SAN FRANCISCO — The U.S. Court of Appeals for the 9th Circuit has upheld the dismissal of a class-action lawsuit against Charles Schwab Corp. because Securities Litigation Uniform Standards Act (SLUSA) prevented a lower court from having subject matter jurisdiction.

The case was heard by Circuit Judges Sandra S. Ikuta and Andrew D. Hurwitz and District Judge Donald W. Molloy, sitting by designation. The opinion was penned by Hurwitz.

A group of Charles Schwab retail customers claimed a breach by a securities dealer of the "duty of best execution" in completing trades, according to the opinion.

The U.S. District Court for the Northern District of California had dismissed the case, to which the plaintiffs filed the appeal to the 9th Circuit.

Schwab is a financial-services firm that trades securities for its clients. In 2004, the company agreed to route 95 percent of its “non-directed trades” to UBS Securities LLC, the opinion said.

In the complaint, the plaintiffs maintained that Schwab breached several 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,” Hurwitz wrote in the opinion.

Because Schwab was routing nearly all of its non-directed orders to UBS, the plaintiffs maintained that this prevented them from getting the best prices for their trades.

“These allegations make clear that if Schwab had not misled the plaintiffs into believing that Schwab would obtain the best prices for plaintiffs’ trades, [the] plaintiffs would not have made those trades,” Hurwitz wrote. “Therefore, Schwab’s fraudulent misrepresentations were ‘in connection with’ purchases of covered securities. Plaintiffs cannot have it both ways—they cannot claim that Schwab’s failure to provide best execution impacted their securities trades while simultaneously claiming that the breach of duty is not ‘in connection with’ those trades.”

Francis X. Fleming Jr., lead plaintiff in the case, also alleged that USB violated the California Unfair Competition Law by permitting high-frequency traders access to Schwab’s order flow, which allowed them to manipulate the market.

Hurwitz noted that Fleming’s complaint pleads a “manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security” and is barred by SLUSA.

The court unanimously agreed to uphold the lower court’s ruling.

Want to get notified whenever we write about U.S. Court of Appeals for the Ninth Circuit ?
Next time we write about U.S. Court of Appeals for the Ninth Circuit, we'll email you a link to the story. You may edit your settings or unsubscribe at any time.

Organizations in this Story

U.S. Court of Appeals for the Ninth Circuit




More News