Sam Balabon v. Robert Cook

Case: 18-50269 Document: 00515212473 Page: 1 Date Filed: 11/25/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
November 25, 2019
No. 18-50269
Lyle W. Cayce
Clerk
SAM BALABON; SPOT QUOTE HOLDINGS, INCORPORATED,
Plaintiffs - Appellants
v.
RICHARD KETCHUM; ERIN VOCKE; FINANCIAL INDUSTRY
REGULATORY AUTHORITY, INCORPORATED,
Defendants - Appellees
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:17-CV-486
Before OWEN, Chief Judge, and HAYNES and COSTA, Circuit Judges.
PER CURIAM:*
Sam Balabon owns two affiliated entities, Spot Quote Holdings, Inc.
(Spot Holdings) and Spot Quote LLC (Spot). Spot is a broker-dealer subject to
regulation by the Financial Industry Regulatory Authority (FINRA). Spot
Holdings is not a FINRA member. FINRA is a registered national securities
association and a self-regulatory organization under the Securities and
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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No. 18-50269
Exchange Act of 1934, 15 U.S.C. § 78s(a), and the Maloney Act of 1938, id. §
78o-3. Financial brokers and dealers must join FINRA, which has broad
authority to regulate its members’ compliance with federal securities laws. Id.
§ 78o(a)(1), (b)(1); see Turbeville v. Fin. Indus. Regulatory Auth., 874 F.3d 1268,
1270 (11th Cir. 2017).
In 2013, FINRA told Balabon that he could sell securities only through
the regulated Spot. FINRA reminded Balabon of the order in June 2016.
Balabon believed that the order was illegal and refused to comply. He then
filed this pro se lawsuit in federal district court against FINRA and two of its
employees. The complaint asserts two claims of tortious interference with the
unregulated Spot Holdings’ business and a claim of unlawful discrimination
based on fines FINRA imposed on Spot.
Defendants moved to dismiss for lack of subject matter jurisdiction,
arguing that Plaintiffs failed to exhaust administrative remedies. Defendants
also moved to dismiss for failure to state a claim based on regulatory immunity.
Plaintiffs did not address the exhaustion defense in their response to the
motion to dismiss.
The magistrate judge to whom the case was referred determined that the
district court lacked jurisdiction. The court explained that the Securities
Exchange Act establishes an administrative process for challenging a FINRA
decision. A member may appeal a FINRA enforcement action within the
organization and, once final, to the Securities and Exchange Commission,
FINRA’s supervising agency. 15 U.S.C. §§ 78s(d)(1), (2); see Scottsdale Capital
Advisors Corp. v. Fin. Indus. Regulatory Auth., Inc., 844 F.3d 414, 417–18 (4th
Cir. 2016). If the SEC rules against the member in a final order, then judicial
review is in the court of appeals. 15 U.S.C. § 78y(a)(1). The magistrate
concluded that this review scheme—administrative review followed by judicial
review in the court of appeals—precludes challenging a FINRA order in district
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court. See Scottsdale, 844 F.3d at 424; Santos-Buch v. Fin. Indus. Regulatory
Auth., Inc., 591 F. App’x 32, 33 (2d Cir. 2015) (per curiam); cf. Jarkesy v. S.E.C.,
803 F.3d 9, 12 (D.C. Cir. 2015). The district court adopted the magistrate
judge’s recommendation and dismissed the lawsuit without prejudice.
Balabon appealed. 1 But his opening brief does not challenge the district
court’s ruling that it lacked subject matter jurisdiction. The closest Balabon
comes is arguing that this case involves a “substantial constitutional issue.”
At first blush, that could be viewed as an argument for district court
jurisdiction. In limited circumstances, a plaintiff may avoid a scheme
channeling review to an agency, followed by judicial review in the court of
appeals, by bringing in district court a challenge that is wholly collateral to the
1 Balabon, a nonlawyer, represented Spot Holdings and Spot in district court despite
the need for a business to have counsel to litigate in federal court. See Rowland v. Cal. Men’s
Colony, Unit II Men’s Advisory Council, 506 U.S. 194, 201–02 (1993) (“It has been the law for
the better part of two centuries . . . that a corporation may appear in the federal courts only
through licensed council.”). He also filed a notice of appeal on behalf of himself and his two
companies. After this court informed Balabon that he could not represent Spot Holdings and
Spot on appeal, he retained counsel for those entities. Counsel then filed a brief for those
entities adopting Balabon’s pro se brief. Later on, Spot dismissed its appeal which is why
this appeal just includes Balabon and Spot Holdings as appellants. We have not resolved
“whether the filing of the corporation’s notice of appeal by someone who is not an attorney is
sufficient to deprive this Court of its jurisdiction to consider the appeal.” In re K.M.A., Inc.,
652 F.2d 398, 399 (5th Cir. Unit B July 1981) (per curiam); but see Insituto de Educacion
Universal Corp. v. U.S. Dep’t of Educ., 209 F.3d 18, 22 (1st Cir. 2000) (“[A] corporate officer
may sign and file a notice of appeal on behalf of the corporation, as long as the corporation
then promptly retains counsel to . . . prosecute the appeal.”); In re Bigelow, 179 F.3d 1164,
1165 (9th Cir. 1999) (same).
We again need not decide whether the filing of a business’s notice of appeal by a
nonlawyer is a jurisdictional defect. Regardless of whether Spot and Spot Holdings filed a
valid notice of appeal, Balabon did as in individual who can appear pro se. But in his brief,
Balabon failed to challenge the district court’s exhaustion ruling, which it treated as a
jurisdictional problem. Without us having to decide whether the failure to go through the
FINRA administrative process is a jurisdictional problem, Balabon waived any challenge to
the district court’s jurisdictional ruling by failing to brief it. We thus must affirm the district
court’s dismissal for lack of jurisdiction and need not explore whether the problem with the
business’s notice of appeal poses a separate ground for dismissing the case.
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agency’s action and outside its expertise. See Thunder Basin Coal Co. v. Reich,
510 U.S. 200, 212–13 (1994). But even a liberal construction of Balabon’s brief
confirms that his constitutional argument relates to regulatory immunity, 2 not
subject matter jurisdiction. This section of Balabon’s brief contends, for
example, that “[b]ased on the Eleventh Amendment, FINRA is not a state or
governmental agency, and therefore does not enjoy the protection of sovereign
immunity.”
Although pro se, Balabon is still required to brief an issue in order to
preserve it for appellate review. Davison v. Huntington Ingalls, Inc., 712 F.3d
884, 885 (5th Cir. 2013). Because Balabon failed to address the jurisdictional
ground on which his case was dismissed, he has abandoned his appeal. United
States v. Arledge, 873 F.3d 471, 472–73 (5th Cir. 2017).
The judgment is AFFIRMED.
2 For the first time on appeal, Balabon argues that FINRA denied him “fair
administrative process.” He failed, however, to raise any due process challenge in the district
court. It is therefore forfeited. Sindhi v. Raina, 905 F.3d 327, 333 (5th Cir. 2018). Balabon’s
mention of exhaustion for the first time in his reply brief is also too late to preserve the issue.
United States v. Reed, 908 F.3d 102, 123 n.81 (5th Cir. 2018).
4