Nasdaq Omx Phlx, Inc. v. Pennmont Securities
52 A.3d 296
Pa. Super. Ct.2012Background
- PennMont Securities and Joseph D. Carapico appeal a trial-court summary judgment in favor of NASDAQ OMX PHLX, Inc. (Exchange) dismissing their case for lack of subject matter jurisdiction.
- Rule 651, enacted under the Exchange Act, shifts legal fees to a losing party in certain Exchange-related proceedings but excludes disciplinary actions; it is not a private damages remedy.
- The Exchange billed PennMont $925,612.20 under Rule 651 in 2007 after PennMont’s earlier challenges to demutualization/sale; PennMont challenged collection via TRO/injunction.
- Third Circuit precedents (Frucher, Fiero I, Walck) hold Exchange Act generally does not authorize private actions to collect fines and that SRO enforcement actions are typically not enforceable through private contracts.
- The trial court dismissed on state-law breach of contract grounds; the Superior Court affirmed the federal posture but the Pennsylvania Supreme Court/this court proceed to address preemption and private-right issues under Exchange Act.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Exchange may initiate a private right of action to collect Rule 651 fines. | PennMont argues federal law creates exclusive jurisdiction for claims arising under the Exchange Act; Rule 651 is federal. | Exchange asserts no private right to collect fines and that Rule 651 actions are administrative, not private civil suits. | No private right of action to collect Rule 651 fines; no jurisdiction for such private action. |
| Whether, even assuming a private right exists, Pennsylvania courts have subject-matter jurisdiction over a breach-of-contract action to collect Rule 651 fines. | If a private right exists, Exchange’s claim should be cognizable in state court as a contract action. | Preemption and exclusive federal enforcement under the Exchange Act foreclose state-court contract action. | Federal preemption bars the state-law contract claim; no subject-matter jurisdiction for Exchange’s action. |
| Whether Exchange Act preempts state-law breach of contract claims arising from Rule 651 collection. | Exchange may enforce Rule 651 via state-law contract claims. | Series 7/Fiero I and other authorities show preemption or absence of private enforcement rights for such fines. | Exchange Act preempts state-law breach-of-contract claims; no private enforcement action in state court. |
Key Cases Cited
- Dooner v. Frucher, 601 Pa. 209 (Pa. 2009) (preemption and savings clause; Exchange Act does not expressly preempt state tort claims; framework for preemption)
- Redington v. Coutu, 442 U.S. 560 (U.S. 1979) (private rights must be created by Congress; Cort framework narrowed by Redington)
- Sandoval v. regulated activities, 532 U.S. 275 (U.S. 2001) (private rights of action must be created by Congress; focus on text over context)
- Astra USA, Inc. v. Santa Clara County, 563 U.S. __ (U.S. 2011) (absence of private right of action under statute means contract action cannot enforce same obligations)
- Fiero I (FINRA/FINRA enforcement against collection of fines), 660 F.3d 569 (2d Cir. 2011) (SROs lack authority to collect monetary sanctions via private court actions; explicit enforcement channels required)
- Series 7 Broker Qualification Exam Scoring Litigation, 548 F.3d 110 (D.C. Cir. 2008/2010) (preemption/ immunity discussions for SROs; private damages claims barred by Exchange Act review scheme)
- Walck v. American Stock Exchange, Inc., 687 F.2d 778 (3d Cir. 1982) (no private damages action against an exchange for failure to enforce its own rules)
- Barbara v. N.Y. Stock Exch., Inc., 99 F.3d 49 (2d Cir. 1996) (immunity of SROs from certain private actions arising from disciplinary proceedings)