                 FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

DOUGLAS K. MCDANIEL; BRYAN                No. 11-17017
CLARK, on behalf of themselves, all
others similarly situated, and the           D.C. No.
general public,                           3:10-cv-04916-
                 Plaintiffs-Appellants,         SC

                  v.

WELLS FARGO INVESTMENTS, LLC,
a Delaware limited liability
company; WELLS FARGO BANK, NA,
a National Association; WELLS
FARGO ADVISORS, LLC, a Delaware
limited liability company, FKA
Wachovia Securities,
                 Defendants-Appellees.


      Appeal from the United States District Court
        for the Northern District of California
     Samuel Conti, Senior District Judge, Presiding
2      MCDANIEL V . WELLS FARGO INVESTMENTS

HOLLY HANSON , an individual, on          No. 11-55859
behalf of herself and others similarly
situated; JOHN RENNEL, an                    D.C. No.
individual, on behalf of himself and      2:10-cv-06945-
others similarly situated,                   DSF-PLA
                 Plaintiffs-Appellants,

                  v.

MORGAN STANLEY SMITH BARNEY
LLC, a Delaware limited liability
company,
               Defendant-Appellee.


      Appeal from the United States District Court
         for the Central District of California
       Dale S. Fischer, District Judge, Presiding
       MCDANIEL V . WELLS FARGO INVESTMENTS                3

KIRSTEN HEILEMANN , an individual,        No. 11-55943
on behalf of themselves and others
similarly situated; MARCELLA LEES,           D.C. No.
an individual, on behalf of               2:10-cv-08623-
themselves and others similarly               GW-JC
situated,
                 Plaintiffs-Appellants,

                  v.

BANK OF AMERICA CORPORATION , a
Delaware corporation,
               Defendant-Appellee.


      Appeal from the United States District Court
         for the Central District of California
       George H. Wu, District Judge, Presiding
4      MCDANIEL V . WELLS FARGO INVESTMENTS

MARCIA BLOEMENDAAL; DAVID                 No. 11-55958
NOTRICA , on behalf of themselves
and all others similarly situated,           D.C. No.
                 Plaintiffs-Appellants,   5:10-cv-01455-
                                             DSF-PLA
                  v.

MORGAN STANLEY SMITH BARNEY                  OPINION
LLC,
            Defendant-Appellee.


       Appeal from the United States District Court
          for the Central District of California
        Dale S. Fischer, District Judge, Presiding

                 Argued and Submitted
         February 4, 2013—Pasadena, California

                    Filed April 9, 2013

    Before: Diarmuid F. O’Scannlain, Stephen S. Trott,
          and Richard R. Clifton, Circuit Judges.

              Opinion by Judge O’Scannlain
         MCDANIEL V . WELLS FARGO INVESTMENTS                         5

                           SUMMARY*


                          Securities Law

    The panel affirmed the district courts’ dismissals of four
class actions challenging the policies of brokerage firms that
forbid their employees from opening outside trading
accounts.

    The panel held that the district courts correctly
determined that the federal Securities Exchange Act, and
related “self-regulatory organizations” rules, preempt the
enforcement of California’s forced-patronage
statute—section 450(a) of the California Labor
Code—against brokerage houses that forbid their employees
from opening outside trading accounts.


                            COUNSEL

Maxwell M. Blecher, Blecher & Collins, P.C., Los Angeles,
CA, argued the cause and filed the briefs for the
plaintiffs–appellants Holly Hanson, John Rennell, Krien
Heilemann, and Marcella Lees. With him on the briefs were
Alyson C. Decker, Blecher & Collins, P.C., Los Angeles, CA,
Robert D. Blaiser, Jr., El Dorado Hills, CA, and Robert S.
Green, James Robert Noblin, and Nicole D. Reynolds, Green
Welling, P.C., San Francisco, CA.




  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
6       MCDANIEL V . WELLS FARGO INVESTMENTS

Marc Thierman, Thierman Law Firm, Reno, NV, argued the
cause and filed the briefs for plaintiffs–appellants Marcia
Bloemendaal and David Notrica. With him on the briefs
were Jason J. Kuller and Joshua D. Buck, Thierman Law
Firm, Reno, NV, David Spivak, The Spivak Law Firm,
Beverly Hills, CA, Shaun Setareh, Law Offices of Shaun
Setareh, Beverly Hills, CA, and Louis Benowitz, Law Offices
of Louis Benowitz, Beverly Hills, CA.

Malcolm A. Heinecke, Munger, Tolles & Olson LLP, San
Francisco, CA, argued the cause and filed the brief for
defendants–appellees Wells Fargo Investments, LLC, Wells
Fargo Bank, N.A., and Wells Fargo Advisors, LLC. With
him on the briefs were Adam I. Kaplan, Munger, Tolles &
Olson LLP, San Francisco, CA, and Terry E. Sanchez,
Munger, Tolles & Olson LLP, Los Angeles, CA.

E. Joshua Rosenkranz, Orrick, Herrington & Sutcliffe LLP,
New York, NY, argued the cause for defendant–appellee
Morgan Stanley Smith Barney LLC. Trish M. Higgins,
Orrick Herrington & Sutcliffe LLP, Menlo Park, CA, filed the
brief. With them on the brief were Lynne C. Hermle,
Kenneth P. Herzinger, and Robert M. Yablon, Orrick,
Herrington & Sutcliffe LLP, Menlo Park, CA.

William P. Torngren, Sacramento, CA, filed the briefs for
plaintiffs–appellants Douglas K. McDaniel and Bryan Clark.
With him on the briefs were Gail A. Glick, Alexander
Krakow + Glick, LLP, Santa Monica, CA, and Scot D.
Bernstein, Law Offices of Scot D. Bernstein, Folsom, CA.
        MCDANIEL V . WELLS FARGO INVESTMENTS             7

Terry E. Sanchez, Munger, Tolles & Olson LLP, Los
Angeles, CA, filed the brief for defendant–appellee Bank of
America Corporation. With her on the brief were Malcolm
A. Heinicke and Adam I. Kaplan, Munger, Tolles & Olson
LLP, San Francisco, CA.

Allan Dinkoff, Weil, Gotshal & Manges LLP, New York,
NY, filed a brief for the Securities Industry and Financial
Markets Association as amicus curiae in support of
defendant–appellee Morgan Stanley Smith Barney LLC.
With him on the brief were Ira D. Hammerman and Kevin M.
Carroll, Securities Industry and Financial Markets
Association, Washington, D.C.


                        OPINION

O’SCANNLAIN, Circuit Judge:

   We must decide whether federal securities law preempts
the enforcement of California’s forced-patronage statute
against brokerage houses that forbid their employees from
opening outside trading accounts.

                             I

                            A

    Federal law requires brokerage firms to take measures
reasonably designed to prevent their employees from
misusing material, nonpublic information. To meet that
obligation, defendants Wells Fargo Investments, Wells Fargo
Bank, Wells Fargo Advisers (collectively “Wells Fargo”),
Morgan Stanley Smith Barney (“Morgan Stanley”), and
8         MCDANIEL V . WELLS FARGO INVESTMENTS

Merrill Lynch, Pierce, Fenner & Smith (“Merrill Lynch”)1
have adopted policies generally forbidding their financial
advisors from opening self-directed trading accounts outside
the firm.2 At Morgan Stanley, for example, though
employees “may maintain money market and open-end
mutual fund accounts away from the Firm as long as the
accounts do not provide the ability to purchase or sell
individual securities and other financial instruments,” they
“generally must maintain all Employee Securities Accounts
at the Firm.” To detect illicit trades, Morgan Stanley
monitors in-house account transactions “for a variety of
factors such as frequency of trading, potential misuse of
confidential information and conflicts.” The firm grants
exceptions to the in-house rule “rare[ly]” and only in the form
of “express prior written approval,” for which the employee
must apply. Employees permitted to open outside, self-
directed accounts must “ensure that duplicate confirmations
and statements [of all trades] are sent to the Firm” for review.
In all relevant respects, the employee-trading policies at
Wells Fargo and Merrill Lynch resemble Morgan Stanley’s.3
The firms say that they “can better prevent, detect, and

    1
    Although Merrill Lynch is not a defendant in these cases (Bank of
America, which owns Merrill Lynch, is named instead), we will follow the
convention, observed in the briefs, of referring to Merrill Lynch as though
it were a defendant.

    2
    A trading account is “self-directed” when its holder makes securities
trades himself.

    3
    There is, however, one notable difference. In 2008, Morgan Stanley
began granting approval as a matter of course to California employees’
requests to open accounts with outside firms, so long as those employees
gave the firm duplicate statements and confirmations regarding their
trades. Morgan Stanley elevated that practice to official company policy
in 2010. It did so because it feared liability under California state law.
          MCDANIEL V . WELLS FARGO INVESTMENTS                            9

investigate insider trading by having employees conduct
personal trading in-house,” given that the companies have
“more data on accounts held in-house,” “can more readily
correct any potential violations, for example, by reversing the
trade,” and “can more effectively investigate potential
violations.”

    Plaintiffs are former employees of Wells Fargo, Morgan
Stanley, and Merrill Lynch. While employed at those firms,
all would have liked to open self-directed, outside accounts
but were not allowed to. Douglas McDaniel and Bryan Clark
are former Wells Fargo financial advisors. Holly Hanson,
John Rennell, Marcia Bloemendaal, and David Notrica used
to work for what is now Morgan Stanley. Kristen Heilemann
and Marcella Lees worked as financial consultants and
portfolio managers for Merrill Lynch.

                                     B

    In the summer of 2010, the employees filed four class
actions.4 All rest on the same legal theory: since the firms’
trading policies allow members to open self-directed trading
accounts only in house, they force each “employee . . . to
patronize his or her employer . . . in the purchase of [a] thing
of value” and thus amount to forced patronage in violation of
section 450(a) of the California Labor Code. Each firm
raised the defense of preemption. They contend that section
450(a) is an obstacle to the accomplishment of a significant
objective of federal securities law—namely, that brokerage
firms use their discretion to adopt whatever trading polices


  4
   On November 21, 2011, this court granted the parties’ joint motion
requesting that the appeals from all four cases be consolidated for briefing
and oral argument before a single panel.
10      MCDANIEL V . WELLS FARGO INVESTMENTS

they think best suited to preventing insider trading and similar
abuses.

                               1

    In July of 2010, McDaniel and Clark sued Wells Fargo in
state court. After removing to the district court for the
Northern District of California, Wells Fargo moved to
dismiss the employees’ complaint for failure to state a claim,
arguing preemption. The district court agreed with Wells
Fargo that, under the doctrine of “obstacle” preemption, the
“federal securities regulatory framework” precluded
McDaniel and Clark’s state-law claims. McDaniel and Clark
timely appeal.

                               2

    In August of 2010, Bloemendaal and Notrica sued
Morgan Stanley in state court. After removing to the district
court for the Central District of California, Morgan Stanley
moved for summary judgment on the employees’ forced-
patronage theory, raising preemption. The court granted the
motion, concluding that both the impossibility- and obstacle-
preemption doctrines barred the employees’ claims.
Bloemendaal and Notrica timely appeal.

                               3

   In August of 2010, Hanson and Rennell sued Morgan
Stanley in state court. Morgan Stanley removed to the district
court for the Central District of California. Invoking obstacle
and impossibility preemption, Morgan Stanley moved to
dismiss for failure to state a claim. The court granted the
motion “for the reasons given in the Court’s Order Granting
        MCDANIEL V . WELLS FARGO INVESTMENTS                11

Defendant’s Motion for Summary Judgment                     in
Bloemendaal.” Hanson and Rennell timely appeal.

                              4

    In August of 2010, Heilemann and Lees sued Merrill
Lynch in state court. After removing to the district court for
the Central District of California, Merrill Lynch moved to
dismiss for failure to state a claim. The court granted the
motion, agreeing that the employees’ claims were precluded
under the doctrine of obstacle preemption. Heilemann and
Lee timely appeal.

                              II

    The employees argue that the district courts wrongly
concluded that these section 450(a) suits conflict with federal
law. Enforcing California law against brokerage houses
“does not pose an obstacle to the achievement of the
underlying Congressional goal of preventing insider trading,”
they argue, “because all [section 450(a)] does is eliminate a
choice of supervisory methods.” Though federal law does
indeed afford brokerage firms “a choice of supervisory
methods,” such discretion, they say, “is not, in and of itself,
a significant objective” of federal law.

                              A

   Congress has imposed affirmative, supervisory duties on
broker-dealers to prevent their employees from engaging in
“harmful or unfair trading practices.” Merrill Lynch, Pierce,
Fenner & Smith, Inc. v. Ware, 414 U.S. 117, 130 (1973). The
main font of these duties is the Securities Exchange Act of
1934, which, as amended, directs brokerage firms to
12        MCDANIEL V . WELLS FARGO INVESTMENTS

         establish, maintain, and enforce written
         policies and procedures reasonably designed,
         taking into consideration the nature of such
         broker’s or dealer’s business, to prevent the
         misuse in violation of this chapter, or the rules
         or regulations thereunder, of material,
         nonpublic information by such broker or
         dealer or any person associated with such
         broker or dealer.

Securities Exchange Act of 1934 § 15(g), 15 U.S.C. § 78o(g).
The law punishes breaches of this duty harshly. If the
Securities and Exchange Commission (“SEC”) determines
that a broker-dealer’s supervisory measures are inadequate,
it not only can order the firm “to take steps to effect
compliance” but can also impose sanctions. 15 U.S.C. § 78u-
3(a), (e). If the SEC concludes that a firm has “knowingly or
recklessly failed to establish, maintain, or enforce any
[required] policy or procedure,” the firm faces civil penalties
of up to “three times the amount of the profit gained or loss
avoided” as a result of employee misconduct. 15 U.S.C.
§ 78u-1(a)(3), (b)(1)(B).

   Congress and the SEC rely in large part on the securities
exchanges themselves, known as “self-regulatory
organizations” (“SROs”), to enforce the Act’s requirements.5

  5
    Bloemendaal and Notrica argue in their opening brief that the SROs
exercise improperly delegated powers, so their directives lack the force of
law. Morgan Stanley responds in part that, because the employees did not
raise their delegation argument below, they waived it. In their reply brief,
Bloemendaal and Notrica offer no response. W e agree that the issue has
been waived. See Travelers Prop. Cas. Co. v. ConocoPhillips Co.,
546 F.3d 1142, 1146 (9th Cir. 2008) (“[W ]e will not review an issue
raised for the first time on appeal, unless necessary to prevent manifest
          MCDANIEL V . WELLS FARGO INVESTMENTS                         13

See Mayo v. Dean Witter Reynolds, Inc., 258 F. Supp. 2d
1097, 1108 (N.D. Cal. 2003). Indeed, Congress has vested
the Financial Industry Regulatory Authority (FINRA,
formerly the National Association of Securities Dealers
(NASD)) and the New York Stock Exchange (NYSE) with
the power to promulgate rules that, once adopted by the SEC,
have the force of law.6 15 U.S.C. § 78s(b).

     Exercising that authority, the exchanges have elaborated
on the Act’s requirements. For instance, one exchange rule
provides that “[e]ach member [firm] shall establish and
maintain a system to supervise the activities of each
registered representative, registered principal, and other
associated person that is reasonably designed to achieve
compliance with applicable securities laws and regulations.”
NASD Rule 3010; see also NYSE Rule 342.21. FINRA and
the NYSE also require firms to certify that they have “in
place processes to establish, maintain, review, test and
modify written compliance policies and written supervisory
procedures reasonably designed to achieve compliance with
. . . federal securities laws and regulations.” FINRA Rule
3130; see also NYSE Rule 351. “Final responsibility for
proper supervision shall rest with the member” firm. NASD
Rule 3010(a). NYSE Rule 407(b) goes further still,
announcing what amounts to a default policy against outside
trading. “No . . . employee associated with a member or



injustice.”); Walsh v. Nev. Dep’t of Human Res., 471 F.3d 1033, 1037 (9th
Cir. 2006) (“[T]he issue must be raised sufficiently for the trial court to
rule on it.” (internal quotation marks omitted)).

   6
    For that reason, SRO rules are capable of preempting state law.
Whistler Invs., Inc. v. Depository Trust & Clearing Corp., 539 F.3d 1159,
1168 (9th Cir. 2008).
14      MCDANIEL V . WELLS FARGO INVESTMENTS

member organization,” it states, “shall establish or maintain
any securities or commodities account or enter into any
securities transaction with respect to which such person has
any financial interest or the power . . . to make investment
decisions, at another member . . . without the prior written
consent” of their employer. NYSE Rule 407(b).

                             B

    Federal law preempts any state law that “‘stands as an
obstacle to the accomplishment and execution of [its] full
purposes and objectives.’” Williamson v. Mazda Motor of
Am., Inc., 131 S. Ct. 1131, 1136 (2011) (quoting Hines v.
Davidowitz, 312 U.S. 52, 67 (1941)). “[O]bstruction
preemption focuses on both the objective of the federal law
and the method chosen by Congress to effectuate that
objective, taking into account the law’s text, application,
history, and interpretation.” Ting v. AT&T, 319 F.3d 1126,
1137 (9th Cir. 2003). Necessarily, “[t]he purpose of
Congress is the ultimate touchstone.” Cipollone v. Liggett
Group, Inc., 505 U.S. 504, 516 (1992) (internal quotation
marks omitted); see also Credit Suisse First Boston Corp. v.
Grunwald, 400 F.3d 1119, 1135 (9th Cir. 2005) (“This type
of preemption naturally requires us to look to Congressional
intent.”).

                             1

    The parties quarrel over a preliminary question of
preemption law: whether these cases trigger Rice v. Santa Fe
Elevator Corp.’s presumption against preemption. 331 U.S.
218, 230 (1947). When Congress has legislated in a field
which the states have traditionally occupied, “we start with
the assumption that the historic police powers of the States
        MCDANIEL V . WELLS FARGO INVESTMENTS                  15

were not to be superseded . . . unless that was the clear and
manifest purpose of Congress.” Id. The employees
characterize section 450(a) as a straightforward regulation of
the labor market, an area traditionally of state concern. See
Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 756
(1985) (“States possess broad authority under their police
powers to regulate the employment relationship to protect
workers within the State.” (internal quotation marks
omitted)). The firms take a different view: although section
450(a) may operate in the ordinary case as a labor regulation,
it trespasses here on the domain of securities law, the
exclusive turf of Congress and the SEC. Quoting United
States v. Locke, they note that “an ‘assumption’ of nonpre-
emption is not triggered when the State regulates in an area
where there has been a history of significant federal
presence.” 529 U.S. 89, 108 (2000); see also Merrill Lynch,
Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 78 (2006)
(“The magnitude of the federal interest in protecting the
integrity and efficient operation of the market for nationally
traded securities cannot be overstated.”).

    In Wyeth v. Levine, a drug-labeling preemption case from
2009, the Supreme Court clarified the Rice presumption’s
scope. 555 U.S. 555, 565 (2009). The presumption applies,
the Court explained, “in all pre-emption cases, and
particularly in those in which Congress has legislated . . . in
a field which the States have traditionally occupied,” even
when “the Federal Government has regulated [in that field]
for more than a century,” as it has in the area of drug labeling.
Id. at 565 & n.3 (internal quotation marks and citation
omitted). “We rely on the presumption because respect for
the states as independent sovereigns in our federal system
leads us to assume that Congress does not cavalierly pre-empt
state-law causes of action. The presumption thus accounts for
16      MCDANIEL V . WELLS FARGO INVESTMENTS

the historic presence of state law but does not rely on the
absence of federal regulation.” Id. at 565 n.3. Thus, whether
Congress has regulated the securities industry
comprehensively for fifty years or only interstitially for five
is irrelevant. See Pac. Merch. Shipping Ass’n v. Goldstene,
639 F.3d 1154, 1166–67 (9th Cir. 2011). So long as Congress
has set foot in a “field which the States have traditionally
occupied,” the presumption applies. Wyeth, 555 U.S. at 565.

    Even so, the firms contend that their characterization of
the “field” is the proper one. As they see it, when section
450(a) is enforced against broker-dealer trading policies, it
loses its character as a traditional labor law and takes on the
nature of a securities regulation, thereby falling outside the
historic regulatory purview of the state. We have rejected a
version of this argument twice before. See Pac. Merch.
Shipping Ass’n, 639 F.3d at 1167 (holding that, though the
state’s “Vessel Fuel Rules” operate in historically federal
areas such as “maritime commerce” and “conduct at sea
outside of state boundaries,” they “ultimately implicate the
prevention and control of air pollution,” an area of traditional
state concern, triggering the presumption); Chae v. SLM
Corp., 593 F.3d 936, 944 (9th Cir. 2010) (characterizing
provisions of California’s unfair-competition statute,
enforced against Sallie Mae’s methods of administering
federal student loans, as “[c]ontract and consumer protection
laws [that] have traditionally been in state law enforcement
hands”). We reject it again today. Section 450(a) regulates
the labor market, an area traditionally of state concern.

   Consequently, “[w]e begin with the presumption that
Congress did not intend” to preempt section 450(a). Pac.
Merch. Shipping Ass’n, 639 F.3d at 1167. With Rice in force,
“we [will] not lightly decide” that the employees’ claims are
        MCDANIEL V . WELLS FARGO INVESTMENTS                17

preempted but will “consider carefully what Congress was
trying to accomplish.” Chae, 593 F.3d at 944.

                              2

    Where, as here, federal law grants an actor “a choice,”
and state law “would restrict that choice,” state law is
preempted if preserving “that choice [was] a significant
[federal] regulatory objective.” Williamson, 131 S. Ct. at
1137. The employees argue that the objective of the
Securities Exchange Act and SRO rules is not discretion but
simply the prevention of insider trading and like abuses.
Meanwhile, the firms argue that, here, discretion and
prevention go hand in hand: “To ban brokerage firms from
exercising a federally blessed option that the vast majority of
them consider to be uniquely effective at combating securities
fraud is to severely frustrate federal objectives.” To settle
this dispute, we consult the statute, rules, the regulatory
scheme’s “history, the agency’s contemporaneous
explanation, and its consistently held interpretive views.” Id.
at 1139.

    Amended to encourage brokerage houses to deter insider
trading, the Securities Exchange Act requires the adoption
and enforcement of not just any employee-trading policies but
specifically those designed most reasonably in light of “the
nature of such broker’s or dealer’s business.” Securities
Exchange Act of 1934 § 15(g), 15 U.S.C. § 78o(g). Plainly,
this language calls on securities firms to decide for
themselves how best to monitor their employees’ trading,
suggesting that individually tailored policies serve as “an
important means for achieving” the Act’s basic goal of
reducing insider trading. Williamson, 131 S. Ct. at 1137.
Preferring flexibility to rigidity, Congress did “not set forth
18      MCDANIEL V . WELLS FARGO INVESTMENTS

specific policies and procedures that are required of every
broker-dealer or investment adviser.” H.R. Rep. No. 100-
910, at 21, reprinted in 1988 U.S.C.C.A.N. 6043, 6058.
Rather, Congress “recognize[d] that the question of what
policies and procedures are reasonable for a particular firm
may involve consideration of the differing business
operations, organizational structure, scope and nature of a
firm’s business” and so “provid[ed] flexibility to [each]
institution to tailor its policies and procedures to fit its own
situation.” Id. at 21–22. Indeed, for its part, the House
Committee on Energy and Commerce went so far as to
encourage the very policies that the defendants have adopted,
reporting that it “would expect that a firm’s supervisory
system would include, at a minimum, employment policies
such as those requiring personnel to conduct their securities
trading through in-house accounts . . . .” H.R. Rep. No. 100-
910, at 22, reprinted in 1988 U.S.C.C.A.N. 6043, 6059.

    The SEC, charged with enforcing the Act’s requirements,
has also stressed the significance of broker-dealer discretion.
Securities firms must have the ability to adopt “policies and
procedures that take into account the special circumstances of
their particular businesses and organizations.” In re Gabelli
& Co., Inc., Exchange Act Release No. 1457, 1994 WL
684627, at *3 (Dec. 8, 1994). Indeed, this “requirement that
a broker or dealer implement and maintain policies and
procedures consistent with the nature of its business is critical
to effectively preventing the misuse of material, nonpublic
information.” In re Martinez, Exhange Act Release 57,755,
2008 WL 1913369, at *4 (May 1, 2008) (emphasis added)
(internal quotation marks omitted). The SEC has even noted
favorably that “almost all firms require employees to
maintain accounts with the firm.” SEC Division of Market
Regulation, Broker-Dealer Policies and Procedures Designed
         MCDANIEL V . WELLS FARGO INVESTMENTS                        19

to Segment the Flow and Prevent the Misuse of Material
Non-Public Information, [1989–1990 Transfer Binder] Fed.
Sec. L. Rep. (CCH) ¶ 80,621 (1990).

    The SEC-adopted exchange rules further underscore the
federal interest in broker-dealer flexibility.              Most
significantly, NYSE Rule 407(b) not only permits the
adoption of policies forbidding external accounts but codifies
the no-outside-account policy as a waivable default rule.7
Additionally, NASD Rule 3040 reflects the view that “firms
must be able to supervise and regulate effectively each
associated person’s securities activities” and must “have full
discretion to utilize this authority to restrict . . . associated
persons’ private securities activities.” New NASD Rule of
Fair Practice Regulating Private Securities Transactions,
50 Fed. Reg. 41,281-01, 41282 (proposed Oct. 9, 1985). To
ensure compliance, FINRA requires the chief executive of
each member firm to certify that his company has taken
measures reasonably designed—“in light of the nature of [the
firm’s] businesses and the laws and rules applicable
thereto”—to prevent abuses, a duty described as “critical.”
FINRA Rule 3130(b), 3130.03.

    We have noted that “[f]ederal regulators often include
calculated flexibility within their programs without violating
congressional intent to have a federal program uniformly



 7
   McDaniel and Clark pointed out below that, unlike W ells Fargo Bank
and W ells Fargo Advisors, Wells Fargo Investments was not a member of
the NYSE during the relevant time, so NYSE Rule 407 did not apply to it.
The district court nevertheless decided that the Securities Exchange Act
and the NASD rules were enough to preclude McDaniel and Clark’s
section 450(a) claims under the obstacle-preemption doctrine. W e agree.
20       MCDANIEL V . WELLS FARGO INVESTMENTS

control.” Chae, 593 F.3d at 946. They have done precisely
that here.

                                  3

    The employees make a back-up argument. Even if
broker-dealer discretion is a significant objective of the
federal regulatory scheme, the firms can avoid violating
section 450(a) simply by offering in-house accounts to
employees for “free.”

    Not so. The plain language of section 450(a) forbids
mandatory “free” accounts just as it forbids paid ones.8 See
Pac. Nat’l Bank v. Wozab, 800 P.2d 557, 561 (1990) (“It is
axiomatic that in the interpretation of a statute where the
language is clear, its plain meaning should be followed.”
(internal quotation marks omitted)). An employee may not be
compelled, the statute says, to patronize his employer “in the
purchase of any thing of value”—period. Cal. Labor Code
§ 450(a). It does not prohibit merely compelled purchases of
any thing of value from the employer. See People v. Bautista,
77 Cal. Rptr. 3d 824, 836 (Cal Ct. App. 2008) (“Under the
standard rules of statutory construction, we will not read into
the statute a limitation that is not there.” (citing Cal. Civ Proc.
Code § 1858)). An employer breaches the statute, then, in
one of two ways. First, and most obviously, a company could
force an employee to patronize it in the purchase of a
company-provided good or service, as when Merrill Lynch
requires employees interested in self-directed trading to
patronize the firm in the purchase of in-house brokerage
services. Second, an employer could require a worker to

    8
      W e interpret California statutes in accordance with “California
principles of statutory construction.” Grunwald, 400 F.3d at 1126.
        MCDANIEL V . WELLS FARGO INVESTMENTS                 21

patronize it in the purchase of a third party’s good or service.
As the firms point out, a “free accounts” policy would
amount to forced patronage of this second sort: were Morgan
Stanley to compel employees interested in self-directed
trading to open their accounts in house, it still would force
them to use Morgan Stanley in the purchase of goods (here,
securities), regardless of whether Morgan Stanley charged its
typical fees.

    Resisting this reading, the employees ascribe to
“patronize” a narrower definition. One is not forced to
patronize an employer, they suggest, unless one is required to
pay it for something. We disagree. To patronize is “to trade
with; to frequent as a customer” or to act as “[o]ne who
supports a commercial enterprise.” Webster’s New
International Dictionary 1793, 1794 (2d ed. 1936). A Wells
Fargo employee compelled to open a self-directed trading
account in house—regardless of whether he pays the normal
fees—is, quite plainly, forced to consume a Wells Fargo
service. He has no choice in the matter. That he avoids the
typical expenses makes him no less a Wells Fargo client, just
as a consumer of free legal services is no less an attorney’s
client.

    The second problem with the employees’ reading is that
it conflates what section 450(a) keeps separate: (1)
patronizing and (2) purchasing something of value. If an
employee could be said to patronize his employer only when
he pays it for a good or service, then section 450(a)’s “in the
purchase of any thing of value” phrase would amount to
surplusage. See People v. Woodhead, 741 P.2d 154, 157
(Cal. 1987) (“[S]ignificance should be attributed to every
word and phrase of a statute, and a construction making some
words surplusage should be avoided.”). The employees’
22       MCDANIEL V . WELLS FARGO INVESTMENTS

statute would literally read, “No employer may compel or
coerce any employee to purchase any thing of value in the
purchase of any thing of value.” We must avoid such an
absurdity.

    For these reasons, and because in California “[a] remedial
statute must be liberally construed so as . . . to suppress the
mischief at which it is directed” (here, “employer coercion”),
Cal. State Rest. Ass’n v. Whitlow, 129 Cal. Rptr. 824, 828
(Cal Ct. App. 1976) (interpreting section 450), the
employees’ “charge nothing” approach fails to avoid the
conflict.

                                  III

    The district courts correctly determined that the Securities
Exchange Act and related SRO rules preempt the employees’
forced-patronage suits.9

     AFFIRMED.




 9
   Because we agree with the district courts that the obstacle-preemption
doctrine precludes enforcement of section 450(a) here, we decline to
address whether, as the district courts held in Bloemendaal and Hanson,
the employees’ claims are also foreclosed under the impossibility-
preemption doctrine.
