morning well here the first case bachelor versus interactive brokers morning honors made it please the court my name is william bloss i represent the plaintiff appellant robert batchelor in this matter your honor is this if a margin account is deficient diet is it doesn't have enough assets to provide adequate security then we agree that that interactive brokers has a right to liquidate assets in order to provide more security and in this case that means to purchase contracts or positions to reduce the risk using the plaintiff's assets the reason that the broker asks  cost or that power is to quote to cover the margin deficiency that's what their disclosure of risks accompanying their contract says the internet interactive brokers agrees that that's the purpose and they're a contemporaneous import of paragraph eleven the one of the customer agreement which says and i quote this is on the joint appendix at seventy nine if at any time customers account has insufficient equity to meet margin requirements or is in deficit i b has the right in its sole discretion to liquidate all or any part of customer's positions in any of the customer's ib accounts at any time and in any manner and through any market or deal or without prior notice or margin call to customer doesn't that that suggests that interactive brokers has discretion to liquidate margin accounts in any matter that it deems appropriate in the event of a margin deficiency they didn't use discretion here and or they used an auto liquidation software and i would say that that paragraph has to be read in the context of that the evidence and remembering that this is a motion to dismiss stage we haven't had discovery we haven't been able to flesh out exactly what the evidence in support of the claims would be but here's what we know your honor the the part from that i just want to be sure i understand your response to the chief judge's question the language in the text he'd read to you says that if something happens march in deficiency then what they are permitted to do is to liquidate all or any part of the customer's positions it doesn't qualify that liquidate all right by liquidate all to the extent it's necessary to cover the margin or whatever you're indicating it's it says liquidate all and i only focus on that because of course the first principle of contract interpretation is to look to whether the language is clear you want us to look at something else to see to identify a limitation but am i right that there's no limitation in the contract text well actually your honor the disclosure that i was just quoting at appendix eighty eight is actually referenced in that same that same page of the contract under paragraph eleven a where it says the customer represents that he has read the disclosure of risks of margin trading right but there's nothing in the  discussion of what their rights are when march and deficiencies arise that indicates it's limited right well it's limited under any circumstances by the duty of commercial reasonable that's your honor ok and ok the language says what it says but i think it's important that in this case that we look at really what happened then again recognizing that we're in a motion to dismiss stage we put to added to the first amended complaint a chart of what the trades were in this particular situation in its appendix page two fifty eight effectively or honors what happened in this case is that there were two markets for the for the product of the commodity the contracts that interactive brokers were was buying under the under the terms of this contract they were green with the customer and the fact is your honour's that every almost every transaction all but one was that interactive brokers consummated was because was had a at a price significantly higher than the third party market and i think that the one startling example of that is that for a commodity that was trading around between five and six dollars it had practically no volatility during the twenty minutes that we're talking about interest for any third party buyer any open market buyer not called interactive brokers there was a need that may prompt a question of something i don't understand where with the trades affected i thought the trades edition here were affected on the open market they were on an open market your honor but the commodity is relatively illiquid it's not like ford motor company shares there isn't going to be willing seller at a six dollars price every millisecond but there will be willing sellers at some price for example your honor there is this this is this is one of the problems with the software in the case and it was used to do this liquidation it didn't recognize that there was that the liquidity of this market is not there this product is not the same as it would be for a common share of oh say a fortune five hundred company there are a limited number of people the crux of your complaint that they used this computer program rather than having what a human being place each order no they couldn't place each say oh no they can use the program your honor but this program had flaws in it this program didn't react this program didn't have caps it didn't have floors they placed this program placed a market order and that resulted in one seller that would result in an interactive brokers buying from one seller a commodity for eighty three that's that's one place your honor does come in through article nine if the u c c applies to this which i think is doubtful well i think there are there are cases in this circuit their cases in other circuits that say it does apply to this what about america then versus pain should say and and asking answering judge saxo a question also the it was also an implied duty of commercial reasonable to not only under the u c c but also under the common law what happened here your honour's is that this company the interactive bought infective leave due to a software flaw without a cap and without a floor and without recognizing changes in the volatility of the market changes in willing sellers effectively created it's a second market where it paid prices there were up to fifteen hundred percent higher than any other third party transaction for this commodity under their view of this because that was done by that's that's what the evidence is your honor that's what the allegations in the complaint are that there was a transaction and where it eighty three dollars where they bought the community at eighty three dollars and every other person on earth during that twenty minute period paid between five and respect the software determined what the market was for the first trade and then it just assumed that that was the market for the rest of the trades and so it wound up doing it didn't change it didn't it didn't react to the relative illiquidity of the product and it didn't react to the fact that sellers were saying ok we're going to sell this now at eight dollars or ten dollars or eighty three dollars the software went back to the first trade let me let me be sure i understand what you want to argue with the defect here if we let me ask you to assume for purposes of my question that there is no doubt that they were right they were they were entitled to liquidate all of the holdings they go into the market and they basically place a sale order without regard to floors or ceilings or changes moment to moment you're saying they should have put a floor in a ceiling on and if the market went above or below either what were they supposed to do wait a second wait until there's another willing buyer or willing in this case or will you said this was a very elite put market so would the feel i understand that but you can't ask us to gauge whether they were reasonable in terms of what did happen in the terms of the day i'm asking you once a floor or a ceiling was hit what what were they supposed to do you just said wait and i said wouldn't waiting risk they did the problem would become aggravated rather than mitigated so what they did your honor was they traded in a way that actually increase margin deficiency that's the base of it is they shouldn't treat trade in a way that actually makes a bad situation worse or what was in fact not even a bad situation in this case they miss valued the margin of the value of the account but that's a separate issue what they should do is not make matters worse they under their thumb held a fair amount of this product i mean relatively speaking as soon as they start selling that's going to have an effect on especially a small and illiquid market and i want to and it's not going to be an effect that's favorable to the say the ongoing sale of your product that's just reality well actually according to the trades that we've put in the complaint the chart we put in the complaint actually there was extremely low volatility for that everybody else on earth there was a one percent variance in the price for everybody else on earth but if you count for that when you when you tell us that basically you go into the market and the price is high in this second how is how is it that it wasn't high for others at that time i'm not following what happened because this software except it offers to sell at prices higher than the market and so of course a seller there was one very clever seller out here there's one very clever seller that had a standing sell order eighty three dollars that was which which of your dick it was fifteen hundred times the market price at the time but interactive bought it because the didn't recognize that that was out of line what their argument means your honor is that every one of those transactions could have been consummated eighty three dollars fifteen hundred times greater than the market price and they would be immune from any liability for that because a computer program made to buy rather than a human being that can't do that is not commercially reasonable that is not reasonable that is that is what you tell me a moment ago that it didn't have to be a human being to be commercially reasonable you warrant pressing that right absolutely they take that the problem isn't using software the problem is using software that allows these kinds of transactions to be consummated that are extinct that are so far outside the market norm they could have put of cap floor and they could have coded it to recognize what the market was doing and i want to just mention your honor when i say illiquid i mean relatively illiquid this is not as liquid as ford motor or united technologies but it's not there but you can see there are fifty transactions over a twenty minute mile really just what it is with what it is a put option on the standard and poor's five hundred it's called the it's a it's a it's a it's a it's a it's not it's that ok that's fine i mean let me before you sit down you've moved for the judge to recuse herself yes but as i understand your your arguments are not saying that there was any actual impropriety or any conflict of interest is that correct am i misunderstanding you and i think the base of the argument is your honor that the judge in as far as we can tell factually identical circumstances in two thousand and eleven where her husband is the general counsel for a major life insurance or insurance company her husband had hired a particular firm to represent the insurance company in unrelated matters unrelated the judge issued sue a spontaneous post trial issued an order saying asking th firm to provide information about that representation to the plaintiff's attorney in that case and then she said that absent a waiver she would recuse herself so it's factually i don't know what information was provided when in response to that  st it's not in the record your honor so so how can you say that it's analogous that would be a an important factor i mean maybe maybe something was disclosed there that prompted the judge to identify concerned it's not present here well she actually said that she didn't say that she would recuse herself depending on what the information was she said she would recuse herself absent a waiver so it wasn't what was in the information that caused her to recuse herself it was a lack of a waiver and we have a  suggesting you're not suggesting that an actual impropriety exists no no no your honor but there is this is one of these situations where there is an appearance where again from the point of view of a client in two thousand and eleven she recuse is based could statement that she that her husband hired the defense and defendants law firm that is so far as we know that is what exactly what happened here and we did ask for the provision of the similar information your honor that that a remarkably complicated we know we know this personally unlike most of the things we do and it's very good maybe she changed her mind maybe she said gee i shouldn't have done that it was really kind of a stupid thing to do honor and i say this with respect obvious i i mean her order did not say look i think i made a mistake in two thousand and eleven i think i should i didn't need to recuse myself and i'm not going to do it now that's not what she said her order acted as if the two thousand and eleven incident really didn't happen and that in the end it wasn't and it would have been from a point of view of an appearance of impropriety i think it would have been appropriate for the court to have said here's why here's what's different i  in a difference factual situation there they provided information in that it would be may have been better practice or better in these circumstances but to do it afterwards i mean you wouldn't be complaining granted about this two thousand and eleven order it's not a published order it was in a kind of an odd situation i don't know if your honor saw the the notice but it's issued by the clerk to the parties in that case it's not a published decision and it's done not by means of a judicial opinion and that notice actually are on it's part of the problem is that it's it's a it's a different kind of a problem with it's a problem at all i'm saying we don't know and the question is whether she has to explain it to you or to me maybe you know i've been known frankly to say i just don't want to hear that case i have dinner with that guy once a month and he paid for his and i pay for mine but i just don't feel  right i'm not going to explain that to anybody i'm just going to recuse myself i understand and that's in the end if judge bryant had in two thousand and eleven not recused herself under identical circumstances i don't know that that would be an issue the problem is your honor that where she is if i heard a case from in which she was counsel five years ago i got to explain to everybody why and with using the if as far as the public record is concerned a set of circumstances led honour's frankly where in two thousand and eleven this is leads to one result and in two thousand and sixteen it leads to a different result thank you thank you morning me please the court i'm very minute of deckert lp counsel for the apple lease here in including the broker dealer this appeal rise out of three dish court decisions dismissing  the complaint the nine a motion to amend post judgment and then denying the post judgment motion to recuse judge bryant mr batchelor failed to maintain the minimum count value required to meet his contractual  regulatory requirements for his brokerage account pursuant to federal regulations and the account contract including provisions eleven c and eleven d which the court focused on during the appellant's presentation interactive the broker dealer liquidated the account mean that they close the positions or reduce the account to cash the complaint is that certain of the liquidating trades had the effect of increasing rather than reducing the margin deficit and the appellant's position is sensually that our margin default the broker can properly may make liquidation trades only when in hindsight doing so would reduce the margin deficit and of course that's always in hindsight and the cases that are cited by both sides involved is where in hindsight it would have been better for the customer if the broker dealer had waited but in some cases they're brought where the broker dealer they say should've liquidated sooner and waited too long to liquidate so it's only in hindsight  that we know that and i understand your your arguments on that point i wanted to ask you this the district court dismissed the negligence claim as being duplicative of the contract claim correct yes that's true with respect to interactive brokers the broke up right with respect to the other doof to defend it right i understand but under connecticut law are right the negligent i'm quoting from  connecticut decision the negligent performance of a contract may give rise to an action and recovery in both tort and breach of contract correct there are cases that say that however  that the result there cannot be different than what it would be under the under the contract if the contract actually controls the relationship and says what is to happen that can't that cannot that  cannot be inconsistent result and here the negligence that is a lead there is the negligence that the attempt to allege is not adequately alleged when what they are alleging is negligent is essentially that when the liquidation is carried out there are no floors and there are no caps and there are no other protections in place to prevent the you know high prices that they deem to  really went down with those ever be called and so it's a very extremely illiquid position and the so so there is no negligence alleged here what what was done was exactly what is done when when a broker liquidate positions that are traded on a public market here the c b o e they sold them or actually bought in the covering so the courts have repeatedly confirmed that federal margin rules exist for the protection of brokers and the securities markets not the faulting margin customer the purpose of margin c rules is to protect the brokers from the risk associated with insufficiently security counts and applying this principle many courts including the second circuit in the modern settings case have consistently rejected customer challenges to the forstmann of margin requirements and we have a multi page list of citations in our brief that that collect many of the cases in this situation rejecting those types of claims including cases in new york state courts cases in federal court throughout the country cases in this court courts have also rejected attempts to impose upon broke brokers a duty to liquidate in a manner most beneficial to the customer whether hindsight indicates that a more rapid liquidation or a delayed liquidation would have been financially preferable you could district court this miss the the negligence claim if i again st tests screw skill and standards expected of a professional in the industry i'm quoting but isn't that the proper test for that as whether frank exercised again under connecticut law agree of care which a skilled professional of ordinary prudence would have exercised under the same or similar conditions well i i think that these at the right test and i just quoted i believe that is the connecticut test yes but it but i think the phone why should the claim be if that is the correct standard why should the claim be dismissed under that standard well under the the problem is i think an even more fundamental problem which is that there is no duty from mr frank who is the chief information officer at the parent company of the broker dealer to customers of the broker dealer the customers of the broker dealer have  a contractual counterparty which is the broker dealer and to the extent there is any obligation it is the broker dealers obligation not the obligation of the chief information officer of the of the parent company you know that a large part of  plausibility of plaintiff's claims rests on the chart they've pointed to about the differences in the prices that your client executed at and other market prices and do seem to be quite divergent and me why shouldn't that race some concern about whether this was done there under the contract obligation of you know we're exercising the your client or your client was subject to some of them and so were others that would be one thing but there their charge viewed most favorably to them shows that only your client was again in their view foolish enough to execute these trades at the extreme prices when nobody else in the market was doing so why doesn't that give plausibility to their client well the the the the the trades that they complain of some of them were very high but obviously when the when the broker is is buying in at eighty three dollars for example the bro doesn't know whether the next trade will be up or down and it's true of course that at that point the interests of the broker and the interests of the couple customer are somewhat divergent because the brokers interest at this point is to reduce risk and every close out of a position reduces risk and that's what reg t you know sets up and the federal regulations set up is that in this situation where the account is a margin deficit the broker is to reduce the risk of the position back to an acceptable level or to zero that in next to a nation that we can consider on dismissal or is that when you have to advance later connection with their motion to amend the complaint that the fact that they were all on the on the c b oh we and i think that that is dispositive if the judge i understood said that amendments would be futile yes well if i look at when i look at the joint appendix on two thirty in two thirty one i understand why the the initial complaint didn't have a have enough but when you look at pages two thirty and thirty one there seem to be certainly raise questions that suggests that maybe it's not futile well no i believe that it is still futile because the supposed programming errors that they're identifying are really in the nature of the they're really character to rise in the contract claim that they argued on the first with respect to the first complaint and now we characterize ing it as a flaw in the in the trades where the buy in or reduction of the risk in such a way that it increases the margin deficit but increasing the the margin deficit in the context of a liquidation is something that  it will happen it's a routine thing because if the market is extremely volatile and you have you can have differences between where the position is valued and what the what the what the what the market is when you go to sell it on the market what the market prices so i don't i don't think that that solves the problem i think it's just read on those pages of their complaint i think they're just there simply just  c has always existed coexisted with the federal regulatory scheme without any interference and all the cases that we cite are along those lines no there's no case where a court has said you know if we apply commercial reasonable miss to this liquidation we have a problem with the liquidation but if we if if we if we use the federal rules the federal margin rules then there's no problem so we have a conflict and we have to deal with preemption and and levitan was saying that in one thousand nine hundred eighty eight and it's still true today there are there is no conflict to resolve here so you don't get to the preemption issue i would submit but but that's that's the answer on levitan thank you thank you thank you for your honour's i'll answer your honor's question first the case i was referring to was the kaplan against first options case kaplan third circuit case same thing right to liquidate accordingly the brokers argument second circuit case third circuit with th or your case your honor is as modern settings in it look to whether the provisions of a contract were commercially reasonable then the case that the modern settings case relied on was actually an eighth circuit case kelderman that that examined not only the language of the provision but also how the provision was implemented in other words how it was executed because the language itself can be commercially reasonable but if the execution of the language is not commercially reasonable then that is actionable so  and the the the comment that was just made about this is an extremely volatile market well in fact that chart your honor shows that this was not an extremely volatile market this market for everybody on earth except for interactive brokers was not volatile the prices vary by one percent the prices for interactive brokers varied by up to fifteen hundred percent y because of a flaw in their software that allowed them to consummate deals at prices that were double triple fifteen hundred percent greater than the market price we are asking for the opportunity to do discovery we're asking for the opportunity to actually see if there is a remedy for this kind of commercially unreasonable behavior that