Did Robinhood (& Co.) breach their fiduciary duties of care, loyalty, and good faith to its customers? Did Robinhood tortiously interfered with existing business relations? Did the company breach the implied covenant of good faith and fair dealing with its customers?
At end of January 2021, Robinhood halted trading and/or restricted purchases and/or holdings of multiple stocks for more than a single trading session – January 28th – extending some of its restrictions for six trading sessions, through February 4th.
The suspended stocks as of the end of the day on January 27, 2021 were: GameStop Corp. (GME), AMC Entertainment Holdings Inc. (AMC), American Airlines Group Inc. (AAL), Bed Bath & Beyond Inc. (BBBY), BlackBerry Ltd. (BB), Castor Maritime, Inc. (CTRM), Express, Inc. (EXPR), Koss Corporation (KOSS), Naked Brand Group Ltd. (NAKD), Nokia Corp. (NOK), Sundial Growers Inc. (SNDL), Tootsie Roll Industries, Inc. (TR), or Trivago N.V. (TRVG)
As a provider of financial services and registered securities investment brokerdealer, Robinhood has a duty to exercise reasonable care, skill, and ability in conducting and facilitating financial services and transactions on its platform. As a securities broker-dealer, Robinhood owes a duty of care to investors to act in accordance with the standard of care used by other broker-dealer professionals. In offering both services, Robinhood assumed a duty to ensure that its trading platform was sufficiently equipped to reliably deliver such services under reasonably foreseeable increasing customer demands and resulting market conditions.
This post is open for investors to gather facts, and findings and track their exposure to related lawsuits. We invite investors and shareholders to contribute to this investigation for their own benefit, add events to the factual timeline below and vote on events’ pertinence.
A lawsuit was subsequently filed. We will update this post as it unfolds.
Because the events at cause are essentially the same as in the securities case, we have disabled this timeline. But don’t worry, you can access the factual timeline of relevant events by visiting the Robinhood Markets, Inc. (Jan. 2021 Short Squeeze – Securities) case page:See more on Factual Timeline
This is the first-identified class-action complaint alleging negligence and breach of fiduciary duties. The case was filed on behalf of all persons or entities in the United States that:
“All citizens of the United States who own or owned accounts on Robinhood’s trading platforms and as of January 27, 2021 at 5 pm EST own or owned securities of “GME”, “BB”, “NOK”, “AMC”, “BBBY”, “EXPR”, and “KOSS” which Defendants did not allow the purchase of those securities on January 28, 2021 and for Defendant TD Ameritrade, on January 27, 2021.“
Please note that numerous class action complaints against Robinhood (and other entities) were filed in early 2021. The cases were later consolidated and grouped by types of violations (see “Lawsuit Progression”). For convenience purposes, this tab only details the first identified complaint alleging negligence & breach of fiduciary duties.
For a complete list of class action complaints initially filed with the courts in connection with the January 2021 Short Squeeze, click here.
To access the class action cases grouped by types of violations, please refer to our additional pages:
Defendants had a duty to exercise reasonable care in conducting and facilitating
transactions for their customers.
Defendants had a duty to exercise reasonable care in providing trades on the free,
open market for their customers.
Defendants unlawfully breached their duties by, among other things, (i) removing Subject Securities without notice from purchase through their trading applications; (ii) allowing only sales of the Subject Securities without allowing purchases, (iii) failing to provide financial services related to Subject Securities; (iii) failing to notify customers in a timely manner of the Subject Securities “blackout.”
The court issued an order appointing the lead plaintiff and lead counsel.
1. This case is filed on behalf of all persons or entities in the United States that held shares, or call options for shares, of any of GameStop Corp. (GME), AMC Entertainment Holdings Inc. (AMC), American Airlines Group Inc. (AAL), Bed Bath & Beyond Inc. (BBBY), BlackBerry Ltd. (BB), Castor Maritime, Inc. (CTRM), Express, Inc. (EXPR), Koss Corporation (KOSS), Naked Brand Group Ltd. (NAKD), Nokia Corp. (NOK), Sundial Growers Inc. (SNDL), Tootsie Roll Industries, Inc. (TR), or Trivago N.V. (TRVG) (the suspended stocks), as of the end of the day on January 27, 2021, and sold shares, or call options for shares, of the suspended stocks between January 28, 2021 and February 23, 2021 (the class period); and 2. The case is also brought on behalf of all customers of Robinhood who: a. held shares, or call options for shares, of any of the suspended stocks as of the end of the day on January 27, 2021, who sold any such shares or call options during the class period, and suffered damages; b. placed a sale order on shares, or on call options for shares, of any of the suspended stocks, whose orders were delayed during the class period, and suffered damages; c. placed a buy order for shares, or on call options for shares, of any of the suspended stocks, whose order was initially accepted by Robinhood, whose order was ultimately rejected by Robinhood during the class period, and suffered damages; d. purchased shares, or call options for shares, of any of the suspended stocks after initial restrictions were lifted as of the open of trading on January 29, 2021, sold any such shares or call options when Robinhood reintroduced further restrictions during the class period, and suffered damages; e. held call options for shares of any of the suspended stocks as of the end of the day on January 27, 2021, and whose call options expired worthless during the class period, and suffered damages.
On 01/27/2022, the court dismissed the complaint with prejudice.
Justice Cecilia M. Altonaga granted Robinhood Markets, Inc., Robinhood Financial
LLC and Robinhood Securities, LLC’s motion to dismiss the amended complaint.
Plaintiffs have appealed to the United States Court of Appeals for the Eleventh Circuit.
Count I & II – Negligence & Gross Negligence Claims under California Law and Florida Law:
. . . Here, Plaintiffs repackage their dissatisfaction with the PCO restrictions as negligence claims. In doing so, they seek to obtain precisely what the Customer Agreement that they freely entered denied: a right to unrestricted trading. They also ask the Court to extend California tort law into uncharted waters by imposing on Robinhood a tort duty to all foreseeable investors to permit trading of any security, at any time. California law does not endorse such freewheeling liability, and it is not the Court’s role to second-guess that policy determination. Counts I and II fail under California law. . .
In short, the Customer Agreement merits judicial respect under Florida law. And the Court declines Plaintiffs’ invitation to rewrite the Agreement under the guise of novel negligence claims. Because Counts I and II do not adequately allege the existence of a tort duty under either California or Florida law, they are dismissed. . .
Count III – Breach of Fiduciary duty against Robinhood Financial under California Law and Florida Law:
. . . Here, Plaintiffs do not plausibly allege that Robinhood Financial recognized confidential relationships as existing between itself and Plaintiffs. The Customer Agreement’s many provisions limiting Robinhood Financial’s duties indicate that Robinhood Financial generally keeps only an arms’-length relationship with its customers. And although Plaintiffs emphasize Robinhood’s marketing efforts, advertising to the public does not amount to assuming fiduciary obligations to recipients of the advertisements. . . Count III fails under Florida law for the same reasons that it fails under California law. . .
Count III – Breach of Fiduciary duty against Robinhood Securities under California Law and Florida Law:
. . .Under both California and Florida law, a clearing broker does not generally owe fiduciary duties to investors whose transactions it executes. . . Undeterred, Plaintiffs argue that a clearing broker owes fiduciary duties to the customers of an introducing broker when it involves itself in the introducing broker’s actions. . . For two reasons, this theory cannot shore up the claim against Robinhood Securities. First, it lacks legal support. Plaintiffs do not cite a single case where a court concluded that a clearing broker owes fiduciary duties to the customers of an introducing broker. . . Second, even if Robinhood Securities could be equated with an introductory broker, that fact would leave it in the same position as Robinhood Financial, which, under the facts alleged, did not owe fiduciary duties to Plaintiffs. . .
Breach of the Implied Duty of Care (Count IV) and Breach of the Implied Covenant of Good Faith and Fair Dealing (Count V)
. . .Once more, the Customer Agreement permits Robinhood Financial and Robinhood Securities to “at any time, in [their] sole discretion and without prior notice . . . prohibit or restrict [the customer’s] ability to trade securities.” (Cust. Agmt. § 5.F (alterations added)). It is difficult to imagine a clearer authorization to impose the limited trading restrictions Plaintiffs now object to. This plain authorization to restrict trading creates obstacles that Plaintiffs cannot surmount. The reason is simple: “if defendants were given the right to do what they did by the express provisions of the contract there can be no breach”. . .
Tortious Interference with Contract and Business Relationship (Count VI)
. . . Plaintiffs do not allege that Robinhood Markets caused a violation of any express provision of the Customer Agreement. In fact, neither Count VI nor Plaintiffs’ Response identifies what term of the Customer Agreement Robinhood Markets caused to be breached. (See Am. Compl. ¶¶ 334–41; Resp. 56–58). Plaintiffs argue only that Robinhood Markets caused its subsidiaries to breach implied terms of the Agreement. (See Resp. 57–58). That argument fails here for the same reason it fails as to Counts IV and V: a party does not breach a contract by doing something the contract expressly allows. . .
Civil Conspiracy (Count VII)
. . . “[O]ne cannot tortiously interfere with a contract to which it is a party.” . . . Count VII thus fails to allege a conspiracy by two or more parties who are legally capable of conspiring to commit a tort against Plaintiffs. . .
Order on Motion to Dismiss
A securities class action lawsuit is a lawsuit on behalf of investors considered in a similar position, who purchased or sold securities of a company during a certain period and suffered losses because of an alleged wrongdoing. Security is often broadly defined to include bonds, stocks, options, derivatives, and other instruments.
Section 10b of the Securities Exchange Act of 1934 makes it unlawful to “use or employ, in connection with the purchase or sale of any security” a “manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe.” 15 U.S.C. § 78j(b). It is therefore forbidden to: employ any device, scheme, or artifice to defraud; make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made not misleading; or engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
Generally, to be successful, the plaintiff must plead the following:
We invite you to read this article from the American Bar Association which, although from 2014, provide ample information to explore the world of class actions brought under section 10b of Securities Exchange Act of 1934.
Section 11 of the Securities Act of 1933 provides “an express right of action for damages . . . when a registration statement contains untrue statements of material fact or omissions of material fact.” (Thomas Lee Hazen, Treatise on the Law of Securities Regulation, §7.3 at 581 (4th ed. 2002)). Practically, buyers in an initial public offering (IPO), relying on the registration statement and prospectus, are given the right to file a complaint against the company and other signatories for losses sustained as a result of the deficient registration statement and prospectus.
Generally, at least four elements must be plead for the claim to survive:
A shareholder derivative lawsuit is a lawsuit brought by a shareholder of a company, on behalf of the company, against an insider (director, board of directors, executives) or a third-party to redress wrongs and harms to the company. Simply speaking, this mechanism exists because one cannot expect directors and insiders to sue themselves for harms they have done to the company.
The Private Securities Litigation Reform Act (PSLRA) of 1995 was enacted to tighten requirements for securities class actions to be brought in the United States. One of the mechanism put in place was a 60-day period, following the filing of the initial securities class action, for any shareholder considered in similar position to the one filing the initial class action complaint, to ask to be named lead plaintiff. Practically, any time a securities class action falling under the PSLRA is filed with a court, law firms advertise their willingness to pursue the case and invite other investors similarly situated to contact them.
The lead plaintiff in a securities class action is a shareholder who suffered losses related to the purchase or sale of a company’s security during a certain period of time, that is appointed with its choice of counsel to represent the rest of the similarly situated shareholders. To be appointed lead plaintiff, you need to contact a law firm, have them examine your losses and agree to be represented by them and ask to make a motion with the court to be appointed lead. The court will then look at all the motions from the different shareholders and make its decision based on a certain set of criteria. Your inability to be lead plaintiff shall not prevent you from any potential recovery in the event of a settlement.
A class period is a set period of time during which the purchasers or sellers of a company’s security claim in a class action lawsuit to have suffered losses. Class periods are based on the merits of the case and may evolve with the litigation.
A class action complaint will define the initial class of investors: the class period and the persons included in the class. You should look at the definition of the class to determine whether you are included or not. However, the class definition will evolve with the litigation. Its definition is very likely to change between the initial complaint filed and the possible settlement. Generally speaking, you should rely on the definitions of the class stated in a stipulation of settlement to determine whether or not you will be entitled to any recovery (see below about the opting-out mechanism).
You may. The mechanism is called opting-out of class. A lead plaintiff will agree on the potential recovery ratio in a settlement. You may have an interest in opting-out of a class if you have sustained large losses and believe bringing a separate lawsuit would entitle you to a larger ratio of recovery.
You may be able to bring a claim to arbitration in certain scenarios. We encourage you to contact a law firm of your choice to inquire about such alternative dispute resolution mechanism.
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