Case 3:16-cv-03938-RS Document 204 Filed 09/23/22 Page 1 of 36
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`MELISSA A. FORTUNATO (#319767)
` fortunato@bespc.com
`BRAGAR EAGEL & SQUIRE, P.C.
`580 California Street, Suite 1200
`San Francisco, CA 94104
`Telephone: (415) 568-2124
`Facsimile: (212) 486-0462
`
`LAWRENCE P. EAGEL (pro hac vice)
` eagel@bespc.com
`BRAGAR EAGEL & SQUIRE, P.C.
`810 Seventh Avenue, Suite 620
`New York, New York 10019
`Telephone: (212) 308-5858
`Facsimile: (212) 486-0462
`
`LIONEL Z. GLANCY (#134180)
` lglancy@glancylaw.com
`JONATHAN ROTTER (#234137)
` jrotter@glancylaw.com
`GARTH SPENCER (#335424)
` gspencer@glancylaw.com
`GLANCY PRONGAY & MURRAY LLP
`1925 Century Park East, Suite 2100
`Los Angeles, California 90067
`Telephone: (310) 201-9150
`Facsimile: (310) 201-9160
`
`Attorneys for Lead Plaintiff Robert Wolfson and
`Co-Lead Counsel for the Class
`
`[Additional Counsel on Signature Block]
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`SAN FRANCISCO DIVISION
`ROBERT CRAGO, Individually and on
` Case No. 3:16-cv-03938-RS
`Behalf of All Others Similarly Situated,
`
`
`CLASS ACTION
`
`Plaintiff,
`NOTICE OF MOTION AND
`
`PLAINTIFFS’ RENEWED MOTION
`v.
`FOR CLASS CERTIFICATION; AND
`
`MEMORANDUM OF POINTS AND
`CHARLES SCHWAB & CO., INC., and THE
`AUTHORITIES
`CHARLES SCHWAB CORPORATION,
`
`
`Date:
`December 1, 2022
`Defendants.
`Time:
`1:30 pm
`
`Crtrm.: 3, 17th Floor
`
`
`
`Honorable Richard G. Seeborg
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`Case 3:16-cv-03938-RS Document 204 Filed 09/23/22 Page 2 of 36
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`TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD:
`
`PLEASE TAKE NOTICE that, on December 1, 2022 at 1:30 p.m., before the Honorable
`Richard G. Seeborg, in Courtroom 3, 17th Floor, located at the Phillip Burton Federal Building &
`United States Courthouse, 450 Golden Gate Avenue, San Francisco, CA 94102, Lead Plaintiff
`Robert Wolfson (“Wolfson”) and named plaintiff K. Scott Posson (“Posson” and, together,
`“Plaintiffs”) will move under Fed. R. Civ. P. 23(a), 23(b)(3), 23(c)(4) and 23(g), for an Order:
`1.
`Certifying the following Class:
`
`All clients of Charles Schwab & Co., Inc. or The Charles Schwab Corporation
`(together, “Schwab”) between July 13, 2011 and December 31, 2014 who
`placed one or more non-directed equity orders during the Class Period that
`were routed to UBS Securities, LLC (“UBS”) by Schwab pursuant to the
`Equities Order Handling Agreement. Excluded from the Class are the officers,
`directors, and employees of Schwab.
`
`With respect to the following issues:
`
`a) Whether Schwab omitted to disclose material facts and/or misrepresented
`material facts regarding its receipt of money from UBS in exchange for
`routing Schwab customer orders to UBS, and/or regarding Schwab’s
`compliance with the duty of best execution.
`
`b) Whether Schwab engaged in a plan, scheme, conspiracy, and course of
`conduct, whereby they employed devices, schemes, and artifices to defraud
`in connection with the purchase and sale of securities (the “Scheme”).
`
`c) Whether Schwab knowingly or recklessly (i) omitted and/or misrepresented
`material facts and/or (ii) committed a deceptive or manipulative act in
`furtherance of the Scheme.
`
`2.
`
`3.
`
`4.
`
`Appointing Plaintiffs Wolfson and Posson as Class Representatives;
`
`Appointing Lead Counsel Glancy Prongay & Murray LLP and Bragar Eagel &
`Squire, P.C., and counsel for Plaintiff Posson, Levi & Korsinsky, LLP, as Class
`Counsel; and
`
`Granting such other and further relief the Court may deem just and proper.
`
`Class certification, the appointment of Plaintiffs as Class Representatives, and the
`appointment of Class Counsel are proper, where, as here, the Class is so numerous that joinder is
`impracticable, common questions of law and fact predominate regarding the issues to be certified,
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`Plaintiffs’ claims are typical of the Class’s claims, Plaintiffs and their counsel will fairly and
`adequately represent the Class, and a class action is superior to individual actions.
`This Motion is made pursuant to the Court’s August 29, 2022 Minute Entry Order (ECF No.
`201) and the parties’ September 8, 2022 Stipulated Briefing Schedule For Renewed Motion For
`Class Certification And Motion To Compel Arbitration (ECF No. 202). This Motion is based on the
`Memorandum of Points and Authorities below, the pleadings and other filings in this action, such
`further argument as the Court may allow at the hearing on this motion, and any other evidence and
`argument that may be presented to the Court.
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`TABLE OF CONTENTS
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`
`ISSUES TO BE DECIDED ............................................................................................................... 1 
`PRELIMINARY STATEMENT AND BACKGROUND ................................................................ 1 
`ARGUMENT .................................................................................................................................... 3 
`Schwab Knowingly or Recklessly Misled Its Customers on a Class-Wide
`I. 
`Basis
` ....................................................................................................................... 4 
`
`A. 
`
`Schwab Violated Its Duty of Best Execution on a Class-Wide Basis ........... 4 
`
`1. 
`
`2. 
`
`3. 
`
`4. 
`
`5. 
`
`6. 
`
`7. 
`
`8. 
`
`9. 
`
`Schwab Evaluated Its Own Execution Quality on a Company-
`Wide Basis ......................................................................................... 4 
`
`The EOHA’s Terms and Schwab’s Order Routing
`Technology Contributed to Class-Wide Failures of Best
`Execution ........................................................................................... 6 
`
`Schwab Uniformly Failed to Compare Price Disimprovement
`for Marketable Orders Across Market Centers ................................. 6 
`
`Schwab Uniformly Failed to Compare the Likelihood of
`Execution of Limit Orders Across Different Venues ........................ 8 
`
`Schwab Uniformly Failed to Compare Execution Quality
`Across All Relevant Market Centers ................................................. 9 
`
`Schwab Uniformly Failed to Perform a Security-by-Security,
`Type-of-Order Analysis of Execution Quality .................................. 9 
`
`Schwab Uniformly Failed to Obtain More Accurate Time
`Data From UBS to Perform Its Execution Quality Analysis .......... 10 
`
`Despite Evidence of UBS’s Inferior Executions, Schwab
`Uniformly Failed to Seek Improved Executions or to Justify
`Continued Routing .......................................................................... 11 
`
`Schwab Recognized the Conflicts of Interest Inherent in Its
`Relationship With UBS and Their Potential to Harm All
`Schwab Customers .......................................................................... 13 
`
`B. 
`
`Schwab Fraudulently Omitted to Disclose Material Facts Regarding
`Its Best Execution Failures on a Class-Wide Basis ..................................... 15 
`
`Legal Standard For Class Certification ................................................................... 15 
`
`Certification of the Class With Respect to the Falsity Issue, the Scheme Issue,
`and the Scienter Issue Is Appropriate Under Rule 23(c)(4) .................................... 18 
`
`II. 
`
`III. 
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`A. 
`
`B. 
`
`This Case Meets the Standards for Issue Classes ........................................ 18 
`
`Falsity, Scheme, and Scienter Are Common Issues Ripe for
`Certification ................................................................................................. 19 
`
`IV. 
`
`The Proposed Class Satisfies Rule 23(a) With Respect to Falsity, Scheme,
`and Scienter ............................................................................................................. 21 
`
`A. 
`
`B. 
`
`C. 
`
`D. 
`
`Numerosity .................................................................................................. 21 
`
`Commonality ............................................................................................... 22 
`
`Typicality .................................................................................................... 23 
`
`Adequacy ..................................................................................................... 24 
`
`V. 
`
`VI. 
`
`The Proposed Class Also Satisfies Rule 23(b)(1) ................................................... 25 
`
`CONCLUSION ....................................................................................................... 25 
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`TABLE OF AUTHORITIES
`
`Cases 
`Alcantar v. Hobart Services,
`800 F.3d 1047, 1052 (9th Cir. 2015) ......................................................................................... 22
`Amador v. Baca,
`No. 10-CV-1649-SVW, 2016 WL 8904537 (C.D. Cal. Nov. 18, 2016) ................................... 19
`Amchem Products, Inc. v. Windsor,
`521 U.S. 591 (1997) .................................................................................................................. 17
`Amgen Inc. v. Connecticut Retirement Plans & Trust Funds,
`568 U.S. 455 (2013) .................................................................................................................. 15
`Arthur Young & Company v. United States District Court,
`549 F.2d 686 (9th Cir. 1977) ..................................................................................................... 19
`Bennett v. Spear,
`520 U.S. 154 (1997) .................................................................................................................. 17
`Bernstein v. Virgin America, Inc.,
`No. 15-cv-02277-JST, 2018 U.S. Dist. LEXIS 114721 (N.D. Cal. July 9, 2018) .................... 18
`Blackie v. Barrack,
`524 F.2d 891 (9th Cir. 1975) ..................................................................................................... 18
`Briseno v. ConAgra Foods, Inc.,
`844 F.3d 1121 (9th Cir. 2017) ................................................................................................... 21
`Central Wesleyan College v. W.R. Grace & Company,
`6 F.3d 177 (4th Cir. 1993) ......................................................................................................... 17
`Chalk v. T-Mobile USA, Inc.,
`560 F.3d 1087 (9th Cir. 2009) ................................................................................................... 17
`Charrons v. Pinnacle Group New York LLC,
`269 F.R.D. 221 (S.D.N.Y. 2010) .............................................................................................. 20
`Chinitz v. Intero Real Estate Services,
`No. 18-cv-05623-BLF, 2020 U.S. Dist. LEXIS 247921 (N.D. Cal. July 22, 2020) ................. 22
`Des Roches v. California Physicians’ Services,
`320 F.R.D. 486 (N.D. Cal. 2017) .............................................................................................. 25
`Diaz v. Albertson’s LLC,
`No. CV 16-00257 DSF (JEMx), 2016 WL 8904415 (C.D. Cal. Dec. 20, 2016) ...................... 18
`Erica P. John Fund, Inc. v. Halliburton Company,
`563 U.S. 804 (2011) .................................................................................................................... 4
`Fleming v. Matco Tools Corporation,
`No. 19-cv-00463-WHO, 2021 U.S. Dist. LEXIS 33513 (N.D. Cal. Feb. 21, 2021)................. 21
`General Telephone Company of the Southwest v. Falcon,
`457 U.S. 147 (1982) .................................................................................................................. 17
`
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`Gonzales v. Arrow Financial Services LLC,
`489 F. Supp. 2d 1140 (S.D. Cal. 2007) ..................................................................................... 15
`Gunnells v. Healthplan Services, Inc.,
`348 F.3d 417 (4th Cir. 2003) ..................................................................................................... 20
`Hanlon v. Chrysler Corporation,
`150 F.3d 1011 (9th Cir. 1998) ............................................................................................. 23, 24
`Hanon v. Dataproducts Corporation,
`976 F.2d 497 (9th Cir. 1992) ..................................................................................................... 23
`Huntsman v. Southwest Airlines Company,
`No. 19-cv-00083-PJH, 2021 U.S. Dist. LEXIS 20856 (N.D. Cal. Feb. 3, 2021) ..................... 16
`In re Activision Securities Litigation,
`621 F. Supp. 415 (N.D. Cal. 1985) ........................................................................................... 18
`In re Cooper Companies Securities Litigation,
`254 F.R.D. 628 (C.D. Cal. 2009) .............................................................................................. 15
`In re Facebook, Inc., PPC Advertising Litigation,
`282 F.R.D. 446 (N.D. Cal. 2012) .............................................................................................. 21
`In re Motor Fuel Temperature Sales Practices Litigation,
`292 F.R.D. 652 (D. Kan. 2013) ................................................................................................. 16
`In re Nassau County Strip Search Cases,
`461 F.3d 219 (2d Cir. 2006) ...................................................................................................... 17
`In re Rubber Chemicals Antitrust Litigation,
`232 F.R.D. 346 (N.D. Cal. 2005) .............................................................................................. 21
`Jacob v. Duane Reade, Inc.,
`293 F.R.D. 578, (S.D.N.Y. 2013), aff’d, 602 F. App’x 3 (2d Cir. 2015) .................................. 16
`Jimenez v. Allstate Insurance Company,
`765 F.3d 1161 (9th Cir. 2014) ................................................................................................... 19
`Jordan v. County of Los Angeles,
`699 F.2d 1311 (9th Cir. 1982) ................................................................................................... 21
`Klein v. TD Ameritrade, et al.,
`C.A. No. 8:14-00369-JFN-SMB, 2022 U.S. Dist. LEXIS 170023
`(D. Neb. Sept. 20, 2022).............................................................................................................. 2
`Lee v. State of Oregon,
`107 F.3d 1382 (9th Cir. 1997) ................................................................................................... 17
`Loritz v. Exide Technologies,
`No. 2:13-cv-02607-SVW-E, 2015 U.S. Dist. LEXIS 100471 (C.D. Cal. July 21, 2015) ......... 16
`Mace v. Van Ru Credit Corporation,
`109 F.3d 338 (1997) .................................................................................................................. 17
`MadKudu Inc. v. United States Citizenship & Immigration Services,
`No. 20-cv-02653-SVK, 2020 U.S. Dist. LEXIS 219184 (N.D. Cal. Nov. 17, 2020) ............... 21
`
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`Martin v. Behr Dayton Thermal Products LLC,
`896 F.3d 405 (6th Cir. 2018) ..................................................................................................... 20
`Petersen v. Costco Wholesale Company,
`312 F.R.D. 565 (C.D. Cal. 2016) .............................................................................................. 19
`Rahman v. Mott’s LLP,
`693 F. App’x 578, (9th Cir. 2017)............................................................................................. 16
`Robinson v. Metro–North Commuter Railroad Company,
`267 F.3d 147 (2d Cir. 2001) ...................................................................................................... 20
`Saavedra v. Eli Lilly and Company,
`No. 2:12-cv-9366-SVW (MANx), 2014 U.S. Dist. LEXIS 179088
`(C.D. Cal. Dec. 18, 2014) .......................................................................................................... 17
`Tasion Communications, Inc. v. Ubiquiti Networks Inc.,
`308 F.R.D. 630 (N.D. Cal. 2015) .............................................................................................. 17
`Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
`551 U.S. 308 (2007) .................................................................................................................. 15
`Torres v. Mercer Canyons Inc.,
`835 F.3d 1125, (9th Cir. 2016) .................................................................................................. 22
`Valentino v. Carter-Wallace, Inc.,
`97 F.3d 1227 (9th Cir. 1996) ......................................................................................... 16, 18, 20
`Villalpando v. Exel Direct Inc.,
`303 F.R.D. 588 (N.D. Cal. 2014) .............................................................................................. 21
`Wal-Mart Stores, Inc. v. Dukes,
`564 U.S. 338 (2011) ............................................................................................................ 22, 23
`Walters v. Target Corporation,
`No. 3:16-cv-1678-L-MDD, 2020 U.S. Dist. LEXIS 198765 (9th Cir. Oct. 26, 2020) ............. 23
`Williams v. PillPack LLC,
`No. C19-5282 TSZ, 2021 U.S. Dist. LEXIS 27496 (W.D. Wash. Feb. 12, 2021) ................... 21
`Wolin v. Jaguar Land Rover North America, LLC,
`617 F.3d 1168 (9th Cir. 2010) ................................................................................................... 20
`Wood v. Granite Construction Company,
`No. CIV-S-03-2592 DFL PAN, 2005 U.S. Dist. LEXIS 55541
`(E.D. Cal. Mar. 11, 2005) .......................................................................................................... 21
`Zeisel v. Diamond Foods, Inc.,
`No. C 10-01192 JSW, 2011 U.S. Dist. LEXIS 60608 (N.D. Cal. June 7, 2011) ...................... 15
`
`Other Authorities 
`2 William B. Rubenstein, Newberg & Rubenstein on Class Actions § 4:92
`(6th ed. June 2022 update) .................................................................................................. 16, 17
`5 Moore’s Federal Practice § 23.48[1] (1997) ............................................................................. 20
`FINRA, Rule 5310(a)(1)(C) (2014) ................................................................................................ 9
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`FINRA, Rule 5310.02 (2012) .......................................................................................................... 9
`FINRA, Rule 5310.09(a) (2014) ............................................................................................. 5, 8, 9
`FINRA, Rule 5310.09(b) (2014) .......................................................................................................
`7, 8, 10, 11
`Richard A. Nagareda, Class Certification in the Age of Aggregate Proof,84 N.Y.U. L.
`Rev. 97 (2009) ........................................................................................................................... 22
`
`Rules 
`Fed. R. Civ. P. 23 .......................................................................................................................... 16
`Fed. R. Civ. P. 23(a)(4) ................................................................................................................. 24
`Fed. R. Civ. P. 23(b)(1)(A) ........................................................................................................... 25
`Fed. R. Civ. P. 23(c)(4) ................................................................................................................. 16
`
`Regulations 
`17 C.F.R. § 240.10b-5 ..................................................................................................................... 3
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`ISSUES TO BE DECIDED
`1.
`Whether the following Class should be certified:
`All clients of Charles Schwab & Co., Inc. or The Charles Schwab Corporation (together,
`“Schwab” or “Defendants”), between July 13, 2011 and December 31, 2014 (the “Class
`Period”), who placed one or more non-directed equity orders during the Class Period that
`were routed to UBS Securities, LLC (“UBS”) by Schwab pursuant to the Equities Order
`Handling Agreement (“EOHA”). Excluded from the Class are the officers, directors, and
`employees of Schwab.
`
`With respect to the following issues:
`
`a) Whether Schwab omitted to disclose material facts and/or misrepresented
`material facts regarding its receipt of money from UBS in exchange for
`routing Schwab customer orders to UBS, and/or regarding Schwab’s
`compliance with the duty of best execution (the “Falsity Issue”).
`
`b) Whether Schwab engaged in a plan, scheme, conspiracy, and course of
`conduct, whereby they employed devices, schemes, and artifices to defraud
`in connection with the purchase and sale of securities (the “Scheme” and the
`“Scheme Issue”).
`
`c) Whether Schwab knowingly or recklessly (i) omitted and/or misrepresented
`material facts and/or (ii) committed a deceptive or manipulative act in
`furtherance of the Scheme.(the “Scienter Issue”).
`
`2.
`Whether Plaintiffs Robert Wolfson (“Wolfson”) and K. Scott Posson (“Posson” and,
`together, “Plaintiffs”) should be appointed as Class Representatives.1
`3.
`Whether Glancy Prongay & Murray LLP (“Glancy”), Bragar Eagel & Squire, P.C.
`(“BES”), and Levi & Korsinsky, LLP (“LK”) should be appointed as Class Counsel.
`PRELIMINARY STATEMENT AND BACKGROUND
`Plaintiffs’ renewed motion for class certification directly addresses and overcomes the
`concerns that caused the Court to deny Plaintiffs’ original class certification motion, where the Court
`held that no presumption of reliance applies, and so commonality and predominance were lacking.
`Plaintiffs’ present motion does not seek the certification of a class for which reliance must be proven
`class-wide. Instead, Plaintiffs seek certification of a class under Fed. R. Civ. P. 23(c)(4) (“Rule 23”)
`
`
`1 While Lead Plaintiff Pino was named as a proposed class representative in Plaintiffs’ prior class
`certification motion, he has since passed away and therefore is not proposed as a class representative
`in the instant motion. Lead Counsel reserve all rights to pursue Mr. Pino’s claims against Defendants
`in consultation with and for the benefit of his estate, heirs, and/or executors.
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`solely with respect to the issues of falsity, scienter, and the presence of a scheme. Because those
`issues focus exclusively on Schwab’s uniform conduct identically affecting all Class members, they
`can be proven by common evidence, and easily satisfy the Rule 23(a) factors. Issue certification will
`substantially further the resolution of this litigation and Class members’ claims against Schwab. As
`recently noted by the court in Klein v. TD Ameritrade, et al., C.A. No. 8:14-00369-JFN-SMB, 2022
`U.S. Dist. LEXIS 170023 (D. Neb. Sept. 20, 2022) when certifying the class under Rule 23(b)(3) in
`a similar duty of best execution case:
`[I]f certification under Rule 23(b)(3) were not appropriate, the Court would certify
`an issues class under Rule 23(c)(4) to determine the issue of liability on the merits
`on the question of whether TD Ameritrade complied with the duty of best execution
`and knowingly misrepresented its compliance with its duty of best execution during
`the class period. If TD Ameritrade would prevail on that issue, the claims of all the
`class members would be resolved. If the plaintiff proved that TD Ameritrade was
`violating Rule 10b-5 by making its representations during the class period, any
`individual trials or determinations would be greatly simplified.
`Klein, at *18 n.7.
`This is also a duty of best execution case, this one arising out of Schwab’s failure to disclose
`to its customers that it routed almost all of its customers’ non-directed equity orders to UBS pursuant
`to the EOHA regardless of whether doing so was consistent with Schwab’s duty of best execution.
`See ¶47.2 Schwab directed 95% or more of its clients’ non-directed equity orders to UBS, in
`exchange for tens of millions of dollars a year from UBS. See id. At the same time it omitted to state
`those key facts, Schwab stated on its website and elsewhere its intention to provide “exceptional
`execution,” and “the best possible execution,” and that it “regularly monitor[ed] the execution
`quality provided by different exchanges and liquidity providers.” See ¶40.3
`Schwab’s automatic routing of its customers’ orders to UBS allowed UBS to handle
`Schwab’s customers’ orders in ways that were harmful to Schwab’s customers, including pursuing
`UBS’s self-interest by trading against those orders for UBS’s own account, allowing UBS customers
`
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`2 Citations to the Second Amended Class Action Complaint for Violations of Federal Securities
`Laws [ECF No. 81] (the “Complaint”) are in the form “¶__”.
`3 Plaintiffs preserve their position that Schwab’s omissions were central here, but in light of the
`Court’s prior class certification order, this motion also discusses Schwab’s affirmative
`representations.
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`to trade against those orders, or simply routing them onward to other destinations that would pay
`UBS for providing the orders, regardless of whether that destination would provide best execution.
`See ¶54. These practices resulted in inferior executions for Schwab customers. See ¶8.
`Schwab profited handsomely from allowing UBS to harm Schwab’s customers’ orders. In
`2004, Schwab sold its capital markets division to UBS for $265 million. As an integral part of that
`transaction, Schwab and UBS entered into the EOHA, which contractually required Schwab to route
`the vast majority of its non-directed customer equity orders to UBS. See ¶¶44, 47. Beginning in
`November 2012, pursuant to amendments to the EOHA, Schwab received payment for order flow
`(“PFOF”) from UBS, whereby UBS made periodic payments to Schwab based on the volume of
`orders Schwab routed to UBS, totaling tens of millions of dollars per year. See ¶52.
`ARGUMENT
`Plaintiffs assert claims on behalf of the Class under Section 10(b) of the Securities Exchange
`Act of 1934, 15 U.S.C. § 78j(b), and U.S. Securities and Exchange Commission Rule 10b-5
`promulgated thereunder, 17 C.F.R. § 240.10b-5. Rule 10b-5 provides as follows:
`It shall be unlawful for any person, directly or indirectly, by the use of any means or
`instrumentality of interstate commerce, or of the mails or of any facility of any
`national securities exchange,
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`(a) To employ any device, scheme, or artifice to defraud,
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`(b) To make any untrue statement of a material fact or to omit to state a material fact
`necessary in order to make the statements made, in the light of the circumstances
`under which they were made, not misleading, or
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`(c) To engage in any act, practice, or course of business which operates or would
`operate as a fraud or deceit upon any person, in connection with the purchase or sale
`of any security.
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`17 C.F.R. § 240.10b-5.
`The Complaint alleges that Schwab’s failure to disclose the truth to its customers regarding
`Schwab’s order routing decisions and the operation of the EOHA violated Rule 10b-5.
`To prove a claim under Rule 10b-5, Plaintiffs must prove (1) a material misrepresentation
`or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or
`omission and the purchase and sale of a security; (4) reliance on the misrepresentation or omission;
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`(5) economic loss; and (6) loss causation. Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S.
`804, 809-10 (2011).
`The elements of falsity, scienter, and scheme participation focus exclusively on Schwab’s
`conduct, which was uniform as to all Class members, and so can be proven by common evidence.
`Plaintiffs will prove that Schwab violated Rule 10b-5 by failing to disclose that it would route almost
`all non-directed equity orders to UBS without regard to Schwab’s admitted duty to provide best
`execution, all to maximize Schwab’s profits at the Class members’ expense. Schwab’s own records
`demonstrate its adherence to the EOHA and evidence the millions of Class member trades routed
`pursuant to that agreement. That evidence will demonstrate that Schwab failed to take reasonable
`steps to achieve the best price for the Class members’ trades, thereby breaching its duty of best
`execution. The evidence of Defendants’ scienter, demonstrating what Defendants knew and
`intended, is also common to the Class. Once the key elements of falsity and scienter are established
`on a Class-wide basis, the elements of reliance, economic loss, and loss causation will be established
`by Class members on an individual basis.
`I.
`Schwab Knowingly or Recklessly Misled Its Customers on a Class-Wide Basis
`A.
`Schwab Violated Its Duty of Best Execution on a Class-Wide Basis
`Schwab violated its duty of best execution by failing to evaluate adequately the execution
`quality that its customers would obtain from UBS for orders routed pursuant to the EOHA. Schwab
`also failed to take steps to improve UBS’s deficient execution quality. These were company-wide
`failures relating to Schwab’s policies and procedures with respect to all customer orders routed to
`UBS during the Class Period and, therefore, impacting all Class members. UBS took advantage of
`Schwab’s indifference to execution quality and harmed Schwab’s customers’ orders for UBS’s own
`financial gain—which is why UBS was willing to pay Schwab millions of dollars per year to obtain
`the vast majority of Schwab’s customers’ orders.
`1.
`Schwab Evaluated Its Own Execution Quality on a Company-Wide Basis
`
`Schwab cannot contest that noncompliance with its duty of best execution can be dete