Harris v. Charles Schwab & Co.

Background

Jan Harris opened two brokerage accounts with Scottrade, Inc., Charles Schwab’s predecessor, in or about May 2004. In 2005, she purchased 2,420,000 shares of Bancorp International Group, Inc. Harris alleged that the shares remained listed on her account statements, but that she could not have them registered in her name because the Depository Trust Company had placed a global lock on them.

Harris filed this lawsuit on January 23, 2025. She asserted three claims: violations of Section 10(b) of the Securities Exchange Act and Rule 10b-3, violations of Section 10(b) and Rule 10b-5, and breach of trust. She alleged that Charles Schwab was holding the shares, refusing to execute a purchase order, and should return $17,236.53 to her account.

Scottrade and TD Ameritrade, Inc. merged in 2016, and the opinion states that TD Ameritrade was acquired by Charles Schwab in 2020. The court also noted that Harris had previously pursued multiple arbitrations and lawsuits involving the same Bancorp shares.

Motions and judicial notice

Charles Schwab moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. Charles Schwab argued that Harris’s claims were barred by the statute of limitations, meaning the applicable filing deadline. In the alternative, it asked the court to compel arbitration.

Charles Schwab also asked the court to take judicial notice of records from earlier federal, state, and Financial Industry Regulatory Authority proceedings. Judicial notice allows a court to consider certain facts or public records whose accuracy cannot reasonably be questioned. The court granted that request.

Harris argued that her claims were timely because Charles Schwab assumed responsibility for administering her accounts in 2023. She also argued that the discovery rule applied to her breach-of-trust claim and that each account statement containing the Bancorp position supplied a separate basis for the claim.

Court’s analysis

The court rejected Harris’s arguments. It adopted the reasoning of the Second Circuit in an earlier related proceeding, which had determined that claims concerning the Bancorp shares were time-barred. The court concluded that Harris could not restart the filing deadline by pointing to a new trustee or to the application of California law to the same shares.

The court found that Harris had known for many years that the shares were locked and could not be registered or traded. It also concluded that the account statements did not restart the filing deadline under the continuous-accrual doctrine because Harris had already litigated the refusal to register the same shares. The court further noted that Harris did not allege that Charles Schwab had bought, sold, distributed, or recommended new Bancorp shares or other securities.

Disposition

The court granted Charles Schwab & Co.’s motion to dismiss with prejudice on the ground that the lawsuit was barred by the statute of limitations. It denied leave to amend because the court found that amendment would be futile. The opinion does not state a separate ruling on the alternative request to compel arbitration. The court stated that it would enter judgment separately.