Drexel Burnham Lambert, Inc. v. Valenzuela Bock, No. 88 Civ. 2815(PNL).

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Writing for the CourtMarks Murase & White, New York City (P. Jay Wilker, Guy L. Heinemann, of counsel), for respondents
Citation696 F. Supp. 957
PartiesDREXEL BURNHAM LAMBERT, INCORPORATED, Petitioner, v. Alex VALENZUELA BOCK, as executor of the Estate of Sarah De Valenzuela, Margaret Martinez, Carlos Alfaro, Clyde Huddelston, Wilbur Manter, Charles Ferris, and Robert Lotierzo, Respondents.
Docket NumberNo. 88 Civ. 2815(PNL).
Decision Date11 October 1988

696 F. Supp. 957

DREXEL BURNHAM LAMBERT, INCORPORATED, Petitioner,
v.
Alex VALENZUELA BOCK, as executor of the Estate of Sarah De Valenzuela, Margaret Martinez, Carlos Alfaro, Clyde Huddelston, Wilbur Manter, Charles Ferris, and Robert Lotierzo, Respondents.

No. 88 Civ. 2815(PNL).

United States District Court, S.D. New York.

October 11, 1988.


696 F. Supp. 958

Cahill Gordon & Reindel, New York City (John R. Vaughan, Lisa Pearson, Thomas Campbell, Gary A. Paranzino, of counsel), for petitioner.

Marks Murase & White, New York City (P. Jay Wilker, Guy L. Heinemann, of counsel), for respondents.

OPINION AND ORDER

LEVAL, District Judge.

This is a motion by petitioner Drexel Burnham Lambert, Inc. to remand a removed action to state court. The action consists of a petition, originally instituted by Drexel in New York State Supreme Court and removed by the respondents to federal court, seeking to require arbitrators to sever several arbitration claims which were being jointly conducted by the American Arbitration Association ("AAA"). The claims being arbitrated were instituted by Valenzuela and other customers of Drexel (hereafter the "Customers") alleging that Drexel violated the federal securities laws. The petition was predicated on the Federal Arbitration Act, 9 U.S.C. § 4. On June 28, 1988, the Court heard oral argument on the motion, and the parties thereafter have filed supplemental memoranda.

BACKGROUND

The procedural history is as follows. In October 1986, the Customers brought an action in this court charging Drexel with violation of the federal securities laws. de Valenzuela v. Drexel Burnham Lambert, Inc., 86 Civ. 7587 (WCC). Drexel promptly moved to stay the action and compel arbitration pursuant to arbitration clauses in the Customers' Agreements. At the time, it was not clear that claims of violation of the federal securities laws were subject to arbitration agreements. See Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). The Supreme Court, however, had granted certiorari in Shearson/American Express Inc. v. McMahon, undertaking to consider the question. Judge Conner stayed the action to await the Supreme Court's decision which, when rendered on June 8, 1987, Shearson/American Express Inc. v. McMahon, ___ U.S. ___, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987), upheld the enforceability of arbitration agreements over claims under the Securities Exchange Act of 1934.

In response to the Supreme Court's decision, the Customers instituted arbitration on September 16, 1987 under a joint claim lodged with the AAA. On November 8, 1987, the federal court action was dismissed.

Drexel objected before the arbitrators to hearing the claims of the various Customers jointly. On March 2, 1988, the AAA ruled that it would proceed with the arbitration on a joint basis as filed "in the absence of a court order or agreement of the parties to the contrary."

696 F. Supp. 959

Drexel then lodged this action in the New York State Court, seeking to compel the arbitrators to sever the claims of the various customers from one another. The Customers removed the action to this Court. Drexel moves for remand, contending that the federal court lacks subject matter jurisdiction to entertain the dispute.

I conclude that the matter was improperly removed and Drexel's motion to remand must be granted.

DISCUSSION

The Customers argue that the case is removable to federal court on the basis of general federal question jurisdiction. 28 U.S.C. § 1441. They argue that the petition seeks relief under a federal statute, the Federal Arbitration Act. As further evidence of the federal nature of the dispute, they note that the underlying dispute, which is the subject of the arbitration, arises under the Securities Exchange Act of 1934 and was originally waged in federal court.

Drexel argues that § 4 of the Arbitration Act does not provide the relief it seeks. It contends that it pleaded § 4 in error, that § 4 applies only to petitions to compel arbitration, and that its petition for an order governing the manner of conducting the arbitration should have been addressed simply to the equity power of the court to supervise arbitrations. In any event, Drexel argues, the Federal Arbitration Act does not confer federal jurisdiction.

1. The fact that the dispute was initially waged in federal court does not, without more, vest this Court with jurisdiction. It is true, had the federal court retained jurisdiction of the Customers' '34 Act complaint, it would have had ancillary power also to consider an application to compel under § 4 of the Arbitration Act. See Hunt v. Mobil Oil Corp., 557 F.Supp. 368, 371 (S.D.N.Y.1983) (Weinfeld, J.). The federal court action was, however, dismissed. At the time this petition was removed, there was no federal action pending to which it could become ancillary. Thus, if federal jurisdiction exists, it must be premised on this petition itself and not on a prior action no longer before the federal court.

2. As to Drexel's argument that the suit does not arise under § 4, Drexel reads the statute too narrowly. It provides "for an order directing that such arbitration proceed in the manner provided for in such arbitration agreement." (Emphasis added.) It thus authorizes not only an order to arbitrate but also an order that the arbitration be conducted in the manner provided for in the agreement. See Del E. Webb Construction v. Richardson Hospital Auth., 823 F.2d 145, 150 (5th Cir.1987) (under § 4, district court limited to enforcing arbitration awards according to their terms); Weyerhauser Co. v. Western Seas Shipping Co., 743 F.2d 635, 637 (9th Cir.) (same), cert. denied, 469 U.S. 1061, 105 S.Ct. 544, 83 L.Ed.2d 431 (1984).1

3. On the other hand, removal jurisdiction may not be predicated upon the fact that the petition asserts rights under the Federal Arbitration Act. The Supreme Court has noted that the Federal Arbitration Act is "something of an anomaly in the field of federal-court jurisdiction." 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). Although the right sought to be enforced is created by federal statute, the Court has held that these rights are not among those

696 F. Supp. 960
giving rise to federal question jurisdiction. See Southland Corp. v. Keating, 465 U.S. 1, 15 n. 9, 104 S.Ct. 852, 861 n. 9, 79 L.Ed.2d 1 (1984); see also Krauss Bros. Lumber Co. v. Louis Boussert & Sons Inc., 62 F.2d 1004 (2d Cir.1933). A party seeking to enforce rights created by the Arbitration Act must do so in the state courts unless federal jurisdiction can be independently established. See Commercial Metals Co. v. Balfour, Guthrie, & Co., Ltd., 577 F.2d 264, 268-69 (5th Cir.1978); Metro Industrial Painting Corp. v. Terminal Constr. Co., 287 F.2d 382, 384 (2d Cir.), cert. denied, 368 U.S. 817, 82 S.Ct. 31, 7 L.Ed.2d 24 (1961); Hughes-Bechtol, Inc. v. West Virginia Board of Regents, 527 F.Supp. 1366, 1378 (S.D.Ohio 1981), aff'd, 737 F.2d 540 (6th Cir.), cert. denied, 469 U.S. 1018, 105 S.Ct. 433, 83 L.Ed.2d 359 (1984). Thus, a petition under § 4 to require arbitration of a dispute arising under a commercial contract must be brought in state court unless, for example, diverse citizenship or a maritime contract is present to justify federal jurisdiction. See C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure § 3569, at 172 n. 12 (1984) ("The usual rules for determining federal question jurisdiction ... apply to actions under the Federal Arbitration Act")

4. The Customers then argue that federal jurisdiction obtains where § 4 is invoked to compel arbitration of a dispute over a federally created right. As the underlying dispute here involves rights asserted under the Securities Exchange Act of 1934 and could be brought by the Customers as an action in the federal court under the federal question jurisdiction, 28 U.S.C. § 1331, the Customers contend that a petition to compel arbitration under § 4 may be brought in, or removed to, federal court.

They contend this position is supported by the provision of § 4 that "A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement." 9 U.S.C. § 4 (emphasis added). They argue that this provision gives the Court jurisdiction in all disputes of which it would have had jurisdiction "save for" the arbitration agreement; the federal court would have jurisdiction of their '34 Act complaint save for the arbitration agreement; and accordingly it has jurisdiction of the § 4 petition.

The problem is, in part, one of bad statutory drafting. In addition to section 4, there are numerous provisions of the Act that refer to the "the United States court," 9 U.S.C. §§ 7, 9, 10, 11, in a manner that reads like a bestowing of jurisdiction. These references have not been so construed. They have not been understood to confer jurisdiction on the federal court. For example, § 7, dealing with the problem of compelling attendance of witnesses at arbitration, provides for a petition to "the United States district court ... to compel the attendance of such person or persons before said arbitrator or arbitrators." 9 U.S.C. § 7. Section 9, regarding the confirmation of arbitration awards, states that, if the parties in their agreement have not specified the court to which an application to confirm the arbitration award may be made, "then such application may be made to the United States court in and for the district within which such award was made." 9 U.S.C. § 9. Section 10 provides that the same "United...

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33 practice notes
  • Westmoreland Capital Corp. v. Findlay, No. 973
    • United States
    • United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
    • November 7, 1996
    ...Klein v. Drexel Burnham Lambert, Inc., 737 F.Supp. 319, 322-24 (E.D.Pa.1990); Drexel Burnham Lambert, Inc. v. Valenzuela Bock, 696 F.Supp. 957 (S.D.N.Y.1988); cf. Minor v. Prudential Sec., Inc., 94 F.3d 1103 (7th Cir.1996) (same finding with respect to FAA § 10); City of Detroit Pension Fun......
  • Community State Bank v. Strong, No. 06-11582.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (11th Circuit)
    • April 27, 2007
    ...§ 1333] will apply to the arbitration petition as well as to the underlying suit." Drexel Burnham Lambert, Inc. v. Valenzuela Bock, 696 F.Supp. 957, 964-65 (S.D.N.Y.1988); see also Continental U.K., Ltd. v. Anagel Confidence Compania Naviera, S.A., 658 F.Supp. 809 (S.D.N.Y.1987) (finding ad......
  • Baltin v. Alaron Trading Corp., No. 96-5123
    • United States
    • United States Courts of Appeals. United States Court of Appeals (11th Circuit)
    • November 25, 1997
    ...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) (......
  • Vaden v. Discover Bank, No. 07–773.
    • United States
    • United States Supreme Court
    • March 9, 2009
    ...means only that the “antiquated and arcane” ouster notion no longer holds sway. Drexel Burnham Lambert, Inc. v. Valenzuela Bock, 696 F.Supp. 957, 961 (S.D.N.Y.1988). Adherents to this “ouster” explanation of § 4's language recall that courts traditionally viewed arbitration clauses as unwor......
  • Request a trial to view additional results
33 cases
  • Westmoreland Capital Corp. v. Findlay, No. 973
    • United States
    • United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
    • November 7, 1996
    ...Klein v. Drexel Burnham Lambert, Inc., 737 F.Supp. 319, 322-24 (E.D.Pa.1990); Drexel Burnham Lambert, Inc. v. Valenzuela Bock, 696 F.Supp. 957 (S.D.N.Y.1988); cf. Minor v. Prudential Sec., Inc., 94 F.3d 1103 (7th Cir.1996) (same finding with respect to FAA § 10); City of Detroit Pension Fun......
  • Community State Bank v. Strong, No. 06-11582.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (11th Circuit)
    • April 27, 2007
    ...§ 1333] will apply to the arbitration petition as well as to the underlying suit." Drexel Burnham Lambert, Inc. v. Valenzuela Bock, 696 F.Supp. 957, 964-65 (S.D.N.Y.1988); see also Continental U.K., Ltd. v. Anagel Confidence Compania Naviera, S.A., 658 F.Supp. 809 (S.D.N.Y.1987) (finding ad......
  • Baltin v. Alaron Trading Corp., No. 96-5123
    • United States
    • United States Courts of Appeals. United States Court of Appeals (11th Circuit)
    • November 25, 1997
    ...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) (......
  • Vaden v. Discover Bank, No. 07–773.
    • United States
    • United States Supreme Court
    • March 9, 2009
    ...means only that the “antiquated and arcane” ouster notion no longer holds sway. Drexel Burnham Lambert, Inc. v. Valenzuela Bock, 696 F.Supp. 957, 961 (S.D.N.Y.1988). Adherents to this “ouster” explanation of § 4's language recall that courts traditionally viewed arbitration clauses as unwor......
  • Request a trial to view additional results

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