S UFFOLK , ss.

C OMMONWEALTH OF M ASSACHUSETTSS UPERIOR C OURT2084CV00884-BLS2R OBINHOOD F INANCIAL , LLCv.
W ILLIAM F. G ALVIN , S ECRETARY OF THE C OMMONWEALTH , IN HISOFFICIAL CAPACITY , AND THE M ASSACHUSETTS S ECURITIES D IVISION
OF THE O FFICE OF THE S ECRETARY OF THE C OMMONWEALTHM EMORANDUM AND O RDER D ENYINGP LAINTIFF ’ S M OTION FOR A P RELIMINARY I NJUNCTION
The Enforcement Section of the Securities Division of the Office of the Secretaryof the Commonwealth has brought an administrative enforcement proceeding
against Robinhood Financial, LLC. It claims that Robinhood violated theMassachusetts Uniform Securities Act (known as “MUSA”) by: (i) breaching afiduciary duty that it allegedly owed to customers when providing investment
recommendations or advice; (ii) engaging in other unethical or dishonest
conduct in connection with the purchase or sale of securities; and (iii) notreasonably ensuring that is agents comply with the requirements of MUSA.
The fiduciary duty claim is based on a regulation, adopted last year by theSecretary, that imposes a fiduciary duty on broker-dealers when they provide
investment advice or recommendations to clients. Robinhood contends that theregulation is unconstitutional or otherwise unlawful.
Robinhood asks the Court to enjoin the pending adjudicatory proceeding
before the Division until the Court declares whether the fiduciary duty
regulation is enforceable. The Court will exercise its discretion to deny thismotion for a preliminary injunction.
The Court concludes that Robinhood may seek a declaration that the disputed
regulation is unlawful without first exhausting its administrative remedies,both because it would be futile to press those claims before the Securities
Division and because Robinhood’s claims raised pure questions of law withbroad implications.
But it does not follow that the Court should enjoin the pending administrativeaction. There appears to be no basis for enjoining prosecution of the two claims
that are not based on the new fiduciary duty regulation. It would not be in thepublic interest to do so. And Robinhood will suffer no irreparable harm if theDivision proceeds with the pending administrative action.
The Court will seek additional briefing about whether it should stay this action
until there is a final decision in pending administrative proceeding and, if not,what is an appropriate schedule for deciding a dispositive motion on the meritsof Robinhood’s constitutional claims. It will schedule a conference to discuss
those issues with the parties.
1. Summary of Dispute. Under MUSA, it is illegal for a broker-dealer to engage
in “unethical or dishonest conduct or practices.“ See G.L. c. 110A,§ 204(a)(2)(G). It is also illegal for a broker-dealer to fail reasonably to supervise
its employees and other agents “to assure compliance with” MUSA. Id.,
§ 204(a)(2)(J). If the Secretary finds that a broker-dealer has committed such aviolation, he may impose a fine, suspend or revoke the broker-dealer’sregistration, or take any other appropriate action. Id., § 204(a).
The Secretary has the power to adopt rules “defining any terms” in MUSA. See
G.L. c. 110A, § 412(a).
Last year the Secretary adopted a rule under which “[f]ailing to act inaccordance with a fiduciary duty to a customer when providing investment
advice or recommending an investment strategy, the opening of or transferringof assets to any type of account, or the purchase, sale, or exchange of anysecurity” shall “be deemed ‘unethical or dishonest conduct or practice’ “ forthe purposes of § 204(a)(2)(G). See 950 C.M.R. § 12.207(1)(a).
Robinhood claims that this regulation imposes a duty not recognized atcommon law,1 and that the statute authorizing the Secretary to define terms
used in MUSA either does not give him authority to change the common law
or is an unconstitutional delegation of legislative power.2 Robinhood also
contends that the regulation violates the Federal Constitution because it isinconsistent with and thus preempted by Federal law, violates Robinhood’s
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See Patsos v. First Albany Corp., 433 Mass. 323, 333–336 (2001) (broker-dealer
owes fiduciary duty if they make most investment decisions for customers, but
not if customer makes investment decisions and broker merely receives andexecutes their orders).
See generally Murphy v. Massachusetts Turnpike Auth, 462 Mass. 701, 709–710(2012) (describing separation of powers constraint on delegation of legislative
authority under art. 30 of the Massachusetts Declaration of Rights).
-2-First Amendment right to engage speech, and violates the so-called Dormant
Commerce Clause.
2. Legal Background.
2.1. Preliminary Injunction Standards. “Trial judges have broad discretion togrant or deny injunctive relief.” Lightlab Imaging, Inc. v. Axsun Technologies, Inc.,
469 Mass. 181, 194 (2014). “A preliminary injunction is an extraordinary remedy
never awarded as of right.” Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7,24 (2008). To the contrary, “the significant remedy of a preliminary injunction
should not be granted unless the plaintiffs had made a clear showing ofentitlement thereto.” Student No. 9 v. Board of Educ., 440 Mass. 752, 762 (2004).
Since Robinhood asks the Court to constrain government action, it must provethat: (1) it is likely to succeed on the merits of its claims; (2) it will suffer
irreparable harm if injunctive relief is denied; (3) when the possible harm toeach side is considered in light of Robinhood’s likely chance of success, the riskof irreparable harm to Robinhood if the injunction is denied outweighs thepotential harm to the Securities Division if the injunction is granted; and(4) “the requested order promotes the public interest, or, alternatively, that theequitable relief will not adversely affect the public.” See Garcia v. Department ofHous. & Cmty. Dev., 480 Mass. 736, 747 (2018), quoting Commonwealth v. Mass.
CRINC, 392 Mass. 79, 89 (1984); see also Packaging Indus. Group, Inc. v. Cheney,380 Mass. 609, 617 (1980).
Robinhood has the burden of proving all of these things in order to justify apreliminary injunction. See, e.g., Berrios v. Dept. of Pub. Welfare, 411 Mass. 587,598 (1992) (burden of showing likelihood of success); GTE Products Corp. v.
Stewart, 414 Mass. 721, 726 (1993) (burden of showing irreparable harm); Tri-NelMgmt., Inc. v. Board of Health of Barnstable, 433 Mass. 217, 227 (2001) (burden ofshowing that injunction would serve the public interest).
2.2. Exhaustion of Administrative Remedies. Whether Robinhood is likely to
succeed on the merits turns in part on whether it may seek a declaration thatthe fiduciary duty rule is illegal without first pressing the issue in the pending
adjudicatory proceeding before the Securities Division.
“As a general rule, where an administrative procedure is available” from a stateagency, a party must “exhaust the opportunities for an administrative remedy”
before seeking injunctive or declaratory relief in court. Space Bldg. Corp. v.
Commissioner of Revenue, 413 Mass. 445, 448 (1992). Even where a party contends-3-that the agency lacks jurisdiction or power to act, the agency “should have anopportunity to ascertain the facts and decide the question for itself….”
Wilczewski v. Commissioner of the Dept. of Envtl. Quality Eng’g, 404 Mass. 787, 793(1989), quoting Saint Luke’s Hospital v. Labor Relations Comm’n, 320 Mass. 467,470 (1946).
However, a judge has the discretion to let a civil action proceed in court before
a pending administrative action if completed if the “administrative remedy is‘seriously inadequate.’ “ Luchini v. Commissioner of Revenue, 436 Mass. 403, 405(2002), quoting Space Bldg. Corp., supra. “Only in extraordinary cases may acourt take jurisdiction of a matter that is pending before an administrativeagency.” Temple Emmanuel of Newton v. Massachusetts Comm’n Against Discrim.,
463 Mass. 472, 479 (2012).
The Supreme Judicial Court has identified four circumstances in which a court
may grant relief before an administrative agency has made a final decision inan adjudicatory proceeding pending before it. Id. at 479–483. First, “[i]n cases
where resort to an administrative agency obviously would be futile, and there
is no fact-finding function for the agency to perform, a court may exercise
jurisdiction despite a plaintiff's failure to exhaust administrative remedies.”
Norfolk Elec., Inc. v. Fall River Housing Auth. 417 Mass. 207, 210 (1994). Second,exhaustion may be waived if a case “presents a purely legal question of wide
public significance.” Kelleher v. Personnel Adm'r of Dept. of Personnel Admin.,421 Mass. 382, 385 (1995); accord Space Bldg, 413 Mass. at 448. Third, a court
may exercise jurisdiction without requiring exhaustion where “pursuing theadministrative remedy will result in irreparable harm to either party.” Temple
Emmanuel, 472 Mass. at 480. Finally, exhaustion is not required before a court
may decide “a question of law ‘peculiarly within judicial competence.’ “ Id.,
quoting Everett v. Local 1656, Int’l Ass’n of Firefighters, 411 Mass. 361, 368 (1991).
If any of these four factors applies in a particular case, a judge may—but is not
required to—entertain a claim for declaratory relief without requiring theplaintiff first to exhaust their administrative remedies. Whether to do so is amatter of discretion; it is rarely required. See Luchini, 436 Mass. at 405(exceptions to exhaustion “may be made in the judge’s discretion”); but see
Space Bldg, 413 Mass. at 448–449 (judge abused discretion in requiring plaintiff
to exhaust remedies before appellate tax board, because claim that
Commissioner failed to comply with procedural requirements of G.L. c. 30A,
§ 11(7), raised pure question of law that board lacked jurisdiction to decide).

-4-3. Analysis.
3.1. Likelihood of Success as to Exhaustion of Remedies. The Court concludes
that Robinhood is likely to succeed in showing that it need not exhaust its
administrative remedies before challenging the fiduciary duty rule because the“futility” and “wide public significance” exceptions both apply.
It would be futile to ask the Securities Division to vacate the fiduciary duty rule,because it has no power “to strike down a regulation or declare it void on
constitutional grounds.” See Doe v. Sex Offender Registry Bd., 82 Mass. App. Ct.
152, 155 (2012); but see Duarte v. Commissioner of Revenue, 451 Mass. 399, 413–414 (2008) (agency nonetheless has authority to decide whether regulation
validly applies in particular case).
In addition, Robinhood has shown that its challenges to the legal validity of theregulation turn on pure questions of law that do not require any fact-finding,and are of great public significance because their resolution will affect manybroker-dealers and tens if not hundreds of thousands of their clients.
Defendants do not appear to disagree.
The Court therefore concludes that Robinhood is likely to succeed in showingthat it should not have to exhaust its administrative remedies in the pending
enforcement action before seeking and obtaining declaratory relief on whether
the fiduciary duty regulation is lawful. See Norfolk Elec., 417 Mass. at 210(futility); Kelleher, 421 Mass. at 385 (legal question of wide public significance).
3.2. Public Interest—Irreparable Harm. Nonetheless, the Court concludes that
it would not be appropriate to enjoin the pending administrative action by theSecurities Division against Robinhood, even assuming that Robinhood was
likely to succeed on the merits of its constitutional claims.
Robinhood wrongly conflates the factors for deciding whether a party must
exhaust its administrative remedies with the distinct standards that govern
whether a should issue a preliminary injunction staying an adjudicatory
proceeding that is pending before an administrative agency.
If a plaintiff can show that a case falls within any of the four categories of cases
discussed in Temple Emanuel, then a court may be justified in suspending theexhausting requirement. See 463 Mass. at 480. But these tests are not substitutes
for the standards that determine whether to issue a preliminary injunction.
None of the decisions cited by Robinhood involved the issuance or affirmance-5-

of an injunction staying a pending administrative proceeding until a court
resolves a relevant legal question.3
As noted above, the Security Division asserts three claims against Robinhood,
only one of which is based on an alleged violation of the fiduciary duty rule.
If the Court were to strike down the challenged regulation, the Division would
still be entitled to press its separate claims that Robinhood’s alleged conduct
was nonetheless unethical or dishonest, and that Robinhood failed adequately
to supervise its employees and other agents to prevent them from engaging in
unethical or dishonest conduct.
The Legislature has given the Secretary full authority to enforce MUSA, subject
to judicial review of any final decision made by the Secretary in an adjudicatory
proceeding. See G.L. c. 110A, §§ 406–408, 411. There is a strong public interestin the Secretary engage in fair and prompt enforcement of MUSA. Enjoining
the Securities Division from adjudicating the two claims unrelated to thefiduciary duty rule would therefore not be in the public interest.
And if the enforcement action is to move forward in any case, Robinhood will
not suffer any irreparable harm from having to address the fiduciary duty
claim at the same time. Though Robinhood may suffer additional “expense anddisruption of defending itself” before the Division, that will not constituteirreparable harm. See Federal Trade Comm’n v. Standard Oil Co. of California,
449 U.S. 232, 244 (1980).

3Robinhood represented at oral argument that the Temple Emanuel trial court
had stayed the MCAD’s adjudicatory proceeding before deciding whether theministerial exception to antidiscrimination laws that is required by the First
Amendment to the United States Constitution applied, and that the SJC
approved of doing so. That is incorrect. The Superior Court docket for thatcase, civil action no. 0984CV01950-H, shows that the plaintiff had moved tostay the administrative proceeding, the Commission responded a few days
later by moving to dismiss, and within a few weeks the court entered judgmenton the merits in Temple Emanuel’s favor without ever acting on the motion tostay. Cf. Dwight v. Dwight, 371 Mass. 424, 426 (1976) (court may take judicial
notice of its own records). The SJC never said the case had been stayed orshould have been stayed. See 463 Mass. at 475. To the contrary, the SJC
concluded that “the judge should have abstained from deciding whether theministerial exception barred [the] discrimination claim until the commission
entered a final decision.” Id. at 483.
-6-Robinhood has therefore not shown that it is entitled to preliminary injunctive
relief. Since the public interest weighs against enjoining the entire
administrative proceeding, and Robinhood will suffer no irreparable if theCourt declines to enjoin the proceeding solely with respect to the fiduciary duty
claim, there is no need for the Court to determine whether Robinhood is likely
to succeed on the merits of its constitutional claims.
4. Further Briefing Requested. Having concluded that Robinhood may
challenge the fiduciary duty rule without waiting to exhaust any
administrative remedies, but also that it would be inappropriate to enjoin theSecurities Division from proceeding with the pending enforcement action, theCourt must decide whether this case should move forward to a declaration as
to whether the fiduciary duty regulation is valid, or whether it should be stayed
until the Division’s pending action is concluded.
To say the least, it would be unusual to stay a civil action to wait for resolutionof an administrative adjudicatory proceeding if the court determines that theplaintiff is not required to exhaust their administrative remedies. The “futility”
and “wide public significance” exceptions to the general exhaustion
requirement would have no practical effect in this case if the Court were to staythis action until the Security Division finishes its adjudicatory proceeding.
But “[t]here is a measure of discretion in deciding whether a case is appropriate
for declaratory relief.” City of Boston v. Keene Corp., 406 Mass. 301, 305 (1989).
Under G.L. c. 231A, § 3, “a judge has discretion to decline to grant declaratory
relief if persuaded that it will not serve a useful purpose.” Everett, 411 Mass.
at 369 (court did not abuse discretion in refusing to enter declaratory judgment
as to whether city could deduct portion of health insurance premium from payof union employees without violating collective bargaining agreement, andleave decision to Labor Relations Commission).
And since courts should avoid deciding constitutional questions“unnecessarily or prematurely,” Massachusetts Gen’l Hosp. v. C.R., 484 Mass.
472, 489 (2020), there is some logic to staying this action until the Securities
Division can complete its proceeding and decide these questions. The Division
could make findings and reach conclusions that would effectively moot
Robinhood’s legal challenge in this case. If the Division were to find orconclude that Robinhood’s conduct did not constitute the providing ofinvestment advice or recommendations, then the fiduciary duty rule would not
be implicated. That is not a pure question of law, because it turns at least in-7-

part on the exact nature of Robinhood’s communications and interactions with
its clients. Alternatively if the Division were to find or conclude that Robinhood
engaged in unethical or dishonest conduct even assuming that it owed nofiduciary duty to its customers, then whether Robinhood also violated thefiduciary duty rule may be beside the point.
The Court invites the parties to submit short additional briefing on whether
this case should be stayed or, alternatively, whether the Court should set aschedule providing for prompt resolution of Robinhood’s legal challenge to theSecretary’s fiduciary duty rule.

O RDER
Plaintiffs’ motion for preliminary injunction is denied. The parties shall submit
additional memoranda of law—to be filed by June 10, 2021, and not to exceed
ten pages each—addressing whether the court should or should not stay thisaction until there is a final decision in pending administrative proceeding, andwhat case schedule would be appropriate if this matter is not stayed. If theparties are able make a joint recommendation on any of these issues theyshould do so. A Rule 16 scheduling conference will be held on June 14, 2021,
at 2:00 p.m.
Kenneth W. Salinger
Justice of the Superior Court

May 27, 2021

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