Anderson et al v. Edward D. Jones & Co., L.P. et al

Filing 60

ORDER signed by District Judge John A. Mendez on 11/8/2019 GRANTING 48 Motion to Dismiss in its entirety. Plaintiffs' 47 Second Amended Complaint is DISMISSED WITH PREJUDICE. CASE CLOSED. (York, M)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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No.
IN RE EDWARD D. JONES & CO.,
L.P. SECURITIES LITIGATION

2:18-cv-00714-JAM-AC

ORDER GRANTING DEFENDANTS’
MOTION TO DISMISS

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In March 2018, Plaintiffs filed a federal securities and state
breach of fiduciary duty putative class action against investment
firm Edward D. Jones, L.P., as well as a set of companies and
individuals related to the investment firm (together “Defendants”
or “Edward Jones”).

Compl., ECF No. 1.

Defendants filed a motion

to dismiss. ECF No. 29. The Court granted their motion, dismissing
all of Plaintiffs’ claims without prejudice.

July 9, 2019 Order

(“Order”), ECF No. 46.
Plaintiffs filed a Second Amended Complaint (“SAC”), ECF No.
47, in which they attempted to cure their claims’ deficiencies and
raised several new claims.
Plaintiffs’

claims.

Mot.

Once again, Defendants move to dismiss
To

Plaintiffs oppose this motion.

Dismiss

(“Mot.”),

Opp’n, ECF No. 52.

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ECF

No.

48.

The Court,

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however, finds Plaintiffs’ Second Amended Complaint still fails to

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state a claim for which relief can be granted.

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and the reasons stated below, the Court GRANTS Defendants’ motion

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to dismiss, and DISMISSES Plaintiffs’ claims WITH PREJUDICE.1

For this reason,

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I.

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The

Parties

FACTUAL ALLEGATIONS

are

intimately

familiar

with

Plaintiffs’

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allegations and claims and they will not be repeated in detail

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here.

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their

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accounts.

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conversion violated § 10(b) of the Securities Exchange Act of 1934

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(the “1934 ACT”); Rule 10b-5(a), (b), and (c); the Investment

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Advisers Act of 1940 (the “Advisers Act”); and state common law.

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SAC ¶ 1.

In short, Plaintiffs contend Defendants improperly moved
Edward

Jones

commission-based

See generally SAC.

accounts

into

fee-based

Plaintiffs allege this account

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II.

OPINION

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A.

Judicial Notice and Incorporation by Reference

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“Generally, district courts may not consider material

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outside of the pleadings when assessing the sufficiency of a

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complaint under Rule 12(b)(6) of the Federal Rules of Civil

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Procedure.”

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998 (9th Cir. 2018).

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rule: the incorporation-by-reference doctrine, and judicial

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notice under Federal Rule of Evidence 201.”

Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988,
However, “there are two exceptions to this

Id.

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This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was
scheduled for October 8, 2019.
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In its previous Order, this Court took judicial notice of

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the existence of Edward Jones’ SEC filings, public comments, and

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reports.

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ECF no. 29, Exs. 1-6, 34-38, 41, 43-44).

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This Court also considered documents, under the incorporation-

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by-reference doctrine: Nov. 2018 Mot., Exs. 7-12, 14-33.

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Order at 6-7.

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November 2018 Motion to Dismiss (“Nov. 2018 Mot.”),
See Order at 5-7.

See

The Court, again, considers these exhibits.

Defendants also request the Court consider Exhibit 39 under
the incorporation by reference doctrine.

RJN, ECF No. 49.

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Defendants contend this exhibit confirms Plaintiff Janet Goral

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invested in “covered securities” and is relevant to the issue of

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Securities Litigation Uniform Standards Act (“SLUSA”)

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preclusion.

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ECF No. 53.

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Id.

Plaintiffs oppose this request.

RJN Opp’n,

The incorporation by reference doctrine allows district

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courts to consider documents attached to a complaint.

U.S. v.

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Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).

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this doctrine to consider documents not attached to a complaint,

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but only if “the plaintiff refers extensively to the document or

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the document forms the basis of the plaintiff’s claim.”

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document “forms the basis of the plaintiff’s claim” when the

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plaintiff’s claim “necessarily depend[s]” upon that document.

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Khoja, 899 F.3d at 1002.

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whether Plaintiffs’ claim “necessarily depends” on Exhibit 39

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because the exhibit is completely redacted.

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Moreover, Plaintiffs “concede[] that the case involves ‘covered’

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securities,” RJN, at 6 n.2, so the Court need not consider

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Exhibit 39 for that purpose.

Courts may also use

Id.

A

Here, the Court cannot determine

Mot., Ex. 39.

The Court therefore DENIES
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Defendants’ request to incorporate Exhibit 39 by reference.

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B.

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Analysis
1. Breach of Fiduciary Duty

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Defendants argue Plaintiffs’ breach of fiduciary duty

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claims under California and Missouri state law remain preempted

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by SLUSA.

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noted, “SLUSA bars a Plaintiff class from bringing (1) a covered

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class action (2) based on state law claims (3) alleging that

Mot. at 14.

The Court agrees.

The Court previously

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defendants made a misrepresentation or omission or employed any

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manipulative or deceptive device (4) in connection with the

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purchase or sale of (5) a covered security.”

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Advisors, Inc. v. Schwab Investments, 904 F.3d 821, 828 (9th

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Cir. 2018).

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preempts a state cause of action does not turn on whether

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plaintiff gives the “same name or title” to the federal and

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state claims.”

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preemption depends upon “the gravamen or essence the claim.”

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Id.

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a SLUSA claim when “the complaint describes conduct by the

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defendant that would be actionable under the 1933 or 1934 Acts”

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and “that conduct necessarily will be part of the proofs in

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support of the state law cause of action.” Id.

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circumstances, SLUSA bars the state law claim, regardless of

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whether the underlying conduct is “an essential predicate of the

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asserted state law claim.”

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Northstar Fin.

Notably, this Court clarified that whether SLUSA

Order at 21 (quoting Id. at 829).

Rather, SLUSA

A state law claim shares the same “gravamen or essence” of

In those

Id.

In its July 9, 2019 Order, the Court found SLUSA barred
Plaintiffs’ fiduciary duty claims because the allegations
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underlying those claims served as “the same allegations . . . on

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which Plaintiffs’ securities claims rel[ied].”

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Once again, Plaintiffs fail to demonstrate the deceptive conduct

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alleged in their securities claims, is not also at the heart of

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their state claims.

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state claim is Defendants “engag[ed] in self-dealing to

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Plaintiffs’ detriment by placing them in fee-based accounts

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without regard to suitability.”

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maintain this conduct, unlike the conduct underlying their

Order at 22.

Plaintiffs argue the “gravamen” of their

Opp’n at 15.

Plaintiffs

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federal securities claim, is “not based on misrepresentations or

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omissions.”

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federal securities claim pages before, Plaintiffs characterized

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Defendants’ failure to conduct a suitability analysis as a

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“misleading omission.”

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analysis, or lack thereof was either an omission or it wasn’t—

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Plaintiffs cannot have it both ways.

Opp’n at 12.

And yet, when describing their

Opp’n at 2.

Defendants’ suitability

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For the same reasons articulated in this Court’s first

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dismissal order, SLUSA bars Plaintiffs’ state law fiduciary duty

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class claims.

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jurisdiction over Plaintiffs’ breach of fiduciary duty claims

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under California and Missouri Law (Counts I and II).

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Pac. Inv. Mgmt. Co. LLC, 869 F.3d 844, 847 (9th Cir. 2017)

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(“[D]ismissals under SLUSA are jurisdictional.”).

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finds amendment to these claims is futile and DISMISSESS them

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WITH PREJUDICE.

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Accordingly, this Court lacks subject-matter

Hampton v.

The Court

2. Breach of Contract
Plaintiffs’ Second Amended Complaint introduces new breach
of contract claims.

However, Plaintiffs fail to show these
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allegations are not likewise premised on misstatements or

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omissions.

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Defendants argue “Plaintiff’s contract claims are

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repackaged versions of the Rule 10b-5 claims,” because they

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assert “false promises or promissory fraud.”

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Plaintiffs deny misrepresentations or omissions are factual

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predicates to their breach of contract claims.

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Instead, Plaintiffs assert their breach of contract claims rest

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upon the allegation “Edward Jones never intended to provide and

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did not provide the additional services purportedly warranting

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the fees imposed in Advisory Solutions accounts.”

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While the Court does not agree that the breach of contract

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claims repackage Plaintiffs’ specific securities claims, the

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Court does find that these claims repackage the elements of a

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security claim, generally.

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Mot. at 15.

Opp’n at 13.

Opp’n at 14.

To state a Rule 10b-5 claim, Plaintiffs must allege “(1)

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material misrepresentation or omission by the defendant; (2)

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scienter; (3) a connection between the misrepresentation or

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omission and the purchase or sale of a security; (4) reliance

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upon the misrepresentation or omission; (5) economic loss; and

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(6) loss causation.” Halliburton Co. v. Erica P. John Fund,

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Inc., 573 U.S. 258, 267 (2014).

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claims turn upon Defendants’ alleged misrepresentations or

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omissions.

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of their promised yearly review (one of the promised additional

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services) as a “sham” since the review was a “10-minute phone

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call” that could be made every “18 months to 2 years” instead of

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yearly.

Plaintiffs’ breach of contract

For example, Plaintiffs describe Defendants’ breach

SAC ¶¶ 128-129.

The Oxford dictionary defines “sham”
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as “something...that is not really what it purports to be.”

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Plaintiffs’ own terms, these newly-raised breach of contract

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claims rests upon the old idea that Defendants misrepresented

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what they were promising.

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By

Relying on Pross v. Katz, Plaintiffs argue SLUSA does not

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preempt their breach of contract claims because the promises

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made in the contract were not “in connection” with a purchase or

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sale of security since they were not “part of the consideration

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for the sale.”

Opp’n at 14; 784 F.2d 455, 456-57 (2nd Cir.

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1986).

In Pross, the Second Circuit found a future contractual

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promise is “in connection” with a sale of securities, if it is

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“part of the consideration for the sale.”

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in 1986, is no longer persuasive or reliable authority.

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2006, the Supreme Court held SLUSA’s “in connection with”

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requirement be read broadly, finding it “enough that the fraud

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alleged ‘coincide’ with a securities transaction.”

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Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 85

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(2006).

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interpretation of the phrase.

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decision in Dabit, the Ninth Circuit adopted a more expansive

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interpretation of the phrase “in connection with.”

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v. Charles Schwab Corporation, 878 F.3d 1146, 1155 (9th Cir.

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2017) (stating SLUSA’s

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“satisfied if misrepresentations simply ‘coincide with a

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securities transaction.’”); Freeman Investments, L.P. v. Pacific

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Life Ins. Co., 704 F.3d 1110, 117 (9th Cir. 2013)(finding even

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if plaintiffs cannot satisfy the 10b-5(b) standing requirement,

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SLUSA may bar state law class actions).

Id.

Pross, decided
In

Merrill

This effectively overruled the Second Circuit’s narrow
Following the Supreme Court’s

See Fleming

“in connection with” requirement is

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Plaintiffs’ breach of

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contract claims undeniably “coincid[e] with a securities

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transaction,” since they allege Defendants’ breach was partly

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due to them not placing its “clients’ interests first” and

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“profit[ing] at client expense.”

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(emphasizing the false promise of “best execution” is in fact

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“in connection with” a sale of securities).

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See Fleming, 878 F.3d at 1155

The Court therefore finds SLUSA also bars Plaintiffs’ state

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law breach of contract claims.

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Court finds amending these claims is futile and DISMISSES

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The

Plaintiffs’ claims WITH PREJUDICE.

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Hampton, 869 F.3d at 847.

3. Unjust Enrichment
Plaintiffs’ Second Amended Complaint also added an unjust

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enrichment claim.

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rests upon the same allegations supporting their breach of

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contract and breach of fiduciary duties claims. SAC ¶ 155.

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Court finds Defendants’ alleged misrepresentations and omissions

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are a factual predicate of this claim.

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this claim and deprives this Court of jurisdiction.

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is DISSMISSED WITH PREJUDICE.

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SAC ¶¶ 155-58.

Plaintiffs contend this claim

The

Accordingly, SLUSA bars
This claim

4. Rule 10b-5(b)
This Court previously dismissed Plaintiffs’ 10b-5(b)claims,

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since they failed to allege the prima facie elements of these

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claims.

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claims in the Second Amended Complaint.

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Order at 8.

Plaintiffs reassert their Rule 10b-5(b)

Rule 10b-5 “prohibit[s] making any material misstatement or

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omission in connection with the purchase or sale of any

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security.”

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claim, Plaintiffs must allege “(1) material misrepresentation or

Halliburton, 573 U.S. at 267.

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To state a Rule 10b-5

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omission by the defendant; (2) scienter; (3) a connection

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between the misrepresentation or omission and the purchase or

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sale of a security; (4) reliance upon the misrepresentation or

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omission; (5) economic loss; and (6) loss causation.”

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(internal citations and quotations omitted).

Id.

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In its previous Order, the Court made clear that a

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complaint stating claims under section 10(b) and Rule 10b-5

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“must satisfy the dual pleading requirements of Federal Rule of

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Civil Procedure 9(b) and the PSLRA [Private Securities

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Litigation Reform Act].”

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552 F.3d 981, 990 (9th Cir. 2009), as amended (Feb. 10, 2009).

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Rule 9(b) requires that “circumstances constituting fraud” be

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“state[d] with particularity.”

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PSLRA, the complaint must “specify each statement alleged to

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have been misleading, the reason or reasons why the statement is

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misleading, and, if an allegation regarding the statement or

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omission is made on information and belief, the complaint shall

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state with particularity all facts on which the belief is

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formed.”

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Zucco Partners, LLC v. Digimarc Corp.,

Fed. R. Civ. P. 9(b).

Under the

15 U.S.C. § 78u-4(b)(1).

Defendants argue Plaintiffs have once again “failed to

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satisfy the heightened pleading standards applicable to their

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10b-5(b) claims.”

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Mot. at 2.

This Court agrees.

a. Material Misstatements or Omissions
Under Rule 10b-5(b), it is unlawful “to make any untrue

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statement of a material fact or to omit to state a material fact

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necessary in order to make the statements made...not

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misleading.”

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material if “there is a substantial likelihood that a reasonable

17 C.F.R. §240.10b-5(b).

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An omitted fact is

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[investor] would consider it important.”

Omnicare, Inc. v.

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Laborers Dist. Council Const. Indus. Pension Fund, 135 S. Ct.

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1318, 1333 (2015) (quoting TSC Indus., Inc. v. Northway, Inc.,

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426 U.S. 438, 449 (1976)).

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substantial likelihood that the disclosure of the omitted fact

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would have been viewed by the reasonable investor as having

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significantly altered the ‘total mix’ of information made

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available.”

“Put another way, there must be a

TSC Indus., 426 U.S. at 499.

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As they did in their previous complaint, Plaintiffs

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continue to frame their claims as based on a set of “material

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omissions.”

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allege Defendants “concealed the Suitability and [Department of

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Labor “DOL”] Fiduciary Rule Omissions and then improperly

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transferred Plaintiffs’ assets from commission-based accounts

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into fee-based accounts.”

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provided “clear and robust disclosures” that “foreclose the

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theories Plaintiffs continue to pursue.”

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agrees.

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of the totality of Edward Jones’ disclosures in the Agreement,

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the Fund Models Brochure, the Account Client Services Agreement,

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the Schedule of Fees and the ‘Making Good Choices’ brochure.”

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Order at 8.

SAC ¶¶ 16-78; Am. Compl. ¶¶ 1, 104-114.

Opp’n at 4.

Plaintiffs

Defendants maintain they

Mot. at 3.

The Court

These alleged omissions remain “not actionable in light

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i. Suitability Omission

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Plaintiffs allege “Defendants conducted no suitability

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analysis prior to moving commission-based clients into fee-based

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accounts.”

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found this claim was not actionable because it “dovetails” with

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the mistaken premise that the costs associated with fee-based

Opp’n at 2.

In its July 9, 2019 Order, this Court

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accounts were misrepresented.

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this is still the case.

Order at 10.

Mot. at 3.

Defendants argue

The Court agrees.

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To distance themselves from their failed fees claim in

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their First Amended Complaint, Plaintiffs attempt to reformulate

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their suitability omission argument as follows:

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•

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Edward Jones was required as a fiduciary and under
FINRA regulations to perform a suitability analysis,

•

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Edward Jones did not provide Financial Advisors
(“FAs”) with the means to conduct a suitability

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analysis to assess whether a fee-based account was

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suitable or otherwise in the best interest of

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clients, and

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•

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SAC ¶ 160.

But this argument’s substance remains virtually

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unchanged.

The crux of Plaintiffs’ suitability omission claim

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is still that these fee-based accounts “were not suitable for

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clients who traded infrequently because their fees would

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increase.”

FAs did not conduct a suitability analysis.

Order at 10; SAC ¶¶ 161-166.

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As the Court previously determined, this claim fails

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because Plaintiffs received documents: expressly outlining the

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schedule of fees for the Advisory Programs, providing a specific

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estimate of the recipient’s anticipated yearly fees, and

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conceding that Advisory Programs could “be more expensive than

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other investment choices over the long term.”

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These disclosures fatally undermine Plaintiffs’ allegations that

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Defendants omitted information of these accounts’ suitability.

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Mot. at 4.

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Order at 9.

Plaintiffs attempt to discredit any disclosures they
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received on the details of these accounts by arguing Defendants

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are not permitted under FINRA to put the onus of conducting a

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suitability review on its clients.

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Plaintiffs concede filling out Defendants’ client questionnaires

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prior to converting their accounts into fee-based accounts.

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Order at 10.

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analysis” Defendants conducted, Mot. at 4, further undermining

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Plaintiffs’ allegations that Defendants did not conduct a

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suitability analysis.

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Id.

At the same time,

These questionnaires “were part of the suitability

Lastly, as the Court stated in its previous order, “this

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alleged omission is more accurately stated as a

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misrepresentation by Edward Jones that the Advisory Programs

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were suitable for the Plaintiffs.”

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genuine allegation that Edward Jones failed to conduct a

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suitability analysis, Plaintiffs’ suitability-omission theory of

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liability falls under Rule 12(b)(6).

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finds Plaintiffs failed to allege a suitability claim.

Order at 10.

Absent a

The Court consequently

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ii. DOL Fiduciary Rule Omission

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Plaintiffs’ DOL Fiduciary Rule omission claim also remains

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essentially the same.

See Order at 10.

Plaintiffs contend

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Defendants failed to disclose (1) the DOL adopted a Fiduciary

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Rule (“DOL Fiduciary Rule”) and (2) that this rule “did not

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require Edward Jones to transfer [Plaintiffs’] assets from

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commission-based to fee-based accounts.”

SAC ¶ 160.

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In its July 9, 2019 Order, this Court found this claim not

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actionable, since “Plaintiffs [did] not specifically allege why

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this omission was material to this investment decision under the

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circumstances, particularly given Plaintiffs had the choice of
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signing the authorization [prior to the transfer of their

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accounts].”

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nothing new to change this conclusion.”

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agrees.

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Order at 11.

Defendants argue “Plaintiffs plead
Mot. at 7.

The Court

Once again, Plaintiffs make the conclusory allegation “the

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DOL Fiduciary Rule Omissions unquestionably would have been

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material to these clients’ decision to move to fee-based

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accounts,” without specifically alleging why it would be

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material.

Opp’n at 6.

They merely assert “Defendants had a

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duty to disclose to clients the basis for systematically

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transferring their assets.”

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and equally conclusory.

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state a claim upon which relief can be granted.

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b.

Id.

This assertion is rather vague

The allegations thus still fail to

Scienter

Defendants argue Plaintiffs fall short of adequately

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pleading a “strong inference” of “scienter.”

Mot. at 8.

To

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adequately plead scienter, the complaint must “state with

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particularity facts giving rise to a strong inference that the

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defendant acted with the required state of mind.”

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§ 78u-4(b)(2).

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complaint must “allege that the defendants made false or

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misleading statements either intentionally or with deliberate

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recklessness,” where recklessness still “reflects some degree of

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intentional or conscious misconduct.”

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411 F.3d 1006, 1014-15 (9th Cir. 2005), as amended (Aug. 4,

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1999).

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be more than merely plausible or reasonable—it must be cogent

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and at least as compelling as any opposing inference of

15 U.S.C.

To meet this state of mind requirement a

In re Daou Sys., Inc.,

To qualify as “strong,” “an inference of scienter must

13

1

nonfraudulent intent.”

2

Ltd., 551 U.S. 308, 314 (2007).

3

complaint in its entirety, as well as other sources courts

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ordinarily examine when ruling on Rule 12(b)(6) motions to

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dismiss” to determine “whether all of the facts alleged, taken

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collectively, give rise to a strong inference of scienter, not

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whether any individual allegation, scrutinized in isolation,

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meets that standard.”

9

Tellabs, Inc. v. Makor Issues & Rights,
“[C]ourts must consider the

Id. at 322-23 (emphasis in original).

i. Suitability Omission

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Plaintiffs conclude Defendants had the required scienter

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because “Defendant Weddle knew or recklessly disregarded that

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the new computer system did not contain tools necessary to

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conduct a suitability analysis,” yet continued to direct FA’s to

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convert Plaintiffs’ accounts.

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to demonstrate how knowledge that a computer program could not

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conduct a suitability analysis, amounts to knowledge that

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Defendants were not conducting a suitability analysis at all.

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As Defendants point out, the computer was not how the

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“[suitability] work was done”.

SAC ¶ 183.

But Plaintiffs fail

Mot. at 8.

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Plaintiffs also imply Defendants’ profits from converting

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Plaintiffs’ accounts prove Defendant Weddle knew or recklessly

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disregarded that these accounts were converted without a

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suitability analysis.

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that time, Defendant Weddle boasted in EDJ’s SEC filings that

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its fee-based revenue had exploded, largely due to converting

26

existing commission-based accounts into fee-based accounts.”).

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But, as the Court makes clear in its prior order, “the mere fact

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that Edward Jones financially benefited from certain clients

See Opp’n at 7 (“significantly, during

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choosing to move into fee-based accounts,” “does not establish

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an intent to defraud that is at least as compelling as an

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opposing inference of nonfraudulent intent.”

4

Rigel Pharm,, Inc. Sec. Litig., 697 F.3d 869, 884 (9th Cir.

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2012)(“allegations of routine corporate objectives such as the

6

desire to obtain good financing and expand are not, without

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more, sufficient to allege scienter; to hold otherwise would

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support a finding of scienter for any company that seeks to

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enhance its business prospects.”).

10
11

Order at 13; In re

ii. DOL Fiduciary Rule Omission
Plaintiffs also fail to establish the requisite scienter

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for the DOL Fiduciary Rule theory of liability.

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the Court’s prior admonition, Plaintiffs merely state they “do

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not need to [establish scienter] at this stage of the

15

litigation.”

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Plaintiffs needed to “establish an intent to defraud that is at

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least as compelling as an opposing inference of nonfraudulent

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intent.”).

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inference of scienter required under Rule 10b-5.

Opp’n at 7; see also Order at 12-14 (explaining

Plaintiffs thus fail to adequately allege the strong

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21

Notwithstanding

c.

Reliance

Rather than make a traditional reliance argument,

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Plaintiffs continue to contend they are entitled to a

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presumption of reliance.

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connection between the alleged fraud and the securities

25

transaction.”

26

939 (9th Cir. 2009).

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plaintiffs to demonstrate reliance is “by showing that [they

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were] aware of a company’s statement and engaged in a relevant

“Reliance establishes the casual

Desai v. Deutsche Bank Sec. Ltd., 573 F.3d 931,
Traditionally, the most direct way for

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transaction...based on that specific misrepresentation.”

2

P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804, 810 (2011).

3

However, Plaintiffs alleging section 10(b) violations based on

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omissions of material fact are entitled to a presumption of

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reliance.

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1999).

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cases that allege both misstatements and omissions unless the

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case can be characterized as one that primarily alleges

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omissions.”

10

Erica

Binder v. Gillespie, 184 F.3d 1059, 1063 (9th Cir.

This presumption, though, “should not be applied to

Id. at 1064.

Defendants argue Plaintiffs are not entitled to a

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presumption of reliance.

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previous order, these claims are more properly characterized as

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misstatements.

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any new arguments to persuade the Court to the contrary, the

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Court maintains this view.

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17

As the Court determined in its

Order at 14-15. Since Plaintiffs have not raised

d.

Loss Causation

Plaintiffs’ loss causation allegations in their Second

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Amended Complaint are largely identical to those in their First

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Amended Complaint.

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and DOL Fiduciary Rule Omission caused their losses—increased

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fees and decreased returns—because if Defendants had disclosed

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those material facts, Plaintiffs would not have moved their

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assets into fee-based accounts.”

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is “a causal connection between the material misrepresentation

25

and the loss” experienced by the plaintiff.

26

v. Broudo, 544 U.S. 336, 342 (2005).

27

a plaintiff “must demonstrate that an economic loss was caused

28

by the defendant’s misrepresentations, rather than some

Plaintiffs argue “Defendants’ Suitability

Opp’n at 8.

16

Loss causation

Dura Pharm., Inc.

To allege loss causation,

1

intervening event.”

Lloyd v. CVB Fin. Corp., 811 F.3d 1200,

2

1209 (9th Cir. 2016).

3

the revelation of that misrepresentation or omission was a

4

substantial factor in causing a decline in the security’s price,

5

thus creating an actual economic loss for the plaintiff.”

6

Nuveen Mun. High Income Opportunity Fund v. City of Alameda,

7

Cal., 730 F.3d 1111, 1119 (9th Cir. 2013) (quoting McCabe v.

8

Ernst & Young, LLP., 494 F.3d 418, 425-26 (3rd Cir. 2007)).

9

“plaintiffs need only show a causal connection between the fraud

In turn, “the plaintiff must show that

10

and the loss by tracing the loss back to the very facts about

11

which the defendant lied.”

12

Solar Inc., 881 F.3d 750, 753 (9th Cir. 2018) (internal

13

But

citations and quotations omitted).

14

Mineworkers’ Pension Scheme v. First

Plaintiffs again fail to sufficiently allege loss

15

causation.

16

securities fraud case because Plaintiffs’ allegations do not

17

address the fee-based accounts’ overall performance.

18

16.

19

result of the higher fees they pay by virtue of being in a fee-

20

based account.

21

there is no actionable omission related to the increase in fees

22

because the relevant information was disclosed.

23

For these reasons, and those discussed in the Court’s prior

24

order, Plaintiffs have not demonstrated loss causation.

Order at

Rather, Plaintiffs contend the loss causation is merely a

25
26

The Court previously noted this is not a typical

Opp’n at 8.

e.

The Court has already explained

Order at 16.

Conclusion

Plaintiffs failed to adequately allege any element in their

27

Rule 10b-5(b) claim under Federal Rule of Civil Procedure 9(b)

28

and PSLRA.

This Court therefore DISMISSES these claims WITH
17

1

PREJUDICE.

2
3

5. Rules 10b-5(a) and (c)

4

Plaintiffs also attempt to revive their 10b-5(a) and (c)

5

claim, this time alleging “Defendants engaged in a scheme to

6

defraud by converting Plaintiffs’ assets from commission-based

7

accounts into fee-based ones without first conducting a

8

suitability analysis” and by not providing financial advisors

9

with a computer system containing suitability analysis tools.

10

Opp’n at 14; see also SAC ¶¶ 215-234.

11

Plaintiffs fail to add anything beyond their 10b-5(b)claim and

12

fail to allege adequate particularized factual allegations

13

suggesting Defendants “committed a manipulative or deceptive

14

act.”

15

Mot. at 11.

Defendants argue

The Court agrees.

As the Court previously stated, Rules 10b-5(a) and (c) make

16

it unlawful for a person to use a “device, scheme, or artifice

17

to defraud,” or engage in “any act, practice, or course of

18

business which operates or would operate as a fraud or deceit,”

19

in connection with the purchase or sale of a security.

20

C.F.R. § 240.10b-5.

21

to both a violation of subsection (b) and subsection (a) and/or

22

(c),

23

must allege a “device, scheme, or artifice to defraud,” or an

24

“act, practice, or course of business which would operate as a

25

fraud,” in addition to the standard elements of a 10(b)

26

violation, See Stoneridge Inv. Partners, LLC v. Sci.-Atlanta,

27

552 U.S. 148, 158 (2008); S.E.C. v. Loomis, 969 F. Supp. 2d

28

1226, 1237 (E.D. Cal. 2013)(quoting In re Alstom SA, 406 F.

17

While “the same set of facts may give rise

to state a claim under the latter subsections, a plaintiff

18

1

Supp. 2d 433, 475 (S.D.N.Y. 2005)).

2

In its previous Order, the Court dismissed Plaintiffs’ Rule

3

10b-5(a) and (c) claim because it was “nothing more than a

4

repackaging of the Rule 10b-5(b) omission claims....”

5

18.

6

largely rests on Defendants’ alleged suitability omissions

7

during the conversion of commission-based accounts into fee-

8

based ones.

9

This remains the case.

Order at

Plaintiffs’ scheme liability claim

See SAC ¶¶ 216-225.

Moreover, Plaintiffs’ scheme liability claim fails again to

10

allege violations actionable as a deceptive scheme.

11

contend the transaction itself of converting the accounts was

12

deceptive because Edward Jones supposedly did not conduct a

13

suitability analysis, prior to the conversion, through a

14

computer program.

15

fails because the deceptive conduct must have had “the principal

16

purpose and effect of creating a false appearance of fact in

17

furtherance of the scheme.”

18

F.3d 1041 (9th Cir. 2008).

19

conducted a suitability analysis; they simply did not conduct

20

one through the computer program Plaintiffs endorse.

21

failure to conduct a suitability analysis through a non-existent

22

computer program did not have the “principal purpose and effect

23

of creating a false appearance”.

24

SAC ¶ 224, 226-227.

Plaintiffs

But this allegation

Simpson v. Homestore.com, Inc., 519
As the court noted above, Defendants

Defendants

The Court further finds Plaintiffs have failed to properly

25

allege the standard elements of a 10(b) violation: reliance,

26

scienter, and loss causation.

27

Plaintiffs’ scheme liability claim under Rules 10b-5(a) and (c)

28

(Count VII) WITH PREJUDICE.

The Court therefore DISMISSES

19

1

6. Section 20(a)

2

To establish a cause of action under Section 20(a),

3

“plaintiff must first prove a primary violation of underlying

4

federal securities laws, such as Section 10(b) or Rule 10b-5,

5

and then show that the defendant exercised actual power over the

6

primary violator.”

7

1046, 1052 (9th Cir. 2014).

8

allege a primary violation under Section 10(b).

9

Section 20(a) control person claim (Count VIII) therefore fails

10

In re NVIDIA Corp. Sec. Litig., 768 F.3d
Plaintiffs failed to adequately
Plaintiffs’

and is DISMISSED WITH PREJUDICE.

11

7. Section 80b-1 et seq.

12

In their Second Amended Complaint, Plaintiffs raised

13

Investment Adviser Act claims for the first time.

SAC ¶¶ 256-

14

294.

15

Mot. at 14.

16

Opposition to the Motion, Plaintiffs withdrew these claims in a

17

one sentence footnote.

18

failure to respond to an argument as a concession.

19

therefore DISMISSES these claims WITH PREJUDICE.

Defendants argue these claims fail as a matter of law.
Rather than respond to this argument in their

Opp’n at 15 n. 13.

The Court treats a
The Court

20
21
22

III.

ORDER

For the reasons set forth above, the Court GRANTS

23

Defendants’ Motion to Dismiss in its entirety.

24

Second Amended Complaint is DISMISSED WITH PREJUDICE.

25
26

IT IS SO ORDERED.
Dated: November 8, 2019

27
28
20

Plaintiffs’