UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
MCGINN, SMITH & CO., INC. et al.,
Plaintiffs,
v. Civil Action No. 11-825 (CKK)
FINANCIAL INDUSTRY REGULATORY
AUTHORITY,
Defendant.
MEMORANDUM OPINION
(May 15, 2011)
This action was filed on May 2, 2011 by pro se Plaintiffs David L. Smith and Timothy M.
McGinn for injunctive relief against Defendant Financial Industry Regulatory Authority
(“FINRA”).1 Plaintiffs seek to compel FINRA to stay a disciplinary proceeding that is scheduled
to begin on May 16, 2011 until the conclusion of a civil proceeding pending against Plaintiffs in
the United States District Court for the Northern District of New York, SEC v. McGinn, Smith &
Co., No. 10-cv-457 (GLS) (DRH) (N.D.N.Y. filed Apr. 20, 2010). Although the disciplinary
proceeding was scheduled to occur just two weeks after the Complaint was filed, Plaintiffs did
not initially file this action with a request for a temporary restraining order or a preliminary
injunction. On May 10, 2011, counsel for FINRA contacted the Court by telephone and
1
The firm McGinn, Smith & Co., Inc. is also named as a plaintiff in this action, but it is
not represented by counsel in this proceeding. Corporations, partnerships, and associations may
not appear in federal court pro se and must act through licensed counsel. See Rowland v. Cal.
Men’s Colony, 506 U.S. 194, 201-02 (1993). Furthermore, the Court has received a letter from
the receiver that has been appointed to manage the affairs of McGinn, Smith & Co., Inc. stating
that he did consent to this lawsuit. Therefore, the Court shall only recognize David L. Smith and
Timothy M. McGinn as proper plaintiffs in this action.
informed the Court that FINRA had received by mail a copy of a motion for temporary
restraining order that Plaintiffs appeared to be filing with the Court. The Court informed counsel
for FINRA that the Clerk of the Court had not yet received any motion for temporary restraining
order (“TRO”) filed by the Plaintiffs but requested that FINRA file an opposition to the motion
by May 11, 2011, which they did. On May 12, 2011, the Clerk of the Court received and
docketed Plaintiffs’ motion. Plaintiffs filed a reply to FINRA’s opposition on May 13, 2011.
Accordingly, the parties have fully briefed Plaintiffs’ motion for TRO and the issues presented
are ripe for resolution.
For the reasons explained below, the Court finds that because Congress has vested
judicial review of FINRA disciplinary proceedings exclusively with the Courts of Appeals, this
Court lacks jurisdiction to hear Plaintiffs’ request for a stay of the FINRA discplinary
proceeding. Furthermore, the Court finds that transfer in lieu of dismissal is not in the interest of
justice because Plaintiffs are not likely to succeed on the merits of their claim for injunctive relief
and they have not demonstrated that they will suffer irreparable harm as a result of the FINRA
disciplinary proceeding. Accordingly, the Court shall deny Plaintiffs’ [8] Motion for Temporary
Restraining Order and dismiss this action for lack of subject matter jurisdiction.
I. BACKGROUND
The following facts are drawn from the allegations in Plaintiffs’ Complaint as well as the
exhibits attached to FINRA’s opposition to Plaintiffs’ request for a TRO. Because of the
expedited briefing schedule, the parties have presented the Court with a limited record, and the
Court’s ruling is necessarily based on the limited record provided by the parties.
2
A. Statutory and Regulatory Background
Financial Industry Regulatory Authority, Inc. (“FINRA”) is a private not-for-profit
corporation and a self-regulatory organization that is registered with the Securities and Exchange
Commission (“SEC”) as a national securities association pursuant to § 15A of the Securities
Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 73o-3. Nat’l Ass’n of Sec. Dealers, Inc. v.
SEC, 431 F.3d 803, 804 (D.C. Cir. 2005).2 “By virtue of its statutory authority, [FINRA] wears
two institutional hats: it serves as a professional association, promoting the interests of its
members, and it servers as a quasi-governmental agency, with express statutory authority to
adjudicate actions against members who are accused of illegal securities practices and to sanction
members found to have violated the Exchange Act or . . . [SEC] regulations issued pursuant
thereto.” Id. (internal citations omitted); 15 U.S.C. § 78o-3(b)(7). Disciplinary actions brought
by FINRA’s Department of Enforcement may be adjudicated before a FINRA Hearing Panel and
appealed to the FINRA National Adjudicatory Council. 431 F.3d at 804. FINRA must notify the
SEC of any final disciplinary action taken against a member. 15 U.S.C. § 78s(d)(1). The SEC
may review FINRA’s decision de novo pursuant to a petition from the aggrieved member; the
SEC may also review the action sua sponte. Id. § 78s(d)-(e); 431 F.3d at 804. A person
aggrieved by a final order of the SEC may obtain judicial review by filing a petition with the
United States Court of Appeals for the District of Columbia Circuit or for the circuit in which he
resides or has his principal place of business. 15 U.S.C. § 78y(a)(1). This statutory system
authorizing self-regulatory organizations to act as quasi-governmental agencies in disciplining
2
Prior to 2007, FINRA was known by its prior name, National Association of Securities
Dealers, Inc. (“NASD”).
3
members for federal securities law violations has existed for over 70 years. See Nat’l Ass’n of
Sec. Dealers v. SEC, 431 F.3d at 804.
B. Factual Background
Plaintiffs David L. Smith and Timothy M. McGinn are part owners of McGinn, Smith &
Co., Inc. (the “Firm”), which is based in Albany, New York and conducts a general securities
business. See Compl., Ex. 1 (FINRA Dept. of Enforcement Complaint) ¶ 10. The Firm has been
a member of FINRA since 1981, and Plaintiffs have each been registered with FINRA as general
securities principals since November 25, 1980. Id. ¶¶ 10, 11 & 14. On April 5, 2010, FINRA’s
Department of Enforcement filed a complaint with the FINRA Office of Hearing Officers
alleging that Plaintiffs and the Firm conducted four fraudulent unregistered securities offerings
between September 2003 and November 2006. See generally id. Among other things, the
complaint accused Plaintiff Smith of misusing funds for his own personal use, accused Smith and
the Firm of making misrepresentations to investors, failing to establish and maintain a
supervisory system to ensure compliance with applicable securities laws and regulations and
FINRA rules, and accused Plaintiffs of providing FINRA with falsified documents. Id. The
Department of Enforcement requested relief in the form of sanctions, including disgorgement of
ill-gotten gains, and a finding that the Firm and Smith had willfully violated securities laws and
regulations.
Because FINRA believed that Plaintiffs had violated securities laws and regulations,
FINRA referred the matter to the SEC for further investigation. The SEC commenced its own
formal investigation on January 5, 2010. See Def.’s Ex. 1 (Memorandum Decision and Order,
SEC v. McGinn, Smith & Co. (N.D.N.Y. Jan. 5, 2011)) at 4. FINRA provided the SEC with
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evidence from its investigation, which included testimony from Plaintiffs. Id. On April 20,
2010, the SEC filed a civil action against Plaintiffs and the Firm in the U.S. District Court for the
Northern District of New York alleging that Plaintiffs had violated the antifraud provisions of the
Exchange Act and other securities laws and regulations. The federal court appointed a receiver
to take possession of the Firm and its related assets and entities and enjoined any person from
taking actions that would interfere with the taking control, possession, or management of these
assets. See Def.’s Ex. 3 (Order to Show Cause, Temporary Restraining Order, and Order
Freezing Assets and Granting Other Relief). On July 8, 2010, the hearing officer presiding over
the FINRA enforcement action issued an order staying the proceeding against McGinn, Smith &
Co. based on the federal court’s order. See Def.’s Ex. 4 (Order Staying Proceeding Against
McGinn, Smith & Co. and Directing Remaining Parties to File Proposed Hearing Schedule).
On July 28, 2010, the FINRA hearing officer issued a scheduling order setting the dates
for the hearing as May 2-20, 2011. See Compl., Ex. 3 (Scheduling Order). On January 12, 2011,
Plaintiffs’ counsel withdrew from the FINRA proceeding. See id., Ex. 4 (Amended Scheduling
Order). The hearing officer issued an amended scheduling order on February 15, 2011, which set
the hearing for May 16-26, 2011 in Albany, New York. Id.
On March 21, 2011, the FINRA hearing officer conducted a telephonic pre-hearing
conference. See Compl., Ex. 6 (Order Denying Respondents’ Oral Motion for Stay). Plaintiffs
represented themselves during the conference and requested that the disciplinary proceeding be
stayed until after the SEC action is concluded. Id. Plaintiffs informed the hearing officer that the
SEC action was in the initial discovery phase, that 50 depositions would be scheduled between
May and December 2011, that some depositions may conflict with the dates set for the FINRA
5
hearing, and that a trial date had been set in March 2012 for the SEC matter. Id. Plaintiffs
argued to the hearing officer that they could not defend themselves in the disciplinary proceeding
because they were unable to obtain the books and records of the Firm, which were now in the
possession of the SEC and/or the appointed receiver. Id. Plaintiffs suggested that if a stay were
granted, they would be willing to consent not to reenter the securities industry for the duration of
the stay. Id. The FINRA Department of Enforcement opposed the stay, noting that the hearing
dates had initially been set in July 2010. Id. It also represented that it had provided Plaintiffs
with discovery consisting of approximately 30,000 pages of documents several months earlier
and that it was incapable of providing Plaintiffs with access to documents in the possession of
third parties. Id. The FINRA hearing officer denied Plaintiffs’ request for a stay. In reaching his
decision, the hearing officer cited the age of the case, the fact that the Department of
Enforcement had provided extensive discovery materials, the uncertainty as to when the SEC
case would conclude, the fact that lengthy delays increase the difficulty of reaching a fair
resolution of the issues presented, and the importance to the parties and the investing public of
reaching a fair and expeditious resolution of the case. Id.
As part of their defense in the SEC action, Plaintiffs contend that the testimony they gave
to FINRA was compelled in violation of their Fifth Amendment rights against self-incrimination
because FINRA was allegedly acting on behalf of the SEC in compelling their testimony. See
Def.’s Ex. 1 at 4-5. To discover evidence supporting this defense, Plaintiffs served
interrogatories on the SEC and subpoenas on FINRA and its employees seeking information
relating to their investigations. Id. at 5. FINRA moved to quash the subpoenas, and the court
granted FINRA’s motion. The court held that Plaintiffs had failed to establish that FINRA was
6
acting on behalf of the SEC in conducting its own investigation and sharing evidence with the
SEC. See id. at 15-17. FINRA had provided the court with declarations from officials who
explicitly denied that FINRA took any action in its investigation at the request of the SEC. See
id. at 15-16.
C. Plaintiffs’ Complaint and Motion for TRO
In their Complaint in this action, Plaintiffs ask the Court to order that the FINRA
disciplinary proceeding and hearing scheduled for May 16-26, 2011 in Albany, New York be
stayed until the conclusion of the SEC action pending the Northern District of New York.
Plaintiffs allege that “FINRA has repeatedly violated the Complainants [sic] civil rights as a
result of an unconstitutional state action by FINRA acting as a proxy for the federal government
(SEC).” Compl. at 1.3 Plaintiffs generally allege that FINRA has been and continues to work in
collusion with the SEC. Plaintiffs argue that the SEC did not conduct an independent
investigation before filing its complaint and relied entirely on FINRA’s investigation. Id. at 11.
They claim that the only reason the FINRA hearing officer granted a stay with respect to the Firm
and not with respect to Plaintiffs is because the SEC wants the disciplinary proceeding to go
forward so that the SEC can gain advantage over Plaintiffs in the civil action. Id. at 1. Plaintiffs
contend that the hearing should not go forward as scheduled because the hearing will disclose
Plaintiffs’ defenses, which Plaintiffs allege will then be used by the SEC to its advantage in the
civil action. Id. at 2-3. Plaintiffs also contend that an adverse ruling would be used by the SEC
3
Although Plaintiffs’ Complaint does contain some numbered paragraphs, it also
contains many unnumbered paragraphs and is not paginated. The Court shall refer to the first
page after the table of contents as page one and sequentially number the following pages for ease
of reference.
7
at trial. Id. at 3. Plaintiffs complain that they do not have access to all the documents and
records they need to defend themselves in the FINRA proceeding. Id. Plaintiffs also argue that
defending the SEC action requires their full attention and therefore they cannot mount an
adequate defense in the FINRA hearing. Id. at 7.
Plaintiffs claim that they will be irreparably harmed if the FINRA proceeding is allowed
to go forward because it will compromise their ability to defend the SEC action. Compl. at 12.
Plaintiffs claim that they will “lose precious time that cannot be recovered if forced to devote that
time to defending themselves in the FINRA action.” Id. Plaintiffs also contend that the SEC will
be able to use the transcript of the hearing to its advantage in the enforcement action. Id. In their
motion for TRO, Plaintiffs essentially repeat the allegations in their Complaint.
II. LEGAL STANDARD
“The standard for issuance of the ‘extraordinary and drastic remedy’ of a temporary
restraining order or a preliminary injunction is very high, and by now very well established.”
RCM Techs., Inc. v. Beacon Hill Staffing Grp., LLC, 502 F. Supp. 2d 70, 72-73 (D.D.C. 2007)
(citing Mazurek v. Armstrong, 520 U.S. 968, 972 (1997)). The moving party must show: (1) a
substantial likelihood of success on the merits, (2) that it would suffer irreparable injury if the
injunctive relief were not granted, (3) that an injunction would not substantially injure other
interested parties, and (4) that the public interest would be furthered by the injunction.
Chaplaincy of Full Gospel Churches v. England, 454 F.3d 290, 297 (D.C. Cir. 2006); Hall v.
Daschle, 599 F. Supp. 2d 1, 6 n.2 (D.D.C. 2009) (“[t]he same standard applies to both temporary
restraining orders and to preliminary injunctions”). The moving party bears the burden of
persuasion and must demonstrate, “by a clear showing,” that the requested relief is warranted.
8
Chaplaincy of Full Gospel Churches, 454 F.3d at 297. “The four factors have typically been
evaluated on a ‘sliding scale.’” Davis v. Pension Benefit Guar. Corp., 571 F.3d 1288, 1291
(D.C. Cir. 2009). Under this sliding scale, “[i]f the movant makes an unusually strong showing
on one of the factors, then it does not necessarily have to make as strong a showing on another
factor.” Id. at 1291-92.
“It is particularly important for the [movant] to demonstrate a substantial likelihood of
success on the merits.” Barton v. District of Columbia, 131 F. Supp. 2d 236, 242 (D.D.C. 2001)
(citing Benten v. Kessler, 505 U.S. 1084, 1085 (1992)). If the movant fails to do so, inquiry into
the remaining factors is unnecessary, for the injunctive relief must be denied on that ground
alone. See Transohio Sav. Bank v. Dir., Off. of Thrift Supervision, 967 F.2d 598, 614 (D.C. Cir.
1992) (affirming denial of preliminary injunction where the district court properly concluded that
the plaintiff had “no likelihood of success on the merits”); Katz v. Georgetown Univ., 246 F.3d
685, 688 (D.C. Cir. 2001) (“although we apply a four-factor test in weighing a request for a
preliminary injunction, such relief never will be granted unless a claimant can demonstrate ‘a fair
ground for litigation’”); Taylor v. Resolution Trust Corp., 56 F.3d 1497, 1507 (D.C. Cir. 1995)
(“Given the inadequacy of [plaintiff]’s prospects for success on the merits, there may be no
showing of irreparable injury that would entitle him to injunctive relief.”), amended on other
grounds on reh’g, 66 F.3d 1226 (D.C. Cir. 1995). In addition, the movant must establish that
irreparable injury must be likely, “not just a possibility.” Winter v. Natural Res. Def. Council,
Inc., 129 S. Ct. 365, 375 (2008).
III. DISCUSSION
In its opposition to Plaintiffs’ motion for a TRO, FINRA argues that this Court lacks
9
subject matter jurisdiction to entertain Plaintiffs’ Complaint because Congress has vested
exclusive judicial review of FINRA’s decisions in the Courts of Appeals.4 Before it can reach
the merits of Plaintiffs’ request for a TRO, the Court must ensure that it has subject matter
jurisdiction over this action.
A. Subject Matter Jurisdiction
Plaintiffs’ Complaint does not contain a short and plain statement of the grounds for the
Court’s jurisdiction as required by Federal Rule of Civil Procedure 8(a)(1), and Plaintiffs do not
identify the source of this Court’s jurisdiction in their TRO filings. Since Plaintiffs appear to be
asserting a claim for violation of their constitutional rights, the Court would ordinarily have
jurisdiction under the “federal question” statute, 28 U.S.C. § 1331. However, FINRA argues that
because Congress established a statutory scheme vesting final review of FINRA disciplinary
action in the Courts of Appeals, the district courts lack jurisdiction to review FINRA’s actions.
FINRA’s argument is based on the D.C. Circuit’s decision in Telecommunications
Research and Action Center v. FCC, 750 F.2d 70 (D.C. Cir. 1984) (“TRAC”). In that case, the
court was asked to consider whether the district court had jurisdiction over a lawsuit seeking to
compel the Federal Communications Commission to rule on certain matters that were pending
before the agency on the ground that the FCC had unreasonably delayed making a ruling. By
statute, judicial review of the FCC’s final action was available only in the Court of Appeals.
4
FINRA also argues that the Court should dismiss Plaintiffs’ request for a stay based on
the failure to exhaust administrative remedies. While that may provide an appropriate basis for
dismissal in some circumstances, see First Jersey Sec., Inc. v. Bergen, 605 F.2d 690, 695 (3d Cir.
1979), FINRA has not identified for the Court what administrative remedies were available to
Plaintiffs to appeal the denial of their request for a stay. Accordingly, the Court cannot conclude
based on the record before it whether exhaustion is a proper ground for dismissal.
10
After carefully considering the issue, the D.C. Circuit held that “where a statute commits review
of agency action to the Court of Appeals, any suit seeking relief that might affect the Circuit
Court’s future jurisdiction is subject to the exclusive review of the Court of Appeals.” Id. at 75
(emphasis original). The court held that “[b]ecause the statutory obligation of a Court of Appeals
to review on the merits may be defeated by an agency that fails to resolve disputes, a Circuit
Court may resolve claims of unreasonable delay in order to protect its future jurisdiction.” Id. at
76.
Relying on TRAC, Judge Henry H. Kennedy has ruled that the district courts lack
jurisdiction over complaints seeking to enjoin NASD disciplinary proceedings. See Marchiano
v. Nat’l Ass’n of Sec. Dealers, Inc., 134 F. Supp. 2d 90 (D.D.C. 2001). Judge Kennedy first
concluded that based on the special review procedures in the Exchange Act, Congress had vested
the Courts of Appeals with exclusive jurisdiction to review final NASD disciplinary rulings after
they are reviewed by the SEC. Id. at 93. Judge Kennedy then concluded that the relief requested
by the plaintiffs, i.e., a permanent injunction against enforcement, would prevent NASD from
issuing a final order and therefore preclude review by the Court of Appeals. Id.
Plaintiffs argue that they are merely requesting a stay of the FINRA disciplinary
proceeding pending the outcome of the SEC enforcement action in Northern District of New
York, and therefore the relief they are requesting would not deprive the Court of Appeals of the
opportunity to review FINRA’s final order. However, Plaintiffs are effectively requesting an
indefinite stay, as it is uncertain whether the SEC’s enforcement action will conclude as
scheduled in March 2012. Such a substantial delay could certainly be said to affect the future
jurisdiction of the Court of Appeals. Furthermore, Plaintiffs’ Complaint broadly alleges that
11
FINRA has acted and continues to act illegally as an agent for the SEC in pursuing discipline
against them. Plaintiffs are effectively challenging the manner in which FINRA has decided to
investigate and conduct disciplinary hearings against them. Such an attack almost certainly
implicates issues that would be addressed by the Court of Appeals upon final review of FINRA’s
ruling. See Ohio Edison Co. v. Zech, 701 F. Supp. 4, 6 (D.D.C. 1988) (“[I]t is now well
recognized that TRAC applies to cases in which there are allegations of bias within an agency or
that the agency is improperly motivated.”). Therefore, the exercise of jurisdiction by this Court
would create potentially duplicative and conflicting review and frustrate the compelling policy
considerations that favor the exclusive jurisdiction of the Courts of Appeals. See TRAC, 750
F.2d at 78. Moreover, the D.C. Circuit has recognized that “[s]tays of administrative action are
properly sought in [the Court of Appeals] under a writ of mandamus, ” Cmty. Nutrition Inst. v.
Young, 773 F.2d 1356, 1362 (D.C. Cir. 1985) (citing In re GTE Service Corp., 762 F.2d 1024,
1026 (D.C. Cir. 1985)), and “[t]he exclusive grant of jurisdiction to the Court of Appeals means
that mandamus to obtain a stay also is available only in [the Court of Appeals],” id. (citing
TRAC, 750 F.2d at 78-79).
Accordingly, the Court finds that the relief requested by Plaintiffs may affect the future
jurisdiction of the Court of Appeals, and therefore the Court lacks subject matter jurisdiction
under the rule in TRAC. Plaintiffs must request relief directly from the appropriate Court of
Appeals.
B. Dismissal or Transfer Under 28 U.S.C. § 1631
When this Court finds that it lacks jurisdiction over an action, it “shall, if it is in the
interest of justice, transfer . . . [the] action . . . to any other such court in which the action . . .
12
could have been brought at the time it was filed . . . .” 28 U.S.C. § 1631. Accordingly, the Court
must determine whether it is in the interest of justice to transfer this action to the appropriate
Court of Appeals in lieu of dismissing it. Due to the emergency nature of the relief requested by
Plaintiffs, the Court shall review the factors relevant for determining whether such relief is
warranted. See Haugh v. Booker, 210 F.3d 1147, 1150 (10th Cir. 2000) (“[A] court is authorized
to consider the consequences of a transfer by taking a ‘peek at the merits’ to avoid raising false
hopes and wasting judicial resources that would result from transferring a case which is clearly
doomed.”) (citing Phillips v. Seiter, 173 F.3d 609, 610-11 (7th Cir. 1999)). The most critical
factors are likelihood of success on the merits and irreparable harm.
With respect to success on the merits, it appears that Plaintiffs will have difficulty
establishing a meritorious claim that could justify the extraordinary relief they have requested.
Indeed, the contours of Plaintiffs’ claim are not entirely clear from the Complaint or from
Plaintiffs’ motion for TRO. Plaintiffs refer to “unconstitutional state action” by FINRA acting
on behalf of the SEC, but they do not explain which of their constitutional rights FINRA is
allegedly violating by denying their request for a stay. One possibility is that Plaintiffs are
seeking to protect their Fifth Amendment rights against self-incrimination, but there is no
indication that Plaintiffs will be compelled to testify as part of the FINRA hearing. Plaintiffs also
might be relying on their Fifth Amendment rights to due process, but it is unclear what process
Plaintiffs believe they are due. Regardless of which constitutional rights Plaintiffs claim are
being violated, Plaintiffs cannot prevail unless they demonstrate that FINRA’s actions are “fairly
attributable” to the SEC. See Lugar v. Edmondson Oil Co., 457 U.S. 922, 937 (1982). Courts
have repeatedly held that FINRA is a private entity and not a government functionary. See D.L.
13
Cromwell Investments, Inc. v. NASD Regulation, Inc., 279 F.3d 155, 162 (2d Cir. 2002) (citing
cases). The government “normally can be held responsible for a private decision only when it
has exercised coercive power or has provided such significant encouragement, either overt or
covert, that the choice must in law be deemed to be that of the [government].” Blum v. Yaretsky,
457 U.S. 991, 1004 (1982).
Plaintiffs have not alleged specific facts that demonstrate coercion or significant
encouragement by the SEC with respect to FINRA’s investigation of Plaintiffs. The fact that
FINRA shared information with the SEC does not establish that FINRA was acting on its behalf.
Furthermore, the court in the SEC action reviewed Plaintiffs’ state action claim and determined
that there was not enough evidence to support it, relying in part on declarations from FINRA
officials who explicitly denied any collusion with or influence by the SEC. Therefore, it appears
to the Court that Plaintiffs are highly unlikely to succeed on the merits of their claim.
With respect to the issue of irreparable harm, Plaintiffs’ arguments are not much more
appealing. Plaintiffs complain that the FINRA hearing will deprive them of necessary time to
prepare their defense in the SEC action. But the FINRA hearing is scheduled to last only ten
days in May 2011, and the trial of the SEC action is scheduled for March 2012; therefore, the
FINRA hearing is not a significant enough distraction for Plaintiffs that it could amount to
irreparable harm. Moreover, courts have uniformly recognized that “[m]ere litigation expense,
even substantial and unrecoupable cost, does not constitute irreparable injury.” Renegotiation
Bd. v. Bannercraft Clothing Co., 415 U.S. 1, 24 (1974).
Plaintiffs also argue that they will be prejudiced by disclosing their defenses during the
FINRA hearing to their detriment in the SEC action. Neither Plaintiffs nor FINRA have
14
explained how the SEC might be able to use evidence from the FINRA hearing as part of the
civil action, but the Court notes that Plaintiffs are not entirely without recourse, as the court
overseeing that case has final say over what evidence may be used at trial. Furthermore,
Plaintiffs indicate in their reply brief that the FINRA hearing officer has ruled that Plaintiffs are
precluded from calling any witnesses or presenting any evidence in their defense due to their
failure to timely disclose their witnesses and evidence. See Pls.’ Reply at 5. Therefore, as a
practical matter, there will be little that Plaintiffs could disclose during the FINRA hearing that
would prejudice their defense of the civil action. Finally, the harm Plaintiffs are complaining
about would be present whenever there are parallel FINRA and SEC proceedings, and therefore it
is doubtful that this harm could ever be deemed irreparable for purposes of awarding injunctive
relief. Accordingly, it appears to the Court that Plaintiffs do not have a compelling argument that
they will be irreparably harmed without a stay of the FINRA hearing.
Based on its review of the most important factors relating to the award of emergency
injunctive relief, the Court finds that it is not in the interest of justice to transfer Plaintiffs’ action
to a Court of Appeals for disposition. Therefore, the Court shall dismiss this action for lack of
subject matter jurisdiction.
IV. CONCLUSION
For the foregoing reasons, the Court finds that the relief requested by Plaintiffs in their
Complaint and motion for TRO might affect the future jurisdiction of the Court of Appeals and
therefore this Court lacks jurisdiction to grant the requested relief. Furthermore, the Court finds
that transfer in lieu of dismissal is not in the interest of justice because Plaintiffs are not likely to
succeed on the merits of their claim for injunctive relief and they have not demonstrated that they
15
will suffer irreparable harm as a result of the FINRA disciplinary proceeding. Accordingly, the
Court shall deny Plaintiffs’ [8] Motion for Temporary Restraining Order and dismiss this action
for lack of subject matter jurisdiction. An appropriate Order accompanies this Memorandum
Opinion.
/s/
COLLEEN KOLLAR-KOTELLY
United States District Judge
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