On Monday, the Robinhood users suing the company over the January 2021 stock trading frenzy and subsequent trading restrictions implemented by the trading platform appealed the court’s January 26 decision granting Robinhood’s motion to dismiss. The propriety of the “Robinhood Tranche” dismissal order will now be put to the Eleventh Circuit.
The multidistrict litigation is proceeding before Chief Judge Cecilia M. Alatonga and focuses on different parties’ alleged liability for freezing Robinhood customers out of certain trades after a period of investor-driven volatility. The Robinhood Tranche plaintiffs sought to hold Robinhood Markets Inc. and two of its corporate relatives accountable for economic harm flowing from the closing position restrictions Robinhood placed on accounts for five days following the short squeeze.
They asserted claims for negligence and gross negligence, breach of fiduciary duties and of certain implied covenants, tortious interference with business relationships, and civil conspiracy. The court’s January opinion analyzed whether under both California and Florida law Robinhood circumvented lability through the provisions of its customer agreement, the validity of which was uncontested.
Indeed, the terms of the customer agreement permit Robinhood to do what it did, Judge Alatonga concluded. The court explained that though denying recovery in negligence cases such as this one can “inflict real pain” through economic loss, both states’ laws “carve out a vital gatekeeping function for courts faced with novel tort claims.”
In accordance with that role, the court advised that it could not create the uncertainty caused by “[e]xpanding tort law at contract law’s expense.” Judge Alatonga further explained that such uncertainty creates a threat of “ruinous tort liability [that] can discourage behavior that benefits society.”
In deciding to dismiss with prejudice, Judge Alatonga concluded that the plaintiffs had had ample time and resources to amend their complaint. “Plaintiffs’ failure to explain how next time will be different does not inspire confidence in their ability to state a claim,” the court wrote.
The Robinhood Tranche plaintiffs are represented by lead counsel The Ferraro Law Firm P.A. and liaison counsel Grossman Roth Yaffa Cohen P.A. Robinhood is represented by Hunton Andrews Kurth LLP and Cravath, Swaine & Moore LLP.