USCA1 Opinion

United States Court of Appeals

United States Court of Appeals
For the First Circuit
For the First Circuit

____________________

No. 97-1038

GERALD R. SWIRSKY,

Plaintiff, Appellant,

v.

NATIONAL ASSOCIATION OF SECURITIES DEALERS,

Defendant, Appellee.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Douglas P. Woodlock, U.S. District Judge]

___________________

____________________

Before

Selya and Lynch, Circuit Judges,

______________
and Gibson,* Senior Circuit Judge.
____________________

____________________

Gerald A. Phelps for plaintiff-appellant.

________________
David C. Fixler, with
________________

whom Michael Unger and

_____________

were on brief, for defendant-appellee.

Rubin & Rudman

_______________

____________________
August 28, 1997
____________________

____________________

Hon. John R. Gibson of the Eighth Circuit, sitting by designatio

LYNCH,
LYNCH,

Circuit Judge.
Circuit Judge.
_____________

of first impression

This case presents an issue

for this circuit concerning

doctrine of exhaustion of administrative remedies

certain

actions

Securities

agreement

issue.

against

Dealers

with

the

the

("NASD").

National

We

hold

other circuits

which

whether the

applies in

Association

that

have

it does,

of

in

faced this

We therefore affirm the district court's dismissal of

the actions because

Mr. Swirsky failed to

follow the proper

review process in litigating this dispute.

I.

Background

Gerald R. Swirsky

Inc.

as a

worked for Prudential Securities

broker until November

of 1992.

In

November of

1990,

Swirsky

and

Prudential

arbitration proceeding ("the

one of Swirsky's

to lose

jointly

concentrating

severally

from

damages of $50,000

his

with

Prudential

NASD

of causing her

her position

in a

was awarded $370,260

punitive

job

to

Murray Arbitration") brought by

The customer

and

parties

customers, who accused them

money by

risky stock.

were

Prudential

and

result

of

in damages

Swirsky

from Prudential.

as a

single,

and

Swirsky lost

a comprehensive

management restructuring.

Tucker

Anthony hired

Prudential, and fired

later,

the

connection

NASD

Swirsky soon

after he

him on September 16, 1994.

filed

complaint

against

left

Four days

Swirsky

in

with the Murray Arbitration and complaints by two

other

of

former Prudential customers.

Swirsky's

(according

employment, the

to Swirsky) that

employ Swirsky, Tucker

Prior to the termination

NASD informed

if Tucker Anthony

Anthony would be held

Tucker Anthony

continued to

as a guarantor

of Swirsky's conduct.

To

resolve

represented by counsel,

the

NASD

complaints, Swirsky,

executed an Offer of

while

Settlement and

Waiver

of Procedural Rights, without admitting any guilt, on

October 21, 1994.

negotiations

Tucker

he was unaware

Anthony

apparently only

letter

from

Swirsky avers that during

liable

as

learned

the

of the NASD's

Swirsky's

of

this

General Counsel

the settlement

"threat" to hold

guarantor.

communication

of

Tucker

Swirsky

through

Anthony dated

February 8, 1995.

According to the terms of the settlement agreement,

Swirsky was fined

any

NASD member firm for ten

appeal.

Board

$10,000, suspended

agreement,

Committee

Governors

and the

("NBCC")

local

with

days, and waived all rights to

The National Business Conduct

of

from association

NASD

Committee of the NASD

approved

District

this

settlement

Business

Conduct

("DBCC") issued a Decision and Order of Acceptance

of Offer of

the

Settlement on January 9,

settlement

with

the

Securities

1995.

The NASD

Exchange

filed

Commission

("SEC") on March 2, 1995.

-33

Swirsky, represented by

different counsel, filed a

Motion to Vacate Decision and Order of Acceptance of Offer of

Settlement with the NBCC on May 2, 1995.

host of claims.2

The

Swirsky asserted a

NBCC denied Swirsky's motion to vacate

on July 10.

Swirsky appealed to the SEC,

claims as in

his motion to

review the NBCC

the NBCC.

alleging the same

The SEC declined

decision because Swirsky's motion

to

to vacate

was untimely.3

Swirsky brought suit

October 11, 1995.

in federal district court

on

The district court characterized Swirsky's

complaint as "essentially a collateral attack on a settlement

he

has

been

unable

to

undo

through

the

established

____________________

2.

Swirsky

raised

the

following

claims:

tortious

interference

with

contract;

tortious

interference

advantageous

relations; fraud; violations

of Mass.

with

Gen. L.

ch. 93A; defamation; procedural

due process violations under

the

and the Constitution

United States Constitution

Commonwealth

of Massachusetts;

violations

1983; violations of Mass. Gen. L. ch. 12

violations

of

of the

42 U.S.C.

11H and

11I; and

of sections 6(d)(1) and 15A(h)(1) of the Exchange

Act.

3.

In a letter

dated September 7, 1995, the

SEC stated the

following:
Under Section 19(d)(2), an application for review is to
be filed

within 30 days

after the date notice

of the

action is filed with the Commission and received by the

aggrieved

person.

Even if Swirsky could be considered

aggrieved by a settlement to which he consented, he was

obliged to
days of

file an

application for

the filing of

review within

notice of the action.

30

Swirsky

did not seek Commission review of the action within the

30-day

period

Commission
necessary

and

to
for

has

made

consider

the

filing outside

limits.

-44

no

showing

for

extraordinary
of

the

the

relief

normal time

administrative process."

Memorandum

district court dismissed

the complaint

failed to

exhaust his

process established by

said, Swirsky should

The Exchange Act

1.

because Swirsky

administrative remedies.

the Exchange Act, the

have appealed the adverse

in federal circuit court.

II.

and Order at

Swirsky now appeals.

Under

The

had

the

district court

SEC decision

The

Securities

Exchange

Act

of

1934

and

its

subsequent amendments create a detailed, comprehensive system

of

federal regulation

system's

foundation

of

the

is

securities

industry.

self-regulation

by

The

industry

organizations

established according to the guidelines of the

Maloney Act.

The NASD is a

registered with

the SEC pursuant

provides self-regulation

market.

national securities association

See 15 U.S.C.
___

of the

to the

Maloney Act

which

over-the-counter securities

78o-3.

The Exchange Act mandates a three-tiered process of

both administrative and judicial review of NASD

the first level, proceedings

disciplinary

proceedings.

At

are conducted

by the local

DBCC with appeal to, and de novo review by, the

NBCC.

The Maloney

safeguards to ensure

Act

prescribes an

array of

fairness at this first

tier of review.

The NASD must "bring specific charges, notify such

person of,

and give

him an

opportunity to defend

such charges, and keep a record." 15 U.S.C.

-55

procedural

member or

against,

78o -3(h)(1).

The

sanctions,

NASD is

authorized

including

censure,

prohibition from association

78o-3(b)(7);

these specific

"any

fitting

circumstances." Id.
___

impose

fines,

number

suspension,

with member firms. 15

NASD Rules of Fair

addition to

other

to

sanction deemed

1.

NASD may

appropriate

Sanctions must be supported

or

U.S.C.

Practice, Art. V,

sanctions, the

of

In

impose

under the

by written

statements specifying the activity that caused the violation,

the specific provision or

rule violated, and the

reason for

the sanction imposed.

At the

orders de novo.

decision

second level,

15 U.S.C.

the SEC

78s(d).

reviews NBCC

final

Once the NBCC files its

with the SEC, disciplinary respondents have 30 days

to petition the SEC for

SEC

review. 15 U.S.C.

78s(d)(2).

The

can affirm or modify any sanction, or remand to the NASD

for further

proceedings.

15

U.S.C.

78s(e).

The

SEC is

empowered to seek an injunction in district court if the NASD

"is

engaged or

constituting

78u(d).

is

acts or

practices

a violation" of the securities laws.

15 U.S.C.

The SEC

about

to engage

may "censure or impose

the activities, functions and

organizations

Act,

(such as the

the rules thereunder,

78s(h)(1).

limitations upon

operations" of self-regulatory

NASD) that violate

the Exchange

or its own

15

The SEC may remove any

self-regulatory

in

organization from

-66

rules.

U.S.C.

officer or director of a

office if

he

or she

is

found

to

position.

have violated

15 U.S.C.

The NASD

the

rules

abused his

or

her

to

extensive,

ongoing

78s(g)(2).

is

also subject

oversight and control by the SEC.

422 U.S. 694, 700-01 n.6

to exercise a

or

See United States v. NASD,

___ _____________
____

(1975) (The Act "authorizes the SEC

significant oversight function over

the rules

and activities of

exceptions,

the

the registered associations.").

SEC

must

approve

practices, and interpretations

15 U.S.C.

78s(b)(1).

the Exchange Act,

deems necessary.

suspend

or revoke

organization

Exchange

which

Act, SEC

rules. 15 U.S.C.

15 U.S.C.

Consistent with the

U.S.C.

abrogate or

78s(b)(3).

the license

fails

of

or

policies,

implemented.

requirements of

add rules as

The SEC may

any national

to enforce

regulations,

compliance

it

also

securities

with

the

the organization's

own

78s(h)(1).

The third tier

of final SEC

rules,

before they are

the SEC may

15

all

With few

of the process provides

orders by the United States

for review

Courts of Appeals.

78y(a); see Mister Discount Stockbrokers, Inc. v.

___ __________________________________

SEC, 768 F.2d

875, 876 (7th Cir. 1985)

(stating that "final

___

orders of the

States

Courts of

three-tiered

garner

Commission are reviewable

Appeals").

process

several

Congress

founded

benefits,

upon

including

only in the

believed that

self-regulation

"the

expertise

United

this

would

and

intimate familiarity with complex securities operations which

-77

members of

problems,

the

industry can

and

the

bring

informality

regulatory procedures."

to bear

and

S.Doc.

on

regulatory

flexibility

No. 93-13,

of

self-

93d Cong.,

1st

Sess. 149 (1973).

III.

The Merits

The Exchange Act creates

to

safeguard due process

administrative

actions.

the

We agree

question

procedure

and

that

suggests

administrative

circumvention

in disciplinary hearings,

judicial

review

of

NASD

with other circuits that

the

that

remedies

of

a comprehensive procedure

"comprehensiveness

the

doctrine

should

established

be

of

disciplinary

have considered

of

the

review

exhaustion

applied

procedures."

and for

of

to

prevent

First

Jersey

_____________

Securities, Inc. v.
_________________

1979).

Bergen,
______

605 F.2d

690,

See Merrill Lynch v. NASD, 616 F.2d

___ ______________
____

Cir. 1980);

see also Nassar & Co. v.

________ ____________

1977); Roach v. Woltmann, 879

_____
________

1041-42

Cal.

1994); Maschler
________

Securities Dealers, Inc., 827

_________________________

1993);

Inc.,
____

Prevatte
________

682 F.

Swirsky

failed

process,

the

v.

1363, 1370 (5th

v.

F. Supp.

F. Supp. 1039,

National Ass'n of
__________________

131, 132

(E.D.N.Y.

National Ass'n of Securities Dealers,

_______________________________________

Supp. 913,

to

Cir.

SEC, 566 F.2d 790, 792

___

n.3 (D.C. Cir.

(C.D.

695 (3rd

invoke

district

918

(W.D. Mich.

the third

court

tier

lacked

1988).

of

the

subject

Because

review

matter

jurisdiction, and it properly dismissed Swirsky's complaint.

-88

The doctrine

starkly

41,

in Myers v.
_____

50-51 (1938),

of exhaustion

of remedies

Bethlehem Shipbuilding Corp.,

____________________________

where the Supreme

Court noted

is stated

303 U.S.

the "long

settled

rule of

entitled

judicial

to judicial

injury until

exhausted."

relief for

the prescribed

193 (1969).

109

F.3d

supposed or

See Portela-Gonzalez v.
___ ________________

74,

79

one

(1st

is

threatened

been

The central purpose of this

McKart v. United States,

______
_____________

exhaustion forces parties to

seriously, allows

no

avoidance of premature interruption

administrative process."

Navy,
____

that

administrative remedy has

(footnote omitted).

doctrine is "the

185,

administration

Cir.

1997)

of the

395 U.S.

Secretary of the
________________

("Insisting

on

take administrative proceedings

administrative agencies an

opportunity to

correct their own errors, and potentially avoids the need for

judicial involvement

altogether."); Ezratty
_______

of Puerto Rico, 648 F.2d

_______________

770, 774 (1st Cir.

v. Commonwealth
____________

1981) (stating

that "the doctrine serves interests of

accuracy, efficiency,

agency autonomy and judicial economy.").

Exhaustion

is required

Congress, McCarthy v. Madigan, 503

________
_______

courts

if explicitly

mandated by

U.S. 140, 144 (1992), but

may relax this requirement somewhat where Congress is

silent.

Darby
_____

v.

Cisneros, 509
________

U.S.

137,

153-54 (1993).

There are

"three broad sets

of circumstances

interests

of the individual

weigh heavily against requiring

administrative

exhaustion."

McCarthy,
________

-99

503

in which

U.S.

the

at 146.

These

exceptions are

prejudice

requirement occasions

to subsequent assertion

the agency is

when

when the

there

McCarthy at
________

not empowered to

are

clear

146-48.

(1st Cir. 1997).

action; where

grant effective relief;

indicia of

See
___

of a court

undue

agency

bias

Portela-Gonzalez, 109
________________

or

and

taint.

F.3d at

77

None of these exceptions applyto this case.

Before examining

exhaustion listed above, we

the exceptions

to administrative

refute Swirsky's threshold claim

that he could not appeal the SEC decision because it

constitute a "final order."

is

an

adjudication

settlement agreement.

of

did not

On the contrary, the SEC letter

Swirsky's

motion

to

vacate

The SEC declined to review the

the

NBCC's

decision not to vacate the settlement agreement on the ground

that Swirsky's

petition was

time-barred.

Though based

on

procedural grounds, the SEC's ruling on Swirsky's petition is

final, and Swirsky could have appealed this decision.

Swirsky's

doctrine

should

allegations

that

argument consists

because the

clearest

not

apply

the NASD

of little

NASD is the

argument that

to

is

this

biased

more than

case

the

exhaustion

is

against

rooted

in

him.

This

the assertion

that,

defendant in this action,

it could

not possibly provide

believe that

this

him with

is

enough

a fair

hearing.

to demonstrate

We do

the

not

kind

of

Supreme Court

in

-1010

thoroughgoing

taint which

concerned

the

McCarthy.4
________

The review process here provides for both SEC and

court of appeals review after the NASD determination, not

mention review by the NBCC,

to

a separate entity from the DBCC.

Swirsky has not accused the SEC or this court of unacceptable

bias against

uncommon

him.

Though

it can be

in administrative law

heard in the first instance

the plaintiff

unsettling, it

for a litigant's

is not

case to be

by the very agency against which

has a complaint.

In

this case, resort to the

correct appeals procedure would not have been a "futile act."

See Portela-Gonzalez,
___ ________________

to pursue her claim to

ladder," despite the

prior stages).

109 F.3d at

78-80 (plaintiff required

"the final rung of the administrative

fact that she had been

rebuffed at all

Neither

is resort

futile in the sense that

relief he

sought.

The

to

the

proper review

Swirsky could not have received the

SEC has extensive powers

reverse and enjoin disciplinary actions

Third

Circuit has

appeals ensures

said, "Ultimate

to modify,

by the NASD.

review

by the

As the

court of

that constitutional or statutory errors will

not go unremedied."

at 696.

process

First Jersey Securities, Inc., 605

_____________________________

F.2d

See SEC v. Waco Financial, Inc., 751 F.2d 831, 833

___ ___
_____________________

____________________

4.

See
___

McCarthy, 503
________

U.S.

at 148

(citing Houghton
________

v.

Shafer, 392 U.S. 639, 640 (1968), where administrative review

______
procedure

culminated
__________

with

the

Attorney

already expressed his views on the merits).

General, who

had

-1111

(6th Cir.

1985) ("By

preserving the issue

bodies and the SEC the

before the

NASD

appellants could have obtained direct

judicial review of their constitutional claims

following all

administrative steps.").

Swirsky

distinguishing

attempts

to

avoid

these

doctrines

by

his action in district court from that before

the NASD and SEC.

the same as

his

Swirsky's claims are, however, essentially

those he raised before

motion to

vacate the

the NASD and the

settlement

argues that the harms he suffered

agreement.5

as a result of the

SEC in

Swirsky

NASD's

"threat" to Tucker Anthony give rise to independent causes of

action, analogous to causes of action he would have if a NASD

employee had punched him in the nose during the course of the

disciplinary

complaint.

Assaults

NASD's regulatory arsenal,

communication to Tucker

action by the NASD.

IV.

but it is

are not

part of

clear that the

Anthony arose out of

the

NASD's

a disciplinary

Swirsky's analogy is inapt.

Conclusion

Swirsky's proper

course of

action,

once the

SEC

denied his appeal, was to appeal

do

so.

Swirsky

incorrect, route.

reached

to this court.

this court

by

He did

not

a different,

and

At oral argument, Swirsky's counsel stated

that it was "ironic" that this case was now before the

First

____________________

5.

We note

that Swirsky

was alerted

to the

NASD "threat"

before the settlement agreement was filed with the SEC.

______

-1212

Circuit.

The irony

asks this court

the

proper

instead lies in

to do what he

review process

--

the fact

that Swirsky

claims could not be

a process

that

done via

should have

culminated here.

The decision of the district court is affirmed.

________

-1313