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Antczak v. TD Ameritrade Clearing, Inc.

United States District Court, E.D. Pennsylvania

May 21, 2018

MARIANNE ANTCZAK, on behalf of herself and other similarly situated persons


          Savage, J.

         Plaintiff Marianne Antczak claims that she suffered losses resulting from unsuitable investments in high risk, volatile securities. She seeks to hold liable not only her registered investment advisor, but also the custodian and the clearing house for those securities, TD Ameritrade and its affiliated corporations. Moving to strike the class action allegations, the TD Ameritrade defendants argue that the case is inappropriate for class action treatment and the claims are subject to arbitration before the Financial Industry Regulatory Authority (FINRA). Alternatively, they move to dismiss the complaint under Rule 12(b)(6), contending the class claims are precluded.

         Antczak fails to state a claim for violations of federal securities laws. Her state law class action claims are precluded by the Securities Litigation Uniform Standards Act of 1998 (SLUSA). Her remaining individual state law claims are subject to FINRA arbitration. Thus, we shall grant the motion to dismiss.

         Factual Background

          Marianne Antczak engaged Ultimate Financial Investments, LLC (UFI) and its principal, Bridget Fernandez, an independent registered investment advisor, to manage her investments. UFI and Fernandez did not perform custodial or clearing services. They were provided by the TD Ameritrade defendants. TD Ameritrade is a broker-dealer providing custodial services to independent registered investment advisors and their clients through its institutional division, and to individual investors through its retail division.[1] TD Ameritrade relies on TD Ameritrade Clearing, Inc. (TDAC) to provide clearing services.[2] TD Ameritrade Investment Management, LLC (TDAIM) offers advisory services to TD Ameritrade's retail clients.[3]

         In April 2012, UFI and TD Ameritrade entered into an Advisor Services Agreement in which TD Ameritrade agreed to provide brokerage services to UFI and its clients on TD Ameritrade's institutional platform.[4] Under the agreement, TD Ameritrade, identified as the account “custodian” and “broker/dealer, ” agreed to provide trade confirmations and account statements to UFI's clients reflecting each transaction carried out by UFI. TD Ameritrade specifically circumscribed its responsibility, stating it “does not make investment recommendations or decisions.”[5] It deferred to UFI as “the investment advisor” who “understands [UFI's] Clients' financial needs and investment objectives, and will only place orders suitable for its Clients.”[6] The agreement directed TD Ameritrade to deduct fees that UFI charges its clients from their accounts and credit the fees to UFI's master account.[7] From April 2012 until April 2014, UFI operated on the TD Ameritrade institutional platform and processed its trades via TDAC.[8]

         On July 2, 2012, Antczak entered into two institutional account agreements with TD Ameritrade, naming UFI as her advisor and authorized “agent and attorney-in-fact.”[9]The agreements gave UFI discretion to trade “stocks, bonds, and any other securities and/or contracts related to the same” in Antczak's TD Ameritrade institutional accounts. The parties agreed that “TD Ameritrade has no duty or responsibility to monitor trading in [her] accounts by [her] Agent or to notify [her] prior to accepting [her Agent's] Instructions.”[10]

         TD Ameritrade's agreement states that “[a]ny investment decision that [Antczak] make[s] or investment strategy that [she] utilize[s] . . . is based on [her] own investment decisions or those of [her] Advisor and is at [her] own risk.”[11] The agreement further articulates that unless TD Ameritrade provides “individualized” recommendations, Antczak or her “Advisor are responsible for determining the suitability of any trade, investment, investment strategy and risk associated with [her] investments.”[12] Antczak also agreed to indemnify and hold TD Ameritrade harmless from all losses and claims in connection with her authorization to rely on UFI's instructions.[13]

         Antczak also signed an agreement with UFI, which, in her own words, “gave . . . Fernandez complete discretion to trade in [her] UFI accounts.”[14] After signing these agreements, Antczak transferred approximately $660, 000 to her accounts on TD Ameritrade's institutional platform.[15]

         On April 15, 2014, TD Ameritrade withdrew $1, 009 from Antczak's account and credited it to UFI's account, for services covering the period from April 1, 2014, through June 30, 2014.[16] Antczak had expressly authorized and instructed TD Ameritrade to deduct this fee from her account and to credit it to UFI's account.[17] She also agreed that “TD Ameritrade shall rely on [UFI's] invoices and have no responsibility for the calculation or verification of fees.”[18]

         On April 17, 2014, TD Ameritrade sent Antczak a letter informing her that it had terminated its relationship with UFI. The letter explained that she had thirty days to transfer her institutional accounts to another brokerage or her accounts would automatically be transferred to TD Ameritrade's retail platform.[19] The letter further explained that if her accounts were transferred to the retail platform, they would be self-directed and “any cash management services or option approval you had on your advisor-managed account [on the institutional platform] will cease.”[20] In other words, TD Ameritrade informed Antczak that registered investment advisors, including Fernandez, were not permitted to operate within an account held on TD Ameritrade's retail platform.

         On May 8, 2014, after Antczak signed a Retail Client Agreement, her accounts were transferred to TD Ameritrade's retail platform.[21] Antczak agreed that her accounts were now self-directed and TD Ameritrade had no responsibility for any trading or investment decisions.[22] Nevertheless, despite having been notified that UFI was not authorized to have access to its retail platforms, Antczak authorized Fernandez to be her “agent[] and attorney[]-in-fact for the purchase and sale of securities” in her accounts on the retail platform.[23] The authorization forms noted Fernandez was unemployed and made no mention of UFI.[24] Neither Antczak nor Fernandez checked the boxes identifying Fernandez as “licensed or employed by a registered broker/dealer” or that she was, or was “employed by, a federal or state registered Investment Advisor.”[25] Remarkably, in her complaint, Antczak admits that she “decided to remain with Ms. Fernandez having discretion to trade in her accounts on TD Ameritrade's retail platform even though such an arrangement was not permitted by TD Ameritrade.”[26]

         Antczak contends that TD Ameritrade was aware that Fernandez was trading in her clients' retail accounts, including Antczak's. It sent a letter removing Fernandez's trading authority to her other clients, but according to Antczak, not to her.[27] The letter, dated February 2, 2015, explained that advisors are not permitted to manage accounts on the retail platform because those accounts are self-directed. Specifically, TD Ameritrade informed Fernandez's other clients that:

Our records indicate you may have given an advisor, Bridget Fernandez, online access or Limited Power of Attorney/trading authority, to act on your behalf within your brokerage account(s). TD Ameritrade does not allow advisors to operate on our Retail Platform. As a result, Limited Power of Attorney/trading authority for Bridget Fernandez has been removed from your account. This means Bridget Fernandez will no longer be able to manage your account or trade on your behalf. Bridget Fernandez has been notified of this decision.
To ensure advisory activity cease immediately, your online access has been restricted. In order to remove the restriction, you must change your login credentials on all of your accounts by calling Client Services. We ask that you do not supply the updated credentials to Bridget Fernandez (or any unauthorized party) moving forward.
You will not be required to remove your account(s) from TD Ameritrade provided the advisory relationship is fully dissolved; however, failure to discontinue the advisory relationship may cause TD Ameritrade to re-evaluate our business relationship with you.[28]

         Antczak also claims that sometime after May, 2015, TD Ameritrade attempted to “supplant” Fernandez with its own TDAIM investment consultant, but she “decided to remain with Ms. Fernandez having discretion to trade in her accounts.”[29] Throughout 2015 and into 2016, Fernandez continued to make unsuitable trades within Antczak's accounts.[30]

         From July 2012 through 2016, Fernandez, operating through UFI, over-concentrated Antczak's accounts in unsuitable exchange-traded funds (ETFs). By the end of 2016, she alleges that her accounts lost “96% of the money and securities [she] initially moved over to TD Ameritrade [in] July of 2012.”[31] She attributes these losses to the TD Ameritrade defendants' failure to monitor her accounts and to report Fernandez's unsuitable trading to regulators. She contends that TD Ameritrade had direct knowledge of Fernandez's “securities laws violations” and did nothing to prevent it.[32]

         In addition to her claim against the TD Ameritrade defendants for violations of § 10(b) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, Antczak brings state-law class action claims against the TD Ameritrade defendants for breach of contract, breach of fiduciary duty, negligence, conversion, and civil conspiracy.

         Motion to Dismiss

         A Rule 12(b)(6) motion tests the sufficiency of the allegations contained in the complaint. In order to survive a Rule 12(b)(6) motion, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

         A conclusory recitation of the elements of a cause of action is not sufficient. Phillips v. Cty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008). The plaintiff must allege facts necessary to make out each element. Id. (quoting Twombly, 550 U.S. at 563 n.8). In other words, the complaint must contain facts which, if proven later, support a conclusion that a cause of action can be established.

         In considering a motion to dismiss under Rule 12(b)(6), we first separate the factual and legal elements of a claim, accepting the well-pleaded facts as true and disregarding legal conclusions. Then, we determine whether the facts alleged, if proven, show that the plaintiff has a plausible claim for relief. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (quoting Iqbal, 556 U.S. at 679).

         All well-pleaded allegations of the complaint must be accepted as true and interpreted in the light most favorable to the plaintiff, and all inferences must be drawn in the plaintiff's favor. See McTernan v. City of York, 577 F.3d 521, 526 (3d Cir. 2009).

         A court may consider only the complaint, exhibits attached to the complaint, matters of public record, and undisputedly authentic documents to the extent the plaintiff's claims are based upon them. Hartig Drug Co., Inc. v. Senju Pharm. Co., Ltd., 836 F.3d 261, 268 (3d Cir. 2016) (citing Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010)).

         Section 10(b) Unsuitability Claim

         Antczak asserts a § 10(b) unsuitability claim under the Securities Exchange Act of 1934 and SEC Rule 10b-5. Antczak contends that the TD Ameritrade defendants enabled, facilitated, and concealed UFI's unsuitable trading activity in her accounts, causing losses under 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5.

         To state an “unsuitability” securities fraud claim, a plaintiff must aver that: (1) the securities purchased were unsuited to the plaintiff's needs; (2) the defendant knew or had reason to believe the securities were unsuitable; (3) the defendant recommended or purchased the unsuitable securities; (4) the defendant made, with scienter, material misrepresentations or, owing a duty, failed to disclose material information relating to the suitability of the securities; and (5) the plaintiff justifiably relied to her detriment on the defendant's fraudulent conduct. Brown v. E.F. Hutton Group, Inc., 991 F.2d 1020, 1031 (2d Cir. 1993); see also Patel v. Wagha, 866 F.3d 846, 847 (7th Cir. 2017).

         At oral argument, Antczak's counsel conceded that the TD Ameritrade defendants neither recommended nor purchased securities for her-an essential element of a § 10(b) unsuitability claim. He acknowledged that Antczak cannot make out a federal securities fraud cause of action.

         Even if Antczak continued to pursue the § 10(b) claim, it would fail. Antczak did not and cannot allege that the TD Ameritrade defendants recommended or purchased the ETFs. Nor has she alleged facts that created a duty to warn her of her advisor's unsuitable investment decisions. She has not pleaded any misrepresentations or omissions that the TD Ameritrade defendants were obliged to disclose. ...

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