Lanier v. Bats Exchange, Inc.
838 F.3d 139
2d Cir.2016Background
- Lanier, a subscriber to consolidated market-data feeds, sued several national securities exchanges alleging breach of Subscriber Agreements because exchanges provided faster proprietary feeds to "Preferred Customers," disadvantaging subscribers.
- Exchanges operate under SEC‑approved NMS Plans and Regulation NMS; Subscriber Agreements incorporate those Plans and SEC rules.
- Plaintiff alleges preferred customers receive data up to ~1,499 microseconds earlier than the Processor’s consolidated feed.
- District court dismissed Lanier’s putative class breach‑of‑contract suits for lack of subject‑matter jurisdiction and for failure to state a claim.
- The Second Circuit affirmed dismissal but held the district court erred on jurisdiction: federal courts have jurisdiction over Lanier’s state‑law contract claims, yet the complaints fail on the merits (preemption, lack of contractual basis, and administrative‑exhaustion issues).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal district courts lack subject‑matter jurisdiction because plaintiffs must first obtain SEC review | Lanier: contract claims may be litigated in district court under diversity; not precluded by SEC review scheme | Exchanges: Exchange Act/SEC review scheme requires administrative exhaustion and review in court of appeals | Held: District court erred — jurisdiction exists; Thunder Basin factors (collateral, agency expertise, meaningful review) favor district‑court jurisdiction for Lanier’s state‑law contract claims |
| Whether claims are preempted because they seek to impose obligations inconsistent with SEC regulations/interpretations | Lanier: Subscriber Agreements incorporate NMS Plans/Regulation NMS, which require fair, nondiscriminatory, prompt distribution such that Processor must receive data no later than preferred customers | Exchanges: SEC has interpreted Regulation NMS as prohibiting transmitting data to others sooner than to the Processor (i.e., timing of transmission/release, not receipt); Lanier’s interpretation conflicts with SEC | Held: Claims premised on Lanier’s interpretation of Regulation NMS are preempted — they conflict with the SEC’s interpretation and would frustrate congressional objectives for uniform regulation |
| Whether Lanier plausibly alleged independent contractual promises (not grounded in SEC rules) that were breached | Lanier: Subscriber Agreements and Plans promise fair, nondiscriminatory, prompt distribution and effectively make Processor the single NBBO source — implying synchronized receipt | Exchanges: Contracts contain no promise about timing of receipt; many provisions are hortatory or disclaim liability; SEC interpretation controls | Held: Complaints fail to plead any express, self‑imposed contractual obligation that would forbid preferred customers receiving data earlier; conclusory allegations insufficient to state a breach |
| Whether Lanier may litigate alleged misinterpretations of the Exchange Act/SEC rules in district court without first seeking SEC relief | Lanier: SEC relief would be inadequate or unnecessary; suit may proceed | Exchanges: Challenges to SEC interpretation of plans/operation must be brought first to the SEC per regulatory review provisions | Held: To the extent Lanier seeks to challenge the SEC’s interpretation/implementation of NMS Plans or Regulation NMS, he must first exhaust available administrative remedies before the SEC |
Key Cases Cited
- American Airlines, Inc. v. Wolens, 513 U.S. 219 (1995) (private contract claims not channeled exclusively into administrative review under federal regulatory scheme)
- Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994) (three‑factor test for whether statutory review scheme precludes district court jurisdiction)
- Tilton v. SEC, 824 F.3d 276 (2d Cir. 2016) (applying Thunder Basin framework in SEC context)
- Free Enterprise Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477 (2010) (district court jurisdiction over collateral challenges despite available agency review)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (pleading standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (conclusory allegations insufficient to survive dismissal)
- Barbara v. N.Y. Stock Exch., Inc., 99 F.3d 49 (2d Cir. 1996) (administrative provisions do not provide for money damages; relevance to meaningful judicial review)