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Fifth Circuit: Jurisdictional Amount in Controversy Judged by Claim Amount in Award Challenge: Pershing LLC v. Kiebach
Posted on Categories Court Decisions, Securities ArbitrationTags , ,

By George H. Friedman

The “amount in controversy” for FAA federal jurisdiction is determined by what was demanded in the underlying arbitration, not what the arbitrators actually awarded.

Pershing LLC vs. Kiebach, No. 15-30396 (5th Cir., 4/6/16).

We covered (in our sister publication, the Securities Arbitration Alert, 2016-14) National Casualty Co. v. Resolute Reinsurance Co., No. 15cv9940 (S.D. N.Y., 3/24/16), where the Court held that, for purposes of establishing federal subject matter jurisdiction for an action to confirm an Award, the amount demanded, not awarded, determines whether the $75,000 “amount in controversy” requirement is met. Now, in an interlocutory appeal from a District Court decision holding the likewise (SLA 2015-27), the Fifth Circuit agrees.

Appellants Say Amount Awarded

The Federal Arbitration Act (“FAA”) does not by itself confer federal subject matter jurisdiction over an action to confirm an Award, the Court instructs, meaning that, without an evident federal question, the amount in controversy and diversity of citizenship requirements of 28 U.S.C. § 1332(a) must be met. In this case, Stanford Ponzi Scheme investors brought a FINRA arbitration against Pershing, seeking $80 million in damages. They were awarded no compensatory damages, but the Arbitrators did award about $10,000 in arbitration-related expenses (FINRA ID #13-01692 (New Orleans, 11/3/14)). Pershing sought Award confirmation in federal District Court under FAA section 9 and the investors resisted, contending that the $10,000 awarded should be the measure of the amount in controversy, as opposed to the $80 million demanded.

The Court Begs to Differ

In rejecting this argument, a unanimous Fifth Circuit writes: “Based on Appellants’ arbitration demand of $80 million, the district court correctly concluded that the $75,000 amount in controversy requirement was met. First, the demand approach recognizes the true scope of the controversy between the parties. The only logical assumption about Appellants’ efforts to prevent confirmation of this arbitration award is that they want a second chance to pursue their claims. The $10,000 award ‘is but the last stage of litigation’ that began with an $80 million controversy.… Therefore, the amount at stake is the $80 million that Appellants initially sought in arbitration, not the minimal award for arbitration-related costs” (citation omitted).

(Guest Editor -- George H. Friedman: *The Court’s adoption of the “demand approach” makes sense. Otherwise, a party that lost entirely – getting a $0 Award – would have no way to meet the amount in controversy requirement to seek vacatur under the FAA, which would be totally illogical. The same holds true where, as here, the winner seeks FAA confirmation of an essentially $0 Award. Also, a motion to compel arbitration under FAA section 4 must be based on the amount demanded – since, at that point, there is no Award – so this decision allows a uniform approach. **Judge Mills concurred only with the result, but “would decline to adopt any categorical ‘approach’ in this context.” ***Mr. Friedman wrote a piece for SAC’s Blog on this subject.)

(SLC Ref. No. 2016-17-01)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA)from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.

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