Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-03360/USCOURTS-cand-3_07-cv-03360-4/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 09:0010 Petition to Vacate Arbitration Award

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

REGINA JIMENEZ,

Plaintiff,

 v.

NATIONAL ASSOCIATION OF

SECURITIES DEALERS, ET AL,

Defendant. /

No. C 07-03360 JSW

ORDER GRANTING

DEFENDANTS’ MOTIONS TO

DISMISS

Now before the Court are two motions: (1) the motion by defendant Financial Industry

Regulatory Authority, Inc. (“FINRA”) f/k/a National Association of Securities Dealers, Inc.

(“NASD”) and (2) the motion by defendants Lawrence Ian Prozan and Multi-Financial

Securities Corp. (collectively as “Prozan Defendants”) to dismiss the complaint filed by

plaintiff Regina Jimenez (“Jimenez”). Having carefully reviewed the parties’ papers and

considering their arguments and the relevant legal authority, the Court hereby GRANTS

FINRA’s and the Prozan Defendants’ motions to dismiss. 

BACKGROUND

On June 26, 2007, Jimenez filed this action to appeal from and vacate the final NASD

arbitration award and decision rendered by the NASD on July 24, 2007. She filed an amended

complaint on October 23, 2007. 

Jimenez alleges that FINRA violated her due process rights by rendering its award

without a hearing. (First Amended Complaint (“FAC”), ¶ 11.) She further alleges that FINRA 

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and the Prozan Defendants concealed from her that Laurence Prozan’s wife, Linda Drucker

(“Drucker”), was a high official within FINRA and sat on a committee that oversees the

assignment of arbitrators. (Id.) Jimenez believes that Drucker improperly contacted the three

arbitrators on the panel and pulled strings in order to pressure the arbitrators into dismissing the

arbitration without a hearing. (Id.) Jimenez also alleges that the arbitrators refused to hear

pertinent evidence and conducted an ex parte hearing with Laurence Prozan and his attorney. 

(Id., ¶ 12.) Based on such facts, Jimenez seeks to vacate the arbitration award. (Id., ¶¶ 18-23.)

Jimenez also claims that the Prozan Defendants committed professional negligence by

mishandling her investments. (Id., ¶¶ 28-35.) Finally, Jimenez asserts a claim against FINRA

and the Prozan Defendants under the Securities and Exchange Act of 1934, 15 U.S.C. § 78a, et

seq. (“Securities and Exchange Act”). She alleges that FINRA is subject to suit under the

Securities and Exchange Act “because it fits within the definition of a securities organization as

stated in this statue” and that “[i]t regulates securities dealers and brokers and conducts

arbitrations by disgruntled clients against their brokers ... and must be brought in under this

statute.” (Id., ¶ 37.) She alleges that FINRA and the Prozan Defendants violated the Securities

and Exchange Act by delaying and obstructing the arbitration hearing and by preventing her

from presenting evidence in her case. (Id., ¶ 38.)

FINRA and the Prozan Defendants have filed motions to dismiss on grounds of lack of

subject matter jurisdiction as well as failure to state a claim for which relief can be granted. 

ANALYSIS

A. Applicable Legal Standards.

When a defendant moves to dismiss a complaint or claim for lack of subject matter

jurisdiction, the plaintiff bears the burden of proving that the court has jurisdiction to decide the

claim. Thornhill Publ’n Co. v. Gen. Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979). 

Federal courts can only adjudicate cases which the Constitution or Congress authorize them to

adjudicate: those cases which involve diversity of citizenship, or those cases which involve a

federal question, or those cases which involve the United States as a party. See e.g., Kokkonen

v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). 

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A motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) may be

“facial or factual.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). 

Where an attack on jurisdiction is a “facial” attack on the allegations of the complaint, the

factual allegations of the complaint are taken as true and the non-moving party is entitled to

have those facts construed in the light most favorable to him or her. Fed’n of African Am.

Contractors v. City of Oakland, 96 F.3d 1204, 1207 (9th Cir. 1996). If the jurisdictional attack

is “factual,” a defendant may rely on affidavits or other evidence properly before the Court, and

the non-moving party is not entitled to any presumptions of truthfulness with respect to the

allegations in the complaint. Rather, he or she must come forward with evidence establishing

jurisdiction. Thornhill, 594 F.2d at 733. 

A motion to dismiss is proper under Rule 12(b)(6) where the pleadings fail to state a

claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). In ruling on a Rule 12(b)(6)

motion, the complaint is construed in the light most favorable to the non-moving party and all

material allegations in the complaint are taken to be true. Sanders v. Kennedy, 794 F.2d 478,

481 (9th Cir. 1986). The court, however, is not required to accept legal conclusions cast in the

form of factual allegations if those conclusions cannot reasonably be drawn from the facts

alleged. Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994) (citing

Papasan v. Allain, 478 U.S. 265, 286 (1986)).

B. FINRA’s Motion to Dismiss.

 FINRA argues that as a provider of arbitration services, it is entitled to immunity under

the doctrine of arbitral immunity. (FINRA’s Mot. at 8.) “[A]rbitrators are immune from civil

liability for acts within their jurisdiction arising out of their arbitral functions in contractually

agreed upon arbitration hearings.” Wasyl, Inc. v. First Boston Corp., 813 F.2d 1579, 1582 (9th

Cir. 1987). Arbitrators have been granted immunity because their role is akin to that of judges,

to whom immunity also is granted. Id. “As with judicial and quasi-judicial immunity, arbitral

immunity is essential to protect the decision-maker from undue influence and protect the

decision-making process from reprisals by dissatisfied litigants.” Id. In Wasyl, the Ninth

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Circuit granted an appraisal corporation immunity because it acted as an arbitrator, setting the

price of partnership interests pursuant to agreement. Id. at 1580-81. 

The Court finds that FINRA as a provider of arbitration services, is immune from suit. 

Consequently, the Court grants FINRA’s motion to dismiss.

C. Prozan Defendants’ Motion to Dismiss.

The Prozan Defendants move to dismiss on the grounds that, inter alia, this Court lacks

jurisdiction over Jimenez’s claims. The United States Supreme Court has held that the Federal

Arbitration Act (“FAA”) does not provide a separate basis for federal subject matter

jurisdiction. Rather, there must exist other independent grounds for federal jurisdiction. Moses

H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983); see also Luong

v. Cicuit City Stores, Inc., 368 F.3d 1109, 1111 (9th Cir. 2004) (holding that section 10 of the

FAA does not confer federal subject matter jurisdiction). Therefore, Jimenez must demonstrate

another independent grounds for federal jurisdiction.

Jimenez argues that this court has jurisdiction over her claims pursuant to the Securities

and Exchange Act. Jimenez’s complaint fails to allege facts that state a claim against the

Prozan Defendants under the Securities and Exchange Act. Although Jimenez asserts this claim

against both FINRA and the Prozan Defendants, the conduct she contends violated the

Securities and Exchange Act was allegedly committed by FINRA. At the hearing on the

motions to dismiss, the Court asked Jimenez what facts she would allege to state a claim against

the Prozan Defendants under the Securities and Exchange Act if given leave to amend. In

response, she merely restated the facts she alleged regarding FINRA’s misconduct. 

Because Jimenez has not yet alleged facts that state a claim against the Prozan

Defendants, the Court GRANTS the Prozan Defendants’ motion to dismiss for lack of subject

matter jurisdiction. The Court will provide Jimenez leave to amend to state such a claim. 

However, if Jimenez chooses to file an amended complaint, the Court admonishes Jimenez that

her complaint shall be directed against the Prozan Defendants, and not FINRA. 

//

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CONCLUSION

For the foregoing reasons, the Court grants FINRA’s motion to dismiss without 

leave to amend and GRANTS the Prozan Defendants’ motion to dismiss with leave to amend. 

Jimenez shall file an amended complaint in compliance with this Order by May 30, 2008. The

Prozan Defendants shall have twenty days thereafter to file their responsive pleading. If

Jimenez fails to file an amended complaint by May 30, 2008, the Court will dismiss this action

with prejudice. 

IT IS SO ORDERED.

Dated: May 5, 2008 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

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