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Batchelar v. Interactive Brokers, LLC

United States District Court, D. Connecticut

September 28, 2016

ROBERT SCOTT BATCHELAR, Individually and on behalf of all others similarly situated, Plaintiff,
v.
INTERACTIVE BROKERS, LLC, INTERACTIVE BROKERS GROUP, INC., and THOMAS A. FRANK, Defendants.

          MEMORANDUM OF DECISION GRANTING DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S COMPLAINT [DKT. 28]

          Hon. Vanessa L. Bryant United States District Judge

         I. Introduction

         Plaintiff, an online stock trader, brings this putative class action against defendants Interactive Brokers LLC (“Interactive”), Interactive Brokers Group, Inc. (“IBG”), and Mr. Thomas A. Frank (“Frank, ” and collectively with Interactive and IBG, the “Defendants”), alleging that Defendants' online brokerage platform improperly liquidated positions in Plaintiff's margin trading account when Plaintiff's account failed to meet Defendants' margin requirement. Plaintiff has asserted causes of action for negligence (Count I) and breach of contract (Count II).

         Defendants have jointly moved to dismiss Plaintiff's Complaint in its entirety for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6). [Dkt. 28]. For the reasons that follow, Defendants' Motion to Dismiss is GRANTED.

         II. Factual Background

         The following facts and allegations are taken from the Complaint.

         Plaintiff Robert Scott Batchelar is a Massachusetts resident and is an online stock trader who opened and used an account with Interactive. [Compl. ¶ 3].

         Defendant Interactive Brokers LLC (“Interactive”) is a limited liability company formed in the State of Connecticut and is a subsidiary of Interactive Brokers Group, Inc. (“IBG”), a Delaware corporation with its principal place of business in Connecticut. [Id. ¶¶ 4, 5]. Defendant Thomas A. Frank is a resident of Connecticut and is the Chief Information Officer and Executive VP of IBG. [Id. ¶ 21].

         Interactive is a federally-licensed securities and commodity futures broker. Both parties describe Interactive as a “deep discount online brokerage firm, ” because, according to Interactive, its customers “decide on their own investment strategy, ” without advice from Interactive, and send their trading orders to Interactive over the internet. [Id. ¶ 7; Def. Mem. at 3]. Interactive executes the trade orders received from its customers using proprietary software. [Compl. ¶¶ 10, 11].

         Interactive also offers margin trading, through which customers can purchase and sell positions that are secured by the collateral in the customer's account. [Id. ¶ 12]. Customers who engage in margin trading must meet a margin requirement calculated by Interactive's software. [Id. ¶ 13]. The software continuously compares the margin account requirement with the net liquidating value (“NLV”) of the customer's account. [Id. ¶ 14]. If a customer's NLV drops below that customer's margin requirement, a margin deficiency occurs. When a margin deficiency occurs, Interactive's software engages an auto-liquidation function that liquidates certain positions in the customer's account using an algorithm (the “liquidation algorithm”). [Id. ¶ 16].

         Upon opening his margin account with Interactive, Plaintiff “entered into [Interactive's] “standardized contract.” [Id. ¶ 24]. Defendants attached a copy of Plaintiff's Interactive Customer Agreement (the “Customer Agreement”) referenced in the Complaint as an exhibit to the Motion to Dismiss. [See Dkt. 28, Ex. B.]. The Customer Agreement provides that Interactive “is authorized to liquidate account positions in order to satisfy Margin Requirements without prior notice.” [Id. § 11(C)].

         The Customer Agreement also grants Interactive broad discretion in the liquidation of deficient margin accounts, and provides that:

IF AT ANY TIME CUSTOMER'S ACCOUNT HAS INSUFFICIENT EQUITY TO MEET MARGIN REQUIREMENTS OR IS IN DEFICIT, [INTERACTIVE] HAS THE RIGHT, IN ITS SOLE DISCRETION . . . TO LIQUIDATE ALL OR ANY PART OF CUSTOMER'S POSITIONS . . . AT ANY TIME AND IN ANY MANNER AND THROUGH ANY MARKET OR DEALER, WITHOUT PRIOR NOTICE OR MARGIN CALL TO CUSTOMER.

[Id. ยง 11(D)(i)]. The Customer Agreement also required Plaintiff to meet Interactive's margin requirement as a condition of being permitted to operate a margin account and order Interactive to execute margin ...


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