United States District Court, District of Columbia
ANN MORTON YOUNG HABLISTON. et al., Plaintiffs,
FINRA REGULATION, INC., Defendant.
BERMAN JACKSON United States District Judge.
Anna Morton Young Habliston and Seymour R. Young, Jr. are
involved in an arbitration against Wells Fargo Advisors, LLC
concerning their deceased parents' brokerage accounts.
Apparently, they are extremely dissatisfied with how it is
going so far, and they have brought this action against
defendant FINRA Regulation, Inc. ("FINRA
Regulation"). Substitute Am. Compl. [Dkt. # 10]
allege that FINRA Regulation has failed to provide a fair
arbitration forum because the arbitrators are biased, and
their procedural rulings to date have been
unfair; that FINRA Regulation has failed to carry
out its regulatory duties properly; and that the binding
arbitration provisions contained in the brokerage contracts
are void or unenforceable. Plaintiffs also seek damages under 42
U.S.C. § 1983, Compl. ¶ 109, and they ask the Court
to appoint new arbitrators to hear the pending arbitration.
Id. ¶ 111.
29, 2016, defendant moved to dismiss the complaint pursuant
to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6),
12(b)(7), and 12(h)(3) on multiple grounds. It argues that
plaintiffs' claims are not ripe for review since the
arbitration is ongoing; defendant is immune from suit under
the doctrines of arbitral and regulatory immunity; plaintiffs
have failed to name indispensable parties; defendant is not a
state actor for purposes of section 1983; the Securities and
Exchange Act does not create a private right of action for
alleged violations of rules enacted under the Act; and
plaintiffs' request that the Court appoint new
arbitrators is moot because replacement arbitrators have
already been appointed. Mot. to Dismiss the Compl. [Dkt. #
16] ("Def's Mot.") at 1; Mem. of Law in Supp.
of Def's Mot. [Dkt. # 17] ("Def's Mem.") at
failed to oppose many of these arguments, so the motion has
been largely conceded. With respect to the open issues, the
Court concludes that plaintiffs' claims are not ripe for
review, and that defendant is entitled to arbitral immunity.
Therefore, the motion to dismiss will be granted.
parents, who are now deceased, maintained investment accounts
with Wachovia Securities, Inc., now Wells Fargo Advisors, LLC
("Wells Fargo"), and they were the unfortunate
victims of criminal misconduct. Compl. ¶¶ 1, 18. A
Wells Fargo broker, Christopher Cunningham, was convicted of
taking over $1 million from plaintiffs' parents and other
customers. Id. ¶ 2. Thereafter, plaintiffs,
acting in their parents' stead, brought suit against
Wells Fargo and Fulcrum Services, Inc. ("Fulcrum"),
alleging that they knowingly and recklessly allowed the theft
to occur, leading to a loss of over $3 million.
the terms of the account agreements with Wells Fargo and
Fulcrum, plaintiffs were required to submit their claims to a
binding arbitration proceeding administered by the Financial
Industry Regulatory Authority, Inc. ("FINRA").
See Compl. ¶ 4. FINRA is a private,
not-for-profit Delaware corporation, id. ¶ 14,
and according to defendant, is a self-regulatory organization
("SRO") registered with the Securities and
Exchange Commission ("SEC") as a national
securities association. Def.'s Mem. at 3. Its wholly owned
subsidiary, FINRA Regulation, operates a dispute resolution
forum that administers FINRA arbitrations. Compl. ¶ 14.
According to defendant, FINRA Regulation's Office of
Dispute Resolution appoints arbitrators, maintains the
arbitration files, processes pleadings and motions, drafts
orders with arbitrator direction, and transmits documents
between the parties. Def.'s Mem. at 4.
forty-four page substituted amended complaint is hardly a
"short and plain" statement of the claims,
Fed.R.Civ.P. 8(a), but it boils down to four counts.
See Compl. In Count I, plaintiffs allege that the
contractual "FINRA pre-dispute binding arbitration
provisions should be vacated or declared void" because
they violate plaintiffs' constitutional rights.
Id. ¶¶ 89, 95, 97-98. In Count II, they
allege that the arbitration provisions should be declared
void because FINRA Regulation has materially breached FINRA
arbitration rules. Id. ¶ 105. In Count III,
plaintiffs bring a claim for damages under 42 U.S.C.
§§ 1983 and 1988, alleging that FINRA Regulation
acted "under color of law" to deny plaintiffs their
constitutional rights under the due process and equal
protection clauses. Id. ¶ 107. Specifically,
plaintiffs claim that FINRA Regulation "knowingly
violated its duty to act objectively and impartially"
and acted with the "intent to prejudice" plaintiffs
by influencing "the objectivity and impartiality"
of FINRA Regulation's arbitrators. Id. ¶
108. Finally, in Count IV, plaintiffs request that the Court
appoint replacement arbitrators under 9 U.S.C. § 5
because they "will be imminently and irreparably
harmed" if the Court does not intervene to prevent FINRA
Regulation "from violating its arbitrator selection
rules" Id.¶¶ 111-12.
September 12, 2016, plaintiffs filed an opposition to
defendant's motion to dismiss. See Pis.'
Mem. in Opp. to Def's Mot. [Dkt. # 21] ("Pis.'
Opp."). But plaintiffs failed to address, and thereby
conceded, a number of defendant's arguments. Plaintiffs
briefed the issues of arbitral immunity and whether FINRA
Regulation is a state actor for purposes of their section
1983 claim, and they touched upon defendant's ripeness
argument, id. at 8-11, 18-19, but they made no
attempt to address any other issues. Instead, plaintiffs
devoted approximately six pages to attacking the validity of
the arbitration clauses in the brokerage contracts, to which
defendant FINRA Regulation was not a party. See Id.
at 11-17. Defendant filed a reply to plaintiffs'
opposition on September 22, 2016. Reply in Supp. of Def's
Mot. [Dkt. # 22] ("Def's Reply").
Subject Matter Jurisdiction
Rule 12(b)(1), the plaintiff bears the burden of establishing
jurisdiction by a preponderance of the evidence. See
Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992);
Shekoyan v. Sibley Int'l Corp., 217 F.Supp.2d
59, 63 (D.D.C. 2002). Federal courts are courts of limited
jurisdiction and the law presumes that "a cause lies
outside this limited jurisdiction." Kokkonen v.
Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994);
see also Gen. Motors Corp. v. EPA, 363 F.3d 442, 448
(D.C. Cir. 2004) ("As a court of limited jurisdiction,
we begin, and end, with an examination of our
jurisdiction."). "[B]ecause subject-matter
jurisdiction is 'an Art[icle] III as well as a statutory
requirement ... no action of the parties can confer
subject-matter jurisdiction upon a federal court.'"
Akinseye v. District of Columbia, 339 F.3d 970, 971
(D.C. Cir. 2003), quoting Ins. Corp. of Ir., Ltd. v.
Compagnie des Bauxites de Guinee, 456 U.S. 694, 702
considering a motion to dismiss for lack of jurisdiction,
unlike when deciding a motion to dismiss under Rule 12(b)(6),
the court "is not limited to the allegations of the
complaint." Hohri v. United States, 782 F.2d
227, 241 (D.C. Cir. 1986), vacated on other grounds,
482 U.S. 64 (1987). Rather, "a court may consider such
materials outside the pleadings as it deems appropriate to
resolve the question [of] whether it has jurisdiction to hear
the case." Scolaro v. D.C. Bd. of Elections &
Ethics, 104 F.Supp.2d 18, 22 (D.D.C. 2000), citing
Herbert v. Nat'l Acad. of Scis., 974 F.2d 192,
197 (D.C. Cir. 1992); see also Jerome Stevens Pharm.,
Inc. v. FDA, 402 F.3d 1249, 1253 (D.C. Cir. 2005).
Failure to State a Claim
survive a [Rule 12(b)(6)] motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to state
a claim to relief that is plausible on its face."
Ashcroft v. Iqbal,556 U.S. 662, 678 (2009)
(internal quotation marks omitted); accord Bell Atl.
Corp. v. Twombly,550 U.S. 544, 570 (2007). In
Iqbal, the Supreme Court reiterated the two principles
underlying its decision in Twombly: "First, the
tenet that a court must accept as true all of the allegations
contained in a complaint is inapplicable to legal
conclusions." 556 U.S. ...