Giangrande v. Shearson Lehman/EF Hutton, Civ. A. No. 89-2858-T.

• Court: United States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts
• Writing for the Court: TAURO
• Citation: 803 F. Supp. 464
• Parties: Elaine E. GIANGRANDE, Plaintiff, v. SHEARSON LEHMAN/E.F. HUTTON, Defendant.
• Decision Date: 15 September 1992
• Docket Number: Civ. A. No. 89-2858-T.

803 F. Supp. 464

Elaine E. GIANGRANDE, Plaintiff,
v.
SHEARSON LEHMAN/E.F. HUTTON, Defendant.

Civ. A. No. 89-2858-T.

United States District Court, D. Massachusetts.

September 15, 1992.

803 F. Supp. 465

Paul H. Merry, Garrity & Levin, Boston, Mass., for plaintiff.

Elaine Giangrande, pro se.

David C. Boch, Bingham, Dana & Gould, Boston, Mass., for defendant.

ORDER

TAURO, Chief Judge.

Magistrate Judge Cohen's Report and Recommendation is hereby accepted and adopted by this court. Plaintiff's complaint, therefore, is dismissed.

IT IS SO ORDERED.

REPORT AND RECOMMENDATION ON DEFENDANT'S MOTION TO DISMISS

August 13, 1992

LAWRENCE P. COHEN, United States Magistrate Judge.

Defendant's motion to dismiss (# 10) was referred to this court for report and recommendation. For the reasons which follow, this court recommends that that motion¹ be allowed for want of subject matter jurisdiction.

A. Procedural History

This is an action to vacate an arbitration award.² See 9 U.S.C. § 10. In her original pro se complaint (# 01), plaintiff alleged that — because of alleged claims of unsuitable trading — she submitted the matter to arbitration by a three judge arbitration panel. Before that three judge arbitration panel, plaintiff sought "only the amount of the principal investment lost ($24,000)." (Emphasis in original by plaintiff). Complaint, ¶ 2. She contended that she was entitled to have the decision of the arbitration panel vacated for a host of reasons. Complaint, ¶¶ 3-5.³

Defendant moved to dismiss for want of subject matter jurisdiction — to wit: that the amount in controversy was less than

803 F. Supp. 466

the required jurisdictional amount of $50,000 — and for failure to state a claim upon which relief may be granted

Upon receipt of the motion to dismiss, plaintiff moved to amend the complaint. That motion, as indicated above, footnote 1, has been allowed by this court. In her amended complaint, plaintiff alleges — no doubt in an effort to show the jurisdictional amount required — that she had been injured by the conduct of the defendant to the tune of something in excess of $50,000.⁴ The only relief she seeks, however, in the amended complaint is the same relief as sought before, to wit: vacation of the arbitration award.⁵

B. Subject Matter Jurisdiction — Generally

Section 10 of the Federal Arbitration Act, 9 U.S.C. Sec. 1 et seq. ("FAA") does not establish an independent basis for federal jurisdiction. As explained in 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 (4th Cir.1983), the FAA

does not create any independent federal-question jurisdiction ... hence, there must be diversity of citizenship or some other independent basis for federal jurisdiction before an order can issue.

See also Harry Hoffman Printing, Inc. v. Graphic Comm., Int'l Union, Local 261, 912 F.2d 608, 611 (2d Cir.1990) ("Section 10 of the Arbitration Act does not confer subject matter jurisdiction on a district court").

In this case, therefore, subject matter jurisdiction exists — if at all — on the basis of diversity, 28 U.S.C. § 1332, or on the basis of an independent basis for federal jurisdiction.

C. Diversity Jurisdiction — Amount in Controversy

To invoke the diversity jurisdiction of this court under Section 1332, plaintiff must make some sort of showing that the amount in controversy is $50,000 or more.⁶

In attempting to establish the jurisdictional amount, a plaintiff is entitled to "rely upon the actual or threatened injury ... in establishing the jurisdictional amount," Local Division No. 714, Amalgamated Transit Union v. Greater Portland Transit Dist., 589 F.2d 1, 9 (1st Cir. 1978), citing Hunt v. Washington Apple Advertising Commission, 432 U.S. 333, 346, 97 S.Ct. 2434, 2443, 53 L.Ed.2d 383 (1977). If, however, it appears "to a legal certainty", assuming all that is alleged by plaintiff is true, that the plaintiff cannot recover $50,000 or more, then dismissal is required. St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 590, 82 L.Ed. 845 (1938).⁷

Insofar as this court can determine, no court has applied the St. Paul test to an action to vacate a negative⁸ award under Section 10 of the FAA.

It has been universally held, however, that in an action to compel arbitration under Section 4 of the Act, the amount in controversy involved is the greatest

803 F. Supp. 467

amount that the moving party might recover in the sought for arbitration hearing. See e.g., Davenport v. Proctor & Gamble Manufacturing Co., 241 F.2d 511, 514 (2d Cir.1957);⁹ Marcy Lee Manufacturing Company v. Cortley Fabrics Co., Inc., 354 F.2d 43, 43 (2d Cir.1965).¹⁰ So too with an action to enforce an arbitration award under Section 9 of the Act. Quick & Reilly, Inc. v. Saglio, 717 F.Supp. 822 (S.D.Fla. 1989).¹¹ And that same rationale has been applied in a proceeding to vacate an arbitration award. In Hough v. Merrill Lynch, Pierce, Fenner & Smith, 757 F.Supp. 283 (S.D.N.Y.1991), plaintiffs filed a Statement of Claim against the defendant brokerage firm with the National Association of Securities Dealers, seeking damages totalling some $3 million, more or less. That statement of claim was referred to an arbitration panel. After arbitration, an award was made in favor of plaintiffs in the amount of $17,500 — far less than the $3 million sought. Plaintiffs then brought an action in the United States District Court for the Southern District of New York, alleging, among other things, that the arbitrators were partial, that the arbitrators abused their authority, and that the arbitrators denied plaintiffs due process of law. Because of this, plaintiffs sought an order from the federal court modifying or vacating the arbitrators' award, and remanding the matter to the arbitrators for rehearing

Defendant moved to dismiss for want of subject matter jurisdiction — i.e., for want of an appropriate amount in controversy¹² supporting diversity jurisdiction¹³ — and for failure to state a claim upon which relief may be granted.

In denying the motion to dismiss grounded on subject matter jurisdiction, the court observed, inter alia (Id. at 285-86) —

Defendants allege that the complaint fails to meet the requirements of diversity jurisdiction because it fails to meet the amount in controversy requirement of 28 U.S.C. @ 1332. In determining whether the amount in controversy requirement has been met, courts apply the "legal certainty" test which requires dismissal of an action when it appears to a legal certainty that the plaintiff's claim is for less than the jurisdictional minimum. St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 58 S.Ct. 586, 82 L.Ed. 845 (1938). In applying the legal certainty test, resort to matters outside the pleadings may be used to amplify the meaning of the complaint's allegations. Zacharia v. Harbor Island Spa, Inc., 684 F.2d 199, 202 (2d Cir.1982), citing Givens v. W.T. Grant Co., 457 F.2d 612 (2d Cir.), vacated, 409 U.S. 56, 93 S.Ct. 451, 34 L.Ed.2d 266, on remand, 472 F.2d 1039 (2d Cir.1972).

Plaintiffs' seventh cause of action (Complaint paras. 63-68) requests that this Court, in the event that it refuses to modify the award, "refuse to affirm the award, and remit/remand the award to the MSRB with an order that the MSRB retry the case before new arbitrators." As this motion is, in part, a motion to vacate the arbitration award and to remand for rehearing, the Court will look to the possible award that might result from the desired rehearing. In actions seeking declaratory or injunctive relief, the amount in controversy is measured

803 F. Supp. 468

by the pecuniary value of the rights being litigated. Hunt v. Washington State Apple Advertising Commission, 432 U.S. 333, 347, 97 S.Ct. 2434, 2443, 53 L.Ed.2d 383 (1977). The relief sought on the present motion may be measured similarly.

In this action to vacate the arbitration award the amount in controversy may be regarded as either the value to plaintiff of the relief sought or the loss to defendant if the relief is granted. Plaintiffs contend that the amount in controversy in this action is the full amount of the original claim which was resolved by the arbitration award.

In their Statement of Claim before the MSRB plaintiffs requested a total judgment of at least $ 3 million for violations of the Sherman Act and of the Clayton Act.¹⁴ (Emphasis added).

In this court's view, the Hough rationale applies equally here, and precludes subject matter jurisdiction. In her claim before the arbitration panel, plaintiff sought damages in the amount of $24,000 — and nothing more. In her original complaint — as well as in her amended complaint — plaintiff's challenge is limited solely to the amount of the award¹⁵ made by the arbitration panel. In the words of Hough, supra, "the amount in controversy may be regarded as either the value to plaintiff of the relief sought or the loss to defendant if the relief is granted." Computed either way, the amount remains the same — $24,000. Under plaintiff's best case, if this court were to grant the relief requested, and plaintiff, after rehearing before arbitration panel, obtained all that she sought, that would still amount only to $24,000, far less than the $50,000 required by the provisions of 28 U.S.C. § 1332.

This court accordingly does not have subject matter jurisdiction under the diversity statute (28 U.S.C. § 1332).

D. Independent Basis for Federal Jurisdiction

Although not argued by plaintiff, given the fact that the subject matter before the arbitration panel could be liberally viewed as one involving "unsuitability"¹⁶ — and, hence, in another context, one which might be alleged as sounding as a Rule 10b-5 claim, this court, sua sponte, directed defendant to address the matter of subject matter jurisdiction based on the presence of a federal question. See 28 U.S.C. § 1331. Defendant has, consistent with a Procedural Order...