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NISS v. NASD

November 17, 1997

CLARK E. NISS, Plaintiff,
v.
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., et al., Defendants.



The opinion of the court was delivered by: RHOADES

 I. Overview

 Defendant National Association of Securities Dealers, Inc. ("NASD") has filed a Motion to Dismiss Plaintiff's First Amended Complaint. For the reasons stated below, the Court grants the Motion.

 II. Background

 Plaintiff Clark E. Niss purchased stock in several companies on the advice of La Jolla Securities Corporation ("LJSC") and one of its employees, Marvin J. Susemihl. Plaintiff lost money on breached its statutory duty to regulate its members properly. *fn1" Second, Plaintiff alleges that the NASD breached contracts to which Plaintiff was a third-party beneficiary. Plaintiff's other four causes of action allege state-law negligence claims. The basic thrust of all of Plaintiff's claims is that the NASD failed adequately to supervise LJSC and therefore failed to prevent Plaintiff's losses.

 III. Discussion

 On May 16, 1997 the NASD filed a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), for failure to state claims on which the Court can grant relief. The NASD argues that the Court should dismiss Plaintiff's statutory implied cause of action because section 15A does not create a private right of action. The NASD argues that the Court should dismiss the remaining claims because they are nothing more than disguised versions of the first claim.

 As discussed below, the Court agrees with the NASD in both respects and will dismiss the First Amended Complaint.

 A. Legal Standards Governing Motions To Dismiss

 The Court must deny Defendant's Motion to Dismiss for failure these investments. Plaintiff then sued LJSC and Susemihl, alleging that they caused his losses by breaching their fiduciary duties to him. Plaintiff also sued twelve other Defendants, including the NASD. The NASD is the only remaining Defendant in this case, however, because the others settled with Plaintiff.

 The NASD is a nonprofit Delaware corporation registered with the Securities and Exchange Commission ("SEC") as a national securities association. In re NASD, Inc., 5 S.E.C. 627 (1939). It is, as its name implies, an association of securities dealers. It has thousands of broker/dealer members, one of which was LJSC. The NASD regulates the over-the-counter securities market pursuant to congressional authorization.

 Plaintiff alleges six causes of action against the NASD. First, Plaintiff alleges an implied cause of action under section 15A of the Exchange Act, 15 U.S.C. § 78o-3, claiming that the NASD to state a claim unless it appears that Plaintiff cannot prove any set of facts that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Fidelity Fin. Corp. v. Federal Home Loan Bank, 792 F.2d 1432, 1435 (9th Cir. 1986), cert. denied, 479 U.S. 1064, 93 L. Ed. 2d 998, 107 S. Ct. 949 (1987). The Court takes all material allegations in the Complaint as true and construes them in the light most favorable to Plaintiff. NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986).

 B. Plaintiff's First Cause Of Action

 Plaintiff predicates his first cause of action on section 15A of the Exchange Act. Section 15A provides that an association of securities dealers shall not be registered unless it maintains rules that promote fair trade and rules that require its members to abide by its fair-trade rules. Section 15A also requires that the association have the capability to compel its members to comply with its rules. Plaintiff argues that section 15A gives rise to a private right of action if an association fails to supervise its members properly.

 Defendant disputes this contention. Defendant cites numerous cases that have held that section 15A (and the closely analogous section 6, which applies to securities exchanges) does not create a private right of action for a violation of a self-regulatory organization's own rules. Plaintiff attempts to distinguish these cases by arguing that his cause of action rests not on a ...


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