Ty Rayner v. E*Trade Financial Corporation et al

Filing 56

MEMORANDUM OPINION AND ORDER re: 36 MOTION to Dismiss Plaintiff's Complaint filed by E*Trade Securities LLC, E*Trade Financial Corporation. The Court has considered all of the arguments raised by the parties. To the extent n ot specifically addressed, the arguments are either moot or without merit. For the foregoing reasons, E*TRADE's motion to dismiss the Complaint is granted. The Clerk is directed to enter judgment dismissing this action and closing the case. The Clerk is also directed to close all pending motions. (As further set forth in this Order.) (Signed by Judge John G. Koeltl on 4/1/2017) (cf)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
────────────────────────────────────
TY RAYNER, ON BEHALF OF HIMSELF AND
ALL OTHERS SIMILARLY SITUATED,
16-cv-7129 (JGK)
Plaintiff,
MEMORANDUM OPINION AND
ORDER

- against –
E*TRADE FINANCIAL CORPORATION ET AL,
Defendants.
────────────────────────────────────
JOHN G. KOELTL, District Judge:

The defendants, E*TRADE Financial Corporation (“E*TRADE
Financial”) and E*TRADE Securities LLC (“E*TRADE Securities”)
(collectively, “E*TRADE”), provide brokerage services to
clients, including by routing client orders to third-party
trading venues to effectuate the purchase and sale of
securities. The plaintiff, Ty Rayner, on behalf of a purported
class claims that E*TRADE violates its fiduciary duties to its
clients by routing orders to venues based on which venue makes
the largest payments to E*TRADE in exchange for the orders,
whereas E*TRADE should be selecting venues based only on best
execution considerations. The plaintiff has brought claims
against E*TRADE for breach of fiduciary duty, unjust enrichment,
and declaratory judgment. E*TRADE has moved to dismiss the
claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure because they are precluded by the Securities
Litigation Uniform Standards Act (the “SLUSA”).
1

The plaintiff originally brought this action in the United
States District Court for the Northern District of California.
The action was subsequently transferred to this Court pursuant
to 28 U.S.C. § 1404 on the joint stipulation of the parties. 1 See
Dkt. 26. This Court has jurisdiction pursuant to 28 U.S.C. §
1332(d)(2).
The plaintiffs in a related action have brought claims
pursuant to sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 against E*TRADE and several individual defendants.
See Schwab v. E Trade Financial Corporation, No. 16-cv-05891
(JGK) (S.D.N.Y.). Those claims are not presently before the
Court.
For the following reasons, E*TRADE’s motion to dismiss is
granted. 2

1

Because this case was transferred pursuant to 28 U.S.C. § 1404,
the law of the transferor court (including choice-of-law)
governs issues of state law, while the substantive law of the
transferee court governs issues of federal law. See, e.g.,
Rosado-Acha v. Red Bull Gmbh, No. 15 CIV. 7620 (KPF), 2016 WL
3636672, at *4-5 (S.D.N.Y. June 29, 2016) (quoting Ctr.
Cadillac, Inc. v. Bank Leumi Trust Co. of N.Y., 808 F. Supp.
213, 224 (S.D.N.Y. 1992) aff’d, 99 F.3d 401 (2d Cir. 1995)).
Neither party has raised any choice-of-law issues. Instead, the
parties contend that this Court’s interpretation of federal law
(relying on any controlling law in the second circuit) governs
any issues of federal law, and that New York law governs any
issues of state law. Therefore, this Court will apply those
bodies of law in accordance with the agreement of the parties.
See, e.g., Am. Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130,
134 (2d Cir. 1997).
2
Because SLUSA preclusion provides a sufficient basis to dismiss
the Complaint, it is unnecessary to reach E*TRADE’s alternative
2

I.
In deciding a motion to dismiss pursuant to Rule 12(b)(6),
the allegations in the complaint are accepted as true, and all
reasonable inferences must be drawn in the plaintiff’s favor.
McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.
2007). The Court’s function on a motion to dismiss is “not to
weigh the evidence that might be presented at a trial but merely
to determine whether the complaint itself is legally
sufficient.” Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.
1985). The Court should not dismiss the complaint if the
plaintiff has stated “enough facts to state a claim to relief
that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009).
While the Court should construe the factual allegations in
the light most favorable to the plaintiff, “the tenet that a
court must accept as true all of the allegations contained in
the complaint is inapplicable to legal conclusions.” Id.; see
also Springer v. U.S. Bank Nat’l Ass’n, No. 15-cv-1107 (JGK),
arguments for dismissal related to regulatory preemption, the
absence of any private right of action, and the plausibility of
the allegations.
3

2015 WL 9462083, at *1 (S.D.N.Y. Dec. 23, 2015). When presented
with a motion to dismiss pursuant to Rule 12(b)(6), the Court
may consider documents that are referenced in the complaint,
documents that the plaintiff relied on in bringing suit and that
are either in the plaintiff’s possession or that the plaintiff
knew of when bringing suit, or matters of which judicial notice
may be taken. Chambers v. Time Warner, Inc., 282 F.3d 147, 153
(2d Cir. 2002).
II.
The allegations in the Complaint are accepted as true for
the purposes of this motion to dismiss.
E*TRADE Financial Corporation is a Delaware corporation,
with its principal place of business in New York, that provides
brokerage and related services to individual retail investors.
Compl. ¶ 7. E*TRADE Securities is a Delaware limited liability
company that is an indirect, wholly owned subsidiary of E*TRADE
Financial. Compl. ¶ 8. E*TRADE Securities is a broker-dealer
registered with the Securities and Exchange Commission, and is
the primary provider of brokerage products and services to
E*TRADE Financial’s customers. Compl. ¶ 8.
Brokers, such as E*TRADE, can route orders to third-party
venues, such as the New Yok Stock Exchange, hedge funds, or
banks. Compl. ¶ 9. A “non-directed, standing limit order” is a
standard type of order that a client can place with E*TRADE.
4

Compl. ¶ 1 & n.1. “Non-directed” means that E*TRADE (as opposed
to the client) chooses the trading venue for the order. Compl. ¶
1 n.1. “Limit” is an instruction to buy or sell at, or better
than, a specified price. Compl. ¶ 1 n.1. “Standing” means that
the order will remain with the venue until it is canceled or
executed, or until it expires. Compl. ¶ 1 n.1.
The Complaint alleges that, under the “maker-taker” model,
venues make payments to brokerage firms, such as E*TRADE, in
exchange for order flow. Compl. ¶ 10. The Complaint pejoratively
characterizes these payments or rebates as “kickbacks.” See,
e.g., Compl. ¶¶ 1, 10. Under the maker-taker model, venues pay
brokerage firms for sending (in other words, “making”) orders to
the venues, while venues charge brokers an access or “take” fee
for “taking” the orders. Compl. ¶ 10. The Complaint alleges that
venues compete for order flow by maximizing payment amounts to
brokers. Compl. ¶ 10.
The Complaint alleges that E*TRADE owes its clients a “duty
of best execution,” meaning that E*TRADE should endeavor to
obtain the best price possible for its clients when making venue
routing selections. Compl. ¶¶ 15-17, 19. The Complaint alleges
that relevant factors for E*TRADE’s choice of venue must include
the “likelihood of execution, speed of execution, and price
improvement opportunity.” Compl. ¶ 18. The Complaint alleges
that the duty of best execution is “rooted in common law agency
5

principles of undivided loyalty and reasonable care” that
“predate[] federal securities laws.” Compl. ¶ 16. The Complaint
alleges that E*TRADE publically touts that it “do[es] everything
possible to seek best execution each and every time [a client]
trade[s].” Compl. ¶ 17.
According to the Complaint, the maker-taker model creates
perverse incentives that conflict with E*TRADE’s duty of best
execution to its clients. Compl. ¶¶ 10, 12-14. Rather than
routing non-directed, standing limit orders in accordance with
its duty of best execution, the Complaint alleges that E*TRADE
routes those orders to the venues that make the highest payments
to maximize “kickback” revenue, regardless of best execution
considerations. Compl. ¶¶ 21-35. The Complaint alleges that, in
2012 and 2013, E*TRADE illicitly earned over $100 million in
breach of its fiduciary duties to its clients, earnings that
E*TRADE does not pass on to its clients. See Compl. ¶ 11, 30.
The plaintiff has been a client of E*TRADE since
approximately 2006, and placed non-directed, standing limit
orders with E*TRADE as recently as January 2014. Compl. ¶ 6. The
relationship between the plaintiff and E*TRADE is governed by a
Customer Agreement. 3 It is undisputed that, during the relevant

3

The Customer Agreement is available at
https://us.etrade.com/e/t/estation/contexthelp?id=1209031000.
The plaintiff does not dispute that the Customer Agreement is
integral to the Complaint, and thus properly before the Court.
6

period, E*TRADE disclosed to the plaintiff that it was receiving
“remuneration” in exchange for routing orders to venues. See
Customer Agreement § 6(n).
The maker-taker model, including the receipt of payments,
is heavily regulated by the federal securities regime. See,
e.g., Regulation NMS, Exchange Act Release No. 34-51808, 2005 WL
1364545 (June 9, 2005). The plaintiff does not allege that the
receipt of such payments is inherently wrongful. Compl. ¶ 36.
Rather, the Complaint alleges that E*TRADE victimized the
plaintiff by prioritizing the receipt of rebates in routing his
orders in violation of its duty of best execution, which
resulted in the plaintiff’s receipt of worse execution prices
for those orders. Compl. ¶¶ 6, 46-48.
The plaintiff has brought claims for breach of fiduciary
duty, unjust enrichment, and declaratory judgment seeking (1)
damages for the difference between the price at which the
securities transactions at issue were executed and the price at
which they would have been executed had E*TRADE complied with
its duty of best execution, Compl. ¶¶ 47-48; (2) disgorgement of
the commissions and rebates E*TRADE “obtained in connection with
See, e.g., Clarex Ltd. v. Natixis Sec. Americas LLC, No. 12 CIV.
7908 (PAE), 2013 WL 3892898, at *2 (S.D.N.Y. July 29, 2013);
Berman v. Sugo LLC, 580 F. Supp. 2d 191, 200 (S.D.N.Y. 2008). In
any event, excluding the Customer Agreement would not change the
outcome of this case because the Complaint itself provides a
sufficient basis to conclude that the claims are subject to
SLUSA preclusion.
7

routing the orders at issue,” Compl. ¶ 54; (3) injunctive relief
and an accounting, Compl. ¶ 49; and (4) a declaration that
E*TRADE is violating its duty of best execution under state law,
Compl. ¶¶ 56-57.
III.
The SLUSA provides that “[n]o covered class action based
upon the statutory or common law of any State or subdivision
thereof may be maintained in any State or Federal court by any
private party alleging --- (A) a misrepresentation or omission
of a material fact in connection with the purchase or sale of a
covered security; or (B) that the defendant used or employed any
manipulative or deceptive device or contrivance in connection
with the purchase or sale of a covered security.” 15 U.S.C. §
78bb(f)(1); see also Romano v. Kazacos, 609 F.3d 512, 519 (2d
Cir. 2010). The SLUSA thus precludes actions that satisfy the
following five elements: (1) a covered class action; (2) based
on state law claims; (3) alleging that the defendant made a
misrepresentation or omission, or employed any manipulative or
deceptive device; (4) in connection with the purchase or sale
of; (5) a covered security.
The Court of Appeals has instructed “that plaintiffs do not
evade SLUSA by camouflaging allegations that satisfy this
standard in the guise of allegations that do not. When the
success of a class action claim depends on a showing that the
8

defendant committed false conduct conforming to SLUSA’s
specifications, the claim will be subject to SLUSA,
notwithstanding that the claim asserts liability on the part of
the defendant under a state law theory that does not include
false conduct as an essential element—such as breach of a
contractual right to fair dealing.” 4 In re Kingate Mgmt. Ltd.
Litig., 784 F.3d 128, 149 (2d Cir. 2015). “‘SLUSA requires [a
court’s] attention to both the pleadings and the realities
underlying the claims,’ [and] plaintiffs cannot avoid SLUSA
‘merely by consciously omitting references to securities or to
the federal securities law.’” In re Herald, 730 F.3d 112, 119
(2d Cir. 2013) (quoting Romano, 609 F.3d at 519).
At least three courts have relied on similar reasoning to
conclude that claims based on allegations nearly identical to
those in the Complaint are precluded by the SLUSA. E.g., Zola v.
TD Ameritrade, Inc., 172 F. Supp. 3d 1055, 1072 (D. Neb. 2016);
Lewis v. Scottrade, Inc., No. 4:15-CV-01255 (JAR), 2016 WL
4502534, at *3 (E.D. Mo. Aug. 29, 2016); Lim v. Charles Schwab &
Co., No. 15-CV-02074 (RS), 2015 WL 7996475, at *7 (N.D. Cal.
Dec. 7, 2015) (citing Kingate, 784 F.3d at 150); see also United
States Sec. & Exch. Comm’n v. Crowe, No. 2:16-CV-36, 2016 WL
6125401, at *10-11 (S.D. Ohio Oct. 20, 2016) (citing Zola and
4

The plaintiff argues that fraud is not an element of any of the
claims at issue, but Kingate rejected such a requirement for
SLUSA preclusion purposes.
9

Lim approvingly). The plaintiff makes no meaningful effort to
distinguish these cases, which are compelling.
The plaintiff concedes the first, second, and fifth
elements necessary for a finding of SLUSA preclusion: First, the
Complaint is a covered class action; second, based on state law
claims; and, fifth, regarding covered securities. The plaintiff
only disputes the third and fourth elements: “misrepresentation
or omission of a material fact” or “that the defendant used or
employed any manipulative or deceptive device or contrivance”;
and “in connection with” the purchase or sale of a covered
security. The plaintiff’s arguments against preclusion are
unpersuasive.
With respect to the third element, the plaintiff argues
that this action only challenges E*TRADE’s underlying practices
regarding its selection of venues when routing orders; indeed,
the Complaint is explicit that it is not “challeng[ing]
E*TRADE’s disclosure of maker kickbacks.” Compl. ¶ 36. This is
artful pleading designed to avoid SLUSA preclusion. See Kingate,
784 F.3d at 149. The plaintiff attempts to characterize this
action as challenging E*TRADE’s failure to act with due
diligence in selecting venues, but the Complaint alleges far
more deceptive conduct.
The action is predicated on material misrepresentations and
omissions that were designed to induce clients to execute non10

directed, standing limit orders with E*TRADE even though E*TRADE
allegedly had no intention of fulfilling its purported fiduciary
obligations. See Holtz v. JPMorgan Chase Bank, N.A., 846 F.3d
928, 932 (7th Cir. 2017) (“A fiduciary that makes a securities
trade without disclosing a conflict of interest violates federal
securities law. . . . [A] broker-dealer that fails to achieve
best execution for a customer by arranging a trade whose terms
favor the dealer rather than the client has a securities
problem, not just a state-law contract or fiduciary-duty
problem.”); Goldberg v. Bank of Am., N.A., 846 F.3d 913, 916
(7th Cir. 2017) (per curiam) (“A claim that a fiduciary that
trades in securities for a customer’s account has taken secret
side payments is well inside the bounds of securities law.”).
E*TRADE touted that it routed orders in accordance with its duty
of best execution, see Compl. ¶ 17, when it was allegedly
allowing its receipt of kickbacks to interfere with that duty,
which it concealed from its clients. Compl. ¶ 21. “The alleged
deception relates to the value of the security because [the
defendant] represents it obtains the best possible price for its
customers but delivers something less . . . .” Zola, 172 F.
Supp. 3d at 1073; see also Lim, 2015 WL 7996475, at *6. “[T]he
gravamen of [the plaintiff’s] claims is that [the defendant]
failed to disclose that it was operating under a conflict of
interest with regard to its order-routing process or that it was
11

not achieving, or at least approximating, best execution.”
Lewis, 2016 WL 4502534, at *5.
The underlying conduct cannot be disentangled from the
misrepresentations or omissions because the claims necessarily
contemplate E*TRADE’s allegedly deceptive representations to the
plaintiff regarding its execution practices. The plaintiff’s
claims necessarily challenge what E*TRADE told the plaintiff
about its execution practices, and the nature of E*TRADE’s
obligations to the plaintiff. See BAII Banking Corp. v. UPG,
Inc., 985 F.2d 685, 700-01 (2d Cir. 1993) (discussing broker
disclosure obligations to principals under New York law). In
arguing that the Complaint states a claim, the plaintiff notes
that E*TRADE disclosed to the plaintiff only that it would “be
receiving payments” from venues, but failed to disclose any
information “about E*TRADE’s consideration of those payments in
determining where to send order flows.” Pl.’s Mem. Op. at 22.
The plaintiff argues that, “By doing so, [E*TRADE] breached its
fiduciary duty.” Pl.’s Mem. Op. at 22 (emphasis added). The
argument demonstrates that “the success of [the plaintiff’s]
claim[s] depends on a showing that [E*TRADE] committed false
conduct . . . .” Kingate, 784 F.3d at 149.
Likewise, “the SEC considers the failure to provide best
execution a possible ‘manipulative, deceptive or other[wise]
fraudulent device.’” Lim, 2015 WL 7996475, at *5 (quoting In Re:
12

Morgan Stanley & Co Inc., Exchange Act Release No. 55726, 2007
WL 1364323, at *8 (May 9, 2007)). In this case, the plaintiff
alleges that E*TRADE routed orders to “maximize kickback
revenue” in violation of its duty of best execution, a practice
concealed from its clients. Compl. ¶ 21. The plaintiff’s claims
implicate E*TRADE’s use or employment of a manipulative or
deceptive device or contrivance within the meaning of the SLUSA.
See Lim, 2015 WL 7996475, at *5; see also Kurz v. Fid. Mgmt. &
Research Co., 556 F.3d 639, 642 (7th Cir. 2009) (finding SLUSA
preclusion and noting “[h]ow [a portfolio manager] discharges
its duties toward investors is a subject requiring disclosure
under federal law”); Prager v. Knight/Trimark Grp., Inc., 124 F.
Supp. 2d 229, 235 (D.N.J. 2000) (finding SLUSA preclusion where
“[a market maker] made false and misleading statements upon
which it intended that plaintiff rely and engaged in a pattern
and practice of trading in advance of its retail customers and
the selling or buying at a profit at the expense of its
customers”). 5

5

The cases cited by the plaintiff where “the gravamen of the
Complaint [was] plainly a straightforward breach [of contract]
claim” do not aid the plaintiff. Norman v. Salomon Smith Barney,
Inc., 350 F. Supp. 2d 382, 386-87 (S.D.N.Y. 2004) (“[N]o
allegation of fraud, misrepresentation or omission ‘in
connection with’ the purchase or sale of securities.”); see also
Merryman v. J.P. Morgan Chase Bank, N.A., No. 15-CV-9188 (VEC),
2016 WL 5477776, at *5-6 (S.D.N.Y. Sept. 29, 2016) (noting that
the fraudulent conduct related only to the plaintiffs’ attempt
to overcome the defendant’s statute of limitations defense and
13

With respect to the fourth element, the Supreme Court has
held that the “in connection with” element is satisfied when the
alleged fraud “coincide[s] with a securities transaction.”
Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S.
71, 85 (2006). The alleged fraud in this case plainly coincided
with the securities transactions at issue. “Claims involving
alleged violations of the duty imposed on a broker to obtain
best execution for customers in executing portfolio transactions
are claims ‘in connection with’ the purchase or sale of
securities for SLUSA purposes.” Zola, 172 F. Supp. 3d at 1071
(collecting cases); see also Lewis, 2016 WL 4502534, at *3-4.
The plaintiff’s arguments to the contrary are without
merit. See Zola, 172 F. Supp. 3d at 1072 (“Any argument that the
duty of best execution is not in connection with the purchase or
sale of securities is frivolous.” (quoting Kurz, 556 F.3d at
642)). The plaintiff contends that the Supreme Court’s decision
in Chadbourne & Parke LLP v. Troice, 134 S. Ct. 1058 (2014),
substantially elevated the “coincide” standard set forth in
holding that the “[f]ailure to disclose is not essential to
Plaintiffs’ breach of contract claim; indeed, Plaintiffs allege
that [the defendant’s] breach of contract continues, even though
JPM disclosed the spread in 2012”). In this case, the allegedly
fraudulent conduct is inextricably intertwined with the claims
at issue.
Likewise, the cases cited by the plaintiff where thirdparties, but not the named defendants, committed fraudulent
conduct are inapposite. See, e.g., Kingate, 784 F.3d at 151-52;
Fishman v. Philadelphia Fin. Life Assurance Co., No. 11-CV-1283,
2016 WL 2347921, at *9 (S.D.N.Y. May 3, 2016).
14

Dabit with respect to the purchase and sale of covered
securities. But Troice was explicit that it was not modifying
the Dabit “coincide” standard. See Troice, 134 S. Ct. at 1066
(“We do not here modify Dabit.”).
Troice’s lessons are inapplicable to this case. Troice
addressed fraudulent conduct in connection with the purchase or
sale of uncovered securities that merely had a tangential
relationship to the purchase or sale of covered securities. Id.
Such allegations do not fall within the SLUSA unless the
fraudulent conduct with respect to the uncovered securities is
material to the purchase or sale of the covered securities. Id.
As the Court of Appeals for the Second Circuit explained in
In re Herald, 753 F.3d 110 (2d Cir. 2014) (per curiam), Troice
involved a situation where the plaintiffs “were not seeking,
directly or indirectly, to purchase covered securities” and “was
entirely distinguishable from ‘a victim who took, tried to take,
or maintained an ownership position in the statutorily relevant
securities through “purchases” or “sales” induced by the
fraud.’” Herald, 753 F.3d at 113. The plaintiff falls into the
latter category. The plaintiff undisputedly took positions in
covered securities through E*TRADE, and his purchase (or sale)
decisions were materially affected by E*TRADE’s allegedly false
promises to execute his orders consistent with its duty of best
execution, which would have resulted in acquisitions (or
15

divestments) at allegedly better prices than what he actually
obtained.
The plaintiff’s contention that the fraudulent conduct did
not affect the plaintiff’s perceived value of the securities and
thus affected only the plaintiff’s decision regarding which
broker to use, but not which securities to trade, is baseless.
See Lim, 2015 WL 7996475, at *6-7 (rejecting an identical
argument); see also Holtz, 846 F.3d at 933–34 (“That some of the
investment decisions were made by investment advisers as [the
plaintiff’s] agent does not take this out of the ‘in connection
with’ domain—otherwise suitability and churning could not be a
securities theory.”). The plaintiff’s arguments that he stated a
claim belie his arguments against SLUSA preclusion: “Plaintiff
alleges that by selecting the trading venues that provide the
highest kickbacks to E*TRADE, Plaintiff and the Class did not
receive the best market price.” Pl.’s Mem. Op. at 23 (citing
Compl. ¶¶ 34, 47). Thus, “The contention that plaintiffs made
investment decisions without regard to the price at which their
orders were filled is, at bedrock, simply implausible,” Zola,
172 F. Supp. 3d at 1073 (quoting Lim, 2015 WL 7996475, at *7),
especially in light of the damages that the plaintiff is
seeking.
In a letter following oral argument on the current motion,
counsel for the plaintiff asserted that she misspoke at oral
16

argument when she stated that “the damages sought [by the
plaintiff] are the increased price paid for a trade.” Dkt. 55.
But such increased prices are in fact among the damages sought
by the plaintiff. See Compl. ¶ 48 (E*TRADE’s “material and
opportunistic breaches . . . have also caused the orders made by
Plaintiff and the Class to be executed in a manner that did not
fulfill best execution. E*TRADE’s customers have been damaged
thereby, in an amount to be determined at trial.”). And the
plaintiff also argued on the motion that E*TRADE did not obtain
the best price possible for the plaintiff because of its pursuit
of the highest kickbacks. See Pl.’s Mem. Op. at 23 (citing
Compl. ¶¶ 34, 47).
Moreover, the plaintiff’s attempt to cabin damages to the
disgorgement of supposedly illicit commissions and rebates does
not alter the “in connection with” analysis. The Complaint is
explicit that those “commissions and kickbacks [were] obtained
in connection with routing the orders at issue.” Compl. ¶ 54
(emphasis added). E*TRADE earned allegedly illicit profits by
routing orders on behalf of the plaintiff (thus, in connection
with the purchase or sale of covered securities), and, unlike
other brokers, by failing to pass those payments on to the
plaintiff; in other words, the plaintiff paid higher prices that
would have been lower had E*TRADE applied the payments to
decrease the plaintiff’s costs. See Compl. ¶ 52. (“E*TRADE does
17

not pass on the rebate payments that it receives for routing the
orders of Plaintiff and Class members to particular trading
venues.”). The challenged conduct --- E*TRADE’s receipt of
payments that affected the way in which it executed the purchase
or sale of securities on behalf of the plaintiff --- was clearly
in connection with the purchase or sale of covered securities.
The Court of Appeals has instructed that SLUSA preclusion
must be assessed on a “claim-by-claim basis.” Kingate, 784 F.3d
at 143. Each of the claims in this case relies on the deceptive
and manipulative conduct described above and is precluded by the
SLUSA. See Compl. ¶¶ 47, 51, 56. Moreover, the plaintiff
conceded at oral argument that there is no basis to distinguish
among the claims for purposes of SLUSA preclusion. Accordingly,
the claims are dismissed because they are precluded by the
SLUSA. 6
CONCLUSION
The Court has considered all of the arguments raised by the
parties. To the extent not specifically addressed, the arguments
are either moot or without merit. For the foregoing reasons,
E*TRADE’s motion to dismiss the Complaint is granted. The Clerk
6

The plaintiff has not sought leave to replead, and made clear
at oral argument that he does not wish to replead in the event
that the claims are precluded by the SLUSA. In addition, the
parties agree that the plaintiff is a member of the proposed
securities class in the securities action currently pending
before this Court. See Schwab v. E Trade Financial Corporation,
No. 16-cv-05891 (JGK) (S.D.N.Y.).
18

is directed to enter judgment dismissing this action and closing
the case. The Clerk is also directed to close all pending
motions.
SO ORDERED.
Dated:

New York, New York
April 1, 2017

_____________/s/ ______________
John G. Koeltl
United States District Judge

19