320 A.3d 313
D.C.2024Background
- Elizabeth Ann Sum-Slaughter, a financial advisor registered with FINRA, sought to have information about a customer complaint expunged from her FINRA-maintained public records (CRD and BrokerCheck).
- The underlying complaint accused Sum-Slaughter, then an administrative manager at Merrill Lynch, of failing to supervise brokers involved in a customer's options trading losses; Merrill Lynch settled the claim, but Sum-Slaughter claimed she was not at fault.
- After FINRA denied her expungement request in arbitration, Sum-Slaughter obtained a state court order in Colorado vacating the arbitration award, but FINRA was not named or served in that proceeding.
- She subsequently filed suit in D.C. Superior Court, seeking an order compelling FINRA to expunge the records, as well as declaratory and injunctive relief.
- The Superior Court dismissed the complaint on collateral estoppel grounds (due to the prior arbitration), but on appeal, the D.C. Court of Appeals addressed, sua sponte, whether the court had subject matter jurisdiction over the suit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Jurisdiction of D.C. Superior Court | D.C. Superior Court is a "court of competent jurisdiction" under Rule 2080 due to its general jurisdiction and can grant equitable relief. | Not challenged below; argued later in appeal process that exclusive jurisdiction lies with federal courts. | No jurisdiction; federal courts have exclusive jurisdiction over actions enforcing duties under Exchange Act. |
| Collateral Estoppel from Arbitration | No preclusive effect because Colorado court vacated arbitration award and FINRA was not party to that action. | Prior arbitration award denying expungement precludes relitigation; Colorado order not binding on FINRA. | Not addressed; court based ruling solely on lack of subject matter jurisdiction. |
| Equitable Authority to Order Expungement | Superior Court has inherent equitable power, based on FINRA rules and public interest, to expunge information. | No recognized equitable cause of action; expungement governed exclusively by federal law and FINRA’s rules. | No authority; equitable remedies require a cause of action, which must arise under federal law here. |
| Adequacy of Complaint under FINRA Rules/Exchange Act | FINRA’s own rules provide cause for relief; FINRA misapplied its rules by denying expungement. | Complaint fails to state a claim; only recourse is under federal law or through SEC procedures. | Dismissed, as any claim would arise under Exchange Act, within exclusive federal jurisdiction. |
Key Cases Cited
- Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Manning, 578 U.S. 374 (2016) (interprets federal courts' exclusive jurisdiction over suits arising under federal securities laws)
- Turbeville v. FINRA, 874 F.3d 1268 (11th Cir. 2017) (federal courts have exclusive jurisdiction over challenges to FINRA’s application of its rules; no private cause of action against FINRA for internal rule violations)
- Shearson/Am. Express v. McMahon, 482 U.S. 220 (1987) (SEC maintains oversight power over SRO arbitration procedures)