Court Opinion

ID: 2775055
Source: CourtListenerOpinion
Date Created: 2015-01-30 16:00:25.536719+00
Date Added: 2024-06-11T12:45:52.046500
License: Public Domain

14-2767
     SANTOS-BUCH v. FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC.

                          UNITED STATES COURT OF APPEALS
                              FOR THE SECOND CIRCUIT

                                     SUMMARY ORDER
     RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED
     ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
     PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A
     DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
     ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST
     SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

 1            At a stated term of the United States Court of Appeals
 2       for the Second Circuit, held at the Thurgood Marshall United
 3       States Courthouse, 40 Foley Square, in the City of New York,
 4       on the 30th day of January, two thousand fifteen.
 5
 6       PRESENT: DENNIS JACOBS,
 7                GUIDO CALABRESI,
 8                RICHARD C. WESLEY,
 9                              Circuit Judges.
10
11       - - - - - - - - - - - - - - - - - - - -X
12       ALAN SANTOS-BUCH,
13                Plaintiff-Appellant,
14
15                    -v.-                                               14-2767-cv
16
17       FINANCIAL INDUSTRY REGULATORY
18       AUTHORITY, INC.,
19                Defendant-Appellee.
20       - - - - - - - - - - - - - - - - - - - -X
21
22       FOR APPELLANT:                        Eric W. Berry, Berry Law PLLC,
23                                             New York, New York.
24
25                                             Paul R. McMenamin, McMenamin Law
26                                             Group, New York, New York.
27

                                                  1
 1   FOR APPELLEE:              Terri L. Reicher, Angela Pegram
 2                              Saffoe, Financial Industry
 3                              Regulatory Authority, Inc.,
 4                              Washington, District of
 5                              Columbia.
 6
 7        Appeal from a judgment of the United States District
 8   Court for the Southern District of New York (Scheindlin,
 9   J.).
10
11        UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED
12   AND DECREED that the judgment of the district court be
13   AFFIRMED.
14
15        Alan Santos-Buch appeals from the judgment of the
16   United States District Court for the Southern District of
17   New York (Scheindlin, J.), granting defendant-appellee’s
18   motion to dismiss for lack of subject matter jurisdiction
19   and for failure to state a claim. We assume the parties’
20   familiarity with the underlying facts, the procedural
21   history, and the issues presented for review.
22
23        Santos-Buch worked until 1996 as a stock broker
24   employed by firms that were members of the National
25   Association of Securities Dealers, Inc. (“NASD”). NASD was
26   a self-regulatory organization (“SRO”) under the Securities
27   and Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C.
28   § 78s(a), and the Maloney Act of 1938, id. § 78o-3. NASD
29   delegated regulatory responsibility to a subsidiary, NASD
30   Regulation, Inc. (“NASDR”).
31
32        In 1997, NASDR began disciplinary proceedings against
33   Santos-Buch for an alleged 1994 violation of NASDR’s fair
34   practice rules. Santos-Buch and NASDR resolved the
35   disciplinary proceedings through a settlement contract
36   called an Acceptance, Waiver and Consent (“AWC”). In the
37   AWC, Santos-Buch agreed to a fine of $10,000 and a 30-day
38   suspension. The AWC also contemplated public notice of the
39   disciplinary action, by providing that “NASDR will make such
40   public announcement concerning this agreement and the
41   subject matter thereof as NASDR may deem appropriate”--a
42   provision limited only by NASD rules. (AWC ¶ 4.) Santos-
43   Buch argues that NASD rules at the time of the AWC limited
44   such public notice to a one-time publication of the
45   disciplinary action.
46

                                  2
 1        In 2007, the Financial Industry Regulatory Authority,
 2   Inc. (“FINRA”) succeeded NASD and NASDR, and assumed their
 3   self-regulatory functions. Santos-Buch alleges that FINRA
 4   currently maintains two internet databases that disclose his
 5   disciplinary history to the public: one that includes his
 6   disciplinary records pursuant to 1999 and 2009 amendments to
 7   NASD and FINRA rules (“BrokerCheck”), and the other, without
 8   authorization by any rule at all (“Web File”).
 9
10        Santos-Buch alleges causes of action for: publishing
11   the 1997 disciplinary records in an internet database
12   without authorization from the FINRA Rules, violation of due
13   process under the Fifth Amendment, violation of the
14   constitutional prohibition against ex post facto laws,
15   invasion of privacy in violation of Washington law, breach
16   of contract, and failure to provide “a fair procedure for
17   the disciplining of members and persons associated with
18   members” of SROs as required by 15 U.S.C. § 78o-3(b)(8).
19   The claims variously seek monetary damages, declaratory
20   relief, and injunctions.
21
22        The district court granted FINRA’s motion to dismiss
23   pursuant to Federal Rule of Civil Procedure 12(b)(1) and
24   12(b)(6), on the grounds that: (1) the claims for
25   declaratory and injunctive relief were subject to the
26   (unfulfilled) requirement that Santos-Buch exhaust his
27   administrative remedies before filing a civil action, and
28   (2) the claims for monetary damages were barred by FINRA’s
29   immunity to suits for damages in its regulatory capacity.
30   On an appeal from dismissal for lack of subject matter
31   jurisdiction, this Court reviews factual findings for clear
32   error and legal conclusions de novo. Luckett v. Bure, 290
33 F.3d 493, 496 (2d Cir. 2002). The Court reviews de novo the
34   district court’s dismissal for failure to state a claim.
35   MFS Secs. Corp. v. New York Stock Exch., Inc., 277 F.3d 613,
36   617 (2d Cir. 2002).
37
38        The doctrine of exhaustion requires a would-be
39   plaintiff to seek available administrative remedies before
40   seeking judicial relief “in cases where the relevant statute
41   provides that certain administrative procedures shall be
42   exclusive.” McKart v. United States, 395 U.S. 185, 193
43   (1969). Challenges to SROs’ rules must proceed exclusively
44   before the Securities and Exchange Commission (“SEC”), in
45   accordance with “the comprehensive review procedure
46   established by the Exchange Act.” Barbara v. New York Stock
47   Exch., Inc., 99 F.3d 49, 57 (2d Cir. 1996) (internal

                                  3
 1   quotation marks omitted). Specifically, no such challenge
 2   “may be considered by the court unless it was urged before
 3   the [SEC] or there was reasonable ground for failure to do
 4   so.” 15 U.S.C. § 78y(c)(1). Exhaustion is not required,
 5   however, when an agency lacks the power to grant effective
 6   relief, including when the agency would be called upon to
 7   resolve a substantial constitutional issue. See McCarthy v.
 8   Madigan, 503 U.S. 140, 147 (1992).
 9
10        The exhaustion requirement bars Santos-Buch’s claims
11   for injunctive and declaratory relief with regard to
12   publication of his disciplinary action via BrokerCheck. See
13   Barbara, 99 F.3d at 56-57. Since this case involves no
14   state action, there is no substantial constitutional issue.
15   As a private actor whose conduct in this case is not “fairly
16   attributable” to the government, FINRA could not have
17   violated Santos-Buch’s due process rights or the Ex Post
18   Facto Clause. See D.L. Cromwell Invs., Inc. v. NASD
19   Regulation, Inc., 279 F.3d 155, 161-62 (2d Cir. 2002);
20   Desiderio v. Nat’l Ass’n of Secs. Dealers, Inc., 191 F.3d
21   198, 206-07 (2d Cir. 1999); cf. O’Neil v. Vermont, 144 U.S.
22   323, 364 (1892) (Field, J., dissenting) (noting that the Ex
23   Post Facto Clause is an “inhibition against state action”).
24
25        While Santos-Buch’s claims for injunctive and
26   declaratory relief for publication of his disciplinary
27   action via Web File are not subject to the Exchange Act’s
28   exhaustion requirement because they challenge neither the
29   disciplinary action taken by FINRA, nor a FINRA rule, they
30   were also properly dismissed. Santos-Buch alleges that the
31   Web File publication violates his substantive due process
32   rights, but he fails to state a due process claim because
33   FINRA is not a state actor that can be held to
34   constitutional standards. To the extent that his claims for
35   injunctive and declaratory relief rest instead on FINRA’s
36   failure to comply with its own rules, as is required by
37   statute, see 15 U.S.C. § 78s(g)(1) (“Every [SRO] shall
38   comply with . . . its own rules.”), we have held that there
39   is no implied private right of action to enforce this
40   statutory obligation, see Desiderio, 191 F.3d at 208.
41
42        Santos-Buch’s claims for monetary relief are foreclosed
43   by immunity: “an SRO and its officers are entitled to
44   absolute immunity from private damages suits in connection
45   with the discharge of their regulatory responsibilities.”
46   Standard Inv. Chartered, Inc. v. Nat’l Ass’n of Secs.
47   Dealers, Inc., 637 F.3d 112, 115 (2d Cir. 2011), cert.

                                  4
 1   denied, 132 S. Ct. 1093 (2012). Because all of the relevant
 2   conduct by FINRA (and by NASD and NASDR before it) was
 3   undertaken in furtherance of its regulatory responsibilities
 4   as an SRO, it is immune from Santos-Buch’s claims for
 5   damages.
 6
 7        For the foregoing reasons, and finding no merit in
 8   Santos-Buch’s other arguments, we hereby AFFIRM the judgment
 9   of the district court.
10
11                              FOR THE COURT:
12                              CATHERINE O’HAGAN WOLFE, CLERK
13

                                  5