Ty Rayner, on Behalf of Himself and All Others Similarly Situated, Plaintiff-Appellant,
E*TRADE Financial Corporation, E*TRADE Securities LLC, Defendants-Appellees.
Argued: December 7, 2017
Ty Rayner ("Rayner"), on behalf of himself and all
others similarly situated, appeals from an April 4, 2017
judgment of the United States District Court for the Southern
District of New York (Koeltl, J.), which granted a
motion to dismiss filed by Defendants-Appellees E*TRADE
Financial Corporation and E*TRADE Securities LLC
(collectively, "E*TRADE"). Rayner argues on appeal
that the district court erred in determining that his state
law claims, alleging that E*TRADE violated its duty of best
execution, are precluded by the Securities Litigation Uniform
Standards Act of 1998 ("SLUSA"), 15 U.S.C. §
78bb(f). For the reasons set forth below, we conclude that
Rayner's arguments lack merit. Accordingly, we AFFIRM the
judgment of the district court.
Plaintiff-Appellant: Leslie E. Hurst (Timothy G. Blood, Paula
R. Brown, on the brief), Blood Hurst & O'Reardon,
LLP, San Diego, CA. Brian J. Robbins, Kevin A. Seely, Ashley
R. Rifkin, Leonid Kandinov, Robbins Arroyo LLP, San Diego,
Defendants-Appellees: Corey Worcester (Faith E. Gay, Marc L.
Greenwald, on the brief), Quinn Emanuel Urquhart &
Sullivan, LLP, New York, NY.
Before: Cabranes, Livingston, Circuit Judges, and Goldberg,
Ann Livingston, Circuit Judge
Ty Rayner ("Rayner") filed a class action complaint
(the "Complaint") raising state law claims against
Defendants-Appellees E*TRADE Financial Corporation and
E*TRADE Securities LLC (collectively, "E*TRADE").
Rayner's claims for breach of fiduciary duty, unjust
enrichment, and declaratory relief were each based on the
same allegation that E*TRADE violated its duty of best
United States District Court for the Southern District of New
York (Koeltl, J.) dismissed all of Rayner's
claims pursuant to Rule 12(b)(6) of the Federal Rules of
Civil Procedure. See Rayner v. E*TRADE Fin. Corp.,
248 F.Supp. 3D 497 (S.D.N.Y. 2017). For the reasons set forth
below, we conclude that the district court properly dismissed
Rayner's claims because they are precluded by the
Securities Litigation Uniform Standards Act of 1998
("SLUSA"), 15 U.S.C. § 78bb(f). Accordingly,
we affirm the judgment of the district court.
provides brokerage and related services to individual retail
investors. Clients place orders to buy and sell securities
with E*TRADE, and then E*TRADE executes those orders by
delivering them to trading venues such as stock exchanges,
hedge funds, banks, electronic communications networks, and
third-party market makers. One such client, Rayner, placed a
non-directed, standing limit order as recently as January
2014, and E*TRADE executed that order on his behalf. A
"limit order" is "an order to buy or sell a
stock at a specified price . . . or better." J.A. 9 n.1.
Rayner's order remained "standing" until
E*TRADE executed the order by (1) placing the order with a
trading venue; and (2) the trading venue actually purchased
or sold the security. Because the order was
"non-directed," E*TRADE retained discretion to
choose the trading venue for executing Rayner's order.
But E*TRADE's discretion to choose trading venues is
guided by its duty of best execution. And indeed, E*TRADE
promises clients that it will "do everything possible to
seek best execution each and every time [a client]
trade[s]" in order to "find the right blend of
execution price, speed, and price improvement."
Id. at 13 (quoting E*TRADE's website).
March 25, 2015, Rayner filed the Complaint on behalf of
himself and other E*TRADE clients who have placed
non-directed, standing limit orders. Specifically, Rayner
complains that, in breach of its duty of best execution,
E*TRADE prioritizes choosing the trading venues that are
willing to pay the largest "kickbacks" in exchange
for order flow.  Such a practice creates a "conflict
of interest between [E*TRADE] and [its] clients . . . by
incentivizing [E*TRADE to choose trading venues] that may be
most cost-effective for [E*TRADE], but which may not be the
best method of execution for [its] clients."
Id. at 12 (quoting "[m]arket experts [that]
acknowledge that the maker-taker system sets up financial
incentives that can cause brokers to act to the detriment of
their retail investor clients"). E*TRADE's clients
are harmed when limit orders are routed to trading venues
that pay higher kickbacks because, according to Rayner, such
orders are "up to 25% less likely to be executed,"
and more likely to "trade when the market price is
becoming worse." Id. at 19. Instead of ensuring
that its clients can purchase and sell securities at the
optimal price and volume, E*TRADE allegedly violates its duty
of best execution by seeking to maximize its own revenue from
filed a motion to dismiss, arguing inter alia that
Rayner's class action suit is precluded by SLUSA. In
response, Rayner argued that SLUSA preclusion does not apply
because (1) his Complaint does not allege that E*TRADE made a
misrepresentation or omission, or employed any manipulative
or deceptive device; and (2) even assuming that the Complaint
alleges fraud, any such fraud was not "in connection
with" the purchase or sale of covered securities. In a
memorandum opinion and order dated April 1, 2017, the
district court granted E*TRADE's motion to dismiss,
concluding that "[Rayner's] arguments against
preclusion are unpersuasive." Rayner, 248
F.Supp.3d at 502.