United States District Court, D. Nevada
MIRANDA M. DU, CHIEF UNITED STATES DISTRICT JUDGE
dispute centers on whether a Nevada state law means that
Petitioners are not required to turn over trust documents
requested by Respondent the Financial Industry Regulatory
Authority, Inc. (“FINRA”) pursuant to its rules.
But this order specifically addresses several threshold
issues without reaching the merits of the dispute. John
Hurry, as trustee of Petitioners Pee Pee Pop Trust, Pee Pee
Pop Trust II, Pee Pee Pop Trust III, Man Cub Trust, Man Cub
Trust II, and Man Cub Trust III dated July 22, 2013
(collectively, the “Trusts”) filed a petition in
Nevada state probate court seeking declaratory and injunctive
relief against FINRA. (ECF No. 1-1 (the
“Complaint”).) FINRA removed the Complaint to
this Court. (ECF No. 1.) Before the Court is FINRA's
motion to dismiss (ECF No. 11), and the Trusts' competing
motion to remand to the state probate court (ECF No.
As further explained below, the Court will deny the
Trusts' motion to remand and grant FINRA's motion to
dismiss because the Court finds this case arises under
Section 27(a) of the Exchange Act, 15 U.S.C. § 78aa(a)
(“Section 27(a)”), and FINRA is immune from suit
under these circumstances.
Hurry and his wife Justine Hurry (the “Hurrys”)
are the trustees of the Trusts. (ECF No. 1-1 at 3.) The
Trusts own SCA Clearing LLC and Scottsdale Capital Advisors
Holdings, LLC. (Id. at 1.) These entities, in turn,
own Alpine Securities Corporation and Scottsdale Capital
Advisors Corporation (collectively, the
“Corporations”). (Id.) The Corporations
are licensed and registered members of FINRA. (Id.
is threatening to-and temporarily did (ECF Nos. 32, 33, 34,
35)-suspend the Corporations' FINRA memberships because
the Trusts have refused to turn over “complete and
detailed information regarding the terms and conditions of
the Trusts, and the trust instruments” to FINRA. (ECF
No. 1-1 at 7.) Such suspension would harm the Trusts because
it would make the Corporations unable to do business.
(Id.) The Corporations must be members of FINRA in
order to sell securities. (Id. at 4.)
dispute started when the Hurrys decided to divide one trust
they controlled into the Trusts. (Id. at 3.) FINRA
contacted the Corporations about this transaction.
(Id. at 4.) The Corporations essentially responded
that their ownership had not materially changed, and also
provided FINRA with Certificates of Trust In Lieu of Trust
Instruments (the “Certificates”), as allegedly
permitted under NRS § 164.400, et seq., to
provide FINRA with information about the Trusts.
(Id. at 3-4.) FINRA deemed the Certificates
inadequate, and demanded to see “all provisions of the
Trusts, and be provided with copies of all the trust
instruments, ” which the Trusts and Corporations
contend is “in direct contravention of Nevada
law.” (Id. at 5.) Thus, FINRA insists on full
disclosure of information about and the documents governing
the Trusts upon threat of suspension of the Corporations'
FINRA memberships, which the Trusts contend violates Nevada
Trusts characterize FINRA's actions as “not
required, demanded or even permitted under its own operating
rules and procedures, ” arguing that the disclosures
FINRA seeks undermine Nevada's public policy of
protecting trust confidentiality and violate the terms of the
Trusts themselves, which allegedly preclude such disclosure
without a court order. (Id. at 5-6.) The Trusts
assert that the Nevada state probate court has jurisdiction
over this controversy under NRS § 164.010, and seek an
order from that court that: (1) the Trusts and Corporations
are not obligated to provide FINRA with the information it
seeks, both generally and until the court adjudicates their
claim; and (2) “an order enjoining and restraining
FINRA from terminating or suspending Petitioners [sic]
membership in FINRA until such time as the court has
determined the rights and obligations of the Parties.”
(Id. at 6-8.)
removed the case to this Court, contending the Court has
federal question jurisdiction under Section 27(a), and this
Court may exercise supplemental jurisdiction over the
declaratory judgment claim to the extent it is based on state
law. (ECF No. 1 at 4.) FINRA alternatively contends this
Court has diversity jurisdiction over the case. (Id.
at 4-5.) As mentioned, FINRA then moved to dismiss, and the
Trusts moved to remand.
Court will address FINRA's motion to dismiss and the
Trusts' motion to remand together because the
parties' arguments in both motions largely overlap.
Generally speaking, the parties agree this case should not
proceed before this Court, but disagree as to whether it
should be dismissed or remanded. As further explained below,
the Court is persuaded by FINRA's argument this case
should be dismissed. (ECF No. 22.) The Court first addresses
below its jurisdiction over this case, and then addresses
FINRA's immunity from suit under these circumstances.
27(a) “provides federal district courts with exclusive
jurisdiction ‘of all suits in equity and actions at law
brought to enforce any liability or duty created by [the
Exchange Act] or the rules and regulations
thereunder.'” Merrill Lynch, Pierce, Fenner
& Smith Inc. v. Manning, 136 S.Ct. 1562, 1568 (2016)
(citing 15 U.S.C. § 78aa(a)). It thus confers
“exclusive federal jurisdiction of the same suits as
‘aris[e] under' the Exchange Act pursuant to the
general federal question statute.” Id. at 1567
(citation omitted). That means: (1) “federal
jurisdiction attaches when federal law creates the cause of
action asserted[, ]” or (2) “a federal court has
jurisdiction of a state-law claim if it ‘necessarily
raise[s] a stated federal issue, actually disputed and
substantial, which a federal forum may entertain without
disturbing any congressionally approved balance' of
federal and state power.” Id. at 1569-70.
further explained below, the Court finds that the Trusts'
Complaint falls into the second category. Although it invokes
state law as the basis for relief, the Complaint “is on
its face a challenge to FINRA's application of its
internal rules in exercising its regulatory authority under
the Exchange Act.” Turbeville v. Fin. Indus.
Regulatory Auth., 874 F.3d 1268, 1274 (11th Cir. 2017);
see also Id. at 1273 (affirming the district
court's denial of the plaintiff's motion to remand to
state court, along with its decision to grant FINRA's
motion to dismiss, holding that “suits against SROs
like FINRA for violating their internal rules ‘arise
under' the Exchange Act of 1934 and therefore fall under
the Act's grant of exclusive jurisdiction to the federal
district courts[, ]” ...