Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, November 28, 2011

Ninth Circuit Upholds FINRA's Immunity from Suit

Two recent short, interesting opinions from the Ninth Circuit address FINRA's immunity.  

In Central Registration Depository #1346377 (Paul Merritt Christiansen) v. FINRA (9th Cir. Nov. 23, 2011, not for publicationDownload CentralRegistration.112311[1]), the plaintiff sued FINRA alleging violation of his right to be nominated for and serve on FINRA's board of directors and disclosure of false and injurious information about about him to a prospective employer through its Central Registration Depository (CRD) computer database.  The appellate court affirmed the trial court's dismissal because the lower court properly concluded that FINRA enjoys absolute immunity from money damages for its regulatory activity.  In addition, his request that he be reinstated and that certain information be purged from his record would require the court to contravene FINRA's properly adopted rules.

In Sacks v. Dietrich (9th Cir. Nov. 23, 2011Download Sacks.112311[1]), plaintiff appealed from the dismissal of his claims against two arbitrators who disqualified him from representing an investor.  The Ninth Circuit agreed that the claims were barred by arbitral immunity.  Two of the three arbitrators assigned to the panel disqualified the plaintiff because he was barred from the securities industry and thus ineligible to represent investors before FINRA under FINRA rule 13208.  However, the panel noted that it would allow plaintiff "to assist a representative qualified under Rule 13208" in a future proceeding. 

The 9th Circuit first affirmed the district court's ruling that it had jurisdiction over the action.  Although plaintiff's claims were all state law causes of action, the alleged wrongful conduct underlying those claims turned on a federal question: whether the arbitrators exceeded their jurisdiction under FINRA arbitration rules by applying Rule 13208 and barring plaintiff from representing the investor.  The appellate court also agreed with the lower court that the arbitrators were protected from liability under the doctrine of arbitral immunity.  FINRA rules and applicable law dictate that the arbitrators were acting within their jurisdiction in applying FINRA rules.  Even though plaintiff was not a party to the arbitration agreement between the parties, he was still bound by it under ordinary contract and agency principles.  Because the arbitrators acted with full authority under the arbitration agreement, they cannot be subject to suit by a party representative.

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