In re Robinhood Cash Sweep Program Litigation

Background

Robinhood allows investors to trade securities through its website and mobile application. Customers may enroll in a program under which Robinhood deposits their uninvested funds into bank accounts that earn interest. Robinhood pays customers interest while retaining part of the interest as a fee. Plaintiff Basudeb Dey sued over Robinhood’s alleged practice of keeping nearly all of the interest and paying customers only a small fraction. The case was later consolidated with a separate lawsuit brought by Plaintiff Sean Deeney, and Plaintiffs filed a consolidated operative complaint.

Most of Dey’s claims had already been dismissed with permission to amend. Robinhood moved to dismiss the consolidated complaint.

Court’s analysis

The court dismissed the breach-of-fiduciary-duty, gross-negligence, and negligent-misrepresentation-and-omission claims without leave to amend because Plaintiffs said they were preserving those claims only for the record and were no longer actively pursuing them. The court also dismissed all claims to the extent they were asserted against Robinhood Markets, Inc., without leave to amend.

The court allowed most of Plaintiffs’ claim under California’s Unfair Competition Law to proceed. Robinhood argued that the claim required Plaintiffs to allege reliance because the allegations sounded in fraud. The court disagreed as to the claim’s unfairness theory, explaining that Plaintiffs alleged Robinhood unfairly kept nearly all of the interest earned on customers’ deposited funds, rather than alleging that Robinhood’s conduct was based on fraud or misrepresentations. The court dismissed the Unfair Competition Law claim without leave to amend only to the extent it was based on alleged fraudulent concealment, because Plaintiffs did not dispute that they had not adequately alleged reliance. The court also found that Plaintiffs adequately alleged that legal remedies were insufficient because the Unfair Competition Law claim covered conduct broader than the conduct covered by their claim for breach of the implied promise of good faith and fair dealing.

The court declined to reconsider its earlier determination that the implied-covenant claim was adequately pleaded. Robinhood argued that Dey’s alleged failure to review certain contract provisions defeated an analysis based on customers’ reasonable expectations. The court found that the operative complaint did not concede that Dey had never reviewed those provisions and stated that his review of them was not an element of the claim.

Plaintiffs abandoned their request for injunctive relief in their opposition brief. The court therefore dismissed that request without leave to amend.

Disposition

Judge Rita F. Lin granted in part and denied in part Robinhood’s motion to dismiss. The breach-of-fiduciary-duty, gross-negligence, and negligent-misrepresentation-and-omission claims were dismissed without leave to amend. All claims against Robinhood Markets, Inc. were dismissed without leave to amend. The Unfair Competition Law claim was dismissed without leave to amend to the extent based on fraud allegations and otherwise survived dismissal. The implied-covenant claim survived dismissal, and the request for injunctive relief was dismissed without leave to amend.