McGinn, Smith & Co. v. Financial Industry Regulatory Authority
786 F. Supp. 2d 139
D.D.C.2011Background
- Plaintiffs Smith and McGinn, pro se, filed May 2, 2011 seeking a TRO to stay FINRA disciplinary proceedings scheduled for May 16-26, 2011 pending the SEC action in N.D.N.Y.
- FINRA is a private self-regulatory organization with quasi-governmental authority to adjudicate member discipline under the Exchange Act; final review lies with Courts of Appeals.
- SEC filed a civil action against the Firm and Plaintiffs in N.D.N.Y. on April 20, 2010 and a receiver was appointed in the related SEC case.
- FINRA hearing officer had previously stayed the proceeding against the Firm; Plaintiffs sought a stay for themselves arguing potential prejudice and disclosure concerns.
- The Court held it lacks subject matter jurisdiction under TRAC and, in the alternative, would not transfer under 28 U.S.C. § 1631 as it is not in the interest of justice; the case was dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is there subject-matter jurisdiction to issue a stay of FINRA proceedings? | Plaintiffs seek a stay pending SEC action. | TRAC v. FCC deprives district court of jurisdiction; appellate review is exclusive. | No jurisdiction in district court; must seek relief in Court of Appeals. |
| Should the case be transferred to the Court of Appeals under § 1631 instead of dismissal? | Transfer is appropriate to preserve review. | Transfer is not in the interest of justice given lack of likelihood of success and lack of irreparable harm. | Transfer not warranted; action dismissed for lack of subject-matter jurisdiction. |
Key Cases Cited
- Telecommunications Research & Action Center v. FCC, 750 F.2d 70 (D.C.Cir. 1984) (exclusive review in Court of Appeals; TRAC supports district-court lack of jurisdiction for stay actions)
- Marchiano v. Nat'l Ass'n of Sec. Dealers, Inc., 134 F. Supp. 2d 90 (D.D.C. 2001) (district court lacks jurisdiction over NASD disciplinary stays; exclusive appellate review)
- Ohio Edison Co. v. Zech, 701 F. Supp. 4 (D.D.C. 1988) (TRAC considerations apply to claims of bias or improper motivation)
- Lugar v. Edmondson Oil Co., 457 U.S. 922 (Supreme Court 1982) (government responsibility for private action requires coercive power or significant encouragement)
- First Jersey Sec., Inc. v. Bergen, 605 F.2d 690 (3d Cir. 1979) (exhaustion of administrative remedies as basis for dismissal; not reached here due to record)
- Renegotiation Bd. v. Bannercraft Clothing Co., 415 U.S. 1 (Supreme Court 1974) (mere litigation expense is not irreparable harm)
- Blum v. Yaretsky, 457 U.S. 991 (Supreme Court 1982) (government action requirement for attributing private conduct to the state)