                   United States Court of Appeals
                         FOR THE EIGHTH CIRCUIT
                                 ___________

                                 No. 03-1404
                                 ___________

MM&S Financial, Inc.,                   *
                                        *
             Appellant,                 *
                                        * Appeal from the United States
     v.                                 * District Court for the
                                        * District of Minnesota.
National Association of Securities      *
Dealers, Inc.; NASD Dispute             *
Resolution, Inc.,                       *
                                        *
             Appellees.                 *
                                   ___________

                           Submitted: December 18, 2003
                              Filed: April 14, 2004
                               ___________

Before RILEY, LAY, and HEANEY, Circuit Judges.
                            ___________

RILEY, Circuit Judge.

       After MM&S Financial, Inc. (MM&S) purchased certain assets of Miller &
Schroeder Financial, Inc. (Miller), former Miller customers brought securities
arbitration proceedings against MM&S. MM&S brought suit against the National
Association of Securities Dealers, Inc. (NASD) and NASD Dispute Resolution, Inc.
(the NASD defendants) to prohibit the arbitration proceedings. The district court1
dismissed MM&S’s complaint. We affirm.

I.     BACKGROUND
       NASD is a non-profit, self-regulatory organization registered with the
Securities and Exchange Commission as a national securities association. NASD
Dispute Resolution, Inc. is NASD’s wholly-owned dispute resolution subsidiary,
providing a forum for resolving industry controversies and conducting arbitrations
under the Code of Arbitration Procedures. MM&S, a securities firm and NASD
member, purchased certain assets from the bankrupt Miller. Former Miller customers
brought private securities arbitration proceedings against MM&S in the NASD
Dispute Resolution forum. MM&S brought a two-count suit against the NASD
defendants, believing it should not be required to arbitrate the claims of Miller’s
customers with whom MM&S had never done business. The lawsuit alleged the
NASD defendants violated (1) the Securities Exchange Act of 1934 (Exchange Act),
15 U.S.C. § 78s(g)(1), by failing to follow their own rules and dismissing the
arbitrations, and (2) the U.S. Constitution’s Commerce, Due Process, and Equal
Protection Clauses. MM&S’s main contention is the NASD defendants have wrongly
asserted jurisdiction over MM&S in violation of NASD Rule 10101, which controls
“Matters Eligible for Submission,” and states, in relevant part, the following: “This
Code of Arbitration Procedure is prescribed . . . for the arbitration of any dispute,
claim, or controversy arising out of or in connection with the business of any member
of the Association . . . (c) between or among members or associated persons and
public customers, or others.”




      1
      The Honorable David S. Doty, United States District Judge for the District of
Minnesota.

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       Arguing MM&S sued the wrong parties, the NASD defendants moved to
dismiss the complaint. The magistrate judge2 recommended granting the motion to
dismiss, concluding (1) 15 U.S.C. § 78s(g)(1) does not provide MM&S a private right
of action, and (2) the NASD defendants are not state actors and cannot be sued for
constitutional violations. MM&S objected to the magistrate judge’s Report and
Recommendation arguing its complaint states a breach of contract claim. MM&S
later moved to amend its complaint to state a breach of contract claim. Adopting the
magistrate judge’s Report and Recommendation, the district court granted the motion
to dismiss, agreeing the statutory count failed because no private right of action
against the NASD defendants exists, and the constitutional count failed because the
NASD defendants are not state actors. The district court also decided MM&S’s
complaint did not state a breach of contract claim, and, even if the court allowed
MM&S to amend the complaint to include a breach of contract claim, no such private
right of action exists under 15 U.S.C. § 78s(g)(1). MM&S appeals the decision that
its complaint does not state a breach of contract claim.

II.    DISCUSSION
       A.    Standards of Review
       We review de novo a district court’s grant of a motion to dismiss. Stone Motor
Co. v. GMC, 293 F.3d 456, 464 (8th Cir. 2002). Under Federal Rule of Civil
Procedure 12(b)(6), we accept MM&S’s factual allegations as true and grant every
reasonable inference in MM&S’s favor. Id. We review the district court’s denial of
leave to amend the complaint for an abuse of discretion. Grandson v. Univ. of Minn.,
272 F.3d 568, 575 (8th Cir. 2001). When amending a pleading would be futile, a
court will not grant leave to amend. Id.




      2
       The Honorable Susan Richard Nelson, United States Magistrate Judge for the
District of Minnesota.

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       B.    No Private Right of Action
       MM&S argues it has a private right of action against the NASD defendants for
violating the NASD rules, because no court has held the NASD defendants are
immune from breach of contract claims. First, MM&S has lost sight of the issue. The
issue is whether MM&S has a right of action against the NASD defendants, not
whether courts have recognized a cause of action for NASD members such as
MM&S. Second, MM&S’s proposition would allow any NASD member to sue the
NASD defendants if the member believed the NASD defendants might have violated
one of NASD’s numerous rules. MM&S seeks this result without the aid of
supporting language in the Exchange Act or caselaw. For support, MM&S relies
almost exclusively on Wheat, First Securities, Inc. v. Green, 993 F.2d 814 (11th Cir.
1993), and Gruntal & Co. v. Steinberg, 854 F. Supp. 324 (D.N.J. 1994). Neither case
involved a suit against NASD for violating its own rules, so we are not persuaded by
these authorities.

       The Exchange Act requires a self-regulatory organization to comply with the
Exchange Act and the organization’s own rules. 15 U.S.C. § 78s(g)(1). Interestingly,
MM&S has not appealed the district court’s dismissal of the statutory right of action
under the Exchange Act, but rather focuses its appeal on whether the MM&S
complaint states a breach of contract claim. If the Exchange Act does not provide an
implied right of action to MM&S, a private right of action for breach of contract is
even more tenuous. Therefore, we address two questions for purposes of this appeal.
First, does section 78s(g)(1) create an implied right of action in MM&S’s favor?
Second, if section 78s(g)(1) does not create an implied right of action, does MM&S
nevertheless have a free-standing breach of contract claim against the NASD
defendants for failing to follow NASD’s own rules?

           1.    No Statutory Right of Action
     Whether MM&S has a statutory right of action against the NASD defendants
depends on our construction of section 78s(g)(1). See Touche Ross & Co. v.

                                         -4-
Redington, 442 U.S. 560, 568 (1979). In construing section 78s(g)(1), we ask
“whether Congress intended to create the private right of action asserted” by MM&S.
Id. However, “the fact that a federal statute has been violated and some person
harmed does not automatically give rise to a private cause of action in favor of that
person.” Id. (quoting Cannon v. Univ. of Chicago, 441 U.S. 677, 688 (1979)).

        MM&S wisely abandoned its claim based on section 78s(g)(1), as the weight
of authority precludes such a private right of action. See, e.g., Sparta Surgical Corp.
v. Nat’l Assoc. of Secs. Dealers, Inc., 159 F.3d 1209, 1213 (9th Cir. 1998) (noting
“[i]t is undisputed, even by [the plaintiff], that a party has no private right of action
against an exchange for violating its own rules or for actions taken to perform its self-
regulatory duties under the Act. Thus, to the extent that [the plaintiff] seeks private
relief for NASD[’s] . . . breach of [its] own rules, its claims are barred.”) (citation
omitted); Niss v. Nat’l Assoc. of Secs. Dealers, Inc., 989 F. Supp. 1302, 1306 (S.D.
Cal. 1997) (holding section 15A of the Exchange Act “does not create a private right
of action for a violation of the NASD’s statutory duties”); Raymond James & Assocs.,
Inc. v. Nat’l Assoc. of Secs. Dealers, Inc., 844 F. Supp. 1504, 1507 (M.D. Fla. 1994)
(holding section 78s(g)(1) creates no private right of action when NASD violates its
own rules); Gustafson v. Strangis, 572 F. Supp. 1154, 1158 (D. Minn. 1983) (holding
Exchange Act does not provide private right of action against NASD for failing to
prevent member misconduct); cf. Olson v. Nat’l Assoc. of Secs. Dealers, Inc., 85 F.3d
381, 383 (8th Cir. 1996) (holding, in an arbitral immunity case, that NASD is immune
from suit for selecting an arbitration panel in violation of its own rules). We agree
with these authorities that the Exchange Act does not create a private right of action
against the NASD defendants for violating their own rules.

       A simple review of section 78s(g)(1)’s plain language prompts us to conclude
Congress did not draft that section with an eye toward creating private rights of action
against the NASD defendants for violating their own rules. “The ultimate question
is one of congressional intent, not one of whether this Court thinks that it can improve

                                          -5-
upon the statutory scheme that Congress enacted into law.” Redington, 442 U.S. at
578. As the Supreme Court recognized, Congress knows how to effectuate its intent
to grant a federal right of action under the Exchange Act. Id. at 579; see id. at 572
(“Obviously, then, when Congress wished to provide a private damage remedy [under
the Exchange Act], it knew how to do so and did so expressly.”). Given Congress’s
failure to use specific language granting a private right of action for section 78s(g)(1)
violations, we join other courts in refusing to recognize a private right of action under
section 78s(g)(1).

              2.    No Common Law Breach of Contract Action
       Our review of MM&S’s complaint leads us to the same conclusion the
magistrate judge and the district court reached–MM&S’s complaint does not plead
a breach of contract claim. We also conclude the district court did not abuse its
discretion in denying MM&S’s late decision to recast its entire lawsuit into one for
breach of contract. Allowing MM&S to amend its complaint to assert a common-law
breach of contract claim would be futile, as no private right of action exists.

       The Exchange Act vests exclusive jurisdiction in federal district courts to hear
claims “brought to enforce any liability or duty created by this chapter or the rules
and regulations thereunder.” 15 U.S.C. § 78aa. By enacting this provision, Congress
gave federal courts exclusive jurisdiction over all claims based on a breach of a duty
created by the Exchange Act. We already decided, and MM&S apparently concedes,
the Exchange Act does not grant MM&S a private right of action against the NASD
defendants. Given Congress’s grant of exclusive jurisdiction to federal courts to hear
all claims for breach of duties created under the Exchange Act, we doubt Congress
intended to allow MM&S to avoid Congress’s decision not to provide an express
right of action and pursue instead a common-law breach of contract claim.

      Although not confronted with a breach of contract claim, our circuit has
recognized the Exchange Act does not create a common-law right of action against

                                          -6-
NASD for the “negligent admission or supervision of [a] member.” FDIC v. Nat’l
Assoc. of Secs. Dealers, Inc., 747 F.2d 498, 499 (8th Cir. 1984), aff’g 582 F. Supp.
72, 74 (S.D. Iowa 1984) (holding that, although the Exchange Act “sets forth a
statutory standard of care with which the NASD must comply in the regulation of its
members, the Act does not create a common law cause of action”); see also Desiderio
v. Nat’l Assoc. of Secs. Dealers, Inc., 2 F. Supp. 2d 516, 521 (S.D.N.Y. 1998)
(holding “the Exchange Act provides no express private right of action against the
NASD for common law claims or for claims arising from the NASD’s statutory
function as a securities regulator”). Any attempt by MM&S to bypass the Exchange
Act by asserting a private breach of contract claim for violations of section 78s(g)(1)
is fruitless. See, e.g., Lowe v. NASD Regulation, Inc., No. 99-1751, 1999 WL
1680653, at *4 (D.D.C. Dec. 14, 1999) (holding breach of contract allegations “that
the NASD violated its own rules . . . invok[ed] statutory federal jurisdiction under 15
U.S.C. § 78aa”); Niss, 989 F. Supp. at 1308 (holding plaintiff’s breach of contract
claim against NASD failed, because it was simply “an attempt to evade the doctrine
that no private right of action exists against the NASD for failing to supervise its
members adequately”). Therefore, the district court did not abuse its discretion in
denying MM&S’s motion for leave to amend its complaint to add a breach of contract
claim against the NASD defendants.

III.  CONCLUSION
      We conclude the district court correctly held section 78s(g)(1) of the Exchange
Act does not create a right of action against the NASD defendants for failing to
follow their own rules. Furthermore, allowing MM&S to assert a private breach of
contract claim would vitiate Congress’s intent not to allow private rights of action
against self-regulatory organizations for violating NASD’s own rules. Thus, we
affirm the district court’s grant of the NASD defendants’ motion to dismiss.
                        ______________________________




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