Scottsdale Capital Advisors Corporation v. Financial Industry Regulatory Authority, Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
SCOTTSDALE CAPITAL ADVISORS
CORPORATION and ALPINE SECURITIES
CORPORATION, Civil Action No. 23-1506 (BAH)
Plaintiffs, Judge Beryl A. Howell
v.
FINANCIAL INDUSTRY REGULATORY
AUTHORITY, INC.,
Defendant,
UNITED STATES OF AMERICA,
Intervenor Defendant.
MEMORANDUM OPINION
Plaintiffs Scottsdale Capital Advisors Corporation (“SCA”) and Alpine Securities
Corporation (“Alpine”) originally filed suit in the Middle District of Florida asserting several
constitutional challenges to the operation and structure of the Financial Industry Regulatory
Authority, Inc. (“FINRA”), a private corporation responsible for regulating broker-dealers in the
securities industry. As litigation proceeded in that case, FINRA expedited an enforcement action
against Alpine, alleging that this company committed thousands of violations of a permanent
FINRA order to cease-and-desist certain conduct, which conduct required Alpine’s immediate
expulsion from FINRA’s membership and thus the securities industry. Alpine coins that
punishment “the corporate death penalty” given that such expulsion would necessitate a
complete closure of Alpine’s business and operations. Pls.’ Second Am. Compl. (“SAC”) ¶¶ 10,
129, ECF No. 43.
Weeks before the expedited enforcement action’s scheduled hearing before FINRA,
Alpine sought an emergency preliminary injunction from the district court in the Middle District
of Florida, seeking to halt the expedited enforcement proceeding pending resolution of Alpine’s
constitutional challenges. After briefing and oral argument on the motion, however, the case was
transferred to this Court for resolution—only two business days before the FINRA hearing. The
day before the scheduled hearing, Alpine then renewed its emergency motion seeking a
preliminary injunction or temporary restraining order (“TRO”). Alpine also seeks
reconsideration of an earlier order of this Court denying its original emergency motion as filed in
the Middle District of Florida.
Upon consideration of Alpine’s two pending motions, extensive briefing, oral argument,
and the entire record herein, Alpine’s motion for reconsideration is granted and its emergency
motion for a preliminary injunction or TRO is denied.
I. BACKGROUND
The factual background and procedural history of this case is briefly recounted below.
A. Legal Landscape
The Securities Exchange Act of 1934 (“the Exchange Act”), as amended in 1938, created
a complex statutory regime “of cooperative self-regulation” of so-called over-the-counter
securities markets. See United States v. NASD, 422 U.S. 694, 700 n.6 (1975). That scheme
permits private entities, known as self-regulatory organizations (“SROs”), to perform a
supervisory role over the securities industry, subject to oversight from the Securities and
Exchange Commission (“SEC” or “the Commission”). See 15 U.S.C. § 78s (describing the
SEC’s oversight role over SROs). Brokers and dealers transacting in the securities industry may
not do so without registering with the SEC and joining a national securities association. See id. §
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78o(a)(1), (b)(1). The only national securities association currently registered with the SEC is
defendant FINRA. See id. § 78o-3 (describing the requirement for registration of a national
securities association).
1. FINRA’s Corporate Structure
FINRA is a Delaware not-for-profit corporation and SEC-registered national securities
association that conducts business in the District of Columbia. See SAC ¶¶ 30–31. Following its
formation from a 2007 consolidation between its predecessor, the National Association of
Securities Dealers (“NASD”), and the enforcement arm of the New York Stock Exchange
(“NYSE”), id. ¶ 40; see also Order Approving Proposed Rule Change to Amend the By-Laws of
NASD, 72 Fed. Reg. 42,169 (Aug. 1, 2007), FINRA is governed by a board of twenty-two
members, comprised of industry and non-industry members and FINRA’s chief executive officer
(“CEO”), which board oversees the organization’s management and administration, see SAC ¶
42–43. Board members are selected by FINRA’s members and are removable only by a majority
vote of FINRA’s board or, “in very limited and specific circumstances, the SEC,” and thus no
Board member or the CEO is appointed by the SEC, the U.S. President, Congress, or any other
governmental body. Id. ¶¶ 57–58; see also 72 Fed. Reg. at 42,170–72. 1 At the next level of
management, FINRA executives are appointed and removed by the board, see SAC ¶ 59, with no
involvement by the SEC or any other government official or body. FINRA’s funding is derived
“almost exclusively” through membership fees as well as fines, penalties, and sanctions, id. ¶ 52,
with its budget set “without any constraint or legislative cap” because FINRA receives no
government funding, id. ¶ 51. See also FINRA By-Laws art. VI § 1 (Power of the Corporation
1
More specifically, the SEC may “remove from office or censure” a FINRA officer or director upon a
finding that the individual in question “has willfully violated [applicable statutory provisions], the rules or
regulations thereunder, or the rules of [FINRA], willfully abused his authority, or without reasonable justification or
excuse has failed to enforce compliance” with securities laws. 15 U.S.C. § 78s(h)(4).
3
to Fix and Levy Assessments), https://www.finra.org/rules-guidance/rulebooks/corporate-
organization/power-corporation-fix-and-levy-assessments [https://perma.cc/PB84-KUXL]. Part
of that budget includes salaries for FINRA’s executives, as determined by the organization itself.
See id. ¶ 53.
2. FINRA’s Rules
FINRA’s supervisory duties over its membership—including roughly 3,400 brokerage
firms, 150,000 branch offices, and 610,000 individual registered securities representatives—is
varied. See id. ¶ 41. While FINRA promulgates its own rules and standards and enforces
compliance with those rules through administering sanctions and barring individuals from
FINRA membership, see id. ¶ 50, this supervisory authority is subject to the SEC’s oversight and
control, Turbeville v. FINRA, 874 F.3d 1268, 1270 (11th Cir. 2017). For instance, the SEC may
limit FINRA’s operations or registration if FINRA violates a statute or SEC regulation. See 15
U.S.C. § 78s(h)(1). Suspension or revocation of that registration is subject to the SEC’s opinion
that such action “is necessary or appropriate in the public interest, for the protection of investors,
or otherwise in furtherance of the purposes of [the Exchange Act].” Id. The SEC also reviews
and approves rules proposed by FINRA, see id. § 78s(b)–(c), with SEC approval a prerequisite
for the majority of such rules, see id. § 78s(b)(1). 2 At any time and as “deem[ed] necessary or
2
The Exchange Act permits three avenues for promulgation of a FINRA rule without the SEC’s express
approval: (i) a rule designated by FINRA “as . . . constituting a stated policy, practice, or interpretation with respect
to the meaning, administration, or enforcement of an existing [FINRA] rule[;] . . . establishing or changing a due,
fee, or other charge imposed by [FINRA;] . . . [or] concerned solely with the administration of [FINRA] or other
matters[,]” 15 U.S.C. § 78s(b)(3)(A); (ii) a rule that “appears to the Commission . . . is necessary for the protection
of investors, the maintenance of fair and orderly markets, or the safeguarding of securities or funds[,]” id. §
78s(b)(3)(B); and (iii) a rule on which the SEC does not act within a specified time are “deemed to have been
approved[,]” id. § 78s(b)(2)(D). In either of the first two scenarios, within 60 days of the proposed rule’s filing, the
SEC “summarily may temporarily suspend the change in the rules . . . if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of
the purposes of this chapter.” Id. § 78s(b)(3)(C). In such an instance, the SEC shall hold proceedings to determine
whether the proposed rule shall be approved. See id.
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appropriate[,]” the SEC may also “abrogate, add to, and delete from” any FINRA rule “to insure
the fair administration of the self-regulatory organization, to conform its rules to requirements of
[the Exchange Act] and the rules and regulations thereunder applicable to such organization, or
otherwise in furtherance of the purposes of [the Act].” Id. § 78s(c).
3. FINRA’s Enforcement Regime
Enforcement proceedings result from FINRA’s investigation into alleged misconduct by
its members, and such investigations are done at FINRA’s discretion, without any influence from
the SEC or other branch of government. See SAC ¶ 55; see also 15 U.S.C. § 78o-3(b)(8). In
fact, “[i]nvolvement by SEC commissioners in this onerous and impactful process occurs only
when—and if—a target of an investigation survives the investigation, prosecution, and internal
appeal process.” SAC ¶ 55. FINRA takes enforcement action against individuals or entities that
violate a FINRA rule, SEC regulation, or statutory provision. See 15 U.S.C. § 78o-3(b)(7).
Enforcement proceedings begin with FINRA filing a complaint against a targeted entity,
providing notice to that entity of the specific charges. See FINRA Rule 9211 (Aug. 3, 2018),
https://www.finra.org/rules-guidance/rulebooks/finra-rules/9211 [https://perma.cc/3RM6-F9MF]
(Authorization of Complaint). A FINRA hearing panel then conducts an evidentiary hearing, in
which the entity may present arguments over multiple days. See 15 U.S.C. § 78o-3(h)(1); see
also id. § 78o-3(b)(8) (requiring registered national securities associations to employ fair
disciplinary procedures); FINRA Rule 9231 (June 4, 2020), https://www.finra.org/rules-
guidance/rulebooks/finra-rules/9231 [https://perma.cc/SVL6-8HZ2] (Appointment by the Chief
Hearing Officer of Hearing Panel or Extended Hearing Panel or Replacement Hearing Officer).
The panel then issues a statement of decision with findings. See 15 U.S.C. § 78o-3(h)(1)(A)–
(C); see also FINRA Rule 9268 (Nov. 2, 2015), https://www.finra.org/rules-
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guidance/rulebooks/finra-rules/9268 [https://perma.cc/72SL-T7UW] (Decision of Hearing Panel
or Extended Hearing Panel).
An aggrieved party may appeal that decision to FINRA’s National Adjudicatory Council
(“NAC”), which “may affirm, dismiss, modify, or reverse with respect to each finding.” FINRA
Rule 9348 (Nov. 2, 2015), https://www.finra.org/rules-guidance/rulebooks/finra-rules/9348
[https://perma.cc/PWN9-TWS6] (Powers of the National Adjudicatory Council on Review). The
NAC may also review the panel decision sua sponte. See FINRA Rule 9312 (Apr. 15, 2021),
https://www.finra.org/rules-guidance/rulebooks/finra-rules/9312 [https://perma.cc/74ZK-Q75W]
(Review Proceeding Initiated by Adjudicatory Council). Such an appeal operates as a stay of the
panel’s decision pending NAC’s decision. See FINRA Rule 9311 (Apr. 15, 2021),
https://www.finra.org/rules-guidance/rulebooks/finra-rules/9311 [https://perma.cc/BQ58-TCQT]
(Appeal by Any Party; Cross-Appeal). A NAC decision may then be appealed to the SEC, see
15 U.S.C. § 78s(d)(2), which conducts de novo review and may consider evidence not previously
considered by FINRA, see Commission Rule of Practice 452, 17 C.F.R. § 201.452.
Final decisions by the SEC are subject to review by a federal appellate court with the
filing of a petition by an aggrieved party, see 15 U.S.C. § 78y, but FINRA itself may not seek
judicial review of an SEC decision contrary to a FINRA ruling, see generally NASD v. SEC, 431
F.3d 803, 812 (D.C. Cir. 2005).
B. FINRA’s Enforcement Action Against Plaintiff
Plaintiffs are broker-dealers and registered FINRA members, both owned by the same
parent holding company. See SAC ¶¶ 28–29; Transcript of Hearing (June 1, 2023) (“Hr’g Tr.”)
at 9:17–23. 3 As early as 2019, FINRA received complaints from customers of Alpine alleging
3
Neither plaintiff is a stranger to FINRA enforcement proceedings. See, e.g., FINRA’s Opp’n to Pl.’s
Renewed Mot. for Preliminary Injunction and Temporary Restraining Order (“FINRA’s TRO Opp’n”) at 3, ECF
6
that the firm charged a significant monthly account fee. See FINRA’s Opp’n to Pl.’s Renewed
Mot. for Preliminary Injunction and Temporary Restraining Order (“FINRA’s TRO Opp’n”), Ex.
A, March 22, 2022 Extended Hearing Panel Decision, Dep’t of Enf’t v. Alpine Sec. Corp.,
FINRA Disciplinary Proceeding No. 2019061232601 (“March 2022 Panel Decision”) at 2, ECF
No. 70-1. On March 22, 2022, a FINRA hearing panel found that Alpine “converted and
misused customer funds and securities, engaged in unauthorized trading, charged and paid
customers unfair prices in securities transactions, charged customers unreasonable and
discriminatory fees, and made an unauthorized capital withdrawal.” March 2022 Panel Decision
at 1. For Alpine’s violations, the panel ordered Alpine’s expulsion from FINRA’s membership,
payment of restitution in an amount exceeding $4 million, and a “permanent cease and desist
order.” Id. Alpine then appealed that panel decision to the NAC, which appeal had the effect of
staying the expulsion and restitution sanctions but the “permanent cease and desist order” took
immediate effect, in accordance with the explicit use of this term in the panel decision and
governing FINRA rules. See FINRA’s TRO Opp’n at 3–4; see also FINRA Rule 9311(b) (“Any
such appeal, however, will not stay a decision, or that part of a decision, that imposes a
permanent cease and desist order.”).
During the pendency of the NAC appeal, FINRA discovered that Alpine failed to comply
with the permanent cease-and-desist order that had not been stayed pending Alpine’s appeal to
the NAC. See FINRA’s TRO Opp’n at 4. After a months’ long investigation, FINRA
determined that Alpine violated the cease-and-desist order “more than 35,000 times by charging
No. 70 (“Alpine is a broker-dealer member of FINRA . . . and has been disciplined multiple times for violating
FINRA rules.”). For example, in the complaint, plaintiffs mention an effort by FINRA to SCA “for supposed
violations of Section 5 of the Securities Act.” SAC ¶ 115. FINRA’s investigation into SCA began in March 2015
and concluded in September 2021 when the SEC set aside FINRA’s findings and the NAC’s affirmance that SCA
violated the charged statutes. See id. ¶¶ 116–119; see also In the Matter of the Application of Scottsdale Capital
Advisors Corp., Release No. 93052, 2021 WL 4242630, at *9 (S.E.C. Sept. 17, 2021).
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customers millions of dollars in unreasonable, unfair, and unlawful fees and commissions.” Id.Notably, Alpine does not contest that position, but rather counters that its actions were not
improper. See SAC ¶ 127. As a result, on April 19, 2023, FINRA initiated an expedited
enforcement proceeding (“Enforcement Proceeding”) to expel Alpine from FINRA membership
and stop its continued improper conduct, a punishment characterized by plaintiffs as “the
corporate death penalty.” See FINRA’s TRO Opp’n at 4; SAC ¶¶ 126–129. The Enforcement
Proceeding was scheduled for May 31, 2023. See Alpine’s Renewed Emergency Mot. for a
Preliminary Injunction & Temporary Restraining Order (“Pl.’s TRO Mot.”) at 2, ECF No. 66.
At a hearing before this Court, held on June 1, 2023, Alpine disclosed that the FINRA hearing
officer postponed the Enforcement Proceeding until June 5, 2023, pending resolution of Alpine’s
motion for equitable relief, described below. See Hr’g Tr. at 7:13–16.
C. Procedural History in Federal Court
Plaintiffs filed their initial complaint in the Middle District of Florida on October 12,
2022, see Compl., ECF No. 1, then amended that complaint on February 3, 2023, see First Am.
Compl., ECF No. 27. The government intervened on February 6, 2023, see Notice of
Intervention by the United States of America, ECF No. 28, shortly before FINRA moved to
dismiss the first amended complaint on March 10, 2023, with the government’s support, see
FINRA’s Mot. Dismiss Pls.’ Am. Compl., ECF No. 35; Gov’t’s Mem. of Law in Defense of the
Challenged Provisions of the Federal Securities Law, ECF No. 37. Before FINRA’s dismissal
motion was fully briefed, the Supreme Court issued Axon Enterprise Inc. v. FTC, 143 S. Ct. 890
(2023), which plaintiffs now claim is relevant to the relief they seek in their complaint.
Five days after Axon’s issuance, FINRA initiated the Enforcement Proceeding against
Alpine on April 19, 2023. See SAC ¶ 126. Plaintiffs quickly filed the operative second amended
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complaint on April 28, 2023, in response to Axon, see SAC, and then approximately a week later,
Alpine filed an emergency motion for a preliminary injunction on May 9, 2023, seeking to halt
the Enforcement Proceeding then scheduled for May 31, 2023, see Pl.’s Emergency Mot. for
Preliminary Injunction, ECF No. 45. The assigned Judge in the Middle District of Florida held a
three-hour hearing on the motion on May 22, 2023, see Min. Entry (May 22, 2023), and, two
days later, ordered the transfer of this case to this Court, see Order, ECF No. 62. That transfer
took effect at approximately noon on Friday, May 26, 2023—two business days before the
scheduled Enforcement Proceeding. See Case Transfer, ECF No. 63.
Upon being assigned this case, this Court denied, without prejudice, Alpine’s emergency
motion for preliminary injunction and FINRA’s motion to dismiss because the materials filed
relied on out-of-circuit, nonbinding case law mostly from the Fifth and Eleventh Circuits that
was unfit for consideration of such extraordinary equitable relief on a truncated timeline. See
Min. Order (May 26, 2023). 4 The parties were directed to propose a briefing schedule by the
next business day, Tuesday, May 30, 2023. See Min. Order (May 26, 2023). On May 30, 2023,
Alpine moved for reconsideration of the Order denying, without prejudice, its emergency
preliminary injunction motion, ECF No. 65, as well as renewed its emergency motion for a
preliminary injunction and temporary restraining order, ECF No. 66, prompting entry of a highly
expedited briefing schedule, see Min. Order (May 30, 2023), for briefing to be completed by 9
p.m. on May 30, 2023, see Gov’t’s Third Mem. in Defense of the Challenged Provisions of the
Federal Securities Laws (“Gov’t’s Opp’n”), ECF No. 68; FINRA’s Opp’n to Pl.’s Mot. for
Reconsideration (“FINRA’s Reconsideration Opp’n”), ECF No. 69; FINRA’s Opp’n to Pl.’s
Renewed Mot. for Preliminary Injunction & Temporary Restraining Order (“FINRA’s TRO
4
The Court also signaled to the parties that exhaustion before the SEC may not have been met in this case
according to the D.C. Circuit’s ruling in Springsteen-Abbott v. SEC, 989 F.3d 4, 7–8 (D.C. Cir. 2021).
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Opp’n”), ECF No. 70; Pl.’s Reply in Supp. of Mot. for Reconsideration (“Pl.’s Reconsideration
Reply”), ECF No. 71; Pl.’s Reply in Supp. of Renewed Emergency Mot. for Preliminary
Injunction & Temporary Restraining Order (“Pl.’s TRO Reply”), ECF No. 72, and a hearing
scheduled for May 31, 2023, which, at the parties’ request, was postponed until June 1, 2023, see
Min. Order (May 31, 2023), Min. Entry (June 1, 2023).
At the hearing, the parties were directed to submit any supplemental briefs regarding the
consequences should FINRA be deemed a state actor, as plaintiffs urged, and the validity of
plaintiffs’ First Amendment claim. See Min. Order (June 1, 2023). Following submission of
those memoranda, see Gov’t’s Supp. Br. in Resp. to the Court’s June 1, 2023 Min. Order
(“Gov’t’s Supp. Br.”), ECF No. 82; FINRA’s Supp. Br. in Opp’n to Pl.’s Renewed Emergency
Mot. for Preliminary Injunction and Temporary Restraining Order (“FINRA’s Supp. Br.”), ECF
No. 83; Pl.’s Supp. Br. in Supp. of Renewed Emergency Mot. for Preliminary Injunction and
Temporary Restraining Order (“Pl.’s Supp. Br.”), ECF No. 84; Pl.’s Supp. Resp. Br. in Supp. of
Renewed Emergency Mot. for Preliminary Injunction and Temporary Restraining Order (“Pl.’s
Supp. Reply”), ECF No. 85; FINRA’s Resp. to Supp. Br. of Alpine (“FINRA’s Supp. Reply”),
ECF No. 86, plaintiff’s motions are now ripe for consideration.
II. LEGAL STANDARD
A temporary restraining order (“TRO”) “is an extraordinary remedy that should be
granted only when the party seeking the relief, by a clear showing, carries the burden of
persuasion.” Cobell v. Norton, 391 F.3d 251, 258 (D.C. Cir. 2004). An application for a TRO is
analyzed using the same factors applicable to a request for preliminary injunctive relief. See,
e.g., Gordon v. Holder, 632 F.3d 722, 723–24 (D.C. Cir. 2011) (applying the preliminary
injunction standard to a district court decision denying a motion for TRO and preliminary
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injunction). Preliminary injunctive relief is similarly “an extraordinary remedy that may only be
awarded upon a clear showing that the plaintiff is entitled to such relief.” Sherley v. Sebelius,
644 F.3d 388, 392 (D.C. Cir. 2011) (quoting Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7,
22 (2008)); see also Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (per curiam)
(“[A] preliminary injunction is an extraordinary and drastic remedy, one that should not be
granted unless the movant, by a clear showing, carries the burden of persuasion.” (internal
quotation marks omitted)).
A plaintiff seeking preliminary injunctive relief must establish the following four factors:
“that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the
absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction
is in the public interest.” Ramirez v. Collier, 142 S. Ct. 1264, 1275 (2022) (quoting Winter, 555
U.S. at 20); see also Archdiocese of Wash. v. Wash. Metro. Area Transit Auth., 897 F.3d 314,
321 (D.C. Cir. 2018); Aamer v. Obama, 742 F.3d 1023, 1038 (D.C. Cir. 2014). The balance of
equities and the public interest factors “merge” when the government is the opposing party.
Karem v. Trump, 960 F.3d 656, 668 (D.C. Cir. 2020). When seeking such relief, “the movant
has the burden to show that all four factors, taken together, weigh in favor of the
injunction.” Abdullah v. Obama, 753 F.3d 193, 197 (D.C. Cir. 2014) (quoting Davis v. Pension
Benefit Guar. Corp., 571 F.3d 1288, 1292 (D.C. Cir. 2009)) (internal quotation marks omitted). 5
5
The D.C. Circuit has in the past used a so-called “sliding scale” approach to evaluating the four preliminary
injunction and TRO factors such that, “[i]f the movant makes an unusually strong showing on one of the factors,
then it does not necessarily have to make as strong a showing on another factor.” Davis v. Pension Benefit Guar.
Corp., 571 F.3d 1288, 1291–92 (D.C. Cir. 2009). While acknowledging that this approach is, at a minimum, in
tension with current Supreme Court jurisprudence requiring a persuasive showing on all four factors, the D.C.
Circuit has not resolved the continuing viability of the sliding-scale approach. See, e.g., Changji Esquel Textile Co.
v. Raimondo, 40 F.4th 716, 726 (D.C. Cir. 2022) (reserving “the question whether the sliding-scale approach
remains valid”); cf. Davis, 571 F.3d at 1295–96 (Kavanaugh , J., concurring) (noting that “this Circuit’s traditional
sliding-scale approach to preliminary injunctions may be difficult to square with the Supreme Court’s recent
decisions in” Winter and Munaf v. Geren, 553 U.S. 674 (2008)).
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Preliminary injunctive relief and TROs are not remedies “awarded as of right,” but “[a]s
a matter of equitable discretion, a preliminary injunction does not [even] follow as a matter of
course from a plaintiff’s showing of a likelihood of success on the merits.” Benisek v. Lamone,
138 S. Ct. 1942, 1943–44 (2018). Rather, a court must be persuaded as to all four factors.
Moreover, “a party requesting a preliminary injunction must generally show reasonable
diligence.” Id. at 1944.
III. DISCUSSION
While the focus of the pending motion for injunctive relief is to stall the pending
Enforcement Proceeding against Alpine, plaintiffs’ complaint is far more sweeping to challenge
the “unconstitutional operation and structure of FINRA.” SAC ¶ 1; accord id. at 33.
Specifically, plaintiffs lodge six claims against FINRA: (1) that “FINRA’s wide-ranging exercise
of executive power is immune from Presidential supervision or control[,]” namely that FINRA’s
board “are afforded multi-level protection from removal thus impeding the President’s ability to
oversee the officers executing the laws of the United States in violation of the Constitution’s
separations of powers[,]” id. ¶¶ 141–151 (Count I); (2) that FINRA’s board members are
“officers of the United States whose appointments must comply with the Appointments Clause
of the United States Constitution” and presently do not, id. ¶¶ 152–157 (Count II); (3) that the
Exchange Act “improperly and unconstitutionally delegates legislative power to [FINRA]
outside the Legislative Branch,” regardless of whether this entity functions as a state actor or
private entity, id. ¶¶ 158–161 (Count III); (4) that the Exchange Act’s requirement that firms
“join FINRA violates Plaintiffs’ First Amendment right not to associate[,]” id. ¶¶ 162–171
(Count IV); (5) that “FINRA’s disciplinary proceedings are biased, secretive, and fail to
implement rules that maintain the integrity [of] the proceedings,” in violation of the Due Process
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Clause of the Fifth Amendment, id. ¶¶ 172–176 (Count V); and (6) that “broker-dealers are not
afforded the right to a trial by jury” during FINRA proceedings, in violation of the Seventh
Amendment, id. ¶¶ 177–180 (Count VI).
Upon review of multiple papers filed by all parties and consideration of the arguments
presented at the June 1, 2023, hearing before this Court, plaintiff’s motion for reconsideration is
granted. As refiled, plaintiff’s motion for preliminary injunction and TRO properly cites binding
law of this Circuit and correctly queues the issues for this Court’s consideration.
Alpine has, however, failed to show a likelihood of success on the merits of plaintiffs’
claims because FINRA is likely not a state actor, obviating all but one of plaintiffs’ constitutional
claims, and their surviving First Amendment claim likely lacks merit. Plaintiffs also likely do
not assert a viable nondelegation doctrine claim. In reality, plaintiffs offer a multitude of
critiques of FINRA throughout their complaint as disgruntled members of FINRA; however,
those criticisms fall far short of amounting to likely sustainable constitutional challenges to the
structure and processes of FINRA.
While, if expelled from FINRA, Alpine is sure to suffer from the forced closure of its
business, such irreparable harm was of Alpine’s own making by apparently viewing the
permanent cease-and-desist order issued as part of the March 2022 Panel Decision as stayed
pending appeal. See SAC ¶¶ 8–10 (acknowledging that the Enforcement Proceeding is “based
on Alpine’s alleged failure to comply with an order contained in an Initial Hearing Panel
Decision that was issued in a prior lengthy FINRA action,” but arguing “[h]owever, [such]
Decision does not become final or effective unless and until it is affirmed by FINRA’s appellate
tribunal, the [NAC]. And that has not occurred . . . and no [NAC] decision has issued”).
Ignoring the immediate effectiveness of a permanent cease-and-desist order, due to operation of
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an explicit FINRA rule, see March 2022 Panel Decision (using term “permanent cease and desist
order”); FINRA Rule 9311(b), is notable context in assessing the irreparable harm claimed by
Alpine. Further, given Alpine’s unlikelihood of success in urging novel constitutional attacks on
FINRA’s structure and operations, reliance on the “here-and-now injury” of being subject to the
Enforcement Proceeding, as defined by Axon, simply is insufficient to justify the extraordinary
equitable relief requested. This conclusion is confirmed in assessing the balance of equities,
which falls heavily in defendants’ favor because the harm of permitting Alpine to continue its
allegedly knowing violation of FINRA rules to the detriment of its customers, the securities
industry, and the public must be given great weight.
Having failed on all factors for injunctive relief, as detailed below, Alpine’s motion is
denied.
A. Likelihood of Success on the Merits
Plaintiffs’ separation of powers, Appointments Clause, Fifth Amendment, and Seventh
Amendment claims are unlikely to succeed because FINRA is most likely not a state actor. That
aside, as either a public or private entity, FINRA’s structure and processes also likely do not
violate the private nondelegation doctrine. Finally, plaintiffs’ First Amendment claim is likely to
fail because a compelling interest supports the Exchange Act’s FINRA membership mandate and
supersedes plaintiffs’ right to expressive association. Thus, plaintiffs’ claims are unlikely to
succeed on the merits.
1. FINRA Is Not a State Actor
“As a matter of substantive constitutional law the state-action requirement reflects
judicial recognition of the fact that ‘most rights secured by the Constitution are protected only
against infringement by governments.’” Lugar v. Edmonson Oil Co., Inc., 457 U.S. 922, 936
14
(1982) (quoting Flagg Bros. Inc. v. Brooks, 436 U.S. 149, 156 (1978)). That said, the Supreme
Court has held, “many times, that actions of private entities can sometimes be regarded as
governmental action for constitutional purposes.” Lebron v. Nat’l R.R. Passenger Corp., 513
U.S. 374, 378 (1995) (collecting cases).
Whether an entity is a state actor is largely a “fact-bound inquiry.” Lugar, 457 U.S. at
939. While the Supreme Court “has articulated a number of different factors or tests in different
contexts” to determine state action, id., some key considerations remain consistent. Cf.
Brentwood Acad. v. Tenn. Secondary Sch. Athletic Ass’n, 531 U.S. 288, 295 (2001) (“From the
range of circumstances that could point toward the State behind an individual face, no one fact
can function as a necessary condition across the board for finding state action; nor is any set of
circumstances absolutely sufficient[.]”). A court must consider if “there is such a close nexus
between the State and the challenged action that seemingly private behavior may be fairly treated
as that of the State itself.” NB ex rel. Peacock v. District of Columbia, 794 F.3d 31, 43 (D.C.
Cir. 2015) (quoting Brentwood, 531 U.S. at 295); accord Jackson v. Metro. Edison Co., 419 U.S.
345, 351 (1974) (“[T]he inquiry must be whether there is a sufficiently close nexus between the
State and the challenged action of the regulated entity so that the action of the latter may be fairly
treated as that of the State itself.”).
Determining a sufficient nexus involves assessing, among other things, the government’s
“exercise of ‘coercive power,’” Brentwood, 531 U.S. at 296 (quoting Blum v. Yaretsky, 457 U.S.
991, 1004 (1982)), which has been described variously as the government’s provision of
“significant encouragement, either overt or covert,” id. (quoting Blum, 457 U.S. at 1004), and the
degree of government control over the entity, id. (citing Pennsylvania v. Bd. of Dirs. of City
Trusts of Phila., 353 U.S. 230, 231 (1957)), as well as the private entity’s “willful” participation
15
in a joint activity with the government, id. (quoting Lugar, 457 U.S. at 941), including the extent
to which a public function is delegated to a private entity, id., and how “entwined with
governmental policies” the private entity is or the degree to which the government is “‘entwined
in [the private entity’s] management or control,’” id. (quoting Evans v. Newton, 382 U.S. 296,
299, 301 (1966)). An earlier Supreme Court decision also relied on two considerations for state
action: (1) whether the private entity acted pursuant to “some right or privilege created by the
State or by a rule of conduct imposed by the state or by a person for whom the State is
responsible” and (2) whether the actor is “a person who may fairly be said to be a state actor” or
state official, an individual working with a state official, or an individual whose “conduct is
otherwise chargeable to the State.” Lugar, 457 U.S. at 937. 6
Employing all these considerations to the facts at hand, plaintiff has not proven the
likelihood that FINRA is a state actor. First, the facts of FINRA’s creation, operation, and
oversight structure do not indicate state actor status. FINRA is a private organization
incorporated under the laws of Delaware; neither an act of Congress nor the SEC created
FINRA. Cf. Blount v. SEC, 61 F.3d 938, 941 (D.C. Cir. 1995) (holding that the Municipal
Securities Rulemaking Board was a state actor because, inter alia, it was “created by an act of
Congress”); Lugar, 457 U.S. 941–42 (holding that respondents acted “under color of state law”
in depriving petitioner of his property pursuant to state law and joint participation with state
6
Although plaintiff invokes the state action doctrine, plaintiff’s argument at the hearing seemed to blend into
the public function test, positing that the focus of whether a private entity is a state actor depends on the entity’s
specific role at any particular time. See Hr’g Tr. at 26:23–27:10. That line of argument is equally unlikely to
succeed according to the Supreme Court’s test in Manhattan Community Access Corp. v. Halleck, in which the
Court held that, “to qualify as a traditional, exclusive public function within the meaning of our state-action
precedents, the government must have traditionally and exclusively performed the function.” 139 S. Ct. 1921, 1929
(2019) (emphasis in original). Nowhere does plaintiff argue that FINRA’s adjudicatory role in enforcing its own
rules as an SRO is a traditional or exclusive public function. On the contrary, plaintiffs’ complaint notes that
FINRA is the successor of both the NASD and NYSE, two private entities, and that the role of regulating industry
members has always fallen to those entities, as an initial matter, rather than the SEC. See SAC ¶¶ 36–40.
16
officials in such deprivation). No government entity funds FINRA nor plays any role in the
selection of its board members or officers, and those individuals are in no way characterized as
governmental officers. Cf. Brentwood, 531 U.S. at 298–302 (finding that the school athletic
association was a state actor because, inter alia, state board members sat on the association’s
governing bodies and public-school officials participated in the state retirement system, such that
public institutions and public school officials were sufficiently entwined in the association).
FINRA is self-governing; it creates its own rules and standards, including the setting of salaries
of its officers and penalty amounts unilaterally. Cf. Lebron, 513 U.S. at 394–99 (finding that
Amtrak was a state actor because it had the same objectives as the government, was created by
the government, and functioned under the government’s control such that “the corporation is part
of the Government”).
FINRA also aims to perform functions that are neither contemplated nor shared by the
SEC, including, to name a few, administering broker qualifications examinations, see Turbeville,
874 F.3d at 1271, “conduct[ing] inspections of brokers and dealers,” and enforcing compliance
with professional industry standards as well as FINRA’s own rules and regulations, SAC ¶ 49.
In FINRA’s adjudicative capacity, this SRO alone determines which cases to investigate and
when to file a complaint, and any decision that FINRA makes is not binding on the SEC in any
subsequent review by this federal agency. In fact, any review by the SEC is de novo and the
agency may consider evidence not previously considered by FINRA or the NAC. Cf. Peacock,
794 F.3d at 43 (holding that Xerox is a state actor when performing as an agent of, and thus
acting on behalf, of the District of Columbia to determine individuals’ eligibility for prescription
drug coverage under Medicaid). In essence, FINRA is an independent body that assists the SEC
by funneling referrals to the federal enforcement agency, using rules and procedures approved by
17
the SEC as sufficient to make the assistance helpful. See Graman v. NASD, No. 97-cv-1556
(JR), 1998 WL 294022, at *2 (D.D.C. Apr. 27, 1998) (employing the same reasoning to hold that
FINRA is not a state actor). Such FINRA functions do not amount to the organization’s
entwinement with the SEC.
Second, plaintiff concedes that no court has yet to hold that FINRA is a state actor. See
Hr’g Tr. 24:15–23 (The Court: “I haven’t found any case that’s held that FINRA is a state actor
or any case that’s found either the New York Stock Exchange, which is another SRO, or NASD,
the predecessor to FINRA, was a state actor. Are there any such cases?” Plaintiff’s Counsel:
“There is not, to my knowledge, such a case.”). Rather, a multitude of courts nationwide have
held the contrary—that FINRA is a private entity wholly separate from the SEC or any other
government agency. 7
The D.C. Circuit is notably not among those courts to have opined on this question.
Consequently, both parties attempt to read between the lines of existing Circuit precedent
discussing FINRA and its predecessor NASD as controlling, if not persuasive, authority in
considering this question. Compare Gov’t’s TRO Opp’n at 1 (citing Saad v. SEC, 980 F.3d 103,
104 (D.C. Cir. 2020) (referring to FINRA as “a private self-regulatory organization”)) and id. at
16 (citing Free Enter. Fund v. Pub. Co. Acct. Oversight Bd., 561 U.S. 477, 484–86 (2010)
7
See, e.g., Desiderio v. NASD, 191 F.3d 198, 206–07 (2d Cir. 1999) (“The NASD is a private actor, not a
state actor.”); D.L. Cromwell Invs., Inc. v. NASD Regul., Inc., 279 F.3d 155, 162 (2d Cir. 2002) (holding the same);
First Jersey Sec., Inc. v. Bergen, 605 F.2d 690, 698 (3d Cir. 1979) (“Congress preferred self-regulation by a private
body over direct involvement of a governmental agency”); Jones v. SEC, 115 F.3d 1173, 1183 (4th Cir. 1997)
(“NASD is a private party and not a governmental agent”); Epstein v. SEC, 416 F. App’x 142, 148 (3d Cir. 2010)
(“Epstein cannot bring a constitutional due process claim against the NASD, because ‘[t]he NASD is a private actor,
not a state actor.’” (citation omitted)); see also Graman, 1998 WL 294022, at *3 (“Every court that has considered
the question has concluded that NASD is not a governmental actor.”); Marchiano v. NASD, 134 F. Supp. 2d 90, 95
(D.D.C. 2001) (“The court is aware of no case—and Marchiano has presented none—in which NASD Defendants
were found to be state actors either because of their regulatory responsibilities or because of any alleged collusion
with criminal prosecutors. In fact, every court that has addressed those issues has rejected Marchiano’s
arguments.”).
18
(contrasting defendant, a state actor, with “private self-regulatory organizations” in the securities
space, such as FINRA)), and FINRA’s TRO Opp’n at 8 (citing Free Enterprise, 561 U.S. at
484–86), with Pl.’s TRO Mot. at 9 (citing NASD v. SEC, 431 F.3d 803, 804–05, 807 (D.C. Cir.
2005) (referring to NASD as a “quasi-governmental agency” with “quasi-governmental authority
to adjudicate actions against members” and “quasi-governmental power to discipline its
members”)). That exercise, while not fruitless, is also neither particularly helpful nor binding—
the D.C. Circuit has not provided clear direction and has most recently passed on the opportunity
to do so. See Springsteen-Abbott v. SEC, 989 F.3d 4, 7 (D.C. Cir. 2021) (referring only to the
“premise that FINRA is a state actor” as “contested”).
Third, policy considerations militate strongly against accepting Alpine’s invitation to
make the first judicial determination that FINRA is a state actor. If FINRA were deemed a state
actor, the ramifications would be significant and far-reaching—or in FINRA’s words, would
cause a “seismic shift in state action jurisprudence.” Hr’g Tr. at 73:23–74:9. 8 Not only would
Alpine be free to continue conduct FINRA previously found harmful to Alpine’s customers
absent an immediate enforcement action, see FINRA’s Supp. Br. at 2–3, a finding that FINRA is
a state actor would undermine Congress’s express intent to establish a private, self-regulatory
system in the securities industry, see id. at 3–4; Gov’t’s Supp. Br. at 3. Relatedly, FINRA would
8
To elaborate, FINRA posited that finding this entity to be a state actor would amount not only to a
departure from the “unanimous consensus” to the contrary, FINRA’s Supp. Br. at 2, but also would jeopardize
investor safety and market stability. For instance, subjecting SROs to federal constitutional requirements would
impact “a vast range of industries, from railroads and airlines to utilities and hospitals[]” id. at 3–4, and would
“impos[e] unwarranted constitutional roadblocks on [FINRA’s] oversight of its broker-dealer members,” potentially
including a Fifth Amendment privilege not to testify despite FINRA’s lack of subpoena power, id. at 5. Treating
FINRA as a state actor would also “upend the well-functioning status quo” between FINRA and the SEC by shifting
duties from the former to the latter. Id. at 6. “[D]ozens of other SROs responsible for carrying out enforcement
functions and other regulatory responsibilities” would also be subject to constitutional requirements as state actors.
Id. Finally, risking the stability of the current SRO structure in the securities industry “could create the risk of
significant liquidity or credit problems among financial institutions or markets and thereby threaten the stability of
the U.S. financial system.” Id. at 7–8.
19
be exposed to constitutional and administrative challenges from which Congress specifically
sought to insulate FINRA, see FINRA’s Supp. Br. at 5; Gov’t’s Supp. Br. at 2, as recognized by
the Supreme Court, see Free Enterprise, 561 U.S. at 484–86 (finding the Public Company
Accounting Oversight Board (“PCAOB”) to be a state actor and distinguishing this body from
SROs in the securities industry, citing that the PCOAB is created by statute, its leadership is
government-appointed, and it has “expansive powers to govern an entire industry”). Finally,
such a finding could significantly impact the SEC’s oversight role of FINRA, which is far more
active in regulating aspects of the securities industry that the SEC currently does not touch,
resulting in a potentially dramatic increase to the SEC’s workload. See FINRA’s Supp. Br. at 6;
Gov’t’s Supp. Br. at 4. Although plaintiff attempts to paint the relief it now requests as narrow,
see Pl.’s Supp. Br. at 1–2, the operative complaint states otherwise and asks for a significant
remedy that would declare “that FINRA is a state actor obligated to respect the rights guaranteed
under the United States Constitution,” SAC, Prayer for Relief ¶ 1, and “that FINRA is presently
constituted and operating in a manner that violates the Constitution,” id. ¶ 2.
In vigorously urging that FINRA be deemed a state actor, plaintiffs make one thing
crystal clear: plaintiffs are disgruntled members of FINRA. See, e.g., SAC ¶¶ 64–73 (criticizing
the selection and operation of FINRA’s board), 74–83 (disparaging FINRA’s independence and
supposed lack of industry representation on the board), 87 (accusing FINRA of taking retaliatory
action against members of the microcap market such as plaintiffs), 100–110 (lodging complaints
about FINRA’s fee structure, budget, and board-approved executive salaries), 129 (asserting that
the Enforcement Proceeding is FINRA’s attempt “to obtain the corporate death penalty” against
Alpine). Unfortunately for plaintiffs, however, their present challenge is not an effective way to
file—let alone remedy—their grievances against FINRA. For instance, the relief they request
20
would not cure all the deficiencies enumerated in their complaint. Declaring FINRA to be a state
actor would not necessarily result in restructuring FINRA’s board, its executive compensation
structure, or its allegedly retaliatory motives against the microcap industry. SCA attempted to
assert some of these claims against FINRA in 2019, but the district court dismissed the suit for
lack of subject matter jurisdiction, and the D.C. Circuit affirmed that judgment after finding that
SCA’s breach of contract claim required administrative exhaustion prior to judicial review. See
Scottsdale Cap. Advisors Corp. v. FINRA, 811 F. App’x 667, 668–69 (D.C. Cir. 2020) (Mem.).
Plaintiffs may not now try to repackage those grievances as constitutional claims to obtain
judicial review under the Supreme Court’s recent Axon decision.
Since FINRA is unlikely to be a state actor, plaintiff’s separation of powers, Appointment
Clause, Fifth Amendment, and Seventh Amendment claims are also likely foreclosed.
2. FINRA Does Not Violate the Private Nondelegation Doctrine
Pleaded in the alternative, plaintiffs next argue that the Exchange Act “improperly and
unconstitutionally delegates legislative power to an entity outside the Legislative Branch.” SAC
¶ 160. Alpine’s motion for injunctive relief then focuses on FINRA’s alleged violation of the
private nondelegation doctrine, arguing that “Congress and the SEC have managed to delegate
and outsource enforcement of federal securities law to a private entity that can ignore
fundamental constitutional rights.” Pl.’s TRO Mot. at 20. Defendants counter that no such
violation is present because “FINRA functions subordinately” to the SEC, which maintains
“authority and surveillance over FINRA’s activities.” Gov’t’s Opp’n at 8 (citation omitted);
accord FINRA’s TRO Opp’n at 11–13. Defendants are again likely correct.
“Federal agencies may not subdelegate their ‘decision-making authority . . . to outside
entities—private or sovereign—absent affirmative evidence of authority to do so.’” Louisiana
21
Pub. Serv. Comm’n v. FERC, 860 F.3d 691, 696 (D.C. Cir. 2017) (quoting U.S. Telecom Ass’n v.
FCC, 359 F.3d 554, 566 (D.C. Cir. 2004)). Aside from explicit statutory authority, an agency
delegation to a private entity is valid if the agency exercises “authority and surveillance” over the
private actor and “law-making remain[s] in the hands of the agency and [is] ‘not entrusted to the
industry.’” Ass’n of Am. R.R. v. U.S. Dep’t of Transp., 896 F.3d 539, 546 (D.C. Cir. 2018)
(quoting Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 399 (1940)).
Congress intended that SROs, like FINRA, would fulfill a supervisory role over the
securities industry. See 15 U.S.C. § 78o-3(b) (listing requirements of a broker-dealer association
for the SEC to characterize the organization as a national securities association). Yet SROs’
authority is subordinate to the SEC’s ultimate control and oversight. The SEC may suspend or
revoke FINRA’s registration if “necessary or appropriate in the public interest, for the protection
of investors, or otherwise in furtherance of the purposes of [the Exchange Act].” 15 U.S.C. §
78s(h)(1). While FINRA promulgates its own rules and standards for professional conduct,
those rules are reviewed and approved by the SEC with very limited exceptions. See Turbeville,
874 F.3d at 1270 (describing the SEC’s oversight duties); 15 U.S.C. § 78s(b)–(c). The SEC at
any time may “abrogate, add to, and delete from” any FINRA rule. Id. § 78s(c).
Although FINRA may take the first step in investigating and disciplining an entity for
violation of its rules, an SEC regulation, or a statutory provision, id. § 78o-3(b)(7), any
adjudication by FINRA is subject to de novo and sua sponte review by the SEC, id. § 78s(d)(2);
Commission Rule of Practice 452, 17 C.F.R. § 201.452. Such structure has resulted in a finding
that federal securities laws do not amount to an unconstitutional delegation by every court to
consider the issue. See, e.g., Oklahoma v. United States, 62 F.4th 221, 229 (6th Cir. 2023);
Sorrell v. SEC, 679 F.2d 1323, 1325–26 (9th Cir. 1982); First Jersey Secs., Inc. v. Bergen, 605
22
F.2d 690, 697 (3d Cir. 1979); Todd & Co. v. SEC, 557 F.2d 1008, 1012–13 (3d Cir. 1977); R.H.
Johnson v. SEC, 198 F.2d 690, 695 (2d Cir. 1952). This Court sees no reason to depart from
those findings and as such holds that plaintiffs’ private nondelegation doctrine claim is unlikely
to succeed on the merits. 9
3. Plaintiffs’ First Amendment Claim Lacks Merit
Finally, plaintiffs challenge broker-dealers’ “forced” association with FINRA “in order to
engage in their chosen profession.” SAC ¶ 164. Defendants argue that the Exchange Act’s
requirement that registered broker-dealers join FINRA “does not alone implicate any First
Amendment right” and that, because “[p]laintiffs do not assert any ‘expressive purpose[]’ for
which they wish to avoid association with FINRA,” plaintiffs’ First Amendment claim must fail.
Gov’t’s Opp’n at 19; accord FINRA’s TRO Opp’n at 13–14. Again, defendants’ arguments
have a substantial likelihood of prevailing.
Certainly, the First Amendment’s protection of freedom of speech also extends to protect
“[t]he right to eschew association for expressive purposes.” Janus v. Am. Fed’n of State, Cnty.,
and Mun. Emps., Council 31, 138 S. Ct. 2448, 2463 (2018); see Roberts v. U.S. Jaycees, 468
U.S. 609, 623 (1984) (“Freedom of association . . . plainly presupposes a freedom not to
associate.”). Freedom of expressive association, however, is not absolute. Boy Scouts of Am. v.
Dale, 530 U.S. 640, 648 (2000). Rather, the Supreme Court has held that a regulation may
9
Plaintiffs’ complaint alludes to a public nondelegation claim as well. See SAC ¶ 161 (“This delegation is
unconstitutional if the FINRA Board is deemed part of the federal government and is even more problematic if the
FINRA Board is deemed to be a private entity.”). Although that line of argument was not pursued in plaintiff’s
motion for injunctive relief, assuming, arguendo, that FINRA qualifies as a state actor, no unconstitutional public
delegation of unfettered policy-making and enforcement authority is likely displayed because, in describing the
duties of SROs, Congress delineated specific objectives that SROs should strive to accomplish, providing an
“intelligible principle” under the public nondelegation doctrine. See Sanchez v. Off. of State Superintendent of
Educ., 45 F.4th 388, 401 (D.C. Cir. 2022) (quoting Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 472 (2001)); see
also 15 U.S.C. § 78o-3(b)(6) (describing the goals of an SRO’s rules to include, inter alia, “to prevent fraudulent
and manipulative acts and practices, to promote just and equitable principles of trade, . . . [and] to protect investors
and the public interest”).
23
override that right when it “serve[s] compelling state interests, unrelated to the suppression of
ideas, that cannot be achieved through means significantly less restrictive of associational
freedoms.” Id. (quoting Roberts, 468 U.S. at 623). 10
FINRA articulates a significantly compelling interest embodied in the Exchange Act to
justify mandatory FINRA membership. In permitting securities industry regulation through
SROs, Congress intended those entities to “prevent fraudulent and manipulative acts and
practices, [] promote just and equitable principles of trade, [] foster cooperation and
coordination” among all industry players, “remove impediments to and perfect the mechanism of
a free and open market and a national market system, and, in general, to protect investors and the
public interest.” 15 U.S.C. § 78o-3(b)(6).
Mandatory FINRA membership functions accordingly to ensure that broker-dealers
transacting in the securities space all adhere to the same set of professional and industry
standards to protect both actual and prospective securities purchasers. See Gov’t’s Supp. Br. at 6
(citing Roth v. SEC, 22 F.3d 1108, 1109 (D.C. Cir. 1994)). For instance, FINRA sets
“recordkeeping and reporting obligations, fiduciary duties, and special antifraud rules[,]” Gov’t’s
Supp. Br. at 7 (quoting In re Registration Requirements for Foreign Broker-Dealers, Exchange
Act Release No. 34-27017, 1989 WL 1097092, at *3–4 (July 11, 1989)), as well as conducts
professional training to assure industry participants that those transacting in the space are
“financially capable” of doing so in accordance with regulatory standards and in pursuit of fair
and transparent treatment of customers. Gov’t’s Supp. Br. at 7 (citing SEC, Persons Deemed
10
The Supreme Court’s specific test proceeds as follows. After determining that the group engages in
“expressive association,” Boy Scouts, 530 U.S. at 648–50, whether forced inclusion “would significantly affect [the
association’s] ability to advocate public or private viewpoints,” id. at 650–53, and whether inclusion of a member
would significantly burden the association’s expression, id. at 653–56, a court must then consider whether the
restraint “runs afoul” of the expressive association by comparing the burden on expressive association with the
state’s interest in intruding into that right, id. at 656–59. Although the parties dispute resolution of each
consideration, the last factor, as articulated above, see id. at 648, is dispositive of this dispute.
24
Not to Be Brokers, Exchange Act Release No. 22172, 1985 WL 634795, at *2 (June 27, 1985)).
By joining FINRA, members agree to bind themselves to standards and be held accountable if
their conduct falls short—all to the benefit of free-flowing and functioning financial markets and
fair treatment towards customers. Since the compelling interest in statutorily mandated FINRA
membership so outweighs any expressive association right, plaintiffs again are unlikely to
succeed on their First Amendment claim. 11
In sum, none of plaintiffs’ claims in their operative complaint are likely to succeed on the
merits, resulting in this factor weighing against a preliminary injunction or a TRO.
B. Irreparable Harm
On the second factor, Alpine argues that resolution of the pending Enforcement
Proceeding may include “the corporate death penalty” of expulsion from the industry, Pl.’s TRO
Mot. at 1; accord SAC ¶¶ 10, 129, and, further, that “subjection to an illegitimate proceeding, led
by an illegitimate decision maker constitutes ‘a here-and-now injury’” supporting a finding of
irreparable harm, Pl.’s TRO Mot. at 22 (citing Axon, 143 S. Ct. at 903). FINRA counters that
any harm imposed on Alpine from the Enforcement Proceeding is “overstated” because the
outcome of the proceeding would not occur for many days, possibly months, and that such a
decision could then be appealed to the SEC and stayed. See FINRA’s TRO Opp’n at 15 (citing
applicable FINRA rules on appeals of FINRA decisions). Here, the Supreme Court’s Axon
decision tips this factor in Alpine’s favor.
11
Insofar as plaintiffs frame their First Amendment claim as a challenge to mandatory funding of FINRA, see
SAC ¶ 165, that claim, too, is unlikely to succeed on the merits. While plaintiffs strongly criticize FINRA’s
funding, budget, expenditures, and executive compensation structures, such budgetary considerations and setting
competitive executive salaries are part and parcel of a corporation’s duties and so plaintiffs have not shown that
FINRA uses any of its funding to engage in activity that is not germane to its purpose, rendering these complaints,
no matter how meritorious, irrelevant to their First Amendment claim. See Keller v. State Bar of Cal., 496 U.S. 1,
13–14 (1990).
25
At the outset, Alpine bluntly states that FINRA’s Enforcement Proceeding subjects it to
potential expulsion from the industry, an existential threat to its business that would force the
company to cease operations, and so the proceeding must be delayed. See Pl.’s TRO Mot. at 22–
23. Yet, Alpine faces precisely the same expulsion penalty under the March 2022 Panel
Decision currently on review by the NAC. See generally March 2022 Panel Decision. Enjoining
the NAC review process, however, is not the focus of the injunctive relief Alpine now seeks,
despite the fact that expulsion may be inevitable if the March 2022 Panel Decision is upheld.
That consequence does not arise from any lack of due process afforded to Alpine at the original
enforcement proceeding leading to the March 2022 Panel Decision now on appeal to the NAC,
nor from the ongoing Enforcement Proceeding, nor even from plaintiffs’ asserted constitutional
claims. Rather, that consequence appears to be the result of Alpine’s failure to comply with
FINRA’s permanent cease-and-desist order issued as part of the March 2022 Panel Decision. In
the face of that decision, which took immediate effect on March 22, 2022, Alpine is suspected of
flouting FINRA’s directive to cease harmful conduct by failing to comply with FINRA’s
permanent cease-and-desist order. See FINRA’s TRO Opp’n, Ex. B, Pet. for a Hearing & the
Imposition of Sanctions – Preliminary Statement (“Pet. for Enforcement Proceeding”) ¶¶ 1–2,
ECF No. 70-2 (“FINRA’s Department of Enforcement requests a hearing . . . and the imposition
of sanctions against Respondent Alpine . . . for violating a March 22, 2022 Permanent Cease and
Desist Order . . . . Alpine disregarded the terms of the [Order], which was intended to prevent
the firm from harming customers through ongoing acts of misconduct.”). In allegedly defying
the permanent cease-and-desist order—by FINRA’s count, more than 35,000 times—FINRA
decided that, due to Alpine’s chronic recidivism, this SRO had little choice but to take expedited
steps to expel the company from the industry even while Alpine’s appeal of the March 2022
26
Panel Decision is pending, a decision, as noted, that also recommended expulsion. See Pet. for
Enforcement Proceeding ¶¶ 5–6.
In context, Alpine now seeks to employ extraordinary equitable relief to halt FINRA’s
continuing enforcement of its own orders, under the cloak of several asserted constitutional
claims so that this Court can save Alpine from harm allegedly due to its own defiance of those
orders. Granting the requested TRO and consequently delaying the Enforcement Proceeding
would thus sanction Alpine’s alleged noncompliant conduct with FINRA’s permanent cease-and-
desist order. Such a ruling would encourage violators to race to district court with constitutional
claims to delay or halt enforcement proceedings, providing a direct mechanism to subvert
FINRA’s enforcement of its own orders designed to protect the securities industry. Nonetheless,
the irreparable harm factor focuses on the harm to the plaintiff seeking the relief, though the
source of that harm is noteworthy in weighing these equitable factors.
On that point, Alpine invokes Axon to argue that its assertion of constitutional claims
against FINRA and its adjudicatory process subjects the company to a “here-and-now injury”
and automatically triggers a finding of irreparable harm. See Pl.’s TRO Mot. at 22–23 (quoting
Axon, 143 S. Ct. at 903). Indeed, the Supreme Court expressed the view that being subjected to
an adjudicatory process that a plaintiff claims is constitutionally flawed is “impossible to remedy
once the proceeding is over” and a “grievance [for which] the court of appeals can do nothing:
[a] proceeding that has already happened cannot be undone.” Axon, 143 S. Ct. at 903–04.
Alpine is right that this strong language in Axon must be viewed as a consideration relevant to
irreparable harm, see Hr’g Tr. at 63:7–13 (Alpine agreeing that the “here-and-now injury”
language in Axon is the Supreme Court “putting its thumb on the scale among the preliminary
injunctive factors for irreparable harm”), and neither FINRA nor the government, as intervenor-
27
defendant, present much argument against this view, see, e.g., Hr’g Tr. at 78:13–80:11 (FINRA
arguing only that Axon does not alter the preliminary injunction analysis); id. at 89:4–90:6
(referencing the government’s choice not to take a position on certain preliminary injunction
factors before stating that nothing in Axon displaces the preliminary injunction factors).
Consequently, under the Supreme Court’s explicit language, the nature of the constitutional
claims asserted here, no matter their unlikelihood of success, suffice to show irreparable harm to
Alpine, even though any such harm may stem directly from Alpine’s noncompliant actions. 12
C. Balance of Equities and the Public Interest
Finally, the parties contest where other interests lie. Alpine argues that, FINRA “waited
years to assert [its] claims [against Alpine] and would suffer no prejudice” from a delay in the
Enforcement Proceeding and that the public has an interest in “assuring that Alpine is not subject
to unconstitutional treatment at the hands of FINRA.” Pl.’s TRO Mot. at 23 (footnote omitted).
12
Although not argued by the parties, Axon’s extraordinary language in addressing the “problem . . .
stemming from the interaction between the alleged injury and the timing of review,” id. at 903, raises the question of
whether the Supreme Court’s comparison of a challenge to the constitutionality of an adjudicative body to the
collateral order doctrine, is intended to ensure that constitutional claims must be given threshold consideration in
district court, see Axon, 143 S. Ct. at 904–06, warranting an automatic stay of the challenged adjudication until
resolution of the constitutional issues. Under that reading of Axon, which invokes the collateral order doctrine to
propose that a constitutional challenge must be decided first similarly to consideration of “immunity doctrines,” id.
at 904–05, whether any of the preliminary-injunctive factors are met would become beside the point. On this point,
Axon applies that reasoning to the facts before the Supreme Court, adding that “certain rights ‘not to stand trial’ or
face other legal processes . . . are ‘effectively lost’ if review is deferred until after trial. . . . So too here.” Id. at 904
(internal citations omitted). The Supreme Court’s recent vacatur of a D.C. Circuit decision, which required a
constitutional challenge to the Federal Energy Regulatory Commission (“FERC”) to be exhausted before the agency,
pursuant to the applicable statutory review scheme, signals that intention to broaden the collateral order doctrine.
See Bohon v. FERC, No. 22-566, 2023 WL 3046112 (Apr. 24, 2023) (Mem.), vacating, 37 F.4th 663 (D.C. Cir.
2022). The specter, then, of dual-tracked proceedings—one before federal district court and another before a federal
agency or adjudicatory body—raises the further question of what procedural mechanism is proper for managing the
interaction between those proceedings. One option is expedited briefing of dispositive motions before the federal
district court to resolve the merits of the constitutional challenge quickly, only halting the adjudicatory body’s
proceeding on a short-term basis. See, e.g., Sidak v. U.S. Int’l Trade Comm’n, No. 23-cv-325 (TNM), 2023 WL
3275635, at *4 n.3, *5–7, *13 (D.D.C. May 5, 2023) (in resolving the expedited motion for summary judgment, in
this “unusual” case, carefully applying Axon to hold that plaintiff’s Appointments Clause challenge to International
Trade Commission Administrative Law Judges was ripe for review because, among other things, plaintiff was not a
party to the underlying agency enforcement action and “had no obligation (nor opportunity) to earlier raise this
claim in federal court”). All that said, because Alpine has not invoked Axon beyond the considerations of
irreparable harm relevant to its pending motion for equitable relief, this case is no occasion to opine on these
lingering questions.
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Conversely, FINRA argues that “[a] preliminary injunction would impair FINRA’s pursuit of its
regulatory mandate and undermine the public interest by barring FINRA” from enforcing its
orders, including those against Alpine. FINRA’s TRO Opp’n at 16. FINRA is correct.
FINRA has an interest in protecting the public from the harms caused by broker-dealers
engaging in securities violations. This is the very mission of this SRO. That overwhelming
interest is especially important in FINRA’s case of conducting expedited enforcement actions to
halt the imminent risk to the public presented by bad actors potentially resulting in millions of
dollars lost from customers, like those that initiated FINRA’s investigation against Alpine in
2019. See March 2022 Panel Decision at 2 (“Enforcement’s investigation of Alpine Securities
began when some of Alpine Securities’ customers complained to FINRA about, among other
things, the firm’s $5,000 monthly account fee.”). The risk of harm to the public from an alleged
bad actor openly and repeatedly flouting a remedial cease-and-desist order issued by a FINRA
panel, allegedly thousands of times, at the expense of customers, is significant and concrete
compared to Alpine’s interest in asserting constitutional claims against FINRA that have an
unlikelihood of success for the reasons already summarized. As such, the balance of equities and
public interest disfavor any injunctive relief.
***
In considering the four factors in total, while irreparable harm tips in Alpine’s favor, the
other factors strongly weigh against granting plaintiff’s request for equitable relief and so such
relief is inappropriate here.
IV. CONCLUSION
For the foregoing reasons, plaintiffs’ Motion for Reconsideration of Minute Order
Denying Emergency Preliminary Injunction Motion is granted and plaintiffs’ Renewed
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Emergency Motion for Preliminary Injunction and Temporary Restraining Order is denied. An
Order consistent with this Memorandum Opinion will be entered contemporaneously.
Date: June 7, 2023
__________________________
BERYL A. HOWELL
District Judge
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