Robinhood Hit with Class Action Lawsuit Over App Outage [UPDATE]

After the parties agreed in May to resolve the Robinhood outage litigation, there are finally some numbers to put on the class action settlement. 

The proposed deal, which now heads to a judge for preliminary approval, is worth $9.9 million and covers approximately 150,000 Robinhood investors who court documents say collectively suffered $20.4 million in losses as a result of outages that plagued the platform in March 2020. This means Robinhood traders covered by the settlement will be able to recover just under 50 percent of their calculated losses linked to the outages, court documents say. 

If the deal is finalized, settlement payments will be distributed digitally or via check; there will not be a claim form. Those who are eligible for payment from the proposed settlement will be apprised of the amount they are owed in a notice sent to the email and physical address connected to their Robinhood account. 

The specific groups of Robinhood users who are covered by the proposed deal include: 

• Those who closed at least one position on March 3, 2020 at a loss relative to the volume weighted average price(VWAP) of those positions during the March 2 and March 3 outages;
• Those who held an SPDR S&P 500 option position expiring on March 2, 2020 and experienced a loss relative to the VWAP of those options during the March 2 outage; 
• Anyone who experienced a failed equity trade that became marketable during the March 2 and 3 outages at a loss relative to the price at the end of the outages and/or the transaction price obtained through March 4, 2020; and
• Anyone who experienced a failed equity trade that became marketable during the March 9 outage at a loss relative to the price at the end of the March 9 outage and/or the transaction price obtained through March 10, 2020. 

ClassAction.org will update this page if and when the proposed settlement receives preliminary approval and when the official settlement website—RobinhoodOutagesClassaction.com—goes live. 

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A settlement has been reached in principle to resolve class action litigation over the outages that hit the Robinhood stock trading platform in March 2020. 

On May 26, 2022, parties involved in the litigation submitted a four-page joint notice of settlement in principle that relays they will ask the court to preliminarily approve a more finalized deal within 60 days. The notice that was submitted to the court includes no specifics on the apparent settlement. 

ClassAction.org will update this page once details of the settlement become available. 

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Nearly a week after an amended complaint was filed for the suit detailed on this page, the case, Taaffe v. Robinhood Markets, Inc. et al., has been transferred from Florida to California federal court.

The updated suit, found here, has been amended to include counts alleging negligent misrepresentation and gross negligence. The complaint has also been updated to mention the communications sent from Robinhood to users offering a $75 goodwill credit.

Robinhood, the amended case alleges, “created a series of circumstances which, together, constituted an imminent or clear and present danger” with regard to its platform, which the defendants knew was “not properly equipped to support an increase in customer engagement if the stock market were to exhibit a high volume trading day." 

United States District Judge Charlene Edwards Honeywell’s order transferring the lawsuit can be found here.

On the same day the plaintiffs filed their amended complaint, a proposed class action filed March 6 in San Mateo County, California Superior Court was removed to the U.S. District Court for the Northern District of California. That case, Steinberg v. Robinhood Markets, Inc. et al., can be found here. 

United States District Judge Charlene Edwards Honeywell has denied the plaintiff’s request for an emergency temporary restraining order that would have blocked Robinhood from communicating with potential class members.

Judge Edwards found that the plaintiff fell short in showing that Robinhood’s communications threatened “the proper functioning of the litigation.” Further, the judge ruled the plaintiff failed to establish “a clear record of abusive communications” from Robinhood in that, for one, his motion leaned heavily on only his own declaration that the company’s communications were misleading and sent in an attempt to stamp out class claims.

Robinhood, in response to the plaintiff’s motion, assured that the company was “prepared to enter into a stipulation” stating they will enforce releases only in the context of individual lawsuits and arbitrations, i.e. “those outside the class action context.” Judge Edwards noted that given Robinhood’s response, it’s clear that a dispute exists regarding the purpose of the company’s communications with users.

The judge noted that in order to request the relief sought by the plaintiff, the individual must make an evidentiary showing. The plaintiff, however, did not request an evidentiary hearing, and instead “asks this Court to rush to an evidentiary determination and issue injunctive relief immediately based on an undeveloped record.”

The plaintiff behind the lawsuit detailed on this page has filed an emergency motion for a temporary restraining order and preliminary injunction over what he claims are “misleading communications” concerning a “goodwill credit” sent by Robinhood to users affected by early March’s platform outages.

In the motion, the plaintiff informed the court that he and his counsel have discovered Robinhood has undertaken efforts to “obtain a waiver of the claims brought in this case” by offering affected users a $75 “goodwill credit” in exchange for their signature on a “DocuSign” document. Unfortunately for potential class members, the motion says, the document provided by Robinhood includes “a complete waiver of rights” that is neither identified nor referred to in any way by the company. Similarly, Robinhood has made no mention to users of the claims outlined in the lawsuit described here, according to court documents.

“Defendants are attempting to mislead the putative class members into unknowingly waiving their rights to participate in the class action—whether they know it exists or not—in exchange for as little as a $75 credit,” the motion says. “Defendants’ conduct must not be allowed to continue. Neither the letter nor the release mentions this class action lawsuit.”

The motion goes on to argue that the $75 credit being offered by Robinhood is “grossly inadequate” given the extent of the monetary damages sustained by as many as 10 million users as a result of the outages. According to the plaintiff, the $75 olive branch “appears to be a very intentional determination of renumeration” in that it’s the same amount that Robinhood charges users to withdraw funds from the platform.

According to Law360, Robinhood representatives called the plaintiff’s motion “unnecessary” and claimed the $75 credits are a quick way to compensate users “without the burdens of the litigation process.” 

The plaintiff has asked the court to order Robinhood to cease sending “any further miscommunications” to prospective class members, to make each individual aware of the lawsuit detailed on this page, and to provide the plaintiff’s counsel’s contact information to each user. Importantly, the plaintiff has also asked the court to void any class releases entered into by a Robinhood user and the company since the filing of the lawsuit.

ClassAction.org will keep you updated on the Robinhood outage litigation as the cases roll on. Sign up for ClassAction.org’s newsletter here.

Robinhood has been hit with a proposed class action lawsuit in California over the outage that prevented users from accessing the securities brokerage platform starting on March 2, 2020.

The lawsuit looks to represent U.S. residents who, on March 2, 2020, held a covered short position or an options contract expiring on that date in a Robinhood trading account.

Read ClassAction.org’s write-up on the lawsuit here.