United States District Court, S.D. New York
TY RAYNER, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, Plaintiff,
E*TRADE FINANCIAL CORPORATION ET AL, Defendants.
MEMORANDUM OPINION AND ORDER
G. Koeltl United States District Judge
defendants, E*TRADE Financial Corporation (“E*TRADE
Financial”) and E*TRADE Securities LLC (“E*TRADE
Securities”) (collectively, “E*TRADE”),
provide brokerage services to clients, including by routing
client orders to third-party trading venues to effectuate the
purchase and sale of securities. The plaintiff, Ty Rayner, on
behalf of a purported class claims that E*TRADE violates its
fiduciary duties to its clients by routing orders to venues
based on which venue makes the largest payments to E*TRADE in
exchange for the orders, whereas E*TRADE should be selecting
venues based only on best execution considerations. The
plaintiff has brought claims against E*TRADE for breach of
fiduciary duty, unjust enrichment, and declaratory judgment.
E*TRADE has moved to dismiss the claims pursuant to Rule
12(b)(6) of the Federal Rules of Civil Procedure because they
are precluded by the Securities Litigation Uniform Standards
Act (the “SLUSA”).
plaintiff originally brought this action in the United States
District Court for the Northern District of California. The
action was subsequently transferred to this Court pursuant to
28 U.S.C. § 1404 on the joint stipulation of the
parties. See Dkt. 26. This Court has
jurisdiction pursuant to 28 U.S.C. § 1332(d)(2).
plaintiffs in a related action have brought claims pursuant
to sections 10(b) and 20(a) of the Securities Exchange Act of
1934 against E*TRADE and several individual defendants.
See Schwab v. E Trade Financial Corporation, No.
16-cv-05891 (JGK) (S.D.N.Y.). Those claims are not presently
before the Court.
following reasons, E*TRADE's motion to
dismiss is granted.
deciding a motion to dismiss pursuant to Rule 12(b)(6), the
allegations in the complaint are accepted as true, and all
reasonable inferences must be drawn in the plaintiff's
favor. 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). The Court should not dismiss the complaint if the
plaintiff has 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 pleads
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
the Court should construe the factual allegations in the
light most favorable to the plaintiff, “the tenet that
a court must accept as true all of the allegations contained
in the complaint is inapplicable to legal conclusions.”
Id.; see also Springer v. U.S. Bank Nat'l
Ass'n, No. 15-cv-1107 (JGK), 2015 WL 9462083, at *1
(S.D.N.Y. Dec. 23, 2015). When presented with a motion to
dismiss pursuant to Rule 12(b)(6), the Court may consider
documents that are referenced in the complaint, documents
that the plaintiff relied on in bringing suit and that are
either in the plaintiff's possession or that the
plaintiff knew of when bringing suit, or matters of which
judicial notice may be taken. Chambers v. Time Warner,
Inc., 282 F.3d 147, 153 (2d Cir. 2002).
allegations in the Complaint are accepted as true for the
purposes of this motion to dismiss.
Financial Corporation is a Delaware corporation, with its
principal place of business in New York, that provides
brokerage and related services to individual retail
investors. Compl. ¶ 7. E*TRADE Securities is a Delaware
limited liability company that is an indirect, wholly owned
subsidiary of E*TRADE Financial. Compl. ¶ 8. E*TRADE
Securities is a broker-dealer registered with the Securities
and Exchange Commission, and is the primary provider of
brokerage products and services to E*TRADE Financial's
customers. Compl. ¶ 8.
such as E*TRADE, can route orders to third-party venues, such
as the New Yok Stock Exchange, hedge funds, or banks. Compl.
¶ 9. A “non-directed, standing limit order”
is a standard type of order that a client can place with
E*TRADE. Compl. ¶ 1 & n.1.
“Non-directed” means that E*TRADE (as opposed to
the client) chooses the trading venue for the order. Compl.
¶ 1 n.1. “Limit” is an instruction to buy or
sell at, or better than, a specified price. Compl. ¶ 1
n.1. “Standing” means that the order will remain
with the venue until it is canceled or executed, or until it
expires. Compl. ¶ 1 n.1.
Complaint alleges that, under the “maker-taker”
model, venues make payments to brokerage firms, such as
E*TRADE, in exchange for order flow. Compl. ¶ 10. The
Complaint pejoratively characterizes these payments or
rebates as “kickbacks.” See, e.g.,
Compl. ¶¶ 1, 10. Under the maker-taker model,
venues pay brokerage firms for sending (in other words,
“making”) orders to the venues, while venues
charge brokers an access or “take” fee for
“taking” the orders. Compl. ¶ 10. The
Complaint alleges that venues compete for order flow by
maximizing payment amounts to brokers. Compl. ¶ 10.
Complaint alleges that E*TRADE owes its clients a “duty
of best execution, ” meaning that E*TRADE should
endeavor to obtain the best price possible for its clients
when making venue routing selections. Compl. ¶¶
15-17, 19. The Complaint alleges that relevant factors for
E*TRADE's choice of venue must include the
“likelihood of execution, speed of execution, and price
improvement opportunity.” Compl. ¶ 18. The
Complaint alleges that the duty of best execution is
“rooted in common law agency principles of undivided
loyalty and reasonable care” that “predate
federal securities laws.” Compl. ¶ 16. ...