Commercial Litigation and Arbitration

Diversity Jurisdiction — When Unsuccessful Petitioner Seeks to Vacate Arbitral Award of Less Than $75,000 without Seeking Further Relief in Arbitration or in Court, Amount in Controversy Unsatisfied

Coffey v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 2012 U.S. Dist. LEXIS 3998 (C.D. Cal. Jan. 11, 2012):

In this action, Plaintiffs seek to vacate an arbitration award entered on October 3, 2011. Plaintiffs sought an award of $222,142.00 from Defendant on the grounds that Defendant's broker had recommended unsuitable securities for Plaintiffs' trust accounts. Plaintiffs' claims were rejected, and Plaintiffs were awarded nothing. Defendants likewise were awarded nothing. Based on alleged biases of the lead arbitrator, Plaintiffs filed a Petition to Confirm, Correct, or Vacate Contractual Arbitration Award (the "Petition") in California state court on December 23, 2011. In that Petition, Plaintiffs seek only to vacate the arbitration award. No other type of relief (such as reopening the arbitration or damages for related violations of law) is requested. (See Notice of Removal, Ex. A (Petition), at 3.) Nonetheless, based on the fact that Plaintiffs requested an award at the underlying arbitration of $222,142.00 (an amount which is noted in the Petition), Defendants claim that the amount in controversy is met. (Notice of Removal, ¶ 6.)

In Theis Research, Inc. v. Brown & Bain, 400 F.3d 659, 661 (9th Cir. 2005), the Ninth Circuit was asked to determine whether the amount-in-controversy requirement for diversity jurisdiction was "measured by the amount of the [arbitration] award or by the amount in dispute in the underlying litigation between the parties." The plaintiff had moved to vacate an arbitration award of zero dollars, and at the same time the plaintiff also filed a complaint seeking damages for substantially the same claims asserted in the underlying arbitration. Id. The panel held that the amount in controversy was met because the plaintiff was seeking to obtain $200 million in damages, which equated to a request to reopen its arbitrated claims: "Although [neither party has] asked that the arbitration proceedings be reopened, Theis sought to obtain by its district court complaint substantially what it had sought to obtain in the arbitration. [*7] Theis simply chose to 'reopen' its claims in the district court rather than in arbitration." Id. at 665.

In reaching its conclusion, the Theis Research court noted that although there is a split among the circuits on this issue, in general "the cases have turned upon whether the party seeking to vacate an arbitration award also sought to reopen the arbitration." Id. at 664 (citing cases). The court cited Baltin v. Alaron Trading Corp., 128 F.3d 1466 (11th Cir. 1997), in which the court found the amount in controversy was not met where the plaintiffs sought to vacate an arbitration award requiring them to pay $36,284.69 but did not seek to reopen arbitration, because "[t]he maximum remedy sought by the Baltins was the vacatur of the arbitration award" which did not meet the jurisdictional minimum. Theis Research, 400 F.3d at 665.

The same result was reached in Ford v. Hamilton Investments, Inc., 29 F.3d 255 (6th Cir. 1994), because the plaintiffs sought only to vacate a $30,524 arbitration award and neither party sought additional damages. Theis Research, 400 F.3d at 665. The court in Ford "was quite clear that had the losing party sought to challenge the arbitrator's denial of that party's counterclaims," which were valued over the jurisdictional minimum, then the amount in controversy would have been met. Id. (citing Ford, 29 F.3d at 260); accord Peebles v. Merrill Lynch, Pierce, Fenner & Smith Inc., 431 F.3d 1320 (11th Cir. 2005) (holding amount in controversy was met where plaintiff sought to vacate a zero-dollar award and requested a new hearing before a different arbitration panel where he would seek recovery of up to two million dollars).

Accordingly "[w]hen a petitioner seeks confirmation or vacatur of an award, without seeking a remand for further arbitration proceedings, 'the amount in controversy is the value of the award itself to the petitioner.'" Hansen Bev. Co. v. DSD Distribs., 2008 U.S. Dist. LEXIS 101022 (S.D. Cal. Dec. 12, 2008) (quoting N. Am. Thought Combine, Inc. v. Kelly, 249 F. Supp. 2d 283, 285 (S.D.N.Y. 2003)). If Plaintiffs obtain all the relief requested in their Petition, they will receive zero dollars. Likewise, Defendant will receive zero dollars. Thus, this case differs significantly from Theis Research and others where the amount-in-controversy requirement was satisfied by reference to damages sought in the underlying arbitration. In the [*9] present case, neither of the parties are asking this Court for an order reopening arbitration or awarding damages. Instead, Plaintiffs simply request an order vacating a zero-dollar arbitration award. Thus, the amount in controversy does not satisfy the jurisdictional minimum. See,e.g., Theis Research, 400 F.3d at 664 (finding that "the amount in controversy is the amount [plaintiff] sought to recover by its complaint"); Hansen, 2008 U.S. Dist. LEXIS 101022, at * 15-17 (dismissing case for want of diversity jurisdiction where plaintiffs sought to vacate arbitration award of zero dollars without requesting reopening of arbitration); Dyrdal v. Enbridge (U.S.), Inc., 738 F. Supp. 2d 927, 932 (D. Minn. 2010) (same).

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