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Doe v. Financial Industry Regulatory Authority, Inc.

United States District Court, Ninth Circuit

November 19, 2013

JOHN DOE, Plaintiff,


DEAN D. PREGERSON, District Judge.

Presently before the Court are Plaintiff's Motion to Remand and For Attorney's Fees and Defendant's Motion to Dismiss. For the reasons stated below, Plaintiff's Motion to Remand is GRANTED. Plaintiff's request for attorney's fees is DENIED. Defendant's Motion to Dismiss is vacated as moot.

I. Background

Plaintiff John Doe ("Plaintiff") is a financial advisor and broker-dealer associated with Merrill Lynch. (Complaint ¶ 4.) Defendant Financial Industry Regulatory Authority ("FINRA" or "Defendant"), formerly known as the National Association of Securities Dealers ("NASD"), is a self-regulatory organization for broker-dealers. (Id. ¶ 1.) Under the Securities Exchange Act, FINRA's duties include the duty to "establish and maintain a system for collecting and retaining registration information" about registered broker-dealers such as Plaintiff. 15 U.S.C. § 78o-3(i)(1)(A). "Registration information" includes information about "disciplinary actions, regulatory, judicial, and arbitration proceedings." Id . § 78o-3(i)(5). FINRA fulfills this duty by maintaining a database called the Central Registration Depository ("CRD"), publicly available through FINRA BrokerCheck, which contains disclosures relating to disciplinary actions or other proceedings brought against financial advisors. (Complaint ¶¶ 2-3.)

Plaintiff alleges that he has seven disclosure items listed on BrokerCheck as "customer disputes." (Id. ¶¶ 6-7.) One disclosure item is listed as "Customer Dispute - Settled" and the other six as "Customer Dispute - Closed - No Action/Withdrawn/Dismissed/Denied." (Id.) Plaintiff alleges that in five of the seven cases, the customers did not pursue their complaints after Merrill Lynch responded to them. (Id. ¶ 30.) In one of the other cases, the customer filed an arbitration against Merrill Lynch, but no payment was made. (Id. ¶ 31.) The last item related to an alleged administrative error. (Id. ¶ 32.) Plaintiff alleges that these disclosures have caused him harm and serve no public policy purpose, and requests that the Court use its equitable powers to grant declaratory relief and expungement of these disclosure items. (Id. ¶¶ 7-9.)

Plaintiff filed his complaint in the Los Angeles County Superior Court on July 31, 2013. (Notice of Removal ¶ 1.) Defendant was served with a copy of the complaint on August 2, 2013. (Id.) Defendant timely removed the action on September 3, 2013 on the grounds of federal question jurisdiction. (Id.)

II. Legal Standard

A defendant may remove a case from state court to federal court if the case could have originally been filed in federal court. 28 U.S.C. § 1441(a); see also Snow v. Ford Motor Co. , 561 F.2d 787, 789 (9th Cir. 1977). As the removing party, Defendant bears the burden of proving federal jurisdiction. Duncan v. Stuetzle , 76 F.3d 1480, 1485 (9th Cir. 1996); see also Matheson v. Progressive Specialty Ins. Co. , 319 F.3d 1089, 1090 (9th Cir. 2003). The removal statute is strictly construed against removal jurisdiction, and federal jurisdiction must be rejected if any doubt exists as to the propriety of removal. Gaus v. Miles, Inc. , 980 F.2d 564, 566 (9th Cir. 1992) (explaining that courts resolve doubts as to removability in favor of remand).

Federal question jurisdiction exists where a civil action arises "under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. "For a case to arise under' federal law, a plaintiff's well-pleaded complaint must establish either (1) that federal law creates the cause of action or (2) that the plaintiff's asserted right to relief depends on the resolution of a substantial question of federal law. Federal jurisdiction cannot hinge upon defenses or counterclaims, whether actual or anticipated." K2 Am. Corp. v. Roland Oil & Gas, LLC , 653 F.3d 1024, 1029 (9th Cir. 2011).

Generally, even if federal question jurisdiction exists, state courts have concurrent jurisdiction over cases arising under federal law. Gulf Offshore Co. v. Mobil Oil Corp. , 453 U.S. 473, 477-78 (1981). However, "the presumption of concurrent jurisdiction can be rebutted by an explicit statutory directive, by unmistakable implication from legislative history, or by a clear incompatibility between state-court jurisdiction and federal interests." Id. at 478.

III. Discussion

Plaintiff argues that the action should be remanded to state court because this Court does not have jurisdiction over the action.

Under FINRA Rule 2080(a), "[m]embers or associated persons seeking to expunge information from the CRD system arising from disputes with customers must obtain an order from a court of competent jurisdiction directing such expungement." Under Rule 2080(b), a party seeking expungement must "name FINRA as an additional party and serve FINRA with all appropriate documents unless this requirement is waived." Rule 2080 does not provide any substantive standard for determining whether expungement is appropriate or required. California has a state law cause of action for expungement. See Lickiss v. FINRA , 208 Cal.App.4th 1125, 1135 (2012).

Two federal district courts have squarely addressed the issue of whether federal question jurisdiction exists where a broker-dealer is seeking expungement of disclosures on CRD under a state law cause of action; both courts concluded that no such jurisdiction exists. In re Lickiss, 2011 WL ...

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