Opinion ID: 733378
Heading Depth: 3
Heading Rank: 1

Heading: Aggregation of Order Flow Payments.

Text: 24 BHC's primary argument emphasizes that order flow payments depend on the aggregate volume of trading orders provided to market makers and cannot be traced to specific orders placed by individual investors. Therefore, BHC asserts, the claim here is based on a common right in which each class member has a common and undivided interest; and because the claim seeks to capture the benefits that accrued to BHC from the aggregation of customer orders, the entire amount of the order flow payments should be considered in the aggregate for purposes of determining the amount in controversy. We disagree. 25 All of BHC's customers allegedly suffered similar losses due to BHC's handling of their securities trades; nonetheless, though their claims are asserted together in a class action, the plaintiffs never possessed anything in common prior to the litigation. The only right or title allegedly held by the customers is the right to sue BHC for the undisclosed extracontractual benefit that BHC derived from their securities trades; that right is distinct to each plaintiff, and is based on BHC's handling of that person's separate transactions. Had this case proceeded to the stage of class certification in either the state or federal court, it seems clear that each class member would have had the right to opt out of the class. 7 The facts that BHC pooled the plaintiffs' trading orders to receive benefits, and that the market makers conferred such benefits on the basis of the monthly volume of orders that they received, does not mean that the plaintiffs held joint title to the total volume of their orders or to the aggregate of the allegedly wrongful order flow payments generated by such volume. See Dumont v. Charles Schwab & Co., Inc., Civ. A. No. 95-0606, 1995 WL 262262, at  5 (E.D.La. May 4, 1995) (The fact that the order flow payment was in a lump sum is irrelevant--each of the plaintiff's claims [is] separate and distinct and based upon their own individual stock transactions through Schwab.). 8 26 The complaint alleges that BHC breached contractual and fiduciary duties to its customers by accepting the payment of cash ... in return for BHC executing the customer's order with [a] market maker.... [W]hen the plaintiff, or another class member, would execute an order[,] ... BHC would retain [an order flow payment] for its own benefit and not that of its customer. Joint Appendix at 12-13 (emphasis added). 9 On the face of the complaint, therefore, the plaintiffs' suit alleges that BHC's receipt of order flow payments harmed each individual customer in the conduct of that customer's individual securities transactions. Not coincidentally, the SEC regulations requiring disclosure of order flow payments compel brokers to disclose to their customers (in confirmation of securities transactions) not only whether payment for order flow is received by the broker or dealer for transactions in [that type of] securities, 17 C.F.R. § 240.10b-10(a)(7)(iii), but also--upon an individual customer's written demand--the source and nature of the payment for order flow [that is] received in connection with the particular transaction  of that individual customer. Payment for Order Flow, SEC Release No. 34-34902, 59 Fed.Reg. 55,006, 55,010 (Nov. 2, 1994) (emphasis added). 27 In short, although the class action device allows the plaintiffs to combine their claims for convenience, neither that form of action nor the nature of order flow payments permits the aggregation of the plaintiffs' separate and distinct claims so as to satisfy the amount in controversy. 28