Krukever v. TD Ameritrade, Inc.
| Decision Date | 05 October 2018 |
| Docket Number | CASE NO. 18-21399-CIV-ALTONAGA/Goodman |
| Citation | 337 F.Supp.3d 1227 |
| Parties | Diego KRUKEVER, et al., Plaintiffs, v. TD AMERITRADE, INC., et al., Defendants. |
| Court | U.S. District Court — Southern District of Florida |
Francisco Ramon Rodriguez, Rodriguez Tramont & Nunez, P.A., Paulino Antonio Nunez, Jr., Rodriguez Tramont & Nunez, Coral Gables, FL, Lawrence Allan Kellogg, Victoria Jean Wilson, Jason Kenneth Kellogg, Levine Kellogg Lehman Schneider & Grossman LLP, Miami, FL, for Plaintiffs.
Adam Michael Schachter, Gerald Edward Greenberg, Gelber Schachter & Greenberg, P.A., Miami, FL, Andrew Morris, Daniel Streim, Richard J. Morvillo, Robert Stern, Orrick, Herrington & Sutcliffe LLP, Washington, DC, for Defendants.
THIS CAUSE came before the Court on Defendants, TD Ameritrade, Inc. ("TDA") and TD Ameritrade Futures & Forex LLC's ("TDAFF['s]") Motion to Dismiss Second Amended Class Action Complaint1 [ECF No. 59] for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), filed July 23, 2018. Plaintiffs, Diego Krukever, Karem Sandgarten, and Amir Rahimi filed a Response [ECF No. 62], to which Defendants filed a Reply [ECF No. 63]. The Court has carefully considered the Second Amended Class Action Complaint, the parties' written submissions, the record, and applicable law. For the reasons that follow, the Motion is granted.
Plaintiffs are individual investors who opened brokerage and commodities accounts with Case 1:18-cv-21399-CMA Document 72 Entered on FLSD Docket 10/05/2018 Page 1 of 23 Defendants to trade "put options"2 on "futures contracts"3 on the Globex electronic trading platform in the Chicago Mercantile Exchange (the "Exchange"). (See SAC ¶¶ 21, 25). The put options in which Plaintiffs invested have value tied to the Standard & Poor 500 stock index, which is comprised of stocks traded on the New York Stock Exchange and the Nasdaq Exchange (the "Underlying Markets"). (See id. ¶ 26). To invest and trade in put options on futures contracts, Plaintiffs entered into a Futures Client Agreement [ECF No. 56-1] (the "Agreement") with TDAFF. (See SAC ¶ 34). The Agreement warned Plaintiffs trading in commodity interests "INVOLVES A HIGH DEGREE OF RISK, AND IS APPROPRIATE ONLY FOR PERSONS WHO CAN ASSUME RISK OF LOSS IN EXCESS OF THEIR MARGIN DEPOSIT." (Agreement ¶ 23 (capitalization in original) ).
Plaintiffs' investments are generally traded on margin.4 (See SAC ¶ 31). For customers trading on margin, the Agreement warned TDAFF had the right to determine how much margin Plaintiffs were required keep in their accounts — an amount which TDAFF could "set and revise ... without prior notice to Client." (Agreement ¶ 4 (alterations added) ). The Agreement gave TDAFF the right "without prior notice and in its sole discretion, to liquidate any assets held by TD Ameritrade Clearing Inc. in a Securities Account" in the event of a margin deficiency or insecurity. (Id. ¶ 6). TDAFF also had "sole discretion" to decide whether a margin deficiency or insecurity existed in Plaintiffs' accounts. (Id. ).
TDAFF exercised this right on February 5, 2018, when it liquidated Plaintiffs' put option futures investments. (See SAC ¶¶ 39, 42). This liquidation happened after the Underlying Markets had closed for the day. (See id. ¶ 42). Plaintiffs allege the time after the Underlying Markets close is an "After Hours Market" for trading put options on futures contracts, and that the "After Hours Market does not exhibit the same trading behavior as the regular market." (Id. ¶ 43). The After Hours Market on February 5, 2018 was "illiquid and dysfunctional" because of the volatile market conditions at the time the Underlying Markets closed. (Id. ¶¶ 61, 68). In those volatile conditions, the prices on put options "skyrocketed," as the S & P 500 index fluctuated significantly. (Id. ¶¶ 39, 48). Because Plaintiffs held "short" put options on the futures contracts, any increase in the value of the options had a "disastrous" effect on the value of their investments. (Id. ¶¶ 49–50).
When TDAFF liquidated Plaintiffs' investments in the After Hours Market, Plaintiffs lost millions of dollars. . Plaintiffs allege their losses would have been far lower had TDAFF liquidated their positions during the "daytime market" — that is, when the Underlying Markets are open for trading. (Id. ¶¶ 2, 4). Liquidation in the After Hours Market was thus reckless and commercially unreasonable. (See id. ¶ 42).
Plaintiffs' claims arise out of the losses incurred in the After Hours Liquidation of their investments. Although Plaintiffs understood and accepted the inherent risk stemming from investments in put options on futures contracts, they "did not know or accept [ ] that TDA and TDAFF would expose them to even greater risk by recklessly liquidating Plaintiffs' and class members' positions in a commercially unreasonable way in an illiquid and dysfunctional After-Hours Market that would exponentially increase their losses." (Id. ¶ 38 (alteration added) ).
Plaintiffs did not know the commercially unreasonable and reckless liquidation could occur because of two fraudulent omissions made by TDAFF in the Futures Client Agreement: (1) the Agreement "does not state that TDAFF may liquidate at any time;" and (2) the Agreement "does not disclose that Defendants were reserving for themselves the right to liquidate Plaintiffs' commodities in an illiquid and dysfunctional After-Hours Market." (Id. ¶ 35). Plaintiffs bring this lawsuit under federal law, contending (1) the two omissions made by TDAFF in the Agreement operated as a fraud or deceit on Plaintiffs (see id. ¶¶ 82–93); and (2) TDA aided and abetted the omissions, which operated as a fraud or deceit on Plaintiffs (see id. ¶¶ 94–101). Plaintiffs also bring a single state-law claim for breach of the implied covenant of good faith and fair dealing based on the Agreement's allegedly fraudulent omissions. (See id. ¶¶ 102–106).
On a Rule 12(b)(6) motion to dismiss, a court does not reach the merits of the suit, only the sufficiency of the complaint. See Levy v. City of Hollywood , 90 F.Supp.2d 1344, 1345 (S.D. Fla. 2000) (citations omitted). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Although this pleading standard "does not require ‘detailed factual allegations,’ ... it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Id. (). Pleadings must contain "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly , 550 U.S. at 555, 127 S.Ct. 1955 (citation omitted).
Indeed, "only a complaint that states a plausible claim for relief survives a motion to dismiss." Iqbal , 556 U.S. at 679, 129 S.Ct. 1937 (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). To meet this "plausibility standard," a plaintiff must "plead[ ] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678, 129 S.Ct. 1937 (). When reviewing a motion to dismiss, a court must construe the complaint in the light most favorable to the plaintiff and take the factual allegations therein as true. See Brooks v. Blue Cross & Blue Shield of Fla., Inc. , 116 F.3d 1364, 1369 (11th Cir. 1997) (citation omitted).
The SAC contains four claims for relief: (1) in Count I, a claim against TDAFF under the Commodities Exchange Act, 7 U.S.C. section 6b(e)(3) ; (2) in Count II, a claim against TDAFF under federal commodities regulations, 17 C.F.R. section 180.1 ; (3) in Count III, a claim against TDA for aiding and abetting TDAFF's violations of federal law; and (4) in Count IV, a state-law claim against both Defendants for violation of the covenant of good faith and fair dealing. (See generally SAC). As stated, Defendants challenge each claim for relief.
Plaintiffs assert TDAFF "engaged in an act, practice, or course of business that operated as a fraud or deceit upon Plaintiffs," in violation of 7 U.S.C. section 6b(e)(3). (SAC ¶ 84). Section 6b(e)(3) provides:
7 U.S.C. § 6b(e)(3) (alteration added). Defendants argue Plaintiffs fail to state a claim under section 6b(e)(3) because (1) the SAC does not meet the heightened fraud pleading requirements of Federal Rule of Civil Procedure 9(b) ; (2) TDAFF had a contractual right to liquidate Plaintiffs' investments in the manner in which it did; (3) Plaintiffs cannot identify any incentive for Defendants to defraud them; (4) Plaintiffs' claims are nothing more than fraud by hindsight; and (5) the SAC fails to allege facts establishing Plaintiffs' reliance on Defendants' alleged fraud caused their losses. (See Mot. 9–18). The Court addresses each argument in turn.
According to Defendants, Plaintiffs are required to "allege, with particularity, that Defendants committed an...
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