USCA11 Case: 21-13605 Date Filed: 06/03/2022 Page: 1 of 9
[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 21-13605
Non-Argument Calendar
____________________
HESLIN GALLAGHER,
Plaintiff-Appellant,
versus
FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC.,
Defendant-Appellee.
____________________
Appeal from the United States District Court
for the Southern District of Florida
D.C. Docket No. 9:21-cv-81394-AMC
____________________
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2 Opinion of the Court 21-13605
Before ROSENBAUM, LUCK, and LAGOA, Circuit Judges.
PER CURIAM:
Heslin Gallagher was offered a dream job as an investment
counselor. But first she needed to pass certain qualifications exam-
inations, including the “Series 7 exam.” The Series 7 exam is ad-
ministered by the Financial Industry Regulatory Authority, Inc.
(“FINRA”), and is one of the requirements for becoming a securi-
ties broker. Gallagher took and failed the Series 7 exam three
times. As a result, she lost her job.
Frustrated and heartbroken by the results, Gallagher “set
out to do a little research” and came to believe that FINRA was
engaging in an “exam-churning scheme” by using deceptive algo-
rithms in its exam software to unfairly rig the Series 7 exam.
FINRA’s goal, according to Gallagher, was not to ensure a mini-
mum level of qualifications for the securities industry, but instead
to ensure a minimum level of revenue for FINRA by increasing the
number of candidates who will have to retake (and therefore pay
to retake) the exams. She sued FINRA pro se in federal court in
August 2021, asserting that the alleged exam-churning scheme vio-
lated § 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b), and
17 C.F.R. § 240.10b-5.
FINRA moved to dismiss, and the district court granted
FINRA’s motion. The court found that FINRA was absolutely im-
mune from suit for the performance of its delegated regulatory
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21-13605 Opinion of the Court 3
duty to administer the Series 7 exam. The court also concluded
that the Exchange Act did not provide for a private cause of action
against FINRA for violating its own rules. Finding that any amend-
ment of the complaint would be futile, the court dismissed the ac-
tion with prejudice. Gallagher now appeals.
I.
We review de novo an order granting a motion to dismiss
on the basis of immunity, accepting the allegations in the complaint
as true and construing them in the light most favorable to the plain-
tiff. Weissman v. Nat’l Ass’n of Sec. Dealers, Inc.,
500 F.3d 1293,
1295 (11th Cir. 2007) (en banc). To survive a motion to dismiss,
the complaint generally must “contain sufficient factual matter, ac-
cepted as true, to state a claim to relief that is plausible on its face.”
Am. Dental Ass’n v. Cigna Corp.,
605 F.3d 1283, 1289 (11th Cir.
2010) (quotation marks omitted). That means the complaint’s non-
conclusory factual allegations, accepted as true, “must be enough
to raise a right to relief above the speculative level.” Bell Atl. Corp.
v. Twombly,
550 U.S. 544, 555 (2007).
The plausibility standard “asks for more than a sheer possi-
bility that a defendant has acted unlawfully.” Ashcroft v. Iqbal,
556
U.S. 662, 678 (2009). “Where a complaint pleads facts that are
merely consistent with a defendant’s liability, it stops short of the
line between possibility and plausibility of entitlement to relief.”
Id.
(quotation marks omitted). A claim has facial plausibility only
when the court can “draw the reasonable inference that the defend-
ant is liable for the misconduct alleged.”
Id.
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4 Opinion of the Court 21-13605
II.
The Exchange Act delegates substantial regulatory authority
over the markets to private, “self-regulatory organizations”
(“SROs”). Weissman, 500 F.3d at 196. And it requires any person
who wishes to conduct securities-related business to be associated
with a registered securities association and to comply with that as-
sociation’s rules. 15 U.S.C. § 78o(a)(1), (b)(1); Turbeville v. Fin. In-
dus. Regulatory Auth.,
874 F.3d 1268, 1270 (11th Cir. 2017). As the
nation’s only registered national securities association since 1939 1,
FINRA, a private, not-for-profit corporation and SRO, “oversees
and regulates securities firms who join its membership, individuals
who work for those firms, and individuals associated with those
firms.” Turbeville, 874 F.3d at 1270–71 & n.2.
SROs like FINRA “have dual status as both quasi-regulators
and private businesses.” Weissman, 500 F.3d at 1296. “Because
they perform a variety of vital governmental functions, but lack the
sovereign immunity that governmental agencies enjoy, SROs are
protected by absolute immunity when they perform their statuto-
rily delegated adjudicatory, regulatory, and prosecutorial func-
tions.” Id. In other words, “entities that enjoy absolute immunity
when performing governmental functions cannot claim that im-
munity when they perform non-governmental functions.” Id.
“Only when an SRO is acting under the aegis of the Exchange Act’s
1 FINRA was previously known as the National Association of Securities Deal-
ers or NASD. Turbeville, 874 F.3d at 1270 n.2.
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21-13605 Opinion of the Court 5
delegated authority does it enjoy [the] privilege” of immunity. Id.
at 1297 (quotation marks omitted).
To determine whether an SRO’s conduct is quasi-govern-
mental, and thus whether absolute immunity applies, “we look to
the objective nature and function of the activity for which the SRO
seeks to claim immunity.” Id. The test does not turn on “an SRO’s
subjective intent or motivation,” but rather the “function being
performed.” Id.
We begin our analysis by “examin[ing] the nature and func-
tion of [FINRA’s] actions as alleged” in the complaint. Weissman,
500 F.3d at 1298. Gallagher’s allegations against FINRA relate to
the design, administration, and scoring of the Series 7 exam. Ac-
cording to the complaint, FINRA’s exam software uses algo-
rithms—essentially a complex set of instructions and calculations
for a computer—to “detect the areas in which a candidate is strong
and the areas in which a candidate is weak” and adjust the remain-
ing questions mid-exam, and it includes 10 unidentified “pretest”
questions in the 135-question test, which purportedly do not con-
tribute to a candidate’s score. 2 The complaint also alleges that
FINRA views its exams as having “tremendous economic value” to
its “business” and that it seeks to protect the confidentiality of its
exams. The complaint then asserts that FINRA uses algorithms
2 The complaint’s allegations also covered the rules surrounding the test-tak-
ing environment, such as the refusal to credit time for bathroom breaks, but
Gallagher does not raise those allegations in her briefing on appeal.
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6 Opinion of the Court 21-13605
and unscored questions purely for the purpose of financial enrich-
ment, by increasing the number of exam failures and generating
more business for itself. In Gallagher’s view, these aspects of the
Series 7 exam are not for legitimate regulatory purposes and so are
not shielded by immunity.
We conclude that the district court correctly granted FINRA
absolute immunity from Gallagher’s claim. The nature and func-
tion of FINRA’s alleged wrongful conduct in this case is firmly un-
der the aegis of its delegated authority under the Exchange Act.3
See Weissman, 500 F.3d at 1297.
The regulatory duties delegated to SROs like FINRA include
developing and administering qualifications examinations. Con-
gress mandated that any person trading in securities meet “stand-
ards of training, experience, competence, and such other qualifica-
tion as the [U.S. Securities and Exchange Commission (“SEC”)]
finds necessary or appropriate in the public interest or for the pro-
tection of investors.” 15 U.S.C. § 78o(b)(7). To that end, the SEC
is authorized to administer qualifications tests covering “questions
3 We note that Gallagher does not dispute the district court’s secondary rul-
ing—that there is no private cause of action against FINRA for violating its
own rules—and says it’s irrelevant because she did not raise such a claim. See
Turbeville, 874 F.3d at 1276 (“Congress did not intend to create a private right
of action for plaintiffs seeking to sue SROs for violations of their own internal
rules.”). Insofar as she attempts to raise a new claim against FINRA for the
first time on appeal, it would also be barred by absolute immunity for the same
reasons we discuss in this opinion.
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21-13605 Opinion of the Court 7
related to bookkeeping, accounting, internal control over cash and
securities, supervision of employees, maintenance of records, and
other appropriate matter.” Id. § 78o(b)(7)(B). That examination
authority has been broadly delegated to SROs, which must ensure
their members are “registered or approved in accordance with the
standards of training, experience, competence, and other qualifica-
tion standards . . . established by the rules” of the SRO.
17 C.F.R.
§ 240.15b7-1. “The delegation involves close oversight,” since “the
SEC approves all rule changes by an SRO” and “may also amend
an SRO’s rules itself.” In re Series 7 Broker Qualification Exam
Scoring Litigation,
548 F.3d 110, 112 (D.C. Cir. 2008).
In short, FINRA develops, administers, and scores the Series
7 exam under its delegated authority. See In re Series 7,
548 F.3d
at 112;
17 C.F.R. § 240.15b7–1. Its obligations in that regard “arise
only because of regulations under the Exchange Act.” In re Series
7,
548 F.3d at 115. And those functions would “otherwise be per-
formed by a government agency,” namely, the SEC. Weissman,
500 F.3d at 1297; see 15 U.S.C. § 78o(b)(7)(B). Thus, FINRA’s de-
sign and administration of the Series 7 exam, including its use of
unscored questions and algorithms, arise out of, and directly relate
to, its performance of a regulatory duty, for which it enjoys quasi-
governmental immunity. Weissman, 500 F.3d at 1296–97.
That FINRA also operates as a business and earns money
from the Series 7 exam, which it treats as confidential, proprietary
information, does not change the nature and function of the activ-
ity being performed. See id. Gallagher attributes either profit-
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8 Opinion of the Court 21-13605
seeking or more “nefarious” motivations to FINRA’s use of algo-
rithms and unscored questions in its exam software. But the test
for immunity does not turn on FINRA’s “subjective intent or mo-
tivation.” Id. at 1297.
And in any event, Gallagher’s complaint fails to plausibly es-
tablish that FINRA’s use of algorithms and unscored questions for
the Series 7 exam has no legitimate regulatory purpose. Gallagher
infers from her experience and research that “the algorithms served
no regulatory purpose whatsoever.” We assume without deciding
immunity would not apply if that were true. But her factual alle-
gations fail to give rise to more than a “sheer possibility” that
FINRA’s use of algorithms is entirely divorced from its legitimate
regulatory duties, which is not enough to state a plausible claim.
See Iqbal,
556 U.S. at 678. At best, Gallagher’s allegations suggest
that FINRA could employ algorithms for purely profit-seeking pur-
poses or with the intent to “generate[] a particular ‘class’ of delib-
erately failed persons.” But she offers no reason to believe that
FINRA has actually used algorithms in this way. In fact, she admits
that the “function of the algorithms” is hidden and “the extent of
the harm is unknown.” Accordingly, Gallagher’s allegations do not
plausibly connect FINRA’s use of algorithms and unscored ques-
tions in the Series 7 exam to a nefarious or non-regulatory purpose.
Of course, we recognize that this lawsuit stems in part from
FINRA’s secrecy about its exams, including how they are devel-
oped and scored. But there are good reasons why secrecy would
be advisable to some degree, including to ensure the integrity of
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21-13605 Opinion of the Court 9
the exam as a fair measure of a candidate’s qualifications. FINRA
could reasonably view greater public disclosure about the test or
less restrictive testing environments as increasing the chances of
cheating. FINRA’s lack of transparency about its algorithms and
other aspects of the test alone do not make it reasonable to infer
that its purposes are non-regulatory.
Finally, we must make clear that, contrary to Gallagher’s
suggestions, our decision to affirm the dismissal of Gallagher’s
complaint is no slight on her intelligence or character. On the con-
trary, Gallagher has represented herself quite ably in unfamiliar ter-
rain, making relevant and well-presented arguments. And while
her difficult experience is no doubt frustrating for her, we cannot
say that her complaint states a plausible claim that could pierce
FINRA’s quasi-governmental immunity for the performance of its
delegated regulatory duties, or that she could state such a claim if
granted leave to amend.
For these reasons, we affirm the dismissal of Gallagher’s
complaint as barred by FINRA’s quasi-governmental immunity.
AFFIRMED.
