Imagine the nightmare. More than 1,800 individuals who took the Series 7 broker qualification exam failed the test—only to be told later there was an error. Oops. You all passed.
The National Association of Securities Dealers, which administers the test, publicly announced in 2006 that 1,882 tests—between October 2004 and December 2005—had been misreported as failing scores. The results were corrected. Applications were approved.
But the blunder was costly—including the loss of jobs and employment opportunities, court records show. A group of test-takers banded together in a nationwide class action against the NASD (now known as the Financial Industry Regulatory Authority) and the Electronic Data Systems, the company hired for technical services in administering the Series 7 exam.
The class, seeking monetary damages for negligence and breach of contract, sued in a consolidated action in the U.S. District Court for the District of Columbia. U.S. District Judge John Bates tossed the lawsuit last year. A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit ruling unanimously today, affirmed the district court opinion.
Circuit Judges Janice Rogers Brown, Harry Edwards, and Laurence Silberman ruled state-law claims of negligence and breach of contract are not permissible against the NASD, a self-regulatory agency that enjoys immunity for its duties that arise out of the Securities Exchange Act of 1934. “Unable to breach this formidable barrier of precedent or sneak past it in disguise, plaintiffs attempt to vault over it,” Brown wrote for the majority.
The plaintiffs’ lawyer, Gerald Martin of Barrett, Johnston & Parsely, in Nashville, who argued the case in the D.C. Circuit in September, was not immediately available for comment. Gibson, Dunn & Crutcher partner Douglas Cox argued for the NASD, and Michael Carvin, a Jones Day partner, represented the EDS Corporation.
“We’re obviously gratified with the victory. The court followed a long line of circuit precedent,” Carvin told the BLT. Said Cox: “The legal doctrines at issue are important not only in this case but more generally for the protection of investors and the smooth functioning of our markets.”
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