The GameStop Saga lawsuits against Robinhood are starting their day in court – but there’s a big catch
When Robinhood suddenly imposed purchase restrictions during the height of the GameStop commercial frenzy in the first few months of 2021, users reacted with fury.
Now, the legal journey begins in earnest on Monday for these angry investors.
April 19 marked the initial hearing date following a court panel’s decision to consolidate nearly 40 lawsuits – and possibly more – before a Miami federal judge who will handle “multi-district litigation.” The expansion
The appeal drew nearly 140 lawyers and other eavesdropping participants, according to a tally from a court staff member responsible for logistics.
But there’s a big catch: If these complainants think investment decisions are complicated and don’t like slow responses to their decisions, well, experts say, they haven’t seen a thing yet.
“Even though this is all designed to speed up procedures, it still takes forever. These cases last for years, ”said Sergio Campos, a professor at the University of Miami Law School, who teaches civil procedure and complex litigation. “The complexity of the issues alone suggests that we are looking for years.”
The January and February trading frenzy – fueled, at least in part, by members of Reddit’s WallStreetBets forum – gave a massive price increase to heavily bypassed stocks like GameStop.
and AMC Entertainment
But as volatility intensified, trading platforms like Robinhood, the brokerage app popular with young investors, applied temporary trading restrictions.
Vladimir Tenev, co-CEO of Robinhood, would later tell lawmakers that his company needed to take this step to raise capital from its own investors because it met its collateral requirements on the tower of trades.
“Despite the unprecedented market conditions in January, at the end of the day what happened is unacceptable to us,” Tenev said. said at a hearing in February before the House of Representatives Financial Services Committee. “To our customers, I am sorry and I apologize.”
Other brokerage platforms including TD Ameritrade and Webull, also temporarily applied certain restrictions. Spokesmen for Robinhood, TD Ameritrade and Webull declined to comment on the dispute.
Tenev’s apology has failed to appease some aggrieved investors, and class actions have erupted from California to Connecticut, Texas to Florida.
The lawsuits have their differences, but they all revolve around the allegation that brokerage platforms have broken their promise with users to let them trade as they see fit, according to court documents.
Some also allege that Robinhood restricted trading to help institutional investors – an allegation that Robinhood lawyers have called “unfounded (and implausible)” in one filing.
This is where a procedural but significant step comes in.
The corporate defendants, ultimately Robinhood, supported the idea of centralizing proceedings in a single courthouse. (Most cases only name Robinhood as a defendant, but court documents indicate that other cases involve more than 40 brokers, funds, and clearing houses.) Most plaintiffs also supported the idea.
On April 1, a panel of three judges approved the approach.
“Considering the number of parties and lawyers, centralization is the only practical way to coordinate the pre-trial proceedings in this litigation,” the three judges wrote in a file titled “In Re: January 2021 Short Squeeze Trading Litigation”.
The panel counted 39 pending cases in 14 different jurisdictions. The parties alerted the court to 15 other related cases ahead of its decision.
The panel turned over the basket of cases to District Court Judge Cecilia Altonaga, sitting in the Southern District of Florida. Ten of the actions are pending in Florida and four have been filed in the Altonaga courthouse.
Altonaga is a “competent lawyer with experience in multidistrict litigation,” the panel wrote. Past cases of the judge, appointed during the George W. Bush administration, include a multidistrict case related to cream for dental prostheses.
The panel wrote that it was “confident that Justice Altonaga will conduct this litigation on an efficient and prudent path.”
So where to go next? Sequence of events matters to Robinhood as she prepares for an IPO and wrangles with Massachusetts regulators who say she puts her own interests ahead of clients. This is also important for newbie investors who learn the market and say that Robinhood’s restrictions are putting them at a disadvantage.
‘She has the power to do everything from soup to nuts’
Multi-district litigation may be new to young investors, but it is not new to the federal court system, which applies the approach when widespread events trigger lawsuits. This includes events such as defective consumer products, unsafe drugs, or data breaches.
The courts had 187 multidistrict disputes on file as of mid-April, statistics show.
As of now, Altonaga has the ability to decide on important matters such as evidence disputes and class certification, said Victoria Sahani, professor and associate dean at Sandra Day O’Connor College of Law at Arizona State. University.
The judge can also rule on defense requests to dismiss the case before trial, Sahani said.
“She has the power to do everything from soup to nuts,” Sahani said.
Once all pre-trial issues are resolved, the parties may choose to stay with Altonaga for the trial. Or the case can go back to the original court where it was filed – that is, if the case even goes to trial. Few civil cases come to this point, whether due to a settlement or a termination, Sahani noted.
Robinhood’s lawyers are betting the business won’t go far. “We will not get the motions to reject,” Kevin Orsini, partner at Cravath, Swaine & Moore, Robinhood’s lawyer, said at Monday’s court conference. Robinhood had important factors like Securities and Exchange Commission statements and court rulings on his side, he said.
The plaintiffs’ side asked to defer Monday. “We think Robinhood and the brokers aren’t allowed to do what they’ve been doing,” said Jeffrey Klafter, of Klafter Lesser.
Cases can also end up in an adjudicator’s office rather than a courtroom. Although some consumer advocates have said the arbitration is geared towards employers and businesses, businesses believe the process is fair. Robinhood has a arbitration clause, which is common in the brokerage industry. Class actions, however, can be a way around the clause.
But Sahani says the clause doesn’t automatically apply in a courtroom. “The only way arbitration is triggered is if one of the parties raises their hand,” she said. Altonaga would decide whether to grant these motions to force arbitration, Sahani said.
A bill introduced last week on Investor Choice Law, would prevent dealers and investment advisers from resorting to compulsory arbitration.
When cases are grouped together for efficiency, so is legal representation. As a result, steering committees of attorneys for the main plaintiffs are formed as part of the multi-district litigation process.
Yet, if a complainant signs up with a lawyer, how can they know that senior lawyers will represent them with equal interest?
“It has become a pretty contentious issue,” Campos said. For the complainants involved, “it can be a bit confusing”.
The concern about representation is fair, says Matthew Wilson, director at Meyer Wilson in Columbus, Ohio, where he represents investors and consumers in class action cases.
However, all class action lawyers have a duty to best defend anyone who comes into their case, he said. Class members also retain the right to refuse to accept any proposed settlement, Wilson noted.
Wilson is representing investors in a different case against Robinhood arising from service outages in 2020 on the platform. The dispute is waiting in the Northern District of California.
He said if he did it his way, there wouldn’t be things like compulsory arbitration. A client should be able to decide whether they want to resort to arbitration or legal action after a dispute has arisen, he said.
“We are not yet living in this world. Otherwise, that’s what you get, ”he said.
Monday’s court date discussed who would be lead counsel and how the cases would be consolidated, based on their allegations. Lawyers for the plaintiffs will submit documents on the proposed lead lawyers by the end of this week and early next week.