07-3372-cv Standard Investment v. Nat’l. Assn. of Security Dealers
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2008
Heard: January 26, 2009 Decided: March 18, 2009
Docket No. 07-3372-cv
- - - - - - - - - - - - - - - - - - - - - - - STANDARD INVESTMENT CHARTERED, INC., on behalf of itself and all others similarly situated, Plaintiff-Appellant,
v.
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., a/k/a NASD, NYSE GROUP, INC., MARY L. SCHAPIRO, RICHARD F. BRUECKNER and BARBARA Z. SWEENEY, Defendants-Appellants. - - - - - - - - - - - - - - - - - - - - - - -
Before: NEWMAN, SOTOMAYOR, and WESLEY Circuit Judges.
Appeal from the July 13, 2007, judgment of the United States
District Court for the Southern District of New York (Shirley Wohl
Kram, District Judge), dismissing, for failure to exhaust
administrative remedies, a lawsuit challenging aspects of the merger
of the regulatory functions of the National Association of Securities
Dealers and the New York Stock Exchange, which was approved by the
Securities and Exchange Commission. The appellant also appeals from
an order denying reconsideration. Appeal dismissed as moot and case remanded, without adjudication
of any substantive issues, because of action taken in the Court of
Appeals for the Ninth Circuit dismissing a petition for review of the
order of the Securities and Exchange Commission, on consent of parties
to the review proceeding.
Jonathan W. Cuneo, Wash., D.C. (William (H. Anderson, Charles Tiefer, R. Brent Walton, Matthew Wiener, Cuneo Gilbert & Laduca, LLP, Wash., D.C.; Richard D. Greenfield, Greenfield & Goodman, LLC, Easton, MD, on the brief), for Plaintiff-Appellant.
Douglas R. Cox, Wash., D.C. (F. Joseph Warin, Jennifer H. Rearden, Howard S. Hogan, Gibson, Dunn & Crutcher LLP, Wash., D.C.; John J. Flood, Financial Industry Regulatory Authority, Inc., Wash., D.C.; Srinivas M. Raju, Seth Barrett Tillman, Richards, Layton & Finger, P.A., Wilmington, DE, on the brief), for Defendants-Appellees Nat’l Assn. of Securities Dealers, Schapiro, Brueckner and Sweeney.
Douglas W. Henkin, New York, N.Y. (Manuel Yanez, Milbank, Tweed, Hadley & McCloy, LLP, on the brief), for Defendant- Appellee NYSE Group, Inc.
JON O. NEWMAN, Circuit Judge.
This appeal arises out of the consolidation of the member
regulation operations of the National Association of Securities
-2- Dealers (“NASD”) and the New York Stock Exchange Group, Inc. (“NYSE”).1
The appeal presents the unusual situation of a case, dismissed for
lack of exhaustion of administrative remedies, in which the appellant,
Standard Investment Chartered, Inc. (“Standard”) contends that the
required exhaustion was concluded before argument of the appeal. The
appeal is taken from the May 3, 2007, judgment of the District Court
for the Southern District of New York (Shirley Wohl Kram, District
Judge). See Standard Investment Chartered, Inc. v. NASD et al., 07
Civ. 2014, 2007 WL 1296712 (S.D.N.Y. May 2, 2007). The appellees are
NASD, three of its officers, and NYSE.
The appellant wants us to reverse so that the case may be
returned to the District Court. The appellees want us to affirm the
dismissal, a result that would also leave the case available for
return to the District Court. Under these circumstances, we conclude
that the controversy as to the appeal, though not as to the case, has
been eliminated, and we therefore dismiss the appeal as moot, without
prejudice to the right of any party to pursue any issues sought to be
raised on this appeal in the event of a subsequent appeal from a final
judgment of the District Court.
Background
1 New York Stock Exchange Group, Inc. is the successor in interest
to the New York Stock Exchange.
-3- The parties and their functions. Standard is a California
corporation and a member of NASD. NASD is a Delaware corporation,
registered with the Securities and Exchange Commission ("SEC") as a
national securities association pursuant to the 1938 Maloney Act
Amendments to the Securities Exchange Act of 1934 ("Exchange Act"), 15
U.S.C. §§ 78o-3, 78s(a)(1). NYSE is also a Delaware corporation,
registered with the SEC as a national securities exchange. See id.
§ 78f. Both entities are self-regulatory organizations ("SROs")
within the meaning of the Exchange Act. See id. § 78c(a)(26). NYSE
exercises its regulatory functions through its wholly-owned subsidiary
NYSE Regulation, Inc. (“NYSE Regulation”). As SROs, the NASD and NYSE
have "a duty to promulgate and enforce rules governing the conduct of
[their] members," under the oversight of the SEC. Barbara v. New York
Stock Exchange, Inc., 99 F.3d 49, 51 (2d Cir. 1996); see also
D'Alessio v. New York Stock Exchange, Inc., 258 F.3d 93, 105 (2d Cir.
2001). This Court has recognized that “the NASD serves as a critical
aid to the SEC in implementing and effectuating compliance with the
securities laws.” DL Capital Group, LLC v. Nasdaq Stock Market, Inc.,
409 F.3d 93, 95 (2d Cir. 2005).
The Exchange Act grants the SEC "broad oversight" of SROs'
promulgation and enforcement of rules. See id. An SRO's rules are
broadly defined as including the organization's constitution, articles
of incorporation, bylaws, and rules. See 15 U.S.C. § 78c(a)(27). An
-4- SRO's proposed rules, and any proposed rule changes, must be filed
with the SEC. See id. § 78s(b)(1). With few exceptions not relevant
here, an SRO cannot change its rules, including its bylaws, without
the SEC's approval. See id.
Under the Exchange Act, the SEC "shall approve a proposed rule
change of a self-regulatory organization if it finds that such
proposed rule change is consistent with the requirements of [the
Exchange Act,] and the rules and regulations thereunder applicable to
such organization." 15 U.S.C. § 78s(b)(2). In addition, the Exchange
Act authorizes the SEC to "abrogate, add to, and delete from the rules
of a self-regulatory organization as the Commission deems necessary or
appropriate to conform its rules to requirements of [the Exchange Act]
and the rules and regulations thereunder applicable to such
organization, or otherwise in furtherance of the purpose of this
chapter." Id. § 78s(c).
The consolidation. In November 2006, NASD and NYSE announced a
plan to consolidate the member regulation operations of NASD and NYSE
Regulation into a combined organization. The regulatory organization
created by the consolidation, known as FINRA, would become the sole
U.S. private-sector provider of member firm regulation and
enforcement. To accommodate the consolidation, NASD's Board of
Governors proposed a set of amendments to NASD's bylaws that would
modify NASD’s governance structure to be compatible with those of the
-5- NYSE.2
NASD called a special meeting of its members to vote on the bylaw
amendments, permitting members to vote by proxy. The proxy statement
explained that NASD members were being asked to vote only on the bylaw
amendments, not the transaction itself. The proxy statement described
certain aspects of the proposed transaction in addition to the
governance changes. In particular, it explained that NASD anticipated
substantial cost savings from the consolidation of regulatory
functions and proposed to share these saving with members in two ways.
First, upon closing, NASD would make a one-time payment to each NASD
member of $35,000. Second, for the next five years, NASD would
discount all members' annual dues, subject to annual Board approval.
The proxy statement asserted that "[a] larger payment [than $35,000]
is not possible" because "NASD is a tax-exempt organization and
therefore is limited by tax laws regarding size and source of payments
it can make to its members. The special member payment of $35,000 per
2 The bylaw amendments reserved seven seats on the Board of
Governors for election by NASD members: three seats to be elected by
small firms, three by large firms, and one by mid-sized firms. And a
larger number of Board members were to be "public" governors from
outside the securities industry. NYSE would not agree to proceed with
the consolidation unless these bylaw amendments were approved.
-6- NASD member, or approximately $175 million in the aggregate, will be
funded by--and therefore limited by--the expected value of the
incremental cash flows that will be produced by the consolidation
transaction." In January 2007, the bylaw amendments were approved by
a majority of voting members.
The lawsuit. In March 2007, Standard filed the instant lawsuit
on behalf of the putative class of NASD members that are not also NYSE
members. The complaint alleged that the terms of the proposed
consolidation "represent a massively unfair disenfranchisement of NASD
members," in both governance and financial terms. The complaint
pleaded three claims: the NASD officers breached their fiduciary
duties to the proposed class in negotiating the consolidation and
failing to disclose all material facts in the Proxy Statement; the
defendants engaged in negligent misrepresentation with respect to the
proxy statement; and the NYSE and individual defendants would be
unjustly enriched by the consolidation.
The defendants-appellees moved to dismiss Standard's complaint
pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for
lack of subject matter jurisdiction because of Standard's failure to
exhaust administrative remedies or, in the alternative, pursuant to
Rule 12(b)(6) because NASD's absolute regulatory immunity barred
Standard's claim for damages and because Standard failed to state a
claim.
-7- Standard filed an amended complaint in response to the
defendant-appellees' first motion to dismiss. The amended complaint
emphasized that Standard was not challenging the wisdom of the
consolidation, but only the manner of accomplishing it. In addition
to the original three claims, the amended complaint alleged a denial
of state law rights under Delaware corporate law, conversion,
substantial diminution of value in membership, and deprivation of
voting membership. Standard sought declaratory relief, an injunction
prohibiting the consolidation, an order that the NASD prepare a new
proxy statement and hold a new vote, compensatory and punitive
damages, and an accounting, among other prayers for relief.
The defendants-appellees again filed a motion to dismiss
Standard's claims based on their jurisdictional and immunity defenses.
While briefing was underway, Standard sought and obtained expedited
discovery from all defendants. Standard obtained communications
between NASD and the Internal Revenue Service (“IRS”) regarding NASD's
tax-exempt status and the special $35,000 member payment.
In May 2007, the District Court granted the defendants-appellees'
motion to dismiss Standard's amended complaint on the ground that it
failed to establish subject matter jurisdiction under Rule 12(b)(1).
Standard Investment, 2007 WL 1296712, at *10. The Court held that
because the proposed bylaw amendments necessary for the
consolidation's consummation were an exercise of the NASD's rule-
-8- making authority, Standard was required to exhaust the administrative
remedies provided by the Securities Exchange Act and failed to do so.
The Court also ruled that Standard's damages claims could not proceed
because they were "based entirely on a future contingency--the
[c]onsolidation's consummation." Id. at *7. The Court did not reach
the defendants-appellees' absolute immunity defense.
Standard then filed a motion for reconsideration of the District
Court's ruling. Its motion included two new arguments, first that
NASD members were entitled to a "control premium" based on the
adoption of the bylaw amendments, and second that under the doctrine
of primary jurisdiction the dismissal should be changed to a stay
pending SEC proceedings. The District Court denied the plaintiff's
motion for reconsideration. Standard Investment Chartered, Inc. v.
NASD et al., 07 Civ. 2014, 2007 WL 2049730 (S.D.N.Y. July 13, 2007).
The Court stated that the "newly-asserted 'control premium' claim
. . . d[id] not affect the Court's exhaustion analysis," and that the
request for a stay was untimely raised. Id. at *4.
Standard filed in this Court an appeal of the District Court's
judgment and the order denying reconsideration.
SEC proceeding. In March 2007, shortly after Standard filed its
original complaint, NASD filed with the SEC a proposed rule change to
amend its bylaws. Pursuant to the Exchange Act, the SEC published the
proposed bylaw amendments in the Federal Register to solicit comments.
-9- See 15 U.S.C. § 78s(b)(1). After dismissal of the lawsuit, Standard
submitted comments to the SEC, attached the proxy statement, and urged
the SEC to request and review the NASD-IRS communications produced in
expedited discovery. In response to the comments, the SEC requested
that NASD provide additional information about the disclosures
regarding the $35,000 payment (but did not request the communications
with the IRS). NASD submitted a purported explanation for its
statement that "a larger payment [than $35,000] is not possible,"
including a letter from NASD's general counsel, a letter from expert
tax counsel, and a letter from Delaware counsel.
In July 2007, the SEC approved the proposed rule change in a
lengthy release, thereby approving the NASD bylaw amendments. See
Order Approving Proposed Rule Change To Amend the By-Laws of NASD,
Exchange Act Release No. 56145 (July 27, 2007), 72 Fed. Reg. 42,169
(Aug. 1, 2007) (“SEC Release”), available at
http://edocket.access.gpo.gov/2007/pdf/E7-14855.pdf. The SEC's
release expressly considered Standard's comment that "the focus of the
proxy statement was 'the fundamental change in members' voting rights
and the $35,000 that each member is to receive in exchange for
“surrendering” members’ equity valued at as much as $300,000, or more,
per NASD member.'" Id. at 42,186 (quoting letter from Benchmark
Financial Services, Inc. and Standard (“Benchmark/Standard letter”)).
The release noted that Standard had alleged “‘an inconsistency between
-10- the statements in the proxy statement and the statements in the NASD
Response Letter regarding the $35,000 payment,’” and had also alleged
that “'[t]he SEC cannot approve the $35,000 payment without
determining whether the statements with respect to the Proxy Statement
were truthful and complete.'” Id. (quoting Benchmark/Standard letter).
The SEC stated, however, that it had reviewed Standard’s claims
only to the extent necessary to make a finding that NASD’s proxy
approval process was consistent with the Exchange Act’s requirement
that SROs comply with their bylaws and certificates of incorporation.
As the SEC's release explained, the SEC does not ordinarily consider
“[w]hether an SRO failed to complete all action required to be taken
under its constitution, articles of incorporation, bylaws, rules, or
similar instruments . . . at the time it considers whether to approve
a proposed rule change.” Id. If such a dispute arises, the SEC’s
general practice is to ask the SRO “to supplement the proposed rule
change to address issues raised by commenters.” Id. The SEC explained
that it had followed this practice with respect to Standard's comment
and "requested that NASD provide additional information about the
disclosures regarding the $35,000 payment noted in the proxy
statement." Id.
After describing all the information provided by NASD about the
$35,000 payment, the SEC stated in the following language what it had
done with respect to consideration of Standard’s state-law claims:
-11- The Commission ordinarily does not make determinations regarding state law issues but, when required to do so because state law necessarily informs its findings under the Exchange Act, it relies on the conclusions of experts or other authorities. . . . With respect to the adequacy of the proxy statement, the Commission has considered the NASD's explanation regarding the proxy statement's representation about the $35,000 payment. The Commission believes that NASD has made a prima facie showing that these representations were not misleading and that NASD's explanation is uncontradicted by the commenters' submissions regarding this matter. Accordingly, after reviewing the record in this matter, the Commission believes that NASD has provided a sufficient basis on which the Commission can find that, under the Exchange Act, NASD complied with its Certificate of Incorporation and By-Laws with respect to the proxy approval process and that the proposed amendments to its By-Laws were properly approved by NASD members.
Id. at 42,188 (emphases added).
On July 30, 2007, the consolidation of NASD and NYSE was
concluded.
The petition to review the SEC order in the Ninth Circuit.
Standard filed a petition for review of the SEC's order in the Ninth
Circuit, pursuant to 15 U.S.C. § 78y(a), and requested the Court of
Appeals to "modify the SEC's order to vacate its state-law finding
regarding the proxy statement." Brief of Pet’r Standard at 22, No. 07-
73405 (9th Cir. Dec. 3, 2007). Standard argued to the Ninth Circuit
that “[t]here is no question that the order can stand without that
finding.” Id.
The Ninth Circuit never reviewed the SEC's approval order.
Before the SEC's responsive brief was due in the Ninth Circuit,
-12- Standard and the SEC filed a joint motion in which the Commission
sought a remand of its order “to allow the Commission to clarify the
order by making it clear that the order did not purport to reach a
final and binding judgment on whether the NASD proxy statement was
deceptive or misleading under state law.” Joint Motion of Parties at
6, Standard Investment Chartered, Inc. v. SEC, No. 07-73405 (9th Cir.,
Jan. 16, 2008) (“Joint Motion”).3 The joint motion represented that
3 The joint motion further explained:
The remand would allow the Commission to add language to the
order to make it clear: that in the order the Commission did
not make a definitive adjudication, such as a trial court
would make after an evidentiary hearing, that the proxy
statement was not misleading under state law; that the
Commission’s determination regarding the proxy statement was
only for purposes of the Exchange Act; that the Commission
did not purport to decide a question of state law, except to
the extent state law informed the Commission’s determination
under the Exchange Act; and that the Commission did not
intend that any such state-law determination would be
binding on a court in a related action based upon state law.
-13- “[t]he Commission would also add language to the order stating that,
in adding clarifying language, the Commission is not vacating,
nullifying or rendering void the NASD-NYSE consolidation and that the
consolidation remains in effect as of the original issuance date of
the order, i.e., July 26, 2007.” Id. at 7. The Ninth Circuit granted
the joint motion in April 2008.
In May 2008, the SEC issued a release amending the SEC approval
order. See Amended Order Approving Proposed Rule Change To Amend the
By-Laws of NASD, Exchange Act Release No. 56145A (May 30, 2008), 73
Fed. Reg. 32,377 (June 6, 2008), available at
http://edocket.access.gpo.gov/2008/pdf/E8-12631.pdf. The SEC's
release amending the approval order added a new paragraph immediately
after the sentence that stated that “the Commission can find that,
under the Exchange Act, NASD complied with its Certificate of
Incorporation and By-Laws with respect to the proxy approval process
and that the proposed amendments to its By-Laws were properly approved
by NASD members.” The new paragraph stated:
This finding as to NASD compliance and members' approval is not a definitive adjudication under state law, such as a trial court would make after an evidentiary hearing, regarding the claim that the proxy statement was misleading. Except to the extent that state law informs the Commission's finding that, as a federal matter under the Exchange Act, NASD complied with its Certificate of Incorporation and By-Laws with respect to the proxy approval process and that
Joint Motion at 6-7 (emphasis in original).
-14- the proposed amendments to its By-Laws were properly approved by NASD members, the Commission is not purporting to decide a question of state law. The Commission does not intend that its determination regarding the NASD's uncontradicted prima facie showing before the Commission that the proxy statement was not misleading be binding on a court in a claim based on state law.
In June 2008, the Ninth Circuit dismissed Standard's petition.
The parties return to this Court. After the Ninth Circuit's
dismissal of Standard's petition, the parties in the pending appeal
filed supplemental briefs in this Court. Standard contended that the
SEC's amended order confirms that the SEC has no authority to, and did
not, consider Standard's state law claims. In response, NASD
contended that Standard had abandoned any possibility of exhausting
its claims by voluntarily dismissing its petition to review the SEC's
order. NYSE contended that Standard had waived the ability to
demonstrate that its administrative remedies were inadequate.
Discussion
Although the procedural developments preceding the argument of
this appeal are complicated, the disposition at this point is not.
Both parties are in essence seeking from this Court the same relief–a
return of the case to the District Court. Standard seeks a reversal
of the District Court’s judgment and a remand to the District Court.
The appellees seek an affirmance of the District Court’s judgment, but
that disposition would also result in a return of the lawsuit to the
District Court. The District Court dismissed for failure to exhaust
-15- administrative remedies. Although the dismissal was not expressly
stated to be “without prejudice,” a dismissal for failure to exhaust
available administrative remedies should be “without prejudice” as we
have previously ruled. See Giano v. Goord, 250 F.3d 146, 150-51 (2d
Cir. 2001); Snider v. Melindez, 199 F.3d 108, 111-12 (2d Cir. 1999).
Other circuits agree. See, e.g., Rivera-Diaz v. American Airlines,
Inc., 229 F.3d 1133 (1st Cir. 2000) (table); Greene v. Meese, 875 F.2d
639, 643 (7th Cir. 1989); Wyatt v. Terhune, 315 F.3d 1108, 1120 (9th
Cir. 2003). We will therefore deem the District Court’s dismissal to
have been “without prejudice.” Such a dismissal leaves the plaintiff
free to return to the District Court after exhaustion of
administrative remedies.4
4 The parties have not briefed the issue of whether return to the
District Court after exhaustion of administrative remedies is to be
accomplished by refiling the lawsuit or simply by seeking
reinstatement. Compare Walker v. Thompson, 288 F.3d 1005, 1009 (7th
Cir. 2002) (dismissal for failure to exhaust does not bar
“reinstatement”), with Terrell v. Brewer, 935 F.2d 1015, 1019 (9th
Cir. 1991) (after dismissal plaintiff was “free to refile his suit”).
It is not clear whether these courts meaningfully used the terms
“reinstatement” and “refile.” In any event, we leave the issue of the
precise procedural route back to the District Court for consideration
-16- We have not located a precedential decision of any court in which
a party whose suit was dismissed for failure to exhaust administrative
remedies purported to exhaust those remedies prior to appellate
consideration of an appeal from the judgment of dismissal.5
Considering this apparently novel situation, we note that, even though
the parties disagree on the significance of many aspects of the steps
taken in this litigation thus far, the ultimate relief they seek from
this Court, whether an affirmance or a reversal of the District
Court’s judgment, would result in a return of this case to the
District Court. In that circumstance, we conclude that the essential
controversy has been eliminated from the appeal, and the proper course
is to dismiss the appeal as moot.
However, unlike the typical situation where the entire
controversy between the parties has become moot, there remain
by that Court if the issue should arise. 5 In a decision of the Sixth Circuit not published in the Federal
Reporter, and hence not binding on subsequent panels of that Court,
see 6th Cir. R. 206(c), the Court dismissed as moot an appeal from a
judgment of dismissal for failure to exhaust administrative remedies
because the administrative remedies had been exhausted during the
pendency of the appeal. See S.S. v. Eastern Kentucky University, 125
Fed. Appx. 644 (6th Cir. 2005).
-17- substantial disagreements between the parties, and for that reason the
dismissal will not be accompanied by a direction to dismiss the case.
Cf. United States v. Munsingwear, Inc., 340 U.S. 36, 39 (1950). Among
the remaining issues is whether Standard has exhausted its
administrative remedies. That dispute pits the appellees’ contention
that the stipulated dismissal of the petition for review in the Ninth
Circuit abandoned and hence failed to complete the exhaustion of
administrative remedies against Standard’s contention that it
successfully challenged the only aspect of the SEC’s order that it
ultimately wished to challenge, it secured the relief it wanted, and
it had no need to ask the Ninth Circuit for any further relief. Also
at issue between the parties is the significance of the SEC’s
amendment to its order approving the bylaw amendments. On that issue
Standard contends that the SEC has eliminated any possible obstacle
its original order created to Standard’s pursuit of its state law
claims in the District Court. The appellees respond that the amended
order leaves in place some sort of a finding that precludes Standard’s
state law claims.
None of these matters has been considered by the District Court,
which should have the opportunity to deal with them before any
substantive review by this Court. Although we intimate no views on
the merits of any of these issues (or any other substantive issue
between the parties), we suggest to the District Court that it might
-18- consider inviting the SEC to explain what the Commission meant by its
seemingly contradictory assertions that NASD has made “a prima facie
showing” that its proxy statement representations were not misleading
and that the Commission can “find” that, “under the Exchange Act, NASD
complied with its Certificate of Incorporation and By-Laws.” The
Commission might also be invited to explain the assertions that state
law “informs its findings under the Exchange Act” and that its finding
as to NASD compliance “is not a definitive adjudication under state
law.”
In short, we do not decide whether exhaustion was required; if
required, whether it has been adequately pursued; or whether Standard
has viable state-law claims that may be pursued in the District Court.
We also do not decide whether Standard’s damage claims encounter
a valid defense of immunity, as asserted by the appellees. The
successful assertion of an immunity defense, had the District Court
reached that issue, would have resulted in a dismissal of the damage
claims with prejudice. However, the judgment dismissing all of
Standard’s claims for failure to exhaust administrative remedies is
deemed to be a dismissal without prejudice. An appellee may not seek
to enlarge its rights under a judgment on appeal without taking a
cross-appeal. See, e.g., United States v. American Railway Express
Co., 265 U.S. 425, 435 (1924); International Ore & Fertilizer Corp. v.
SGS Control Services, Inc., 38 F.3d 1279, 1285 (2d Cir. 1994). This
-19- rule applies to preclude an appellate court, in the absence of a
cross-appeal, from changing a dismissal without prejudice to a
dismissal with prejudice. See, e.g., Alejo v. Heller, 328 F.3d 930,
937 (7th Cir. 2003); Figueroa v. Rivera, 147 F.3d 77, 81 (1st Cir.
1998); New Castle County v. Hartford Accident & Indemnity Co., 933
F.2d 1162, 1205-06 (3d Cir. 1991).
The appellees suggested at oral argument that we should reach
their immunity defense even though that issue has not yet been
considered by the District Court. They relied on the principle that
an appellate court may affirm a judgment on any ground supported by
the record. See Barbara v. New York Stock Exchange, Inc., 99 F.3d 49,
57-58 (2d Cir. 1996). They particularly enlist Barbara in their
argument because, without a cross-appeal, we there adjudicated and
upheld an immunity defense after a suit had been dismissed for failure
to exhaust administrative remedies. However, Barbara differs from the
pending case in several respects. In Barbara, the panel did not, as
we have here, deem the dismissal to have been without prejudice,
perhaps because it ruled that the dismissal for failure to exhaust
administrative remedies was in error. See id. at 56-58. Furthermore,
the District Court had fully (although erroneously) adjudicated the
exhaustion issue, whereas here the critical developments concerning
exhaustion in the Ninth Circuit occurred after the District Court’s
decision. We also note that the appellant in Barbara did not alert
-20- the panel to the absence of a cross-appeal. In the pending case, we
have deemed the dismissal to have been without prejudice and we think
it advisable to have the District Court make the initial determination
as to whether exhaustion has now been completed. For all these
reasons, we do not reach the immunity defense for lack of a cross-
appeal.
Conclusion
We therefore dismiss the appeal, but not the case, as moot,
without prejudice to the right of any party to pursue any issues
sought to be raised on this appeal in the event of a subsequent appeal
from a final judgment of the District Court.6
6 We will not vacate the District Court’s decision, a course
appropriate in some circumstances where an appeal is dismissed as
moot, see Munsingwear, 340 U.S. at 39. As the Supreme Court has
instructed, vacatur in the event of an appeal that has become moot is
an equitable matter, see U.S. Bancorp Mortgage Co. v. Bonner Mall
Partnership, 513 U.S. 18, 29 (1994), and with the substantive issues
between the parties unresolved in this Court and available to be
reasserted in the event of a subsequent appeal, it would not be
appropriate to vacate the District Court’s decision. We note,
however, that the District Court’s decision would not be entitled to
preclusive effect in the event of subsequent litigation between the
-21- parties. See Gelb v. Royal Globe Insurance Co., 798 F.2d 38, 44 (2d
Cir. 1986) (“[A]lthough failure to appeal does not prevent preclusion,
inability to obtain appellate review, or lack of such review once an
appeal is taken, does prevent preclusion.”).
-22-