Ex-customer accuses Interactive Brokers of inappropriate attempt to forum shop

About one month after Interactive Brokers submitted a motion trying to certify a set of questions to the Connecticut Supreme Court, the motion has encountered the opposition of Interactive Brokers’ former customer Robert Scott Batchelar, who is suing the company over negligent position liquidation.

The matters at the heart of the questions are related to the allegations made by the plaintiff – Robert Scott Batchelar, who claims that Interactive’s trading software was negligently designed, which resulted in an automatic liquidation of the positions in his account that cost him thousands of dollars more than it should have.

Interactive Brokers seeks a Court order certifying the following questions to the Connecticut Supreme Court:

• Does Connecticut law recognize a general common law duty of care owed by computer programmers and software designers or developers to the general public?
• Under Connecticut law, does the “economic loss doctrine” act as a categorical bar to negligence claims – including claims related to the provision of brokerage services – where only economic losses, without property damage or physical injury, are alleged?

In this lawsuit, the only cause of action is for negligence, Interactive Brokers explains. Thus, if the answers to these two questions are in defendants’ favor, they will be dispositive of the plaintiff’s sole claim.

Earlier this week, Batchelar made clear his position regarding Interactive Brokers’ motion. According to him, the defendants’ motion to certify questions to the Connecticut Supreme Court should be denied “as an untimely and inappropriate attempt to forum shop”.

In effect, according to Batchelar, the defendants seek an interlocutory appeal to the Connecticut Supreme Court from this Court’s order denying their motion to dismiss. He notes that the defendants waited until after receiving an unfavorable ruling to make such a motion for certification.

According to the plaintiff, the defendants are also in error on the substantive questions. For instance, it may be conceivable that the Connecticut Supreme Court could find that there was no general duty by Interactive Brokers to the general public, the question that Interactive Brokers seeks to certify. That would not address, let alone disturb, the narrower duty a non-discretionary broker owes his client in executing liquidation trades, as the foundation of duty analysis is foreseeability, Batchelar argues.

He notes that the District Court did not find a general duty to the general public. Rather this Court expressly applied a well-recognized and narrower duty owed specifically by a non-discretionary broker to a client in executing a trade.

The plaintiff stresses that this case has been pending for four years. Five federal judges have reviewed one or another of the complaints. Discovery on the class certification issue is far closer to the end than the beginning.

“Put simply, the remaining issues should be resolved by this Court in the ordinary course, without the further delay of certifying questions to the Connecticut Supreme Court”, Batchelar concludes.

At the core of this lawsuit are events from August 2015. On August 24, 2015, Interactive’s software declared a margin deficiency in Batchelar’s account and began liquidating his positions. All that Batchelar held in his account at that time were positions in a security called “SPX put option”. Batchelar had short-sold these positions, so as the sale price went higher, he lost more money. After declaring a margin deficiency, the software began liquidating Batchelar’s positions. It started at 10:11:15 A.M. and ended at 10:31:37 A.M. In that time, Interactive’s software made fifty-one trades at prices ranging from $5.00 to $83.40 per unit. At one point, during a nineteen-second period, the software executed eight trades at prices ranging from $7.00 to $83.40 per unit. This was higher than the going market price for the securities at the time of the sale. Batchelar claims that those transactions disproportionate to the market cost him somewhere between $95,145 and $113,807.

In his Second Amended Complaint, Batchelar alleges that the auto-liquidation was “the result of negligent design, coding, testing and maintenance.” He alleges that the programming flaws were the result of Interactive’s failure to meet industry standards in its design and testing of the software and its failure to include certain instructions in the algorithm.

Interactive Brokers has failed to dismiss the lawsuit, and had to respond to the plaintiff’s complaint by November 1, 2019. The response included a counterclaim against Batchelar. Interactive Brokers LLC asserted a counterclaim for breach of contract against Batchelar to collect a current unpaid negative balance in his margin account of (-) $75,244.88, inclusive of unpaid fees and charges.