NYPPEX, LLC v. Financial Industry Regulatory Authority, Inc.

Background

FINRA removed the action from the Supreme Court of the State of New York, County of Westchester, to the U.S. District Court for the Southern District of New York. NYPPEX, LLC, Michael Schunk, and Laurence Allen then filed an order to show cause seeking temporary and preliminary injunctive relief. Their complaint identified a single claim for breach of contract related to FINRA’s by-law obligations.

FINRA’s notice of removal argued that the case arose under federal law, including the Securities Exchange Act of 1934 and federal-question jurisdiction under 28 U.S.C. § 1331. FINRA asserted that the complaint challenged its disciplinary actions and sought to impose liability based on its regulatory duties. In opposing the requested injunction, however, FINRA argued that the Exchange Act’s review process deprived federal district courts of jurisdiction to review the FINRA proceedings. The plaintiffs likewise stated that the complaint involved only state law and agreed that the case should be returned to state court.

Ruling

The court concluded that it lacked subject-matter jurisdiction, meaning legal authority to hear the case. It emphasized that federal courts must independently ensure that they do not exceed their jurisdiction and that removal statutes are interpreted narrowly, with doubts resolved against removal. Based on its own review of the cited case law, the court determined that it could not adjudicate the plaintiffs’ action concerning ongoing FINRA regulatory disciplinary hearings.

The court did not resolve FINRA’s separate assertion that federal-question jurisdiction permitted removal even though the federal court lacked jurisdiction to hear the action. Instead, the court held that it had no subject-matter jurisdiction and remanded the action to the Supreme Court of the State of New York, County of Westchester. It directed the clerk to send that court a copy of the order, close the federal action, and terminate all pending motions.