Goldman v. Citigroup Global Markets Inc.

• Decision Date: 22 August 2016
• Docket Number: No. 15-2345,15-2345
• Citation: 834 F.3d 242
• Parties: Judith Goldman; Kenneth B. Goldman, Appellants, v. Citigroup Global Markets Inc.; FINRA; Frederick Pieroni; Barry Guariglia.
• Court: U.S. Court of Appeals — Third Circuit

834 F.3d 242

Judith Goldman; Kenneth B. Goldman, Appellants,

v.Citigroup Global Markets Inc.; FINRA; Frederick Pieroni; Barry Guariglia.

No. 15-2345

United States Court of Appeals, Third Circuit.

Argued April 28, 2016

Filed: August 22, 2016

Richard J. Gerace [ARGUED], Gerace Law Office, 1515 Market Street—Suite 1200, Philadelphia, PA 19102, Counsel for Appellants.

Brian T. Feeney [ARGUED], Christiana L. Signs, Greenberg Traurig, LLP, 2001 Market Street—Suite 2700, Philadelphia, PA 19103, Counsel for Appellees.

Before: McKEE, Chief Judge, JORDAN, and ROTH, Circuit Judges.

OPINION OF THE COURT

JORDAN

, Circuit Judge.

Judith and Kenneth Goldman filed a motion in the United States District Court for the Eastern District of Pennsylvania to vacate an adverse arbitration award. The underlying arbitration, before a panel operating under the auspices of the Financial Industry Regulatory Authority (“FINRA”), concerned the Goldmans' allegations that financial advisor Barry Guariglia and Citigroup Global Markets Inc. had violated federal securities law in their management of the Goldmans' brokerage accounts. The District Court dismissed the case for lack of subject-matter jurisdiction because the Goldmans' motion failed to raise a substantial federal question. We will affirm.

I. Background

A. Factual Background

This case has its roots in the relationship between the Goldmans and their former financial advisor, Mr. Guariglia, a relationship that began in the 1990s, when he was working for the wealth management firm Merrill Lynch. In 2008, Guariglia changed his employment to Merrill Lynch's competitor Citigroup Global Markets Inc. (“CGMI”), and he persuaded the Goldmans to follow him there.¹

After the Goldmans lost money in the stock market, they alleged that they were pushed into “short-term trading of high-risk, speculative securities” that were “far outside [their] investment objectives,” and that Merrill Lynch and CGMI and their employees “knew it.” (App. 17.) They also alleged that Guariglia and his colleagues induced the Goldmans to take on ever more unsustainable risk by trading on margin. Most important to the case at bar, the Goldmans contend that, when they transferred their account from Merrill Lynch (where they say they received favorable margin requirement treatment) to CGMI (where they allegedly faced a higher margin requirement), they were subjected to a “devastating margin call,” leading to the liquidation of a “sizable portion of their investments” and “the loss of their entire retirement.” (Opening Br. at 7.)

B. Procedural Background

1. Arbitration Proceedings before FINRA

Based on those allegations, in 2010 the Goldmans initiated FINRA arbitration proceedings against Merrill Lynch, CGMI, Guariglia, and other employees of those financial institutions. They asserted claims on the following bases: securities fraud in violation of the Securities Exchange Act of 1934 (the “'34 Act”), 15 U.S.C. § 78a et seq. ,

and Rule 10b-5, 17 C.F.R. § 240.10b-5 ; fraudulent misrepresentation; lack of supervision of employees; lack of suitability of investment recommendations; breach of fiduciary duty; breach of contract; and negligence.

The FINRA proceedings began with mediation before a neutral named Ferdinand Pieroni, and the mediation succeeded in producing a settlement for the Goldmans with Merrill Lynch, but not with CGMI.² The Goldmans now allege that CGMI refused to negotiate in good faith, left the mediation when the Goldmans so demanded, and then “snuck back in[ ] ... through a side door” to “spy” on the confidential negotiations between the Goldmans and Merrill Lynch. (Opening Br. at 9.) CGMI flatly denies those allegations, and mediator Pieroni filed a sworn affirmation before the FINRA arbitration panel declaring that CGMI did not refuse to mediate, was never asked to leave the mediation, and acted in good faith.

The arbitration panel took evidence and heard argument for 10 days between August 2012 and February 2014. After the Goldmans presented their full case in chief, CGMI moved to dismiss for lack of evidence. The panel granted the motion, concluding that, “[w]hile all the claims were quite stridently argued, not a single claim was proven to be true by evidence.” (App. 109.) In particular, the panel noted that the Goldmans “failed to offer a scintilla of proof” that they were subject to a margin call. (Id .) The panel thus determined that “there was no margin call” (id .), and, on October 2, 2014, it issued a final award dismissing the Goldmans' claims and assigning administrative fees among the parties.

2. District Court Proceedings

During the mediation and arbitration proceedings before FINRA, the Goldmans resorted to the District Court, claiming a breach of contract. More specifically, in a lengthy complaint, the Goldmans alleged that CGMI had not honored its promise to mediate, that “CGMI and its lawyers were allowed to spy on ... confidential discussion[s] and negotiation[s]” (App. 47), and that the arbitration panel was conflicted and partial. Based on those allegations, the complaint alleged that CGMI, Guariglia, FINRA, and Pieroni “breached express and implied terms and conditions of the FINRA[ ] Arbitration and Mediation contracts” (App. 49), and acted “[i]n utter defiance of [FINRA mediation] rules” (App. 50). They immediately moved for a temporary restraining order and preliminary injunction to stay the arbitration and to have CGMI's law firm, Greenberg Traurig, barred from the case. The District Court denied the motion, holding that there was “no lawful basis” for relief and that the Goldmans had improperly asked the Court to intervene “as an emergency court of interlocutory appeals from arbitration orders.” (App. 85.) After a different judge was assigned the case, the District Court denied a second motion for a temporary restraining order, then subsequently dismissed the case with instructions to re-file after the arbitration was concluded, if the Goldmans wished to challenge any resulting arbitration award. There was another false start in the summer of 2014, when the Goldmans filed a motion to vacate the arbitration award before it was actually finalized, and that motion too was dismissed.

When the arbitration was finally completed, the Goldmans returned to the District Court by submitting what they styled as a “refiled” motion to vacate the arbitration award, which is the motion now at issue.³ In their motion, they asserted that the District Court had jurisdiction under § 10 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 10

, and, to justify vacatur of the award, they alleged that the FINRA arbitration panel behaved improperly in that it demanded “voluminous” and irrelevant discovery from them (App. 289), did not permit sufficient discovery of CGMI's documents, exhibited partiality towards CGMI, and “refused to resign” at the Goldmans' request (App. 295). The Goldmans also alleged that CGMI's counsel negotiated in bad faith and then spied on the meditation proceedings, and that the mediator perjured himself in denying that the spying occurred. Resorting to the typographical arts and extravagant language, the Goldmans practically shout that

the treatment of the FINRA members demonstrates to the reasonable person that unavoidably, the Panel was partial to one side and the favorable treatment unilateral.... Defendants use the “BIG LIE” to maximize the advantage they enjoyed in the FINRA forum as a FINRA member and associated member.... The Biggest of the “Big Lies” is Defendants' persistent perjury that “THERE WAS NO MARGIN CALL ” upon transfer of the Goldman accounts from Merrill Lynch to Defendants in November 2008.

(App. 297-98 (original emphasis and formatting).)

In response to the motion to vacate, CGMI moved to dismiss for lack of subject-matter jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(1)

.⁴ The District Court granted that motion. Its opinion began by observing that the FAA does not itself create federal subject-matter jurisdiction and that the parties in this case are not diverse, so that federal question jurisdiction, independent of the FAA, would be required for the District Court to consider a motion to vacate an arbitration award. The Court then rejected the three bases for federal question jurisdiction that the Goldmans press before us. It also denied their motion for leave to file an amended motion to vacate because, in seeking leave to amend, they simply sought to “assert the same claims they unsuccessfully brought in their arbitration before FINRA.”⁵ (App. 3 n.1.)

The Goldmans timely appealed.

II. Jurisdiction and Standard of Review

Whether the District Court had jurisdiction is precisely the issue on appeal. We have appellate jurisdiction pursuant to 28 U.S.C. § 1291

. We exercise plenary review over a district court's dismissal of an action for lack of subject matter jurisdiction. Nichole Med. Equip. & Supply, Inc. v. TriCenturion, Inc. , 694 F.3d 340, 347 (3d Cir. 2012). Because CGMI's attack on jurisdiction is facial, we consider only the allegations in the motion to vacate and the documents referenced in that motion and attached thereto, “in the light most favorable to the plaintiff.” Id . (internal quotation marks omitted).

III. Discussion

The Goldmans argue that the District Court had jurisdiction under 28 U.S.C. § 1331

,⁶ which provides jurisdiction for “civil actions arising under” federal law.⁷ Such “federal question” jurisdiction may arise in two ways. “Most directly, a case arises under federal law when federal law creates the cause of action asserted.” Gunn v. Minton , ––– U.S. ––––, 133 S.Ct. 1059, 1064, 185 L.Ed.2d 72 (2013) (citing American Well Works Co. v. Layne & Bowler Co. , 241 U.S. 257, 260, 36 S.Ct. 585, 60 L.Ed. 987 (1916) ). However, even if the cause of action is based on state law, there is a “special and small category of cases in which arising under jurisdiction still lies.” Id. (internal quotation marks omitted). In those special cases, which...