Ortiz-Espinosa, et al v. BBVA Sec. of Puerto Rico, Inc., et al
Filing
OPINION issued by Jeffrey R. Howard, Chief Appellate Judge; Timothy Belcher Dyk,* Appellate Judge and Rogeriee Thompson, Appellate Judge. Published. *Of the Federal Circuit, sitting by designation. [16-1122]
Case: 16-1122
Document: 00117108386
Page: 1
Date Filed: 01/20/2017
Entry ID: 6063898
United States Court of Appeals
For the First Circuit
No. 16-1122
LUIS ORTIZ-ESPINOSA; MARITZA SOTO-GARCIA; CONJUGAL PARTNERSHIP
ORTIZ-SOTO; LUIS ORTIZ-ESPINOSA, as Trustee of Centro
Dermatológico San Pablo PSC Retirement Plan,
Plaintiffs, Appellants,
v.
BBVA SECURITIES OF PUERTO RICO, INC.; RAFAEL RODRÍGUEZ-ABELLA,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Pedro A. Delgado-Hernández, U.S. District Judge]
Before
Dyk*
Howard, Chief Judge,
and Thompson, Circuit Judges.
Harold D. Vicente Colon, with whom Harold D. VicenteGonzález and Vicente & Cuebas were on brief, for appellants.
Luis A. Oliver, with whom Melissa Hernández-Carrasquillo
and Fiddler González & Rodríguez, PSC were on brief, for
appellees.
Mark C. Fleming, Ari J. Savitzky, Peter J. Macdonald, Ross
E. Firsenbaum, Adriel I. Cepeda Derieux, Michael J. Morillo, and
*
Of the Federal Circuit, sitting by designation.
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Wilmer Cutler Pickering Hale and Dorr LLP on brief for UBS
Financial Services Inc. and UBS Financial Services Incorporated
of Puerto Rico, amici curiae.
January 20, 2017
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DYK,
determine
Circuit
the
test
Page: 3
Judge.
for
Date Filed: 01/20/2017
This
district
case
court
Entry ID: 6063898
requires
federal
us
to
question
jurisdiction in the context of motions to vacate or modify an
arbitration award.
This turns on whether the court may look
through
the
motion
whether
the
to
court
the
would
underlying
have
federal
dispute
question
to
determine
jurisdiction.
Here, the district court applied the look-through test, finding
that
jurisdiction
existed
setting aside the award.
and
that
there
was
no
basis
for
We affirm, holding that the look-
through approach is the correct test, that federal jurisdiction
existed, and that the district court did not err in refusing to
vacate the award and in confirming it.
I.
In 2006, appellants Dr. Luis Ortiz-Espinosa and his
wife, Maritza Soto-García; the conjugal partnership formed by
them
(Espinosa-Soto);
and
Luis
Ortiz-Espinosa,
as
trustee
of
Centro Dermatológico San Pablo PSC Retirement Plan, opened two
sets of brokerage investment accounts with BBVA Securities of
Puerto
Rico,
Inc.
(“BBVA”).
The
accounts
included
personal
accounts for the married couple and accounts for a retirement
plan.
Rafael Rodríguez-Abella, a securities broker employed at
BBVA,
managed
$2,113,154
into
the
the
accounts.
The
personal
retirement plan accounts.
married
accounts
and
couple
$491,054
deposited
into
the
By September 2009, the accounts had
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collectively suffered large losses in the amount of $2,049,340.
The married couple believed that BBVA and Rodríguez-Abella were
responsible for the losses.
for
arbitration
of
The brokerage agreements provided
disputes
before
the
Federal
Industry
Regulatory Authority (“FINRA”).
On
March
representatives
25,
of
the
2010,
the
retirement
married
plans
couple
and
(hereinafter,
“claimants”) sought arbitration with BBVA and Rodríguez-Abella
in the FINRA forum.
We refer to BBVA and Rodríguez-Abella as
“defendants.”
their
arbitration,
In
claimants
statement
alleged
that
of
claim
between
2006
requesting
and
2009,
defendants
in
total
disregard
and
open
violation
of
the
instructions
received
from
[c]laimants
and
of
[c]laimants’ investment objectives, engaged in a
pattern of unsuitable investments in high risk
securities, with the sole objective of maximizing
commissions or trading profits for [defendants], while
deceiving [c]laimants about the true nature of the
investments made by [defendants] in the Accounts.
Said investments were made by [defendants] without
consulting [c]laimants, and [defendants] exercised
unauthorized discretion in the handling of the
Accounts.
Appellants’ Appx. 23–24.
Claimants asserted several claims under both federal
and Puerto Rico law, alleging, inter alia, violations of Section
10(b)
of
the
Securities
Exchange
Act,
Rule
10b-5
of
the
Securities Exchange Commission, and also the securities laws of
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Puerto Rico.
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The statement of claim alleged claims under state
tort and contract law as well.
With respect to the retirement
plan accounts, claimants also alleged that the investments and
margin loans were violations of the Employee Retirement Income
Security Act.
Finally, in addition to compensatory damages in
the amount of at least $2,102,976, claimants sought punitive
damages, interest, attorney’s fees, expenses, and disgorgement
of defendants’ commissions and service fees.
A FINRA arbitration panel comprised of three members
conducted seventeen hearing sessions in Puerto Rico.
3,
2012,
claims.
the
arbitrators
issued
an
award
denying
On April
claimants’
The award stated in its entirety:
After
considering
the
pleadings,
the
testimony and evidence presented at the hearing, and
the post-hearing submissions, the Panel has decided in
full and final resolution of the issues submitted for
determination as follows:
The
Panel
finds
for
Respondents
and
Claimants’ claims are denied in their entirety.
Any
and
all
relief
not
specifically
addressed herein, including Claimants’ request for
attorneys’ fees and punitive damages, is denied.
Appellants’ Appx. 38.
On
July
29,
2012,
claimants
filed
a
complaint
(hereinafter, “petition to vacate”) in the Puerto Rico Court of
First Instance requesting that the court vacate or modify the
arbitration award.
not
invoke
the
Claimants, in their petition to vacate, did
Federal
Arbitration
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Act
(“FAA”);
instead,
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claimants sought relief under the Puerto Rico Arbitration Act
(“PRAA”), 32 L.P.R.A. §§ 3201 et seq.
The petition alleged
various errors of the arbitrators, including the fact that they
denied
claimants’
responsibility
by
claims
despite
defendants
and
claimants’ claims on the merits.
an
alleged
“clear
admission
evidence”
of
supporting
Appellants’ Appx. 15.
The
petition to vacate also alleged that the arbitrators were biased
against claimants and had refused to hear relevant evidence.
On July 30, 2012, defendants removed the case to the
United States District Court for the District of Puerto Rico
asserting
that
jurisdiction.
the
district
court
had
federal
question
There was no basis for diversity jurisdiction
because all of the parties in this case are residents of Puerto
Rico or are entities created or organized under the laws of
Puerto Rico.
Defendants based their claims of federal subject
matter jurisdiction on a look-through approach, asserting that
the underlying claims were based on federal securities laws, and
that
the
district
court
would
have
had
claims had been filed in district court.
jurisdiction
if
the
Defendants urged that
the court also had supplemental jurisdiction over the state law
claims.
On August 17, 2012, claimants moved to remand the case
to
Puerto
Rico
state
court
for
lack
of
jurisdiction.
The
district court denied the motion for remand, holding that the
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court had federal question jurisdiction.
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It applied the look-
through approach, determining that the underlying statement of
claim alleged federal claims.
Claimants filed an interlocutory
appeal of the order denying their motion to remand, but on May
28, 2013, this Court dismissed the appeal because the order was
not a final decision under 28 U.S.C. § 1291.
On
December
17,
2015,
the
district
court
denied
claimants’ petition to vacate or modify the arbitration award
and
entered
a
judgment
confirming
the
award,
holding
that
claimants “did not demonstrate any plausible ground to vacate or
modify the award.”
decide
whether
Appellants’ Br. Add. 28.
the
FAA
or
PRAA
standards
modifying an arbitration award applied.
that
“given
the
similarities
The court did not
between
for
vacating
or
Instead, the court held
the
FAA
and
PRAA
with
respect to the grounds for vacating or modifying” an arbitration
award,
disturbing
PRAA.”
the
award
“is
not
Appellants’ Br. Add. 24 n.9.
district
court’s
denial
of
their
warranted
under
FAA
or
Claimants appeal both the
motion
to
judgment confirming the arbitration award.
remand
and
the
We have jurisdiction
pursuant to 28 U.S.C. § 1291.
II.
We
first
jurisdiction.
review
the
consider
the
issue
of
federal
question
Where pertinent facts are not in dispute, we
district
court’s
determination
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of
subject
matter
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jurisdiction de novo.
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Samaan v. St. Joseph Hosp., 670 F.3d 21,
27 (1st Cir. 2012).
Defendants argue that the FAA applies here and that
this circuit should adopt the look-through doctrine to determine
whether the district court has subject matter jurisdiction over
a motion to vacate an arbitration award.
Claimants argue that
they sued under the PRAA, and alleged only state law causes of
action in their petition to vacate, so the district court did
not have subject matter jurisdiction.
Furthermore, they claim
that the text of the FAA prohibits the extension of the lookthrough doctrine beyond § 4.
For the reasons explained below,
we agree with defendants on both points.
Although claimants brought their petition to vacate
under
32
L.P.R.A.
§ 3222,
the
FAA
applies
to
arbitration
agreements “in any maritime transaction or a contract evidencing
a
transaction
Bernhardt
(1956).
agree
v.
involving
Polygraphic
commerce.”
Co.
of
9
Am.,
U.S.C.
350
§ 2;
U.S.
see
198,
also
200–02
The Supreme Court has suggested that the parties may
to
review
of
arbitration
awards
under
state
law,
explaining that “[t]he FAA is not the only way into court for
parties
wanting
review
of
arbitration
awards:
they
may
contemplate enforcement under state statutory or common law, for
example, where judicial review of different scope is arguable.”
Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576, 590 (2008).
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we read Hall Street as holding that where the FAA applies, it
may be displaced by state law (if at all) only if the parties
have so agreed explicitly.
See id.
Here, claimants have made
no showing that the parties “contemplate[d] enforcement under”
the PRAA, id., rather than the FAA.
Claimants have not pointed
to any language in their arbitration agreement indicating that
the parties intended that state law would govern vacatur of the
arbitration award.
The
FAA
Accordingly, we will apply the FAA.
provides
several
mechanisms
arbitration agreements and awards.
that
a
court
may,
upon
for
enforcing
Sections 3 and 4 provide
application,
stay
litigation
pending
arbitration and compel arbitration pursuant to an arbitration
agreement.
9 U.S.C. §§ 3, 4.
Once an arbitration award has
issued, FAA sections 9 through 11 supply means for acquiring “a
judicial decree confirming an award, an order vacating it, or an
order modifying or correcting it.”
Hall St., 552 U.S. at 582.
Upon an application to the court under § 9, the court “‘must’
confirm an arbitration award ‘unless’ it is vacated, modified,
or corrected ‘as prescribed’ in §§ 10 and 11.”
U.S.C. § 9).
Id. (quoting 9
Sections “10 and 11 respectively provide the FAA’s
exclusive grounds for expedited vacatur and modification.”
Id.
at 584.
An important goal of the FAA was to make arbitration
agreements enforceable in the first instance.
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arbitration remedies were also a central component of the FAA
structure, which sought to combat delays and expenses normally
associated with litigation to enforce awards.
Before the FAA, “the only recourse of the successful
party was to sue in a court of law upon the award,” where the
party was “subject to the delay always incident in any action at
law and to defeat upon technicalities or otherwise in proving
the
award
itself.”
Arbitration
of
Interstate
Commercial
Disputes, Joint Hearings before the Subcomms. of the Comms. on
the Judiciary on S. 1005 and H.R. 646, 68th Cong., 1st Sess., 36
(1924).
The FAA was viewed as solving these problems: “[u]nder
the statute, if the award is not voluntarily performed, it must
be entered as a judgment of the court, as a matter of course,
unless
grounds
modification.”
exist
for
its
vacation,
correction,
or
Id.; see also id. (“In all these proceedings
there is no material expense or delay and no opportunity for
technical procedure.”).
The
very
existence
of
sections
9,
10,
and
11
demonstrates the importance of post-award federal court review.1
1
The Seventh Circuit has suggested that § 10 is of lesser
importance than §§ 3–4 because “[t]he central federal interest
[of the FAA] was enforcement of agreements to arbitrate, not
review of arbitration decisions.”
Minor v. Prudential Sec.,
Inc., 94 F.3d 1103, 1107 (7th Cir. 1996).
The statutory
language and legislative history make clear that post-award
review was an important component of the statute. Other courts
have likewise not found this suggestion compelling. See Doscher
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provisions
show
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that
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Congress
contemplated
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that
the
federal courts would have a central role and broad authority to
enforce arbitration agreements (including confirming, vacating,
or modifying an arbitration award).
Sections 9, 10, and 11
provide that proceedings may be brought in “the United States
court in and for the district wherein the award was made.”
U.S.C. § 10(a)2; accord §§ 9, 11.3
9
While these provisions do not
v. Sea Port Grp. Sec., LLC, 832 F.3d 372, 386 (2d Cir. 2016)
(“If enforcement were Congress’s only goal, however, it would
have had no need to pass §§ 10 or 11 at all.”); Kasap v. Folger
Nolan Fleming & Douglas, Inc., 166 F.3d 1243, 1247 (D.C. Cir.
1999) (finding “little evidence supporting” this understanding).
2
Section 10 provides, “[i]n any of the following cases the
United States court in and for the district wherein the award
was made may make an order vacating the award upon the
application of any party to the arbitration [upon satisfaction
of the conditions set forth infra in section III of the
opinion].”
3
Section 9 provides, in relevant part,
If the parties in their agreement have agreed that a
judgment of the court shall be entered upon the award
made pursuant to the arbitration, and shall specify
the court, then at any time within one year after the
award is made any party to the arbitration may apply
to the court so specified for an order confirming the
award, and thereupon the court must grant such an
order unless the award is vacated, modified, or
corrected as prescribed in sections 10 and 11 of this
title. If no court is specified in the agreement of
the parties, 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 11 provides, “the United States court in
and for the district wherein the award was made may make an
order modifying or correcting the award upon the application of
any party to the arbitration” where certain conditions are met.
9 U.S.C. § 11.
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themselves confer jurisdiction, they evidently contemplate that
award enforcement will occur in federal courts as a matter of
course.
In fact, there is no explicit provision for post-award
enforcement in state courts.
The Supreme Court has determined that the FAA adopted
the look-through approach with respect to petitions to compel
arbitration under 9 U.S.C § 4.
In Vaden v. Discover Bank, 556
U.S. 49, 62 (2009), the Court held that a “court may ‘look
through’ a § 4 petition to determine whether it is predicated on
an
action
that
‘arises
under’
federal
law.”
The
proper
jurisdictional inquiry for a motion to compel arbitration is
whether, “save for [the arbitration] agreement,” the court would
have jurisdiction “over ‘a suit arising out of the controversy
between
the
parties.’”
Id.
(quoting 9 U.S.C. § 4).
test
that
would
presented
example,
claims.
in
the
(alteration
in
original)
court
alone,
dispute
to
look
which
over
the
to
might
the
issues
include,
arbitrability
of
for
the
Id. at 63.
The
provides
the
petition
parties’
70
In so holding, the Court rejected a
require
the
at
in
arbitration
Vaden
Court
relevant
“may
part
petition
relied
that
any
on
a
the
party
United
text
of
seeking
States
§ 4,
which
to
compel
district
court
which, save for such agreement, would have jurisdiction under
Title 28, in a civil action or in admiralty of the subject
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matter of a suit arising out of the controversy between the
parties.”
‘save
9 U.S.C. § 4.
for
district
agreement
[the
court
and
The Court reasoned that “[t]he phrase
arbitration]
should
assume
determine
original).
The
the
whether
under title 28’ without it.”
in
agreement’
indicates
absence
it
of
‘would
the
have
that
the
arbitration
jurisdiction
Vaden, 556 U.S. at 62 (alteration
phrase,
“the
controversy
between
the
parties,” the Court explained, “is most straightforwardly read
to mean the ‘substantive conflict between the parties.’”
Id. at
62–63 (quoting Discover Bank v. Vaden, 396 F.3d 366, 370 (4th
Cir. 2005)).
The
Court
noted
that
rejecting
the
look-through
approach would lead to “curious practical consequences.”
65.
Id. at
The Court explained that if a federal court were permitted
“to entertain a § 4 petition only when a federal-question suit
is
already
before
the
court,
when
the
parties
satisfy
the
requirements for diversity-of-citizenship jurisdiction, or when
the dispute over arbitrability involves a maritime contract,”
such an “approach would not accommodate a § 4 petitioner who
could file a federal-question suit in (or remove such a suit to)
federal court, but who has not done so.”
Id.
By contrast, the
look-through approach avoids this situation because it allows a
party to request an order compelling arbitration without first
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“seeking federal adjudication of the very questions it wants to
arbitrate rather than litigate.”
Id.
The Supreme Court has not decided whether the same
jurisdictional look-through approach also applies to petitions
to confirm, vacate, or modify an arbitration award under §§ 9–
11.
To be sure, there is a difference in statutory language
between § 4 and the latter sections.
sections
do
agreement”
not
and
include
“arising
the
out
In particular, the latter
“save
of
the
for
[the
arbitration]
controversy
between
the
parties” language relied upon by the Supreme Court in Vaden.
The question is whether this difference in language between the
pre-award
enforcement
provision
of
§ 4
and
the
post-award
enforcement provisions of §§ 9–11 warrants a different test for
federal question jurisdiction.
Following Vaden, there exists a split among our sister
circuits on this question.
look-through
vacate.
Third
approach
The Second Circuit has held that the
applies
at
Doscher, 832 F.3d at 388.
Circuits
have
held
the
least
to
§ 10
petitions
to
By contrast, the Seventh and
opposite:
that
Vaden
is
distinguishable (primarily based on the difference in statutory
language) and that “a federal issue resolved by the arbitrator
does
not
supply
subject-matter
enforcement of the award.”
jurisdiction
for
review
or
Magruder v. Fid. Brokerage Servs.
LLC, 818 F.3d 285, 288 (7th Cir. 2016); see also Goldman v.
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Citigroup Glob. Mkts. Inc., 834 F.3d 242, 255 (3d Cir. 2016)
(look-through does not apply to § 10 motions to vacate).
As we now explain, we agree with the Second Circuit
that
the
petitions
difference
look-through
to
in
approach
cannot
compel.
Initially,
statutory
text
we
between
be
limited
note
that
the
to
§ 4
the
sections
mere
does
not
itself compel a holding that the sections are to be interpreted
differently.
See Clay v. United States, 537 U.S. 522, 529–30
(2003); City of Columbus v. Ours Garage & Wrecker Serv., Inc.,
536 U.S. 424, 435–36 (2002); Martin v. Hadix, 527 U.S. 343, 355–
57 (1999); see also Merrill Lynch, Pierce, Fenner & Smith Inc.
v.
Manning,
136
S.
Ct.
1562,
1570–71
(2016)
(construing
“completely different language”—the phrase “brought to enforce”
in § 27 of the Securities Exchange Act of 1934 and the phrase
“arising under” in 28 U.S.C. § 1331—to have the same meaning for
determining federal jurisdiction).
There are, moreover, several important policy reasons
supporting
applying
the
look-through
approach
to
the
award
enforcement provisions. In light of the important role intended
for the federal courts in enforcing arbitration agreements postaward, it would make no sense to effectively exclude federal
question jurisdiction over those cases.
And, the look-through
approach is the only possible approach that would provide such
federal jurisdiction.
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There would seem to be only three possible tests for
“arising under” jurisdiction under 28 U.S.C. § 1331.
First, FAA
§§ 9–11 could be viewed as each creating a federal cause of
action because section 10 on its face provides substantive rules
of decision for vacating an arbitration award.
F.3d at 387; Kasap, 166 F.3d at 1247.4
See Doscher, 832
Such a reading would
appear to be consistent with the general rule that a court has
federal
question
jurisdiction
where
federal
law
creates
the
cause of action and provides the rules of decision.5
However, the Supreme Court has foreclosed this first
possibility,
holding
that
federal
question
jurisdiction
over
controversies involving arbitration cannot be based on the fact
that the FAA establishes the relevant substantive law.
See Hall
St., 552 U.S. at 581–82; Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 25 n.32 (1983).6
4
See Garrett v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 7 F.3d 882, 883 (9th Cir. 1993) (noting that § 10 “appears
on its face to confer subject-matter jurisdiction”); Harry
Hoffman Printing, Inc. v. Graphic Commc’ns, Int’l Union, Local
261, 912 F.2d 608, 611 n.1 (2d Cir. 1990) (noting “that the
broad language of sections 9 and 10 of the Act might be read as
a grant of subject matter jurisdiction”).
5
See Mims v. Arrow Fin. Servs., LLC, 132 S. Ct. 740, 748
(2012); Grable & Sons Metal Prod., Inc. v. Darue Eng’g & Mfg.,
545 U.S. 308, 317 (2005) (explaining that “a federal cause of
action
[is]
a
sufficient
condition
for
federal-question
jurisdiction”); Am. Well Works Co. v. Layne & Bowler Co., 241
U.S. 257, 260 (1916) (“A suit arises under the law that creates
the cause of action.”).
6
See also, e.g., Bull HN Info. Sys., Inc. v. Hutson, 229
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The
second
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possible
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test
for
Entry ID: 6063898
federal
question
jurisdiction invokes the theory that federal jurisdiction exists
where
non-FAA
award.
Cal.,
federal
law
provides
grounds
for
vacating
the
See Goldman, 834 F.3d at 255; Carter v. Health Net of
Inc.,
374
F.3d
830,
836–37
&
n.4
(9th
Cir.
2004);
Greenberg v. Bear, Stearns & Co., 220 F.3d 22, 27 (2d Cir. 2000)
overruled on other grounds by Doscher, 832 F.3d 372.
However,
this theory largely depends on the continued vitality of the
“manifest disregard” doctrine (allowing an award to be set aside
if it was made in manifest disregard of federal law), which “has
been thrown into doubt by [Hall Street], where the Supreme Court
‘h[e]ld
that
[9
U.S.C.
§
10]
. . .
provide[s]
exclusive grounds for expedited vacatur.’”
the
FAA’s
Bangor Gas Co. v.
H.Q. Energy Servs. (U.S.) Inc., 695 F.3d 181, 187 (1st Cir.
2012) (alteration in original) (quoting Hall St., 552 U.S. at
584).
This circuit has “not squarely determined whether our
manifest disregard case law can be reconciled with Hall Street.”
Raymond James Fin. Servs., Inc. v. Fenyk, 780 F.3d 59, 64–65
(1st Cir. 2015) (citation and quotation marks omitted).7
F.3d 321, 328 (1st Cir. 2000); PCS 2000 LP v. Romulus
Telecomms., Inc., 148 F.3d 32, 34–35 (1st Cir. 1998); Garrett, 7
F.3d at 884; Harry Hoffman Printing, 912 F.2d at 611.
7
The Supreme Court has explicitly reserved the question,
stating “[w]e do not decide whether ‘manifest disregard’
survives our decision in [Hall Street], as an independent ground
for review or as a judicial gloss on the enumerated grounds for
vacatur set forth at 9 U.S.C. § 10.”
Stolt-Nielsen S.A. v.
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We need not and do not decide now whether manifest
disregard remains as an available basis for vacatur.
However,
if it does survive, we agree with the courts that have held that
Hall Street compels the conclusion that it does so only as a
judicial gloss on § 10.
See Johnson v. Wells Fargo Home Mortg.,
Inc., 635 F.3d 401, 414 (9th Cir. 2011); T.Co Metals, LLC v.
Dempsey Pipe & Supply, Inc., 592 F.3d 329, 340 (2d Cir. 2010).
If this is so, however, a claim of manifest disregard cannot
provide federal question jurisdiction since, as discussed above,
the law is settled that the FAA, including § 10, does not create
a basis for federal question jurisdiction.
See Hall St., 552
U.S. at 581–82; Moses H. Cone, 460 U.S. at 25 n.32.
This leaves only a third, alternative approach: that
the look-through test adopted in Vaden for § 4 petitions applies
to sections 9, 10, and 11 of the FAA.
It is the only approach
available that provides broad federal court jurisdiction over
proceedings to enforce awards, a clear objective of the FAA.
Congress
cannot
have
intended
jurisdiction
over
§§ 9–11
petitions only to exist in diversity or perhaps in admiralty.
The
look-through
approach
also
provides
a
unitary
jurisdictional approach to the FAA, an objective endorsed by
various cases.
See Harry Hoffman Printing, 912 F.2d at 611 n.1;
Garrett, 7 F.3d at 884.
Applying the look-through approach to
AnimalFeeds Int’l Corp., 559 U.S. 662, 672 n.3 (2010).
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post-award decisions avoids a “bizarre” distinction that would
otherwise follow: “a petition to compel arbitration could be
brought in federal court, but a petition under FAA §§ 9 or 10 to
confirm or vacate the arbitration award in the same dispute
could not.”
Westmoreland Capital Corp. v. Findlay, 100 F.3d
263, 268 (2d Cir. 1996) abrogated by Vaden, 556 U.S. 49; see
also Doscher, 832 F.3d at 383 (“[H]ow can a federal court’s
jurisdiction
under
the
same
jurisdictional
statute
differ
between § 4 and all other remedies under the Act?”); id. at 387
(noting that excluding federal question jurisdiction here would
result
in
a
"totally
artificial
distinction"
between
cases
stayed under § 3 and freestanding § 10 petitions filed in the
same court) (quoting Vaden, 556 U.S. at 65).
Applying
the
look-through
approach
to
§§ 9–11
additionally avoids “curious practical consequences” similar to
those that the Supreme Court recognized in Vaden as supporting
§ 4 jurisdiction.
556 U.S. at 65.
Allowing a federal court to
compel arbitration in a federal question case but then later
denying a federal forum for confirming, modifying, or vacating
the award would lead to strange consequences.
Remitting the
litigants to state court for post-award enforcement proceedings
would create potential inconsistency between the federal preaward decision and the later state court decision involving the
question of whether the arbitrators exceeded their powers by
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deciding issues that are not properly subject to arbitration.
See Coady v. Ashcraft & Gerel, 223 F.3d 1, 9 (1st Cir. 2000).
Doctrines
of
issue
preclusion
may
not
protect
against
this
eventuality in part because some state courts do not regard the
FAA as preempting state law.8
Finally,
interpretation,
apart
a
from
reviewing
arbitration
court
in
agreement
post-arbitration
proceedings may be called to answer questions that implicate
federal law.
For example, a reviewing court may be asked to
determine whether the arbitrators “refus[ed] to hear evidence
pertinent and material to the controversy,” possibly requiring
the
court
to
consider
questions
of
federal
law
in
deciding
whether the disregarded or excluded evidence was “material to
the
controversy.”
9
U.S.C.
§ 10(a)(3).
Regardless
of
the
avenue by which federal law becomes relevant in reviewing an
arbitration award, it would seem particularly strange to deny a
federal forum where the underlying claim, as here, is based on
the
Securities
Exchange
federal
district
Manning,
136
S.
courts
Ct.
at
Act
of
have
1934,
claims
exclusive
1566.
8
This
over
which
jurisdiction.
potential
for
the
See
conflict
See Jill I. Gross, Over-Preemption of State Vacatur Law:
State Courts and the FAA, 3 J. Am. Arb. 1, 20 (2004) (collecting
cases).
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Case: 16-1122
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further
counsels
that
Page: 21
the
Date Filed: 01/20/2017
look-through
approach
Entry ID: 6063898
should
apply
consistently under the FAA.
For all of these reasons, we conclude that the lookthrough approach applies to sections 9, 10, and 11 of the FAA.
Applying
the
claimants’
look-through
statement
of
approach
claim,
here,
there
is
upon
no
review
question
of
that
claimants’ claims involving federal securities laws arise under
federal law.9
Indeed, at oral argument, claimants conceded that
if we were to adopt the look-through approach, claimants lose on
this issue.
Accordingly, the district court properly exercised
jurisdiction over claimants’ petition to vacate.
III.
We review the district court’s decision to confirm or
vacate an arbitration award de novo.
Cytyc Corp. v. DEKA Prods.
Ltd. P’ship, 439 F.3d 27, 32 (1st Cir. 2006).
As a threshold
matter, the parties dispute whether the court should apply the
FAA
or
award.
the
The
state
PRAA
district
grounds
court
for
did
9
vacatur
not
in
resolve
reviewing
this
the
question,
Although the statement of claim also includes claims
arising under state law, there is no suggestion that those
claims do not constitute part of the same controversy as the
federal securities law claims.
See Vaden, 556 U.S. at 69 n.18
(“[I]f a federal court would have jurisdiction over the parties’
whole controversy, we see nothing anomalous about the court’s
ordering arbitration of a state-law claim constituting part of
that controversy. Federal courts routinely exercise supplemental
jurisdiction over state-law claims. See 28 U.S.C. § 1367.”).
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holding that the statutory grounds are essentially the same.
Because we have already held that the FAA governs in this case,
we need not decide whether the PRAA confers different grounds
for vacatur.
Turning to the merits, we see no error in the district
court’s decision here refusing to vacate (and confirming) the
award under the FAA.
“is
extremely
The court’s review of an arbitration award
narrow
and
exceedingly
deferential.”
Raymond
James, 780 F.3d at 63 (citation and quotation marks omitted);
see also Cytyc Corp., 439 F.3d at 32; Teamsters Local Union No.
42
v.
Supervalu,
(“Arbitral
awards
oversight.”).
Inc.,
212
are
F.3d
nearly
59,
61
(1st
impervious
Cir.
to
2000)
judicial
In reviewing an arbitration award under the FAA,
“courts ‘do not sit to hear claims of factual or legal error by
an arbitrator as an appellate court does in reviewing decisions
of lower courts.’”
Advest, Inc. v. McCarthy, 914 F.2d 6, 8 (1st
Cir. 1990) (quoting United Paperworkers Int’l Union v. Misco,
Inc., 484 U.S. 29, 38 (1987)).
This limited review applies
“[e]ven where such error is painfully clear, [because] courts
are
not
awards.”
authorized
Id.
Stolt-Nielsen,
to
reconsider
(internal
559
U.S.
quotation
at
671
the
merits
marks
(“It
of
arbitration
omitted);
is
not
see
enough
also
for
petitioners to show that the panel committed an error—or even a
serious error.”); McCarthy v. Citigroup Glob. Mkts. Inc., 463
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F.3d 87, 93–94 (1st Cir. 2006).
to
establish
that
the
award
Date Filed: 01/20/2017
Entry ID: 6063898
The burden is on the claimants
should
be
set
aside.
See
JCI
Commc’ns, Inc. v. Int’l Bhd. of Elec. Workers, Local 103, 324
F.3d 42, 51 (1st Cir. 2003).
The grounds are set forth in
Section 10 and include only the following:
(1)
where
the
award
was
procured
by
corruption, fraud, or undue means;
(2) where there was evident partiality or
corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of
misconduct in refusing to postpone the hearing, upon
sufficient cause shown, or in refusing to hear
evidence pertinent and material to the controversy; or
of any other misbehavior by which the rights of any
party have been prejudiced; or
(4) where the arbitrators exceeded their
powers, or so imperfectly executed them that a mutual,
final, and definite award upon the subject matter
submitted was not made.
9 U.S.C. § 10(a).
Claimants did not expressly invoke FAA § 10.
claimants’
petition
to
vacate
and
subsequent
Instead,
briefing
cite
vacatur provisions of the PRAA, 32 L.P.R.A. § 3222(b) and (c),
which are analogous to FAA § 10(a)(2) and (a)(3), respectively.
Accordingly,
we
address
claimants’
claims
under
the
PRAA
as
though they had been brought under the analogous provisions of
the FAA.
Claimants have put forth essentially three theories as
to
why
vacatur
warranted.
or
modification
of
the
arbitration
award
is
Claimants argue that these errors collectively show
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evident partiality of the arbitrators (§ 10(a)(2)) and that the
arbitrators engaged in misconduct or misbehavior that prejudiced
claimants’ rights (§ 10(a)(3)).
Claimants’
first
and
primary
theory
is
that
the
arbitrators were obligated to impose liability on defendants—but
did not—after they were presented with “overwhelming” evidence
supporting
alleged
their
admission
case
of
and
“shared
arguments at the hearing.
The
after
available
defendants’
responsibility”
counsel
during
made
an
closing
Appellants’ Br. 11, 14.10
grounds
of
vacatur
do
not
allow
a
federal court to revisit the arbitrators’ ultimate determination
of whether or not to impose liability.
8.
That
the
arbitrators
apparently
See Advest, 914 F.2d at
were
unconvinced
by
claimants’ evidence and denied their claims, without more, does
not establish that the arbitrators were biased or guilty of
misbehavior.
To the extent that claimants suggest that defense
counsel made an “admission” at closing argument, we do not read
counsel’s comments as a clear admission of liability.
Read in
context, counsel’s statements are more reasonably interpreted as
an argument that claimants should be held accountable for their
10
Claimants quote cases discussing the manifest disregard
doctrine, but they provide no supporting explanation as to how
the doctrine applies to this case.
We also note that the
petition to vacate contains several pages discussing the
applicability of a “ratification defense” to this case.
However, claimants have not raised this issue on appeal.
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role, if any, in their own losses.
have
suggested
that
defendants
Entry ID: 6063898
Counsel does not appear to
admitted
to
any
particular
proportion of responsibility.
Second,
claimants
argue
that
one
arbitrator
was
partial to defendants as evidenced by comments he made during
one of the hearings.
apparently
related
During claimants’ questioning of a witness
to
claimants’
allegations
of
defendants’
prior bad acts, the arbitrator said “if I were [defendants’
counsel],
I
would
irrelevancies.”
however,
the
have
a
sore
throat
from
Appellants’ Appx. at 75.
arbitrator’s
statements
objection
for
Read in context,
indicate
that
he
was
concerned with the number and length of the hearings, as well as
the potential for scheduling issues if the hearings needed to be
prolonged.
He
suggested
to
claimants
that
he
believed
the
particular line of questioning was irrelevant and that claimants
should move on to other questions.
existence
of
bias,
and
without
This hardly supports the
more,
claimants
have
not
established “specific facts that indicate improper motives on
the
part
of
an
arbitrator.”
JCI
Commc’ns,
324
F.3d
at
51
(quoting Al Harbi v. Citibank, N.A., 85 F.3d 680, 683 (D.C. Cir.
1996)).
this
A reasonable person would not “have to conclude” from
exchange
defendants.
that
the
arbitrator
Id.
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was
evidently
partial
to
Case: 16-1122
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Third
and
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finally,
Date Filed: 01/20/2017
claimants
argue
Entry ID: 6063898
that
the
arbitrators failed to admit relevant evidence relating to claims
previously
brought
against
defendant
Rodríguez-Abella
unrelated parties.
Claimants’ third theory also fails.
course,
does
§
10(a)(3)
not
require
arbitrators
to
every piece of relevant evidence presented to them.”
by
“Of
consider
Doral Fin.
Corp. v. Garcia-Velez, 725 F.3d 27, 31 (1st Cir. 2013).
“An
arbitration award must not be set aside for the arbitrator's
refusal
to
hear
evidence
that
is
cumulative
or
irrelevant.”
Hoteles Condado Beach, La Concha & Convention Ctr. v. Union De
Tronquistas
(citations
Local
901,
omitted).
763
F.2d
“Vacatur
34,
is
40
(1st
appropriate
Cir.
only
1985)
when
the
exclusion of relevant evidence so affects the rights of a party
that it may be said that he was deprived of a fair hearing.”
Id. (internal quotation marks omitted).
Here, claimants have not established that they were
deprived of a fair hearing.
The record shows that claimants
were permitted to ask some questions about Rodríguez-Abella’s
former clients’ actions against him.
The arbitrators sustained
objections based on relevancy only because those prior actions
had been settled.
Rules
of
Evidence,
We need not decide whether under the Federal
such
evidence
would
be
admissible.
See
United States v. Bailey, 696 F.3d 794, 800 (9th Cir. 2012).
Whether or not such evidence would be admissible in federal
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court, we will not disturb the arbitrators’ decisions sustaining
defendants’ evidentiary objections.
See Hoteles Condado Beach,
763 F.2d at 39–40 (“Absent exceptional circumstances, . . . a
reviewing court may not overturn an arbitration award based on
the
arbitrator’s
determination
of
the
relevancy
or
persuasiveness of the evidence submitted by the parties.”).
Apart
from
claimants’
three
theories
of
vacatur,
claimants suggest in their petition to vacate that the same
alleged
errors
resulted
in
an
error
warranting modification of the award.
in
number
calculation
See 9 U.S.C. § 11(a).
However, § 11 plainly does not provide for modification where
claimants’
sole
position
denying their claims.
is
that
the
arbitrators
erred
in
See Advest, 914 F.2d at 8 n.4 (noting
that “§ 11 provides for correction of ‘evident’ and ‘material’
arithmetic or descriptive errors”).
Because we affirm the district court’s determination
that vacatur or modification of the arbitration award is not
warranted, we also affirm the court’s confirmation of the award.
See 9 U.S.C. § 9 (“[T]he court must grant [an order confirming
the award] unless the award is vacated, modified, or corrected
as prescribed in sections 10 and 11 of this title.”).
IV.
We conclude that the district court properly exercised
jurisdiction over claimants’ petition to vacate or modify the
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arbitration award.
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We also hold that the district court was
correct in denying claimants’ petition and confirming the award.
Accordingly, we affirm.
AFFIRMED.
Costs to appellees.
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