United States District Court, D. Maryland, Southern Division
MEMORANDUM OPINION AND ORDER
W. Grimm United States District Judge.
Thomas Howes has filed this federal lawsuit seeking an order
expunging customer complaints from a securities industry
regulator's database. The regulator, the Financial
Industry Regulatory Authority, Inc. ("FINRA"), has
moved to dismiss the suit under Rule 12(b)(6) of the Federal
Rules of Civil Procedure. Although FINRA has not sought a
dismissal for lack of subject-matter jurisdiction under Rule
12(b)(1), my own review of the relevant case law has
uncovered several federal district court decisions remanding
similar expungement petitions to state court on
jurisdictional grounds. See Godfrey v. Fin. Indus.
Regulatory Auth., Inc., No. 16-2776 PSG (PJWx), 2016 WL
4224956, at *5 (CD. Cal. Aug. 9, 2016); Flowers v. Fin.
Indus. Regulatory Auth., Inc., No. 15cv2390 DMS (JMA),
2015 WL 9487450, at *3 (S.D. Cal. Dec. 24, 2015); Doe v.
Fin. Indus. Regulatory Auth., Inc., No. 13-6436 DDP
(ASx), 2013 WL 6092790, at *4 (CD. Cal. Nov. 19, 2013);
Spalding v. Fin. Indus. Regulatory Auth., Inc., No.
1:12-CV-1181-RWS, 2013 WL 1129396, at *6 (N.D.Ga. Mar. 19,
2013); In re Lickiss, No. C-11-1986 EMC, 2011 WL
2471022, at *4 (N.D. Cal. June 22, 2011). In view of these
precedents, I am denying FINRA's motion without prejudice
and ordering the parties to brief the issue of whether this
Court has subject-matter jurisdiction over Mr. Howes's
Securities Exchange Act of 1934 (the "Exchange
Act") "vests registered national securities
associations with a prominent role in the administration and
enforcement of federal securities law." Turbeville
v. Fin. Indus. Regulatory Auth., 874 F.3d 1268, 1270
(11th Cir. 2017). FINRA, a private, not-for-profit Delaware
corporation, is one of those registered associations,
commonly known as "self-regulatory organizations,"
or SROs. See Id. In this capacity, FINRA enjoys
"regulatory oversight of all securities firms that do
business with the public" and is responsible for
providing "professional training, testing[, ] and
licensing of registered persons" and for arbitrating and
mediating disputes. Sacks v. SEC, 648 F.3d 945, 948
(9th Cir. 2011) (quoting 72 Fed. Reg. 42, 169, 42, 170 (Aug.
the various requirements the Exchange Act imposes on SROs
such as FINRA is an obligation to "establish and
maintain a system for collecting and retaining registration
information." 15 U.S.C. § 78o-3(i)(1)(A). The
statute defines "registration information" as
"information reported in connection with the
registration or licensing of brokers and dealers and their
associated persons, including disciplinary actions,
regulatory, judicial, and arbitration proceedings, and other
information required by law, or exchange or association rule,
and the source and status of such information."
Id. § 78o-3(i)(5). FINRA maintains much of this
information in an electronic database called the Central
Registration Depository ("CRD"). See Spalding
v. Fin. Indus. Regulatory Auth., Inc., No.
1:12-CV-1181-RWS, 2013 WL 1129396, at *1 (N.D.Ga. Mar. 19,
2013). It also makes information about current and former
members publicly available via an online application known as
"BrokerCheck." See id.; 75 Fed. Reg. 41,
254, 41, 254 (July 15, 2010).
Howes has worked in the investment field for nearly three
decades. See CRD Entry 10-11, ECF No. 6-1. In
February 2018, he filed two arbitration claims in FINRA's
Office of Dispute Resolution, each seeking to expunge certain
records from the CRD. See July 2018 Arbitration
Award 1-2, ECF No. 1-4. The cases were soon consolidated.
See Id. at 2-3.
Howes's first petition, dated February 1, 2018, named
Morgan Stanley as the respondent. See Morgan Stanley
Pet. 1, ECF No. 1-5. The petition sought the expungement of a
complaint a customer filed against him on July 24, 2001,
while Mr. Howes was a senior financial advisor for Smith
Barney. See Id. at 2. In it, Mr. Howes recounted
that the customer filed the complaint after the "Smith
Barney wire room accidentally did a syndicate trade in"
the customer's account in spite of the customer's
explicit instruction that he wanted "Mr. Howes to sit
tight with his investments [and] not to purchase anymore
[sic] securities, or increase his margin." Id.
at 4. The petition alleged that Mr. Howes "had nothing
to do with the trade" and that Smith Barney corrected
the error. Id. The complaint, however, could still
be found in the CRD. See id.
Howes filed his second petition on February 2, 2018, this
time naming Citigroup Global Markets as respondent.
See Citigroup Pet., ECF No. 1-6; Arbitration Award
2. There, Mr. Howes sought to expunge a pair of complaints
another customer had filed against him, also in the early
2000s. See Citigroup Pet. 1-3. The petition noted
that Mr. Howes had paid the customer' $100, 000 in
connection with the first complaint and was "told by
CitiGroup that this matter was put to bed." Id.
at 3. It argued the second claim, filed on May 19, 2003,
"was factually impossible and clearly erroneous."
2018, a three-member FINRA arbitration panel denied all of
Mr. Howes's claims in their entirety. See Arbitration
Award 3. This federal lawsuit soon followed. Mr. Howes, who
is representing himself, named FINRA as the lone defendant
and styled the Complaint as a "Petition for Declaratory
Relief and Expungement." Compl. 9, ECF No. 1. The
Complaint accuses FINRA of reporting "erroneous
information" about him on BrokerCheck and the CRD.
Id. at 13. It acknowledges that he previously sought
to expunge the allegedly false complaints through FINRA's
arbitration procedures but alleges those procedures "are
flawed in that they only require member firms to retain
documents and information for 6 years." Id. at
10; see 17 C.F.R. § 240.17a-4 (2014). It says
he "could have easily proven the customer complaints
[were] false" if FINRA had required the companies he
named as respondents to preserve documents relating to the
complaints against him,  at least one of which was 17 years old
at the time he filed his Complaint in this Court.
Id. The Complaint closes by stating, "Plaintiff
respectfully request[s] this court to grant relief through
expungement." Id. at 13.
moved on November 30, 2018, to dismiss the Complaint. FINRA
Mem., ECF No. 6. Its motion raises three arguments: first,
that Mr. Howes is collaterally estopped from litigating this
suit against FINRA following the denial of his arbitration
claims; second, that FINRA enjoys absolute immunity in its
roles as a regulator and as an arbitration forum; and, third,
that Mr. Howes "has no private right of action against
FINRA for its regulatory acts and omissions, including how it
administers the regulatory scheme for securities reporting,
disclosure and expungement, or for how it administers
arbitration proceedings." Id. at 2-3.
Alternatively, the motion urges the Court to "exercise
its discretion to deny declaratory relief pursuant to the
Declaratory Judgment Act, 28 U.S.C. §2201."
Id. at 3.
motion has been fully briefed and is ripe for a decision.
See ECF Nos. 6-1, 10, 13. Before addressing the
organization's arguments, though, this Court has an
obligation to assure itself of its jurisdiction, no matter
whether either of the parties has challenged it. See
United States v. Wilson, 699 F.3d 789, 793 (4th Cir.
2012); Brown v. Hungtington Ingalls, Inc., No.
4;13CV26, 2013 WL 5591932, at *3 (E.D. Va. July 25, 2013)
("[W]hen a district court is aware of the absence of
subject matter jurisdiction, it must 'raise such lack of
subject-matter jurisdiction on its own motion,' without
regard to the positions of the parties." (quoting
Ins. Corp. of Ireland v. Compagnie des Bauxites de
Guinee, 456 U.S. 694, 702 (1982)). "If the court
determines at any time that it lacks subject-matter
jurisdiction, the court must dismiss the action."
of the lower federal courts is ... limited to those subjects
encompassed within a statutory grant of jurisdiction."
Ins. Corp. of Ireland, 456 U.S. at 701. Mr.
Howes's Complaint asserts that this Court has
federal-question jurisdiction over this action under 28
U.S.C. § 1331. See Compl. 4. It cites, in
particular, the Securities Exchange Act of 1934, 15 U.S.C.
§ 78a, as a federal law at issue in this
FINRA has not challenged this Court's jurisdiction,
subject matter jurisdiction "cannot be conceded by any
party; nor can it be granted by this Court in its
discretion." McGahey v. Giant Food, Inc., 300
F.Supp. 475, 477 (D. Md. 1969). It is a threshold matter
that, if at all in doubt, must be addressed before this Court
may reach the merits of FINRA's arguments in support of a
dismissal under Rule 12(b)(6). Such a doubt is present here,
as my review of federal district court cases involving
similar petitions to expunge FINRA records has uncovered five
decisions remanding the petitions to state court for lack of
federal subject-matter jurisdiction. See Godfrey v. Fin.
Indus. Regulatory Auth., Inc., No. 16-2776 PSG (PJWx),
2016 WL 4224956, at *5 (CD. Cal. Aug. 9, 2016); Flowers
v. Fin. Indus. Regulatory Auth., Inc., No. 15cv2390 DMS
(JMA), 2015 WL 9487450, at *3 (S.D. Cal. Dec. 24, 2015);
Doe v. Fin. Indus. Regulatory Auth., Inc., No.
13-6436 DDP (ASx), 2013 WL 6092790, at *4 (CD. Cal. Nov. 19,
2013); Spalding v. Fin. Indus. Regulatory Auth.,
Inc., No. 1:12-CV-1181-RWS, 2013 WL 1129396, at *6
(N.D.Ga. Mar. 19, 2013); In re Lickiss, No. C-l
1-1986 EMC, 2011 WL 2471022, at *4 (N.D. Cal. June 22, 2011).
I have, by contrast, found no cases expressly holding that
petitions to expunge FINRA records are matters over which the
federal courts have subject-matter
that have assessed this issue typically have focused, as I
will here, on FINRA Rule 2080, which sets out a procedure for
expunging records from the CRD. The rule provides in part:
"Members 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 or confirming an
arbitration award containing expungement relief." FINRA
R. 2080(a). The rule, as several courts have noted,
"does not provide any substantive standard for
determining whether expungement is appropriate or
required." In re Lickiss, 2011 WL 2471022, at
*2; see also Doe, 2013 WL 6092790, at *2. It does
specify that, generally, a party petitioning for expungement
or for confirmation of an arbitration award containing
expungement relief "must name FINRA as an additional
party and serve FINRA with all appropriate documents."
FINRA R. 2080(b). FINRA, however, may waive this requirement
under certain conditions - for ...