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Date: 11-01-2017

Case Style:

Antony Lee Turbeville v. Financial Industry Regulatory Authority

Eleventh Circuit Court of Appeals - Elbert P. Tuttle Federal Courthouse - Atlanta, Georgia

Case Number: 16-11083

Judge: Tjoflat

Court: United States Court of Appeals for the Eleventh Circuit on appeal from the Middle District of Florida (Hillborough County)

Plaintiff's Attorney: Tom Saunders

Defendant's Attorney: David S. Mandel

Description: 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).
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3
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).
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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).
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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 FINRAaffiliated
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
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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).
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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 statelaw
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.

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

Plaintiff's Experts:

Defendant's Experts:

Comments:



 
 
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