Baltin v. Alaron Trading Corp.

• Decision Date: 25 November 1997
• Docket Number: No. 96-5123,96-5123
• Parties: Comm. Fut. L. Rep. P 27,186, 11 Fla. L. Weekly Fed. C 808 Aubie BALTIN; Gwilda Baltin, Plaintiffs-Appellants. v. ALARON TRADING CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1466

128 F.3d 1466

Comm. Fut. L. Rep. P 27,186, 11 Fla. L. Weekly Fed. C 808

Aubie BALTIN; Gwilda Baltin, Plaintiffs-Appellants. v. ALARON TRADING CORPORATION, Defendant-Appellee.

No. 96-5123.

United States Court of Appeals,

Eleventh Circuit.

Nov. 25, 1997.

Aubie Baltin, pro se, Gwilda Baltin, pro se, Palm Beach Gardens, FL.

Allan Michael Lerner, Lerner & Pearce, P.A., Ft. Lauderdale, FL, Jeffrey M. Isaacson, Weinstein & Bacci, North Riverdale, IL, for Appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before CARNES, Circuit Judge, and KRAVITCH and REAVLEY ^*, Senior Circuit Judges.

KRAVITCH, Senior Circuit Judge:

Plaintiffs-appellants Aubie and Gwilda Baltin ("the Baltins") sought to vacate, modify, or correct an arbitration award by filing suit in the United States District Court for the Southern District of Florida. Defendant-appellee Alaron Trading Corporation ("ATC") moved to dismiss on the ground that the parties had agreed to appeal any arbitration decision to courts in Illinois. In granting ATC's motion to dismiss, the district court held that it had "permissive jurisdiction" to entertain the case but that, according to a valid provision of the contract between the parties, the Baltins should have brought suit in Illinois. We hold that the district court had no subject matter jurisdiction over this case, and thus we affirm the district court's dismissal of the case on other grounds.

I.

In 1992, the Baltins entered into a written brokerage contract with Linnco Futures Group, Inc., the predecessor of ATC. The contract contained both an arbitration clause and a forum selection clause. The arbitration clause provided for mandatory arbitration of disputes relating to the Baltins' brokerage account. ¹ The forum selection clause stated:

All actions or proceedings arising with respect to any controversy arising out of this Agreement or orders entered or transactions effected for Customer's accounts shall be litigated, at the discretion and election of Linnco, only in courts whose situs is within the State of Illinois and Customer hereby submits to the jurisdiction of the courts of the state of Illinois and the jurisdiction of the United States District Court of the Northern District of Illinois, Eastern Division.

Subsequently, a trading order was entered in the Baltins' account, which had been established pursuant to the brokerage contract. When the Baltins learned of this entry, they immediately denied knowledge of the order and refused to accept the trade. ATC brought suit against the Baltins in the Cook County Circuit Court of Illinois for the damages that arose from the trade. The Baltins moved to dismiss the court proceedings and to have the case transferred to arbitration. The Cook County Circuit Court compelled arbitration in accordance with the contract and stayed the matter pending the outcome of arbitration. The parties proceeded to arbitration before a tribunal located within the Southern District of Florida. ATC sought $19,921.36 in actual damages and $50,000.00 in punitive damages, plus attorneys' fees, costs, and interest. The arbitration tribunal held in favor of ATC and awarded ATC $36,284.69.

The Baltins, proceeding pro se, then filed the instant action to vacate, modify, or correct the award pursuant to the Federal Arbitration Act (FAA) sections 10 and 11, ² which state that "the United States court in and for the district wherein an arbitration award was made may make an order" vacating, modifying, or correcting the award upon application by a party to the arbitration. 9 U.S.C. §§ 10-11. ³

ATC moved to dismiss on the basis that the forum selection clause required the Baltins to file suit in Illinois. The district court granted ATC's motion. It held that it had "permissive jurisdiction" to entertain the case ⁴ but that the Baltins should have brought suit in Illinois, as required by the contract.

On appeal, the Baltins claim that:

1. the district court erred in finding that sections 10 and 11 of the FAA impart permissive, rather than exclusive, jurisdiction on federal district courts;

2. the district court's dismissal violated the Baltins' due process rights because it occurred more than ninety days after the arbitration award, at which point the Baltins could not file in Illinois a timely motion to vacate, modify, or correct the award; ⁵ and

3. the district court's dismissal violated the Baltins' constitutional right to be sued for damages in their home state of Florida.

II.

This court can conduct plenary review of subject matter jurisdiction sua sponte. Fitzgerald v. Seaboard System R.R., Inc., 760 F.2d 1249, 1251 (11th Cir.1985). Indeed, this court has the obligation to inquire into subject matter jurisdiction whenever it may be lacking. Id. (citing Philbrook v. Glodgett, 421 U.S. 707, 95 S.Ct. 1893, 44 L.Ed.2d 525 (1975); City of Kenosha, Wis. v. Bruno, 412 U.S. 507, 511, 93 S.Ct. 2222, 2225, 37 L.Ed.2d 109 (1973)). See Fed.R.Civ.P. 12(h)(3).

In a given case, a federal district court must have at least one of three types of subject matter jurisdiction: (1) jurisdiction under a specific statutory grant; (2) federal question jurisdiction pursuant to 28 U.S.C. § 1331; or (3) diversity jurisdiction pursuant to 28 U.S.C. § 1332(a). See Klein v. Drexel Burnham Lambert, 737 F.Supp. 319, 323 n. 11 (E.D.Pa.1990). In this case, the district court did not have any of the three types of subject matter jurisdiction.

A.

It is a matter of first impression for this court whether sections 10 and 11 of the FAA confer federal subject matter jurisdiction. Consistent with other courts that have addressed the issue, we hold that sections 10 and 11 are not statutory grants of federal subject matter jurisdiction.

Federal courts and state courts have concurrent jurisdiction to enforce the FAA. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25, 103 S.Ct. 927, 942, 74 L.Ed.2d 765 (1983). ⁶ As courts have long held, however, the FAA does not confer subject matter jurisdiction on federal courts. Instead, federal courts must have an independent jurisdictional basis to entertain cases arising under the FAA. The Supreme Court has stated:

The Arbitration Act is something of an anomaly in the field of federal-court jurisdiction. It creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal-question jurisdiction under 28 U.S.C. § 1331 or otherwise.

Id. at 25 n. 32, 103 S.Ct. at 942 n. 32.

In particular, the Court has ruled that FAA sections 3 and 4 do not confer subject matter jurisdiction on federal courts. ⁷

Section 4 provides for an order compelling arbitration only when the federal district court would have jurisdiction over a suit on the underlying dispute; hence, there must be diversity of citizenship or some other independent basis for federal jurisdiction before the order can issue. E.g., Commercial Metals Co. v. Balfour, Guthrie, & Co., 577 F.2d 264, 268-69 (5th Cir.1978), and cases cited. Section 3 likewise limits the federal courts to the extent that a federal court cannot stay a suit pending before it unless there is such a suit in existence.

Id.; see also Southland Corp. v. Keating, 465 U.S. 1, 15 n. 9, 104 S.Ct. 852, 861 n. 9, 79 L.Ed.2d 1 (1984) (stating that, in light of language of sections 3 and 4, the FAA "does not create any independent federal-question jurisdiction under 28 U.S.C. § 1331 or otherwise"). ⁸

Federal courts consistently have applied the Moses H. Cone analysis of sections 3 and 4 to other provisions of the FAA, as well. Thus, even though several sections of the FAA authorize particular actions by the United States district court, see 9 U.S.C. §§ 7,9-11, ⁹ "courts have not construed these references to the United States district court as intending to confer federal court jurisdiction, but rather as specifying the powers possessed by the court in a case that is properly before it." Drexel Burnham Lambert, Inc. v. Valenzuela Bock, 696 F.Supp. 957, 961 (S.D.N.Y.1988) (citing 9 U.S.C. §§ 7,9-11); see also Giangrande v. Shearson Lehman / E.F. Hutton, 803 F.Supp. 464, 470 (D.Mass.1992) (reviewing cases and concluding that sections 7, 9, 10, and 11 "have not been understood to confer jurisdiction on federal courts").

For example, courts have held that actions brought in federal court to confirm arbitration awards pursuant to section 9 of the FAA ¹⁰ must demonstrate independent grounds of federal subject matter jurisdiction. As the Ninth Circuit reasoned, to hold that section 9 confers subject matter jurisdiction would present

a significant possibility of eviscerating the clear limits on federal jurisdiction contained in sections 3 and 4. [Such an] expansive interpretation would mean, for example, that a district court lacking jurisdiction to compel arbitration under section 4 might nonetheless threaten to confirm a subsequent ex parte award under section 9. Such a threat would have a substantial compulsory effect. We cannot approve an interpretation which would achieve by indirection that which Congress has clearly forbidden.

General Atomic Co. v. United Nuclear Corp., 655 F.2d 968, 969 (9th Cir.1981), cert. denied, 455 U.S. 948, 102 S.Ct. 1449, 71 L.Ed.2d 662 (1982); see also id. at 970 (adopting district court opinion, which stated in part, "Section 9 does not contain language common to jurisdictional grants, and to require independent jurisdictional grounds under other sections and not under Section 9 renders the Act a 'patchwork of individual statutes bereft of any coherent plan.' ") (citing 13B Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure, § 3569 at 467-70 (1975)). Many other federal courts, ¹¹ including the Eleventh Circuit, ¹² also have concluded that section 9 is not a statutory grant of federal subject matter jurisdiction.

Consistent with this...