Court Opinion

ID: 4233445
Source: CourtListenerOpinion
Date Created: 2017-12-29 18:00:28.136189+00
Date Added: 2024-06-11T07:48:00.814236
License: Public Domain

FOR PUBLICATION

      UNITED STATES COURT OF APPEALS
           FOR THE NINTH CIRCUIT

FRANCIS X FLEMING, JR.,                No. 16-15179
             Plaintiff-Appellant,
                                         D.C. No.
                v.                   3:15-cv-02945-RS

THE CHARLES SCHWAB
CORPORATION; CHARLES SCHWAB
& CO., INC.; WALTER W.
BETTINGER II; UBS SECURITIES
LLC,
           Defendants-Appellees.

LOUIS LIM, Individually And On         No. 16-15189
Behalf Of All Others Similarly
Situated,                                D.C. No.
              Plaintiff-Appellant,   3:15-cv-02074-RS

                v.
                                        OPINION
CHARLES SCHWAB & CO., INC.,
           Defendant-Appellee.
2        FLEMING V. CHARLES SCHWAB CORP.

        Appeal from the United States District Court
           for the Northern District of California
         Richard Seeborg, District Judge, Presiding

           Argued and Submitted October 18, 2017
                 San Francisco, California

                    Filed December 29, 2017

 Before: Sandra S. Ikuta and Andrew D. Hurwitz, Circuit
     Judges, and Donald W. Molloy, * District Judge.

                   Opinion by Judge Hurwitz

                          SUMMARY **

        Jurisdiction / Securities Litigation Uniform
                       Standards Act

    The panel affirmed the district court’s dismissal of
putative class actions because the Securities Litigation
Uniform Standards Act (“SLUSA”) deprived the court of
subject matter jurisdiction.

    Plaintiffs are Charles Schwab Corporation retail
customers who alleged a breach by a securities dealer of the

    *
     The Honorable Donald W. Molloy, United States District Judge for
the District of Montana, sitting by designation.
    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
        FLEMING V. CHARLES SCHWAB CORP.                       3

“duty of best execution” in completing trades. Schwab is a
financial services firm that trades securities for its clients,
and in 2004 it agreed to route 95% of its “non-directed
trades” to UBS Securities LLC. Plaintiffs alleged that
Schwab breached various state-law duties by routing trades
to USB.

    SLUSA bars jurisdiction over any claim that could give
rise to liability under § 10(b) of the Securities Exchange Act
of 1934 and Rule 10b-5, even if the alleged conduct also
gives rise to a state-law cause of action.

    The panel held that the plaintiffs had Article III standing.
The panel held that the complaints alleged both
particularized and concrete injuries – higher execution prices
than might have occurred with a different market center, and
thus the complaints alleged the required injury in fact.

    The panel held that plaintiffs’ claims were barred by
SLUSA. Specifically, the panel held that all of plaintiffs’
pleaded causes of action alleged deceptive conduct
actionable under federal securities law. The panel also held
that the challenged conduct occurred “in connection with the
purchase or sale of” a security. The panel further held that
plaintiff Francis Fleming’s claims against UBS pleaded a
“manipulative or deceptive device or contrivance in
connection with the purchase or sale of a covered security,”
and was SLUSA-barred.
4       FLEMING V. CHARLES SCHWAB CORP.

                       COUNSEL

Andrew Love (argued) and Susan K. Alexander, Robbins
Geller Rudman & Dowd LLP, San Francisco, California;
Juan Carlos Sanchez, Ashley M. Price, Benny C. Goodman
III, and Andrew J. Brown, Robbins Geller Rudman & Dowd
LLP, San Diego, California; Gerald L. Rutledge and Alfred
G. Yates Jr., Law Office of Alfred G. Yates Jr. P.C.,
Pittsburgh, Pennsylvania; for Plaintiff-Appellant Francis X
Fleming Jr.

Leslie E. Hurst (argued), Paula R. Brown, Thomas J.
O’Reardon II, and Timothy G. Blood, Blood Hurst &
O’Reardon LLP, San Diego, California; Leonid Kandinov,
Ashley R. Rifkin, Kevin A. Seely, and Brian J. Robbins,
Robbins Arroyo LLP, San Diego, California; David J. Harris
Jr., William R. Restis, and Jeffrey R. Krinks, Finkelstein &
Krinsk LLP, San Diego, California; for Plaintiff-Appellant
Louis Lim.

David C. Bohan (argued), Patrick M. Smith, Peter G.
Wilson, and Allison M. Freedman, Katten Muchin
Rosenman LLP, Chicago, Illinois, for Defendant-Appellee
UBS Securities LLC.

Gilbert R. Serota (argued) and Erica M. Connolly, Arnold &
Porter LLP, San Francisco, California; Lowell Haky and Mai
Klaassen, Charles Schwab & Co. Inc., San Francisco,
California; for Defendants-Appellees The Charles Schwab
Corp., Charles Schwab & Co. Inc., and Walter W. Bettinger
II.
        FLEMING V. CHARLES SCHWAB CORP.                     5

                         OPINION

HURWITZ, Circuit Judge:

    The issue for decision is whether the Securities
Litigation Uniform Standards Act (“SLUSA”), Pub L. 105-
353, 112 Stat. 3227, deprived the district court of subject
matter jurisdiction over complaints alleging a breach by a
securities dealer of the “duty of best execution” in
completing trades.     The district court dismissed the
appellants’ complaints pursuant to SLUSA. We affirm.

I. Background

    Charles Schwab Corporation is a financial services firm
that trades securities for its clients. In 2004, Schwab agreed
to route 95% of its “non-directed trades” (trades for which
clients have not selected another trading venue) to UBS
Securities LLC (“UBS”).

     Louis Lim and Charles Fleming (“Plaintiffs”) are
Schwab retail customers. Their Account Agreements state
that “Schwab routes equity and options orders for execution
to” UBS and note that “Schwab may receive remuneration
. . . from a market center to which orders are routed.”
Nonetheless, Plaintiffs alleged in separate complaints that
Schwab breached various state-law duties by routing trades
to UBS. Plaintiffs claimed that Schwab could have routed
trades to many other venues, and that its arrangement with
UBS sometimes resulted in unfavorable executions, both in
terms of price and speed.

   A. The Complaints

   On May 8, 2005, Lim filed a putative class action
complaint in the Northern District of California alleging that
6       FLEMING V. CHARLES SCHWAB CORP.

Schwab’s routing of order executions to UBS (1) violated
the California Unfair Competition Law (“UCL”), Cal. Bus.
& Prof. Code § 17200; (2) breached Schwab’s fiduciary
duty to its clients; and (3) unjustly enriched Schwab. Lim
alleged that Schwab’s common law “duty of best execution
in routing its clients’ orders” required Schwab to consider
numerous factors when routing client trades, including
“execution price, market depth, order size, and trading
character of the security.” By blindly routing non-directed
orders to UBS, Lim alleged, Schwab breached this duty.

    On June 24, 2015, Fleming filed a similar putative class
action complaint in the same court against Schwab and UBS.
Fleming alleged that Schwab (1) breached its contract;
(2) violated the UCL; (3) engaged in intentional
misrepresentation; and (4) engaged in negligent
misrepresentation. Fleming also alleged that UBS violated
the UCL.

    B. Procedural Background

    After the two cases were assigned to the same district
judge, Schwab and UBS moved to dismiss the complaints,
asserting that Plaintiffs lacked Article III standing or, in the
alternative, that SLUSA deprived the district court of subject
matter jurisdiction. The district court upheld the Plaintiffs’
standing, but dismissed both actions pursuant to SLUSA.
See Hampton v. Pac. Inv. Mgmt. Co., 869 F.3d 844, 847 (9th
Cir. 2017) (“[D]ismissals under SLUSA are jurisdictional.”).

II. Discussion

    A. Standing

    We must examine at the outset our power under
Article III of the Constitution to resolve these cases. See No
        FLEMING V. CHARLES SCHWAB CORP.                      7

GWEN All. of Lane Cty., Inc. v. Aldridge, 855 F.2d 1380,
1382 (9th Cir. 1988). Article III requires that a plaintiff
“show (1) she has suffered an ‘injury in fact’ that is
(a) concrete and particularized and (b) actual or imminent,
not conjectural or hypothetical; (2) the injury is fairly
traceable to the challenged action of the defendant; and (3) it
is likely, as opposed to merely speculative, that the injury
will be redressed by a favorable decision.” Bernhardt v. Cty.
of L.A., 279 F.3d 862, 868–69 (9th Cir. 2002). The district
court found that “plaintiffs have adequately alleged the
existence of an injury in fact” and rejected the defendants’
standing arguments. We agree and review the district court’s
standing determination de novo. Arakai v. Lingle, 477 F.3d
1048, 1056 (9th Cir. 2007).

    The seminal inquiry is whether the alleged injury “is
both ‘concrete and particularized.’” Spokeo, Inc. v. Robins,
136 S. Ct. 1540, 1545 (2016) (quoting Friends of the Earth,
Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180–
81 (2000)). Although related, concreteness and particularity
are distinct concepts. Id. at 1548. Particularized injuries
“affect the plaintiff in a personal and individual way,” while
a “concrete injury must be de facto; that is, it must actually
exist.” Id. (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555,
560 n.1 (1992)) (internal quotation marks omitted).

    Fleming’s complaint alleged that because of the Schwab-
UBS agreement, he “missed opportunities to profit when
[his] trades failed to be executed or failed to obtain the best
price,” and cited academic work supporting his contention
that the agreement affected execution prices. Similarly,
Lim’s complaint alleged “Schwab’s routing of nearly all
[Plaintiffs’] non-directed orders to UBS does not allow
[Plaintiffs] to receive the most advantageous prices for their
trades” and that UBS “regularly and routinely executes
8       FLEMING V. CHARLES SCHWAB CORP.

[Plaintiffs’] trades at price less favorable than the best price
available in the broader marketplace.”

    The complaints alleged both particularized and concrete
injuries—higher execution prices than might have occurred
with a different market center. The complaints thus alleged
the required injury in fact. That the eventual monetary
damage arising from Schwab’s conduct may be small does
not negate Plaintiffs’ standing. See Czyzewski v. Jevic
Holding Corp., 137 S. Ct. 973, 983 (2017).

    Schwab asserts that Article III is not satisfied because
Plaintiffs have not identified particular trades that caused
them losses. But, the complaints alleged that at least some
of the Plaintiffs’ trades were more costly and less
expeditious than they would have been if not routed to UBS.
Whether the Plaintiffs can identify those trades at a later
stage of litigation does not deprive them of standing to sue.
At the motion to dismiss stage, “we presume[ ] that general
allegations embrace those specific facts that are necessary to
support the claim.” Lujan, 504 U.S. at 561 (alteration in
original) (quoting Lujan v. Nat’l Wildlife Fed’n, 497 U.S.
871, 889 (1990)) (internal quotation marks omitted).

    Contrary to the defendants’ assertions, Spokeo does not
require a contrary result.       Spokeo merely reiterated
longstanding Article III jurisprudence requiring both
concrete and particularized harms. See 136 S. Ct. at 1548
(“We have made it clear time and time again that an injury
in fact must be both concrete and particularized.” (italics in
original)). Thus, “a bare [statutory] procedural violation,”
such as an improperly reported zip code by a consumer
reporting agency, cannot by itself give rise to concrete harm.
Id. at 1550. But here, Plaintiffs alleged more—overpaying
for securities trades and losses from trades not executed
          FLEMING V. CHARLES SCHWAB CORP.                                9

promptly. Those concrete injuries, if proved, are redressable
through monetary damages. 1

    B. SLUSA

         1. Background

    In the early 1990s, Congress became concerned that
“private securities litigation was . . . being used to injure the
entire U.S. economy.” Merrill Lynch, Pierce, Fenner &
Smith Inc. v. Dabit, 547 U.S. 71, 81 (2006) (internal
quotation marks and citations omitted). To stem abuses from
“nuisance filings, targeting of deep-pocket defendants,
vexatious discovery requests, and manipulation by class
action lawyers of the clients whom they purportedly
represent,” Congress passed the Private Securities Litigation
Reform Act of 1995 (“PSLRA”), Pub. L. 104-67, 109 Stat.
737. Dabit, 547 U.S. at 81 (internal quotation marks
omitted). PSLRA imposed heightened pleading standards
for claims under § 10(b) of the Security Exchange Act of
1934 and Rule 10b-5. 2 See 15 U.S.C. § 78u-4(b). But,

    1
       UBS also argues that Fleming lacks standing to pursue injunctive
relief because he did not allege future harm. Although “[p]ast exposure
to illegal conduct does not in itself show a present case or controversy
regarding injunctive relief,” City of L.A. v. Lyons, 461 U.S. 95, 102
(1983) (alteration in original) (quoting O’Shea v. Littleton, 414 U.S. 488,
495 (1974)), Fleming alleged that the challenged practices continue. A
plaintiff alleging “continuing, present adverse effects” of challenged
conduct has standing to pursue injunctive relief. Id.

    2
      Section 10b of the Securities Exchange Act of 1934, Pub. L. 73-
291, 48 Stat. 881, prohibits the use of “any manipulative or deceptive
device or contrivance in contravention of such rules and regulations as
the [Securities and Exchange] Commission may prescribe.” 15 U.S.C.
§ 78j(b). Rule 10b-5 prohibits employing devices or schemes to defraud,
10           FLEMING V. CHARLES SCHWAB CORP.

PSLRA had the unintended effect of encouraging claims
under state securities laws, which were not subject to the
new pleading rules. Dabit, 547 U.S. at 82.

    Seeking “to prevent state class actions alleging fraud
‘from being used to frustrate the objectives’ of [ ] PSLRA,”
Congress enacted SLUSA in 1998. Freeman Inv., L.P. v.
Pac. Life Ins. Co., 704 F.3d 1110, 1114 (9th Cir. 2013)
(quoting H.R. Conf. Rep. 105–803 (1998)). “SLUSA bars
private plaintiffs from bringing (1) a covered class action
(2) based on state law claims (3) alleging that defendant
made a misrepresentation or omission or employed any
manipulative or deceptive device (4) in connection with the
purchase or sale of (5) a covered security.” Id. (citing
15 U.S.C. § 78bb(f)(1)). 3

making untrue statements or omitting statements of material fact to
mislead, or engaging in acts that “would operate as a fraud or deceit.”
17 C.F.R. § 240.10b-5(c).

     3
         In relevant part, §78bb(f)(1) provides:

            (f) Limitations on remedies

                (1) Class action limitations

                No covered class action based upon the statutory
                or common law of any State or subdivision
                thereof may be maintained in any State or Federal
                court by any private party alleging—

                     (A) a misrepresentation or omission of a
                     material fact in connection with the purchase
                     or sale of a covered security; or
        FLEMING V. CHARLES SCHWAB CORP.                      11

    Plaintiffs concede that their complaints involve
“covered” class actions based on state-law claims involving
“covered” securities. See 15 U.S.C. § 78bb(f)(5)(B), (E).
The disputed issue is whether the complaints also allege that
Schwab made “a misrepresentation or omission of a material
fact in connection with the purchase or sale of a covered
security.” 15 U.S.C. § 78bb(f)(1)(A).

       2. The Scope of SLUSA’s bar

     The text of SLUSA is substantially similar to that of
§ 10(b) and Rule 10b-5. See Chadbourne & Parke LLP v.
Troice, 134 S. Ct. 1058, 1074 (2014) (“[I]n designing
SLUSA, Congress imported the key phrase from § 10(b) . . .
and . . . Rule 10b-5 . . . .”) (internal quotation marks and
citation omitted); Dabit, 547 U.S. at 86 (noting that in
drafting SLUSA, “not only did Congress use the same words
as are used in § 10(b) and Rule 10b-5, but it used them in a
provision that appears in the same statute as § 10(b)”).
Accordingly, SLUSA bars jurisdiction over any claim that
could give rise to liability under § 10(b) or Rule 10b-5, even
if the alleged conduct also gives rise to a state-law cause of
action. Dabit, 547 U.S. at 84–86.

    However, a claim is not automatically SLUSA-barred
merely because it involves securities. See SEC v. Zandford,
535 U.S. 813, 820 (2002) (admonishing courts not to
interpret § 10(b) and Rule 10b-5 “so broadly as to convert
every common-law fraud that happens to involve securities
into a violation of § 10(b)”). A party who enters into an

               (B) that the defendant used or employed any
               manipulative or deceptive device or
               contrivance in connection with the purchase
               or sale of a covered security.
12      FLEMING V. CHARLES SCHWAB CORP.

agreement involving securities intending from the outset to
breach it has violated § 10(b) and Rule 10b-5 in addition to
breaching a contract. See Wharf (Holdings) Ltd. v. United
Int’l Holdings, Inc., 532 U.S. 588, 589–90 (2001) (holding
that “a company that sold an option to buy stock while
secretly intending never to honor the option” violates § 10(b)
and Rule 10b-5). But, if the contract dispute simply
concerns a “disputed truth,” not a misrepresentation or
omission, the SLUSA bar is not engaged. Freeman,
704 F.3d at 1114–16. Thus, for example, a claim that
Schwab charged Plaintiffs $10 for executing a trade, despite
a contract providing for a $5 charge, would not be barred.
Such a claim is not for a violation of federal securities
laws—there is no misrepresentation or omission—but
merely for breach of contract.

    In determining whether the SLUSA bar applies,
substance governs over form. Freeman, 704 F.3d at 1115
(“[P]laintiffs cannot avoid preclusion through artful
pleading that removes the covered words . . . but leaves in
the covered concepts.”) (second alteration in original)
(quoting Segal v. Fifth Third Bank, N.A., 581 F.3d 305, 311
(6th Cir. 2009)) (internal quotation marks omitted). Thus,
we must determine if the Plaintiffs’ claims, stripped of
formal legal characterization, could have been pursued under
§ 10(b) and Rule 10b-5. See Madden v. Cowen & Co.,
576 F.3d 957, 965 (9th Cir. 2009) (construing “the phrase ‘in
connection with the purchase or sale’ of securities in SLUSA
the same way we construe it in the Section 10(b) context”);
Falkowski v. Imation Corp., 309 F.3d 1123, 1129 (9th Cir.
2002), abrogated on other grounds by Proctor v. Vishay
Intertech. Inc., 584 F.3d 1208 (9th Cir. 2009) (“Just as the
Supreme Court observed that Section 10(b) should be
construed not technically and restrictively, but flexibly to
effectuate its remedial purposes, SLUSA should also be
          FLEMING V. CHARLES SCHWAB CORP.                             13

viewed as part of the remedial package of federal securities
laws and should be construed accordingly.”) (internal
quotation marks and citation omitted). 4

    C. Plaintiffs’ Claims

         1. Misrepresentation or omission prong

    The gravamen of each of Plaintiffs’ complaints, no
matter how legally characterized, is that defendants
intentionally breached a duty of “best execution.” We have
not yet addressed whether breach of the duty of best
execution violates federal securities law. But, four of our
sister circuits have held that breach of that duty can violate
§ 10(b) and Rule 10b-5 under certain circumstances. See
Kurz v. Fid. Mgmt. & Research Co., 556 F.3d 639, 640 (7th
Cir. 2009) (“Best execution . . . affects the net price that
investors pay or receive for securities and is accordingly
widely understood as a subject of regulation under the

     4
       See also Goldberg v. Bank of Am., N.A., 846 F.3d 913, 916 (7th
Cir. 2017) (per curiam) (“[I]f a claim could be pursued under federal
securities law, then it is covered by [SLUSA] even if it also could be
pursued under state contract or fiduciary law.”); In re Kingate Mgmt. Ltd.
Litig., 784 F.3d 128, 149 (2d Cir. 2015) (“SLUSA’s preclusion applies
when the state law claim is predicated on conduct of the defendant
specified in SLUSA’s operative provisions, which reference the anti-
falsity provisions of the 1933 and 1934 Acts.” (italics in original));
Rowinski v. Salomon Smith Barney Inc., 398 F.3d 294, 299 (3d Cir.
2005) (“Because SLUSA employs terms with settled meaning under
existing federal securities law, Congress evidently intended to preempt
those actions sufficiently ‘connected’ to a securities transaction to be
actionable under § 10(b) and Rule 10b-5.”); Cecilia A. Glass, Note,
Sword or Shield? Setting Limits on SLUSA’s Ever-Growing Reach,
63 DUKE L. J. 1337, 1376 (2014) (“If a claim could have been brought
in federal court under Section 10(b), that is the end of the inquiry—the
claim is preempted.”).
14      FLEMING V. CHARLES SCHWAB CORP.

Securities and Exchange Act of 1934 . . . .”) (internal
quotation marks and citation omitted); Gurfein v.
Ameritrade, Inc., 312 Fed. App’x 410, 412 (2d Cir. 2009)
(recognizing a duty of best execution under federal securities
law); Geman v. SEC, 334 F.3d 1183, 1187–88, 1192–93
(10th Cir. 2003) (affirming SEC decision that violation of
best execution duty violated federal securities laws); Newton
v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d
266, 269–72, 274–75 (3d Cir. 1998) (en banc) (recognizing
a § 10(b) claim for breach of duty of best execution). The
Securities and Exchange Commission has reached a similar
conclusion. See In re Morgan Stanley & Co., Exchange Act
Release No. 55,726, 2007 WL 1364323, at *8 (May 9, 2007)
(“Failure to satisfy the duty of best execution may constitute
a violation of . . . the Exchange Act . . . .”).

    To be sure, however, not every breach of the best
execution duty violates § 10(b) and Rule 10b-5 and is thus
subject to the SLUSA bar. For example, Schwab could
breach its best execution duty if its trading systems crashed,
but without more that breach would not involve
manipulative conduct in violation of § 10(b) or Rule 10b-5.
Rather, SLUSA only bars best execution claims “to the
extent that a best execution violation is based on fraud or
nondisclosure.” Thomas Lee Hazen, Treatise on the Law of
Securities Regulation § 14:121 (2017).

    Examining “the substance of the allegations” of
Plaintiffs’ complaints, Freeman, 704 F.3d at 1115, we
conclude that all of the pleaded causes of action allege
deceptive conduct. Fleming alleged that Schwab, putting its
own financial interests above those of the putative class,
“defrauded their clients by purporting to obtain best
execution for their clients’ trading orders while omitting to
disclose to their clients that nearly all trades are routed to
        FLEMING V. CHARLES SCHWAB CORP.                     15

UBS, regardless of any best execution consideration.”
Likewise, Lim charged that “Schwab lets its contractual
obligations [to UBS] determine its order routing decision,”
indicating that Schwab misleadingly failed to disclose its
intention to favor its own interests over those of its clients.
The district court correctly characterized the gravamen of
these complaints as “Schwab either misrepresented that best
execution would be achieved for its customers, or failed to
disclose that best execution was no longer possible.” “In
either case,” the district court properly concluded, “plaintiffs
are accusing Schwab of engaging in deceptive conduct.”

    Plaintiffs’ pleadings carefully allege at least several
causes of action whose elements do not include manipulative
conduct. But, the substance of all their allegations is that
Schwab, motivated by a conflict of interest, deceived
Plaintiffs into believing it would deliver best execution of
their trades but knew that sending all trades to UBS would
breach that duty. The complaints thus alleged a deceptive
practice actionable under federal securities law. See Holtz v.
JPMorgan Chase Bank, N.A., 846 F.3d 928, 932 (7th Cir.
2017) (“A fiduciary that makes a securities trade without
disclosing a conflict of interest violates federal securities
law. . . . [A] broker-dealer that fails to achieve best
execution for a customer by arranging a trade whose terms
favor the dealer rather than the client has a securities
problem, not just a state-law contract or fiduciary-duty
problem.”); cf Rayner v. E*TRADE Fin’l Corp., 248 F.
Supp. 3d 497, 503 (S.D.N.Y. 2017) (finding allegations “that
E*TRADE routed orders to maximize kickback revenue”
SLUSA-barred) (internal quotation marks omitted).

   Plaintiffs protest that “[l]abeling a willful failure to meet
a contract’s terms as deceptive conduct for SLUSA’s
purposes . . . would subject virtually every breach of contract
16      FLEMING V. CHARLES SCHWAB CORP.

claim in the securities context to a SLUSA bar.” However,
complaints merely involving contract interpretation that do
not allege deception or manipulation are not covered by
SLUSA even if they involve securities. Freeman, 704 F.3d
at 1115–16. And, only actions filed on behalf of a covered
class (more than fifty people) fall within SLUSA’s purview.
See Kircher v. Putnam Funds Tr., 547 U.S. 633, 636 n.1
(2006) (noting that SLUSA “does not itself displace state
law with federal law but makes some state-law claims
nonactionable through the class-action device”).

       2. In connection with prong

    Plaintiffs assert that even if their complaints allege
deceit, their claims are not SLUSA-barred because the
challenged conduct did not occur “in connection with the
purchase or sale of” a security. 15 U.S.C. § 78bb(f)(1). But,
the Supreme Court has read SLUSA’s “in connection with”
requirement      broadly,     finding     it   satisfied   if
misrepresentations simply “coincide with a securities
transaction.” Dabit, 547 U.S. at 77–78, 85 (internal
quotation marks omitted). The misrepresentation need only
“have more than some tangential relation to the securities
transaction.” Freeman, 704 F.3d at 1116 (internal quotation
marks and citation omitted); see also Chadbourne, 134 S. Ct.
at 1066 (holding that SLUSA’s “in connection with” prong
extends to “misrepresentations that are material to the
purchase or sale of a covered security”).

    That test is satisfied here. As the district court observed,
the complaints alleged that “the false promise of best
execution . . . induce[d] [Plaintiffs] to purchase or sell
securities through Schwab for a fee, and [ ] caused losses
directly resulting from what clients believed to be legitimate
securities transactions.” The net price obtained when
         FLEMING V. CHARLES SCHWAB CORP.                        17

purchasing or selling a security is plainly material to a buyer
or seller, and the alleged breach here coincided with
securities transactions. See Kurz, 556 F.3d at 641 (finding
that an argument “that the duty of best execution is not in
connection with the purchase or sale of securities . . . is
frivolous, given Dabit”) (internal quotation marks omitted);
Newton, 135 F.3d at 270 (holding breach of best execution
duty is “a material misrepresentation in connection with the
purchase or sale of the securities”); Rayner, 248 F. Supp. 3d
at 504 (holding that alleged breach of best execution duty
“plainly coincided with the securities transactions at issue”);
Zola v. TD Ameritrade, Inc., 172 F. Supp. 3d 1055, 1071
(D. Neb. 2016) (“Claims involving alleged violations of the
duty imposed on a broker to obtain best execution for
customers in executing portfolio transactions are claims ‘in
connection with’ the purchase or sale of securities for
SLUSA purposes.”). 5

    Plaintiffs assert that because the promise of best
execution does not induce clients to trade a particular
security, Schwab’s breach of its best execution duty cannot
be “in connection with” Plaintiffs’ trades. But SLUSA
requires only that “the misrepresentation makes a significant
difference to someone’s decision to purchase or to sell a
covered security.” Chadbourne, 134 S. Ct. at 1066. A
broker’s fraudulent claim that it is able to provide best
execution can surely be material to the client’s decision to
trade. Fleming claimed that he “missed opportunities to
profit when [his] trades failed to be executed or failed to
obtain the best price improvement.” Likewise, Lim alleged,

    5
     Because Chadbourne stated that “[w]e do not here modify Dabit,”
134 S. Ct. at 1066, we reject Plaintiffs contention that Chadbourne
amended the Dabit “coincide” standard.
18      FLEMING V. CHARLES SCHWAB CORP.

“Schwab’s routing of nearly all [Plaintiffs’] non-directed
orders to UBS does not allow [Plaintiffs] to receive the most
advantageous prices for their trades.” These allegations
make clear that if Schwab had not misled Plaintiffs into
believing that Schwab would obtain the best prices for
Plaintiffs’ trades, Plaintiffs would not have made those
trades. Therefore, Schwab’s fraudulent misrepresentations
were “in connection with” purchases of covered securities.
Plaintiffs cannot have it both ways—they cannot claim that
Schwab’s failure to provide best execution impacted their
securities trades while simultaneously claiming that the
breach of duty is not “in connection with” those trades.

    Finally, Plaintiffs assert that the misrepresentation must
relate to the “nature of the securities.”            Although
misrepresentations about the nature of a security are surely
“in connection with” that security, Falkowski, 309 F.3d at
1129–31, the in-connection prong can be satisfied otherwise.
“[T]he fraud in question need not relate to the investment
value of the securities themselves” but need only “have more
than some tangential relation to the securities transaction.”
Id. at 1131 (quoting Ambassador Hotel Co. v. Wei-Chuan
Inv., 189 F.3d 1017, 1026 (9th Cir. 1999)). The allegations
here overcome that slim hurdle.

       3. Fleming’s claims against UBS

    Fleming alleged that UBS violated the UCL by allowing
so-called “high frequency traders” access to Schwab’s order
flow, enabling them to engage in market manipulation. His
complaint contended that “[o]nce the trades from Schwab
are routed to UBS, they are vulnerable to multiple forms of
manipulation, resulting in a loss of profit opportunities for
Schwab clients.” The complaint thus plainly pleads a
“manipulative or deceptive device or contrivance in
           FLEMING V. CHARLES SCHWAB CORP.               19

connection with the purchase or sale of a covered security,”
and is SLUSA-barred. 15 U.S.C. § 78bb(f)(1)(B).

III.      Conclusion

       The judgment of the district court is AFFIRMED.