Interactive Brokers seeks to take questions about software designers’ duty of care to Connecticut Supreme Court
The brokerage wants to know whether the law stipulates that a duty of care is owed by computer programmers and software designers or developers to the general public.
About a fortnight after a former customer of Interactive Brokers filed a status report alleging that the company is not producing all discovery materials as required by the Court, the brokerage has filed a set of documents with the Connecticut District Court, requesting clarification on certain legal matters.
These matters 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.
The documents filed with the District Court on December 9, 2019, and seen by FinanceFeeds, include a motion by the defendants – Interactive Brokers LLC, Interactive Brokers Group Inc, and Thomas Frank, for an 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.
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.
On November 22, 2019, Batchelar filed his answer to Interactive Brokers’ counterclaim with the Connecticut District Court. In his response to Interactive Brokers’ counterclaim, Batchelar argues that his claim against Interactive in his Second Amended Complaint (and any further amendments) is an affirmative defense and offset against Interactive’s claims.
According to Batchelar, the broker breached the contractual arbitration clause by bringing its counterclaims in this action.
Finally, Batchelar argues that Interactive’s liquidation of his account paid in full, or in part, the amount owed by him (if any). Accordingly, Batchelar insists that the counterclaim should be abated until the motion to certify has been decided in this case.