Andrea Juncadella v. Robinhood Financial LLC
Citation76 F.4th 1335
Date Filed2023-08-10
Docket22-10669
Cited12 times
StatusPublished
Full Opinion (html_with_citations)
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[PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 22-10669
____________________
In re: JANUARY 2021 SHORT SQUEEZE TRADING
LITIGATION,
___________________________________________________
ANDREA JUNCADELLA,
EDWARD GOODAN,
WILLIAM MAKEHAM,
MARK SANDERS,
JAIME RODRIGUEZ, et al.,
Plaintiļ¬s-Appellants,
versus
ROBINHOOD FINANCIAL LLC,
ROBINHOOD SECURITIES, LLC,
ROBINHOOD MARKETS, INC.,
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2 Opinion of the Court 22-10669
Defendants-Appellees.
____________________
Appeal from the United States District Court
for the Southern District of Florida
D.C. Docket Nos. 1:21-md-02989-CMA,
1:21-cv-20414-CMA
____________________
Before JILL PRYOR and GRANT, Circuit Judges, and MAZE,* District
Judge.
GRANT, Circuit Judge:
Like so many other industries, retail investing has been
transformed by the internet. Once upon a time, a person who
wanted to trade stocks needed a flesh-and-blood stockbroker.
Now, most anyone with a smartphone and a bank account can
trade stocks from the comfort of their own home.
Sometimes that goes well; other times not. In January
2021, many customers of the online financial services company
Robinhood were aggressively buying specific stocks known as
āmeme stocksā in a frenzy that generated widespread attention.
This phenomenon brought Robinhood additional revenue and a
* The Honorable Corey L. Maze, United States District Judge for the
Northern District of Alabama, sitting by designation.
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22-10669 Opinion of the Court 3
huge number of new customers, but it also exposed the company
to unprecedented regulatory compliance risk. Robinhood then
made a high-profile and controversial decision: it suddenly
restricted its customersā ability to buy these meme stocks (but not
their ability to sell them). Some Robinhood customers who
could not buy the restricted stocks brought this putative class
action, seeking to represent both Robinhood customers and all
other holders of the restricted meme stocks nationwide who sold
the stocks during a certain period. As Robinhood customers, they
allege that they lost money because Robinhood stopped them from
acquiring an asset that would have continued to increase in value.
And as stockholders, they allege that Robinhoodās restriction on
purchasing the meme stocks caused the price of their stocks to fall.
The plaintiffs fail to state a claimātheir contract with
Robinhood gives the company the specific right to restrict its
customersā ability to trade securities and to refuse to accept any of
their transactions. Because Robinhood had the right to do exactly
what it did, the plaintiffsā claims in agency and contract cannot
stand. And under basic principles of tort law, Robinhood had no
tort duty to avoid causing purely economic loss. We thus affirm
the district courtās dismissal of the claims.
I.
A.
The company known as āRobinhoodā is a collection of
distinct entities, three of which are relevant here: Robinhood
Markets, Inc., Robinhood Financial LLC, and Robinhood
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4 Opinion of the Court 22-10669
Securities, LLC. 1 Robinhood Markets is the parent corporation,
with its principal place of business in California. Robinhood
Financial is an āintroducing broker-dealer,ā with its principal place
of business in California, and is the company that Robinhoodās
customers actually interface with whenever they use the
Robinhood app. It āintroducesā its customers to the market by
showing them financial products that they can buy and processing
trade requests. The last of the three companies is Robinhood
Securities, a āclearing broker-dealer,ā with its principal place of
business in Florida. 2 When Robinhood Financial accepts one of
its customersā requests to buy a stock, it forwards that request to
Robinhood Securities. Robinhood Securities then finds a āmarket
makerā who is willing to sell the stock and submits the trade to the
National Securities Clearing Corporation to clear the transaction.
The trade is finalized two days after that submission.
Robinhoodās popularity reached new heights in January
2021. Thatās when several āmeme stocksā became a
phenomenon in the retail investment communityāespecially
among young, relatively new investors who followed investing
trends online. Take for example the stock of GameStop
Corporation, which became the most prominent of the meme
1 When the distinction between these entities does not matter, we simply
refer to āRobinhoodā for ease of reading, even when describing actions that
were formally taken by only one or two of these Robinhood entities.
2 All three entities are incorporated in Delaware.
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stocks.3 Sec. Exch. Commān, Staff Report on Equity and Options
Market Structure Conditions in Early 2021 2 (Oct. 14, 2021).
Several institutional investors were shorting GameStop stock
(which means, in effect, that they were betting that its price would
go down). Id. at 21. And social media platforms, most notably
the subreddit WallStreetBets, soon hosted vigorous discussions
about GameStop. Id. at 17. Some of this discussion pushed
GameStop as a wise investment because of potential
improvements in the company. Id. Other chatter emphasized
the possibility of a āshort squeeze.ā Id. The theory behind a
short squeeze is that, if coordinated purchases of a stock drive its
price up, those shorting the stock will be forced to cover their
position by buying the very stock they are shorting, creating a
positive feedback loop in which the price continues to rise,
affecting increasing numbers of short sellers, who then buy even
more of the affected stock, and so on. Id. at 25.
Whatever the exact motivations, purchases of GameStop
shares surged. Id. at 21, 26ā27. As a result, the closing price of
the stock rose more than 700% between January 21 and January 27.
In re: Jan. 2021 Short Squeeze Trading Litig., 584 F. Supp. 3d 1161,
1174 (S.D. Fla. 2022). And similar (though less drastic) price
3 The specific āmeme stocksā identified by the plaintiffs are GameStop
(GME), Blackberry Ltd. (BB); Nokia (NOK); AMC Entertainment Holdings,
Inc. (AMC); American Airlines Group, Inc. (AAL); Bed Bath & Beyond, Inc.
(BBBY); Castor Maritime, Inc. (CTRM); Express, Inc. (EXPR); Koss
Corporation (KOSS); Naked Brand Group Ltd. (NAKD); Sundial Growers, Inc.
(SDNL); Tootsie Roll Industries, Inc. (TR); and Trivago NV (TRVG).
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increases occurred for other meme stocks. See Staff Report on
Equity and Options Market at 2, 32, 43. Naturally, more than just
a few online retail investors started paying attention. And that led
to a large increase in Robinhood users, as more than 3 million
people downloaded the app in January, at one point making it the
top app in the Apple App Store. Id. at 16 n.53; In re: Jan. 2021 Short
Squeeze Trading Litig., 584 F. Supp. at 1174.
While this volume of trading was good for Robinhoodās
business, it also raised serious regulatory compliance challenges.
Because of the two-day lag between a trade agreement and its
clearing by the National Securities Clearing Corporation, the
market maker (who sells the stock) has a two-day wait between
when it agrees to sell the stock to Robinhood (who facilitates the
transaction) and when it actually gets the money from the
individual Robinhood customer (who is the ultimate purchaser).
That delay introduces risk for the market makers in the
transactionāthe person who bought the stock might not have the
money two days later. To guard against that risk, clearing
brokers like Robinhood Securities are required to post their own
money (not their customersā money) as collateral every day with
the National Securities Clearing Corporation, with severe penalties
for a failure to do so. The amount of collateral, broadly speaking,
depends on the amount of risk that the market maker faces. And
the amount of risk depends on both the volume of trading and the
volatility of the stock price. The upshot is that, if a stockbroker
experiences a sudden surge of demand for stocks with rapidly
changing prices, it is going to need a lot of cash as collateral. See
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generally Matt Levine, Meme Stocks Were Too Good to Robinhood,
Bloomberg (June 27, 2022, 2:24 PM),
https://www.bloomberg.com/opinion/articles/2022-06-
27/matt-levine-s-money-stuff-meme-week-was-too-good-to-
robinhood [https://perma.cc/PSV3-A43M].
When Robinhood had unprecedented trading volumes in
extremely volatile stocks, the market makers faced an
unprecedented amount of risk in the two-day clearing process.
The National Securities Clearing Corporation, in response,
required Robinhood Securities to meet unprecedented collateral
requirements. Just past 5 a.m. on January 28, Robinhood learned
that it needed to deposit more than $3 billion of additional
collateral by 10 a.m.; its total collateral requirement had been $282
million the previous morning, and $125 million three days earlier.
The National Securities Clearing Corporation soon reduced
Robinhoodās $3 billion collateral deficit to about $734 million, but
even that amount was large enough that Robinhood Securities
needed to borrow money from its parent, Robinhood Markets.
And the very next day, Robinhoodās deposit requirement leapt
back to over $1 billion; it covered the amount thanks to fundraising
from investors.
The continuing market volatility and high trading volume
meant Robinhoodās high collateral requirements were also likely
to continue. So, beginning on January 28, Robinhood placed
āposition closing onlyā restrictions on certain meme stocks and
related options. That meant that Robinhood customers could
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8 Opinion of the Court 22-10669
still sell any shares of the stock that they had already purchased on
the platform, but they could not buy any new shares. Over the
next week, Robinhood imposed a variety of restrictions on
purchasing the meme stocks, which the plaintiffs claim affected the
entire market for the stocks, driving down prices by artificially
restricting demand and spooking holders into selling their shares.
B.
Robinhoodās decision to suspend purchases of meme stocks
was controversial, and a lawsuit was filed against Robinhood in
federal district court less than 24 hours after the first restrictions.
Similar lawsuits followed across the countryāprimarily against
Robinhood, but also against other brokers who implemented
restrictions on trading during the meme stock surge. The Judicial
Panel on Multidistrict Litigation consolidated federal cases
involving shared factual questions about brokersā restrictions on
the trading of meme stocks in the Southern District of Florida for
pretrial proceedings. The MDL court then divided the MDL into
ātranchesā depending on the defendant and the type of claim and
ordered all plaintiffs bringing state-law claims against Robinhood
to file a single master complaint. The parties stipulated that the
consolidated master complaint would supersede the original
individual complaints.
The plaintiffsā amended master complaint brings seven
counts against varying combinations of Robinhoodās corporate
entities: (I) negligence; (II) gross negligence; (III) breach of fiduciary
duty; (IV) breach of the implied duty of care; (V) breach of the
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implied covenant of good faith and fair dealing; (VI) tortious
interference with contract and business relationship; and (VII) civil
conspiracy. The plaintiffs sought to represent two nationwide
classes: one of Robinhood customers who were in some way
affected by the restriction (the Robinhood class), and another of all
persons in the United States who sold any meme stocks during a
particular period, whether or not they personally traded on
Robinhood (the nationwide investor class). The plaintiffs sought
to bring their two negligence claims on behalf of both classes and
their other five claims on behalf of only the Robinhood class. The
plaintiffs also argued that California law should apply to their
implied contract claims, but that Florida law should apply to the
rest.
Robinhood moved to dismiss all seven counts. It argued
that California law applied to all seven claims. And on the merits,
it made three primary arguments. First, it argued that it owed no
duties at all to the putative nationwide investor class. Second, for
the negligence claims brought by the putative Robinhood class, it
argued that it had no tort duty to avoid causing economic loss to
its customers. Third, for the other claims by the putative
Robinhood class, Robinhood pointed to the text of its customer
agreement, arguing that its language granting Robinhood the right
to refuse to execute specific trade requests foreclosed the plaintiffsā
claims.
That agreement was signed by all Robinhood customers
before they used the companyās app, and both Robinhood
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Financial and Robinhood Securities (but not Robinhood Markets)
are parties to it. Section 5A of the agreement established that
Robinhood accounts are āself-directedāāRobinhood did not
āprovide investment advice,ā ārecommend any security,
transaction or order,ā or āmake discretionary trades.ā And parts
of two sections of the agreement granted Robinhood a
discretionary right to refuse to execute trades:
Ā§ 5F: I understand Robinhood may at any time, in its
sole discretion and without prior notice to Me,
prohibit or restrict My ability to trade securities.
Ā§ 16: I understand that Robinhood may, in its
discretion, prohibit or restrict the trading of
securities, or the substitution of securities, in any of
My Accounts. . . . I understand that Robinhood may
at any time, at its sole discretion and without prior
notice to Me: (i) prohibit or restrict My access to the
use of the App or the Website or related services and
My ability to trade, (ii) refuse to accept any of My
transactions, (iii) refuse to execute any of My
transactions, or (iv) terminate My Account.
The MDL court granted Robinhoodās motion to dismiss.
For the five claims where the parties disputed whether California
or Florida law applied, it declined to decide the issue, concluding
that all five counts failed to state a claim under both California and
Florida law. And it held that the two implied contract counts
failed to state a claim under California law. It also determined
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that giving the plaintiffs leave to amend the complaint would be
futile. The plaintiffs appealed to this Court.
II.
Taking all the plaintiffsā factual allegations as true, we
review de novo both a district courtās dismissal for failure to state
a claim and its determination that amendment of a complaint
would be futile. Lamirand v. Fay Servicing, LLC, 38 F.4th 976, 979
(11th Cir. 2022); SFM Holdings, Ltd. v. Banc of Am. Sec., LLC, 600 F.3d
1334, 1336 (11th Cir. 2010).
III.
Like the district court, we decline to resolve the partiesā
choice-of-law dispute. Because the master complaint superseded
the original complaints, the Southern District of Florida was the
forum for pretrial purposes. Cf. Gelboim v. Bank of Am. Corp., 574
U.S. 405, 413 n.3 (2015). As a federal district court sitting in
diversity in Florida, the MDL court correctly applied Florida
choice-of-law rules. Grupo Televisa, S.A. v. Telemundo Commcāns
Grp., Inc., 485 F.3d 1233, 1240 (11th Cir. 2007). And under Florida
choice-of-law rules, a court need not resolve a choice-of-law
dispute if there is a āfalse conflict,ā such that the different laws
point to the same outcome under the facts of the case. See Tune
v. Philip Morris Inc., 766 So. 2d 350, 352ā53 (Fla. Dist. Ct. App.
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2000). 4 Like the district court, we think that California and
Florida law point to the same outcome.
IV.
We begin our analysis with Count III: the putative
Robinhood classās claim for breach of fiduciary duty. 5 The
plaintiffs argue that Robinhood owed its customers fiduciary
duties, including to refrain from putting its own interests in front
of those of its customers, plus a specific fiduciary duty to provide
those customers with āan open trading platform free of self-
imposed trading restrictions.ā They say that Robinhood
breached these duties by restricting their ability to buy shares of
the meme stocks on Robinhood. We disagree. 6
Under both California and Florida law, a plaintiff alleging a
breach of fiduciary duty must show that a fiduciary duty exists, that
a breach of that duty occurred, and that the breach proximately
caused harm. See Brown v. Cal. Pension Admārs & Consultants Inc.,
52 Cal. Rptr. 2d. 788, 796 (Ct. App. 1996); Gracey v. Eaker, 837 So.
4 In the absence of a directly on-point state Supreme Court decision, this
Court treats state intermediate appellate courts as the authoritative statement
of state law unless there is persuasive reason to believe that the state Supreme
Court would decide the question differently. United States v. Hill, 799 F.3d
1318, 1322 (11th Cir. 2015).
5We address the plaintiffsā claims in the following order: Count III, Count V,
Count IV, Counts I and II, Count VI, Count VII.
6 The plaintiffs do not argue that the customer agreement is unconscionable,
void against public policy, or otherwise unenforceable. We thus assume that
the agreement is enforceable.
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2d 348, 353 (Fla. 2002). The parties disagree on the first prong,
dutyāwhether Robinhood had a fiduciary obligation to execute
the requested trades.
A fiduciary duty is the duty of one person to act in the best
interest of another. Restatement (Second) of Agency Ā§ 13 cmt. a
(Am. L. Inst. 1958). Fiduciary relationships are generally between
a principal and an agent; a lawyerās relationship with her client is
one example. Id. Ā§ 1 & cmt. e. But such duties are not
unlimited; an agent is a fiduciary only āwith respect to matters
within the scope of his agency.ā Id. Ā§ 13; cf. also, e.g., Van de Kamp
v. Bank of Am. Natāl Tr. & Sav. Assān, 251 Cal. Rptr. 530, 551 (Ct.
App. 1988); Bldg. Educ. Corp. v. Ocean Bank, 982 So. 2d 37, 40ā41 (Fla.
Dist. Ct. App. 2008). In other words, when someone agrees to
serve as someone elseās agent, the agent then must act in the best
interests of the principalābut only when performing the tasks for
which they agreed to be an agent. Absent a general relationship
of confidentiality between a principal and agent, an agent can still
act in his own best interest when acting outside of the scope of
agency, even if it comes at the expense of the principal.
Restatement (Second) of Agency Ā§ 389 cmt. f.
The scope of the principal-agent relationship is defined by
the agreement that creates that relationship; the āexistence and
extent of the duties of the agent to the principal are determined by
the terms of the agreement between the parties.ā Id. Ā§ 376; see
also id. Ā§Ā§ 1, 15. The California Court of Appeal has even applied
this principle to say that āwhere the agreement between an agent
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14 Opinion of the Court 22-10669
and the principal expressly authorizes the agent to engage in
certain conduct, the agentās engagement in that conduct cannot
constitute a breach of the agentās duty to the principal.ā Chen v.
PayPal, Inc., 275 Cal. Rptr. 3d 767, 780 (Ct. App. 2021).
Under both California and Florida law, these general
principles apply to stockbrokers. Stockbrokers are agents of their
clients and thus owe them certain fiduciary duties. See, e.g., Duffy
v. Cavalier, 264 Cal. Rptr. 740, 751ā52 (Ct. App. 1989); Ward v. Atl.
Sec. Bank, 777 So. 2d 1144, 1147 (Fla. Dist. Ct. App. 2001). But, as
with other fiduciary relationships, the stockbrokerās duty to act in
its customersā best interests extends only to tasks where the
stockbroker is acting as its customersā agent. As the California
Court of Appeal has said, āthe scope of the brokerās fiduciary duty
depends on the nature of the broker/customer relationship.ā
Apollo Cap. Fund, LLC v. Roth Cap. Partners, LLC, 70 Cal. Rptr. 3d
199, 214 (Ct. App. 2007); see also, e.g., Petersen v. Sec. Settlement Corp.,
277 Cal. Rptr. 468, 473 (Ct. App. 1991). And, while applying
Florida law, this Court has said that the existence of a fiduciary duty
between a broker and customer is ādetermined by the substantive
agreement of the parties.ā SFM Holdings, 600 F.3d at 1339.
The parties mostly argue a different pointāthe generally
understood fiduciary duties of non-discretionary brokers.
Robinhood claims that it could never have had a fiduciary duty to
accept trade requests from its customers because it is a non-
discretionary broker. The plaintiffs disagree, contending that
even non-discretionary brokers have general duties of loyalty, good
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22-10669 Opinion of the Court 15
care, and good faith, and that those duties required Robinhood to
execute their trade requests.
But this generalized debate is a distraction; we do not think
it is helpful to dwell on the fiduciary duties of ānon-discretionary
brokersā in the abstract. The scope of agency between any given
broker and customer is an inherently fact-intensive inquiry. See,
e.g., Ward, 777 So. 2d at 1145, 1147 (finding broader fiduciary duties
for a non-discretionary broker who called client and urged him to
cancel a particular requested order). Instead, we need to look at
the nature of the relationship between Robinhood and its
customers.
The customer agreement shows that Robinhood did not
assume a duty to act in its customersā best interests in determining
whether to accept their trade requests. The parties repeatedly
contemplated that Robinhood had the right to decline to execute
trade requests for any reason. As customers, all of the named
plaintiffs granted Robinhood independent authority in this area:
(1) the right to āat any time, in its sole discretion and without prior
notice to Me, prohibit or restrict My ability to trade securitiesā;
(2) the right to āin its discretion, prohibit or restrict the trading of
securitiesā in āany of My Accountsā and (3) the right to āat any
time, at its sole discretion and without prior notice to Me: (i)
prohibit or restrict . . . My ability to trade, (ii) refuse to accept any
of My transactions,ā and ā(iii) refuse to execute any of My
transactions.ā The Agreement narrowed the relationship:
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Robinhood retained discretion to decline the plaintiffsā trade
requests.
The plaintiffs try to rebuff this contractual language by
arguing that Robinhood agreed to serve as their āagent for the
purpose of carrying out [their] directionsā and to take such āsteps
as are reasonable to carry out [their] directions.ā They claim that
this language extends far enough to show that Robinhood assumed
a duty to act in their interests when deciding whether to accept
their trade requests. But they omit one key line from this section
of the contract: āin accordance with the terms and conditions of
this Agreement.ā As a matter of ordinary contractual
interpretation, Robinhoodās promise to serve as the plaintiffsā
agent was limited by the other terms of the agreementāincluding
the terms granting it continued discretion to decline to execute its
customersā requested trades.
Indeed, even the plaintiffs concede that stockbrokers ācan
limit their agency to certain functions and thus avoid fiduciary
duties as to functions not undertaken.ā That is all that
Robinhood did hereāit limited its āfunctionā to executing trade
requests after it decided to accept them. Nothing in the contract
suggested that Robinhood would accept all trade requests. We
fail to see how we could imply a fiduciary obligation to allow
unfettered access to Robinhoodās trading platform from this
relationship. See Chen, 275 Cal. Rptr. 3d at 780; SFM Holdings, 600
F.3d at 1339. So Robinhood did not agree to act as its customersā
agent when deciding whether to accept their trade requests, and
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the MDL court correctly dismissed the plaintiffsā claim for breach
of fiduciary duty.
V.
We now turn to the putative Robinhood classās contract
claims: Count V, for breach of the implied covenant of good faith
and fair dealing, and Count IV, for breach of the implied duty of
care. The parties agree that California law applies to both counts.
These claims fail for the same basic reason as the breach of
ļ¬duciary duty claim: Robinhood had the express contractual right
to do exactly what it did, and California courts will not read an
implied contractual term to override an express one.
A.
We ļ¬rst address Count V. The plaintiļ¬s argue that
Robinhoodās ability to exercise its discretionary right to refuse to
execute trades was limited by an implied covenant of good faith
and fair dealing. And they argue that Robinhood exercised that
right in bad faith, undermining the agreement and enriching itself
at their expense.
California courts have sought to resolve the āapparent
inconsistencyā between two points of law: āthat the covenant of
good faith should be applied to restrict exercise of a discretionary
powerā and āthat an implied covenant must never vary the express
terms of the partiesā agreement.ā Third Story Music, Inc. v. Waits,
48 Cal. Rptr. 2d 747, 750 (Ct. App. 1995). In Third Story Music, the
California Court of Appeal clariļ¬ed that ācourts are not at liberty
to imply a covenant directly at odds with a contractās express grant
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18 Opinion of the Court 22-10669
of discretionary power except in those relatively rare instances
when reading the provision literally would, contrary to the partiesā
clear intention, result in an unenforceable, illusory agreement.ā
Id. at 753. Otherwise, āthe express language is to govern, and no
obligation can be implied which would result in the obliteration of
a right expressly given under a written contract.ā Id. (alterations
adopted and quotation omitted). Indeed, āif the express purpose
of the contract is to grant unfettered discretion, and the contract is
otherwise supported by adequate consideration, then the conduct
is, by deļ¬nition, within the reasonable expectation of the parties
and can never violate an implied covenant of good faith and fair
dealing.ā Wolf v. Walt Disney Pictures & Television, 76 Cal. Rptr. 3d
585, 597 (Ct. App. 2008) (quotation omitted); see also, e.g., Storek &
Storek, Inc. v. Citicorp Real Est. Inc., 122 Cal. Rptr. 2d 267, 277ā78 (Ct.
App. 2002).
Applying these cases, the MDL court found that the implied
covenant of good faith did not limit Robinhoodās discretion under
the contract. It reasoned that the contract provided other
beneļ¬ts to the plaintiļ¬s besides the ability to execute trades, such
as access to Robinhoodās cash management services and use of
Robinhoodās ļ¬nancial literacy tools. These beneļ¬ts were of real
value, and they meant that the contract was not āillusoryā even
when Robinhood declined to let the plaintiļ¬s execute some trades.
On appeal, the plaintiļ¬s do not directly challenge the MDL
courtās conclusion that the contract provided beneļ¬ts to the
plaintiļ¬s that retained their value even if Robinhood refused to
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execute trades. Instead, they argue that the MDL court wrongly
applied these cases for two separate reasons.
First, the plaintiļ¬s say that California courts do not apply the
covenant of good faith to terms that give a party unilateral
discretion about whether to fulļ¬l an obligation, but that they still do
apply the covenant to clauses that give a party unilateral discretion
in how to fulļ¬l an obligation. See, e.g., Best Buy Stores, L.P. v.
Manteca Lifestyle Ctr., LLC, 859 F. Supp. 2d 1138, 1152 (E.D. Cal.
2012); Locke v. Warner Bros., Inc., 66 Cal. Rptr. 2d 921, 927 (Ct. App.
1997). According to the plaintiļ¬s, the agreement must be read to
give Robinhood discretion in how to execute trades, because if
Robinhood could decide whether to execute trades, it would cease
to be a non-discretionary broker.
This argument ignores the plain text of the agreement,
which, again, gives Robinhood the right to ārefuse to acceptā any
of the customersā transactions. That is unambiguously a right to
decide whether to do something, not discretion in how to do it.
Nor is there any tension between this right and Robinhoodās status
as a non-discretionary broker. Declining to execute a particular
trade is different in kind from actively managing a clientās
investments. So the line of cases about clauses that grant a party
discretion about whether to perform a specific task appliesāand
that line of cases forbids applying the implied covenant of good
faith and fair dealing to Robinhoodās right to refuse to execute
trades.
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20 Opinion of the Court 22-10669
Second, the plaintiļ¬s argue that the implied covenant limits
the scope of unilateral discretionary terms whenever that
discretion would make any express promise in the contract
āillusory.ā They note that Robinhood promised to allow āthe
purchase, sale or carrying of securities or contractsā as the
fundamental premise of the agreement. But, the plaintiļ¬s say, if
the discretionary right to refuse to execute trades is not limited by
implied covenants, then Robinhood would have the right to break
that basic promise.
This argument does not move the ball. As we understand
it, all the plaintiļ¬s are really saying is that Robinhood cannot
exercise its discretionary right in a way that breaches a diļ¬erent
express term of the agreement. If so, they are not really making
an argument about the āimplied covenant of good faithāā they are
arguing that Robinhood breached an express term of the
agreement. But the plaintiļ¬s did not bring a claim for breach of
an express term of the contract, and for good reason; Robinhood
did not expressly promise to execute every trade request. 7 Count
V of the plaintiļ¬sā complaint therefore fails to state a claim.
B.
Count IV, the claim for breach of the implied duty of care,
fails for the same reasons as Count V. Robinhoodās express right
7 In deciding that implied covenants do not limit Robinhoodās discretionary
right to refuse to execute trades, we do not decide whether some hypothetical
exercise of that right could still constitute a breach of an express promise of
the contract.
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22-10669 Opinion of the Court 21
to refuse to execute trades cannot be overridden by an implied duty.
āImplied terms are justiļ¬ed only when they are not inconsistent
with some express term of the contract and, in the absence of such
implied terms, the contract could not be eļ¬ectively performed. . . .
The courts will not imply a better agreement for parties than they
themselves have been satisļ¬ed to enter into, or rewrite contracts
whenever they operate harshly.ā Series AGI W. Linn of Appian Grp.
Invs. DE LLC v. Eves, 158 Cal. Rptr. 3d 193, 203ā04 (Ct. App. 2013)
(quotations omitted).
VI.
We now turn to the plaintiļ¬ās negligence claims, Counts I
and II. 8 These claims fail because, under both California and
Florida law, Robinhood had no duty not to cause economic loss to
either the putative Robinhood class or the putative nationwide
investor class.9
8 As is standard across common-law jurisdictions, the elements of negligence
in both California and Florida are duty, breach, injury, and causation. See
Jackson Hewitt, Inc. v. Kaman, 100 So. 3d 19, 27ā28 (Fla. Dist. Ct. App. 2011);
Brown v. USA Taekwondo, 276 Cal. Rptr. 3d 434, 440 (2021). At this motion-
to-dismiss stage, the parties contest only the question of duty. At no point in
their opening brief do the plaintiffs distinguish the question of duty for their
negligence and gross negligence claims, so we analyze them together.
9 The putative nationwide investor class raises separate choice-of-law issues
that were not briefed before this Court or addressed by the court below. Any
harm to the named plaintiffs from the decrease in the price of the stock was
experienced not in their capacity as Robinhood customers who could not
execute trades, but in their capacity as shareholders of the meme stocks.
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22 Opinion of the Court 22-10669
A.
We start by applying California law to the putative
Robinhood class. In California, the āeconomic loss ruleā means
that ā[i]n general, there is no recovery in tort for negligently
inļ¬icted purely economic losses, meaning ļ¬nancial harm
unaccompanied by physical or property damage.ā Sheen v. Wells
Fargo Bank, N.A., 290 Cal. Rptr. 3d 834, 842 (2022) (quotation
omitted). A subset of this rule known as the ācontractual
economic loss ruleā bars āclaims in negligence for pure economic
losses in deference to a contract between litigating parties.ā Id. at
842ā43. The rationale behind both rules is that contract law,
rather than tort law, best allows parties with an economic
relationship to āmake dependable allocations of ļ¬nancial risk
without fear that tort law will be used to undo them later.ā Id. at
843 (quoting Restatement (Third) of Torts, Liability for Economic
That impacts the argument that the customer agreementās choice-of-law
clause applies to this claim, and it also affects the application of Floridaās
choice-of-law rules. Furthermore, many absent class members in the
putative nationwide investor class were not Robinhood customers at all, and
therefore did not sign the customer agreement. So for both named and
absent class members, it is not obvious that Floridaās choice-of-law rules
would point to the application of either Florida or California law for these
claims. Because the plaintiffs do not identify any other possible jurisdictions
where their claims would succeed, we consider any argument that another
jurisdictionās law might lead to a different outcome to be forfeited and apply
only California and Florida law. See Sapuppo v. Allstate Floridian Ins. Co., 739
F.3d 678, 681 (11th Cir. 2014). But we do not decide what law applies to any
named plaintiff or absent class member for any claim (except for Counts IV
and V).
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22-10669 Opinion of the Court 23
Harm Ā§ 3 cmt. b (Am. L. Inst. 2020)). āIf every negligent breach
of a contract gives rise to tort damages the limitation would be
meaningless, as would the statutory distinction between tort and
contract remedies.ā Erlich v. Menezes, 87 Cal. Rptr. 2d 886, 893
(1999).
Californiaās contractual economic loss rule squarely applies
to these facts. The plaintiļ¬s had a contractual relationship with
Robinhood, and they allege that Robinhood was negligent in its
execution of that contract. So the claim for ānegligent breach of
contractā is barred by the rule.
The plaintiļ¬s argue that their claim stands under both of
two exceptions to the economic loss rule: (1) the professional
services exception, which allows recovery for negligent economic
loss in āsome cases involving insurance policies and contracts for
professional servicesā; and (2) the independent tort exception,
which allows recovery for torts between two contracting parties
that do not actually arise out of the contractual relationship.
Sheen, 290 Cal. Rptr. 3d at 848, 843. Neither ļ¬ts here.
Despite its name, the professional services exception does
not apply to everything that seems like āprofessional services.ā
For example, it does not apply to mortgage lending. Id. at 848ā
51. This exception is a āmajor departure from traditional
principles of contract lawā that applies only in very limited
circumstances in which one party to the contract has āspecialized
knowledge, labor, or skillā that is āpredominantly mental or
intellectual.ā Id. at 848 (quotation omitted); N. Cntys. Engāg, Inc. v.
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24 Opinion of the Court 22-10669
State Farm Gen. Ins. Co., 169 Cal. Rptr. 3d 726, 749 (Ct. App. 2014)
(quotation omitted). In Sheen, the court rationalized this narrow
exception by discussing an ordinary individualās inability to ācheck
the workā of the professional, which meant that there was no
choice but to trust that the professional was correctly executing
tasks within his area of expertise. See 290 Cal. Rptr. 3d at 851.
Here, as a non-discretionary broker, Robinhood was simply
executing (or, as the case may be, declining to execute) trade
requests that its customers submitted. It was not oļ¬ering any
special mental or intellectual skills that its customers had to depend
on. Californiaās professional services exception simply does not
ļ¬t these facts.
As for the independent tort exception, that applies only
when the duty giving rise to tort liability either (1) is ācompletely
independent of the contractā or (2) āarises from conduct which is
both intentional and intended to harm.ā Sheen, 290 Cal. Rptr. 3d
at 843 (quoting Erlich, 87 Cal. Rptr. 2d at 891). It is obvious that
the plaintiļ¬sā claims are not ācompletely independentā of the
contract, so the plaintiļ¬s argue that Robinhoodās conduct falls
within the second bucketāthat it was āintentional and intended to
harm.ā But it is not entirely clear from either their brieļ¬ng or
their complaint why they think that Robinhood intended to cause
them harm. The closest they get is in their complaint for gross
negligence, where they say that Robinhood ātook deliberate
actions to hurt Plaintiļ¬s and the Class by abruptly and unilaterally
implementing one-way trading suspensions (halting of the buying,
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22-10669 Opinion of the Court 25
but not the selling) designed to and foreseeably impeding
additional price appreciation.ā But the plaintiļ¬s did not support
this statement with speciļ¬c factual allegations. 10 Even at the
motion-to-dismiss stage, where we take all of the plaintiļ¬sā factual
allegations as true, we can only credit speciļ¬c, plausible
allegationsānot vague and unsupported insinuations. See
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The plaintiļ¬s do not
adequately allege speciļ¬c actions that are both āintentional and
intended to harm.ā Because neither exception to the economic
loss rule applies, it bars the putative Robinhood classās negligence
claims under California law.11
Moving to Florida law, the terminology is slightly diļ¬erent,
but the outcome is the same. Since 2013, Florida courts have used
the term āeconomic loss ruleā to refer to only a speciļ¬c aļ¬rmative
defense in products liability cases. Tiara Condo. Assān, Inc. v. Marsh
& McLennan Cos., 110 So. 3d 399, 400, 407 (Fla. 2013). That rule
is irrelevant here. So, unlike under California law, Robinhood
10 This statement is part of a pattern throughout the plaintiffsā complaint,
appellate briefing, and oral argument. They repeatedly insinuate (but never
quite allege) that Robinhood had a separate, ulterior motive for moving the
meme stocks to position closing only: to protect the interests of the market
makers, who are Robinhoodās primary source of revenue, and at least some of
whom were losing money due to the surge in the meme stocksā price. But
these insinuations are just thatāinsinuationsāso we do not credit them in
our analysis.
11Because the economic loss rule bars recovery in California, we need not
address plaintiffsā arguments that Robinhood otherwise owed the putative
Robinhood class a duty of care under California law.
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26 Opinion of the Court 22-10669
cannot merely invoke the economic loss rule and have it be the end
of the matter.
Even so, the plaintiļ¬s still need to establish that Robinhood
had a duty not to cause them economic loss. The plaintiļ¬s appear
to argue that Tiara creates some sort of presumption in favor of
such a duty, but that is incorrect. Prior to Tiara, in cases where
the Florida Supreme Court rejected the applicability of the
economic loss rule, that court still conducted an independent
analysis to determine whether the defendant owed the plaintiļ¬ a
tort duty in the ļ¬rst instance. See Curd v. Mosaic Fertilizer, LLC, 39
So. 3d 1216, 1223, 1227ā28 (Fla. 2010), receded from on other grounds
by Lieupo v. Simonās Trucking, Inc., 286 So. 3d 143, 147 (Fla. 2019).
Tiara did not change that practice. As a concurrence joined by
three of the ļ¬ve Justices in the Tiara majority clariļ¬ed, Tiara did
ānot undermine Floridaās contract law or provide for an expansion
in viable tort claimsā because ā[b]asic common law principles
already restrict the remedies available to parties who have
speciļ¬cally negotiated for those remediesā and āa party still must
demonstrate that all of the required elements for the cause of
action are satisļ¬ed, including that the tort is independent of any
breach of contract claim.ā 110 So. 3d at 408 (Pariente, J.,
concurring). Even post-Tiara, Florida courts have been loath to
ļ¬nd duties not to cause economic loss. See, e.g., Tank Tech, Inc. v.
Valley Tank Testing, L.L.C., 244 So. 3d 383, 393 (Fla. Dist. Ct. App.
2018).
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22-10669 Opinion of the Court 27
So does some other part of Florida law impose a duty on
Robinhood not to cause the plaintiļ¬s economic loss through
negligence? Under Florida law, a tort duty can arise from four
sources: ā(1) legislative enactments or administration regulations;
(2) judicial interpretations of such enactments or regulations;
(3) other judicial precedent; and (4) a duty arising from the general
facts of the case.ā Clay Elec. Coop., Inc. v. Johnson, 873 So. 2d 1182,
1185 (Fla. 2003) (quotation omitted). In trying to ļ¬nd a duty here,
the plaintiļ¬s point to three diļ¬erent places: Florida precedent about
the undertaker doctrine, Financial Industry Regulatory Authority
(FINRA) rules, and āthe facts of the case.ā12 None of these create
the kind of economic-loss negligence duty that the putative
Robinhood class needs to state a claim.
The undertaker doctrine states that, whenever someone
āundertakesā to perform a service, she has a duty to perform that
service carefully. See Clay, 873 So. 2d at 1186. The plaintiļ¬s
argue that this doctrine applies to Robinhood because it undertook
to oļ¬er brokerage services to its customers. But the common-
law undertaker doctrine is limited to physical harms, not economic
ones. Restatement (Second) of Torts Ā§Ā§ 323, 324A (Am. L. Inst.
1965). And the Florida District Court of Appeal has explicitly
incorporated this limit from the Restatement into Floridaās
undertaker doctrine, calling the undertaker doctrine āinapplicableā
12 FINRA is a private nonprofit corporation that oversees and regulates its
member securities firms, including Robinhood Financial and Robinhood
Securities. Turbeville v. FINRA, 874 F.3d 1268, 1270ā71 (11th Cir. 2017).
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28 Opinion of the Court 22-10669
when a case did not involve āāphysical harmā within the meaning
of Section 323 of the Restatement (Second) of Torts (1965).ā
Casamassina v. U.S. Life Ins. Co. in City of N.Y., 958 So. 2d 1093, 1102
(Fla. Dist. Ct. App. 2007); cf. also, e.g., Wallace v. Dean, 3 So. 3d 1035,
1050ā52 (Fla. 2009); Clay, 873 So. 2d at 1186 & n.3. The plaintiļ¬s
do not point to any evidence that Florida courts have expanded the
undertaker doctrine beyond its common-law scope, so that
doctrine established no duty here.
Next, the plaintiļ¬s claim that Robinhood violated FINRAās
rules by failing to take suļ¬cient risk-mitigating actions to avoid
placing its āmission critical systemsā at risk. And they claim that
this is enough to create a duty under Florida law.
This argument overstates the extent to which Florida law
borrows negligence duties from regulatory bodies. A āviolation
of a statute may be evidence of negligence, but such evidence only
becomes relevant to a breach of a standard of care after the law has
imposed a duty of care.ā Est. of Johnson v. Badger Acquisition of
Tampa LLC, 983 So. 2d 1175, 1182 (Fla. Dist. Ct. App. 2008). Not
every violation of a regulation creates a privately enforceable
negligence duty. See, e.g., id. at 1182ā83 (a tort duty arising out of
federal regulations would āinvite an unusual federal encroachment
into Florida common lawā). Especially here, where the plaintiļ¬s
allege economic loss arising from a contractual relationship, more
is necessary to show that a regulation creates a privately
enforceable tort duty. But no Florida statute or regulation
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22-10669 Opinion of the Court 29
purports to turn those rules into a speciļ¬c duty to customers that
is enforceable by a private right of action.
Finally, the plaintiļ¬s point to a general principle of Florida
negligence law that if, on the facts of the case, an activity
foreseeably placed another person in the āzone of risk,ā then there
is a tort law duty to exercise reasonable care to avoid foreseeable
harm from the risk. See McCain v. Fla. Power Corp., 593 So. 2d 500,
503 & n.2 (Fla. 1992). Plaintiļ¬s argue that, because Robinhood
courted novice investors and knew of the risks inherent in its
capital requirements, it had a duty to avoid causing economic loss
to those customers.
In general, Florida courts limit the zone-of-risk doctrine to
non-economic injuries. See, e.g., Virgilio v. Ryland Grp., Inc., 680
F.3d 1329, 1339ā40 (11th Cir. 2012); Monroe v. Sarasota Cnty. Sch. Bd.,
746 So. 2d 530, 538 (Fla. Dist. Ct. App. 1999). To be sure, in one
case (uncited by the parties), the Florida Supreme Court applied
the zone-of-risk doctrine to hold a defendant liable for purely
economic loss. But the facts there were quite diļ¬erent. In Curd
v. Mosaic Fertilizer, LLC, the Florida Supreme Court held that the
owner of a fertilizer storage facility was liable to commercial
ļ¬shermen after a dramatic release of pollutants into the Bay where
they were licensed to ļ¬sh. 39 So. 3d at 1218ā19, 1227ā28. We
have read Curd very narrowly, noting that the plaintiļ¬s there had a
āspecial interestā in physical property that was damaged, and we
have held that, even after Curd, Florida law still has a strong
presumption against a negligence duty to cause economic loss.
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30 Opinion of the Court 22-10669
Virgilio, 680 F.3d at 1339ā40, 1339 n.31. Here, as in Virgilio, the
plaintiļ¬s ādo not allege that any real or personal property was
damaged.ā Id. at 1339 n.31.
We highly doubt that Florida courts would expand a zone-
of-risk negligence duty to facts like these, with no connection to
the negligent damage of physical property. Such an expansion
would dramatically disrupt day-to-day economic activity. One
personās pursuit of economic opportunity is often anotherās
foreseeable economic loss. Indeed, the very meme stock trading
that led to this litigation was an eļ¬ort by some to acquire an
economic beneļ¬t at an economic cost to others. If liability arose
anytime an activity created a foreseeable risk of economic harm to
another, it would be endless. The putative Robinhood class has
failed to state a negligence claim under Florida law.
B.
Robinhood also had no tort duty to avoid causing the
putative nationwide investor class an economic loss. Under
California law, the economic loss rule functions in part to avoid
āimposing liability in an indeterminate amount for an
indeterminate time to an indeterminate class.ā Sheen, 290 Cal.
Rptr. 3d at 842 (quotation omitted). If Robinhood were liable to
all holders of a stock any time it made a decision that caused a stock
price to go down, it would have eļ¬ectively limitless liability to all
investors. That untenable result is straightforwardly foreclosed
by Californiaās economic loss rule.
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22-10669 Opinion of the Court 31
As for Florida law, the plaintiļ¬s make no eļ¬ort to show what
could have created a general duty for Robinhood to not cause any
stock price to go down. And all three of their attempts to identify
duties for the putative Robinhood class would even more clearly
fail for the putative nationwide investor class.
VII.
We can quickly resolve the plaintiļ¬sā remaining claims.
Count VI, the tortious interference with contract claim, was
brought against the parent company, Robinhood Markets, for
allegedly having āprocured the breaches of implied contractual
dutiesā by Robinhood Financial and Robinhood Securities. The
plaintiļ¬sā only argument on this point depends on their arguments
for Counts IV and V. Because neither Robinhood Financial nor
Robinhood Securities breached an implied contractual duty (or an
express one for that matter), this claim too necessarily fails.
As for Count VII, the claim for civil conspiracy, the plaintiļ¬s
did not raise the MDL courtās dismissal of that claim on appeal and
have therefore abandoned any challenge to it. See Sapuppo v.
Allstate Floridian Ins. Co., 739 F.3d 678, 681 (11th Cir. 2014).
VIII.
Finally, the plaintiļ¬s argue that they should be allowed to
allege additional facts to the extent that they are necessary to state
a claim. The plaintiļ¬s did not ļ¬le a separate motion to amend.
Instead, they included in their response to Robinhoodās motion to
dismiss a request that they be allowed to amend their complaint if
the court thought it was deļ¬cient. If a motion for leave to amend
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32 Opinion of the Court 22-10669
āsimply is imbedded within an opposition memorandumā then it
āhas not been raised properlyā and has āno legal eļ¬ect.ā Newton
v. Duke Energy Fla., LLC, 895 F.3d 1270, 1277 (11th Cir. 2018)
(quotation omitted). Additionally, both here and below, the
plaintiļ¬s failed to explain what additional facts they would allege if
they were allowed to amend their complaint. A motion for leave
to amend must āstate with particularity the groundsā justifying
amendment of the complaint. Id. (quoting Fed. R. Civ. P. 7(b)(1)).
For both of these independent reasons, the plaintiļ¬s were not
entitled to amend their complaint.
* * *
When Robinhood restricted its customersā ability to buy
meme stocks, it took a sizableāand perhaps justifiableāhit in the
court of public opinion. But in this Court, Robinhood is only
accountable for specific legal duties. Whether in agency,
contract, or tort, the plaintiffsā amended master complaint did not
adequately allege that Robinhood breached a state common-law
duty. We AFFIRM the judgment of dismissal.