Submitted: December 12, 2017
Appeals from United States District Court for the District of
Nebraska - Omaha
WOLLMAN, LOKEN, and MELLOY, Circuit Judges.
WOLLMAN, Circuit Judge.
Zola and Jeremiah Joseph Lowney (collectively, Zola), Tyler
Verdieck, and Michael Sarbacker filed separate class-action
complaints against TD Ameritrade, Inc., alleging various
state-law claims. The complaints alleged that TD Ameritrade
breached its duty of best execution when it routed client
orders to buy and sell securities to trading venues that paid
TD Ameritrade top dollar for its order flow. The district
court dismissed the complaints for failure to
state a claim after concluding that the claims were precluded
by the Securities Litigation Uniform Standards Act of 1998
(SLUSA). See 15 U.S.C. § 78bb(f)(1). Having
reviewed the dismissal de novo, we affirm. See
Lewis v. Scottrade, Inc., 879 F.3d 850, 851 (8th Cir.
2018), deadline for filing petition for cert. extended to
May 9, 2018, (standard of review).
Ameritrade provides brokerage services to retail investors.
Its clients place orders to buy and sell securities with TD
Ameritrade, which then directs the orders to trading venues
that execute the transactions. The plaintiffs alleged that TD
Ameritrade failed to direct client orders to the trading
venues that offered the "best execution" possible
for the order-that is, the best price, speed of execution,
and likelihood that the trade would be executed. TD
Ameritrade instead directed the orders to the trading venues
that were willing to pay TD Ameritrade "kickbacks,
" i.e., rebates or payments for order flow.
to the plaintiffs, those trading venues catered to
high-frequency traders, which use sophisticated algorithms,
advanced technology, and physical proximity to stock exchange
servers to quickly detect and trade on subtle market signals.
For example, Zola alleged that high-frequency traders engage
in a practice called "electronic front-running, "
Zola Compl. ¶ 11, "meaning that they detect
patterns involving large incoming trades, and then execute
their own trades before those incoming trades are completed,
" Waggoner v. Barclays PLC, 875 F.3d 79, 86 (2d
Cir. 2017), petition for cert. filed, 86 U.S.L.W
3455 (U.S. Feb. 26, 2018) (No. 17-1209). This practice
"results in the incoming trades being more costly or
less lucrative for the individuals or institutions making
them." Id. at 86-87. Similarly, Verdieck and
Sarbacker alleged that TD Ameritrade directed non-marketable
limit orders to Direct Edge, which then executed those orders
more slowly and at a less competitive price than the orders
of the high-frequency traders.
and Sarbacker alleged that TD Ameritrade breached its uniform
client agreement when it failed to consider certain factors
in deciding where to direct client orders and instead
considered only the trading venues that were willing to pay a
premium for TD Ameritrade's order flow. Sarbacker also
alleged claims of fraud, negligent misrepresentation,
violations of the Nebraska Consumer Protection Act, and
aiding and abetting. Verdieck alleged that TD Ameritrade
breached its fiduciary duty of best execution by directing
non-marketable limit orders to Direct Edge. The three
complaints involve similar factual allegations: that TD
Ameritrade devised a scheme to maximize its receipt of
rebates and payments at the expense of its clients by
knowingly routing orders to trading venues where
high-frequency traders could manipulate and exploit the
slower execution of TD Ameritrade's client orders. Those
trading venues paid TD Ameritrade handsomely for its order
flow. According to Zola's complaint, for example, the
three trading venues to which TD Ameritrade directed more
than 90 percent of its orders from 2011 through 2013 paid
more than $600 million for the order flow. Zola, Verdieck,
and Sarbacker claim as damages those rebates or payments that
TD Ameritrade received.
passed the Private Securities Litigation Reform Act (PSLRA)
in 1995 to curb "perceived abuses" of federal
class-action securities litigation by imposing special
requirements and obstacles on plaintiffs filing such actions.
Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Dabit, 547 U.S. 71, 81 (2006). Plaintiffs responded to
the PSLRA by bringing "class actions under state law,
often in state court, " in an attempt to "avoid the
federal forum altogether." Id. at 82.
Accordingly, Congress enacted SLUSA in 1998 to close the gap
in PSLRA coverage and "prevent certain State private
securities class action lawsuits alleging fraud from being
used to frustrate the objectives of" the PSLRA.
requires the district court to dismiss any "covered
class action" in which the plaintiff alleges "a
misrepresentation or omission of a material fact in
connection with the purchase or sale of a covered
security" or "that the defendant used or employed
any manipulative or deceptive device or contrivance in
connection with the purchase or sale of a covered
security." 15 U.S.C. § 78bb(f)(1). It is undisputed
that the complaints here alleged "covered class
actions" and that the transactions at issue involved
recent decision in Lewis v. Scottrade, Inc., 879
F.3d 850 (8th Cir. 2018), guides our analysis in this case.
In Lewis, we addressed the two issues presented in
these consolidated appeals: whether the complaints alleged
(1) "a misrepresentation or omission" or "a
manipulative or deceptive device or contrivance" that
was (2) "in connection with the purchase or sale of a
covered security." Id. at 852. Lewis's
complaint alleged that he had placed non-directed standing
limit orders through the broker Scottrade, which violated its
duty of best execution by routinely routing such orders to
trading venues that paid it large rebates. Lewis pleaded only
state-law claims, ...