Hillow is a retired businessman and sophisticated securities trader who has traded at high volumes for approximately 15 years. E*Trade is a Financial Industry Regulatory Authority ("FINRA") registered online broker-dealer. Plaintiffs began trading on E*Trade's securities trading platform (the "Platform") in early 2018. Plaintiffs indicate that the account at issue held over $3 million in March 2021, could trade on far more than this amount through margin lending, and the volume of account trading regularly exceeds $100 million per year. (Doc. 4 at ¶¶ 5-6).
at Page 2 of the EDMo MemoPlaintiffs claim that the Platform failed to accurately reflect the "cost basis" of Plaintiffs' positions because the Platform did not properly incorporate "wash sale" data. It is unnecessary at this juncture of the case to delve further into Plaintiffs' arguments regarding alleged inaccuracies on the Platform. Plaintiffs bring claims for Fraudulent Misrepresentation (Count I), Negligent Misrepresentation (Count II), Fraud (Count III), Securities Fraud and Violation of 15 U.S.C. § 78j (Count IV), and Negligence (Count V). Plaintiffs seek directly attributable damages of at least $3.5 million and market adjusted damages of over $15 million due to trading on inaccurate cost basis information. . . .
E*Trade has offered a Declaration by Erik Renga, its Executive Director of Operations.(Doc. 10-1). Renga's Declaration provides that Hillow opened an account for the Trust on December 12, 2017 and submitted an Account Application in connection with the opening. (Id. at ¶ 7). It appears clear that Hillow selected "Trust" when asked to identify the "[t]ype of account" in the Account Application. (Id. at 5). When individuals submitted an Account Application with E*Trade at this time, they were also required to accept the E*Trade Customer Agreement (the "Agreement"), which E*Trade made available for review via hyperlink. (Id. at ¶ 15). In submitting the Account Application, Hillow was required to "acknowledge that I have received, read, and agree to be bound by the terms and conditions as currently set forth in the [Agreement]." (Id. at 6). This page also included the following language in all capital letters: "I UNDERSTAND THAT THIS ACCOUNT IS GOVERNED BY THE PREDISPUTE ARBITRATION CLAUSE IN SECTION 12 OF THE E*TRADE CUSTOMER AGREEMENT." (Id.). It appears that the term "E*TRADE CUSTOMER AGREEMENT" is hyperlinked to the Agreement.1At the time Hillow completed the Account Application, the Agreement contained § 12 titled "Arbitration Agreement and Disclosures." (Id. at 25). This section of the Agreement included the following bolded language (hereinafter the "Arbitration Agreement"):
The Account Holder agrees to resolve by binding arbitration any controversy that may arise between E*TRADE and the Account Holder relating in any way to the Account Holder's relationship with E*TRADE, any Account held with E*TRADE, or any service provided by E*TRADE to the Account Holder. This arbitration agreement includes any controversy involving transactions of any kind made on the Account Holder's behalf by or through E*TRADE, or the performance, construction, or breach of this Customer Agreement or any other written agreement between E*TRADE and the Account Holder. Such arbitration will be conducted in accordance with the rules then in effect of FINRA unless the rules of another self-regulatory organization to which E*TRADE is subject mandate arbitration before that organization . . . . The Account Holder makes this arbitration agreement on behalf of itself and the Account Holder's heirs, administrators, representatives, executors, successors, assigns and together with all other persons claiming a legal or beneficial interest in the Account.
= = = = =Footnote 1: The Court notes that Plaintiffs have not alleged that the Agreement was not actually accepted by Hillow or properly incorporated into the Account Application. See Foster v. Walmart, Inc., 15 F.4th 860, 863 (8th Cir. 2021) ("[C]ourts rarely find problems with clickwrap agreements."); Major v. McCallister, 302 S.W.3d 227, 229 (Mo. Ct. App. 2009) ("Courts routinely enforce clickwraps."). It appears clear to the Court, and undisputed by Plaintiffs, that Hillow accepted the incorporated Agreement.
[F]irst, Plaintiffs contend that the Arbitration Agreement is unenforceable because E*Trade failed to comply with FINRA rules regarding predispute arbitration provisions. The Court will address this question first because it presents a threshold issue for compelling arbitration against either Hillow or the Trust. Second, the Trust contends that it never accepted the Agreement and therefore did not consent to the Arbitration Agreement.
The undisputed facts demonstrate that E*Trade may compel arbitration of Plaintiffs' claims. Hillow is a Trustee of the Trust with authority to act on its behalf by Plaintiffs' admission. In December 2017, Hillow opened the Account and accepted the Agreement, which contains the Arbitration Agreement. Hillow received multiple conspicuous Arbitration Notices in the course of opening the Account and accepting the Agreement. The Arbitration Agreement, which is located at § 12 of the Agreement, specifically binds "all other persons claiming a legal or beneficial interest in the Account." Hillow proceeded to change the Account name to that of the Trust and executed the Trust Application, which also included bolded references to the Agreement and its arbitration provision. In the Trust Application, Hillow affirmed that he had authority to apply for an account on behalf of the Trust. Plaintiffs, including the Trust, then traded millions of dollars' worth of securities on the Platform, which Plaintiffs could only access because they executed the Agreement.Plaintiffs now insist that the Arbitration Agreement is unenforceable because E*Trade failed to comply with FINRA Rule 2268 and never obtained the Trust's consent. These arguments cannot succeed as a matter of law based upon the undisputed facts before the Court. Plaintiffs have not demonstrated that FINRA Rule 2268 constitutes a contrary congressional command which can overcome the FAA's liberal policy favoring arbitration. As to the Trust, Hillow explicitly consented to the Agreement on behalf of the Trust when completing the Trust Application. The Arbitration Agreement would even be enforceable against the Trust absent the Trust Application because Hillow placed the Account in the Trust's name and the Trust directly benefitted from the Agreement by extensively trading on the Platform. In these circumstances, the Court finds that both Hillow and the Trust are subject to binding arbitration in accordance with the Arbitration Agreement.