The opinion of the court was delivered by: Rakoff, District Judge.
Since every case is different, the question for a court is
whether the difference makes a difference. In Barbara v. New
York Stock Exchange, 99 F.3d 49 (2d Cir. 1996), the Court of
Appeals concluded that a lawsuit filed in state court that
asserted various common law causes of action premised on alleged
abuses in the conduct of the internal disciplinary proceedings of
the New York Stock Exchange (the "Exchange") did not implicate a
federal interest sufficient to warrant removal to federal court,
even though the proceedings were sufficiently "quasi-public" to
entitle the Exchange to absolute immunity. The instant suit, by
contrast, asserts common law causes of action premised on an
alleged conspiracy by the Exchange and its officers to purposely
misconstrue § 11(a) of the Securities Exchange Act (the "Exchange
Act"), 15 U.S.C. § 78k(a), and to encourage violations of that
section by "floor brokers" on the Exchange and thereby "cause"
defendant's federal arrest and conviction. The Court has
previously determined in the companion case of D'Alessio v. New
York Stock Exchange, Inc., No. 00 Civ. 269, 2000 WL 1458801,
2000 U.S.Dist. LEXIS 14256 (S.D.N.Y. Sept. 29, 2000), that these
differences do not yield a different result from Barbara so far
as absolute immunity is concerned. The Court now determines that
these differences do, however, dictate a different result from
Barbara so far as removal is concerned.
The pertinent facts are as follows. On July 16, 1998, plaintiff
Michael Frayler, formerly a floor broker on the Exchange, pleaded
guilty to criminal violations of the Exchange Act, including,
inter alia, violation of § 11(a) of that Act, which prohibits
certain kinds of trading by a floor broker.*fn1 Nearly two years
later, on June 23, 2000, Frayler and an entity named "Touchdown
Securities, Inc." filed what they denominated a "Pro Se
Complaint" in New York State Supreme Court.*fn2 See Frayler v.
New York Stock Exchange, Inc., No. 00114041 (N.Y.Sup.Ct., County
York, June 23, 2000). The Complaint was copied, nearly verbatim,
from a civil complaint drafted by counsel for John D'Alessio and
D'Alessio Securities, Inc., which had previously been removed
from the New York State courts and was then pending before this
Court, see D'Alessio v. New York Stock Exchange, No. 00 Civ.
Specifically, Frayler's Complaint alleged that the Exchange and
certain of its officers (collectively the defendants here)
"conspired to violate, among other laws, § 11(a) and Rule 11a-1
[of the Securities and Exchange Commission] . . . [by] wilfully
and knowingly agree[ing] among themselves and others to permit
illegal trading on the floor [of the Exchange] by [floor] brokers
and to encourage other [floor] brokers to engage in this illegal
activity." Complaint ¶ 20. To this end, the Complaint alleged,
the defendants concocted a "phony interpretation" of § 11(a), on
which Frayler allegedly relied to his detriment. Complaint ¶ 28.
Finally, the Complaint alleged, when the United States Attorney's
Office and the Securities and Exchange Commission began
investigating violations of § 11(a) on the part of Frayler and
other floor brokers, the defendants willfully concealed their own
"full involvement over the years in approving [violations of §
11(a)] and in interpreting [the relevant laws] in a way that
permitted [such violations]," Complaint ¶ 73, and thereby
"caused" plaintiff's criminal arrest and prosecution. Complaint ¶
Based on these and similar allegations, the Complaint asserted
three tort claims against all defendants, to wit, injurious
falsehood, fraudulent deceit, and negligent misrepresentation,
and also asserted a breach of contract claim against the
Exchange. Complaint ¶¶ 94-97. Promptly after the Complaint was
filed in New York State court, the defendants removed the case to
federal court, pursuant to 28 U.S.C. § 1441. Plaintiff then filed
the instant motion to remand. For the reasons that follow, the
motion must be denied.
Section 1441 permits removal of a case to federal court
whenever any claim or cause of action in the lawsuit is "within
the jurisdiction conferred by section 1331 of [Title 28]."
Section 1331, in turn, confers federal jurisdiction over claims
"arising under" the Constitution, laws, or treaties of the United
States. The "arising under" language has been interpreted by the
Supreme Court to include, inter alia, cases where "the
plaintiff's right to relief [under state law] necessarily depends
on resolution of a substantial question of federal law."
Franchise Tax Bd. v. Construction Laborers Vacation Trust,
463 U.S. 1, 28, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983); see Smith v.
Kansas City Title & Trust Co., 255 U.S. 180, 199-202, 41 S.Ct.
243, 65 L.Ed. 577 (1921).
Here, the central premise of plaintiff's three tort claims —
indeed, of the entire Complaint — is that the defendants
themselves violated and purposely encouraged plaintiff and others
to violate § 11(a) of the Exchange Act by promulgating erroneous
and misleading interpretations of that statutory provision.
Complaint ¶ 20. Thus, even assuming arguendo that defendants'
alleged violation of § 11(a) would not itself give rise to a
private right of action, see Merrell Dow Pharmaceuticals Inc. v.
Thompson, 478 U.S. 804, 814, 106 S.Ct. 3229, 92 L.Ed.2d 650
(1986), "the federal issue [here] is decisive because upon [the
federal statute's] construction [depends] the vindication of
rights and definition of relationships" at the heart of the
lawsuit. West 14th St. Commercial Corp. v. 5 West 14th Owners
Corp., 815 F.2d 188, 196 (2d Cir. 1987). In such circumstances,
"the federal ingredient . . . is sufficiently substantial to
confer the arising under jurisdiction." Id.
The federal interest here involved is vastly more significant
than the alleged federal issue at stake in Barbara. See Merrell
Dow, 478 U.S. at 814 n. 12, 106 S.Ct. 3229 (suggesting that "our
§ 1331 decisions can be understood as an evaluation of the nature
of the federal interest at
stake."). In Barbara, the underlying substantive issue was
whether the Exchange had conducted its quasi-public disciplinary
proceedings consistently with its own internal rules and its
contractual obligations to its members, chiefly matters of state
contract law. Here, by contrast, the question of whether the
Exchange properly interpreted § 11(a) of the Exchange Act is
wholly a matter of federal law and, indeed, a matter of intense
federal concern given the importance of federal regulation of the
stock market. Congress expressly recognized this importance when
it gave the federal courts exclusive jurisdiction over violations
of the Exchange Act. 15 U.S.C. § 78aa. Similarly, courts in other
federal circuits have implicitly recognized this importance in
holding that state law claims against national securities
exchanges are preempted by the Exchange Act. See Barbara, 99
F.3d at 59 (citing cases). With these federal concerns so
prominently figuring in the instant case, removal under § 1441 is
Accordingly, plaintiffs' motion to remand is denied. In light
of that conclusion, defendants may now proceed with the motion
they previously sought to file seeking dismissal of the instant
case in light of D'Alessio.*fn4 Specifically, defendants'
moving papers are to be served by November 6, 2000, plaintiff's
answering papers are to be served by November 20, 2000, and
defendants' reply papers are to be served by November 29, 2000,
at which time defendants' counsel will file a full set of motion
papers with the Clerk of the Court and deliver a courtesy copy to
chambers. The Court will notify the parties if it believes oral
argument is necessary.