basis of a relationship between the Introducing Brokers
and Plaintiffs that Apex tortiously interfered with by instructing them to shut down trading on one
side for an improper motive.
Apex, in its defense, harps on the fact that liability for this tort is predicated on “willful
and intentional” interference. Def. Mem. at 31. But Plaintiffs’ alternative pleading alleges that
Apex acted “willfully and intentionally” in connection with the Market Suspension “forcing
those stock prices to diminish. AC ¶133. This is actionable interference.
H. Plaintiffs State Law Claims Are Not Preempted By Federal Securities Laws

32 The Court of Appeals explicitly left open the question as to whether the type of conduct engaged
in by Apex rises to the level of culpable conduct. (“We did not decide in Guard-Life or NBT, and
we do not decide today, whether any other exception to the general rule exists — whether there
can ever be other instances of conduct which, though not a crime or tort in itself, was so "culpable,"
to use NBT's word, that it could be the basis for a claim of tortious interference with economic
relations. That is a question we leave for another day, because no such egregious conduct was
shown here.” Carvel Corp., 3 N.Y.3d at 190-91.

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Apex’s preemption claims arise from yet another mischaracterization of its role. Apex is
a clearing broker-dealer, not a clearinghouse, and it is named as a defendant as a broker-dealer.
Apex is not DTCC and Apex is not a self-regulatory organization (“SRO”) that serves as a “quasi
–governmental agency” in the exercise of “delegated government power” that would be entitled to
preemption.33 Apex itself never claims to be an SRO. Apex’s attempt to bootstrap itself into the
legal protections afforded to an SRO is an overreach34 and its bottom-line proposition that
“complying with Plaintiffs’ proposed standard of care while complying with Apex’s regulatory
obligations…would be impossible”35 is simply wrong.
As alleged, Apex was unprepared to address its collateral requirements on January 28, 2021
and wrongfully implemented and persisted in the Market Suspension despite knowing there was
no settlement risk. This litigation does not challenge DTCC’s ability to set collateral requirements.
No other broker-dealer on January 28th (clearing or otherwise, except for Robinhood) found it
“impossible” to balance its duties of complying with their regulatory obligations and protect the
interests of investors. (AC ¶¶ 92-93; See, SEC Report at 31).
Moreover, any protections that are afforded to SRO’s do not extend to broker-dealers that
abuse their roles and commit misconduct. That is why clearing broker-dealers are historically
liable for their own misdeeds.
I. Plaintiffs’ Claims Are Viable As Pleaded on Behalf of Apex’s Shared
Customers and Investors Who Were Foreseeably Harmed by Apex

33 Apex’s reliance on In re Series 7 Broker Qualification Exam Scoring Litig., 510 F. Supp. 2d
35, 47 (D.D.C. 2007), aff’d, 548 F.3d 110 (D.C. Cir. 2008) is misplaced. That case stands for the
inapplicable proposition that SRO’s such as NASD (now FINRA) and DTCC have immunity.
Def. Mem. at 47. See also, MM&S Fin., Inc. v. Nat’l Ass’n of Sec. Dealers, Inc., 364 F.3d 908,
911 (8th Cir. 2004) (same).

34 Apex wrongly argues that SRO preemption “applies equally to Apex and disallows common
law claims to enforce regulatory obligations imposed on it through an SRO” citing to Appert v.
Morgan Stanley Dean Witter, Inc., 2009 WL 3764120, at *4 (N.D. Ill. Nov. 6, 2009), aff’d, 673
F.3d 609 (7th Cir. 2012). Def. Mem. at 43. But Apex cannot step into the shoes of an SRO and
Appert does not even address preemption other than in the context of SLUSA, irrelevant here,
and is otherwise limited to the unremarkable and irrelevant holding that an investor cannot
sustain a breach of contract claim against a broker-dealer for a violation of an exchange rule.

35 Def. Mem. at 43.
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Defendant asserts that the tort claims of Plaintiffs can only be asserted for those investors
whose introducing brokers cleared through Apex. However, Plaintiffs’ have plausibly pled that
Defendant’s misconduct that gives rise to recovery under common law tort also proximately
caused harm to Apex’s direct customers and to all investors nationwide who fit within the proposed
class definition. AC ¶ 98. Apex’s misconduct was not limited in scope and foreseeably caused
harm to all members of the putative class. While Plaintiffs have already demonstrated that Apex
owed duties to its customers, Apex was not and should not be free to cause consequential damage
to all investors as a result of its appalling misconduct that foreseeably affected the price of the
Suspended Stocks – no matter who held them.
The law is clear that a corporation owes duties to and may be held accountable for its
misconduct to non-customers. See, In re Equifax, Inc. Customer Data Sec. Breach Litig., 362
F.Supp.3d 1295, 1325 (N.D. Ga. 2019) (non-customer consumers, in putative class action,
sufficiently alleged that consumer reporting agency owed a legal duty to them to take reasonable
precautions to safeguard the personal information in its custody, as required to state negligence
claim against the agency and affiliated entities, arising from data breach in which personal and
financial information of millions of Americans was potentially stolen where consumers alleged
that agency knew of a foreseeable risk to its data security systems but failed to implement
reasonable security measures).
Apex’s Market Suspension foreseeably caused the Suspended Stocks to decrease in value,
causing injury to investors in those Suspended Stocks, not limited to the direct customers and
Shared Customers.

In Equifax, the Court relied, in part, on Bradley Center, Inc. v. Wessner.36 In Wessner, a
man who voluntarily committed himself to a psychiatric hospital made statements to the hospital's
staff that he desired to harm his wife. Despite these statements, the man was issued a weekend pass
by the staff, and he subsequently obtained a gun, confronted his wife and another man, and killed
them both. The Georgia Supreme Court concluded that the hospital owed a duty of care to the
man's wife. The court explained that “[t]he legal duty in this case arises out of the general duty
one owes to all the world not to subject them to an unreasonable risk of harm. This has been

36 Bradley Center, Inc. v. Wessner, 250 Ga. 199, 200-201, 296 S.E.2d 693, 695 (Ga. Supreme
Court 1982), disapproved of in Dept. of Labor v McConnell, 305 Ga. 812, 828 S.E.2d 352
(2019).
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expressed as follows: ‘... negligence is conduct which falls below the standard established by law
for the protection of others against unreasonable risk of harm.’ Restatement, Torts, 2d, § 282.”
Wessner at 200-201.

In the case of Apex, the regulatory duty to put sufficient measures in place to continue to
maintain an orderly market is undisputed and affected more than just customers of Apex and the
Apex Introducing Broker-Dealers. As set forth in the Complaint, “contrary to governing industry
rules and regulations aimed at addressing market volatility,” Apex had a duty of care as a registered
broker-dealer and “Apex failed to take reasonable steps to protect its customers and investors in
times of market volatility. As alleged herein, Apex failed to adequately mitigate risk and knew or
should have known that the abruptly implemented, one-way trading suspension it imposed directly
and through its Introducing Broker-Dealers would and did harm Apex customers and investors.”
AC ¶ 5.
IV. SHOULD THE COURT DISMISS THE
COMPLAINT IN WHOLE OR IN PART,
LEAVE SHOULD BE GRANTED TO REPLEAD
While Plaintiffs believe that their well-pled Complaint should be sustained, should the
Court disagree, Plaintiffs seek an opportunity to amend.
V. CONCLUSION
For all of the reasons stated herein, Apex’s Motion To Dismiss should be denied.
Dated: July 6, 2022

/s/Rachel W. Furst

GROSSMAN ROTH YAFFA COHEN, P.A.
Rachel W. Furst (FBN 45155)
2525 Ponce de Leon Blvd., Ste 1150
Coral Gables, FL 33134-6040
Tel: 305-442-8666
rwf@grossmanroth.com

Plaintiffs’ Liaison Counsel

/s/ Peter Safirstein

SAFIRSTEIN LAW LLC
Peter Safirstein (NY SBN 2044550)
Case 1:21-md-02989-CMA Document 494 Entered on FLSD Docket 07/06/2022 Page 60 of 62

45 N. Broad Street
Suite 100
Ridgewood, NJ 07450
Tel: (917) 952-9458
psafirstein@safirsteinlaw.com

Plaintiffs’ Lead Counsel for the
Other Broker Tranche

s/ Gary S. Graifman

KANTROWITZ, GOLDHAMER
& GRAIFMAN, P.C.
By: Gary S. Graifman
Daniel E. Edelman
135 Chestnut Ridge Road
Montvale, New Jersey 07645
Tel:
(201) 391-7000
ggraifman@kgglaw.com
dedelman@kgglaw.com

Additional Plaintiffs’ Counsel for the
Other Broker Dealer Tranche

Case 1:21-md-02989-CMA Document 494 Entered on FLSD Docket 07/06/2022 Page 61 of 62

Certificate of Service

I HEREBY CERTIFY that, on July 6, 2022, I electronically filed the foregoing document
with the Clerk of the Court using the CM/ECF filing system. I further certify that Plaintiffs’
opposition to Defendant’s motion was served on all counsel of record via transmission of the
Notice of Electronic Filing generated by the Court’s CM/ECF System.

/s/ Gary S. Graifman

Gary S. Graifman
Case 1:21-md-02989-CMA Document 494 Entered on FLSD Docket 07/06/2022 Page 62 of 62

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Defendant’s Motion to Dismiss

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