D'Alessio v. New York Stock Exchange, Inc., 00 Civ. 269(JSR).

Decision Date29 September 2000
Docket NumberNo. 00 Civ. 269(JSR).,00 Civ. 269(JSR).
Citation125 F.Supp.2d 656
PartiesJohn R. D'ALESSIO and D'Alessio Securities, Inc., Plaintiffs, v. NEW YORK STOCK EXCHANGE, INC., Richard A. Grasso, Edward A. Kwalwasser, and Robert J. McSweeney, Defendants.
CourtU.S. District Court — Southern District of New York

Dominic F. Amorosa, New York City, for Plaintiffs.

Debra M. Torres, Fried, Frank, Harris, Shriver & Jacobson, New York City, for Defendants.

OPINION AND ORDER

RAKOFF, District Judge.

The basic question presented by defendants' pending motion to dismiss is whether employees of the New York Stock Exchange who, pursuant to statutory delegation, perform regulatory functions that would otherwise be performed by the Securities and Exchange Commission are entitled to the same immunities from suit to which comparable Commission employees would be entitled. The short answer is yes.

The pertinent facts are as follows. Plaintiff John R. D'Alessio, formerly a "floor broker" on the New York Stock Exchange (the "Exchange"), was indicted in 1998 for willfully violating various statutory prohibitions on a floor broker's trading for his own account or for an account in which he exercises investment discretion, see 15 U.S.C. §§ 78k & 78ff; see also United States v. Oakford Corp., No. 98 Cr. 144, 1999 WL 1201725 (S.D.N.Y. Dec. 13, 1999). Parallel charges were brought against D'Alessio and his company, D'Alessio Securities Inc., by the United States Securities and Exchange Commission (the "Commission") and also by the Exchange. While the criminal charges were ultimately dismissed pursuant to a deferred prosecution agreement, and while the Commission charges remain unresolved, the Exchange charges ultimately led to D'Alessio's being barred from the floor of the Exchange, with consequent economic loss to D'Alessio and his company. See Complaint ¶ 82.

Plaintiffs then commenced the instant action against the Exchange and various officials thereof, alleging that the unlawful trading that led to D'Alessio's indictment, disbarment, and other legal troubles was itself the unwitting result of the defendants' dissemination of a knowingly incorrect interpretation of the applicable statutory and regulatory prohibitions and of the defendants' knowing but secret encouragement of the very kind of unlawful trading for which plaintiffs were disciplined. Plaintiffs further complained that the defendants fraudulently concealed these facts from the Commission and the United States Attorney's Office, while actively conniving in plaintiffs' being charged. Based on these and related allegations, plaintiffs brought claims of injurious falsehood, fraudulent deceit and concealment, negligent misrepresentation, and, as to the Exchange, breach of contract.

Defendants then moved for judgment on the pleadings on several grounds, only one of which the Court need now reach: defendants' claim of immunity from suit. The issue is largely determined by the Second Circuit's decision in Barbara v. New York Stock Exchange, 99 F.3d 49 (2d Cir.1996), which accorded absolute immunity to the Exchange from a suit for damages arising from the allegedly unlawful conduct of an Exchange disciplinary proceeding. Among other rationales, Barbara relied on the fact that, under the federal securities laws, the Exchange "performs a variety of regulatory functions that would, in other circumstances, be performed by a government agency," namely, the Commission. Barbara, 99 F.3d at 59. Mutatis mutandis, the Exchange and its employees, in performing these functions, should be accorded the same absolute immunity that would be afforded the Commission and its employees in parallel circumstances. See Austin Mun. Securities, Inc. v. National Ass'n of Sec. Dealers, 757 F.2d 676, 688 (5th Cir.1985) (extending absolute immunity to another national securities exchange and its employees). This is a matter not simply of logic but of intense practicality, since, in the absence of such immunity, the Exchange's exercise of its quasi-governmental functions would be unduly hampered by disruptive and recriminatory lawsuits. See Barbara, 99 F.3d at 59; Austin, 757 F.2d at 688.

Plaintiffs seek to distinguish Barbara from the instant lawsuit in several respects. First, they note that while Barbara involved misconduct in connection with disciplinary proceedings, the misconduct alleged in the instant lawsuit also includes improper interpretations of federal securities laws and allegedly duplicitous conduct in connection with providing information about plaintiffs to the Commission and the U.S. Attorney's Office. But the interpretive and referral functions of the Exchange are just as quasi-governmental as its disciplinary functions, and hence the same immunities attach. See, e.g., Sparta Surgical Corp. v. National Ass'n of Securities Dealers, Inc., 159 F.3d 1209, 1214-15 (9th Cir.1998).

Second, they argue that even if the Exchange itself is entitled to absolute immunity, its officers are entitled only to qualified immunity, the bounds of which were here exceeded. But "certain public functions require a greater degree of protection than qualified immunity can provide," Barbara, 99 F.3d at 58, and this is equally as true of the Exchange officials' interpretive and referral functions as of their disciplinary functions. To prevent the placing of endless obstacles in path of the effective fulfillment of such functions, Exchange employees are therefore entitled to absolute immunity for any actions that are within the "outer perimeter" of the performance of such functions. McManus v. McCarthy, 586 F.Supp. 302, 304 (S.D.N.Y. 1984), quoting Barr v. Matteo, 360 U.S. 564, 575, 79 S.Ct. 1335, 3 L.Ed.2d 1434 (1959); see Austin, 757 F.2d at 689; Mandelbaum v. New York Mercantile Exchange, 894 F.Supp. 676, 679-80 (S.D.N.Y. 1995); Friedman v. Young, 702 F.Supp. 433, 435 (S.D.N.Y.1988).

Nor may a litigant avoid the bar of this immunity simply by making allegations of bad faith, conspiracy,...

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7 cases
  • In re Nyse Specialists Securities Litigation, 03 Civ. 8264(RWS).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • December 13, 2005
    ...functions would [not] be unduly hampered by disruptive and recriminatory lawsuits.'" Id. at 105 (quoting D'Alessio v. New York Stock Exch., Inc., 125 F.Supp.2d 656, 658 (S.D.N.Y.2000)). Based on the foregoing, it is determined that NYSE has absolute immunity with respect to Plaintiffs' Sect......
  • D'Alessio v. S.E.C., Docket No. 03-4883.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
    • August 16, 2004
    ...on the grounds that, having been sued in their regulatory capacities, the defendants enjoyed absolute immunity. D'Alessio v. NYSE, 125 F.Supp.2d 656, 657-59 (S.D.N.Y.2000), aff'd, 258 F.3d 93 (2d The Exchange's Charges against the Petitioners In the meantime, on December 27, 1999, almost tw......
  • D'Alessio Securities v. NY Stock Exchange
    • United States
    • United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
    • May 2, 2001
    ...The district court set forth in detail the facts relevant to this dispute in its opinion and order, see D'Alessio v. N.Y. Stock Exch., 125 F.Supp.2d 656, 657-58 (S.D.N.Y. 2000), familiarity with which is assumed. We restate here only those facts relevant to the appellate arguments or otherw......
  • Gurfein v. Ameritrade, Inc., 04 Civ. 9526(LLS).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • January 26, 2006
    ...be unduly hampered by disruptive and recriminatory lawsuits." See D'Alessio, 258 F.3d at 105, quoting D'Alessio v. New York Stock Exchange, Inc., 125 F.Supp.2d 656, 658 (S.D.N.Y.2000). Id. at 99. Finally, even if it could be argued, on the factual allegations in the amended complaint, that ......
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