Bass, Berry & Sims attorney Chris Lazarini analyzed a challenge brought by three Republican state party organizations related to the legality of the 2016 Amendments to MSRB Rule G-37 barring brokers and dealers from soliciting business from municipal issuers for a period of two years after a firm or its associates makes more than the legal minimum contribution ($250) to state or municipal officeholders having influence over issuing municipal securities. The Court halted the challenge ruling that parties challenging the legality of amendments to a self-regulatory organization's rules only have standing to do so if their injury was caused by the amendments, as opposed to the original rule.
Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.
Tennessee Republican Party vs. SEC & Municipal Securities Rulemaking Board, No. 16-3360 (6th Cir., 7/13/17)
*A threshold issue in any case is whether the plaintiff has standing to pursue his claims.
**Parties challenging the legality of amendments to a self-regulatory organization's rules only have standing to do so if their injury was caused by the amendments, as opposed to the original rule.
Petitioners, who are three Republican state party organizations, sought to challenge the legality of the 2016 Amendments to MSRB Rule G-37 and several related rules. Rule G-37 bars brokers and dealers from soliciting business from municipal issuers for a period of two years after a firm or its associates makes more than the legal minimum contributions ($250) to state or municipal officeholders having influence over issuing municipal securities. The Rule and several related rules also impose disclosure and recordkeeping requirements on covered entities. The 2016 Amendments, brought on by the expanded reach granted the Municipal Securities Rulemaking Board (MSRB) by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, extended the Rule's limitations and disclosure and recordkeeping requirements to municipal advisors and their third-party solicitors. To support their challenge, Petitioners submitted affidavits from their respective executive directors.
The Court stops the challenge before it starts, finding that Petitioners lack standing to challenge the Amendments. To invoke federal jurisdiction, it explains, Petitioners must show an "injury in fact." Here, Petitioners' claimed injury is not self-evident, as there is no reason why Petitioners could not have put forth an affidavit from a particular municipal advisor who would have contributed more than $250 to Petitioners or their candidates were it not for the 2016 Amendments. The Court disregards the reference in the affidavit of one Petitioner to an individual who purportedly would have made an excess contribution but for the Rule, because the affidavit lacks information that would allow the Court to determine whether that person would have been prohibited from contributing by Rule G-37's reach before the 2016 Amendments. Petitioners' conflation of the original Rule with the 2016 Amendments similarly renders it impossible for the Court to determine whether the 2016 Amendments harm Petitioners in either their individual capacity or as a representative member of their organizations.
Furthermore, the Affidavits are ambiguous with respect to whether the Rule harms the political parties because brokers, dealers and municipal securities dealers (originally covered by Rule G-37) are allegedly not contributing and soliciting or because municipal advisors and their third-party solicitors are not contributing and soliciting (covered only by the amendments). Only clearly showing the latter instance would support standing, the Court explains. Moreover, one Affidavit’s suggestion that the 2016 Amendments might cause persons not to contribute is precisely the type of speculation that does not establish standing. Finding no injury in fact, the Court concludes that Petitioners lack standing to pursue their challenge.
The U.S. Supreme Court has established a three-part test for standing. First, the plaintiff must show an "injury in fact;" i.e., that he has suffered "an invasion of a legally protected interest" that is "concrete and particularized," and is "actual or imminent," and not "conjectural or hypothetical." Second, he must show a causal connection between his injury and the conduct complained of. Finally, it must be "likely," not "speculative" that the injury will be "redressed by a favorable decision." Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992).