Court Opinion

ID: 4216925
Source: CourtListenerOpinion
Date Created: 2017-11-01 19:01:44.347868+00
Date Added: 2024-06-11T07:47:44.095932
License: Public Domain

Case: 16-11083      Date Filed: 11/01/2017      Page: 1 of 19

                                                                                [PUBLISH]

                 IN THE UNITED STATES COURT OF APPEALS

                           FOR THE ELEVENTH CIRCUIT
                             ________________________

                                    No. 16-11083
                              ________________________

                      D.C. Docket No. 8:15-cv-02920-JSM-EAJ

ANTONY LEE TURBEVILLE,

                                                        Plaintiff-Appellant,

versus

FINANCIAL INDUSTRY REGULATORY AUTHORITY,
JOHN DOES,
JOHN WILLIAM MCCALL,
                                 Defendants-Appellees.

                              ________________________

                     Appeal from the United States District Court
                         for the Middle District of Florida
                           ________________________

                                   (November 1, 2017)

Before TJOFLAT and ROSENBAUM, Circuit Judges, and REEVES, * District
Judge.

TJOFLAT, Circuit Judge:
         *
       The Honorable Danny C. Reeves, United States District Judge for the Eastern District of
Kentucky, sitting by designation.
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       Before us is the District Court’s dismissal of Antony Turbeville’s complaint

against the Financial Industry Regulatory Authority (“FINRA”) and its denial of

Turbeville’s motion to remand the case to Florida state court. We affirm both.

                                                 I.

                                                A.

       The Securities Exchange Act of 1934 (“Exchange Act”) provides that

persons who wish to use any instrumentality of interstate commerce to transact in

securities must join an association of brokers and dealers registered as a national

securities association. 15 U.S.C. § 78o(a)(1), (b)(1).1 In turn, the Exchange Act

requires registered national securities associations to establish membership and

conduct rules “designed to prevent fraudulent and manipulative acts and practices,

to promote just and equitable principles of trade, . . . to remove impediments to and

perfect the mechanism of a free and open market and a national market system,

and, in general, to protect investors and the public interest . . . .” Id. § 78o-3(b)(6).

       When member brokers or dealers violate the rules of a national securities

association or any provision of the Exchange Act, the association can—indeed,

must—levy sanctions that carry the force of federal law. Id. § 78o-3(b)(7)

(requiring national securities associations to “appropriately discipline[]” members

       1
        Alternatively, a person may transact in securities if he joins a national securities
exchange, but he must transact exclusively on that exchange. 15 U.S.C. § 78o(b)(1)(B).
                                                 2
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for violating “the rules of the association” or “any provision of” the Exchange Act

“by expulsion, suspension, limitation of activities, functions, and operations, fine,

censure, being suspended or barred from being associated with a member, or any

other fitting sanction”). In this way, the Exchange Act vests registered national

securities associations with a prominent role in the administration and enforcement

of federal securities law. Fittingly, the Exchange Act refers to these associations as

“self-regulatory organizations” (“SROs”). Id. § 78s. Before taking effect, all rules

proposed by national securities associations must be reviewed by the Securities and

Exchange Commission (“SEC”) to ensure they are “consistent with the

requirements of” the Exchange Act and may be approved by the SEC only after

public notice and comment. Id. § 78s(b)(1).

       FINRA, a private, non-profit Delaware corporation, is one of those national

securities associations and a registered SRO. 2 FINRA oversees and regulates

securities firms who join its membership, individuals who work for those firms,

and individuals associated with those firms. Securities brokers who wish to join a

FINRA-affiliated firm must pass FINRA-administered examinations and comport

their professional conduct with the rules, regulations, and standards FINRA

       2
         FINRA, previously known as the National Association of Securities Dealers, has since
1939 been the only registered national securities association in the United States. Exemption for
Certain Exchange Members, Exchange Act Release No. 74,581, 111 SEC Docket 680 (Mar. 25,
2015).
                                                3
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promulgates. When its member brokers or associated persons violate FINRA’s

rules, FINRA disciplines them pursuant to the Exchange Act’s requirements.

                                             B.

       FINRA’s disciplinary process is governed by the FINRA Code of Procedure,

a series of internal rules that set forth the disciplinary procedures that apply—and

the due-process protections afforded—to members charged with breaking the rules.

In satisfaction of the Exchange Act’s requirement, the SEC approved the FINRA

Code of Procedure. Fiero v. Fin. Indus. Regulatory Auth., Inc., 660 F.3d 569,

571–72 (2d Cir. 2011).

       The FINRA Code of Procedure sets forth a multi-layered hearing and

appeals process that governs disciplinary actions against FINRA-affiliated brokers

and dealers.3 Once FINRA formally charges a broker with a violation by filing a

complaint, a FINRA hearing panel conducts a full hearing to determine whether

the individual violated FINRA regulations, and, if so, imposes sanctions. See

FINRA Rule 9200 (setting forth FINRA’s disciplinary procedures). The individual

may then appeal the hearing panel’s finding and punishment to FINRA’s appeals

       3
        These procedures are designed to conform to the Exchange Act’s requirement that
SROs’ disciplinary procedures
       provide a fair procedure for the disciplining of members and persons associated
       with members, the denial of membership to any person seeking membership
       therein, the barring of any person from becoming associated with a member
       thereof, and the prohibition or limitation by the association of any person with
       respect to access to services offered by the association or a member thereof.
15 U.S.C. § 78o-3(b)(8).
                                              4
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board, the National Adjudicatory Council (“NAC”). FINRA Rule 9311(a). After

that, a broker may, as of right, seek de novo review of the NAC’s decisions in the

SEC. 15 U.S.C. § 78s(d)(2). Finally, the broker may appeal the SEC’s decision to

a federal court of appeals—again, as of right. Id. § 78y(a)(1).

      Prior to formally charging a broker with a violation and instituting formal

disciplinary proceedings, FINRA retains discretion to issue to the broker a “Wells

notice,” a communication informing the individual that FINRA believes it has

grounds to institute a disciplinary action and inviting him to respond and try to

convince FINRA not to institute formal proceedings. See FINRA Rule 8210(a)(1);

FINRA Regulatory Notice 09-17 at 3 (Mar. 2009). These notices become a part of

the public record: FINRA’s SEC-approved rules require it to disclose

communications like Wells notices in response to public inquiries about FINRA-

affiliated brokers or firms. See FINRA Rule 8312(a), (b)(2)(A) (requiring FINRA,

“[i]n response to a written inquiry, electronic inquiry, or telephonic inquiry via a

toll-free telephone listing,” to release “information regarding a current or former

FINRA member,” including Wells notices, which are required by the “U5” and

“U6” forms listed in the Rule). Those rules are designed to satisfy the Exchange

Act’s requirement that SROs “establish and maintain a . . . readily accessible

electronic or other process, to receive and promptly respond to inquiries regarding .

. . registration information on its members and their associated persons.” 15

                                           5
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U.S.C. § 78o-3(i)(1). FINRA makes these disclosures through its “BrokerCheck”

program, an online database that contains a report on each currently and formerly

registered broker. BrokerCheck reports are available to the public.

      FINRA’s rules set forth an administrative-review proceeding through which

a broker may “dispute the accuracy of” information disclosed in his BrokerCheck

report by filing written notice stating the grounds for his dispute and submitting

supporting documentation “identifying the alleged inaccurate factual information

and explaining the reason that such information is allegedly inaccurate.” See

FINRA Rule 8312(e)(1)(B). Once the broker has done so and if FINRA

determines that the “dispute of factual information is eligible for investigation,”

FINRA will “add a general notation to the eligible party’s BrokerCheck report

stating that the eligible party has disputed certain information included in the

report.” Id. § (e)(2)(B). Once it completes its investigation, FINRA will then issue

a written finding setting forth its determination as to the accuracy of the

information contested, and it will update the broker’s BrokerCheck report

accordingly. Id. § (e)(3)(A)–(B). Unlike the hearing panel determination in the

formal disciplinary process, this initial finding is the end of the road: “A

determination by FINRA, including a determination to leave unchanged or to

modify or delete disputed information, is not subject to appeal.” Id. § (e)(3)(C).

                                           6
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                                               C.

       In 2009, FINRA filed a complaint against Antony Turbeville, a registered

representative of a FINRA-affiliated broker firm. The complaint alleged that,

among other things, Turbeville committed securities fraud by recommending

certain types of collaterized mortgage obligations to elderly buyers who lacked the

sophistication and risk tolerance necessary to make them suitable purchasers. A

FINRA hearing panel found that Turbeville’s conduct violated FINRA’s rules,

barred him from associating with any FINRA-affiliated firm, and assessed

restitution and adjudication costs against him. Turbeville appealed the hearing

panel’s decision to the NAC, which affirmed. Turbeville then appealed to the

SEC. Before the SEC reviewed his case, Turbeville withdrew his appeal, thereby

letting the hearing panel’s findings and punishments stand.

       While Turbeville’s appeal to the NAC was still pending, FINRA learned that

Turbeville filed a defamation suit in Florida state court against the elderly investors

who testified against him in the course of the FINRA hearing panel’s proceedings.4

Upon learning of this suit, FINRA investigated Turbeville again—this time, to

determine whether he violated FINRA rules by filing a retaliatory action against

his former customers in an attempt to influence ongoing FINRA disciplinary

       4
         Turbeville voluntarily dismissed his first Florida lawsuit when the Florida court ordered
him to arbitrate his claims.
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proceedings. FINRA’s investigators determined that they had cause to institute

another disciplinary proceeding on the basis of Turbeville’s conduct and issued

Turbeville a Wells notice. The Wells notice said,

       ON JULY 3, 2013, FINRA MADE A PRELIMINARY
       DETERMINATION TO RECOMMEND THAT DISCIPLINARY
       ACTION BE BROUGHT AGAINST ANTONY TURBEVILLE
       ALLEGING HE FILED A FALSE COMPLAINT AGAINST AND
       ATTEMPTED TO INTIMIDATE WITNESSES IN A FINRA
       DISCIPLINARY ACTION, IN VIOLATION OF FINRA RULE
       2010.

       At the time FINRA issued the Wells notice, Turbeville no longer worked in

the securities industry and was not a member of a FINRA-affiliated broker firm.

The Wells notice was included in Turbeville’s BrokerCheck report, which was still

available to the public. Turbeville responded to the Wells notice and disputed the

investigators’ findings. Subsequently, FINRA removed the Wells notice from

Turbeville’s BrokerCheck report.

       Then, Turbeville returned to the Florida state courts—this time suing

FINRA, unnamed FINRA employees, and another individual. 5 He sued for

defamation, abuse of process, intentional interference with a prospective

advantage, and conspiracy, all Florida tort actions. Turbeville alleged that each of

his claims arose from FINRA’s second investigation of his suit against his former

       5
         This individual, John William McCall, was later identified as the son of one of
Turbeville’s former clients. The District Court observed that it appeared Turbeville never served
process to McCall or the individual FINRA employees.
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clients, which he claimed exceeded FINRA’s authority and jurisdiction under its

own internal rules.

      FINRA timely removed the case to federal district court and shortly

thereafter filed a motion to dismiss Turbeville’s claims. Turbeville filed a motion

to remand the case to the Florida state court, arguing that all of his claims were, on

their face, based in Florida tort law. Contemporaneously, he opposed FINRA’s

motion to dismiss. The District Court construed Turbeville’s suit as a challenge to

FINRA’s application of its own internal rules, which FINRA promulgated pursuant

to its grant of regulatory authority under the federal Exchange Act. Thus, the

Court concluded that a substantial federal question existed and denied Turbeville’s

motion to remand. In the same order, the District Court granted FINRA’s motion

to dismiss Turbeville’s claims, concluding that FINRA had absolute immunity

from liability in the exercise of its regulatory functions, and that no private right of

action for damages against FINRA exists. Turbeville timely appealed.

                                           II.

      We affirm both the District Court’s denial of Turbeville’s motion to remand

and its decision to grant FINRA’s motion to dismiss. As to the first issue, we hold

that suits against SROs like FINRA for violating their internal rules “arise under”

the Exchange Act of 1934 and therefore fall under the Act’s grant of exclusive

jurisdiction to the federal district courts. Thus, removal was proper in this case.

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As to the second issue, we hold that no private right of action exists for SRO

members and associated persons to sue SROs for violating their own internal rules.

Accordingly, the District Court correctly dismissed Turbeville’s claim.

                                               A.

       The jurisdictional question turns on whether the suit “arose under” Section

27(a) of the Exchange Act, 15 U.S.C. § 78aa(a).6 Section 27(a) grants the federal

district courts exclusive jurisdiction over “all suits in equity and actions at law

brought to enforce any liability or duty created by [the Exchange Act] or the rules

and regulations thereunder.” Id. In Merrill Lynch, Pierce, Fenner & Smith Inc. v.

Manning, the Supreme Court held that § 27(a) “confer[s] exclusive federal

jurisdiction of the same suits as ‘aris[e] under’ the Exchange Act pursuant to the

general federal question statute.” 578 U.S. —, —, 136 S. Ct. 1562, 1567 (2016)

(second alteration in original) (quoting 28 U.S.C. § 1331).

       Hence, we apply the same test to determine whether federal courts have

exclusive jurisdiction over matters arising under the Exchange Act as we do to

determine whether the district courts have original jurisdiction over suits under the

general federal-question statute, 28 U.S.C. § 1331. That test is the familiar

       6
          If the action did not “arise under” § 27(a) of the Exchange Act, we would use an
identical “arising under” test to determine whether the case presented a substantial federal
question sufficient to warrant federal jurisdiction under the general federal-question statute, 28
U.S.C. § 1331(a). Indeed, the District Court denied Turbeville’s motion to remand under § 1331
and did not discuss § 27(a). This analysis was not erroneous, as the outcome would be the same
under either jurisdictional provision.
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“arising under” test, which allows for federal jurisdiction in two circumstances:

first, where “federal law creates the cause of action asserted”; and second, where a

complaint invoking only state-law claims “‘necessarily raise[s] a stated federal

issue, actually disputed and substantial, which a federal forum may entertain

without disturbing any congressionally approved balance’ of federal and state

power.” Manning, 136 S. Ct. at 1570 (quoting Grable & Sons Metal Prods., Inc. v.

Darue Eng’g & Mfg., 545 U.S. 308, 314, 125 S. Ct. 2363, 2368 (2005)).

      We begin our analysis by examining Turbeville’s complaint to ascertain the

nature of his challenge. Although it invokes state tort law as the basis for relief,

the complaint is on its face a challenge to FINRA’s application of its internal rules

in exercising its regulatory authority under the Exchange Act. Three of

Turbeville’s four causes of action—defamation, abuse of process, and intentional

interference with a prospective advantage—rest expressly on allegations that

FINRA violated its own rules and exceeded its jurisdictional grant. For example,

regarding defamation, Paragraph 48 of the complaint says, “FINRA’s rules and

regulations precluded publication of a formal charge . . . when FINRA had only a

Wells notice and a response to that Wells notice.” Later in the same paragraph,

Turbeville says “FINRA . . . published [the Wells notice] far earlier than would

normally have been the case had customary protocols been followed.” The same

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paragraph concludes, “FINRA had no jurisdiction to issue a Wells notice,

investigate, or conduct any disciplinary action for the conduct.”

       Regarding abuse of process, Paragraph 59 alleges, “[t]he activities of

FINRA and of the Does in connection with the Florida Action were outside the

scope of their regulatory authority, and outside the scope of their corporate

authority.” Regarding intentional interference with a prospective advantage,

Paragraph 69 says,

       The publication of [the Wells notice] in this context was not only done
       in a manner which failed to provide a forum for Turbeville to respond,
       the publication was done in a manner and at a time when, under
       FINRA’s own internal rules and regulations, no inquiry, investigation,
       or action could have been conducted at all and no publication should
       have been made public even if such actions should have been
       conducted. By publishing those accusations as set forth in [the Wells
       notice], Turbeville’s due process right to defend himself against
       FINRA’s charges was denied even though no defense should have
       been necessary because FINRA was outside its authority.

       Finally, while Turbeville’s fourth cause of action, conspiracy, does not

expressly reference FINRA’s rules, the allegation incorporated all of the preceding

allegations in the complaint, including the allegation that Turbeville was not

“subject to the disciplinary and/or regulatory jurisdiction of FINRA for the actions

alleged in [the Wells notice].” 7

       7
          We add that, even if Turbeville’s conspiracy claim does not turn on the scope of
FINRA’s regulatory authority under federal law, the District Court still had authority to assert
jurisdiction over that claim. Turbeville’s complaint is a classic example of shotgun pleading:
each claim for relief incorporates indiscriminately all of the factual allegations set forth in the
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       Thus, Turbeville’s complaint is fundamentally a challenge to an SRO’s

compliance with its internal rules while carrying out its regulatory and enforcement

functions. Turbeville’s claims cannot be decided without adjudging FINRA’s

adherence to its internal rules in investigating Turbeville and publishing the Wells

notice in his BrokerCheck report. And this challenge appears on the face of the

complaint: while Turbeville invokes only Florida tort law, to sustain each of his

theories of recovery, he returns necessarily to his contention that FINRA violated

its own internal rules and exceeded its regulatory jurisdiction.

       To even begin to resolve Turbeville’s claims, then, the District Court would

have to interpret FINRA’s internal rules to determine whether FINRA’s conduct in

investigating Turbeville complied with those rules. And notwithstanding those

internal rules, FINRA issued the Wells notice at the heart of Turbeville’s suit

pursuant to its regulatory directive under the Exchange Act, which mandates that

SROs publish certain information about their members. See 15 U.S.C. § 78o-

3(i)(1)(B), (5) (requiring SROs to establish a process “to receive and promptly

respond to inquiries regarding . . . registration information on its members and

prior claims for relief, including allegations that FINRA violated its internal rules. This is
tantamount to a one-count complaint. Turbeville thus presents multiple theories of recovery—all
of which hinge necessarily on the conduct of FINRA’s regulators during the course of their
investigation of him. Thus, each of Turbeville’s claims for relief involves a “common nucleus of
operative fact.” United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130, 1138
(1966). Hence, to the extent that any of his claims do not turn on resolution of a federal
question—here, FINRA’s regulatory conduct under federal securities law—the District Court
still had supplemental jurisdiction over those claims under 28 U.S.C. § 1367(a).
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their associated persons” and defining “registration information” as “disciplinary

actions, regulatory, judicial, and arbitration proceedings, and other information

required by law, or exchange or association rule”). The District Court would have

to therefore decide whether Wells notices fall within the category of information

the Exchange Act requires SROs to make available to the public.

      So, as the District Court observed, “[i]n order to determine Turbeville’s

claims that FINRA’s regulatory investigation and disclosure of that investigation

on a regulatory database were outside its authority and in violation of FINRA rules

and regulations, the Court must necessarily interpret FINRA’s rules and

regulations.” And because those rules and regulations are promulgated according

to the Exchange Act’s mandates, their interpretation unavoidably involves

answering federal questions.

      More importantly, Turbeville’s suit does not just raise a federal question; it

turns on the existence of a federally supplied right of action. Turbeville uses state-

law claims to launch a collateral attack on FINRA’s conduct in carrying out its

disciplinary and disclosure functions under its SEC-approved rules. Were such a

right of action to exist, it must have been supplied by federal law, because federal

law—namely, the Exchange Act—creates SROs, vests them with a first-line role in

the enforcement of federal securities law, and mandates creation of internal rules to

govern their disciplinary and disclosure actions.

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       When exercising these functions, SROs act under color of federal law as

deputies of the federal government. To sue these actors, a litigant must obtain

permission from the federal sovereign; otherwise, any state-law claims asserted

against them for carrying out their federally mandated duties crash headlong into

the shoals of preemption. McCulloch v. Maryland, 4 Wheat. 316, 317 (1819)

(“The states have no power . . . to retard, impede, burden, or in any manner control

the operations of the constitutional laws enacted by congress to carry into effect the

powers vested in the national government.”). Thus, because Turbeville’s

complaint depends on a right of action supplied by federal law, the District Court

concluded correctly that removal was proper. See Manning, 136 S. Ct. at 1569

(“Most directly, and most often, federal jurisdiction attaches when federal law

creates the cause of action asserted.”).

                                                B.

       We conclude further that the District Court properly dismissed Turbeville’s

claim. The District Court rightly found that Congress did not intend to create a

private right of action for plaintiffs seeking to sue SROs for violations of their own

internal rules. 8 We find no support in the Exchange Act for the proposition that

Congress intended to create such a right. The Act’s silence regarding the existence

       8
          Because we hold that no private right of action exists to sue SROs for violating their
internal rules, we do not address the District Court’s alternative conclusion that SROs and their
employees are absolutely immune from suit while exercising their regulatory functions.
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of a private right of action speaks volumes, because Congress can simply say it is

creating a private right of action if it wants to do so. See Touche Ross & Co. v.

Redington, 442 U.S. 560, 572, 99 S. Ct. 2479, 2487 (1979) (“Obviously, then,

when Congress wished to provide a private damage remedy, it knew how to do so

and did so expressly.”); see also MM&S Fin., Inc. v. Nat’l Ass’n of Sec. Dealers,

Inc., 364 F.3d 908, 910–11 (8th Cir. 2004) (quoting the Supreme Court’s decision

in Touche Ross in finding no private right of action against FINRA’s predecessor

for violation of its internal rules).

       In fact, the internal appeals and administrative-review processes created by

the Exchange Act confirm that no private right exists. Those avenues of relief

satisfy the Exchange Act’s requirement that SROs “provide a fair procedure for the

disciplining of members and persons associated with members,” and that they

“adopt rules establishing an administrative process for disputing the accuracy of

information provided in response to inquiries” about affiliated persons. See 15

U.S.C. § 78o-3(b)(8), (i)(3).

       To survive, Turbeville’s collateral attack on FINRA’s regulatory conduct

requires picking up far more than the Exchange Act’s expressly provided remedies

put down. It implies necessarily the existence of a private right of action against

FINRA that operates parallel to the administrative-review processes the Act

prescribes. And it implies a second set of remedies—the remedies supplied by

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state tort law. FINRA’s appeals process carries its own set of remedies—to wit,

reversal of the FINRA hearing board’s disciplinary actions. In similar fashion,

FINRA’s administrative-review process for disputing information disclosed in a

BrokerCheck report carries with it the remedy of removing information shown to

be inaccurate. Yet despite the existence of these Exchange-Act-mandated

remedies, Turbeville seeks a separate, distinct set of rights and remedies: the right

to sue FINRA in state court under state tort law and recover damages as allowed

therein. At the same time, he argues that no federal question exists, meaning the

federal courts lack jurisdiction to adjudicate these claims. Thus, Turbeville would

have us hold that a private right of action to challenge SROs—which are

authorized and closely directed by federal law and federal agencies—exists under

federal law, while also holding that only state courts have authority to enforce that

right of action.

      We are not persuaded that Congress contemplated such a result when it

granted SROs regulatory authority under the Exchange Act. Recognizing the

second set of rights and remedies under state law Turbeville seeks would undercut

the distinctly federal nature of the Exchange Act. If actions like Turbeville’s are

permitted, fifty state courts would be authorized to supervise FINRA’s regulatory

conduct and its application of its internal, SEC-approved rules through the vehicle

of state tort law. And given SROs’ front-line role in enforcing federal securities

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laws, such review would in turn lead to state-court supervision of the Exchange

Act’s securities-regulation regime writ large. We find nothing in the Exchange Act

that suggests Congress intended to create a private right of action overlaying the

relief avenue it set forth in the Act’s text and thereby disrupt the uniform federal

character of the securities-regulation scheme Congress created.

      That these remedies leave something to be desired does not change the

analysis. The Supreme Court long ago observed, “[T]he fact that a federal statute

has been violated and some person harmed does not automatically give rise to a

private cause of action in favor of that person.” Touche Ross, 442 U.S. at 568, 99

S. Ct. at 2485 (internal quotation marks omitted) (quoting Cannon v. Univ. of Chi.,

441 U.S. 677, 688, 99 S. Ct. 1946, 1953 (1979)). Although a person regulated by

an SRO might find the prescribed remedies incapable of fully assuaging the

reputational harm he suffered as a result of the SRO’s regulatory and disciplinary

conduct, he chose to accept those limitations on recovery by affiliating himself

with an SRO-governed firm.

      Thus, in the absence of express statutory language creating an additional

right of action with additional remedies, we conclude that Congress intended these

processes to be the sole venues through which FINRA-affiliated parties can

challenge SROs’ regulatory and enforcement conduct for compliance with their

own internal rules. As a result, the District Court did not err when it found that it

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had jurisdiction to deny remand to state court but not jurisdiction to afford relief

under a federal cause of action that does not exist.

                                          III.

      For the above reasons, the District Court’s decision is AFFIRMED.

                                          19