Knowles v. TD Ameritrade Holding Corp., No. 19-3684 (8th Cir. 2021)
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The Eighth Circuit affirmed the district court's order dismissing with prejudice plaintiff's second amended complaint (SAC) against TD Ameritrade. Plaintiff's claims stemmed from a systemic glitch of TD Ameritrade's tax-loss harvesting tool (TLH Tool), which failed to reinvest plaintiff's funds in an effort to avoid violating the "Wash Sale Rule." Plaintiff filed a class action, alleging claims for breach of contract and negligence.
The court held that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) preempts plaintiff's class action claims because he failed to demonstrate these claims are rooted in a violation of any specific contract provision. The court explained that, while, on its face, the operative complaint focuses on TD Ameritrade's alleged improper administration of the TLH Tool, the allegations are insufficient to demonstrate TD Ameritrade breached any contract terms. Therefore, plaintiff's class action claims are rooted in TD Ameritrade's omissions in disclosing information about the operation of the TLH Tool, which triggers SLUSA preemption.
Applying Nebraska law, the court also concluded that plaintiff's contract claim was properly dismissed under Federal Rule of Civil Procedure 12(b)(6) where plaintiff failed to allege TD Ameritrade breached any contract terms or promises in the administration of the TLH Tool. Therefore, the allegations failed to provide TD Ameritrade with reasonable notice of the breach of contract claim as required by Rule 8. The court further concluded that the duty plaintiff alleges in his negligence claim arose out of the contract between the parties and thus activated the economic loss rule, which precludes a negligence cause of action. Finally, the court concluded that the district court did not abuse its discretion in dismissing the SAC with prejudice and denying leave to amend as futile.
Court Description: [Grasz, Author, with Benton* and Erickson, Circuit Judges] Civil case - Securities Litigation Uniform Standards Act. *Judge Benton recused himself from this case following oral argument, and the case has been decided by the two remaining judges pursuant to 8th Cir. R. 47E. The SLUSA preempts plaintiff's class action claims because plaintiff failed to demonstrate these claims are rooted in a violation of any specific contract provision, and the district court did not err in dismissing the class action claims; with respect to plaintiff's individual claims, the allegations failed to provide defendant with reasonable notice of plaintiff's breach of contract claim and that claim was properly dismissed under Rule 12(b)(6); the duty plaintiff alleged in his negligence claim arose out of the contract between the parties and thus activates the economic loss rule, which precluded a negligence cause of action; the district court did not abuse its discretion in denying plaintiff's motion for further amendment of the claims on the ground that any further amendment would be futile.
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