(7th Cir. 1985). These Circuits conclude that NASD's status as
a registered national securities association pursuant to
specific statutory authorization requires NASD to perform many
of the same functions as a public administrative agency.
See 15 U.S.C. § 78o; First Jersey Securities, 605 F.2d at 696;
Merrill Lynch, Pierce, Fenner & Smith, 616 F.2d at 1367; and
Mister Discount, 768 F.2d at 876. NASD's supervisory
responsibility is subject to a "comprehensive review
procedure," which provides for appeal of NASD's determinations
to the NASD Board of Governors, the SEC, and finally to the
appropriate United States Court of Appeals. First Jersey
Securities, 605 F.2d at 696; see also 15 U.S.C. § 78s(d)(2),
78y(a)(1) and 78y(a)(3) (1976). "The quasi-official status of
NASD therefore fully activates the policies underlying the
exhaustion doctrine and requires the doctrine's application to
NASD." Bruan, 502 F. Supp. at 905; see also Westheimer v.
Commodity Exchange, Inc., 651 F. Supp. 364 (S.D.N.Y. 1987)
(applicability of exhaustion doctrine to COMEX, an analogous
self-regulatory association of broker/dealers).
The Second Circuit discussed the exhaustion doctrine in
Touche Ross & Co. v. Securities and Exchange Commission,
609 F.2d 570 (2d Cir. 1979). That decision recognized only one
exception to the exhaustion requirement: when an agency action
"is plainly beyond [the agency's] jurisdiction as a matter of
law or is being conducted in a manner that cannot result in a
valid order," then recourse to the courts is available before
administrative remedies have been exhausted. Touche Ross, 609
F.2d at 576, quoting Sterling Drug, Inc. v. Weinberger,
509 F.2d 1236, 1239 (2d Cir. 1975) (Friendly, J.). The
circumstances of this case do not lie within that exception to
the administrative exhaustion doctrine.
The MPV investigation was not beyond NASD's jurisdiction;
rather, NASD was obligated to investigate the allegations
against MPV made by confidential informants. Section 19(h)(1),
15 U.S.C. § 78s(h)(1) authorizes the SEC to suspend or revoke
the registration of any self-regulatory organization that fails
to enforce compliance with the Securities and Exchange Act of
1934, 15 U.S.C. § 78a et seq., SEC regulations, and the rules
of the self-regulatory organization. Because this case does not
fall within the exception to the exhaustion doctrine,
plaintiff's complaint must be dismissed for lack of subject
Defendant moves to dismiss for lack of subject matter
jurisdiction also on the ground that plaintiff fails to prove
the requisite amount in controversy pursuant to 28 U.S.C. § 1332.
Plaintiff alleges that its interest in membership in NASD
exceeds $50,000, the requisite amount, and that the
investigative documents at issue involve the "multi-million
dollar operations" of MPV. (Amended Complaint ¶ 6) The burden
of proof to establish jurisdictional prerequisites lies with
the party seeking to invoke the court's jurisdiction. McNutt v.
General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct.
780, 785, 80 L.Ed. 1135 (1936), Kheel v. Port of New York
Authority, 457 F.2d 46, 49, cert. denied, 409 U.S. 983, 93
S.Ct. 324, 34 L.Ed.2d 248 (1972). For this reason, the amount
in controversy is calculated from the plaintiff's standpoint.
Defendant asserts that plaintiff's damages from denial of
access to the investigative records are "too indirect and
speculative to support federal jurisdiction," Kheel, 457 F.2d
at 49, and that there is no basis on which to value MPV's
interest in membership above $50,000. Plaintiff has made no
showing that victory in this lawsuit would lead directly or
indirectly to financial savings. Nor has plaintiff shown that
depriving it of access to NASD's investigatory records imposes
any financial harm.
The application fee for NASD membership is $1500 (§ 2(h)
Schedule A, NASD By-Laws, NASD Manual (CCH) p. 1502). Unlike
certain stock exchanges, there is no limit on the number of
persons who may become members of NASD, so there is no barrier
to free entry which might artificially inflate the value of
NASD membership. Plaintiff has not shown that its membership
interest exceeds the application fee.
The federal courts cannot take cognizance under
§ 1331 of cases in which the rights are not capable
of valuation in monetary terms. And the
jurisdictional test is applicable to that amount
that flows directly and with a fair degree of
probability from the litigation, not from
collateral or speculative sources.
Kheel, 457 F.2d at 49. As no amount "flows directly and with a
fair degree of probability" from the outcome of this
litigation, defendant's motion to dismiss must be granted also
on the ground that plaintiff has failed to establish the
requisite amount in controversy pursuant to 28 U.S.C. § 1332.
For the reasons set forth above, plaintiff's complaint is
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