Ford v. Hamilton Investments, Inc.

• Decision Date: 15 July 1994
• Docket Number: No. 93-1305,93-1305
• Citation: 29 F.3d 255
• Parties: Fed. Sec. L. Rep. P 98,321 Timothy L. FORD, Plaintiff-Appellant, v. HAMILTON INVESTMENTS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 255

29 F.3d 255

Fed. Sec. L. Rep. P 98,321

Timothy L. FORD, Plaintiff-Appellant, v. HAMILTON INVESTMENTS, INC., Defendant-Appellee.

No. 93-1305.

United States Court of Appeals, Sixth Circuit.

Argued April 22, 1994.

Decided July 15, 1994.

John R. Parnell, Walter L. Baumgardner, Jr. (argued and briefed), Musilli & Baumgardner, St. Clair Shores, MI, for Timothy L. Ford.

Grady Avant, Jr. (argued), Sandra J. LeFevre, Daniel M. Brinks, Dickinson, Wright, Moon, Van Dusen & Freeman, Detroit, MI, John R. Clark (briefed), Detroit, MI, for Hamilton Investments, Inc.

Before: MERRITT, Chief Judge; and KENNEDY and NELSON, Circuit Judges.

DAVID A. NELSON, Circuit Judge.

This is an appeal from a district court order, entered pursuant to Sec. 9 of the Federal Arbitration Act, confirming a National Association of Securities Dealers arbitration award. Federal courts may hear cases under the Arbitration Act only where some independent basis for federal jurisdiction exists, and the dispositive question presented here--a question that we have raised sua sponte--is whether the district court had jurisdiction over the subject matter of the instant case.

Both parties contend that federal-question jurisdiction is conferred by 28 U.S.C. Sec. 1331, which provides that "[t]he district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." Because the controversy was submitted to arbitration pursuant to an agreement signed by the plaintiff in applying to become a registered representative for a firm that belonged to the National Association of Securities Dealers, and because the association's rules could not take effect until the Securities and Exchange Commission had determined that the rules met certain statutory criteria, the parties suggest that the nexus with the Securities Exchange Act of 1934, the statute that created the Commission, is strong enough to warrant the conclusion that the case is one "arising under" the statute.

We do not find the suggestion well taken. Accordingly, and because no other basis for the exercise of federal jurisdiction appears on the face of the complaint or otherwise, we shall remand the case to the district court with instructions to vacate the order appealed from and dismiss the case for want of jurisdiction.

I

Defendant Hamilton Investments, Inc., a securities dealer formerly known as Illinois Company Investments, Inc., apparently hired plaintiff Timothy L. Ford in October of 1989 as manager of the firm's office in Dearborn, Michigan. ¹ Mr. Ford promptly signed a form applying for registration, as an employee of the defendant, with the New York and American Stock Exchanges and the National Association of Securities Dealers. ² In signing the application form, Mr. Ford stated "I agree to arbitrate any dispute ... that may arise between me and my firm ... that is required to be arbitrated under the rules ... of the organizations with which I register...."

Mr. Ford also signed a $40,000 promissory note in favor of the defendant. In the proceedings subsequently held before the arbitrators, Hamilton Investments said that Mr. Ford understood that the loan represented by the note was intended to be repaid if not forgiven over the course of a three-year period.

Mr. Ford left the employ of Hamilton Investments after only one year with the firm. The firm subsequently presented a claim for arbitration. The statement of claim asserted that $26,666.68, plus interest at 8 percent, was due and owing from Mr. Ford on the promissory note. Ford was also said to owe the firm commissions of up to $14,539.59 on sales made in violation of a contractual prohibition against outside trading. Mr. Ford presented a counterclaim in which he evidently alleged various breaches of the employment contract by the firm.

Hamilton Investments--but not Mr. Ford, as far as we can tell--signed a "submission agreement" for NASD arbitration. The agreement recited that the parties "agree to abide by and perform any award(s) rendered pursuant to this Submission Agreement and further agree that a judgment and any interest due thereon, may be entered upon such award(s) and, for these purposes, the undersigned parties hereby voluntarily consent to submit to the jurisdiction of any court of competent jurisdiction which may properly enter such judgment." ³

A hearing was held before a three-member panel of industry arbitrators in July of 1992. On August 17, 1992, the panel issued a decision awarding Hamilton Investments the sum of $26,666.63, plus interest in the amount of $3,857.53. Mr. Ford's counterclaim was denied in its entirety, as were all other claims. Mr. Ford was also directed to reimburse Hamilton Investments for a $600 deposit made by the firm with the NASD in connection with the arbitration.

On November 17, 1992, Mr. Ford filed a complaint against Hamilton Investments in the United States District Court for the Eastern District of Michigan. (This is the district in which the arbitral award was made.) The complaint alleged--and the defendant's subsequent answer admitted--that jurisdiction was conferred on the court by the Federal Arbitration Act. The complaint went on to recite that an arbitration panel had awarded the defendant a total of $30,524.16, which award "[p]laintiff believes ... was entered in total disregard of the law." The complaint concluded with a prayer that the award be vacated. A "motion to vacate arbitration award," filed contemporaneously with the complaint, repeated this request and spelled out the alleged deficiencies of the award in somewhat greater detail. The motion also noted--correctly--that "[a]t no place in ... the Statement of Claim, does the Claimant [Hamilton Investments] allege a violation of the 1933 Securities Act or the 1934 Securities Exchange Act." ⁴

After filing an answer denying that Mr. Ford was entitled to vacation of the arbitration award, and having responded in opposition to the motion to vacate, Hamilton Investments moved for an order confirming the award pursuant to Sec. 9 of the Federal Arbitration Act, 9 U.S.C. Sec. 9. The district court held a hearing on both of the then-pending motions. Following the hearing, the court denied Mr. Ford's motion to vacate and granted Hamilton Investments' motion to confirm. A money judgment was rendered in favor of Hamilton Investments and against Ford in the amount of $30,524.16. This appeal followed.

II

Subject matter jurisdiction cannot be conferred on federal courts by consent of the parties. See Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 851, 106 S.Ct. 3245, 3251, 92 L.Ed.2d 675 (1986). The existence of subject matter jurisdiction, moreover, is an issue that "may be raised at any time, by any party or even sua sponte by the court itself." Franzel v. Kerr Mfg. Co., 959 F.2d 628, 630 (6th Cir.1992).

Section 10 of the Federal Arbitration Act, 9 U.S.C. Sec. 10, provides that in any of the cases described in that section, "the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration." One can understand why Mr. Ford's counsel might have assumed, as he evidently did in drafting his complaint, that this provision would suffice to confer federal jurisdiction over an action to vacate an arbitral award. It is well established, however, that Sec. 10 of the Arbitration Act does not constitute a grant of subject matter jurisdiction. Garrett v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 882, 884 (9th Cir.1993); Harry Hoffman Printing, Inc. v. Graphic Communications, Int'l Union, Local 261, 912 F.2d 608, 611 (2d Cir.1990). Cf. Southland Corp. v. Keating, 465 U.S. 1, 15 n. 9, 104 S.Ct. 852, 861 n. 9, 79 L.Ed.2d 1 (1984) ("While the Federal Arbitration Act creates federal substantive law requiring the parties to honor arbitration agreements, it does not create any independent federal question jurisdiction under 28 U.S.C. Sec. 1331 or otherwise"); Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32, 103 S.Ct. 927, 942 n. 32, 74 L.Ed.2d 765 (1983) (same). It is equally clear that Sec. 9 of the Act does not create subject matter jurisdiction. Pacific Reinsurance Management Corp. v. Ohio Reinsurance Corp., 935 F.2d 1019, 1021 (9th Cir.1991); 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).

Section 4 of the Federal Arbitration Act, which says that a party to an agreement to arbitrate may seek an enforcement order from a federal district court "which, save for such agreement, would have jurisdiction under Title 28," obviously contemplates that "there must be diversity of citizenship or some other independent basis for federal jurisdiction before the order can issue." Mercury Constr., 460 U.S. at 25 n. 32, 103 S.Ct. at 942 n. 32. Sections 9 and 10 of the Arbitration Act contemplate the same thing. "[T]o read section [9 or] 10 as bestowing jurisdiction to [confirm or] vacate absolutely any arbitration award," as the Court of Appeals for the Second Circuit has said, "would open the federal courts to a host of arbitration disputes, an intent that we should not readily impute to Congress." Harry Hoffman Printing, 912 F.2d at 611 n. 1. See also Prudential-Bache Sec., Inc. v. Fitch, 966 F.2d 981, 988 (5th Cir.1992) ("There is no indication that Congress in enacting the [Federal Arbitration Act], or the Supreme Court in interpreting it, intended to change the rules for determining federal jurisdiction over a complaint").

Because of the manifest insufficiency of the jurisdictional statement in Mr. Ford's complaint, and because Mr. Ford's lawyer--echoing the jurisdictional allegation in his amended motion to vacate--suggested during the hearing before the district court that "we are here pursuant to the 1934 Securities Exchange Act," ...