TD Ameritrade v. Matthews

Filing 62

ORDER RE MOTION TO DISMISS: IT IS ORDERED that TD Ameritrade's Motion to Dismiss for Failure to State a Claim at Docket 41 is GRANTED. Mr. Matthews to file Second Amended Answer and Counterclaim(s) by November 27, 2017. (See Order for details). Signed by Judge Sharon L. Gleason on 10/25/2017. (CME, COURT STAFF)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA
TD AMERITRADE, INC., TD AMERITRADE
HOLDING CORPORATION, INC., TD
AMERITRADE IP COMPANY, INC., and TD
AMERITRADE SERVICES COMPANY,
INC.,
Case No. 3:16-cv-00136-SLG
Plaintiffs,
v.
JAMES RICHARD MATTHEWS,
Defendant.
ORDER RE MOTION TO DISMISS
Before the Court at Docket 41 is Plaintiffs’ Rule 12(b)(6) Motion to Dismiss. The
motion has been fully briefed.1 Oral argument was not requested and was not necessary
to the Court’s decision.
Plaintiffs (collectively, “TD Ameritrade”) initiated this action on June 27, 2016.2 TD
Ameritrade’s Amended Complaint asserts three causes of action: declaratory judgment,
cancellation and release of claimed nonconsensual common law lien pursuant to Alaska
law, and injunctive relief.3 Defendant James Matthews filed an Answer to the Amended

1

See Docket 45 (Opp.); Docket 50 (Reply).

2

Docket 1 (Compl.).

3

Docket 4 (Am. Compl.).

Complaint that also asserted a counterclaim for copyright infringement.4 On March 20,
2017, Mr. Matthews filed an Amended Answer asserting seven additional counterclaims. 5
The Court has jurisdiction as to Mr. Matthews’ copyright infringement claims under
federal question jurisdiction.6 The Court has supplemental jurisdiction over Mr. Matthews’
state law counterclaims.7
STANDARD OF REVIEW
TD Ameritrade moves to dismiss all of Mr. Matthews’ counterclaims pursuant to
Federal Rule of Civil Procedure 12(b)(6) and the Supreme Court’s interpretation of that
rule in Ashcroft v. Iqbal.8 “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.’”9 Iqbal does not require a litigant to prove his case in his pleading, but it requires
the litigant to “state ‘enough fact[s] to raise a reasonable expectation that discovery will
reveal evidence of [the misconduct alleged].’”10 The pleading must contain “enough facts
to state a claim to relief that is plausible on its face.”11 This inquiry requires a court to

4

Docket 22 (Ans.) at 7, ¶ 55.

5

Docket 33 (Am. Ans. and Countercls.); see infra pp. 5–6.

6

28 U.S.C. § 1331.

See 28 U.S.C. § 1367(a) (“[D]istrict courts shall have supplemental jurisdiction over all other
claims that are so related to the claims in the action within such original jurisdiction that they form
part of the same case or controversy under Article III of the United States Constitution.”).
7

8

See Docket 41 at 5 (citing Ashcroft v. Iqbal, 556 U.S. 662 (2009)).

9

Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011)
(quoting Twombly, 550 U.S. at 556) (alterations in original).
10

11

Twombly, 550 U.S. at 570.

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“draw on its judicial experience and common sense.”12 When reviewing a Rule 12(b)(6)
motion, a court considers only the complaint and other pleadings, documents
incorporated into the pleadings by reference, and matters on which a court may take
judicial notice.13
When a motion to dismiss for failure to state a claim is granted, a court “should
freely give leave when justice so requires.”14 But leave to amend is properly denied as to
those claims for which amendment would be futile.15
BACKGROUND
For purposes of TD Ameritrade’s Motion to Dismiss, the Court accepts the factual
allegations in Mr. Matthews’ operative pleading as true and “construe[s] them in the light
most favorable” to him.16 According to the First Amended Answer and Counterclaims, in
April 2012, Mr. Matthews applied for an unfunded user-modifiable investment account
with TD Ameritrade.17 At or about the same time as he opened the account, Mr. Matthews
entered into a Client Agreement with TD Ameritrade.18

12

The account provided Mr.

Iqbal, 556 U.S. at 679.

Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1061 (9th Cir. 2008) (citing
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)).
13

14

Fed. R. Civ. P. 15(a).

Gordon v. City of Oakland, 627 F.3d 1092, 1094 (9th Cir. 2010) (citing Albrecht v. Lund, 845
F.2d 193, 195 (9th Cir. 1988)).
15

OSU Student All. v. Ray, 699 F.3d 1053, 1061 (9th Cir. 2012) (citing Starr v. Baca, 652 F.3d
1202, 1216 (9th Cir. 2011)).
16

17

Docket 33 at 10, ¶ 61–63.

Docket 4-3 (Matthews’ Commercial Affidavit) at 15. The record also includes an End User
License Agreement for thinkorswim® platform and paperMoney® functionality. Docket 4-10 (End
User License Agreement) at 68. However, that document is dated January 29, 2016 and its
18

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Matthews access to TD Ameritrade’s “thinkorswim” applications program interface
(“API”), which gave him the ability to create his own analytical tools for a self-directed
trading environment.19 Mr. Matthews alleges that users such as him were permitted to
download the API and “were encouraged to devise their own software programs” by
“modifying software routines available on the site.”20 Mr. Matthews alleges that “all
copyrighted routines created by TD Ameritrade [were] locked, and thus could not be
modifiable.”21 After signing up for an account, Mr. Matthews alleges that he used the API
to create analytical routines “in a novel manner.”22 By May 27, 2012, Mr. Matthews
alleges that he had created source code for over 100 routines to work with the thinkorswim
API.23
On May 27, 2012, Mr. Matthews alleges that TD Ameritrade “perpetrated a cyber
attack” which “destroyed [Mr. Matthews’] hard drive controller.”24 Mr. Matthews had saved
84 of the routines he had developed on another hard drive, so they were not destroyed
by the cyber attack.25 However, Mr. Matthews asserts that TD Ameritrade had copied the

relevance to Mr. Matthews’ claims, which arose in 2012, is undetermined. The record also
contains a License Agreement in which Mr. Matthews agreed that his use of TD Ameritrade’s
trading software was subject to the terms and conditions of that agreement. See Docket 4-3 at
46.
19

See Docket 33 at 10, ¶ 61–64.

20

Docket 33 at 10–11, ¶ 65–70.

21

Docket 33 at 11, ¶ 67.

22

Docket 33 at 10, ¶ 64.

23

Docket 33 at 12, ¶ 74.

24

Docket 33 at 12, ¶ 75.

25

Docket 33 at 12, ¶ 75.

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routines he had created, all or most of which had copyright notices that Mr. Matthews had
imbedded in them.26 After obtaining Mr. Matthews’ software, TD Ameritrade is alleged to
have inserted its own copyright notice and date into Mr. Matthews’ software.27 TD
Ameritrade alleges that it terminated its business relationship with Mr. Matthews in early
June 2012.28 Mr. Matthews maintains that TD Ameritrade had “effectively wrongfully
terminated” his account on May 27, 2012.29
Mr. Matthews filed a copyright notice for the 84 routines under United States
Copyright Registration Number TXu1-822-654 effective June 28, 2012.30 Mr. Matthews
asserts that TD Ameritrade has been using his routines and allows at least 6.5 million of
its funded users to use Mr. Matthews’ code without his authorization.31
DISCUSSION
Mr. Matthews alleges eight counterclaims: a copyright infringement claim in
violation of 17 U.S.C. § 101 et seq.; one claimed violation of 17 U.S.C. §§ 1201 and 1202;
a claim seeking injunctive relief on claims one and two; a violation of Alaska Statute
45.50.471, the Unfair Trade Practices Act; two claims of breach of contract and breach of
the implied covenant of good faith and fair dealing; trespass on real property; and a

26

Docket 33 at 12, ¶ 76, 78.

27

Docket 33 at 12, ¶ 79.

28

Docket 4-2 (Letter from TD Ameritrade to Matthews dated June 11, 2012) at 1.

29

Docket 33 at 4, ¶ 13.

30

Docket 33 at 13, ¶ 81.

31

Docket 33 at 13, ¶ 82.

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demand for accounting.32 TD Ameritrade moves to dismiss each counterclaim for failure
to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court will
address each claim in turn, and consistent with the Supreme Court’s guidance in Iqbal,
“begin[s] by taking note of the elements a plaintiff must plead to state a claim.”33
1. Copyright Infringement
Mr. Matthews’ First Counterclaim alleges copyright infringement. To state a prima
facie case of direct copyright infringement under 17 U.S.C. § 101, et seq., a party must
satisfy two requirements: “(1) they must show ownership of the allegedly infringed
material and (2) they must demonstrate that the alleged infringers violate at least one
exclusive right granted to copyright holders under 17 U.S.C. § 106.”34
TD Ameritrade asserts that Mr. Matthews “does not have ownership rights in any
asserted copyrightable work” and that it holds “all copyrights relative to the thinkorswim
software.”35

Mr. Matthews responds that registration of a copyright is prima facie

evidence of a valid copyright.
“[T]he registration of the copyright certificate itself establishes a prima facie
presumption of the validity of the copyright in a judicial proceeding . . . .”36 But the
statutory presumption of validity can be rebutted.37 To rebut this presumption, a party

32

Docket 33 at 14–18.

33

Ashcroft v. Iqbal, 566 U.S. 662, 675 (2009).

34

A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1013 (9th Cir. 2001).

35

Docket 41 at 5.

36

North Coast Indus. v. Jason Maxwell, Inc., 972 F.2d 1031, 1033 (9th Cir. 1992).

37

Entm’t Research Grp., Inc. v. Genesis Creative Grp. Inc., 122 F.3d 1211, 1217 (9th Cir. 1997).

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disputing validity of the copyright “must simply offer some evidence or proof to dispute or
deny the plaintiff’s prima facie case of infringement.”38
Although Mr. Matthews alleges that he has obtained a copyright registration for his
code, TD Ameritrade points to the Client Agreement to rebut the presumption of the
copyright’s validity. Mr. Matthews acknowledges he signed and agreed to the terms of
the Client Agreement, which states that “[m]y use of [TD Ameritrade’s] Services will not
confer any title, ownership interest, or intellectual property rights to me.”39 The agreement
also expressly prohibits Mr. Matthews from creating derivative works: “I will not . . . create
derivative works from, distribute, redistribute, display, sell or transfer, or create derivative
products from the Services.”40

Thus, even if Mr. Matthews obtained a copyright

registration for work he claims is original and novel, he appears to be precluded from
obtaining a copyright of any derivative works by the terms of the Client Agreement.
Yet Mr. Matthews alleges in his First Amended Answer and Counterclaims that
users of TD Ameritrade’s API “were permitted and encouraged to modify certain software
routines available on the site . . . .”41 However, Mr. Matthews has not alleged any facts
as to who, how, or when he was “permitted and encouraged” to modify TD Ameritrade’s

Lamps Plus, Inc. v. Seattle Lighting Fixture Co., 345 F.3d 1140, 1144 (9th Cir. 2003) (summary
judgment granted on copyright invalidity because lamp design lacked needed quantum of
originality).
38

39

Docket 33 at 4, ¶ 15; Docket 4-3 at 17, ¶ 7(d).

40

Docket 4-3 at 17, ¶ 7(b).

Docket 33 at 11, ¶ 66. Mr. Matthews asserts that the software routines that he was encouraged
to modify were not locked and to his knowledge all copyrighted routines were locked and were
not modifiable. Docket 33 at 11, ¶ 67.
41

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software. Moreover, Mr. Matthews has not alleged any basis to disregard the restriction
on derivative works in the Client Agreement.
In reply, TD Ameritrade asserts that dismissal is warranted because Mr. Matthews
has provided no factual allegations to support his claim that TD Ameritrade permitted and
encouraged him to use its software.42 The Court agrees. Mr. Matthews’ claim that he
had been given the authority to create and copyright derivative work appears to be directly
at odds with the Client Agreement. While such a claim is possible, Mr. Matthews has
failed to allege any facts to demonstrate that the claim is plausible. 43 Accordingly, TD
Ameritrade’s Motion to Dismiss as to the First Counterclaim will be granted. However,
leave to amend will be accorded so as to permit Mr. Matthews the opportunity to allege
nonconclusory facts that explain why Mr. Matthews’ alleged software modifications to TD
Ameritrade’s API are protected by a valid copyright.
2. Digital Millennium Copyright Act
Mr. Matthews’ Second Counterclaim alleges violations under 17 U.S.C. §§ 1201
and 1202 of the Digital Millennium Copyright Act. Section 1201(a) provides “[n]o person
shall circumvent a technological measure that effectively controls access to a work
protected under this title.” TD Ameritrade contends that Mr. Matthews has not provided
facts to show that TD Ameritrade bypassed the requisite technological measure in
accessing and obtaining Mr. Matthews’ code.44 Mr. Matthews asserts that “it is . . .

42

See Docket 50 at 2 (citing Iqbal, 556 U.S. at 679).

43

See Twombly, 550 U.S. at 570.

44

Docket 41 at 9.

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common knowledge that hard drives have for many years . . . used encryption technology
to secure information on the hard drives.”45
A technological measure “effectively controls access to a work if the measure, in
the ordinary course of its operation, requires the application of information, or a process
or a treatment, with the authority of the copyright owner, to gain access to the work.”46
The House Judiciary Committee provided the following analogy:
[t]he act of circumventing a technological protection measure put in place
by a copyright owner to control access to a copyrighted work is the
electronic equivalent of breaking into a locked room in order to obtain a copy
of a book.47
Mr. Matthews’ First Amended Answer and Counterclaims alleges that TD
Ameritrade hacked his computer, “destroyed Defendant’s hard drive controller,” and
“copied the routines” he had created.48 But Mr. Matthews did not allege any facts
regarding the security of his hard drive or facts to indicate that his hard drive had
encryption technology that was circumvented by TD Ameritrade. Although a hard drive
with adequate protections could be a “technological measure,” Mr. Matthews has failed
to allege sufficient facts to push this claim “across the line from conceivable to
plausible.”49

45

Docket 45 at 10.

46

17 U.S.C. § 1201(a)(3)(B).

47

H.R. Rep. No. 105–551, at 17 (1998).

48

Docket 33 at 12, ¶ 75–76.

49

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

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Mr. Matthews also alleges that TD Ameritrade violated 17 U.S.C. § 1202 of the
Digital Millennium Copyright Act.50 Section 1202(b) provides that “[n]o person shall,
without the authority of the copyright owner or the law . . . (1) intentionally remove or alter
any copyright management information . . . .”51 Under the statute, “copyright management
information” includes “[t]he name of, and other identifying information about, the author
of a work.”52
TD Ameritrade asserts that Mr. Matthews “does not provide any copyright
management information” and did not allege that TD Ameritrade “intentionally removed
or altered such information.”53

But in Mr. Matthews’ First Amended Answer and

Counterclaims, Mr. Matthews alleges that after TD Ameritrade stole his software, it
removed or struck through his copyright notice that he had imbedded in the software.54
However, as discussed above, Mr. Matthews has not shown valid ownership of a
copyright.55 Ownership of a valid copyright is a predicate to asserting a claim under the
Digital Millennium Copyright Act.56 As discussed above with regard to the copyright
infringement counterclaim, the existence of a valid copyright has not been adequately

50

Docket 33 at 14.

51

17 U.S.C. § 1202(b).

52

17 U.S.C. § 1202(c).

53

Docket 41 at 11.

54

Docket 33 at 12, ¶ 78–79.

55

See supra at pp. 6–8.

See Chamberlain Grp., Inc. v. Skylink Techs., Inc., 381 F.3d 1178, 1203 (Fed. Cir. 2004) (“A
plaintiff alleging a violation of § 1201(a)(2) [of the Digital Millennium Copyright Act] must prove:
(1) ownership of a valid copyright on a work . . . .”).
56

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pleaded. Accordingly, Mr. Matthews’ Second Counterclaim will be dismissed with leave
to amend.
3. Injunctive Relief
Mr. Matthews’ Third Counterclaim seeks injunctive relief as it relates to both the
First and Second Counterclaims. As discussed above, Mr. Matthews has not pleaded
facts to establish a plausible claim for either copyright infringement or violations to the
Digital Millennium Act. Therefore, Mr. Matthews’ claim for injunctive relief will also be
dismissed with leave to amend.
4. Unfair Trade Practices Act
Mr. Matthews’ Fourth Counterclaim alleges TD Ameritrade violated Alaska’s Unfair
Trade Practices Act.57 Mr. Matthews does not oppose dismissal of this claim, but asserts
it should be without prejudice. In an affidavit appended to TD Ameritrade’s Complaint,
Mr. Matthews stated that “on or about, April 11, 2012 Affiant discovered his, (copyrighted
source code) was appropriated, copied and placed in [TD Ameritrade’s] publicly
accessible library for use by all other system users.”58 Mr. Matthews was aware of TD
Ameritrade’s alleged misappropriation in 2012, yet he did not file this counterclaim until
2016, considerably more than two years after the statute of limitations on this claim had
run.59 Based on the foregoing, TD Ameritrade’s Motion to Dismiss Mr. Matthews’ Fourth

57

Alaska Stat. § 45.50.531.

58

Docket 4-3 at 6, ¶ 17 (capitalization omitted).

See Alaska Stat. § 45.50.531(f) (“A person may not commence an action under this section
more than two years after the person discovers or reasonably should have discovered that the
loss resulted from an act or practice declared unlawful by AS 45.50.471.”).
59

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Counterclaim under the Unfair Trade Practices Act will be granted with prejudice and
without leave to amend.
5. Breach of Contract and Implied Covenant of Good Faith and Fair Dealing
Mr. Matthews’ Fifth and Sixth Counterclaims each allege breach of contract and
breach of implied covenant of good faith and fair dealing under Nebraska, Alaska, and/or
Illinois law.60 To establish a breach of contract claim in Alaska, Nebraska, or Illinois, a
claimant must establish the existence of a contract, a breach of that contract, and
resultant damages.61
Mr. Matthews’ Fifth Counterclaim alleges that TD Ameritrade violated a licensing
agreement published on TD Ameritrade’s website.

The pleading references the

agreement as being annexed as Exhibit A; but no agreement was annexed. Mr. Matthews
has failed to state a claim for breach of contract in his Fifth Counterclaim. He has failed
to clearly identify the contractual agreement that existed between TD Ameritrade and
himself; he has failed to identify the specific provision(s) of that agreement that he is
alleging was breached by TD Ameritrade and when and how that breach occurred; and
he has failed to identify the damages he incurred as a result of that alleged breach.
However, because it appears there was some contractual relationship between the

60

Docket 33 at 16–17.

See Great W. Sav. Bank v. George W. Easley Co., J.V., 778 P.2d 569, 577 (Alaska 1989)
(holding breach of contract claim adequately pleaded, which alleged a contractual obligation,
breach and resultant damages); Phipps v. Skyview Farms, Inc., 610 N.W.2d 723, 730 (Neb. 2000)
(“In order to recover in an action for breach of contract, the plaintiff must plead and prove the
existence of a promise, its breach, damage, and compliance with any conditions precedent that
activate the defendant’s duty.”); Kopley Grp. V., L.P. v. Sheridan Edgewater Properties, Ltd., 876
N.E.2d 218, 226 (Ill. App. 2007) (“To succeed on a claim for breach of contract, a plaintiff must
plead and prove the existence of a contract, the performance of its conditions by the plaintiff, a
breach by the defendant, and damages as a result of the breach.”).
61

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parties at some point, one final opportunity to amend as to this claim will be granted.
Since Mr. Matthews fails to identify the contract he is alleging that TD Ameritrade
breached, he has also not pleaded enough facts to establish a claim for breach of the
implied covenant of good faith and fair dealing. Accordingly, the Fifth Counterclaim will
be dismissed with leave to amend.
Mr. Matthews’ Sixth Counterclaim alleges that TD Ameritrade’s cancellation of his
account constituted a breach of contract.62 However, the Client Agreement between the
parties specifies that TD Ameritrade “reserve[s] the right to suspend and deny access to
the Services without prior notice or for any reason.”63

It is not plausible that TD

Ameritrade’s cancellation of Mr. Matthews’ account constituted a breach of contract. Nor
has Mr. Matthews pleaded any facts that could plausibly support a claim for a breach of
the implied covenant of good faith and fair dealing based on the cancellation. Accordingly,
TD Ameritrade’s Motion to Dismiss Mr. Matthews’ Sixth Counterclaim will be granted with
prejudice and no leave to amend.
6. Trespass to Real Property
The Seventh Counterclaim alleges trespass to real property pursuant to Alaska
Statute § 09.10.050.64 Mr. Matthews acknowledges in his Opposition to the Motion to
Dismiss that “Plaintiffs are technically correct in stating that Matthews did not make any
allegations regarding real property . . . .”65 The Court finds that there is no plausible

62

Docket 30 at 17.

63

Docket 4-3 at 17.

64

Docket 33 at 17.

65

Docket 45 at 17.

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factual basis for such a claim. Accordingly, the Court will grant TD Ameritrade’s Motion
to Dismiss Mr. Matthews’ Seventh Counterclaim with prejudice.
7. Accounting
The Eighth Counterclaim seeks an accounting. A claim for accounting is generally
an equitable remedy.66

Under Alaska law, “[e]quity has jurisdiction to compel an

accounting where any fiduciary relationship exists.”67 A “fiduciary relationship exists when
one imposes a special confidence in another, so that the latter, in equity and good
conscience, is bound to act in good faith and with due regard to the interests of the one
imposing the confidence.”68
Mr. Matthews has not provided any facts to demonstrate that he and TD
Ameritrade had a fiduciary relationship. Thus, he has failed to plead a plausible factual
basis for an accounting remedy. Therefore, the Court will grant TD Ameritrade’s Motion
to Dismiss as to Mr. Matthews’ Eighth Counterclaim with prejudice and without leave to
amend.
CONCLUSION
Therefore, IT IS ORDERED that TD Ameritrade’s Motion to Dismiss at Docket 41
is GRANTED as follows:
Mr. Matthews’ First, Second, and Third Counterclaims, the copyright claims, are
dismissed without prejudice and with leave to amend.

66

See Wolff v. Arctic Bowl, Inc., 560 P.2d 758, 770 (Alaska 1977).

67

Id.

Seybert v. Cominco Alaska Expl., 182 P.3d 1079, 1090 (Alaska 2008) (quoting Munn v.
Thornton, 956 P.2d 1213, 1220 (Alaska 1998)).
68

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Mr. Matthews’ Fourth Counterclaim, the Alaska Unfair Trade Practices Act claim,
is dismissed with prejudice.
Mr. Matthews’ Fifth Counterclaim alleging an unspecified breach of contract and
breach of the implied covenant of good faith and fair dealing is dismissed without
prejudice and with leave to amend.
Mr. Matthews’ Sixth Counterclaim for breach of contract and breach of the implied
covenant of good faith and fair dealing based on the account termination is dismissed
with prejudice.
Mr. Matthews’ Seventh Counterclaim for trespass to real property is dismissed with
prejudice.
Mr. Matthews’ Eighth Counterclaim for accounting is dismissed with prejudice.
Mr. Matthews may file a Second Amended Answer and Counterclaim(s) consistent
with the terms of this order, but must do so no later than November 27, 2017. If Mr.
Matthews fails to file a Second Amended Answer and Counterclaim(s) that is consistent
with the terms of this order by that date, all of his remaining counterclaims may thereafter
be dismissed with prejudice and without further notice to him.
DATED this 25th day of October, 2017 at Anchorage, Alaska.
/s/ Sharon L. Gleason
UNITED STATES DISTRICT JUDGE

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