Bass, Berry & Sims attorney Chris Lazarini provided insight on a case in which the plaintiff sought to vacate an arbitration award under the Federal Arbitration Act (FAA), but the Court dismissed the petition for lack of subject matter jurisdiction. 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.
Doscher vs. Sea Port Group Secs., LLC, No. 15-CV-384 (S.D.N.Y., 8/5/15)
*The Federal Arbitration Act does not bestow subject matter jurisdiction and access to the federal court system exists only where there is an independent basis for jurisdiction.
**Courts may not find jurisdiction over a petition to vacate an arbitration award by "looking through" the petition to the underlying arbitration claims.
In 2013, Plaintiff, an associated person, sued his former firm for $15 million on claims of breach of contract, unjust enrichment, retaliatory discharge and violation of Exchange Act Section 10(b). The arbitration panel awarded him $2.3 million. (FINRA # 13-01857). Dissatisfied with the result, Plaintiff filed a petition seeking to vacate the Award under Section 10 of the Federal Arbitration Act ("FAA"). The Court dismisses the case for lack of subject matter jurisdiction.
The FAA does not create federal court jurisdiction; there must be an independent basis for exercising the court's jurisdiction. Here, the parties were not diverse, leaving Plaintiff to argue that a federal question existed. First, he argued that the panel violated FINRA's discovery rules which he characterized as substantive federal laws. Citing multiple authorities, the Court summarily rejects this argument because FINRA is a private association and the alleged breach of its rules does not give rise to a federal question. Next, Plaintiff argued that his underlying securities law claims gave him access to the federal system. The Court rejects this argument, relying on Second Circuit precedent holding that a court may not "look through" a petition to vacate to the claims in the underlying arbitration.
The Court goes on to consider whether the Supreme Court's more recent opinion in Vaden v. Discovery Bank, 556 U.S. 49 (2009) (holding that federal courts considering petitions to compel arbitration under section 4 of the FAA may look through the petition to the underlying claims) requires a different result. To contradict Second Circuit precedent, the Court notes, it must find that the Second Circuit or Supreme Court is "all but certain" to overturn the prior precedent. The Vaden court focused on Section 4 of the FAA which allows a party to file a petition to compel arbitration in any federal court which "save for [the arbitration] agreement" would have jurisdiction over the matter. The "save for" language is not repeated in Section 10 of the FAA under which petitions to vacate are brought and, in the Court's view, is a critical difference. Because of this, and because multiple courts considering the same issue in the wake of Vaden have concluded that the "look through" test does not apply to Section 10 petitions, the Court finds that it cannot conclude that the prior Second Circuit precedent is untenable. Accordingly, the Court finds it is bound by precedent to dismiss the petition for lack of subject matter jurisdiction.