Partnership Exchange Securities Co. v. National Ass'n of Securities Dealers, Inc., 97-16497
| Decision Date | 25 February 1999 |
| Docket Number | No. 97-16497,97-16497 |
| Citation | 169 F.3d 606 |
| Parties | 1999 Daily Journal D.A.R. 1865 PARTNERSHIP EXCHANGE SECURITIES COMPANY, a corporation, Plaintiff-Appellant, v. NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., a corporation; DOES, 1 through 50, inclusive, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Lawrence A. Baker, Haims, Johnson, MacGowan & McInerney, Oakland, California, for the plaintiff-appellant.
Douglas R. Cox, Gibson, Dunn & Crutcher, Washington, DC, Kim A. Thompson, Gibson, Dunn & Crutcher, San Francisco, California, for the defendants-appellees.
Appeal from the United States District Court for the Northern District of California D. Lowell Jensen, District Judge, Presiding, D.C. No. CV-96-02792-DLJ.
Before: FLETCHER, FERGUSON, and THOMPSON, Circuit Judges.
Partnership Exchange Securities Company (Partnership Exchange) filed a complaint for money damages against the National Association of Securities Dealers (NASD) alleging various improprieties arising out of the NASD's attempted disciplinary actions against Partnership Exchange. The NASD claimed that it was entitled to absolute immunity for its actions with respect to Partnership Exchange, and the district court agreed. We agree with the district court and affirm.
As the district court granted the NASD's motion to dismiss, for the purposes of our determination, we must take all the facts pleaded in the complaint as true. As contained in the complaint, the facts of this case are as follows.
The NASD is a non-profit, self-regulatory organization registered with the Securities and Exchange Commission (SEC). The NASD is the primary regulatory body for the broker-dealer industry. Under the Securities Exchange Act of 1934 (the Exchange Act), 15 U.S.C. §§ 78a-78mm, the SEC has broad supervisory responsibilities over the NASD. 1
Partnership Exchange was incorporated in 1985 and began trading in the secondary limited partnership market 2 in late 1986. Partnership Exchange bought and sold limited partnerships in transactions with investors who were represented by brokers. Partnership Exchange conducted business until 1995, when it was unable to continue. Partnership Exchange was a member of the NASD at all relevant times.
On May 15, 1991, the NASD filed a complaint against Partnership Exchange and its two principal officers with the District Business Conduct Committee (DBCC). 3 In the complaint, the NASD alleged that Partnership Exchange and its officers violated the NASD's Fair Pricing Rule, misrepresented the amount of gross profits Partnership Exchange made in connection with transactions with customers, and failed to disclose its mark ups and mark downs in transactions with customers.
Partnership Exchange filed its answer on June 27, 1991, challenging the complaint and the conduct of the NASD's staff. Partnership Exchange had two basic arguments: first, that the NASD miscalculated Partnership Exchange's markups because it relied on Partnership Exchange's historical costs rather than the contemporaneous costs of the securities, and second, that the persons with whom Partnership Exchange conducted business were not "customers" under the NASD's Fair Pricing Rule because they were represented by brokers. Partnership Exchange also complained that it had kept the NASD fully informed of its actions but that the NASD never had advised or admonished Partnership Exchange that its activities would lead to a disciplinary proceeding. At the hearing held before a subcommittee of the DBCC, the NASD's prosecuting officer stated that the proceeding against Partnership Exchange was a test case and acknowledged that if the NASD used the contemporaneous cost standard rather than the historical cost standard, Partnership Exchange's prices could not be challenged.
On June 26, 1992, the DBCC ruled against Partnership Exchange. Partnership Exchange appealed the decision to the National Business Conduct Committee (NBCC). 4 The NBCC also decided against Partnership Exchange and censured the company and its officers, increasing the fines given by the DBCC. Partnership Exchange again appealed, this time to the SEC. On July 19, 1994, the SEC rejected the NASD's claims and set aside all findings adverse to Partnership Exchange and its officers.
Partnership Exchange then filed this action for money damages in the District Court for the Northern District of California. The NASD is the only named defendant. In the complaint, Partnership Exchange alleged the following: (1) that the NASD initiated audits, rendered informal intimidating advice, and launched disciplinary proceedings, all intended to force member firms to modify their policies and practices to reflect the NASD's views; (2) that the NASD filed an improper complaint against Partnership Exchange with the DBCC; (3) that the NASD's officers did not comport with substantive due process when they investigated Partnership Exchange; (4) that the NASD imposed a burden on competition not in furtherance of the purpose of the Exchange Act; (5) that the NASD conspired with the DBCC to proceed frivolously with the disciplinary process; (6) that the NASD never advised Partnership Exchange that its activities violated the NASD's policies on mark ups; and (7) that the NASD, in its investigatory and administrative actions, went beyond the scope of its authority and ignored its disciplinary authority. Partnership Exchange claimed that it was entitled to money damages as a result of these actions that violated federal and state law.
The NASD filed a motion to dismiss. On July 3, 1997, the district court granted the NASD's motion, concluding that the NASD was protected by absolute immunity.
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