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Fleming v. The Charles Schwab Corp.

United States Court of Appeals, Ninth Circuit

December 29, 2017

Francis X Fleming, Jr., Plaintiff-Appellant,
v.
The Charles Schwab Corporation; Charles Schwab & Co., Inc.; Walter W. Bettinger II; UBS Securities LLC, Defendants-Appellees. Louis Lim, Individually And On Behalf Of All Others Similarly Situated, Plaintiff-Appellant,
v.
Charles Schwab & Co., Inc., Defendant-Appellee.

          Argued and Submitted October 18, 2017 San Francisco, California

         Appeal from the United States District Court for the Northern District of California Richard Seeborg, District Judge, Presiding D.C. Nos. 3:15-cv-02945-RS, 3:15-cv-02074-RS

          Andrew Love (argued) and Susan K. Alexander, Robbins Geller Rudman & Dowd LLP, San Francisco, California; Juan Carlos Sanchez, Ashley M. Price, Benny C. Goodman III, and Andrew J. Brown, Robbins Geller Rudman & Dowd LLP, San Diego, California; Gerald L. Rutledge and Alfred G. Yates Jr., Law Office of Alfred G. Yates Jr. P.C., Pittsburgh, Pennsylvania; for Plaintiff-Appellant Francis X Fleming Jr.

          Leslie E. Hurst (argued), Paula R. Brown, Thomas J. O'Reardon II, and Timothy G. Blood, Blood Hurst & O'Reardon LLP, San Diego, California; Leonid Kandinov, Ashley R. Rifkin, Kevin A. Seely, and Brian J. Robbins, Robbins Arroyo LLP, San Diego, California; David J. Harris Jr., William R. Restis, and Jeffrey R. Krinks, Finkelstein & Krinsk LLP, San Diego, California; for Plaintiff-Appellant Louis Lim.

          David C. Bohan (argued), Patrick M. Smith, Peter G. Wilson, and Allison M. Freedman, Katten Muchin Rosenman LLP, Chicago, Illinois, for Defendant-Appellee UBS Securities LLC.

          Gilbert R. Serota (argued) and Erica M. Connolly, Arnold & Porter LLP, San Francisco, California; Lowell Haky and Mai Klaassen, Charles Schwab & Co. Inc., San Francisco, California; for Defendants-Appellees The Charles Schwab Corp., Charles Schwab & Co. Inc., and Walter W. Bettinger II.

          Before: Sandra S. Ikuta and Andrew D. Hurwitz, Circuit Judges, and Donald W. Molloy, [*] District Judge.

         SUMMARY [**]

         Jurisdiction / Securities Litigation Uniform Standards Act

         The panel affirmed the district court's dismissal of putative class actions because the Securities Litigation Uniform Standards Act ("SLUSA") deprived the court of subject matter jurisdiction.

         Plaintiffs are Charles Schwab Corporation retail customers who alleged a breach by a securities dealer of the "duty of best execution" in completing trades. Schwab is a financial services firm that trades securities for its clients, and in 2004 it agreed to route 95% of its "non-directed trades" to UBS Securities LLC. Plaintiffs alleged that Schwab breached various state-law duties by routing trades to USB.

         SLUSA bars jurisdiction over any claim that could give rise to liability under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, even if the alleged conduct also gives rise to a state-law cause of action.

         The panel held that the plaintiffs had Article III standing. The panel held that the complaints alleged both particularized and concrete injuries - higher execution prices than might have occurred with a different market center, and thus the complaints alleged the required injury in fact.

         The panel held that plaintiffs' claims were barred by SLUSA. Specifically, the panel held that all of plaintiffs' pleaded causes of action alleged deceptive conduct actionable under federal securities law. The panel also held that the challenged conduct occurred "in connection with the purchase or sale of" a security. The panel further held that plaintiff Francis Fleming's claims against UBS pleaded a "manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security, " and was SLUSA-barred.

          OPINION

          HURWITZ, CIRCUIT JUDGE:

         The issue for decision is whether the Securities Litigation Uniform Standards Act ("SLUSA"), Pub L. 105-353, 112 Stat. 3227, deprived the district court of subject matter jurisdiction over complaints alleging a breach by a securities dealer of the "duty of best execution" in completing trades. The district court dismissed the appellants' complaints pursuant to SLUSA. We affirm.

         I. Background

         Charles Schwab Corporation is a financial services firm that trades securities for its clients. In 2004, Schwab agreed to route 95% of its "non-directed trades" (trades for which clients have not selected another trading venue) to UBS Securities LLC ("UBS").

         Louis Lim and Charles Fleming ("Plaintiffs") are Schwab retail customers. Their Account Agreements state that "Schwab routes equity and options orders for execution to" UBS and note that "Schwab may receive remuneration . . . from a market center to which orders are routed." Nonetheless, Plaintiffs alleged in separate complaints that Schwab breached various state-law duties by routing trades to UBS. Plaintiffs claimed that Schwab could have routed trades to many other venues, and that its arrangement with UBS sometimes resulted in unfavorable executions, both in terms of price and speed.

         A. The Complaints

         On May 8, 2005, Lim filed a putative class action complaint in the Northern District of California alleging that Schwab's routing of order executions to UBS (1) violated the California Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200; (2) breached Schwab's fiduciary duty to its clients; and (3) unjustly enriched Schwab. Lim alleged that Schwab's common law "duty of best execution in routing its clients' orders" required Schwab to consider numerous factors when routing client trades, including "execution price, market depth, order size, ...


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