Case 1:21-md-02989-CMA Document 406 Entered on FLSD Docket 08/30/2021 Page 1 of 47
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF FLORIDA
`
`CASE NO. 21-MD-2989-ALTONAGA/TORRES
`
`
`In re:
`
`JANUARY 2021 SHORT SQUEEZE
`TRADING LITIGATION
`
`_____________________________________/
`
`This Document Relates to All Claims Included
`In the Robinhood Tranche
`
`
`
`DEFENDANTS ROBINHOOD MARKETS, INC., ROBINHOOD FINANCIAL LLC AND
`ROBINHOOD SECURITIES, LLC’S MOTION TO DISMISS THE ROBINHOOD
`TRANCHE COMPLAINT AND INCORPORATED MEMORANDUM OF LAW
`
`

`

`Case 1:21-md-02989-CMA Document 406 Entered on FLSD Docket 08/30/2021 Page 2 of 47
`
`TABLE OF CONTENTS
`PRELIMINARY STATEMENT .....................................................................................................1
`BACKGROUND .............................................................................................................................5
`I.
`The Contractual Relationship Between Robinhood and Its Customers. ..............................5
`II.
`The Mechanics of Securities Trading. .................................................................................7
`III.
`The Unprecedented Market Volatility of January 2021. .....................................................8
`IV.
`The Events of January 28, 2021 and Onward. ...................................................................11
`LEGAL STANDARDS .................................................................................................................13
`I.
`Applicable Standard...........................................................................................................13
`II.
`Applicable Law. .................................................................................................................13
`ARGUMENT.................................................................................................................................16
`I.
`PLAINTIFFS’ NEGLIGENCE AND GROSS NEGLIGENCE CLAIMS FAIL
`BECAUSE PLAINTIFFS DO NOT ADEQUATELY ALLEGE THAT ROBINHOOD
`OWED THEM A DUTY IN TORT...................................................................................17
`A.
`Robinhood Owes Its Customers Contractual Obligations, Not Tort Duties..........17
`B.
`Robinhood Does Not Owe Its Customers a Generalized Duty of Care .................21
`C.
`Plaintiffs Cannot Rely on Regulations and Self-Regulatory Rules for Which There
`Are No Private Rights of Action to Impose a Tort Duty on Robinhood ...............25
`PLAINTIFFS CANNOT PLEAD A NEGLIGENCE PER SE CLAIM. ...........................28
`ROBINHOOD DOES NOT OWE ITS CUSTOMERS A FIDUCIARY DUTY. .............29
`A.
`Robinhood Owed No Duty to Customer Plaintiffs To Make Its Brokerage
`Services Available For Any Specific Security At All Times ................................29
`Robinhood Also Owed No Duty to Plaintiff Moody for Canceled Orders ...........34
`B.
`ROBINHOOD OWES NO DUTIES TO NON-ROBINHOOD CUSTOMERS—ALL
`CLAIMS BROUGHT BY NON-ROBINHOOD CUSTOMERS THEREFORE FAIL....36
`A.
`The Negligence-Based Claims on Behalf of Non-Robinhood Customers Fail
`Because Robinhood Does Not Owe Them a Duty .................................................36
`Robinhood Does Not Owe a Fiduciary Duty to Non-Robinhood Customer
`Investors.................................................................................................................37
`PLAINTIFFS’ COMPLAINT SHOULD BE DISMISSED WITH PREJUDICE.............38
`V.
`CONCLUSION ..............................................................................................................................38
`
`II.
`III.
`
`IV.
`
`B.
`
`
`
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`Case 1:21-md-02989-CMA Document 406 Entered on FLSD Docket 08/30/2021 Page 3 of 47
`
`TABLE OF AUTHORITIES
`
`Page(s)
`
`Cases
`
`Aas v. Super. Ct., 12 P.3d 1125 (Cal. 2000) ..................................................................................19
`
`Apollo Capital Fund LLC v. Roth Capital Partners LLC, 70 Cal. Rptr. 3d 199
`(Ct. App. 2007) ..................................................................................................................30, 33
`
`Arndt v. Twenty-One Eighty-Five, LLC, 448 F. Supp. 3d 1310 (S.D. Fla. 2020) ..............13, 14, 15
`
`Ashcroft v. Iqbal, 556 U.S. 662 (2009) ..........................................................................................13
`
`Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ..........................................................................13
`
`Biakanja v. Irving, 320 P.2d 16 (Cal. 1958) ..................................................................................23
`
`Bily v. Arthur Young & Co., 834 P.2d 745 (Cal. 1992) ...........................................................17, 21
`
`Body Jewelz, Inc. v. Valley Forge Ins. Co., 241 F. Supp. 3d 1084 (C.D. Cal. 2017) ....................23
`
`Brown v. Cal. Pension Adm’rs & Consultants, Inc., 52 Cal. Rptr. 2d 788
`(Ct. App. 1996) ............................................................................................................19, 29, 30
`
`Burdick v. Bank of Am., N.A., 99 F. Supp. 3d 1372 (S.D. Fla. 2015) ............................................20
`
`Caravan Mobile Home Sales, Inc. v. Lehman Bros. Kuhn Loeb, 769 F.2d 561 (9th
`Cir. 1985) .................................................................................................................................34
`
`Carleton v. Tortosa, 17 Cal. Rptr. 2d 734 (Ct. App. 1993) ...........................................................35
`
`Cavero v. Law Offices of Erskine & Fleisher, No. 12-21196-CIV, 2012 WL
`13134213 (S.D. Fla. Aug. 28, 2012) ..........................................................................................9
`
`Certain Underwriters at Lloyd’s of London, UK Subscribing to Pol’y No.
`B1230AP56189A14 v. Ocean Walk Resort Condo. Ass’n, Inc.,
`No. 616CV258ORL37GJK, 2017 WL 3034069 (M.D. Fla. July 18, 2017) ............................24
`
`Champion v. Feld Ent., Inc., No. 20-CV-2400-DMS-KSC, 2021 WL 1812764
`(S.D. Cal. May 6, 2021) ...........................................................................................................17
`
`Clanton v. Inter.Net Glob., L.L.C., 435 F.3d 1319 (11th Cir. 2006) .............................................13
`
`Clay Elec. Co-op., Inc. v. Johnson, 873 So. 2d 1182 (Fla. 2003) ..................................................24
`
`Cobos v. Robinhood Financial LLC, et al., No. 2:21-cv-00843-VAP-MRWx,
`2021 WL 1035123 (C.D. Cal. Feb. 10, 2021)............................................................................3
`
`ii
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`
`Cooper v. Meridian Yachts, Ltd., 575 F.3d 1151 (11th Cir. 2009)................................................14
`
`Curd v. Mosaic Fertilizer, LLC, 39 So.3d 1216 (Fla. 2010)..........................................................24
`
`D.A.M. v. Barr, 474 F. Supp. 3d 45 (D.D.C. 2020).......................................................................11
`
`DeJesus v. Seaboard Coast Line R.R., 281 So. 2d 198 (Fla. 1973)...............................................28
`
`Deloitte & Touche v. Gencor Indus., Inc., 929 So. 2d 678 (Fla. 5th DCA 2006) .........................16
`
`Detwiler v. Bank of Cent. Fla., 736 So. 2d 757 (Fla. 5th DCA 1999) ...........................................35
`
`Erlich v. Menezes, 981 P.2d 978 (Cal. 1999).....................................................................18, 20, 23
`
`Estate of Johnson ex rel. Johnson v. Badger Acquisition of Tampa LLC,
`983 So. 2d 1175 (Fla. 2d DCA 2008) ......................................................................................27
`
`Fox v. Lifemark Sec. Corp., 84 F. Supp. 3d 239 (W.D.N.Y. 2015) ...............................................25
`
`Gochnauer v. A.G. Edward & Sons, Inc., 810 F.2d 1042 (11th Cir. 1987) .............................32, 34
`
`Gracey v. Eaker, 837 So. 2d 348 (Fla. 2002) ................................................................................37
`
`Gurfein v. Ameritrade, Inc., 312 F. App’x 410 (2d Cir. 2009) ......................................................26
`
`Hallock v. Holiday Isle Resort & Marina, Inc., 4 So. 3d 17 (Fla. 3d DCA 2009) ........................35
`
`Harper v. Wausau Ins. Co., 66 Cal. Rptr. 2d 64 (Ct. App. 1997)..................................................27
`
`Hauptman v. Interactive Brokers, LLC, 349 F. Supp. 3d 292 (S.D.N.Y. 2018)............................27
`
`Hi-Tech Pharm., Inc. v. HBS Int’l Corp., 910 F.3d 1186 (11th Cir. 2018) .............................15, 16
`
`Horsley v. Feldt, 304 F.3d 1125 (11th Cir. 2002)..........................................................................15
`
`In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 155 F. Supp. 2d 1069
`(S.D. Ind. 2001) .......................................................................................................................14
`
`In re Series 7 Broker Qualification Exam Scoring Litig., 510 F. Supp. 2d 35
`(D.D.C. 2007) ..........................................................................................................................26
`
`In re Verifone Sec. Litig., 11 F.3d 865 (9th Cir. 1993) ..................................................................26
`
`Ins. Co. of the W. v. Island Dream Homes, Inc., 679 F.3d 1295 (11th Cir. 2012) ........................20
`
`Island Travel & Tours, Co. v. MYR Indep., Inc., 300 So. 3d 1236
`(Fla. 3d DCA 2020) .................................................................................................................20
`
`J’Aire Corp. v. Gregory, 598 P.2d 60 (Cal. 1979).........................................................................23
`
`iii
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`
`Jablon v. Dean Witter & Co., 614 F.2d 677 (9th Cir. 1980) .........................................................26
`
`Kidder Peabody & Co. v. Unigestion Int’l, Ltd., 903 F. Supp. 479
`(S.D.N.Y. 1995) .......................................................................................................................26
`
`Kurtz-Ahlers, LLC v. Bank of Am., N.A., 262 Cal. Rptr. 3d 420 (Ct. App. 2020) .........................22
`
`La Grasta v. First Union Sec., Inc., 358 F.3d 840 (11th Cir. 2004) ................................................9
`
`Lamm v. State St. Bank & Tr., 749 F.3d 938 (11th Cir. 2014) ......................................................24
`
`Leib v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 461 F. Supp. 951
`(E.D. Mich. 1978) ....................................................................................................................32
`
`Liese v. Indian River Cty. Hosp. Dist., 701 F.3d 334 (11th Cir. 2012) .........................................28
`
`Maxcess, Inc. v. Lucent Techs., Inc., 433 F.3d 1337 (11th Cir. 2005) ..........................................15
`
`Meyers v. Guar. Sav. & Loan Ass’n, 144 Cal. Rptr. 616 (Ct. App. 1978).....................................35
`
`Misabec Mercantile, Inc. De Panama v. Donaldson, Lufkin & Jenrette ACLI
`Futures, Inc., 853 F.2d 834 (11th Cir. 1988) .....................................................................34, 35
`
`Moody, et al. v. Robinhood Financial LLC, No. 21-cv-00861 (N.D. Cal.) ...................................18
`
`Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 98 Cal. Rptr. 837
`(Ct. App. 1971) ........................................................................................................................20
`
`Orey v. Super. Ct., 152 Cal. Rptr. 3d 878 (Ct. App. 2013)............................................................17
`
`Paszamant v. Ret. Accts., Inc., 776 So. 2d 1049 (Fla. 5th DCA 2001)..........................................25
`
`Peregrine Pharms., Inc. v. Clinical Supplies Mgmt., Inc., No. 12-cv-1608-JGB,
`2015 WL 13309286 (C.D. Cal. June 22, 2015) .....................................................19, 20, 22, 23
`
`Petersen v. Sec. Settlement Corp., 277 Cal. Rptr. 468 (Ct. App. 1991) ..................................30, 31
`
`Pinchasov v. Robinhood Financial LLC, No. 20-cv-24897-CMA (S.D. Fla.) ........................24, 36
`
`Price (Tilley) v. Charles Schwab & Co., No. 14-cv-06194, 2015 WL 9694811
`(C.D. Cal. Apr. 6, 2015)...........................................................................................................26
`
`Quiroz v. Seventh Ave. Ctr., 45 Cal. Rptr. 3d 222 (Ct. App. 2006) ...............................................28
`
`Robinson Helicopter Co. v. Dana Corp., 102 P.3d 268 (Cal. 2004) .............................................19
`
`Rocks v. McLaughlin Eng’g Co., 49 So. 3d 823 (Fla. 4th DCA 2010) ..........................................21
`
`Rosencrans v. Dover Images, Ltd., 122 Cal. Rptr. 3d 22 (Ct. App. 2011) ....................................17
`
`iv
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`S. California Gas Leak Cases, 441 P.3d 881 (Cal. 2019)........................................................22, 23
`
`SFM Holdings, Ltd. v. Banc of Am. Sec., 600 F.3d 1334 (11th Cir. 2010)........................15, 30, 33
`
`Sheen v. Wells Fargo Bank, N.A., 250 Cal. Rptr. 3d 677 (Ct. App. 2019) ..............................17, 22
`
`Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252 (11th Cir. 2009) ...................................................13
`
`Sparta Surgical Corp. v. Nat’l Ass’n of Sec. Dealers, Inc., No. C-95-3926-MHP,
`1997 WL 50223 (N.D. Cal. Jan. 30, 1997) ..............................................................................25
`
`Stevens v. Danek Medical, Inc., 1999 WL 33217282 (S.D. Fla. 1999) .........................................28
`
`Strategic Income Fund, LLC v. Spear, Leeds & Kellogg Corp., 305 F.3d 1293
`(11th Cir. 2002) ........................................................................................................................30
`
`Tank Tech, Inc. v. Valley Tank Testing, L.L.C., 244 So. 3d 383
`(Fla. 2d DCA 2018) ...........................................................................................................24, 37
`
`Thompson v. County of Alameda, 614 P.2d 728 (Cal. 1980) .........................................................17
`
`Tiara Condo. Ass’n, Inc. v. Marsh & McLennan Companies, Inc., 110 So. 3d 399
`(Fla. 2013) ................................................................................................................................24
`
`Twomey v. Mitchum, Jones & Templeton, Inc., 69 Cal. Rptr. 222 (Ct. App. 1968) ................30, 31
`
`Underwriters at Int. v. All Logistics Grp., Inc., 483 F. Supp. 3d 1199
`(S.D. Fla. 2020) ..................................................................................................................23, 24
`
`Unity House, Inc. v. N. Pac. Inv., Inc., 918 F. Supp. 1384 (D. Haw. 1996) ..................................32
`
`Univ. Express, Inc. v. SEC, 177 F. App’x 52 (11th Cir. 2006) ........................................................3
`
`Valelly v. Merrill Lynch, Pierce, Fenner & Smith Inc., 464 F. Supp. 3d 634
`(S.D.N.Y. 2020) .......................................................................................................................25
`
`Weinberg v. Advanced Data Processing, Inc., 147 F. Supp. 3d 1359
`(S.D. Fla. 2015) ........................................................................................................................28
`
`Whitesides v. E*Trade Securities, LLC, No. 20-CV-05803-JSC, 2021 WL 930794
`(N.D. Cal. Mar. 11, 2021) ........................................................................................................23
`
`World Vacation Travel, S.A., de C.V. v. Brooker, 799 So. 2d 410
`(Fla. 3d DCA 2001) .................................................................................................................16
`
`Zarrella v. Pac. Life Ins. Co., 755 F. Supp. 2d 1218 (S.D. Fla. 2010) ..........................................28
`
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`Statutes & Rules
`
`17 C.F.R. § 240.15c3-1..................................................................................................................26
`
`17 C.F.R. § 240.17Ad-22.................................................................................................................7
`
`15 U.S.C. § 78bb ............................................................................................................................19
`
`Fed. R. Civ. P. 12 .......................................................................................................................1, 13
`
`Fed. R. Evid. 201 ...........................................................................................................................11
`
`FINRA Rule 2010 ..........................................................................................................................26
`
`FINRA Rule 4370 ..........................................................................................................................26
`
`Options Clearing Corporation Rule 1305(c) ..................................................................................34
`
`Options Clearing Corporation Rule 805 ........................................................................................34
`
`Securities Exchange Act of 1934 § 15(c)(3) ..................................................................................26
`
`Other Authorities
`
`Maggie Fitzgerald, Robinhood restricts trading in GameStop, other names
`involved in frenzy, CNBC (Jan. 28, 2021, 9:19 AM EST), available at
`https://www.cnbc.com/2021/01/28/robinhood-interactive-brokers-restrict-
`trading-in-gamestop-s.html ........................................................................................................8
`
`Market Activity, Nasdaq, https://www.nasdaq.com/market-activity (last visited
`Aug. 24, 2021) ...........................................................................................................................9
`
`Restatement (Third) of Torts, Liab. for Econ. Harm (Tent. Draft No. 1)......................................17
`
`Restatement (Third) of Torts: Phys. & Emot. Harm § 7 (2010)....................................................21
`
`Restatement (Third) of Torts: Liab. for Econ. Harm § 4 (2020) ...................................................20
`
`Restatement (Third) of Torts: Liab. for Econ. Harm § 4 cmt. B (2020)........................................21
`
`Securities and Exchange Comm’n, “Thinking About Investing in the Hot Stock?”
`(Jan. 30, 2021), https://www.sec.gov/oiea/investor-alerts-and-bulletins/risks-
`short-term-trading-based-social-media-investor-alert .........................................................3, 13
`
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`Case 1:21-md-02989-CMA Document 406 Entered on FLSD Docket 08/30/2021 Page 8 of 47
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`Pursuant to Federal Rule of Civil Procedure 12(b)(6), Defendants Robinhood
`
`Markets, Inc. (“Robinhood Markets”), Robinhood Financial LLC (“Robinhood Financial”) and
`
`Robinhood Securities, LLC (“Robinhood Securities”) (together, “Robinhood”) respectfully
`
`submit this memorandum of law in support of their Motion to Dismiss the Robinhood Tranche
`
`claims set forth in the Consolidated Robinhood and Other Broker Class Action Complaint (the
`
`“Complaint”) (ECF No. 359) for failure to state a claim. 1
`
`PRELIMINARY STATEMENT
`
`Robinhood’s obligations to its retail investor customers are defined by contract.
`
`The rights and obligations between Robinhood and its customers are delineated in the Robinhood
`
`Customer Agreement (“Cust. Agmt.” or “Customer Agreement” (attached as Exhibit A)), which
`
`all Robinhood customers must review and accept when opening an account. The Customer
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`Agreement is explicitly cited in, and thereby incorporated by reference into, the Complaint. The
`
`Customer Agreement expressly permitted Robinhood to implement the restrictions it imposed on
`
`January 28, 2021, which are the basis of Plaintiffs’ claims in this Action.
`
`Specifically, Plaintiffs’ claims arise from the difficult decision that Robinhood
`
`Securities made on January 28, 2021 to limit customer trading in certain popular stocks,
`
`including GameStop, Inc. (“GME”) and AMC Entertainment Holdings, Inc. (“AMC”). In the
`
`
`1 Robinhood submits this Motion seeking dismissal of the claims brought by Plaintiffs for
`the Robinhood Tranche, consistent with this Court’s June 2, 2021 Order calling “Defendants in
`each Tranche” to file a joint motion to dismiss in that Tranche. (ECF No. 323 at 1.) Robinhood
`respectfully submits that Plaintiffs cannot unilaterally override the Court’s designation of a
`separate Robinhood Tranche and Other Broker Tranche by filing a single Master Complaint
`naming unrelated brokers falling into two separate Tranches. (See ECF No. 310 at 1-2 (creating
`one tranche for “state-law claims against the Robinhood entities and other Robinhood-related
`Defendants” and a separate tranche for claims involving “other broker-dealer Defendants and
`other related Defendants”).) Indeed, the Complaint does not allege that Robinhood is related to
`Apex Clearing Corporation in any way, and therefore, the claims pertain to two separate
`Tranches.
`
`

`

`Case 1:21-md-02989-CMA Document 406 Entered on FLSD Docket 08/30/2021 Page 9 of 47
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`days leading up to this decision, retail investors, spurred by social media and online forums,
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`poured into the stock markets in record numbers to trade in stocks for GME, AMC and certain
`
`other popular issuers known as the “meme stocks.” This activity pushed trading volatility in the
`
`meme stocks to record levels within a matter of days.
`
`In late January 2021, this market volatility significantly affected the collateral
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`deposit requirements that clearinghouses impose on clearing brokers to protect investors, brokers
`
`and the financial system as a whole. To ensure market stability in the event that a market
`
`participant is unable satisfy its obligations with respect to a trade, clearing brokers, like
`
`Robinhood Securities, are required to post collateral to clearinghouses, like the National
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`Securities Clearing Corporation (“NSCC”), at least daily to cover the cost and risk associated
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`with their customers’ trade orders. Deposit requirements are calculated based on order volume
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`and volatility multipliers, with the requirements increasing dramatically as volatility increases.
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`The ultimate purpose of these deposits is to protect investors and the financial system generally.
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`As the unprecedented volatility in late January 2021 grew, so too did brokers’
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`clearinghouse deposit requirements with the NSCC. This substantial increase in trading volume
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`and volatility led the NSCC, on the morning of January 28, 2021, to issue a $3 billion collateral
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`deposit demand on Robinhood Securities—a ten-fold increase from earlier in the week, and more
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`than four times what was required the day before. In order to remain in compliance with its
`
`deposit requirements, Robinhood Securities made the difficult decision to place limited
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`restrictions on customer purchases on the small number of securities driving its deposit
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`requirements. Other brokers, which also saw dramatic increases in their deposit requirements,
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`imposed restrictions on a number of securities experiencing trading volatility as well.
`
`2
`
`

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`Case 1:21-md-02989-CMA Document 406 Entered on FLSD Docket 08/30/2021 Page 10 of 47
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`Robinhood’s Customer Agreement expressly provides that Robinhood can impose
`
`trading restrictions, stating inter alia that “Robinhood may at any time, in its sole discretion, and
`
`without prior notice to [the customer], prohibit or restrict [the customer’s] ability to trade
`
`securities.” (Cust. Agmt. § 5.F.) Robinhood reserves this right to restrict trading precisely
`
`because of situations like the one that unfolded in late January 2021: extreme market volatility
`
`can have unpredictable effects, and Robinhood, like all brokers, needs the flexibility to take
`
`measures to satisfy its legal obligations so that it can continue serving its customers trading in
`
`thousands of available securities. This authority to restrict trading was quickly reaffirmed by the
`
`Securities and Exchange Commission (“SEC”); just two days after Robinhood imposed the
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`much-discussed restrictions, the SEC reiterated in an investor alert and bulletin that brokers have
`
`the authority to restrict trading during periods of volatility, and that brokers may reserve this
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`right, as Robinhood has done, in their customer agreements. 2 Unsurprisingly, the only other
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`district court to consider the merits of these claims ruled that the plaintiff was unlikely to prevail
`
`on claims arising from the restrictions at issue. See Cobos v. Robinhood Financial LLC, et al.,
`
`No. 2:21-cv-00843-VAP-MRWx, 2021 WL 1035123, at *2-3 (C.D. Cal. Feb. 10, 2021).
`
`Recognizing that they have no claim for breach of contract—after many of the
`
`individual plaintiffs named in this consolidated complaint originally pleaded such claims prior to
`
`centralization—Plaintiffs now attempt to create liability in tort where none exists under contract
`
`law. They allege that Robinhood is liable for negligence, gross negligence, negligence per se
`
`
`2 See Securities and Exchange Comm’n, “Thinking About Investing in the Latest Hot
`Stock?” (Jan. 30, 2021) (“Jan. 30 SEC Statement”), https://www.sec.gov/oiea/investor-alerts-
`and-bulletins/risks-short-term-trading-based-social-media-investor-alert. The Court may take
`judicial notice of the Jan. 30 SEC Statement because it is a public record, the accuracy of which
`cannot reasonably be questioned. See Univ. Express, Inc. v. SEC, 177 F. App’x 52, 53 (11th Cir.
`2006) (taking judicial notice of public records at the motion to dismiss stage).
`
`3
`
`

`

`Case 1:21-md-02989-CMA Document 406 Entered on FLSD Docket 08/30/2021 Page 11 of 47
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`and breach of fiduciary duty. But the law does not permit Plaintiffs to take a losing breach of
`
`contract claim and dress it up as a tort claim in order to avoid the governing provisions of the
`
`Customer Agreement. This is particularly so where, as here, Plaintiffs do not contest the validity
`
`of the Customer Agreement, and in fact rely upon the agreement to support their tort claims.
`
`All of Plaintiffs’ claims must therefore be dismissed. Counts I (negligence) and II
`
`(gross negligence) fail because Robinhood customer plaintiffs do not identify—and cannot
`
`identify—any duty under tort law that arises independent of Robinhood’s contractual obligations.
`
`(See infra Argument, Section I.) In Count III, Plaintiffs attempt to provide the missing duty
`
`element of their tort claims by alleging negligence per se. However, negligence per se does not
`
`constitute an independent claim under the governing law. And even where such a cause of
`
`action is recognized, courts have confirmed that it can be maintained only if the underlying
`
`statute creates a private right of action. None of the statutes or regulations that Plaintiffs cite do
`
`so. (See infra Argument, Section II.) Count IV (breach of fiduciary duty) fails because, as a
`
`non-discretionary broker-dealer that does not provide investment advice, Robinhood owes no
`
`general fiduciary duty to its customers. (See infra Argument, Section III.) Finally, those claims
`
`also fail to the extent they are asserted on behalf of non-Robinhood customers, to whom
`
`Robinhood owed no duties. (See infra Argument, Section IV.) This Action should be dismissed
`
`with prejudice.3
`
`
`3 Robinhood respectfully submits this memorandum of law in response to the unredacted
`version of the Complaint that Plaintiffs served on July 27, 2021. Despite multiple attempts by
`Robinhood to meet and confer with Plaintiffs concerning the filing of a lesser-redacted versions
`of the Complaint—specifically, to redact only personally identifying information that Plaintiffs
`included in the unredacted Complaint, none of which is necessary for Plaintiffs’ claims—
`Plaintiffs declined to do so. Robinhood respectfully reserves the right to move for a protective
`order concerning the public filing of personally identifying employee information.
`
`4
`
`

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`Case 1:21-md-02989-CMA Document 406 Entered on FLSD Docket 08/30/2021 Page 12 of 47
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`BACKGROUND
`
`I.
`
`The Contractual Relationship Between Robinhood and Its Customers.
`
`Robinhood is an industry-changing financial services company founded on the
`
`ethos of putting financial power into the hands of everyday people—not just the few and
`
`wealthy. (Compl. ¶ 107.) Started in 2013 by Vladimir Tenev and Baiju Bhatt, Robinhood’s
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`securities business currently comprises three entities: Robinhood Markets, Inc. (“Robinhood
`
`Markets”), which wholly owns Robinhood Financial LLC (“Robinhood Financial”), the
`
`customer-facing introducing broker, and Robinhood Securities, LLC (“Robinhood Securities”),
`
`the clearing broker. (Id. ¶¶ 78-81.) Robinhood is not an investment adviser and does not make
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`investment recommendations to its customers; instead, Robinhood provides an online trading
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`platform on which customers direct their finances. (Id. ¶¶ 99-100, 116.) Customers can make
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`trades without paying any commissions and are not required to have account minimums. (Id.
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`¶ 109.)
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`When Robinhood customers sign up for a Robinhood account, they first agree to
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`the terms of the Customer Agreement between the customer, Robinhood Financial and
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`Robinhood Securities.4 (Id. ¶ 306; Cust. Agmt. at 1.) The Customer Agreement addresses,
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`among other things, the nature of the customer’s relationship with Robinhood and its rights and
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`obligations vis-à-vis its customers. (See Cust. Agmt.)5
`
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`4 As discussed in Legal Standards, Section II, Plaintiffs have incorporated the Customer
`Agreement into the Complaint by reference, and the Court should consider its contents in this
`Motion.
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`5 Robinhood periodically updates its Customer Agreement, and the Customer Agreement
`provides that by “continuing to maintain [a] securities brokerage account without objecting to
`any revised terms of [the] agreement, [customers are] accepting the terms of the revised
`agreement and [] will be legal bound by its terms and conditions.” (Cust. Agmt. at 1.) The
`version of the Customer Agreement in place at the time the underlying complaints in this
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`5
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`

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`Case 1:21-md-02989-CMA Document 406 Entered on FLSD Docket 08/30/2021 Page 13 of 47
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`Through the Customer Agreement, Robinhood and its customers—including
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`Plaintiffs—confirm the hands-off role that Robinhood plays in its customers’ trading activity.
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`Customers agree that their accounts are “self-directed” and that Robinhood does not “(1) provide
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`investment advice in connection with [Plaintiffs’] Account[s]; (2) recommend any security,
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`transaction or order; (3) solicit orders; (4) act as a market maker in any security; [or] (5) make
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`discretionary trades.” (Id. § 5.A.) Further, Plaintiffs agree that “Robinhood may at any time, at
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`its sole discretion and without prior notice to [the customer] . . . (ii) refuse to accept any of [the
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`customer’s] transactions, [or] (iii) refuse to execute any of [the customer’s] transactions.” (Id.
`
`§ 16; see also id. § 5(F).)
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`The Customer Agreement also expressly provides that Robinhood can impose
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`trading restrictions like those at issue in this litigation. Specifically, the Customer Agreement
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`provides that:
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`
`
`
`
`
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`“Robinhood may at any time, in its sole discretion, and without prior notice to
`[the customer], prohibit or restrict [the customer’s] ability to trade securities.”
`(Id. § 5.F);
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`“Robinhood may, in its discretion, prohibit or restrict the trading of securities, or
`the substitution of securities, in any of [the customer’s] Accounts.” (Id. § 16);
`and
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`“Robinhood may at any time, at its sole discretion and without prior notice to [the
`customer]: (i) prohibit or restrict [the customer’s] access to the use of the App or
`the Website or related services and [customer’s] ability to trade, (ii) refuse to
`accept any of [the customer’s] transactions, (iii) refuse to execute any of [the
`customer’s] transactions, or (iv) terminate [the customer’s] Account.” (Id. § 16.)
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`The Customer Agreement was in effect at the time Robinhood imposed the
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`limited trading restrictions at the end of January 2021. (See Compl. ¶ 306.)
`
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`multidistrict litigation were filed was dated December 30, 2020 and is attached hereto as
`Exhibit A.
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`6
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`

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`Case 1:21-md-02989-CMA Document 406 Entered on FLSD Docket 08/30/2021 Page 14 of 47
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`II.
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`The Mechanics of Securities Trading.