Lit Alerts—December 2021

Contracts: “A Contract’s Bad Grammar Does Not Necessarily Render It Ambiguous”

This month, the US Court of Appeals for the Sixth Circuit upheld the dismissal of a breach of contract claim brought by a former Rag-O-Rama LLC employee, ruling that the employee could not use a poorly-phrased sentence to transform her at-will employment into a guaranteed job.

According to the Sixth Circuit’s opinion, the plaintiff, Sally Hall, claimed that her associate manager contract with Rag-O-Rama included a guarantee that she would be in the associate manager role for at least one year. Hall maintained that this promise was reflected in the following sentence in her contract with Rag-O-Rama: “He/she is reminded of the non-competition clause guidelines, as well as, obligating associate managers and higher to one full year of employment on the management team at Rag-O-Rama.”

The Sixth Circuit rejected Hall’s argument. First, it noted that the use of “obligating” in the sentence appeared to refer to the associate managers, and therefore the contract placed a duty to continue to work for one year on associate managers—it did not impose any duty on Rag-O-Rama. Second, the court noted that, in Kentucky, employment contracts are presumed to be at will absent a clear statement to the contrary. The awkward clause that Ms. Hall relied upon did not meet this standard. Finally, the Sixth Circuit upheld the district court’s refusal to award fees to the employer, finding that “the poorly written contract gave Hall a legitimate basis for her contract theory.”

Antitrust: Robinhood Conspiracy Claims Dismissed Without Prejudice

Last month, Judge Cecilia M. Altonaga of the US District Court for the Southern District of Florida ruled that an antitrust class action complaint, amended once before, still failed to allege more than the "bare assertion" of a conspiracy to restrict purchases of certain stocks, during the January 2021 “meme stock” volatility, by E-Trade Securities LLC, Interactive Brokers LLC, and three clearing firms.

That ruling left defendants Robinhood and Citadel, the popular trading platform and market maker, who, the court noted, had exchanged "various vague and ambiguous emails" before and after Robinhood restricted trading of stocks like GameStop Inc. and AMC Entertainment Holdings Inc. The antitrust claims center on allegations that Citadel had a substantial short position in the meme stocks targeted by the buying frenzy, and pressured brokerages and clearing firms to restrict trading in those stocks in order to stem its losses.

The court framed the question as whether “a few vague and ambiguous emails between two firms in an otherwise lawful, ongoing business relationship [were] enough to nudge the plaintiffs' claims across the line from 'conceivable to plausible?'" Its answer: "The court thinks not."

The complaint lacked any details about the content of Robinhood and Citadel’s communications before and after the trading blackouts that would evidence any unlawful agreement between the parties. It also failed to explain why the brokerages or the three clearing firms (Apex Clearing Corp., Electronic Transaction Clearing Inc., and PEAK6 Investments LLC) would break the law and restrict trading "simply because Citadel Securities is an important business partner of the other defendants and might have suffered losses as a result of its short positions." The court found the investors' theory less plausible than the firms' stated reason for the buying blackouts: that volatility led the Depository Trust and Clearing Corp., which provides clearing and settlement services for US stocks, to ratchet up its collateral requirements for the brokerages and clearing firms, which responded by restraining purchases.

The court dismissed the complaint without prejudice, but gave the investors until December 20 to make a last attempt to plead antitrust claims. The multidistrict litigation also contains federal securities law claims, state law claims against Robinhood, and similar claims against other brokerages.

Class Actions: Case Stayed Where Plaintiff Could Potentially Join Class in Earlier-Filed Cases

This month, the US District Court for the Eastern District of California stayed a putative class action pending the resolution of all other similar actions in which the plaintiff was potentially a class member. The plaintiff, Christopher Murphy, brought a series of claims against the defendant for alleged violations of California labor laws. His suit was filed in March 2020, after four similar class actions were filed against the same defendant in other districts. The defendant moved to dismiss or, in the alternative, to stay the action under the “first-to-file rule.”

Under that rule, the district court may decline jurisdiction when a complaint involving the same parties and issues has already been filed in another district. The court examines three factors: (1) chronology of the lawsuits; (2) similarity of the parties; and (3) similarity of the issues. Here, the court found the first factor favored applying the rule because the other pending actions were filed before the instant action. For the second factor, the court rejected the plaintiff’s argument that class certification in the other actions was too speculative, instead asking whether the “putative classes seek to represent at least some of the same individuals.” Because Murphy might qualify to join at least two of the other putative classes, the court found the parties were similar under the rule. Finally, the court found that the issues were substantially similar among the cases because “the common facts across all claims would lead to the same central question across all actions.”

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.