Legal action against FINRA dismissed for failure to exhaust administrative remedies.

The plaintiff Schwab sought a declaratory judgment that the defendant Financial Industry Regulatory Authority (FINRA) may not enforce FINRA rules regulating broker-dealers to bar a new provision in the plaintiff's customer account agreements that waives any right to participation in class action litigation and requires individual arbitration of claims. The plaintiff contended that FINRA Rule 2268(d), properly interpreted, did not prohibit class action waivers and, in the alternative, even if intended to do so, its enforcement would impermissibly violate the Federal Arbitration Act (FAA), 9 U.S.C. § 1, et seq. The plaintiff sought injunctive relief barring FINRA from further pursuing discipline proceedings against the plaintiff based on the class action waiver. The defendant filed a motion to dismiss, arguing that the court lacked jurisdiction to hear this case because the plaintiff is a FINRA member and the dispute must go through the FINRA enforcement process. The court granted the motion to dismiss and found that the plaintiff failed to exhaust its administrative remedies in FINRA.

Case Law Alert - 3rd Qtr 2012