Opinion ID: 2747291
Heading Depth: 3
Heading Rank: 2

Heading: Applying the Gunn‐Grable Test to UBS’s Claims

Text: a. The Presence of a Necessarily Raised and Actually Disputed Federal Issue In determining whether UBS’s four state law claims against NASDAQ raise a federal issue, we begin by considering the duty underlying each claim. It is the violation of a duty that would trigger any contract right to indemnification, or support tort claims for negligence or a failure of good faith and fair dealing in the circumstances presented. See Aegis Ins. Servs., Inc. v. 7 World Trade Co., L.P., 737 F.3d 166, 177 (2d Cir. 2013) (stating that, under New York law, negligence claim depends on “the existence of a duty on defendant’s part as to plaintiff” (internal citation omitted)); Havana Cent. NY2 LLC v. Lunney’s Pub, Inc., 49 A.D.3d 70, 77, 852 N.Y.S.2d 32, 37 (1st Dep’t 2007) (observing that “if there is no contractual obligation to perform an act, the failure to perform the act cannot be a breach of the contract” (citing Restatement (Second) of Contracts § 235(b) (1981) (defining breach of contract as “non‐performance of a duty when performance is due”))); Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 407–08 (2d Cir. 2006) (recognizing that implied duty of good faith and fair dealing claim requires “an obligation that may be presumed to have been intended by the parties” to the underlying contract). 22 UBS’s arbitration demand makes plain that a singular duty underlies all four of its state law claims: NASDAQ’s duty to operate a fair and orderly market. “An exchange is required to operate a fair and orderly market. This is its primary obligation to the investing public and to entities such as UBS. Nasdaq violated this obligation.” Demand ¶ 37, A. 55. The duty UBS identifies—indeed, the very language it employs—derives directly from federal law. In the Exchange Act, Congress makes plain that “maintenance of fair and orderly markets” is the animating goal of federal securities law. 15 U.S.C. § 78k‐1(a)(1)(C). Toward this end, and as detailed in Part I.B.1., supra, the Exchange Act requires, as a specific condition of registration as a national exchange, that an SRO satisfactorily demonstrate to the SEC that its internal operating rules “remove impediments to and perfect the mechanism of a free and open market and a national market system.” Id. § 78f(b)(5).4 The Act further makes an exchange’s compliance with its SEC‐ approved rules a mandate of federal law, see id. § 78s(g)(1), and provides for 4 In its arbitration demand, UBS effectively acknowledges the federal law origin of NASDAQ’s market duty when it describes NASDAQ as “a self‐regulatory organization . . . within the meaning of the Securities Exchange Act of 1934 and is responsible for operating and maintaining the integrity of the Nasdaq stock market.” Demand ¶ 14(a), A. 50. 23 violators to be sanctioned, see id. §§ 78u(d),(f), 78s(h)(1),(4). Thus, whether a registered securities exchange such as NASDAQ has violated its federally prescribed duty to operate a fair and orderly exchange necessarily raises a disputed question of federal law. Moreover, that federal law question can only be answered by considering another: how NASDAQ’s duty to operate a fair and orderly market—a duty sourced in the Exchange Act, amplified by SEC regulations, and implemented through SEC‐approved NASDAQ rules—applies in the context of an IPO generally, and particularly with respect to the Facebook IPO. Thus, even if, as