Before: Procter Hug, Jr., Chief Judge, Ferdinand F. Fernandez and Sidney R. Thomas, Circuit Judges.
The opinion of the court was delivered by: Thomas, Circuit Judge
Appeal from the United States District Court for the Northern District of California Marilyn H. Patel, District Judge, Presiding
February 10, 1998--San Francisco, California
In this appeal we consider what civil remedies are available against a national securities exchange for temporarily delisting and suspending trading in a stock on the opening day of a public offering. We agree with the district court that defendants are entitled to regulatory immunity, and affirm dismissal of the action.
The National Association of Securities Dealers ("NASD") is a non-profit, self-regulatory organization registered pursuant to the Maloney Act amendments to the Securities Exchange Act of 1934 ("Exchange Act"). 15 U.S.C. S 78a et seq.; see also National Assoc. of Sec. Dealers, Inc., 5 SEC 627 (1939). NASD is the only securities association registered with the Securities and Exchange Commission ("SEC") under 15 U.S.C. S 78o-3, and is the primary regulatory body for the broker-dealer industry. It supervises the conduct of its members under the general aegis of the SEC. The Nasdaq Stock Market, Inc. ("NASDAQ") is a wholly owned NASD subsidiary which processes quotations for most over-the-counter equity trading. NASDAQ is the only exchange which NASD both owns and regulates.
Sparta Surgical Corporation ("Sparta") is a medical products manufacturer and distributor whose stock has been listed and traded on the NASDAQ SmallCap market since 1991. The NASDAQ SmallCap market is a distinct tier of the NASDAQ Stock Market comprised of securities of smaller, "emerging growth" companies. See NASD Manual (CCH) at 157; NASD Rule 4200(20). Each tier has its own set of financial requirements that a company must meet for NASDAQ to list its securities.
To effectuate its desire to make a secondary public offering, Sparta filed two listing applications with NASDAQ on February 15, 1995. On March 21, 1995, the SEC declared Sparta's offering effective, prompting Sparta and its underwriter to commence selling shares. Later that morning, NASDAQ de-listed Sparta's stock and suspended trading on the offering without explanation. The suspension was lifted the following day, and trading on the offering resumed.
Although the suspension was temporary, Sparta contends that in the world of public offerings and labile investor confidence, the regulatory action and trading hiatus rendered the offering unmarketable. Accordingly, Sparta filed suit in California superior court alleging a variety of state common-law claims, including breach of express and implied contract, breach of the covenant of good faith and fair dealing, gross negligence, intentional misrepresentation, negligent misrepresentation, and interference with economic relations. Defendants removed the action to federal district court. After denying Sparta's remand motion, the district court subsequently dismissed the suit for failure to state a claim upon which relief could be granted.
Contrary to Sparta's assertions, the district court had subject matter jurisdiction and properly denied the motion to remand, a decision which we review de novo. Easton v. Crossland ...