Broker-Dealer Litigation - Greenberg Traurig LLP

provided clearing and execution services for accounts opened with it by the fund’s principal and
manager, and provided them software allowing them to execute trades. Plaintiffs brought suit
under the Oklahoma Uniform Securities Act of 2004, specifically Oklahoma Statute
Section 1-509(G), which imposes joint and several liability “to the same extent” as those liable
for conducting an unlawful sale of securities, and those who materially aid “in the conduct giving
rise to a liability.” The issues on appeal relevant to defendant clearing broker’s liability were
whether plaintiffs had a cause of action under the Oklahoma Uniform Securities Act, and
whether the Federal Commodities Exchange Act preempted the Oklahoma state court’s exercise
of jurisdiction. The court found that because plaintiffs’ claims against defendant clearing broker
arose solely from commodity transactions, the Oklahoma Uniform Securities Act was
inapplicable; Congress had placed jurisdiction over private rights of action in violation of federal
commodities regulations solely within the federal district court. As such, plaintiffs’ causes of
action against defendant clearing broker were preempted. As no further amendment of their
petition could cure this jurisdictional defect, defendant’s motion for summary judgment was
granted and plaintiffs’ claims were thereby dismissed as a matter of law.
H. Secondary Liability
1. Respondeat Superior
City of Roseville Employees Ret. Sys. v. Horizon Lines, Inc., 2011 U.S. App. LEXIS 17701 (3d
Cir. June 23, 2011).
Defendants pleaded guilty to price fixing. Plaintiffs sued for losses under the doctrine of
respondeat superior. The district court dismissed the claims, finding an insufficient showing of
scienter. Plaintiffs appealed the district court’s dismissal of securities fraud allegations arising
out of the defendant’s statements that defendant corporation was financially healthy when that
wellbeing was based on price fixing and not other reasons identified. With regard to the
defendant corporation, the district court found plaintiffs did not allege that an individual
defendant made material false statements on behalf of the corporation that were relied upon by
plaintiffs, and acted with scienter. The appellate court agreed with the district court’s reasoning
that securities fraud allegations require heightened pleading, including alleging a strong
inference that the defendant acted with scienter. The district court found no strong inference of
the requisite state of mind as to the senior executives, and therefore the defendant corporation’s
scienter could not be based on an individual’s scienter. While plaintiffs argued that scienter
could be attributed to the defendant corporation without pleading a successful claim against an
underlying individual, the district and appellate courts disagreed. The appellate court determined
that the facts as alleged would not survive a motion to dismiss even if no individual was needed.
The dissent believed the plaintiffs alleged sufficient facts to show an inference that defendant
senior executives acted with scienter. The defendant also noted that the Seventh Circuit has
approved the doctrine of respondeat superior in determining whether an individual defendant’s
scienter could be attributable to the corporate defendant and did not interpret Congress’
heightened pleadings requirement as a bar against pleading corporate scienter in the absence of
establishing a named executive officer’s scienter.
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