Sum-Slaughter v. FINRA, Inc. ( 2024 )

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DISTRICT OF COLUMBIA COURT OF APPEALS
No. 21-CV-0356
ELIZABETH ANN SUM-SLAUGHTER, APPELLANT,
v.
FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC., APPELLEE.
Appeal from the Superior Court
of the District of Columbia
(2020-CA-004114-B)
(Hon. Florence Pan, Trial Judge)
(Argued May 24, 2022 Decided August 15, 2024)
Chelsea Bauer, with whom Catherine Hedgeman was on the brief, for
appellant.
Kathleen Warin, with whom Betty G. Brooks and Ryan M. Duffy were on the
brief, for appellee.
Before BECKWITH * and DEAHL, Associate Judges, and GLICKMAN, † Senior
Judge.
*
Associate Judge AliKhan was assigned to this case originally. Following
her appointment to the U.S. District Court for the District of Columbia, effective
December 12, 2023, Judge Beckwith was assigned to take her place on the panel.
†
Judge Glickman was an Associate Judge of the court at the time of argument.
He began his service as a Senior Judge on December 21, 2022.
2
GLICKMAN, Senior Judge: Elizabeth Ann Sum-Slaughter appeals the Superior
Court’s dismissal of her complaint against the Financial Industry Regulatory
Authority (FINRA). Ms. Sum-Slaughter is a financial advisor who is registered with
FINRA to conduct securities transactions with investors. She sued to obtain an order
requiring FINRA to expunge information about a customer’s complaint against her
from the publicly accessible database that FINRA is required to maintain by the
Securities Exchange Act of 1934 (the “Exchange Act”). Ms. Sum-Slaughter alleged
that the requested expungement is appropriate under FINRA’s own Rules and that
the Superior Court possesses “inherent equitable power” to order it and grant
declaratory and permanent injunctive relief to prevent republication.
The Superior Court granted FINRA’s motion to dismiss Ms. Sum-Slaughter’s
complaint on grounds of collateral estoppel, based on the preclusive effect of a
FINRA arbitration proceeding in which the arbitrator had denied Ms. Sum-
Slaughter’s expungement request. Without reaching the merits of that rationale, we
affirm the dismissal for a different reason. We hold that the Superior Court lacked
jurisdiction over Ms. Sum-Slaughter’s lawsuit because Section 27(a) of the
Exchange Act grants the federal district courts “exclusive jurisdiction” over “all suits
in equity and actions at law brought to enforce any liability or duty created by [the
3
Exchange Act] or the rules and regulations thereunder.” 1 In the absence of such
jurisdiction in the courts of the District of Columbia, we refrain from addressing
other issues raised by Ms. Sum-Slaughter’s complaint.
I.
FINRA, formerly called the National Association of Securities Dealers, Inc.,
plays a central role in the comprehensive regulation of the securities industry under
the Exchange Act. That Act provides that most persons who wish to use any
instrumentality of interstate commerce to transact in securities must join an
association of brokers and dealers that is registered with the Securities and Exchange
Commission as a national securities association. 2 FINRA is a registered national
securities association, which the Exchange Act refers to as a “self-regulatory
organization” (SRO). 3 The Exchange Act requires registered SROs to adopt and
enforce membership and conduct rules “designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable principles of
trade, . . . to remove impediments to and perfect the mechanism of a free and open
1
15 U.S.C. § 78aa(a).
2
See 15 U.S.C. § 78o(a)(1), (b)(1).
3
See id. § 78s.
4
market and a national market system, and, in general, to protect investors and the
public interest. . . .” 4 All Rules adopted by FINRA, including those relied upon by
Ms. Sum-Slaughter in the present matter, must be approved by the SEC as consistent
with the Exchange Act before they take effect. 5 Subject to SEC oversight, FINRA
enforces its members’ compliance with those rules and with the federal securities
laws, 6 and for violations it “can—indeed, must—levy sanctions that carry the force
of federal law.” 7 The Exchange Act requires SROs themselves to comply with the
Act, the SEC’s Rules, and their own rules. 8
Under this regulatory scheme, an SRO is required to collect and maintain
information about its member firms and their registered representatives, including
“disciplinary actions, regulatory, judicial, and arbitration proceedings, and other
information required by law, or exchange or association rule, and the source and
4
Id. § 78o-3(b)(6).
5
Id. § 78s(b).
6
See id. §§ 78o-3(b)(2), 78s(b), 78s(g)(1), 78s(h).
7
Turbeville v. FINRA, 874 F.3d 1268, 1270 (11th Cir. 2017) (citing 15 U.S.C.
§ 78o-3(b)(7)).
8
15 U.S.C. § 78s(g).
5
status of such information.” 9 This includes information regarding customer
disputes. FINRA maintains this information in its Central Registration Depository
(CRD). Information about certain events, including some customer disputes, also
must be made available to the public. 10 FINRA fulfills this obligation through its
“BrokerCheck” program, “an online database that contains a report on each currently
and formerly registered broker.” 11 As set forth in FINRA Rule 8312(g), certain
categories of information are exempt or may be withheld from public disclosure; this
includes “offensive or potentially defamatory language or information that raises
significant identity theft, personal safety or privacy concerns that are not outweighed
by investor protection concerns.”
The SEC has explained that the CRD database and BrokerCheck reports serve
securities regulators, the securities industry, and the public. “FINRA, state
regulators, and other regulators use this information in connection with their
9
Id. § 78o-3(i)(5).
10
See id. § 78o-3(i)(1)(B)(i) (“A registered securities association
shall . . . establish and maintain a toll-free telephone listing, and a readily accessible
electronic or other process, to receive and promptly respond to inquiries
regarding . . . registration information on its members and their associated
persons[.]”).
11
Turbeville, 874 F.3d at 1271-72.
6
licensing and regulatory activities[,]” firms use it in making hiring decisions, and
investors use it in choosing their brokers. 12
FINRA’s Rules provide an administrative review process for brokers who
dispute the “accuracy” of information in their BrokerCheck reports. Rule 8312(e)
provides that if FINRA determines the information is inaccurate, it will “update,
modify or remove” it as appropriate; otherwise, FINRA will not change the reported
information. 13 “A determination by FINRA, including a determination to leave
unchanged or to modify or delete disputed information, is not subject to appeal.” 14
There is, however, another route that may be pursued by members or
associated persons seeking to “expunge” customer dispute information from the
CRD system. As stated in FINRA Rule 2080, they “must obtain an order from a
court of competent jurisdiction directing such expungement or confirming an
12
SEC Release No. 34-72649, 79 Fed. Reg. 43,809 (Jul. 22, 2014); see also
SEC Release No. 34-73966, 80 Fed. Reg. 546, 547 (Dec. 30, 2014) (“Having
complete and accurate information in CRD is important to regulators, the industry,
and the public.”).
13
See FINRA Rule 8312(e)(3)(A)-(B).
14
FINRA Rule 8312(e)(3)(C).
7
arbitration award containing expungement relief.” 15 FINRA must be named as a
party to any litigation seeking expungement relief, but it may waive that requirement
if “the expungement relief is based on affirmative judicial or arbitral findings” that
“the claim, allegation or information is factually impossible or clearly erroneous,”
that “the registered person was not involved” in the alleged misconduct, or that “the
claim, allegation or information is false.” 16
FINRA also administers an arbitration forum to resolve intra-industry and
customer-initiated disputes in accordance with FINRA’s Codes of Arbitration
Procedure, which are approved by the SEC. 17 The arbitrators are independent
15
FINRA Rule 2080(a). A “court of competent jurisdiction” is not defined in
FINRA’s Rules, but (as Ms. Sum-Slaughter acknowledges in her complaint) the
term is understood to mean “a court with a grant of subject-matter jurisdiction
covering the case before it.” Lightfoot v. Cendant Mortg. Corp., 580 U.S. 82, 92
(2017).
16
FINRA Rule 2080(b)(1). In addition, Rule 2080(b)(2) provides that if the
expungement relief is based on other judicial or arbitral findings, “FINRA, in its sole
discretion and under extraordinary circumstances,” also may waive the obligation to
name it as a party “if it determines that: (A) the expungement relief and
accompanying findings on which it is based are meritorious; and (B) the
expungement would have no material adverse effect on investor protection, the
integrity of the CRD system or regulatory requirements.”
See 15 U.S.C. § 78s(b); Shearson/Am. Express v. McMahon, 482 U.S. 220,
17
233-34 (1987) (explaining that the SEC has “expansive power to ensure the
adequacy of the arbitration procedures employed by [an SRO]”).
8
contractors, not FINRA employees, and are selected by the parties. 18 A broker
seeking to expunge customer complaint information from their CRD and
BrokerCheck reports may submit this claim to arbitration in the FINRA-
administered forum, in accordance with FINRA Rule 13805. 19 The version of this
Rule in effect at all relevant times in this case provided that an award granting
expungement of customer dispute information had to explain “which of the Rule
2080 grounds for expungement” was the basis for the award and how those grounds
“applie[d] to the facts of the case.” 20
II.
Ms. Sum-Slaughter’s complaint in Superior Court names FINRA as the only
defendant. The complaint seeks equitable relief in the form of an order requiring
FINRA to expunge information relating to a particular customer dispute (referred to
18
See FINRA Rules 13214, 13400-13404.
19
FINRA substantially amended this Rule in 2023. The amended Rule took
effect on October 16, 2023. The version of the Rule in effect from August 17, 2009,
to October 15, 2023, was the Rule that applied to Ms. Sum-Slaughter’s expungement
request.
20
Former FINRA Rule 13805(c). The current Rule continues this requirement
of a finding based on the three grounds identified in Rule 2080, with greater
specificity. See FINRA Rule 13805(c)(9)(A)(i).
9
as an “Occurrence”) from Ms. Sum-Slaughter’s CRD and BrokerCheck records, a
declaratory judgment that the information should be expunged, and a permanent
injunction against its future publication in her CRD and BrokerCheck reports. Citing
D.C. Code § 11-921(a)(2), the complaint states that the Superior Court has subject
matter jurisdiction to grant the requested relief as a “court of competent jurisdiction”
within the meaning of FINRA Rule 2080 because it is a “court of general
jurisdiction.” 21
As pertinent to the jurisdictional question before us, the complaint alleges the
following.
Since April 2000, Ms. Sum-Slaughter has been registered with FINRA in
connection with her employment by the firm of Merrill Lynch, Pierce, Fenner &
Smith. At all relevant times, she was employed by Merrill Lynch as an
Administrative Manager. In April 2011, a customer filed a claim in FINRA’s
Dispute Resolution arbitration forum against Merrill Lynch, Ms. Sum-Slaughter,
and three other employees of the firm, to recover losses on his options trading that
21
D.C. Code § 11-921(a)(2) provides for the Superior Court to have
jurisdiction of “any civil action or other matter, at law or in equity” brought in the
District of Columbia. However, § 11-921(b) adds the qualification that “[t]he
Superior Court does not have jurisdiction over any civil action or other
matter . . . over which exclusive jurisdiction is vested in a Federal court in the
District of Columbia[.]”
10
he attributed to the fault of his brokers at the firm. As regards Ms. Sum-Slaughter,
the customer claimed that she had failed to supervise his Merrill Lynch financial
advisers. In June 2012, Merrill Lynch settled the claim by paying the customer
$104,000.
Ms. Sum-Slaughter did not participate in the settlement discussions or
contribute to the settlement amount. She claims the customer’s complaint against
her was meritless because, as an Administrative Manager at Merrill Lynch, she was
never the customer’s financial adviser, nor was she compensated on the customer’s
account or transactions; the customer was an experienced investor who knowingly
engaged in aggressive, self-directed options trading despite repeated letters from
Ms. Sum-Slaughter warning him of the risks; and she did not fail to supervise the
Merrill Lynch brokers who were the customer’s financial advisers.
In accordance with FINRA Rules, Merrill Lynch reported the 2011 customer
dispute to FINRA, and FINRA maintained information about the dispute in
Ms. Sum-Slaughter’s CRD record and published some of that information in her
BrokerCheck report. The BrokerCheck entry, which is in the record on appeal as an
exhibit to FINRA’s motion to dismiss the complaint, stated only that the allegation
against Ms. Sum-Slaughter was a “failure to supervise” in connection with
transactions involving mutual fund options; the customer claimed damages of
11
$262,541; the claim was settled for $104,000; and Ms. Sum-Slaughter contributed
no money to the settlement. In addition, the BrokerCheck entry included Ms. Sum-
Slaughter’s response that she was not involved in the underlying transactions, was
named solely in her role as a supervisor, and did not contribute monetarily to the
settlement.
Several years later, in November 2018, Ms. Sum-Slaughter filed a claim in
FINRA’s arbitration forum seeking expungement of the customer’s complaint from
her CRD and BrokerCheck records pursuant to FINRA Rule 2080. Merrill Lynch,
named as the respondent, filed an answer stating it took no position regarding the
expungement request. On May 23, 2019, the arbitrator assigned to the case executed
an award denying Ms. Sum-Slaughter’s expungement request. Although the full
contents of the award are not set forth in her Superior Court complaint, the award is
in the record as an exhibit to FINRA’s motion to dismiss. It states that Ms. Sum-
Slaughter was represented by counsel, that the arbitrator conducted a recorded
telephonic hearing in which Ms. Sum-Slaughter presented evidence and argument
on her request for expungement, and that Merrill Lynch participated and did not
contest the request. (The customer, who had been notified and afforded an
opportunity to present evidence in the arbitration, also did not oppose expungement.)
The award states that the arbitrator denied the request for expungement “[a]fter
considering the pleadings, the testimony and evidence presented at the hearing.” The
12
award does not contain any further discussion of the evidence or further explanation
of the decision. 22
A few months after the rendition of the arbitration award, Ms. Sum-Slaughter
filed a motion to vacate it. She filed this motion in Broomfield County District Court
in Colorado and served it only on Merrill Lynch. On October 11, 2019, that state
court issued an order granting the motion to vacate. Ms. Sum-Slaughter’s Superior
Court complaint says nothing more about the Colorado court case. However, the
motion and proposed order that she filed there, Merrill Lynch’s response, and the
Broomfield County Court’s order are part of the record before us, as FINRA
appended them as exhibits to its motion to dismiss Ms. Sum-Slaughter’s Superior
Court complaint. We may take judicial notice of them. 23
Ms. Sum-Slaughter did not name FINRA as a party to the Colorado
proceeding or serve it with her vacatur motion. She does not dispute that FINRA
22
Because Ms. Sum-Slaughter’s BrokerCheck report and the arbitration
award are referenced in her complaint, are exhibits to FINRA’s motion to dismiss
the complaint, and are in the record before us, this court properly may notice and
consider them on appeal from that dismissal. See Tovar v. Regan Zambri Long,
PLLC, 317 A.3d 884, 894-95 (D.C. 2024); Walker v. FedEx Off. & Print Servs., Inc.,
123 A.3d 160, 164 (D.C. 2015).
23
See Walker, 123 A.3d at 164 (“Proceedings in related cases may be
judicially noticed.” (quoting Cannon v. District of Columbia, 569 A.2d 595, 597 n.3
(D.C. 1990))).
13
had no knowledge of the proceeding and did not participate in it in any way. Merrill
Lynch, the only named respondent, informed the Colorado court that it took no
position on the motion to vacate and wished to be excused from attending any
hearing or argument on the motion. Apparently, Merrill Lynch had no further
involvement in the proceeding. The proposed order that Ms. Sum-Slaughter
submitted to the Broomfield County Court characterized her motion as an
“unopposed request for Relief from [a] Default Judgment,” and that is what the court
said it granted in a one-sentence order adopting her proposed order. (This was an
apparent mischaracterization, as the FINRA arbitration award was not a default
judgment.) The court did not provide any rationale for vacating the FINRA
arbitration award. The court did not consider evidence relating to the arbitration
award or address its merits or appropriateness.
Ms. Sum-Slaughter’s Superior Court complaint alleges that, after she obtained
the Broomfield County District Court’s order, she returned to the FINRA arbitration
forum and re-filed her expungement request against Merrill Lynch. FINRA rejected
the request as ineligible for arbitration because her claims were identical to the ones
she previously had arbitrated in FINRA’s forum, which the arbitrator had denied. 24
24
Ms. Sum-Slaughter did not appeal FINRA’s denial of a new arbitration to
the SEC under 15 U.S.C. § 78s(d).
14
On the premise that the Colorado state court had vacated the FINRA
arbitrator’s ruling, Ms. Sum-Slaughter then filed her complaint in Superior Court for
expungement of the customer dispute information from her CRD and BrokerCheck
reports. 25 The complaint requests this relief based on FINRA’s “own rules for
expungement,” namely Rule 2080 and Rule 8312(g)(1), “and/or pursuant to [the
Superior Court’s] inherent equitable power.” The complaint states that the
allegations against Ms. Sum-Slaughter should be expunged under Rule 2080
because they are “clearly erroneous, factually impossible, false, [and] do[] not arise
from a sales-practice violation,” and under Rule 8312 because they are “potentially
defamatory,” i.e., “misleading, inaccurate, erroneous, and portray [her] in a negative
light.”
Other than the two FINRA Rules, the complaint identifies no statute,
constitutional provision, rule, or common law cause of action entitling Ms. Sum-
Slaughter to the expungement relief she seeks. However, the complaint asserts that
the Superior Court should exercise its “inherent” power as a court of equity to order
The complaint does not mention that, before Ms. Sum-Slaughter filed it in
25
Superior Court, she had sued FINRA in the Denver County (Colorado) District Court
seeking the same expungement relief. After FINRA entered its appearance,
however, Ms. Sum-Slaughter voluntarily dismissed the Denver case. The pleadings
are in the record before us as exhibits to FINRA’s motion to dismiss in Superior
Court.
15
FINRA to expunge the customer dispute from Ms. Sum-Slaughter’s CRD and
BrokerCheck reports because publication of the Occurrence “offers no regulatory
value” and “does not benefit the public.”
FINRA did not challenge the jurisdiction of the Superior Court to entertain
Ms. Sum-Slaughter’s complaint. Instead, FINRA moved to dismiss the complaint
on three other grounds: (1) Ms. Sum-Slaughter failed to join an indispensable party,
namely Merrill Lynch; (2) collateral estoppel precluded relitigation of her
expungement claim following its denial in arbitration, because the Broomfield
County District Court order, entered without findings or notice to FINRA, had no
preclusive effect in the Superior Court proceeding; and (3) the complaint failed to
state a cognizable claim for the equitable expungement relief sought. In her
opposition, Ms. Sum-Slaughter took issue with each of those grounds. She argued
that Merrill Lynch’s participation as a party was unnecessary for the court to grant
the relief she requested, and that collateral estoppel did not apply because the
arbitration award had been vacated by a valid order from the Colorado court. And
Ms. Sum-Slaughter contended that she had sufficiently stated a claim for
expungement relief “either in accordance with FINRA Rules 2080 or 8312, or
pursuant to the [Superior] Court’s inherent equitable power.”
16
The Superior Court granted FINRA’s motion to dismiss on the collateral
estoppel ground, without addressing the other two grounds or its subject matter
jurisdiction. The court rejected Ms. Sum-Slaughter’s premise that FINRA was
bound by the Broomfield County order purporting to vacate the arbitration award.
While noting that FINRA Rule 2080(b) itself did not include a directive “to name
FINRA as a party [when] seeking judicial vacatur of an arbitration award denying
expungement,” the court reasoned that the vacatur order did not bind FINRA
because under “general rules of the law, you can’t hold a party to a judgment if that
party was not given an opportunity to contest [it].” As a result, the court concluded
that the “first arbitration award . . . was not vacated with respect to FINRA,” so that
Ms. Sum-Slaughter was “collaterally estopped from bringing a separate action to
achieve the same result when she’s already had an opportunity to litigate that in the
arbitration forum through the FINRA system,” because “you can either arbitrate or
go to court but you can’t do both.”
III.
In her initial briefing on appeal, and at oral argument, Ms. Sum-Slaughter
contended that the Superior Court erred in dismissing her complaint on collateral
estoppel grounds, and that she stated a plausible claim for equitable relief. In
opposition, FINRA argued that collateral estoppel precludes Ms. Sum-Slaughter’s
17
action, and that her complaint fails to state a claim on which any relief can be
granted; in particular, that there is no cognizable claim for equitable relief in the
form of expungement.
After oral argument, however, we identified a critical threshold question of
law that neither party had addressed: whether there is subject-matter jurisdiction in
the District of Columbia courts over Ms. Sum-Slaughter’s action for expungement
of the customer dispute information from her CRD and BrokerCheck reports.
“Without jurisdiction, the Court cannot proceed at all in any cause. Jurisdiction is
power to declare the law, and when it [does not] exist, the only function remaining
to the court is that of announcing the fact and dismissing the cause.” 26 “Where a
substantial question exists as to this court’s subject matter jurisdiction, it is our
obligation to raise it, sua sponte, even though, as here, no party has asked us to
consider it.” 27 “Challenges to a court’s subject matter jurisdiction cannot be
In re D.M., 771 A.2d 360, 364 (D.C. 2001) (quoting Steel Co. v. Citizens
26
for a Better Env’t, 523 U.S. 83, 94 (1998)) (quoting Ex parte McCardle, 74 U.S.
506, 514 (1869)).
27
Id. (quoting Murphy v. McCloud, 650 A.2d 202, 203 n.4 (D.C. 1994))
(brackets omitted).
18
waived.” 28 We therefore requested, and we have received, supplemental briefing by
the parties directed to the jurisdictional question.
“Because the issue of subject matter jurisdiction is a question of law, . . . our
standard of review is de novo.” 29 As subject matter jurisdiction in this case does not
depend on the resolution of any factual question, we determine jurisdiction “by
looking only at the face of the complaint and taking the allegations in the complaint
as true.” 30 Ultimately, the burden is on Ms. Sum-Slaughter, as the party invoking
the court’s subject matter jurisdiction, to demonstrate that such jurisdiction exists. 31
“As a court of general jurisdiction, the Superior Court has jurisdiction of any
civil action or other matter (at law or in equity) brought in the District of Columbia
unless jurisdiction is vested exclusively in a federal court.” 32 In pertinent part,
Section 27(a) of the Exchange Act, 15 U.S.C. § 78aa(a), provides that the federal
28
Slater v. Biehl, 793 A.2d 1268, 1271 (D.C. 2002) (quoting Arrington v.
United States, 585 A.2d 1342, 1344 n.2 (D.C. 1991)).
29
Id. (internal quotation marks, brackets and citation omitted).
30
Heard v. Johnson, 810 A.2d 871, 877 (D.C. 2002).
31
Off. of the People’s Couns. for the District of Columbia v. D.C. Water &
Sewer Auth., 313 A.3d 579, 590 n.2 (D.C. 2024).
32
Slater, 793 A.2d at 1271 (internal quotation marks omitted); see also D.C.
Code § 11-921(b)(1).
19
district courts “shall have exclusive jurisdiction . . . of all suits in equity and actions
at law brought to enforce any liability or duty created by [the Exchange Act] or the
rules and regulations thereunder.” In Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Manning, the Supreme Court construed this statute to “confer[] exclusive federal
jurisdiction of the same suits as ‘aris[e] under’ the Exchange Act pursuant to the
general federal question statute,” 28 U.S.C. § 1331. 33 The test for “arising under”
jurisdiction is satisfied in “either of two circumstances,” the Court explained. 34 First,
“[m]ost directly, and most often, federal jurisdiction attaches when federal law
creates the cause of action asserted.” 35 Second,
even when a claim finds its origins in state law, . . . . a
federal court has jurisdiction of a state-law claim if it
necessarily raises a stated federal issue, actually disputed
and substantial, which a federal forum may entertain
without disturbing any congressionally approved balance
of federal and state power.[36]
33
578 U.S. 374, 380 (2016).
34
Id. at 383.
35
Id.36
Id. (internal quotation marks, brackets, and citation omitted).
20
“That description,” the Court explained, “typically fits cases . . . in which a state-law
cause of action is ‘brought to enforce’ a duty created by the Exchange Act because
the claim’s very success depends on giving effect to a federal requirement.” 37
In Turbeville v. FINRA, 38 the Eleventh Circuit applied Manning to determine
that Section 27(a) of the Exchange Act vested jurisdiction in federal court over
claims for defamation and other state law torts asserted against FINRA in a state
court lawsuit (which FINRA had removed to federal court). The defamation count
was based on the publication in Turbeville’s BrokerCheck report of allegations
against Turbeville and a recommendation of discipline based on those allegations.39
Turbeville’s state court complaint charged that FINRA’s Rules precluded this
publication. 40 The other causes of action in the complaint similarly “rest[ed]
expressly on allegations that FINRA violated its own rules.” 41 Thus, the court
concluded, the complaint on its face was “fundamentally a challenge to an SRO’s
compliance with its internal rules while carrying out its regulatory and enforcement
37
Id. at 384.
38
874 F.3d at 1273-74.
39
See id.40
Id.41
Id. at 1274.
21
functions,” and the claims therefore necessarily required the court to interpret
FINRA’s Rules. 42 Because those Rules “are promulgated according to the Exchange
Act’s mandates,” the court said, “their interpretation unavoidably involves
answering federal questions.” 43 And “[m]ore importantly,” the court said,
“Turbeville’s suit does not just raise a federal question; it turns on the existence of a
federally supplied right of action.” 44 For as the court explained:
Turbeville uses state-law claims to launch a collateral
attack on FINRA’s conduct in carrying out its disciplinary
and disclosure functions under its SEC-approved rules.
Were such a right of action to exist, it must have been
supplied by federal law, because federal law—namely, the
Exchange Act—creates SROs, vests them with a first-line
role in the enforcement of federal securities law, and
mandates creation of internal rules to govern their
disciplinary and disclosure actions.
When exercising these functions, SROs act under color of
federal law as deputies of the federal government. To sue
these actors, a litigant must obtain permission from the
federal sovereign; otherwise, any state-law claims asserted
against them for carrying out their federally mandated
duties crash headlong into the shoals of preemption.
McCulloch v. Maryland, 17 U.S. 316, 4 Wheat. 316, 317,
4 L. Ed. 579 (1819) (“The states have no power . . . to
retard, impede, burden, or in any manner control the
42
Id. at 1275.
43
Id.
44
Id.
22
operations of the constitutional laws enacted by congress
to carry into effect the powers vested in the national
government.”). Thus, because Turbeville’s complaint
depends on a right of action supplied by federal law, the
District Court concluded correctly that removal was
proper. See Manning, [578 U.S. at 383] (“Most directly,
and most often, federal jurisdiction attaches when federal
law creates the cause of action asserted.”).[45]
Much the same analysis applies to Ms. Sum-Slaughter’s complaint against
FINRA. The complaint plainly states that it is brought to enforce FINRA’s
compliance with its own Rules governing expungement of information in CRD and
BrokerCheck reports; the complaint identifies no other rule, statute, constitutional
provision, or common law basis for the equitable relief it seeks. The ability of the
Superior Court to provide equitable remedies does not make up for the absence of
any non-federal cause of action calling for remediation. Each of the three equitable
“claims” in the complaint—for expungement, a declaratory judgment, or an
45
Id. at 1275-76. The Turbeville court went on to conclude that the federal
district court properly dismissed the complaint because “Congress did not intend to
create a private right of action for plaintiffs seeking to sue SROs for violations of
their own internal rules.” Id. at 1276; see also, e.g., Lowe v. Nat’l Ass’n of Sec.
Dealers, Inc. (In re Series 7 Broker Qualification Exam Scoring Litig.), 548 F.3d
110, 114 (D.C. Cir. 2008) (“[C]ourts have consistently found Congress’s intent
under the Exchange Act precludes common law causes of action, and we agree with
the reasoning of our sister circuits.”) (citing cases). Because we conclude that the
Superior Court lacked subject matter jurisdiction of Ms. Sum-Slaughter’s complaint,
we need not and do not address whether she has stated a right of action that she could
have advanced in another forum.
23
injunction 46—is merely a “remed[y], not [a] cause[] of action, and a court cannot
grant a remedy without a cause of action.” 47 Here, the only plausible cause of action
Ms. Sum-Slaughter alleges would be rooted in the Exchange Act itself, as she claims
to be entitled to equitable relief based on FINRA’s alleged failure to apply Rules
2080 and 8312 properly in her case. Her reliance on that alleged failure, even as the
basis for her invocation of the Superior Court’s “inherent” equitable power, is
concisely illustrated by the complaint’s explanation that expungement is required as
an equitable matter because continued publication has “no regulatory value.” As
FINRA points out, this is a standard articulated by the SEC. 48
In the words of the Turbeville court, Ms. Sum-Slaughter’s complaint is thus
“fundamentally a challenge to an SRO’s compliance with its internal rules while
carrying out its regulatory and enforcement functions,” 49 a challenge that would
46
Ms. Sum-Slaughter cites to Super. Ct. Civ. R. 57 (declaratory judgment)
and 65 (injunctions and restraining orders).
47
Rayner v. Yale Steam Laundry Condo. Ass’n, 289 A.3d 387, 401 (D.C.
2023) (citations omitted); see also Super. Ct. Civ. R. 57 cmt. (“[A] declaratory
judgment, like any other remedy, may only be granted in cases properly within the
Court’s jurisdiction.”)
48
See 68 Fed. Reg. 746782 (2003).
49
Turbeville, 864 F.3d at 1275.
24
require the Superior Court to interpret those rules and evaluate FINRA’s compliance
with them and with the scope of FINRA’s authority and duties under the Exchange
Act itself. This “unavoidably involves answering federal questions” and necessarily
“turns on the existence of a federally supplied right of action.” 50 Ms. Sum-
Slaughter’s claims therefore “aris[e] under” federal law within the meaning of 28
U.S.C. § 1331, and are within the exclusive jurisdiction of the federal district courts
pursuant to Section 27(a) of the Exchange Act.
50
Id.; see also Pee Pee Pop Trust v. FINRA, No. 3:19-cv-00240-MMD-CBC,
2019 U.S. Dist. LEXIS 165024 at *6-9 (D. Nev. Sep. 26, 2019) (upholding federal
question jurisdiction over complaint invoking state law cause of action as the basis
for relief against FINRA, because “the complaint ‘is on its face a challenge to
FINRA’s application of its internal rules in exercising its regulatory authority under
the Exchange Act’” (quoting Turbeville, 874 F.3d at 1274)). Because Ms. Sum-
Slaughter’s complaint does not allege any cause of action having its “origins” in the
law of the District of Columbia, Manning, 578 U.S. at 383, we have no occasion in
this case to opine on whether such an allegation might survive a jurisdictional
challenge under Section 27(a) of the Exchange Act. See id. (explaining that federal
jurisdiction over a state-law claim exists if the claim “necessarily raises” a federal
issue that is “actually disputed and substantial,” and if a federal court may entertain
the claim “without disturbing any congressionally approved balance of federal and
state power”).
25
IV.
On the ground that the Superior Court lacked subject matter jurisdiction, we
affirm its dismissal of Ms. Sum-Slaughter’s complaint.
So ordered.