A handful of Tampa law firms have joined a frenzy of legal action against the stock-trading app Robinhood after it froze users’ ability to buy and sell GameStop stock during a trading spree that roiled Wall Street last week.
At least three federal lawsuits have emerged from Tampa accusing the app of negligence and breach of contract and fiduciary duty. Nationwide, at least 25 groups of plaintiffs in 11 states had filed lawsuits against Robinhood since last week, according to a review Monday of federal court filings. More lawsuits are likely, at which point they could be combined into a single class-action lawsuit on behalf of users who believe they were cheated out of a fair shot at the marketplace.
If that happens, one local law office is angling for a lead role in litigation.
Shumaker, Loop and Kendrick, an Ohio firm whose largest office is in Tampa, called Robinhood’s actions an “unconscionable restriction of customer finances,” in its lawsuit filed last week. It is seeking at least $5 million on behalf of three users in Florida and California.
“We had been following it for the last week, following Reddit, following the memes, figuring out what was going on,” said Brandon Taaffe of Shumaker, Loop and Kendrick “As soon as there was a Robinhood-related issue, we were able to jump on it.”
As Shumaker’s suit and others laid out, Robinhood halted transactions of certain stocks during a volatile stretch of trading last week. The primary stock was of video game retailer GameStop, which got caught between hedge fund managers betting the stock would go down and Internet-savvy retail investors — i.e. Robinhood users — buying shares to pump it back up. GameStop stock hit record highs on Jan. 27; the next morning, Robinhood users reported being unable to buy or move GameStop stock. That freeze, the lawsuits say, may have cost shareholders the chance to sell high.
In a blog post last week, after lawsuits had been filed, Robinhood wrote that the freeze was unavoidable, as it did not have the capital on hand required by law to back the transactions.
“Robinhood had, all along the way, all the warning signs that they were going to run into these issues, and they didn’t act until it damaged all of their clients,” Taaffe said. “The week before, they could have stopped taking new clients or new users, but their whole model, and tech’s whole model, is always to maximize users.”
This is the second time in the past year that Shumaker’s Tampa office has sued Robinhood. Last March, Shumaker sued the company after the app crashed at the outset of a day of heavy trading, preventing users from buying into a hot market.
That suit was transferred to another federal district in California, where it became part of a class-action suit and is slated to go to trial next year. Brandon Taaffe is a member of that legal team’s executive committee.
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Shumaker partner Michael Taaffe, Brandon’s father, believes their ongoing suit with Robinhood gives them a leg up to serve as lead counsel in what could be a high-profile case. Their suit included a plaintiff in California, where consumer protection laws are stronger, to help bolster their positioning, he said.
“The larger firms who have the capacity, like ours, to do big litigation like this, and experienced litigators who do this litigation daily, will end up over those who just filed a complaint in a one-off, small-firm type situation,” Michael Taaffe said.
Firms can negotiate among themselves who might be best equipped to front a multi-district, class-action lawsuit, but the decision ultimately will be up to a judge.
Janet Varnell of Tampa firm Varnell and Warwick, which specializes in consumer class-action litigation and sued Robinhood on behalf of a Pinellas County user, said attention to this case will be particularly high because of how connected and coordinated GameStop buyers were.
But she cautioned Robinhood users to be patient when weighing whether to sign onto any litigation.
“The wheels of justice turn slowly, so you’ve got to let the dust settle on this before you take a bunch of action,” Varnell said. “You’re not going to lose out by any stretch of the imagination. This is probably one of the best-represented classes of investors that I’ve ever seen, because there are so many law firms, and there’s so much attention to it.”