In a closely watched federal securities lawsuit against our client Charles Schwab, Sidley successfully defeated the plaintiffs’ motion for class certification in an action accusing our broker-dealer client of violating its duty of best execution. The plaintiffs alleged that when Schwab routed customer stock orders to UBS for execution, Schwab disregarded its duty of best execution in favor of a purportedly undisclosed arrangement with UBS regarding payment for order flow. Schwab vehemently disagrees with that suggestion, and execution quality is of the utmost importance to our client. From the outset, we maintained that a lawsuit of this type could not be maintained as a class action, and Northern District of California Judge Richard Seeborg agreed, holding "[c]lass certification is inappropriate because there is no presumption of reliance in this case, and requiring individualized proof of reliance as to each plaintiff" precludes class treatment.
The suit, first filed in 2016, stemmed from an agreement between Schwab and UBS Securities LLC from 2004, when Schwab sold UBS a proprietary trading and market-making system. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and focused on the plaintiffs’ allegation that Schwab did not disclose to its customers the agreement with UBS or its order-routing decisions. The plaintiffs filed their motion seeking class certification in April 2021. On behalf of Schwab, Sidley argued that class certification should not be granted because the claims are "preposterously individualized."
Judge Seeborg agreed with Sidley, writing in an opinion issued on October 27, 2021 that each investor would need to provide individualized evidence of their reliance. "Here, the crux of the inquiry for the reliance element is whether each investor relied on Schwab's alleged misrepresentations and omissions when conducting each particular trade," Judge Seeborg wrote.
The Sidley team, all in New York, included partners Alex Kaplan and Eamon Joyce, counsel Jon Muenz, and associate Sarah Goodfield.