United States District Court, D. Minnesota
GARY and CARYL LUIS, GARY A. MENTZ, MICHAEL J. and MERRI L. VITSE, individually and on behalf of all others similarly situated, Plaintiffs,
RBC CAPITAL MARKETS, LLC, Defendant.
E. Gustafson, Daniel C. Hedlund, David A. Goodwin, and Eric
S. Taubel, Gustafson Gluek PLLC, Gregg Martin Fishbein and
Vernon J. Vander Weide, Lockridge Grindal Nauen PLLP, Scott
D. Hirsch, Scarlett & Hirsch, P.A. for Plaintiffs.
J. Kaplan and Andrew W. Stern, Sidley Austin LLP, Clifford M.
Greene and Sybil L. Dunlop, Greene Espel PLLP, for Defendant.
MEMORANDUM OPINION AND ORDER
RICHARD NELSON, UNITED STATES DISTRICT JUDGE
action arises from a series of investments that Defendant RBC
Capital Markets, LLC (“RBC”) made for Plaintiffs,
involving security instruments called reverse controvertible
notes, or RCNs. Before the Court is RBC's Motion to
Dismiss the Amended Complaint [Doc. No. 22]. For the reasons
set forth below, RBC's motion is denied.
Previous Related Litigation
related previous action, a similar set of plaintiffs (which
included current plaintiffs Gary and Caryl Luis) filed a
class-action Complaint pleading seven claims based in
Minnesota state law, including common law negligence, breach
of fiduciary duty, and breach of contract. These plaintiffs
alleged that RBC engaged in a series of actions designed to
hide the true risk of these products from investors, while
pushing them on individuals who had expressly indicated an
unwillingness to partake in options trading. Luis v. RBC
Capital Mkts., LLC, No. 16-cv-00175, 2016 WL 6022909, at
*2 (D. Minn. Oct. 13, 2016).
moved the Court to dismiss the Complaint, arguing that it was
precluded under the Securities Litigation Uniform Standards
Act of 1998 (“SLUSA”), which
precludesmaintenance-in either federal or state
court-of any “covered class action” based on
state law and alleging either (a) a “misrepresentation
or omission of a material fact” in connection with the
purchase or sale of a covered security, or (b) the use or
employment of any “manipulative or deceptive device or
contrivance” in connection with the purchase or sale of
a covered security. 15 U.S.C. § 78bb)f(1); see
also 15 U.S.C. § 77p(b). This Court granted
RBC's motion and dismissed the complaint without
prejudice. Luis, 2016 WL 6022909, at *8.
in this matter are five individuals who opened investment
accounts with RBC. (Am. Compl. [Doc. No. 18] ¶¶
7-9.) They commenced this action on behalf of themselves and
the following putative class: “All persons and entities
to whom Defendant sold [RCNs] from January 1, 2008 to the
present, whose written instructions to RBC did not authorize
selling put options.” (Id. at ¶ 22.)
Plaintiffs estimate that the putative class may ultimately
consist of “several thousand” individuals.
(Id. at ¶ 25.)
RBC is a Minnesota limited liability company and a registered
broker-dealer, which acted as the agent for the sale of the
RCNs underlying this dispute. Luis, 2016 WL 6022909,
at *1. RBC is a subsidiary of non-party Royal Bank of Canada,
which issued the RCNs. Id.
Amended Complaint makes a single claim for breach of
contract. (Am. Compl. ¶¶ 35-40.) Plaintiffs allege
that each member of the putative class contracted with RBC to
give limited authority for trading in put options, which
excluded “uncovered” or “naked” put
options like those embedded in RCNs. (Id.
¶¶ 2-4.) Plaintiffs either completed an Options
Agreement, authorizing trade in some options but not
uncovered or naked put options, or, if they did not complete
the Options Agreement, they authorized no options trading at
all. (Id. at ¶ 4.) Despite these restrictions,
Plaintiffs allege that RBC “caused Plaintiffs and other
putative class members to issue/sell” RCNs to Royal
Bank of Canada, RBC's parent company, which then sold the
RCNs in the private market. (Id. at ¶ 19.) When
the price of the reference assets for the RCNs fell below the
predetermined value, ...