Eighth Circuit, Applying Lewis V. Scottrade, Dismisses State Law Claims Under SLUSA

On May 10, 2018, the Unites States Court of Appeals for the Eighth Circuit affirmed the dismissal of putative class actions against TD Ameritrade, Inc. and certain related entities and individuals, asserting violations of various state laws including breach of defendant's uniform client agreement, fraud, negligent misrepresentation, breach of fiduciary duty, and violations of the Nebraska Consumer Protection Act. Zola v. TD Ameritrade, Inc., No. 16-3016 (8th Cir. May 10, 2018). Plaintiffs alleged that defendant failed to direct its retail clients' securities orders to trading venues that offered the best price, speed of execution, and likelihood of execution; instead, it allegedly directed orders to venues that catered to high-frequency traders who also paid defendant rebates for order flow. Slip op. at 3. The Court held that the “best execution” allegations were effectively claims of misrepresentations or omissions in connection with the purchase or sale of covered securities and were therefore precluded by the Securities Litigation Uniform Standards Act (“SLUSA”).

The Eighth Circuit's analysis was guided by its January 2018 ruling in Lewis v. Scottrade, Inc., 879 F.3d 850 (8th Cir. 2018) (See U.S. Courts Of Appeals For The Eighth And Ninth Circuits Each Rules That SLUSA Precludes Alleged Violations Of State Laws Based On Breach Of Duty Of Best Execution, https://www.lit-sl.shearman.com/us-courts-of-appeals-for-the-eighth-and-ninth-cir), which had similarly addressed state-law claims based on a defendant's failure to deliver best execution on client trades. The Lewis Court concluded that SLUSA barred state-law claims where the complaint alleges (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.”

In Zola, it was undisputed that the complaints allegedcovered class actions and that the transactions involvedcovered securities under SLUSA. The Court rejected certain plaintiffs' attempt to distinguish Lewis by arguing that their complaints did not allege a misrepresentation or omission of a material fact or the use or employment of any manipulative or deceptive device or contrivance. Slip op. at 6. The Court held that, while the complaintscarefully avoided … words like misrepresentation...

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