Doscher v. Sea Port Grp. Sec., LLC
| Decision Date | 05 August 2015 |
| Docket Number | 15-CV-384 (JMF) |
| Parties | DREW DOSCHER, Plaintiff, v. SEA PORT GROUP SECURITIES, LLC, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Petitioner Drew Doscher brings suit against Respondents Sea Port Group Securities, LLC, Stephen Smith, Michael Meagher, Michael Meyer, The Seaport Group, LLC, Armory Advisers, LLC, Armory Fund, LP, and Seaport V, LLC pursuant to Section 10 of the Federal Arbitration Act (the "FAA"), 9 U.S.C. § 1 et seq., seeking to vacate in part an arbitral decision by the Financial Industry Regulatory Authority ("FINRA"). For the reasons that follow, Doscher's Petition is dismissed for lack of subject-matter jurisdiction.
The relevant background can be summarized briefly. From 2009 to 2013, Doscher worked for The Seaport Group, LLC and its broker-dealer, Sea Port Group Securities, LLC (together, "Seaport"), both of which are Members of FINRA. . As such, Doscher and Seaport are "Associated Persons"— that is, "person[s] engaged in the investment banking or securities business who [are] directly or indirectly controlled by a FINRA member," see FINRA, Dispute Resolution Glossary, https://www.finra.org/arbitration-and-mediation/dispute-resolution-glossary — and disputes between them are therefore subject to mandatory arbitration under FINRA's rules, see FINRA Rule 13200, available at http://finra.complinet.com/en/ display/display_main.html?rbid=2403&element_id=4203.
In June 2013, after he severed ties with Seaport, Doscher commenced an arbitration against Seaport and the individual Respondents, who owned or worked at Seaport. . In his initial statement of claim, Doscher alleged, among other things, breach of contract, retaliatory discharge, and unjust enrichment. (First Merolla Decl., Ex. 2 at 16-17, 19). Thereafter, Doscher filed an amended statement adding a claim for securities fraud under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., and Securities and Exchange Commission ("SEC") Rule 10b-5, 17 C.F.R. § 240.10b-5. (Resp'ts' 56.1 Statement ¶ 4; First Merolla Decl., Ex. 5 at 21-22). Doscher sought damages in excess of $15 million. (First Merolla Decl., Ex. 1 at 2). On October 22, 2014, the arbitral panel ruled in his favor, but awarded him only $2,289,774, as well as a commission on a potential trade should it eventually settle. (Id. at 3). Thereafter, Doscher commenced this case by filing a petition to vacate in part the arbitration award pursuant to Section 10 of the FAA. .1
In his Petition, Doscher argues that the arbitration should be vacated in part for two reasons. First, Doscher contends that the arbitration should be vacated pursuant to Section 10(a)(3) of the FAA because the arbitrators "refused to insure [sic] that relevant documentaryevidence in the possession, custody, and control of the Respondents and their counsel were fully and timely made available to him." . Additionally (but relatedly), Doscher asserts that "the arbitrators acted in 'manifest disregard' of the law" — specifically, FINRA Rule 13505, which requires parties to "cooperate to the fullest extent practicable in the exchange of documents and information to expedite the arbitration." (Id. at 6; see also id. at 23).
The Court begins, as it must, with the issue of subject-matter jurisdiction. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94 (1998).2 As noted, Doscher brings his Petition pursuant to Section 10 of the FAA. The FAA, however, is "something of an anomaly in the realm of federal legislation: It bestows no federal jurisdiction but rather requires for access to a federal forum an independent jurisdictional basis over the parties' dispute." Vaden v. Discover Bank, 556 U.S. 49, 59 (2009) (internal quotation marks omitted). In other words, "federal question jurisdiction does not arise simply because a petitioner brings a claim under . . . the FAA." Greenberg v. Bear, Stearns & Co., 220 F.3d 22, 25 (2d Cir. 2000). Instead, a district court must have "an independent jurisdictional basis" to entertain a petition to vacate an arbitration. Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 582 (2008). Here, because theparties are not diverse (see First Merolla Decl., Ex. 2 ¶¶ 1-10), the only conceivable basis for jurisdiction — and the only basis proffered by Doscher (Petition ¶ 16; Pet'r's Mem. 12-13) — is Title 28, United States Code, Section 1331, which grants the Court jurisdiction over "all civil actions arising under the Constitution, laws, or treaties of the United States." In particular, Doscher contends that that the Court has jurisdiction both because he alleges that the arbitral panel violated the FINRA Rules and those Rules "are substantive federal law" and because he pursued claims under federal law — namely, the Securities Exchange Act and federal regulations — in the underlying arbitration. (Pet'r's Mem. 12-13).
The first contention — that the arbitral panel's alleged disregard or violation of FINRA Rules gives rise to federal-question jurisdiction — is easily rejected. As many courts have held with respect to petitions to vacate arbitration awards from FINRA or its predecessor organization, the National Association of Securities Dealers ("NASD"), allegations that an arbitration panel "manifestly disregarded" FINRA or NASD Rules "do not constitute a valid claim for manifest disregard of federal law." Goldman v. Citigroup Global Markets Inc., No. 12-CV-4469 (ABB), 2015 WL 2377962, at *4 (E.D. Pa. May 19, 2015); see Ford v. Hamilton Invs., Inc., 29 F.3d 255, 259 (6th Cir. 1994); Intervest Intern. Equities Corp. v. Aberlich, No. 12-CV-13750 (DPH), 2013 WL 1316997, at *4 (E.D. Mich. Mar. 29, 2013); Dreyfus Serv. Corp. v. Gold, No. 02-CV-9415 (LAK), 2002 WL 31802347, at *1 (S.D.N.Y. Dec. 12, 2002); Appl. of Prudential Sec. Inc., 795 F. Supp. 657, 659 (S.D.N.Y. 1992); see also Apollo Property Partners, LLC v. Newedge Fin., Inc., 08-CV-1803 (EW), 2009 WL 778108, at *2 & n.14 (S.D. Tex. Mar. 20, 2009) . As those courts have explained, FINRA's rules "are established and enforced by a private association," so they "do not give rise to federal question jurisdiction." Prudential, 795 F. Supp. at 659. Accordingly, Doscher's claim that the arbitral panel violated or disregarded FINRA Rules does not constitute a federal question for purposes of Section 1331.
Doscher's alternative argument for subject-matter jurisdiction — based on the fact that he pursued claims under the Exchange Act and SEC Regulations in the underlying arbitration — is also easily rejected, as it is squarely foreclosed by the Second Circuit's decision in Greenberg. In that case, the petitioner sought to vacate an arbitration award that had dismissed his federal securities fraud claims against a clearing broker. On appeal, the Second Circuit held that, in determining whether there is jurisdiction over a petition to vacate an arbitration award brought pursuant to Section 10 of the FAA, a court may not "look through" the petition to the claims in the underlying arbitration. See 220 F.3d at 25-26. The Court cited Westmoreland Capital Corp. v. Findlay, 100 F.3d 263 (2d Cir. 1996), in which it had ruled that there is no subject-matter jurisdiction over a petition to compel arbitration under Section 4 of the FAA "'merely because the underlying claim raises a federal question.'" Id. at 26 (quoting Westmoreland, 100 F.3d at 268). "The holding in Westmoreland," the Court explained, Id.
In arguing otherwise (Pet'r's Mem. 12-13; Pet.'s Reply Mem. 3 n.2), Doscher relies exclusively on the Supreme Court's 2009 decision in Vaden, which held that, with respect to petitions to compel arbitration under Section 4 of the FAA, federal courts may in fact "'lookthrough' [the] petition to determine whether it is predicated on an action that 'arises under' federal law." 556 U.S. at 62. In fairness, Vaden does raise doubts about the validity of Greenberg. After all, Vaden abrograted the Second Circuit's decision in Westmoreland, see id. at 57, and, as noted, the holding in Westmoreland was the basis — indeed, arguably the primary basis — for the Court's conclusion in Greenberg.3 This Court, however, must follow Greenberg unless and until it is overruled in a precedential opinion by the Second Circuit itself or "unless a subsequent decision of the Supreme Court so undermines it that it will almost inevitably be overruled by the Second Circuit." United States v. Emmenegger, 329 F. Supp. 2d 416, 429 (S.D.N.Y. 2004).4 Thus, "[t]he precise question for this Court . . . is not whether, by its own analysis," Vaden's reasoning supports a finding that a federal court may "look through" a petition to vacate under Section 10 of the FAA to determine if there is federal-questionjurisdiction. Id. Instead, "it is whether [Vaden] so conclusively supports that finding that the Second Circuit...
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