Nicholas Lewis, on Behalf of Himself and All Others Similarly Situated Plaintiff- Appellant
Scottrade, Inc. Defendant-Appellee
Submitted: September 21, 2017
from United States District Court for the Eastern District of
Missouri - St. Louis
LOKEN, ARNOLD, and SHEPHERD, Circuit Judges.
Lewis filed this putative class action against Scottrade,
Inc., a securities brokerage firm, alleging violations of the
Missouri Merchandising Practices Act, Mo. Rev. Stat.
§§ 407.010 et seq., breach of a common law
fiduciary duty, and unjust enrichment. After Lewis filed the
action in the Southern District of California, it was
transferred to the Eastern District of Missouri, where
Scottrade's principal executive offices are located. The
complaint alleges that Scottrade routinely routes customer
limit orders for the purchase and sale of securities to
trading venues that pay "rebates" to sending
brokers, violating Scottrade's "duty of best
execution" in buying and selling securities on behalf of
its customers. The district court dismissed the complaint,
concluding that Lewis's claims are precluded by the
Securities Litigation Uniform Standards Act
("SLUSA"), 15 U.S.C. § 78bb(f)(1). Lewis
appeals. Reviewing the dismissal for failure to state a claim
de novo, we affirm. Siepel v. Bank of Am., N.A., 526
F.3d 1122, 1124 (8th Cir. 2008).
provides its customers online trading services, investment
services, and market research tools. Its customers place
orders to buy and sell individual securities. Scottrade
executes the orders itself or through trading venues that
include major stock exchanges, hedge funds, banks, electronic
communication networks, and third-party market makers. Lewis,
a Scottrade customer since 2012, has placed non-directed
standing limit orders through Scottrade. In a
"non-directed" order, the customer directs
Scottrade to execute the order but does not specify the
trading venue Scottrade should select. A "limit"
order is an order to buy or sell a specific number of shares
of a security at a specific or better price.
complaint alleges that the duty of best execution requires
Scottrade to diligently choose the best trading venue for its
clients, considering factors such as likelihood and speed of
trade execution, and opportunities for price improvement.
While Scottrade need not make "trade by trade
determinations, " it must adhere to this duty in the
aggregate and may not put its interests ahead of its
customers. Lewis alleges that Scottrade violated the duty of
best execution in 2013 and 2014 by directing nearly all
customer non-directed standing limit orders to trading venues
that offered the largest rebates to Scottrade, and by not
passing these payments on to its customers. The complaint
cites academic research allegedly demonstrating that limit
order "routing decisions based primarily on rebates/fees
appear to be inconsistent with best execution."
magnitude of the federal interest in protecting the integrity
and efficient operation of the market for nationally traded
securities cannot be overstated." Merrill Lynch,
Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71,
78 (2006). To further that interest, Congress enacted SLUSA,
which modified the Securities Act of 1933 and the Securities
Exchange Act of 1934 to "prevent certain State private
securities class action lawsuits alleging fraud from being
used to frustrate the objectives of" the earlier Private
Securities Litigation Reform Act ("PSLRA").
Id. at 82 (quotation omitted); see Dudek v.
Prudential Secs., Inc., 295 F.3d 875, 877 (8th Cir.
codified in the 1934 Act, SLUSA provides that no
"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). A "covered class action" is one
seeking damages on behalf of more than fifty persons. §
78bb(f)(5)(B). A "covered security" is one
"traded nationally and listed on a regulated national
exchange." Dabit, 547 U.S. at 83; see
case, it is undisputed that Lewis filed a "covered class
action" and that Scottrade receives and executes on
behalf of its customers orders for the purchase and sale of
"covered securities." The issues on appeal are
whether Lewis's complaint alleged (1) a
"misrepresentation or omission" or a
"manipulative or deceptive device or contrivance"
that was (2) "in connection with the purchase or sale of
a covered security." When interpreting SLUSA, we presume
"Congress envisioned a broad construction, so that the
most troublesome class actions [will] be subject to the
PSLRA's procedural reforms." Siepel, 526
F.3d at 1127 (quotation omitted). We "look at the
substance of the allegations, based on a fair reading, "
because SLUSA preclusion "is based on the conduct
alleged, not the words used to describe the conduct."
Kutten v. Bank of Am., N.A., 530 F.3d 669, 670-71
(8th Cir. 2008). Like the parties and the district court, we
will begin with the second issue.
The "In Connection With" Requirement
10(b) of the 1934 Act provides that it is unlawful to employ
any manipulative or deceptive device or contrivance "in
connection with the purchase or sale of any security."
15 U.S.C. § 78j(b). The Supreme Court has long construed
that provision "not technically and restrictively, but
flexibly to effectuate its remedial purposes."
S.E.C. v. Zandford, 535 U.S. 813, 819 (2002)
(quotation omitted). In Zandford, the Court
reiterated that in "a fraudulent scheme in which the
securities transactions and breaches of fiduciary duty
coincide" -- for example, where "each sale was made
to further [the] fraudulent scheme" -- the breaches were
"in connection with securities sales within the meaning
of § 10(b)." Id. at 820, 825. In
Dabit, the Court applied that same broad
interpretation to identical "in connection with"
language Congress used in SLUSA. 547 U.S. at 85-86.
"Under our precedents, ...