Summary
In Bantum, a New York intermediate court of appeals was faced with the issue of whether the Securities Exchange Act preempted a broker's allegations of a hostile work environment and sexual harassment under state and city discrimination laws.
Summary of this case from Dooner v. DidonatoOpinion
2003-04678.
Decided May 10, 2004.
In an action, inter alia, to recover damages for hostile work environment, sexual harassment, and discriminatory retaliation pursuant to New York State Executive Law article 15 and Title 8 of the New York City Administrative Code, the defendants American Stock Exchange, LLC, and Eric S. Brown, appeal, and the defendant Richard T. Chase separately appeals, as limited by their briefs, from so much of an order of the Supreme Court, Queens County (Dollard, J.), dated April 3, 2003, as denied their motions pursuant to CPLR 3211(a)(7) and (e) to dismiss the complaint insofar as asserted against them.
Seyfarth Shaw LLP, New York, N.Y. (Peter A. Walker and Lori M. Meyers of counsel), for appellants American Stock Exchange, LLC, and Eric S. Brown.
Brian G. Cesaratto, P.C., White Plains, N.Y., for appellant Richard T. Chase.
Carabba Locke, LLP, New York, N.Y. (Anthony Carabba, Jr., and Steven I. Locke for respondent.
Richards Spears Kibbe Orbe, LLP, New York, N.Y. (Daniel C. Zinman of counsel), for defendant.
Heights Partners, Inc. Driscoll Redlich, New York, N.Y. (Catherine L. Redlich of counsel), for defendant Lawrence Polatchek.
Before: HOWARD MILLER, J.P., DANIEL F. LUCIANO, ROBERT W. SCHMIDT, SANDRA L. TOWNES, JJ.
DECISION ORDER
ORDERED that the order is reversed insofar as appealed from, on the law, with one bill of costs to the appellants appearing separately and filing separate briefs, the motions are granted, the complaint is dismissed insofar as asserted against the appellants, and the action against the remaining defendants is severed.
At issue here is whether a broker may bring an action under the New York State Human Rights Law (Executive Law § 290 et seq.) and the New York City Human Rights Law (Administrative Code of City of N.Y. § 8-101 et seq.) to recover damages for sexual harassment and discriminatory retaliation allegedly encouraged by the defendant the American Stock Exchange, LLC (hereinafter AMEX), when AMEX failed to conduct a proper investigation into the plaintiff's claims of sexual harassment perpetrated by another broker.
AMEX is a self-regulating organization required by the Securities Exchange Commission (hereinafter the SEC) and the Securities Exchange Act (hereinafter the Exchange Act) to promulgate and enforce rules protecting investors and governing members ( see 15 U.S.C. § 78f). In accordance with the Exchange Act, AMEX conducts disciplinary proceedings when a member, or a person associated with a member, is suspected of violating federal securities laws or internal AMEX rules or regulations.
The plaintiff was a broker who traded on the AMEX trading floor. She claims that she was sexually harassed by the defendant Lawrence Polatchek, a competing trader and member of AMEX, between March and October 2000. In November 2000, the plaintiff lodged a complaint against Polatchek with the National Association of Securities Dealers, which referred the matter to AMEX's staff attorney, the defendant Eric S. Brown.
Brown met with the plaintiff in February 2001 to discuss her allegations. According to AMEX, Brown sent an advisement letter to Polatchek addressing the plaintiff's allegations of sexual harassment on January 2, 2001. Formal charges were ultimately filed against Polatchek in August 2002, following several attempts by AMEX to resolve the matter. The plaintiff claims that the appellants, AMEX, Brown, and Chase aided and abetted Polatchek's sexual harassment and encouraged retaliatory conduct from other members of AMEX by failing to conduct a proper and thorough investigation.
The Supremacy Clause of the United States Constitution "vests in Congress the power to supersede not only State statutory or regulatory law but common law as well" ( Guice v. Charles Schwab Co., 89 N.Y.2d 31, 39, cert denied 520 U.S. 1118). As a general rule, the question of preemption is ultimately one of Congressional intent, which may be express or implied ( id.). In order to determine that intent, the United States Supreme Court has identified three types of preemption: (1) "express preemption," where Congress explicitly defines the extent to which its enactment preempts state law, (2) "field preemption," where Congress regulates a field so pervasively that an intent to occupy the field exclusively may be inferred, and (3) "conflict preemption," where the state and federal law actually conflict so that it is impossible for a party to simultaneously comply with both, or the state law stands as an obstacle to the execution of the full purposes and objectives of Congress ( see Barnett Bank v. Nelson, 517 U.S. 25; Hines v. Davidowitz, 312 U.S. 52; City of New York v. Job-Lot Pushcart, 88 N.Y.2d 163, cert denied 519 U.S. 871; Guice v. Charles Schwab Co., supra).
Moreover, Federal administrative agency regulations promulgated pursuant to the Congressional delegation of quasi-legislative authority may also preempt state law ( see Guice v. Charles Schwab Co., supra).
In the instant case, the legislative history suggests that Congress intended to preempt state interference with a self-regulating organization's regulatory functions through implementing regulations of the SEC ( see Feins v. American Stock Exch., 81 F.3d 1215, 1218). As already noted, AMEX is registered as a national securities exchange pursuant to 15 U.S.C. § 78f and is a self-regulating organization as defined by 15 U.S.C. § 78c(a)(26). The SEC is the "appropriate regulatory agency" for AMEX and its members ( 15 U.S.C. § 78c[a][34][e]). The Exchange Act establishes a scheme of regulation of the securities marketplace that combines self-regulation by the securities exchanges with oversight and direct regulation by the SEC ( see Feins v. American Stock Exch., supra).
Accordingly, to allow the plaintiff's claims against AMEX arising out of its disciplinary functions would clearly "stand as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress" ( Barbara v. New York Stock Exch., 99 F.3d 49, 58, quoting Hines v. Davidowitz, supra), which is essentially to encourage stringent self-regulation of the securities industry.
In light of our determination, it is unnecessary to address the appellants' remaining contentions.
H. MILLER, J.P., LUCIANO, SCHMIDT and TOWNES, JJ., concur.