Chris Lazarini Analyzes Amount in Controversy for Diversity Jurisdiction on a Motion to Vacate

June 1, 2020
Securities Online Litigation Alert

Bass, Berry & Sims attorney Chris Lazarini analyzed a case involving a plaintiff’s claim of negligence, defamation, breach of fiduciary duty, intentional infliction of emotional distress, and a federal age discrimination against Morgan Stanley. Following dismissal of the claims by an arbitrator, plaintiff sought vacatur. A federal court in the Sixth Circuit, assessing the amount in controversy for diversity jurisdiction on a motion to vacate, will look to the award amount only unless the party seeking vacatur requests both vacatur and a new arbitration, in which case the court will look to the amount of the underlying claim for the jurisdictional trigger.

Chris provided the analysis for Securities Online Litigation Alert (SOLA). 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 SOLA, please visit the SOLA website to sign up for the newsletter.

Hale vs. Morgan Stanley, No. 3:19-cv-229 (S.D. Ohio, 3/13/20)

A federal court in the Sixth Circuit, assessing the amount in controversy for diversity jurisdiction on a motion to vacate, will look to the award amount only unless the party seeking vacatur requests both vacatur and a new arbitration, in which case the court will look to the amount of the underlying claim for the jurisdictional trigger.

After being reprimanded several times for various policy infractions and believing he had been denied “due process,” Plaintiff initiated a JAMS arbitration against Morgan Stanley, asserting claims of negligence, defamation, breach of fiduciary duty, and intentional infliction of emotional distress. Plaintiff later moved to add a federal age discrimination claim, which motion was denied. After the merits hearing, the arbitrator denied Plaintiff’s claims.

Plaintiff filed this action requesting vacatur and “an order finding in his favor on all of his claims[.]” Morgan Stanley moved to dismiss, challenging the Court’s subject matter jurisdiction. The Court finds no federal question jurisdiction, stating that neither the FAA nor the underlying age discrimination claim provides an independent basis of federal jurisdiction in an action to confirm or vacate an arbitration award. On the latter point, the Court follows Sixth Circuit authority. On diversity jurisdiction, the Court notes the parties are diverse and focuses on the amount in controversy. The Court addresses what appears to be a conflict between Mitchell v. Ainbinder, 214 F. App’x 565 (6th Cir. 2007) (unpublished, and therefore, not precedentially binding) (finding the amount in controversy includes the matter at stake in the arbitration) and Ford v. Hamilton Investments, Inc., 29 F.3d. 255, 260 (6th Cir. 1994) (looking to the arbitration award to determine the amount in controversy and finding no diversity jurisdiction).

The Court distinguishes the cases and finds Mitchell unpersuasive, because the plaintiff there sought to have the arbitration reopened and reconsidered by a new arbitration panel. In Ford (and here), on the other hand, the plaintiff sought only to vacate the award. Because Plaintiff sought vacatur only, the Court looks to the zero award (not the claimed amount) for the amount in controversy and determines diversity jurisdiction does not exist.

(C. Lazarini: The outcome in Ford and this case apparently would have been different had the plaintiffs sought a new arbitration in their claims for relief. In Ford, the plaintiff sought damages over the then-existing $50,000 jurisdictional threshold, but was awarded only slightly over $30,000. The Sixth Circuit acknowledged the distinction between the claimed amount and the award and stated: ” . . . he never asked the district court to order that the arbitrators reopen his claim . . . all he sought . . . was the vacation of an award that fell short of the jurisdictional amount[.]” This appears to be form over substance for plaintiffs, at least in cases of mandatory arbitration, since plaintiffs seeking to vacate awards are obviously unhappy with the outcome and presumably intend to take a second bite at the arbitration apple if the award is vacated.)