John Doe v. Financial Industry Regulatory Authority Inc et al

Filing 21

ORDER GRANTING PLAITNIFFS MOTION TO REMAND 13 by Judge Dean D. Pregerson: The Court has no jurisdiction over this action and does not reach Defendants Motion to Dismiss. Said motion is VACATED 12 . The matter is remanded to the Los Angeles Superior Court, Central District, Case No. BC 516756. cc: order, docket, remand letter to Los Angeles Superior Court, No. BC 516756. (MD JS-6. Case Terminated). (Attachments: # 1 remand letter). (lc). Modified on 11/19/2013 (lc).

Download PDF
1 2 O 3 4 5 6 cc: order, docket, remand letter to Los Angeles Superior Court 7 No. BC 516756 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 JOHN DOE, 12 13 14 Plaintiff, v. FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC., 15 Defendant. 16 ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 13-06436 DDP (ASx) ORDER GRANTING PLAINTIFF’S MOTION TO REMAND [docket numbers 12 and 13] 17 18 19 Presently before the Court are Plaintiff’s Motion to Remand 20 and For Attorney’s Fees and Defendant’s Motion to Dismiss. For the 21 reasons stated below, Plaintiff’s Motion to Remand is GRANTED. 22 Plaintiff’s request for attorney’s fees is DENIED. Defendant’s 23 Motion to Dismiss is vacated as moot. 24 I. Background 25 Plaintiff John Doe (“Plaintiff”) is a financial advisor and 26 broker-dealer associated with Merrill Lynch. (Complaint ¶ 4.) 27 Defendant Financial Industry Regulatory Authority (“FINRA” or 28 “Defendant”), formerly known as the National Association of 1 Securities Dealers (“NASD”), is a self-regulatory organization for 2 broker-dealers. (Id. ¶ 1.) Under the Securities Exchange Act, 3 FINRA's duties include the duty to “establish and maintain a system 4 for collecting and retaining registration information” about 5 registered broker-dealers such as Plaintiff. 15 U.S.C. § 6 78o–3(i)(1)(A). “Registration information” includes information 7 about “disciplinary actions, regulatory, judicial, and arbitration 8 proceedings.” Id. § 78o–3(i)(5). FINRA fulfills this duty by 9 maintaining a database called the Central Registration Depository 10 (“CRD”), publicly available through FINRA BrokerCheck, which 11 contains disclosures relating to disciplinary actions or other 12 proceedings brought against financial advisors. (Complaint ¶¶ 2-3.) 13 Plaintiff alleges that he has seven disclosure items listed on 14 BrokerCheck as “customer disputes.” (Id. ¶¶ 6-7.) One disclosure 15 item is listed as “Customer Dispute - Settled” and the other six as 16 “Customer Dispute - Closed - No Action/Withdrawn/Dismissed/Denied.” 17 (Id.) Plaintiff alleges that in five of the seven cases, the 18 customers did not pursue their complaints after Merrill Lynch 19 responded to them. (Id. ¶ 30.) In one of the other cases, the 20 customer filed an arbitration against Merrill Lynch, but no payment 21 was made. (Id. ¶ 31.) The last item related to an alleged 22 administrative error. (Id. ¶ 32.) Plaintiff alleges that these 23 disclosures have caused him harm and serve no public policy 24 purpose, and requests that the Court use its equitable powers to 25 grant declaratory relief and expungement of these disclosure items. 26 (Id. ¶¶ 7-9.) 27 28 Plaintiff filed his complaint in the Los Angeles County Superior Court on July 31, 2013. (Notice of Removal ¶ 1.) Defendant 2 1 was served with a copy of the complaint on August 2, 2013. (Id.) 2 Defendant timely removed the action on September 3, 2013 on the 3 grounds of federal question jurisdiction. (Id.) 4 II. Legal Standard 5 A defendant may remove a case from state court to federal 6 court if the case could have originally been filed in federal 7 court. 28 U.S.C. § 1441(a); see also Snow v. Ford Motor Co., 561 8 F.2d 787, 789 (9th Cir. 1977). As the removing party, Defendant 9 bears the burden of proving federal jurisdiction. Duncan v. 10 Stuetzle, 76 F.3d 1480, 1485 (9th Cir. 1996); see also Matheson v. 11 Progressive Specialty Ins. Co., 319 F.3d 1089, 1090 (9th Cir. 12 2003). The removal statute is strictly construed against removal 13 jurisdiction, and federal jurisdiction must be rejected if any 14 doubt exists as to the propriety of removal. Gaus v. Miles, Inc., 15 980 F.2d 564, 566 (9th Cir. 1992) (explaining that courts resolve 16 doubts as to removability in favor of remand). 17 Federal question jurisdiction exists where a civil action 18 arises "under the Constitution, laws, or treaties of the United 19 States." 28 U.S.C. § 1331. “For a case to 'arise under' federal 20 law, a plaintiff's well-pleaded complaint must establish either (1) 21 that federal law creates the cause of action or (2) that the 22 plaintiff's asserted right to relief depends on the resolution of a 23 substantial question of federal law. Federal jurisdiction cannot 24 hinge upon defenses or counterclaims, whether actual or 25 anticipated.” K2 Am. Corp. v. Roland Oil & Gas, LLC, 653 F.3d 1024, 26 1029 (9th Cir. 2011). 27 28 Generally, even if federal question jurisdiction exists, state courts have concurrent jurisdiction over cases arising under 3 1 federal law. Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 2 477-78 (1981). However, “the presumption of concurrent jurisdiction 3 can be rebutted by an explicit statutory directive, by unmistakable 4 implication from legislative history, or by a clear incompatibility 5 between state-court jurisdiction and federal interests.” Id. at 6 478. 7 III. Discussion 8 9 10 Plaintiff argues that the action should be remanded to state court because this Court does not have jurisdiction over the action. 11 Under FINRA Rule 2080(a), “[m]embers or associated persons 12 seeking to expunge information from the CRD system arising from 13 disputes with customers must obtain an order from a court of 14 competent jurisdiction directing such expungement.” Under Rule 15 2080(b), a party seeking expungement must “name FINRA as an 16 additional party and serve FINRA with all appropriate documents 17 unless this requirement is waived.” Rule 2080 does not provide any 18 substantive standard for determining whether expungement is 19 appropriate or required. California has a state law cause of action 20 for expungement. See Lickiss v. FINRA, 208 Cal. App. 4th 1125, 1135 21 (2012). 22 Two federal district courts have squarely addressed the issue 23 of whether federal question jurisdiction exists where a broker- 24 dealer is seeking expungement of disclosures on CRD under a state 25 law cause of action; both courts concluded that no such 26 jurisdiction exists. In re Lickiss, 2011 WL 2471022 (N.D. Cal. 27 2011); Spalding v. FINRA, 2013 WL 1129396 (N.D. Ga. 2013). 28 // 4 1 2 A. Exclusive Jurisdiction Section 78aa of the Securities Exchange Act provides that 3 “[t]he district courts of the United States ... shall have 4 exclusive jurisdiction ... of all suits in equity and actions at 5 law brought to enforce any liability or duty created by this title 6 [15 U .S.C. §§ 78a et seq.] or the rules and regulations 7 thereunder.” 15 U.S.C. § 78aa(a). This includes violations of 8 duties established by FINRA’s rules. Sparta Surgical Corp. v. NASD, 9 Inc., 159 F.3d 1209, 1212 (9th Cir. 1998); see also Dobbins v. 10 NASD, 2007 WL 2407081, at *1-2 (N.D. Ohio 2007). However, it is 11 clear that there is not exclusive federal question jurisdiction 12 under the Securities Exchange Act for all claims relating to 13 securities. See Matsushita Elec. Indus. Co., Ltd. v. Epstein, 516 14 U.S. 367, 383 (1996); Dennis v. Hart, 724 F.3d 1249, 1254 (9th Cir. 15 2013). In order for there to be exclusive federal jurisdiction over 16 Plaintiff’s claims, Plaintiff’s lawsuit must seek to enforce a 17 “liability” or “duty” created by the Securities Exchange Act. 18 Plaintiff’s complaint seeks expungement, as well as related 19 declaratory relief. There is no “duty to expunge” under FINRA 20 rules. See Lickiss, 2011 WL 2471022, at *3. FINRA has a duty to 21 “collect[] and retain[] information” pursuant to the Securities 22 Exchange Act. 15 U.S.C. § 78o-3(i)(1)(A). Plaintiff, however, does 23 not seek enforcement of this duty; he is not bringing this action 24 to compel FINRA to “collect” or “retain” information. See Lickiss, 25 2011 WL 2471022, at *3. In both Lickiss and this case, FINRA has 26 failed to point to any other specific “duty” under the Act that 27 28 5 1 Plaintiff’s cause of action for expungement seeks to enforce.1 2 Therefore, there is no exclusive federal question jurisdiction over 3 Plaintiff’s cause of action for expungement. 4 B. Substantial Issues of Federal Law 5 Plaintiff brings a state law claim for expungement and a 6 related declaratory relief claim.2 Therefore, in order for this 7 Court to have jurisdiction over the action, there must be 8 substantial federal issues involved in the state law claim. 9 “Federal jurisdiction over a state law claim will lie if a federal 10 issue is: (1) necessarily raised, (2) actually disputed, (3) 11 substantial, and (4) capable of resolution in federal court without 12 disrupting the federal-state balance approved by Congress.” Gunn v. 13 Minton, – U.S. –, 133 S. Ct. 1059, 1065 (2013). 14 Defendant argues that Plaintiff’s claims for expungement and 15 declaratory relief “are based on FINRA’s failure to follow its 16 rules and fulfill its regulatory responsibilities.” (Opp. to Motion 17 to Remand, p. 18.) Defendant bases this argument primarily on 18 Plaintiff’s claim for declaratory relief, which “seeks a 19 declaration that the conduct alleged is not a ‘sales practice 20 1 21 22 23 24 FINRA argues that the Court should understand the “duty” requirement for exclusive jurisdiction more broadly, encompassing FINRA’s general duty to maintain CRD and retain or expunge the disclosures listed there. (Opp. to Mtn. to Remand, pp. 14-16.) However, Plaintiff’s complaint does not seek to challenge FINRA’s maintenance of the database. Therefore, the Court finds that Plaintiff’s complaint does not seek to enforce any “duty” of FINRA. 2 25 26 27 28 To the extent that Defendant argues that there is a federal cause of action for expungement, Plaintiff’s complaint will still not be construed as asserting a federal cause of action. “When a claim can be supported by alternative and independent theories one of which is a state law theory and one of which is a federal law theory - federal question jurisdiction does not attach because federal law is not a necessary element of the claim.” Rains v. Criterion Sys., Inc., 80 F.3d 339, 346 (9th Cir. 1996). 6 1 violation’ and was reported as such in error of law.” (Complaint ¶ 2 104.) Defendant argues that this raises a substantial issue of 3 federal law because Plaintiff “bases his Complaint on claims that 4 FINRA has failed to fulfill its duties . . . and on facial 5 challenges to the validity and propriety of FINRA’s SEC-approved 6 rules.” (Opp., p. 21.) 7 Contrary to Defendant’s characterization of Plaintiff’s 8 claims, however, Plaintiff does not claim that FINRA failed to 9 fulfill any particular duty or that FINRA’s rules are facially 10 invalid. Plaintiff does allege that FINRA refused to remove a 11 disclosure item from his CRD record and that FINRA is required to 12 do so pursuant to their own rules, but he does not seek a 13 declaration or other direct relief for FINRA’s failure to remove 14 the disclosures. (Complaint ¶ 34.) For example, Plaintiff does not 15 seek a declaration that FINRA violated their duty to remove the 16 disclosures. As a result, no determination need be made by the 17 Court as to whether FINRA was required to remove the disclosures 18 under the circumstances in determining whether expungement is 19 appropriate in this case. See Spalding, 2013 WL 1129396, at *5. 20 Plaintiff’s cause of action for expungement therefore does not 21 raise a substantial issue of federal law, as a determination of 22 whether expungement is appropriate in this particular case is a 23 fact-specific analysis. See Gunn, 133 S. Ct. at 1066 (“[I]t is not 24 enough that the federal issue be significant to the particular 25 parties in the immediate suit... The substantiality inquiry ... 26 looks instead to the importance of the issue to the federal system 27 as a whole.”). 28 // 7 1 2 IV. Conclusion For the foregoing reasons, Plaintiff’s Motion to Remand is 3 GRANTED. Therefore, the Court has no jurisdiction over this action 4 and does not reach Defendant’s Motion to Dismiss. 5 VACATED. (Dkt. 12.) The matter is remanded to the Los Angeles 6 Superior Court, Central District, Case No. BC516756. Said motion is 7 8 IT IS SO ORDERED. 9 10 11 Dated: November 19, 2013 DEAN D. PREGERSON United States District Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8

Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.

Why Is My Information Online?