New York Law Review

Tag: National Association of Securities Dealers

  • National Assn. of Securities Dealers, Inc. v. Fiero, 11 N.Y.3d 63 (2008): Exclusive Federal Jurisdiction Over Exchange Act Enforcement

    National Assn. of Securities Dealers, Inc. v. Fiero, 11 N.Y.3d 63 (2008)

    Section 27 of the Securities Exchange Act vests exclusive jurisdiction in federal district courts over actions to enforce liabilities or duties created by the Act or its rules and regulations, precluding state court jurisdiction.

    Summary

    The National Association of Securities Dealers (NASD) brought an action in New York State Supreme Court to recover fines and costs imposed on John J. Fiero and Fiero Brothers for violations of the Securities Exchange Act. The New York Court of Appeals reversed the lower courts’ decisions, holding that Section 27 of the Securities Exchange Act grants exclusive jurisdiction to federal district courts over actions to enforce any liability or duty created by the Act. Therefore, the state courts lacked subject matter jurisdiction over NASD’s action to collect the penalties.

    Facts

    John J. Fiero and his firm, Fiero Brothers, registered with the NASD and agreed to comply with its rules. NASD’s Department of Enforcement filed a disciplinary complaint against the Fieros, alleging a “bear raid” to manipulate securities prices. NASD found the Fieros violated the Securities Exchange Act and its rules, imposing fines, expulsion, and a bar from associating with member firms. The Fieros did not appeal to the SEC or the federal courts. When the Fieros refused to pay the fines, NASD sued in New York State Supreme Court to recover the amount due.

    Procedural History

    NASD sued the Fieros in New York State Supreme Court. The Supreme Court granted NASD’s motion for summary judgment. The Appellate Division affirmed the Supreme Court’s decision. The New York Court of Appeals granted leave to appeal and reversed, dismissing the complaint for lack of subject matter jurisdiction.

    Issue(s)

    Whether state courts have subject matter jurisdiction over an action brought by NASD to enforce penalties imposed for violations of the Securities Exchange Act and its implementing rules.

    Holding

    No, because Section 27 of the Securities Exchange Act vests exclusive jurisdiction in federal district courts over actions to enforce any liability or duty created by the Act or its rules and regulations.

    Court’s Reasoning

    The Court of Appeals focused on Section 27 of the Securities Exchange Act, which explicitly grants federal district courts “exclusive jurisdiction of violations of [the Securities Exchange Act] or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by [the Securities Exchange Act] or the rules and regulations thereunder” (15 USC § 78aa). The court reasoned that NASD was not seeking to adjudicate a state law claim but rather to enforce a penalty imposed for violations of the Securities Exchange Act. Because the action was directly related to enforcing the federal securities laws, exclusive jurisdiction rested with the federal courts. The court emphasized the importance of adhering to the statutory framework that designates federal courts as the primary forum for adjudicating such matters. The court stated, “[S]tate courts do not possess the power to hear and decide this controversy.” The court explicitly declined to address the other issues raised by the parties, as the jurisdictional defect was dispositive.