Flowers v. Financial Industry Regulatory Authority, Inc., D071392

Troy Flowers was a registered broker (1995–2000); his BrokerCheck record shows an Ohio denial of a sales license (not of good business repute), a $10,000 NASD fine (penny-stock violations), and a 2001 NASD bar for failure to cooperate.
FINRA (formerly NASD) maintains a public BrokerCheck database and is an SRO subject to SEC oversight under the Exchange Act; the SEC approved FINRA Rule 8312 (BrokerCheck).
Flowers sued FINRA in California state court seeking equitable expungement of the BrokerCheck disciplinary entries as false, inaccurate, and preventing employment/financial accounts.
FINRA removed the case to federal court, district court remanded; in state superior court FINRA demurred, arguing Flowers must exhaust administrative remedies and that federal securities law preemption concerns exist.
The trial court sustained the demurrer without leave to amend; the Court of Appeal affirmed on the ground Flowers must first pursue the Exchange Act administrative/judicial process (FINRA → SEC → federal court).

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Flowers may obtain expungement in state court without first using FINRA/SEC/federal review	Flowers sought equitable relief in state court arguing BrokerCheck disclosures are false/misleading and equity favors expungement	FINRA argued Flowers must exhaust the administrative and statutory remedies provided under the Exchange Act (challenge FINRA, then SEC, then federal courts)	Held: Demurrer sustained — Flowers must exhaust federal administrative and judicial remedies before state court relief; no leave to amend
Whether state-court expungement would be preempted or conflict with federal objectives	Flowers relied on state equitable powers (and cases allowing courts to order expungement)	FINRA argued conflict preemption risk: state expungement could conflict with SEC policy favoring public access to disciplinary records	Held: Court emphasized conflict-preemption risk and that the federal Exchange Act scheme is the appropriate route; state adjudication without exhaustion risks conflicting duties for FINRA

First Jersey Securities, Inc. v. Bergen, 605 F.2d 690 (3d Cir. 1979) (SROs are subject to SEC oversight under Exchange Act)
Barbara v. NYSE, 99 F.3d 49 (2d Cir. 1996) (application of exhaustion doctrine to SRO disciplinary challenges)
Yamaha Motor Corp. v. Superior Court, 185 Cal.App.3d 1232 (Cal. Ct. App. 1986) (purposes and reasons for exhaustion of administrative remedies)
Lickiss v. Financial Industry Regulatory Authority, 208 Cal.App.4th 1125 (Cal. Ct. App. 2012) (state court equity to expunge records in certain third‑party dispute contexts)
Whistler Invs. v. Depository Trust & Clearing Corp., 539 F.3d 1159 (9th Cir. 2008) (conflict preemption analysis and federal objectives)
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (state rules conflicting with federal statutory scheme can be preempted)
Abelleira v. District Court of Appeal, 17 Cal.2d 280 (Cal. 1941) (notice of administrative review rights)