105 F. Supp. 3d 353
S.D.N.Y.2015Background
- Plaintiff Harold Lanier, a subscriber to consolidated market data, alleges exchanges gave "Preferred Data Customers" faster access to unconsolidated market data via proprietary feeds and co-location, rendering Lanier's consolidated data stale.
- Lanier sued multiple exchanges in three consolidated actions asserting state-law breach of contract, unjust enrichment, and constructive trust claims based on subscriber agreements that reference SEC‑approved market data plans and Regulation NMS.
- Key factual allegation: exchanges transmit identical data to proprietary feed customers microseconds (allegedly up to ~1,499 µs) earlier than the data arrives at the SIP/processor and thus to subscribers.
- Subscriber agreements disclaim warranties as to timeliness/accuracy and state they are subject to the Exchange Act and applicable consolidated reporting plans; some forms were SEC‑approved.
- Defendants moved to dismiss for lack of subject‑matter jurisdiction (preemption by the federal regulatory scheme) and for failure to state a claim; the court considered SEC rules, plan approvals, and SEC interpretations of Rule 603/608.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether state‑law contract claims are preempted by the Exchange Act/Regulation NMS | Lanier: contract incorporates plans/Rule 603; providing faster unconsolidated feeds breaches nondiscrimination and fairness obligations and thus breaches contract | Defs: SEC and federal scheme occupy the field; SEC permits proprietary feeds and co‑location; enforcement belongs to SEC | Held: Preempted — both conflict and field preemption; dismissal for lack of subject matter jurisdiction |
| Whether the SEC interpretation permits Lanier’s theory that subscribers must receive data as fast as proprietary‑feed customers | Lanier: plans require nondiscriminatory delivery to subscribers | Defs: SEC has stated Rule 603 does not require synchronizing end‑user delivery; SEC approves proprietary feeds and co‑location | Held: SEC interpretation forecloses Lanier’s claim that timing to end‑users is prohibited; conflict with SEC view supports preemption |
| Whether Lanier plausibly alleged breach of the subscriber agreements (Rule 12(b)(6)) | Lanier: agreements promise ‘‘valid market data’’ on a nondiscriminatory basis; incorporation of plans creates contractual duty | Defs: agreements disclaim timeliness/accuracy, permit modifications, and do not guarantee parity with proprietary feeds; plans and SEC approvals undermine the contractual commitment alleged | Held: Even on the merits, plaintiff fails to state a claim — contracts disclaim timing guarantees and do not prohibit provision of different/data forms |
| Whether alternative equitable claims (unjust enrichment/constructive trust) survive | Lanier: equitable relief for deprivation caused by preferential treatment | Defs: valid contracts govern; unjust enrichment inapplicable; no fiduciary/confidential relationship or segregated funds for constructive trust | Held: Dismissed — unjust enrichment and constructive trust fail as matter of law |
Key Cases Cited
- Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546 (U.S. 2005) (federal courts are courts of limited jurisdiction)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading must state a plausible claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (conclusory allegations insufficient to survive Rule 12(b)(6))
- Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (U.S. 1947) (field preemption and congressional intent to displace state law)
- DL Capital Group, LLC v. Nasdaq Stock Mkt., Inc., 409 F.3d 93 (2d Cir. 2005) (SRO immunity/role as regulator and scope of delegated powers)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (pleading standards at the motion to dismiss stage)
- In re Series 7 Broker Qualification Exam Scoring Litig., 548 F.3d 110 (D.C. Cir. 2008) (analysis of preemption where federal regulatory scheme is pervasive)