Weissman v. National Ass'n of Securities Dealers

• Citation: 500 F.3d 1293
• Decision Date: 18 September 2007
• Docket Number: No. 04-13575.,04-13575.
• Parties: Steven I. WEISSMAN, as Custodian under the Florida Uniform Transfers to Minors Act, as Trustee and individually, Plaintiff-Appellee, v. NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., a Delaware not-for-profit corporation, NASDAQ Stock Market, Inc., a Delaware corporation organized for profit, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

500 F.3d 1293

Steven I. WEISSMAN, as Custodian under the Florida Uniform Transfers to Minors Act, as Trustee and individually, Plaintiff-Appellee, v. NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., a Delaware not-for-profit corporation, NASDAQ Stock Market, Inc., a Delaware corporation organized for profit, Defendants-Appellants.

No. 04-13575.

United States Court of Appeals, Eleventh Circuit.

September 18, 2007.

[500 F.3d 1294]

Douglas R. Cox, Michael James Edney, Gibson, Dunn & Crutcher, LLP, Washington, DC, David Scott Mandel, Mandel & Mandel, LLP, Miami, FL, for Defendants-Appellants.

Steven I. Weissman, Hollywood, FL, David Allan Freedman, Burlington, Weil, Schwiep, Kaplan, Miami, FL, for Plaintiff-Appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before EDMONDSON, Chief Judge, and TJOFLAT, ANDERSON, BIRCH, DUBINA, BLACK, CARNES, BARKETT, HULL, MARCUS, WILSON and PRYOR, Circuit Judges.

BARKETT, Circuit Judge:

The National Association of Securities Dealers, Inc. and its subsidiary, the NASDAQ Stock Market, Inc. (collectively "NASDAQ"), appeal the denial of their Rule 12(b)(6) motion to dismiss Steven Weissman's complaint. Weissman sought to recover losses suffered following the purchase of WorldCom, Inc. ("WorldCom") stock, which Weissman allegedly purchased in reliance on NASDAQ's misrepresentations in advertisements touting the stock. NASDAQ moved to dismiss, asserting absolute immunity from suit on the grounds that the conduct alleged in the complaint was undertaken pursuant to its quasi-governmental role as a market regulator under the Securities Exchange Act (SEA), 15 U.S.C. § 78a et seq. The district court rejected this contention, explaining that while NASDAQ does enjoy absolute immunity for statutorily-delegated regulatory or disciplinary functions, it is not entitled to immunity in this case because Weissman's complaint relates to private commercial conduct not delegated by the Act. We affirm the decision of the district court.

BACKGROUND

Between December 2000 and June 2002, Weissman purchased 82,800 shares of WorldCom stock on behalf of his minor children. In the wake of WorldCom's collapse, and after losing almost the entire investment, Weissman filed a diversity suit in federal district court against NASDAQ. In his complaint, Weissman disavowed any reliance on NASDAQ's regulatory activity as the basis for his suit, emphasizing that "[t]his action is based solely on the for-profit commercial business activity of the Defendants [, . . .] includ[ing] Defendants' approximately $100 million . . . marketing and advertising campaign during the years 2000, 2001 and 2002 to promote and sell . . . shares of WorldCom, Inc."

Weissman claimed that NASDAQ violated Fla. Stat. § 517.301(1)(b) by promoting WorldCom through its marketing and advertising without disclosing that its revenues were directly enhanced by increased trading in WorldCom stock; offered WorldCom shares for sale without registering as a broker, in violation of Fla. Stat. § 517.12; and committed common law fraud and/or negligent misrepresentation in its attempts to induce investors to purchase shares of WorldCom.

In addition to its claim of absolute immunity, NASDAQ alternatively moved to dismiss the complaint on the grounds that Weissman lacked a federal private right of action, failed to exhaust his administrative remedies, and failed to state a cause of action under Florida law. The district court denied the motion in all respects.¹ NASDAQ timely appealed. Weissman moved to dismiss the appeal for lack of jurisdiction. We granted that motion in part, dismissing NASDAQ's assertions that Weissman failed to adequately plead his state law claims and did not exhaust his administrative remedies. Weissman v. Nat'l Ass'n of Sec. Dealers, Inc., No. 04-13575 (11th Cir. Oct. 13, 2004). However, we permitted the appeal to proceed as to the district court's denial of NASDAQ's motion to dismiss premised on absolute immunity, as well as its claim that Weissman lacked a federal private right of action.² Id. After oral argument, a panel of this court reversed the district court's denial of absolute immunity with regard to those portions of Weissman's complaint that involve NASDAQ's "dissemination of WorldCom's fraudulent financial statements," but affirmed the denial of absolute immunity with regard to the remainder of Weissman's complaint, specifically, allegations of misrepresentation relating to NASDAQ's promotion of WorldCom stock. Weissman v. Nat'l Ass'n of Sec. Dealers, Inc., 468 F.3d 1306 (11th Cir.2006), (vacated and reh'g en banc granted, Weissman v. Nat'l Ass'n of Sec. Dealers, Inc., 481 F.3d 1295 (11th Cir.2007)).

We later vacated the panel opinion and granted rehearing en banc to address the question of whether a self-regulatory organization ("SRO"), such as NASDAQ, enjoys absolute immunity for the advertisements described in the complaint in this case. See Weissman v. Nat'l Ass'n of Sec. Dealers, Inc., 481 F.3d 1295 (11th Cir. 2007) (vacating panel opinion and granting rehearing en banc). We now consider that question en banc and affirm the district court's determination that NASDAQ does not enjoy immunity for the conduct alleged.³

STANDARD OF REVIEW

We review de novo the district court's denial of a motion to dismiss on the basis of immunity, construing all inferences to be drawn therefrom in the light most favorable to the plaintiff and accepting all well-pleaded factual allegations as true. See Maggio v. Sipple, 211 F.3d 1346, 1350 (11th Cir.2000); see also Buckley v. Fitzsimmons, 509 U.S. 259, 261, 113 S.Ct 2606, 125 L.Ed.2d 209 (1993) (assuming allegations in complaint to be "entirely true" for purposes of determining absolute immunity). Moreover, a party claiming immunity from suit bears the burden of proof. Butz v. Economou, 438 U.S. 478, 506, 98 S.Ct. 2894, 57 L.Ed.2d 895 (1978).

DISCUSSION

Under the Securities Exchange Act of 1934, Congress established a system of regulation over the securities industry, which relies on private, self-regulatory organizations to conduct the day-to-day regulation and administration of the United States' stock markets, under the close supervision of the United States Securities and Exchange Commission ("SEC"). The SEC authorized NASD to delegate its SRO functions to NASDAQ for operating and maintaining the NASDAQ stock market. See SEC Release No. 34-39326, Order Approving the Plan of Allocation and Delegation of Functions by NASD to Subsidiaries, 62 Fed.Reg. 62,385 (Nov. 21, 1997). Thus, NASDAQ serves as an SRO within the meaning of the Securities Exchange Act, 15 U.S.C. § 78c(a)(26), which vests it with a variety of adjudicatory, regulatory, and prosecutorial functions, including implementing and effectuating compliance with securities laws; promulgating and enforcing rules governing the conduct of its members; and listing and de-listing stock offerings. See 15 U.S.C. §§ 78c(a)(26), 78f(b), 78s(g); 15 U.S.C. § 78f(d); 59 Fed.Reg. 29834, 29843 (1994). At the same time, as a private corporation, NASDAQ may engage in a variety of non-governmental activities that serve its private business interests, such as its efforts to increase trading volume and company profit, as well as its daily administration and management of other business affairs. Indeed, even though the SEC has explicitly delegated regulatory functions to SROs, the SEC itself is mindful that SROs have dual status as both quasi-regulators and private businesses.⁴

Because they perform a variety of vital governmental functions, but lack the sovereign immunity that governmental agencies enjoy, SROs are protected by absolute immunity when they perform their statutorily delegated adjudicatory, regulatory, and prosecutorial functions. See Barbara v. New York Stock Exch., 99 F.3d 49, 59 (2d Cir.1996); Austin Mun. Sec., Inc. v. Nat'l Ass'n of Sec. Dealers, Inc., 757 F.2d 676, 692 (5th Cir.1985); Sparta Surgical Corp. v. Nat'l Ass'n of Sec. Dealers, Inc., 159 F.3d 1209, 1215 (9th Cir.1998); Zandford v. Nat'l Ass'n of Sec. Dealers, Inc., 80 F.3d 559, 559 (D.C.Cir. 1996). However, entities that enjoy absolute immunity when performing governmental functions cannot claim that immunity when they perform non-governmental functions. For example, municipal corporations may enjoy the same level of immunity as the government itself when "acting in their governmental capacity . . . . When, however, they are not acting in the exercise of their purely governmental functions, but are performing duties that pertain to the exercise of those private franchises, powers, and privileges which belong to them for their own corporate benefit, . . . then a different rule of liability is applied and they are generally held responsible for injuries arising from their negligent acts or their omissions to the same extent as a private corporation under like circumstances." Owen v. City of Independence, 445 U.S. 622, 645 n. 27, 100 S.Ct. 1398, 63 L.Ed.2d 673 (quoting W. Williams, Liability of Municipal Corporations for Tort § 4, at 9 (1901)). The dual nature of SROs as private companies that carry out governmental functions is similar to that of municipal corporations.

Thus, "[t]o be sure, self-regulatory organizations do not enjoy complete immunity from suits." Sparta, 159 F.3d at 1214. Only when an SRO is "acting under the aegis of the Exchange Act's delegated authority" does it enjoy that privilege. Id. Absolute immunity is not appropriate unless the relevant conduct constitutes a delegated quasi-governmental prosecutorial, regulatory, or disciplinary function. See D'Alessio v. New York Stock Exch., Inc., 258 F.3d 93, 105 (2d Cir.2001) ("a[n] SRO, such as the [New York Stock Exchange], may be entitled to immunity from suit for conduct falling within the scope of the SRO's regulatory and general oversight functions") (emphasis added); see also Austin, 757 F.2d at 692 ("NASD is entitled to absolute immunity for its...