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Luis v. RBC Capital Markets, LLC

United States District Court, D. Minnesota

September 18, 2017

GARY and CARYL LUIS, GARY A. MENTZ, MICHAEL J. and MERRI L. VITSE, individually and on behalf of all others similarly situated, Plaintiffs,
v.
RBC CAPITAL MARKETS, LLC, Defendant.

          Daniel 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.

          Alex 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

          SUSAN RICHARD NELSON, UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION

         This 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.

         II. BACKGROUND

         A. Previous Related Litigation

         In a 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).

         RBC moved the Court to dismiss the Complaint, arguing that it was precluded under the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), which precludes[1]maintenance-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.

         B. The Parties

         Plaintiffs 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.”[2] (Id. at ¶ 22.) Plaintiffs estimate that the putative class may ultimately consist of “several thousand” individuals. (Id. at ¶ 25.)

         Defendant 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.

         C. Plaintiffs' Claim

         Plaintiffs' 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 ΒΆ 19.) When the price of the reference assets for the RCNs fell below the predetermined value, ...


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