Wright v. Charles Schwab & Co., Inc.

Background

This was a putative class action concerning an alleged problem with Schwab’s online trading platform, StreetSmart Edge. Wright held a short position of 6,300 Royal Caribbean shares. He placed multiple buy orders that closed the short position but also created additional long positions. He later sold the resulting 31,500-share net long position for an alleged $10,000 loss.

The brokerage agreement required Wright to notify Schwab immediately if he did not receive an accurate order confirmation, received confirmation for an order he did not place, or became aware of a failure involving an electronic order. The agreement also required him to contact a Schwab representative if he wanted to change or cancel a market order. It warned that trying to cancel, replace, or change a market order electronically could result in duplicate orders for which Wright would be responsible.

Wright testified that the platform’s “close positions” button was unexpectedly unavailable. He manually entered buy orders instead and did not initially contact Schwab. The platform displayed warnings that asked him to review the order status to prevent duplication and informed him that his account held Royal Caribbean shares. He clicked through those messages. At 3:49 p.m., after placing additional orders, he contacted Schwab through the chat feature. A Schwab representative identified the position as boxed and helped flatten it.

Parties’ Positions

Schwab moved for summary judgment under Federal Rule of Civil Procedure 56. It argued that it executed Wright’s orders accurately and therefore did not breach the brokerage agreement. Schwab also argued that Wright failed to perform his contractual duty to notify Schwab after learning that there was a problem with his trades.

Wright did not dispute that the agreement required him to notify Schwab when he learned of a trading problem. He maintained that he did not initially know the platform was malfunctioning and believed the failed trades might have resulted from his own actions, an internet problem, or an order that Schwab had not received.

Court’s Analysis

Under California law, a breach-of-contract claim requires a contract, performance by the plaintiff or an excuse for nonperformance, a breach by the defendant, and resulting damages. The court explained that a party who does not perform under a contract and has no excuse for that nonperformance cannot establish a breach-of-contract claim.

The court found that Wright knew there was a problem after the “close positions” button was unavailable, his first buy order did not produce the expected result, and he continued to see the short position. His own testimony showed that he suspected something was wrong and nevertheless tried additional orders instead of notifying Schwab. The court also relied on clickstream data showing that Wright was presented with the platform’s warning messages and clicked the buttons below them.

The court held that the agreement’s notice provision assigned the risk of this type of electronic-trading problem to Wright if he failed to contact Schwab. His delayed notice was equivalent to no notice under the circumstances. The court concluded that Wright, rather than Schwab, caused the damages by continuing to place trades, and that his failure to perform was not excused.

Disposition

Judge Laurel Beeler granted Charles Schwab & Co., Inc.’s motion for summary judgment. The order stated that the ruling disposed of ECF No. 78. The opinion does not separately describe a ruling on class certification.