The opinion of the court was delivered by: NORMA L. SHAPIRO
Plaintiff, Dimensional Visions Group, Ltd. ("DVG"), filed this action seeking injunctive relief against defendant, the NASDAQ Stock Market ("NASDAQ"), a wholly owned subsidiary of National Association of Securities Dealers ("NASD"),
for violations of due process, federal securities laws, and NASDAQ procedures, as well as breach of contract and fraudulent misrepresentation. Plaintiff moved for a temporary restraining order to prevent NASDAQ from delisting plaintiff's securities. NASD consented to a restraining order requiring it to maintain DVG's listing until the hearing on the motion could be held on August 20, 1992. Defendant filed a motion to dismiss on several grounds on August 18, 1992. Plaintiff filed its response to the motion to dismiss on August 21, 1992.
At the hearing, DVG introduced testimony of three witnesses to establish that DVG's delisting from NASDAQ would cause it irreparable harm by making it very difficult for DVG to raise needed capital: Ted Breidbart, an investment banker currently raising capital for DVG, George Smith, DVG's CEO and Chairman of the Board, and Lawrence Ceccarelli, a manufacturers' sales representative for DVG. Mr. Smith testified that Dimensional Visions Group is a developing company in the field of three-dimensional photography. Using its patented process, DVG produces flat photographs that have the appearance of a three-dimensional image. DVG is just beginning to receive orders for its product and is currently operating at a deficit. Mr. Smith testified that DVG now has an order of approximately $ 600,000 from one customer. In order to operate at a profit, DVG needs approximately $ 2 million in orders per year. Mr. Ceccarelli stated that he has had many promising contacts with prospective customers for DVG's product. There is clear market interest by companies in many varied industries from comic book publishers to manufacturers of health products.
DVG's securities have been listed for trading on NASDAQ.
On March 2, 1992, a new NASD rule went into effect requiring securities listed on NASDAQ to have a bid price of $ 1.00 per share or to meet alternative capitalization requirements. Because DVG's bid price per share is less than $ 1.00, DVG was notified that it was not in compliance with the new rule. DVG requested that NASD grant an exception to the rule to give DVG sufficient time to comply. A hearing was held by NASD on July 29, 1992 to give DVG the opportunity to explain its plan to raise its stock price. On August 3, 1992, NASD informed DVG that its shares of stock would be removed from the list of securities traded on NASDAQ as of the next day. DVG filed this action on August 4, 1992. After a conference call with counsel for plaintiff and defendant on August 4, a consent order requiring NASD to continue DVG's listing until a hearing could be held on August 20, 1992, was entered.
Mr. Breidbart testified that he is currently raising capital on DVG's behalf. Mr. Breidbart has been working as a consultant for growth companies to help them raise capital for the last two and a half years. He stated that he is one hundred percent certain that he could raise $ 1 million for DVG in the next 30 days. Mr. Breidbart stated that the companies his clients are willing to invest in are usually listed on NASDAQ, the New York Stock Exchange ("NYSE"), or the American Stock Exchange ("Amex"). Mr. Breidbart said his customers are more comfortable with securities listed on those exchanges because they can follow the price in major newspapers and liquidate their shares readily. Mr. Breidbart also stated that it would be easier to raise capital for DVG if DVG's shares were listed on NASDAQ. However, Mr. Breidbart admitted that he did raise over $ 1 million in capital for at least one company that was not listed on NASDAQ, NYSE, or Amex.
Defendant also contests this court's jurisdiction over the dispute because DVG has not yet exhausted its administrative remedies. Defendant argued that DVG would not be irreparably harmed by having its stock removed from NASDAQ because its stock could still be traded on the Philadelphia Stock Exchange and the Electronic Bulletin Board. Mr. Smith also testified that stocks available for trading on the Electronic Bulletin Board are not generally published in major newspapers. Mr. Smith also stated that DVG had determined not to renew its listing on the Philadelphia Stock Exchange because payment of the fee was not warranted in view of the light volume of stock transactions in that market.
Ordinarily, a party is not entitled to judicial relief until the prescribed administrative remedy has been exhausted. See First Jersey Securities, Inc. v. Bergen, 605 F.2d 690, 695 (3d Cir. 1979). This principle insures the integrity of the administrative process by avoiding premature interruption of the proceedings and allowing the administrative agency to utilize its discretion and apply its expertise. Id. But administrative exhaustion is not required where: (1) the administrative procedure is clearly shown to be inadequate to prevent irreparable injury; or (2) there is a clear and unambiguous statutory or constitutional violation.
Plaintiff does not dispute that it has not exhausted its administrative remedy. Plaintiff contends that the administrative procedure is clearly inadequate to prevent irreparable injury because NASD rules do not allow a stay of the delisting pending final disposition of the administrative appeal. Defendant admits that the administrative procedures do not give plaintiff a right to a stay but defendant claims that plaintiff will not be irreparably harmed by delisting.
Although plaintiff had at most two days notice of defendant's claim of lack of jurisdiction, the evidence necessary to support plaintiff's request for a temporary restraining order is the same as that establishing jurisdiction, ie. irreparable harm or clear violations of law. Therefore, the court finds that plaintiff had an adequate opportunity to present evidence of its irreparable injury and/or defendant's alleged statutory or constitutionals violation at the ...