Opinion ID: 728744
Heading Depth: 2
Heading Rank: 3

Heading: Immunity from Suit.

Text: 38 In addressing a challenge to action taken by a disciplinary panel acting in behalf of the National Association of Securities Dealers, Inc. (the NASD), the Fifth Circuit held that the panel members were entitled to absolute immunity from ... civil liability for their actions taken within the outer scope of their official duties. Austin Mun. Sec., Inc. v. National Ass'n of Sec. Dealers, Inc., 757 F.2d 676, 689 (5th Cir.1985). The District Court for the Southern District of New York has twice opined that self-regulatory organizations are entitled to at least qualified immunity in connection with the conduct of disciplinary proceedings, see Bruan, Gordon & Co., 502 F.Supp. at 902-03; Trama v. New York Stock Exch., Inc., No. 76 Civ. 4898, 1978 WL 1141, at  5- 6 (S.D.N.Y. Sept.14, 1978), and that court has more recently followed Austin in holding that such immunity is absolute, see Mandelbaum v. New York Mercantile Exch., 894 F.Supp. 676, 679-80 (S.D.N.Y.1995). We find the reasoning in Austin persuasive, and hold that the Exchange is absolutely immune from damages claims arising out of the performance of its federally-mandated conduct of disciplinary proceedings. 39 It is well established that government officials are entitled to some form of immunity from suits for damages. Harlow v. Fitzgerald, 457 U.S. 800, 806, 102 S.Ct. 2727, 2732, 73 L.Ed.2d 396 (1982). Although public officials ordinarily claim only a qualified immunity from suit, the courts have recognized that certain public functions require a greater degree of protection than qualified immunity can provide. See Nixon v. Fitzgerald, 457 U.S. 731, 746, 102 S.Ct. 2690, 2699, 73 L.Ed.2d 349 (1982). 40 The decision to afford an absolute, rather than a qualified, immunity from suit depends upon the nature of the governmental function being performed. See Dorman v. Higgins, 821 F.2d 133, 136 (2d Cir.1987) (The entitlement of a government official to absolute immunity, protecting him from liability, from suit, and from any scrutiny of the motive for and reasonableness of his official actions, depends on the function he performs.). Accordingly, absolute immunity has been extended (as to appropriate functions) to judges, see Pierson v. Ray, 386 U.S. 547, 553-54, 87 S.Ct. 1213, 1217-18, 18 L.Ed.2d 288 (1967); Fields v. Soloff, 920 F.2d 1114, 1119 (2d Cir.1990), administrative law judges, see Butz v. Economou, 438 U.S. 478, 513-14, 98 S.Ct. 2894, 2914-15, 57 L.Ed.2d 895 (1978), and prosecutors, see Imbler v. Pachtman, 424 U.S. 409, 422-24, 96 S.Ct. 984, 991-92, 47 L.Ed.2d 128 (1976); Fields, 920 F.2d at 1119. 41 Although the Exchange is a private, rather than a governmental entity, immunity doctrines protect private actors when they perform important governmental functions. Accordingly, the courts have not hesitated to extend the doctrine of absolute immunity to private entities engaged in quasi-public adjudicatory and prosecutorial duties. In addition to the immunity afforded in Austin, the courts of appeals have extended absolute immunity to such private actors as arbitrators and organizations that sponsor arbitration, see Austern v. Chicago Bd. Options Exch., Inc., 898 F.2d 882, 885-87 (2d Cir.), cert. denied, 498 U.S. 850, 111 S.Ct. 141, 112 L.Ed.2d 107 (1990); Corey v. New York Stock Exch., 691 F.2d 1205, 1208-11 (6th Cir.1982), and members of bar association disciplinary committees, see Slavin v. Curry, 574 F.2d 1256, 1266 (5th Cir.1978), modified on another ground on rehearing, 583 F.2d 779 (5th Cir.1978) (per curiam), overruled on another ground, Sparks v. Duval County Ranch Co., 604 F.2d 976, 978 & n. 2 (5th Cir.1979) (in banc), aff'd sub nom. Dennis v. Sparks, 449 U.S. 24, 101 S.Ct. 183, 66 L.Ed.2d 185 (1980); see also Carroll v. Gross, 984 F.2d 392, 393 (11th Cir.) (per curiam), cert. denied, 510 U.S. 893, 114 S.Ct. 254, 126 L.Ed.2d 206 (1993). 42 In determining whether the disciplinary officers of the NASD were entitled to absolute immunity, the court in Austin conducted an analysis to determine whether: 43 a) the official's functions share[d] the characteristics of the judicial process; 44 b) the official's activities [were] likely to result in recriminatory lawsuits by disappointed parties; and 45 c) sufficient safeguards exist[ed] in the regulatory framework to control unconstitutional conduct. 46 Austin, 757 F.2d at 688 (citing, Butz, 438 U.S. at 510-13, 98 S.Ct. at 2912-14). 47 The function of the defendant in this case is identical with that of the defendants in Austin. There is no doubt that those functions share the characteristics of the judicial process, id., and are likely to result in recriminating law suits, id. Furthermore, the safeguards existing in the regulatory framework of the New York Stock Exchange are identical with those of the NASD. Both organizations are subject to the SEC's regulatory requirements, which provide appropriate procedural safeguards to the disciplinary process. Accordingly, the defendants here are, by a parity of reasoning, entitled to absolute immunity. 48 We think that absolute immunity is particularly appropriate in the unique context of the self-regulation of the national securities exchanges. Under the Exchange Act, the Exchange performs a variety of regulatory functions that would, in other circumstances, be performed by a government agency. Yet government agencies, including the SEC, would be entitled to sovereign immunity from all suits for money damages. See Sprecher v. Graber, 716 F.2d 968, 973 (2d Cir.1983); see also Austin, 757 F.2d at 692. As a private corporation, the Exchange does not share in the SEC's sovereign immunity, but its special status and connection to the SEC influences our decision to recognize an absolute immunity from suits for money damages with respect to the Exchange's conduct of disciplinary proceedings. 49 Furthermore, allowing suits against the Exchange arising out of the Exchange's disciplinary functions would clearly stand[ ] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress, Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941); see also Barnett Bank v. Nelson, --- U.S. ----, ----, 116 S.Ct. 1103, 1108, 134 L.Ed.2d 237 (1996), namely, to encourage forceful self-regulation of the securities industry. Other courts have relied upon this rationale in holding that state law claims against self-regulatory organizations are preempted by the Exchange Act. See American Agric. Movement, Inc. v. Board of Trade, 977 F.2d 1147, 1154-57 (7th Cir.1992) (ruling that the Commodity Exchange Act preempts state law claims that bear[ ] upon the actual operation of the commodity futures markets); Buckley, 65 Ill.Dec. at 65, 440 N.E.2d at 920 (Exchange Act preempts state law action for specific performance relating to membership in Chicago Board Options Exchange). Although we do not rely on the doctrine of federal preemption in this case, we think that the reasoning of these cases supports our conclusion that the Exchange is immune from damages claims with respect to its conduct of disciplinary proceedings. 50 It is clear from the face of Barbara's complaint and amended complaint that he seeks to recover money damages for alleged abuses in the conduct of the Exchange's disciplinary proceedings. The Exchange is therefore absolutely immune from Barbara's claims for money damages.