Elvey v. TD Ameritrade, Inc.

Filing 13

MOTION to Dismiss First Amended Complaint filed by TD Ameritrade, Inc.. Motion Hearing set for 8/28/2007 09:30 AM in Courtroom 11, 19th Floor, San Francisco. (Attachments: # 1 Exhibit Attachment A)(Rubin, Lee) (Filed on 7/18/2007)

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Elvey v. TD Ameritrade, Inc. Doc. 13 Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 1 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MAYER, BROWN, ROWE & MAW LLP LEE H. RUBIN (SBN 141331) SHIRISH GUPTA (SBN 205584) Two Palo Alto Square, Suite 300 Palo Alto, CA 94306 Telephone: (650) 331-2000 Facsimile: (650) 331-2060 lrubin@mayerbrownrowe.com sgupta@mayerbrownrowe.com Attorneys for Defendant TD Ameritrade, Inc. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA--SAN FRANCISCO DIVISION MATTHEW ELVEY, an individual, and GADGETWIZ, INC., an Arizona corporation, on their own behalf and on behalf of all others similarly situated, Plaintiffs v. TD AMERITRADE, INC., a New York corporation, and DOES 1 to 100, Defendants. Case No. C 07 2852 MJJ MOTION TO DISMISS FIRST AMENDED COMPLAINT Judge: Martin J. Jenkins Date: Tuesday, August 28, 2007 Time: 9:30 a.m. Loc: Courtroom 11, 19th Floor MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Dockets.Justia.com Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 2 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page INTRODUCTION ......................................................................................................................... 1 ARGUMENT ................................................................................................................................. 4 I. STANDARD FOR A MOTION TO DISMISS ................................................................. 4 II. APPLICATION OF NEBRASKA LAW FORECLOSES CALIFORNIA STATE LAW CLAIMS .................................................................................................................. 4 III. FEDERAL LAW PREEMPTS PLAINTIFFS' STATE LAW CLAIMS .......................... 6 IV. FAILURE TO STATE A CLAIM UNDER THE CLRA, CAL. CIV. CODE 1770.................................................................................................................................... 8 A. Plaintiffs lack standing under Cal. Civ. Code 1770 ............................................ 9 B. Plaintiffs have not alleged conduct that constitutes a violation of the CLRA ................................................................................................................... 11 V. FAILURE TO STATE A CLAIM UNDER THE UCL, CAL. BUS. & PROF. CODE 17200 ................................................................................................................. 13 A. Plaintiffs lack standing under Cal. Bus. & Prof. Code 17200 .......................... 13 B. Plaintiffs have not alleged conduct that constitutes a violation of the UCL ........ 15 C. Because Plaintiffs' claims are based in part on securities transactions, the UCL does not apply ............................................................................................. 15 VI. FAILURE TO STATE A CLAIM FOR BREACH OF FIDUCIARY DUTY ................ 16 VII. FAILURE TO STATE A CLAIM FOR VIOLATION OF THE COMPUTER FRAUD AND ABUSE ACT, 18 U.S.C. 1030 ............................................................. 18 VIII. FAILURE TO STATE A CLAIM FOR VIOLATION OF THE CAN SPAM ACT, 15 U.S.C. 7704(A)(1).......................................................................................... 20 A. Plaintiffs lack standing under 15 U.S.C. 7704(a)(1) ......................................... 20 B. TD AMERITRADE's alleged conduct does not fall within the meaning of 15 U.S.C. 7704(a)(1) ......................................................................................... 23 CONCLUSION ............................................................................................................................ 24 -iMOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 3 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page CASES America Online, Inc. v. Superior Court, 90 Cal. App. 4th 1 (2001).............................................. 6 Balistreri v. Pacifica Police Dep't, 901 F.2d 696 (9th Cir. 1988) ................................................. 4 Bardin v. Diamlerchrysler Corp., 136 Cal. App. 4th 1255 (2006) .............................................. 12 Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955 (May 21, 2007) .................................................. 4 Bowen v. Ziasun Tech., Inc., 116 Cal. App. 4th 777 (2004) ........................................................ 15 Butera & Andrews v. IBM, 456 F.Supp. 2d 104 (D.D.C. 2006) ............................................ 19, 20 Chavez v. Blue Sky Natural Beverage Co., No. C-06-6609, 2007 WL 1691249 (N.D. Cal. June 11, 2007) ...................................................................................................... 10 Continental Airlines, Inc. v. Mundo Travel Corp., 412 F.Supp. 2d 1059 (E.D. Cal. 2006) ........................................................................................................................................ 5 Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119 (9th Cir. 2005) ............................ 8 Daugherty v. American Honda Motor Co., Inc., 144 Cal. App. 4th 824 (2006) ......................... 12 DeSciose v. Chiles, Heider & Co., 239 Neb. 195 (1991) ...................................................... 16, 17 Dietrich v. Bouer, 76 F. Supp. 2d 312 (S.D.N.Y. 1999).............................................................. 15 Epstein v. Wash. Energy Co., 83 F.3d 1136 (9th Cir.1996)........................................................... 4 Fate v. Covenant Care, No. RG03-087211, 2005 WL 4932974 (Cal. Super. Ct. Sept. 27, 2005) ....................................................................................................................... 14 Feitelberg v. Credit Suisse First Boston, LLC, 134 Cal. App. 4th 997 (2006) ............................. 8 Feitelberg v. Merrill Lynch & Co., Inc., 234 F. Supp. 2d 1043 (N.D. Cal. 2002 (same), aff'd, 353 F.3d 765 (9th Cir. 2003) ............................................................................. 7 Geier v. Am. Honda Motor Co., 529 U.S. 861 (2000) ................................................................... 8 Gordon v. Virtumondo, Inc., No. 06-0204, 2007 WL 1495395 (W.D. Wash. May 15, 2007) .......................................................................................................................... 21, 22 Hypertouch, Inc. v. Kennedy-Western University, No. C 04-05203, 2006 WL 648688 (N.D. Cal. 2006).................................................................................................. 22, 23 Kagan v. Gibraltar Savings and Loan Assoc., 35 Cal. 3d 582 (1984) ........................................ 10 Marder v. Lopez, 450 F.3d 445 (9th Cir. 2006) ............................................................................. 1 Medimatch, Inc. v. Lucent Technologies, Inc., 120 F. Supp. 2d 842 (N.D. Cal. 2000) .................................................................................................................................... 5, 6 Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 126 S. Ct. 1503 (2006) ............................ 7 Meyer v. Sprint Spectrum L.P., 59 Cal. Rptr. 3d 309 (2007) ........................................... 10, 11, 14 Navarro v. Block, 250 F.3d 729 (9th Cir. 2001) ............................................................................ 4 Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 459 (1992) ................................................ 5, 16 Perera v. Chiron Corp., No. C-95-20725 SW, 1996 WL 251936 (N.D. Cal. May 8, 1996) .................................................................................................................................. 15 Petersen v. Securities Settlement Corp., 226 Cal. App. 3d 1445 (1991) ..................................... 18 -iiMOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 4 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (continued) Page Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530 (9th Cir. 1984) ....................................... 4 Rowinski v. Solomon Smith Barney Inc., 398 F.3d 294 (3d Cir. 2005) ......................................... 7 SmileCare Dental Group v. Delta Dental Plan of Cal., Inc., 88 F.3d 780 (9th Cir. 1996) ........................................................................................................................................ 4 Sovereign Bank v. BJ's Wholesale Club, Inc., 427 F.Supp2d 526 (M.D. Pa. 2006) ................... 16 Twomey v. Mitchum, Jones & Templeton, Inc., 262 Cal. App. 2d 690 (1968) ............................ 17 U.S. v. Impulse Media, No. CV05-1285RSL, 2007 WL 1725560 (W.D. Wash. June 8, 2007) .......................................................................................................................... 24 U.S. v. Phillips, 477 F.3d 215 (5th Cir. 2007) ............................................................................. 19 Williams v. Gerber Products Co., 439 F.Supp. 2d 1112 (S.D. Cal. 2006) ...................... 11, 12, 15 STATUTES 15 U.S.C. 77p(b) ............................................................................................................... 6, 7, 8 15 U.S.C. 77r(b) ........................................................................................................................ 8 15 U.S.C. 78bb .................................................................................................................. 6, 7, 8 15 U.S.C. 7702 .......................................................................................................................... 23 15 U.S.C. 7704(a)(1) ........................................................................................................... 20, 23 15 U.S.C. 7706(g) ............................................................................................................... 20, 24 18 U.S.C. 1030 .................................................................................................................... 18, 19 47 U.S.C. 231(e)(4) ................................................................................................................... 20 Cal. Bus. & Prof. Code 17200 ...................................................................................... 11, 13, 15 Cal. Bus. & Prof. Code 17204 .................................................................................................. 14 Cal. Civ. Code 1750 ............................................................................................................ 11, 12 Cal. Civ. Code 1751 .................................................................................................................... 6 Cal. Civ. Code 1770 .......................................................................................................... 8, 9, 11 Cal. Civ. Code 1780(a) ............................................................................................................... 9 Cal. Civ. Code 1798.82(e) .............................................................................................. 3, 12, 13 Fed. R. Civ. P. 12(b) ...................................................................................................................... 4 Nebraska Rev. St. 59-1602 ......................................................................................................... 5 OTHER AUTHORITIES American Heritage Dictionary (4th ed. 2004) ............................................................................. 23 Black's Law Dictionary 62 (6th ed. 1990)................................................................................... 17 Petition for Commission Action to Protect the Investing Public from Unlawful and Deceptive Securities Promotions (Apr. 24, 2006), http://sec.gov/rules/petitions/petn4-519.pdf ............................................................................ 8 SEC Suspends Trading Of 35 Companies Touted In Spam Email Campaign (Mar. 8, 2007), http://sec.gov/news/press/2007/2007-34.htm ........................................................... 8 iii MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 5 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TO PLAINTIFFS AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE that on Tuesday, August 28, 2007 at 9:30 a.m., or as soon thereafter as the matter may be heard, Defendant TD Ameritrade, Inc. ("TD AMERITRADE") shall move this Court pursuant to Fed. R. Civ. P. 12(b) to dismiss Plaintiffs' First Amended Complaint filed on June 28, 2007 on the ground that all counts fail to state a claim upon which relief can be granted. TD AMERITRADE's motion to dismiss is supported by the following Memorandum of Points and Authorities, the Request for Judicial Notice, the [Proposed] Order, and any argument that may be heard by the Court. ISSUES TO BE DECIDED (Civil L.R. 7-4(a)(3)) 1. Whether Plaintiffs have adequately pled a claim for violation of the California Consumer Legal Remedies Act ("CLRA") (Count I). 2. Whether Plaintiffs have adequately pled a claim for violation of the California Unfair Competition Law ("UCL") (Count II). 3. Whether the federal securities law and the choice-of-law provision in Plaintiffs' Client Agreement with TD AMERITRADE foreclose Plaintiffs' CLRA and UCL claims. 4. (Count III). 5. Whether Plaintiffs have adequately pled a claim for violation of the Computer Whether Plaintiffs have adequately pled a claim for breach of fiduciary duty Fraud and Abuse Act ("CFAA") (Count IV). 6. Whether Plaintiffs have adequately pled a claim for violation of the CAN SPAM Act (Count V). -1MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 6 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 INTRODUCTION In their First Amended Complaint ("FAC"), Plaintiffs allege that they supplied TD AMERITRADE, Inc. ("TD AMERITRADE") with unique e-mail addresses that were never disclosed to any other person, and that they received spam at those e-mail addresses.1 It is on this basis that Plaintiffs claim that TD AMERITRADE has violated state and federal law by disclosing Plaintiffs' and other TD AMERITRADE customers' e-mail addresses, which ended up in the hands of spammers. Although Plaintiffs alternatively allege that this disclosure was inadvertent or intentional, the crux of their claim is that TD AMERITRADE made false representations to Plaintiffs (largely through TD AMERITRADE's Privacy Statement2) and breached a claimed fiduciary duty to Plaintiffs by not informing them of the suspected misappropriation by a third party of their e-mail addresses and by not warning them of the dangers of purchasing the stock being touted in the spam. The FAC reveals that this is not a case that arose as a result of a harm, but rather a case where plaintiffs manufactured a "harm" for the sole purpose of bringing suit. Indeed, the FAC makes clear that Elvey waited more than seven months after he began receiving spam to file this action and during that time he continued to have an account at TD AMERITRADE and collected spam e-mail with which to pursue this litigation. Although Plaintiffs have had ample time to plan this lawsuit, they have nevertheless failed to state a cognizable claim. Accordingly, their case should be dismissed. 1 To be specific, Plaintiff Gadgetwiz.com, Inc. (Gadgetwiz) alleges that one of its users supplied TD AMERITRADE with unique email addresses. FAC 27. Though this Motion to Dismiss refers throughout to "Plaintiffs," Gadgetwiz does not actually bring any counts. Each count specifies that it is brought by "Elvey, on his own behalf and on behalf of other California Resident Class members." FAC 63, 68, 76, 89, 95. Furthermore, Gadgetwiz has no basis to bring any claim under California law because it has not alleged that it has any connection with California and is not a California resident. FAC 6. In any event, Gadgetwiz could not bring any of the five counts in the FAC for reasons discussed herein. 2 The Privacy Statement is incorporated by reference into recent versions of the TD AMERITRADE Client Agreement, including those versions at all times relevant to the allegations in the FAC. The Client Agreement and incorporated Privacy Statement (attached to this motion as Attachment A) may properly be considered by this Court in deciding this motion. See Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (holding that documents cited in but not attached to a complaint may be considered on a motion to dismiss). -1MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 7 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Plaintiffs allegations fall into three categories. First, as described above, they allege that the unauthorized use of e-mail addresses by spammers causes TD AMERITRADE's Privacy Statement to be false and triggers a duty to make remedial disclosures. Plaintiffs base these claims on the California Consumer Legal Remedies Act ("CLRA") (Count I), the California Unfair Competition Law ("UCL") (Count II) and common law governing fiduciary duty (Count III). Second, Plaintiffs allege that unauthorized intrusions into TD AMERITRADE's computers somehow constitute violations of the Computer Fraud and Abuse Act ("CFAA") by TD AMERITRADE (Count IV). Finally, Plaintiffs allege that TD AMERITRADE should be held liable under the CAN SPAM Act for spam e-mail sent by unknown spammers without authorization (Count V). Plaintiffs' CLRA and UCL claims are foreclosed by federal securities law and by the choice-of-law provision in Plaintiffs' Client Agreement with TD AMERITRADE--which provides that Nebraska law shall govern any dispute. California courts have specifically held that the UCL does not apply to securities transactions. Moreover, Plaintiffs have not alleged-- and cannot allege--any damage sufficient to give them standing to bring these state law claims or to recover monetary damages. Plaintiffs also fail to allege the basis for their claim that the statements in the Privacy Statement are false or misleading. The Privacy Statement indicates that TD AMERITRADE will not deliberately disclose customer personal information to unauthorized third parties, and has made a "significant investment in leading-edge security software, systems, and procedures to . . . protect your personal, financial and trading information." But, it does not contain any false or misleading statements as contemplated by the CLRA or UCL. Most significantly, the Privacy Statement explicitly warns customers that even though TD AMERITRADE has made this investment in security, "no security system is absolutely impenetrable." The representations in the Privacy Statement are not rendered false or misleading by the FAC's allegation that unauthorized persons obtained customer email addresses from TD AMERITRADE. Moreover, the mere fact that e-mail addresses ended up in the possession of spammers cannot reasonably support the conclusory allegation that TD AMERITRADE intentionally provided the information to unauthorized persons. -2MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 8 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Furthermore, California law imposes no requirement that a company give notice to customers where there has been an unauthorized acquisition by a third party of customer e-mail addresses. See Cal. Civ. Code 1798.82(e) (excluding e-mail address from the definition of "personal information" the acquisition of which by security breach requires disclosure). While the known improper acquisition of personal customer information (such as social security numbers) does give rise to a duty to disclose, the FAC only offers unsupported speculation and conjecture--not facts--in claiming that this kind of information may have been acquired as well. Plaintiffs' efforts to bring suit under a common law claim for breach of fiduciary duty are equally unavailing. Plaintiffs have failed to allege any relationship with TD AMERITRADE that would give rise to a duty to disclose to them the alleged unauthorized acquisition of customer email information (or a duty to warn customers about the risks of stock spam). Here, the FAC wholly fails to allege that TD AMERITRADE exerted controlling influence over Plaintiffs' or any other customer's investment decisions--an essential element to a breach of fiduciary duty claim in the broker/client setting. Furthermore, TD AMERITRADE's Privacy Statement already disclosed the risk that third parties may obtain personal information. The CFAA claim also must be dismissed because the statute protects the owner of the computer (TD AMERITRADE, in this case) from unauthorized intrusions by third parties. If the access was not authorized, TD AMERITRADE could not be held liable to anyone else for the unauthorized intrusion by third parties (including its own employees) into its computer. And if the access was authorized, there would be no violation of the CFAA. Finally, the CAN SPAM Act claim must be dismissed because plaintiffs are not the type of Internet service providers who have standing to bring such a claim. Furthermore, they did not suffer the type of adverse effect necessary to support standing (a commercial service being inundated with spam to the point where its servers' performance is affected). Only the spammer who initiates the message or a party who induces the spammer to send a spam e-mail message on its behalf can be liable under the CAN SPAM Act. Plaintiffs have not alleged, and in good faith cannot allege, that TD AMERITRADE sent the spam messages or induced anyone else to do so on its behalf. -3MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 9 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I. If spammers gained access through TD AMERITRADE to e-mail addresses of some customers, TD AMERITRADE is the target of the theft, not the culprit. All of Plaintiffs' claims should be dismissed with prejudice. ARGUMENT STANDARD FOR A MOTION TO DISMISS A motion to dismiss pursuant to Rule 12(b)(6) tests the legal sufficiency of a claim. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is proper when the plaintiff has failed to assert a cognizable legal theory or failed to allege sufficient facts under a cognizable legal theory. See SmileCare Dental Group v. Delta Dental Plan of Cal., Inc., 88 F.3d 780, 782 (9th Cir. 1996); Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988); Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984). In order for a complaint to survive a motion to dismiss pursuant to Rule 12(b)(6), "a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 125 S.Ct. 1955, 1964-65 (May 21, 2007) (internal citations omitted). Indeed, "[c]onclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a claim." Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1996). Here, even accepting all of Plaintiffs' non-conclusory factual allegations as true, they have utterly failed to allege sufficient facts to state a cognizable claim. II. APPLICATION OF NEBRASKA LAW FORECLOSES CALIFORNIA STATE LAW CLAIMS Plaintiffs' claims are based on their status as "accountholders" at TD AMERITRADE. Accordingly, their claims are subject to the Client Agreement that TD AMERITRADE enters into with all of its accountholders. That Client Agreement contains a clear and unambiguous provision applying Nebraska law to all claims arising out of the client relationship. According to the choice-of-law provision, the "Agreement will be governed by the laws of the State of Nebraska." Attachment A, Sec. 13(k). The Client Agreement here incorporates the Privacy Statement by reference, so all claims arising from or related to the Privacy Statement must be brought under Nebraska law. Attachment A, Sec. 5(a). -4MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 10 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The California Supreme Court has explained that "a valid choice-of-law clause, which provides that a specified body of law `governs' the `agreement' between the parties, encompasses all causes of action arising from or related to that agreement, regardless of how they are characterized, including tortious breaches of duties emanating from the agreement or the legal relationship it creates." Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 459, 470 (Cal. 1992) (emphasis added). In Nedlloyd, the California Supreme Court found that the "governed by" language foreclosed a breach of fiduciary duty claim even though plaintiffs contended it was independent of the agreement. Id. at 469, 471. See also Continental Airlines, Inc. v. Mundo Travel Corp., 412 F.Supp. 2d 1059, 1065, 1070 (E.D. Cal. 2006) (finding similar choice-of-law provision broad enough to cover all causes of action, including a UCL claim). To determine whether a choice-of-law provision applies under California law, courts will look to "(1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties' choice of law." Nedlloyd, 3 Cal. 4th at 466. Only one of these two provisions need be met. Id. As Plaintiffs note, TD AMERITRADE "maintains its headquarters" in Omaha, Nebraska (FAC 7 ), so the first condition is met. See 3 Cal. 4th at 468 ("If one of the parties resides in the chosen state, the parties have a reasonable basis for their choice." (internal quotation marks omitted)). Courts have repeatedly held that a choice-of-law provision applying another state's law will foreclose a claim under the UCL. In Medimatch, Inc. v. Lucent Technologies, Inc., 120 F. Supp. 2d 842 (N.D. Cal. 2000), this court barred a claim under the UCL because the parties had agreed to apply New Jersey law. See also Continental Airlines, 412 F.Supp. at 1070 ("A valid choice-of-law provision selecting another state's law is grounds to dismiss a claim under California's UCL."). Once it is established that either test is met, courts will next inquire "whether the chosen state's law is contrary to a fundamental policy of California." Nedlloyd, 3 Cal. 4th at 466. Nebraska has a provision in its Consumer Protection Act that is virtually identical to the UCL. See Nebraska Rev. St. 59-1602 ("Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce shall be unlawful."). There is no material -5MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 11 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 difference between the two statutory provisions and thus a decision not to apply California law would not in any manner violate the state's public policy. Thus, the UCL claim should be barred by the choice-of-law provision contained in the Client Agreement. The CLRA claim should also be dismissed on this basis, notwithstanding the fact that Nebraska's consumer protection provisions may not be entirely coextensive with the CLRA. In Medimatch, this Court rejected plaintiff's position that the court should apply California law if it finds that the plaintiffs had no remedy under New Jersey law. "Plaintiffs' position is clearly untenable, and defendants correctly label it a `heads I win, tails you lose' argument." Medimatch, 120 F.Supp. 2d at 861. This Court laid out the following standard, "The mere fact that the chosen law provides greater or lesser protection than California law, or that in a particular application the chosen law would not provide protection while California law would, are not reasons for applying California law." Id. at 862. Defendant acknowledges that some courts have taken a narrower view than the Medimatch court, and found the CLRA not foreclosed by a choice-of-law clause due to its antiwaiver provision and its significantly broad level of protection. See America Online, Inc. v. Superior Court, 90 Cal. App. 4th 1, 15 (Cal. Ct. App. 1st Dist. 2001) (rejecting the choice of Virginia law due to the anti-waiver provision of Cal. Civ. Code 1751 and the fact that "Virginia's law provides significantly less consumer protection to its citizens than California law provides for our own, primarily because Virginia does not permit class actions"). But even if this Court were inclined to adopt this stricter view and were to conclude that Plaintiffs' CLRA claim should not be foreclosed by choice of law, it must still find Plaintiffs' UCL claim foreclosed because the UCL does not contain an anti-waiver clause and Nebraska law is not contrary to any public policy of California. III. FEDERAL LAW PREEMPTS PLAINTIFFS' STATE LAW CLAIMS. To prevent plaintiffs from circumventing the stringent requirements for pleading and proving a federal securities fraud class action, the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") preempts state law class action suits that allege securities fraud. In particular, SLUSA forbids (1) a "covered class action"; (2) based on state law; (3) by a private party; (4) -6MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 12 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 that alleges the defendant made an untrue statement, misrepresentation, or omission of material fact or used a manipulative or deceptive device or contrivance; (5) "in connection with the purchase or sale"; (6) of a "covered security." 15 U.S.C. 77p(b), 78bb(f)(1). Plaintiffs' statelaw CLRA, UCL, and fiduciary duty claims fall squarely within SLUSA preemptive scope. Since Plaintiffs seek damages on behalf of more than 50 prospective class members and on behalf of themselves and other named parties, they allege a "covered class action." FAC 51-54; 15 U.S.C. 77p(f)(2)(A)(i), 78bb(f)(5)(B)(i). Plaintiffs' CLRA, UCL, and fiduciary duty claims plainly are based on "the statutory or common law of [a] State." FAC 60-61, 66, 73-74; 15 U.S.C. 77p(b), 78bb(f)(1). And there is no doubt that each Plaintiff is a "private party." FAC 5-6; 15 U.S.C. 77p(b), 78bb(f)(1). The FAC is based on Plaintiffs' receipt of unsolicited commercial email touting stocks (see, e.g., FAC 1,18-20, 23-24, 27, 31) and is replete with allegations that TD AMERITRADE made untrue statements, misrepresentations, and omissions of material facts. FAC 38-40, 60-61, 65, 73-74 (alleging "false," "misleading," and "deceptive" statements and a "failure to disclose" allegedly material facts). The FAC likewise plainly alleges fraud "in connection with" security purchases or sales, as it alleges in support of each of its state-law claims that TD AMERITRADE "fail[ed] to disclose to California Resident Class members who trade in stock touted in the Traced Spam that the stock is being touted by the Traced Spam and its value is very likely being manipulated." FAC 61, 65, 74; FAC 18 (describing "classic pump-and-dump scheme"); FAC 63, 76 (seeking return of commissions on trades). Numerous SLUSA precedents--including from this Court and the Supreme Court--conclude that state-law actions based on supposedly manipulative or deceptive efforts to tout stocks constitute allegations of fraud in connection with a purchase or sale of securities. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 126 S. Ct. 1503, 1512-15 (2006) (misleading analyst research reports); Feitelberg v. Merrill Lynch & Co., Inc., 234 F. Supp. 2d 1043, 1051-52 (N.D. Cal. 2002) (same), aff'd, 353 F.3d 765 (9th Cir. 2003); Rowinski v. Solomon Smith Barney Inc., 398 F.3d 294, 299-304 (3d Cir. 2005) (same). Those precedents should control here. Plaintiffs' suit also undoubtedly involves a "covered security," a term that includes -7MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 13 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 securities traded on the New York Stock Exchange, American Stock Exchange, NASDAQ National Market System, or other national exchange with similar standards. 15 U.S.C. 77p(f)(3), 77r(b), 78bb(f)(5)(e). Plaintiffs do not allege that the securities touted in the Traced Spam traded exclusively on other markets. Indeed, given the large number of "covered securities" and the alleged quantity of the Traced Spam, it is fair to infer from the FAC that this suit involves a "covered security." Separate and apart from SLUSA, the federal securities laws impliedly preempt Plaintiffs' state-law claims. Spam-based pump-and-dump schemes of the sort Plaintiffs allege are a focus of ongoing SEC regulatory and enforcement efforts. Petition for Commission Action to Protect the Investing Public from Unlawful and Deceptive Securities Promotions (Apr. 24, 2006), http://sec.gov/rules/petitions/petn4-519.pdf; SEC Suspends Trading Of 35 Companies Touted In Spam Email Campaign (Mar. 8, 2007), http://sec.gov/news/press/2007/2007-34.htm. It would frustrate the objectives of the SEC's still-developing approach in this complicated area to impose, in this litigation, the novel, California-only consumer law disclosure requirements that Plaintiffs seek in contending that TD AMERITRADE should have disclosed that certain stocks were "being touted by Traced Spam" and their values were "very likely being manipulated." FAC 61, 65, 74. In sum, the existence of a comprehensive federal securities enforcement and regulatory scheme forecloses Plaintiffs' state-law claims. Geier v. Am. Honda Motor Co., 529 U.S. 861, 869-74 (2000) (frustration of federal objective gives rise to implied conflict preemption); Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119, 1134-36 (9th Cir. 2005) (same, finding preemption by SEC approved NASD rules). California's abstention doctrine supports the same result. See, e.g., Feitelberg v. Credit Suisse First Boston, LLC, 134 Cal. App. 4th 997, 1009 (Cal. Ct. App. 6th Dist. 2006). IV. FAILURE TO STATE A CLAIM UNDER THE CLRA, CAL. CIV. CODE 1770 Additionally, Plaintiffs' claim under Cal. Civ. Code 1770 (Count I) must be dismissed because Plaintiffs have not alleged the minimum requirements for standing under the statute, and because TD AMERITRADE's alleged conduct does not constitute a violation of the statutory provisions. -8MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 14 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 A. Plaintiffs lack standing under Cal. Civ. Code 1770. California Civil Code 1770 provides that a claim for relief can be brought by "[a]ny consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770." Cal. Civ. Code 1780(a). Plaintiffs cannot meet these requirements. They have failed to allege that they suffered "damage" within the meaning of the CLRA, and have failed to allege that any "damage" was "a result of" the challenged representations or omissions. Plaintiffs lack standing to bring a claim under the CLRA because they have not sufficiently alleged "any damage" within the meaning of the statute. In Count I itself--though not in the Factual Background section--Plaintiffs allege "the loss of the benefit of the bargain on TD AMERITRADE's brokerage fees," FAC 62, but do not allege that the non-receipt of spam was material to the bargain made with TD AMERITRADE, or that TD AMERITRADE failed to provide any of the brokerage services sought or purchased. Plaintiffs also attempt to characterize as "damage" the receipt of eighty spam messages over seven months to unique e-mail accounts never used for any purpose other than to provide evidence for this litigation: The damage from the Traced Spam includes California Class members' lost time required to sort, read, discard and attempt to prevent future Traced Spam, and lost storage space, Internet connectivity, and computing resources on the personal computers on which they received the Traced Spam. Further, California Resident Class members are subject to a identity theft to the extent Ameritrade's security has been breached. FAC 62. There are several reasons why this description fails to assert a claim of cognizable damage. First, this allegation fails to capture any form of compensable pecuniary loss. Second, Plaintiffs do not claim that they suffered any of these harms; instead they speak generally of the damage to "California Resident Class members." This failure is especially glaring in light of the fact that Elvey and the Gadgetwiz user supplied unique e-mail addresses to TD AMERITRADE. Unlike a customer who typically provides an email address that is used in the normal course, -9MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 15 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Plaintiffs could avoid the alleged "damage" here by discontinuing the use of these unique email addresses. Third, this description, to the extent it describes any harm, describes de minimis harm. Fourth, Plaintiffs attempt to conjure speculative harms that they do not allege actually occurred, such as the possibility of prospective identity theft. In order to adequately plead "damage" under the CLRA, a complaint must allege a "loss due to injury," that is "injury or harm to person, property, or reputation" or a "[l]oss or injury to person or property." Meyer v. Sprint Spectrum L.P., 59 Cal. Rptr. 3d 309, 317 (Cal. App. 4th Dist. 2007) (internal quotation marks omitted). The occasional receipt of spam messages at a unique e-mail address not used for any purpose other than as a source of evidence for this lawsuit cannot constitute "loss due to injury" or "injury or harm to person, property, or reputation" as required by the California courts to sustain a CLRA claim. Plaintiffs attempt to dress up the "damage" by alleging generally lost time to read and discard spam e-mails and lost storage space and "Internet connectivity," but this is unavailing; Elvey's alleged lost time is de minimis and alleged "80" spam messages could not have any appreciable impact on such systems or functions. Nor is the alleged speculative damage concerning the theoretical prospects of identity theft sufficient to confer standing. This Court recently rejected a CLRA claim on account of plaintiff's failure to assert any real damage. In Chavez v. Blue Sky Natural Beverage Co., No. C-06-6609, 2007 WL 1691249, (N.D. Cal. June 11, 2007), Plaintiff alleged that he would not have purchased a beverage had he known the truth about its geographic origin. This Court rejected the CLRA claim, noting that the plaintiff "did not pay a premium for Defendants' beverages" because he was unaware of the origin of the drink, and therefore had not suffered any cognizable injury. Id. at *4. Similarly, Plaintiffs have not alleged that they paid any kind of "premium" or suffered any loss as the result of receiving spam messages, even spam messages that touted stock for manipulative purposes.3 3 There is one older California Supreme Court case that suggests a broader definition of "any damage" under the CLRA. See Kagan v. Gibraltar Savings and Loan Assoc., 35 Cal. 3d 582, 593 (1984). The Meyer court discussed Kagan at great length, explaining why it should be narrowly interpreted and largely confined to the facts of the case. Meyer, 59 Cal. Rptr. 3d at 319. Furthermore, the Meyer court observed, "In the more than 23 years since Kagan was filed, not a single published decision has cited it for the proposition that an individual representing a class of plaintiffs need not have suffered any damage to maintain a cause of action under the -10(cont'd) MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 16 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Plaintiffs also lack standing because they have failed to sufficiently allege causation-- that is that the alleged loss was caused by the alleged misrepresentations and misleading practices. "[C]ausation of damage is a separate element of a claim under the CLRA." Meyer, 59 Cal. Rptr. 3d at 320 (citing cases). In Meyer, the California Court of Appeal affirmed the dismissal of the CLRA claim in part because the plaintiffs did not allege that they suffered any damage "as a result of Sprint's inclusion of one or more allegedly illegal and/or unconscionable provisions in the customer service agreement." Id. Here, Plaintiffs have not alleged that they provided their e-mail addresses to TD AMERITRADE "as a result of" the representations in the Privacy Statement or any other conduct by TD AMERITRADE. Indeed, the FAC makes clear that Elvey provided "unique email address[es]" to TD AMERITRADE (and received spam at those addresses) not "as a result of" the representations in the Privacy Statement, but rather in order to develop evidence for this case. See FAC 22-24. Because the FAC fails to adequately allege the required element of causation under the CLRA, this claim should be dismissed. B. Plaintiffs have not alleged conduct that constitutes a violation of the CLRA. Even if Plaintiffs had standing to pursue their CLRA claims--which they do not--they have not alleged conduct that constitutes a violation of the CLRA. Plaintiffs claim that TD AMERITRADE's conduct violates two provisions of the CLRA, Cal. Civ. Code 1770(a)(5) and Cal. Civ. Code 1770(a)(14). Cal. Civ. Code 1770(a)(5) renders unlawful "[r]epresenting that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have or that a person has a sponsorship, approval, status, affiliation, or connection which she does not have." Cal. Civ. Code 1770(a)(14) prohibits "[r]epresenting that a transaction confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law." Neither of these provisions encompass TD AMERITRADE's alleged conduct. As a district court for the Southern District of California has explained, "In order to state a claim under California's Bus. Prof. Code 17200 et seq. or the Consumer Legal Remedies Act, CLRA." Id. -11MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 17 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Civil Code 1750, et seq., Plaintiffs must allege that Defendants' statements are likely to deceive a reasonable consumer." Williams v. Gerber Products Co., 439 F.Supp. 2d 1112, 1115 (S.D. Cal. 2006). "The term `likely' means probable, not just possible. If the alleged misrepresentation would not mislead a reasonable consumer, then the allegation may be dismissed on a motion to dismiss." Id. (internal citation omitted). The challenged representations in TD AMERITRADE's Privacy Statement plainly do not constitute representations that goods or services have qualities which they do not have and were certainly not statements that would render it "probable" that a "reasonable consumer" was misled. That a person obtains and uses customer e-mail addresses in an unauthorized manner is in no way inconsistent with the Privacy Statement. Indeed, the possibility that third parties may illicitly obtain e-mail information is expressly acknowledged in the Privacy Statement's assertion that "no security system is absolutely impenetrable." Similarly, Plaintiffs' assertion that the Privacy Statement is "misleading as it [sic] not disclose any ongoing security breach" is unavailing. California courts have held that if a CLRA claim rests on an omission, as opposed to an affirmative misrepresentation, then the complaint must allege facts showing defendant either had a duty to make a disclosure or made other factual statements that could have had the likely effect of misleading the public for want of communication of the undisclosed fact. Bardin v. Diamlerchrysler Corp., 136 Cal. App. 4th 1255, 1276 (2006); Daugherty v. American Honda Motor Co., Inc., 144 Cal. App. 4th 824, 835 (2006). As discussed above, the Privacy Statement acknowledges the possibility of security breaches. Accordingly, the Privacy Statement is not misleading and does not require an additional disclosure. Furthermore, the Privacy Statement does not pledge to disclose any occasion in which there is suspected unauthorized conduct involving the potential misuse of customer information. And even if the Privacy Statement could be read to imply any duty to disclose where there is a known security breach--a proposition with which we disagree--that duty would reasonably be confined to circumstances where the information is of a personally identifiable nature that could result in identity theft, not simply the disclosure of e-mail addresses. Notably, as discussed above, the California legislature considered when disclosure of -12MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 18 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 a security breach was necessary and concluded that disclosure of e-mail addresses did not require notification of customers. See Cal. Civ. Code 1798.82(e). Finally, Plaintiffs' allegations that TD AMERITRADE violated the CLRA due to its "failure to disclose to California Resident Class members who trade in stock touted in the Traced Spam that the stock is being touted by the Traced Spam and its value is very likely manipulated," (FAC 6) cannot support a claim. First, and most importantly, Plaintiffs do not allege that they themselves traded in any stock touted by the Traced Spam, much less that they relied on the Traced Spam in making investment decisions. As such, they have not alleged that they suffered "any damage" due to such failure to disclose. Second, Plaintiffs do not, and cannot, allege that any of the representations made in the Traced Spam was made by TD AMERITRADE, a fact that would have to be established to prove a violation of the CLRA. And third, Plaintiffs do not allege that the Privacy Statement in any way indicated that persons who supplied personal information to TD AMERITRADE would be warned about third-party attempts to manipulate stock prices. Ultimately, Plaintiffs' CLRA claims must fail because they have not alleged a single fact that is in any way inconsistent with the representations in the Privacy Statement. The Privacy Statement simply cannot be read to promise or represent that third parties could never illicitly obtain or use e-mail addresses. The CLRA cannot form the basis of a claim based upon such activity unless TD AMERITRADE affirmatively represented that it could not happen. Instead, TD AMERITRADE explicitly gave notice of the possibility. Simply put, Plaintiffs' allegations do not support the conclusion that TD AMERITRADE disclosed the e-mail information contrary to the representations in the Privacy Statement. For all these reasons, the CLRA claim should be dismissed. V. FAILURE TO STATE A CLAIM UNDER THE UCL, CAL. BUS. & PROF. CODE 17200 Plaintiffs' attempt to invoke Cal. Bus. & Prof. Code 17200, also fails for much the same reasons as Plaintiffs' attempt to seek relief under the CLRA--the absence of allegations that could support standing and a failure to plead conduct by TD AMERITRADE that could -13MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 19 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 mislead a reasonable person. Furthermore, to the extent that Plaintiffs' claims are based on securities transactions, the UCL does not apply. A. Plaintiffs lack standing under Cal. Bus. & Prof. Code 17200. Though the UCL does not have the same "consumer" requirement as the CLRA, it has a more stringent standing requirement when it comes to injury. In order to establish standing under the UCL, a party must allege that it has "suffered injury in fact and has lost money or property as a result of such unfair competition." Cal. Bus. & Prof. Code 17204 (emphasis added). Because Plaintiffs have failed to allege anything that could constitute injury in fact and the loss of money or property, their claim under the UCL must be dismissed for lack of standing. This heightened standing requirement was added to the UCL as a ballot initiative, Proposition 64, in 2004. As one California court explained after reviewing the ballot materials, the voters intended to eliminate the loophole "that permitted fee seeking trial lawyers to appoint themselves Attorney General . . . filing lawsuits on behalf of the People of the State of California." Fate v. Covenant Care, 2005 WL 4932974, No. RG03-087211 (Cal. Super. Ct. Sept. 27, 2005) (internal quotation marks omitted). In that same case, the California Superior Court explained that this standing requirement "demand[s] more" than the standing requirements of the United States Constitution. The court explained, "Now, a plaintiff (1) cannot assert a claim on behalf of the general public, (2) must obtain class certification if he or she wants to represent absent persons, and (3) can assert a claim on his or her own behalf (and on behalf of a class) only if he or she has lost money or property that can be restored to him or her." Id. (emphasis added). As the Meyer court recently explained, since the passage of Proposition 64, courts have concluded that the standing requirements are met in three circumstances: where the plaintiff has (1) "expended money due to the defendant's acts of unfair competition"; (2) "lost money or property"; or (3) "been denied money to which he or she has a cognizable claim." Meyer, 59 Cal. Rptr. 3d at 314. For the same reasons discussed above in TD AMERITRADE's discussion of the Plaintiffs' failure to allege damages under the CLRA claim, Plaintiffs have utterly failed to meet any of these requirements and, as a result, have no standing to assert a claim under the -14MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 20 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 UCL. B. Plaintiffs have not alleged conduct that constitutes a violation of the UCL. Under the UCL, Plaintiffs also must allege conduct that constitutes an "unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." Cal. Bus. & Prof. Code 17200. Plaintiffs have failed to allege that TD AMERITRADE made any statements that are likely to deceive a reasonable consumer. As explained in the previous section, it is simply not "probable" that a "reasonable consumer" reading the Privacy Statement would have concluded that there was no way a third-party could illicitly obtain an e-mail address. See Williams, 439 F.Supp.2d at 1115. Plaintiffs' allegations that TD AMERITRADE failed to disclose the manipulation of stock touted in the Traced Spam to account holders who received the Traced Spam and traded in the touted stock also does not support a claim under the UCL. As explained above (in describing the defects in Plaintiffs' CLRA claim), the statements allegedly made in the Traced Spam were not made by TD AMERITRADE. Plaintiffs do not allege that they themselves traded in any manipulated stock. Nor do Plaintiffs allege that TD AMERITRADE ever promised that it would warn them of such attempted manipulations. C. Because Plaintiffs' claims are based in part on securities transactions, the UCL does not apply. A number of Plaintiffs' allegations on behalf of the California Resident Class are clearly tied to securities transactions. For example, in their UCL claim, Plaintiffs point to "TD AMERITRADE's failure to disclose to California Resident Class members who trade in stock touted in the Traced Spam" that such stock was subject to manipulation. FAC 65. Because Plaintiffs' UCL claim is based, at least in part, on securities transactions, it is invalid on its face because the UCL does not apply to securities transactions. See Bowen v. Ziasun Tech., Inc., 116 Cal. App. 4th 777, 787-90 (2004); see also Dietrich v. Bouer, 76 F. Supp. 2d 312, 351 (S.D.N.Y. 1999); Perera v. Chiron Corp., 1996 WL 251936, * 5 (N.D. Cal. May 8, 1996).4 4 Though it does not appear that a court has addressed the issue, the logic foreclosing the application of the UCL to securities transaction should apply to foreclose application of the -15(cont'd) MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 21 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 VI. FAILURE TO STATE A CLAIM FOR BREACH OF FIDUCIARY DUTY Plaintiffs efforts to state a claim for breach of fiduciary duty utterly fail to describe any cognizable legal theory, or to allege facts that support any actionable claim. It is a legal claim without precedent, made by Plaintiffs who have not alleged any relationship with TD AMERITRADE that could give rise to any fiduciary duty, let alone one that would extend far beyond the scope of a broker's obligations. Plaintiffs allege that TD AMERITRADE owes them a fiduciary duty "[a]s their stock broker" (FAC 70), and that it breached this duty by allegedly "allowing the disclosure of its accountholder's e-mail addresses to spammers," allegedly failing to "disclose the events that led to the disclosure of its accountholders' e-mail addresses to spammers," allegedly telling accountholders to destroy spam, and allegedly failing to disclose to accountholders who trade in stock touted in Traced Spam that such stock is subject to manipulation. FAC 71-73. The FAC, however, is devoid of any factual allegations that Plaintiffs and TD AMERITRADE had the kind of relationship that could give rise to a breach of fiduciary duty claim, much less that it had the specific duties alleged. At the outset, it is important to note that there is no independent fiduciary duty that arises out of the sharing of personal information as a part of a business transaction. Courts have held that sharing information in the course of conducting a business transaction imposes a fiduciary duty only when "one party surrenders substantial control over some portion of his affairs to the other." Sovereign Bank v. BJ's Wholesale Club, Inc., 427 F.Supp2d 526, 534 (M.D. Pa. 2006). Plaintiffs have not alleged, and cannot allege, this sort of relationship. As important, it is clear that in Nebraska, as in other jurisdictions, a broker/client relationship does not by itself give rise to a blanket fiduciary duty. 5 The Nebraska Supreme Court has explained that "[t]he mere existence of a broker/client relationship, without more, does not imply a confidential relationship" giving rise to a breach of fiduciary duty. DeSciose v. CLRA as well. 5 For reasons explained above, the choice-of-law provision mandates that Nebraska law applies to Plaintiffs' breach of fiduciary duty claim. Nedlloyd, 3 Cal. 4th at 469, 471. However, the principles articulated in this section are equally valid under California law. -16MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 22 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Chiles, Heider & Co., 239 Neb. 195, 206 (1991). In DeSciose, the Nebraska Supreme Court laid out the standard for determining that there was a fiduciary duty: "A fiduciary relationship `arises whenever confidences reposed on one side, and domination and influence result on the other.'" Id. (quoting Black's Law Dictionary 62 (6th ed. 1990)). In DeSciose, the court determined that no such relationship existed, and that the trial court had not erred in refusing a tendered jury instruction on a fiduciary relationship between a broker and a client. Id. at 206-07. Plaintiffs have not alleged the existence of a broker/client relationship in which the broker dominates and influences the decisions of the client. On the contrary, as the Client Agreement demonstrates, TD AMERITRADE processes securities orders submitted by its selfdirected customers; it does not provide investment advice to those customers and certainly has no trading discretion. Accordingly, under Nebraska law, TD AMERITRADE does not owe a fiduciary duty to Plaintiffs that extends to the matters alleged in the FAC. The California courts take a similar approach by focusing on the nature of the relationship between the broker and the client to determine if disclosure of the alleged omissions is within the scope of the duty. In Twomey v. Mitchum, Jones & Templeton, Inc., 262 Cal. App. 2d 690 (Cal. Ct. App. 1st Dist. 1968), a California court distinguished between a broker/client relationship where the broker simply processes unsolicited trade orders (as is the case with TD AMERITRADE), and one where a broker provides advice that is invariably followed: It is contended that the sole obligation of the broker-dealer is to carry out the stated objectives of the customer. This may well be true when the broker is acting merely as agent to carry out purchases or sales selected by the customer, with or without the broker's recommendation. Here, however, there is evidence to sustain the finding that [the broker's] recommendations, as invariably followed, were for all practical purposes the controlling factor in the transactions. Under these circumstances, there should be an obligation to determine the customer's actual financial situation and needs. Id. at 719. Plaintiffs do not allege, and cannot allege, that TD AMERITRADE was a "controlling factor" in any securities transactions. Indeed, there is no allegation that TD AMERITRADE's -17MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 23 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 relationship with Plaintiffs or its customers extends beyond simply processing trade orders. Where a broker's relationship with its client "is confined to the simple performance of transactions ordered by a customer, the duties described in Twomey . . . do not arise." Petersen v. Securities Settlement Corp., 226 Cal. App. 3d 1445, 1456 (Cal. App. 4th Dist. 1991). In Petersen, the California Court of Appeal affirmed a grant of summary judgment in favor of a clearing broker because the broker did not have a fiduciary duty to disclose the highly speculative nature of a particular investment. The court in Petersen explained that in Twomey and another later decision relying on Twomey "the disclosure obligations . . . are predicated expressly on evidence a broker's recommendation was the controlling factor in the customer's stock purchases." Petersen v. Securities Settlement Corp., 226 Cal. App. 3d 1445, 1454 (Cal. App. 4th Dist. 1991). The court further observed that "[i]n adopting a disclosure standard for stockbrokers, the court in Twomey relied in particular on the personal nature of the relationship between the customer and the broker." Id. Because "the scope of a broker's duty to disclose is delimited by the nature of the broker's relationship with the customer" (id. at 1456) and the FAC fails to make any allegations that the Plaintiffs' relationship with TD AMERITRADE extended beyond TD AMERITRADE's status as Plaintiffs' "stock broker," the breach of fiduciary duty claim should be dismissed. VII. FAILURE TO STATE A CLAIM FOR VIOLATION OF THE COMPUTER FRAUD AND ABUSE ACT, 18 U.S.C. 1030 Plaintiffs allege that "Does"--TD AMERITRADE's "employees," "partners," or "agents"--violated the Computer Fraud and Abuse Act, 18 U.S.C. 1030(a)(5) ("CFAA"), by accessing TD AMERITRADE computer systems without authorization. FAC 81. Section 1030(a)(5) of the CFAA creates a cause of action against a party that, inter alia, intentionally accesses a "protected computer" and causes injury as a result of the unauthorized access. Plaintiffs' novel attempt to bring a claim under 18 U.S.C. 1030--a statute designed to protect the owner of a computer system from unauthorized access by third parties--should be rejected. Under the terms of the CFAA, TD AMERITRADE is the target of the theft and, thus, the victim of any alleged violation of the statute. Specifically, the "protected computer" as -18MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 24 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 defined by the CFAA, is TD AMERITRADE's own computer system. In essence, Plaintiffs are attempting to hold TD AMERITRADE liable for its own employees' or partners' alleged unauthorized access of its own computers or alternatively, to hold TD AMERITRADE liable for authorizing that access. But neither theory states a claim under the CFAA. Under Plaintiffs' allegations, either the Does alleged access to the computer system was with authorization by TD AMERITRADE, in which case there is no violation of the statute, or it was without authorization by TD AMERITRADE, in which case TD AMERITRADE cannot be held vicariously liable. Plaintiffs state their CFAA claim under 18 U.S.C. 1030(a)(5). Under this provision of the CFAA, the access must be "without authorization" to be actionable.6 Thus, to the extent that Plaintiffs claim that TD AMERITRADE "directed and encouraged" John Does to misappropriate customer information (FAC 86) there is no violation of the statute. It is not possible to direct and encourage access without authorizing access within the meaning of the CFAA. Alternatively, to the extent Plaintiffs allege that the access was unauthorized--whether as a result of an alleged violation of the Privacy Agreement or otherwise (see FAC 81)--Plaintiffs cannot hold the owner of the computer (TD AMERITRADE) liable as there is no respondeat superior liability under the CFAA when the access is without authorization. Butera & Andrews v. IBM, 456 F.Supp. 2d 104 (D.D.C. 2006) is instructive on this point. In Butera, plaintiff law firm discovered that their computer systems had been infiltrated by hackers. They discovered that the IP address involved in the attack was registered to IBM. Id. at 106. The plaintiff brought suit against IBM and a "John Doe defendant" identified as "a person who is employed by Defendant IBM at its Durham, North Carolina facility." Id. at 107. The court granted IBM's motion to dismiss. The district court reasoned that an employer could not be held liable for an employees' intentional conduct based solely on the employer-employee relationship. "If the attacks were not authorized by IBM, there are no grounds whatsoever for bringing an action against IBM under any of the statutes relied upon by plaintiff, as each requires `intentional' 6 Contrary to Plaintiffs' suggestion, "in excess of authorization" is not actionable under 18 U.S.C. 1030(a)(5). See U.S. v. Phillips, 477 F.3d 215, 219 (5th Cir. 2007) (explaining that 1030(a)(5) is a subsection of the CFAA designed to apply "exclusively to users who lack access authorization altogether"). See also id. (explaining that Congress intended section 1030(a)(5) to apply to "outside hackers who break into a computer" (quoting Congressional Record)). -19MOTION TO DISMISS FIRST AMENDED COMPLAINT CASE NO. C:06-CV-03468 SI Case 3:07-cv-02852-MJJ Document 13 Filed 07/18/2007 Page 25 of 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 conduct on the part of the defendant." Id. at 110. Thus, Plaintiffs simply have no basis to proceed against TD AMERITRADE under the CFAA, and the claim must be dismissed. Indeed, it is TD AMERITRADE that would have a valid cause of action under the CFAA against those who may have improperly utilize

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