Eastman v. Morgan Stanley Smith Barney, LLC et al
Filing
37
ORDER granting 29 Petitioner's Unopposed Motion to Reinstate Original Petition in the Form of a Motion to Modify in Part and Confirm Arbitration Award and Award Attorney's Fees; and Petitioner's Motion to Remand 29 is GRANTED to the extent that the original Petition is reinstated and this matter is REMANDED to the Circuit Court of the Twentieth Judicial Circuit in and for Collier County, Florida. The Clerk is directed to remand the case to the Twentieth Judicial Circuit in a nd for Collier County, Florida, and to transmit a certified copy of this Order to the Clerk of that Court. The Clerk is directed to CLOSE this case and terminate all previously scheduling deadlines and other pending motions as moot. Signed by Judge Sheri Polster Chappell on 10/8/2013. (LMF)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FORT MYERS DIVISION
JAMES C. EASTMAN,
Petitioner,
v.
Case No: 2:13-cv-357-FtM-38UAM
MORGAN STANLEY SMITH
BARNEY, LLC and MORGAN
STANLEY SMITH BARNEY FA
NOTES HOLDING LLC,
Respondents.
/
ORDER1
This matter comes before the Court on Petitioner's Unopposed Motion to
Reinstate Original Petition in the Form of a Motion to Modify in Part and Confirm
Arbitration Award and Award Attorney's Fees; and Petitioner's Motion to Remand (Doc.
#29) filed on August 9, 2013. Respondents filed an opposition (Doc. #33) on August 29,
2013. Thus, the Motion is now ripe for review.
Petitioner James C. Eastman moves to reinstate his original Petition in the form
of a Motion to Modify in Part and Confirm Arbitration Award and Award Attorney’s Fees
that was filed with this Court on May 9, 2013. The original Petition (Doc. #2), which was
removed to this Court by the Respondents from the Circuit Court of the Twentieth
Judicial Circuit in and for Collier County, Florida based upon diversity jurisdiction, was
1
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denied by this Court as moot when the Court ordered Respondents to show cause why
this case should not be remanded for failure to establish diversity of citizenship at the
time of removal, namely the citizenship of the members of Respondent limited liability
companies. (Doc. #22).2 Petitioner now moves to reinstate this original Petition, which
is unopposed.
Thus, the Court will reinstate the original petition and consider its
contents as the Court analyzes the remand issues herein.
BACKGROUND
Mr. Eastman had previously worked for Respondent Morgan Stanley Smith
Barney (“MSSB”) as a financial advisor, but was terminated by the company in 2009.
Petitioner executed two Promissory Notes (hereinafter “Notes”) during the course of his
employment with MSSB, which became immediately due upon Petitioner’s termination.
Respondents commenced an arbitration proceeding in 2010 against Mr. Eastman
before the Financial Industry Regulatory Authority (“FINRA”), for the balance due on the
Notes. Collectively, the principal and interest alleged to be due on the Notes was in
excess of $400,000. Petitioner filed a separate FINRA arbitration claim alleging a variety
of employment related claims against MSSB and asserted these same claims in
defense of the separate action to enforce the Notes. The actions were consolidated
and MSSB FA Notes Holdings (“FA Notes”), as the holder of the Notes, was added as a
party to the arbitration.
As a result of a final arbitration hearing, the FINRA Arbitrators rendered an award
in which Respondent MSSB was found to be without standing to pursue collection on
2
The Court later issued an Order of no further action on its Order to Show Cause, satisfied that this
action is between citizens of different states. (Doc. #27).
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the Notes against Mr. Eastman. The Arbitrators specifically found Mr. Eastman to be the
prevailing party on Respondent MSSB’s claims against Petitioner. The Arbitration panel
also determined Respondent FA Notes to be the prevailing party as to the collection of
the Notes and ordered Mr. Eastman to pay $216,597.75.
On or about April 13, 2013, Mr. Eastman filed his Petition in the form of a Motion
to Modify in Part and Confirm Arbitration Award and Award Attorney’s Fees in the
Circuit Court of the Twentieth Judicial Circuit in and for Collier County, Florida. The
Petition requests that the Court modify the arbitration award to reflect that there were
only two Notes involved in the Arbitration, instead of three as was stated in the
Arbitration Award, and to reflect that the Arbitration Panel denied Respondents’ Motion
in Limine and to award him attorney’s fees as he argues he was the prevailing party
against Respondent MSSB. (Doc. #2, pp. 9, 12).
On May 9, 2013, Respondents filed their Notice of Removal in this Court alleging
diversity of citizenship. (Doc. #1). Petitioner disputes in the instant Motion to Remand
that the amount in controversy is greater than $75,000 at the time of removal. 3 The
Notice of Removal states that the amount in controversy exceeds the sum or value of
$75,000 because Petitioner seeks to modify and confirm a final arbitration which
awarded FA Notes approximately $216,597.75 in damages plus post-award interest at
the statutory interest rate of 4.75% per annum. Petitioner now moves to remand this
matter to state court, arguing that the amount in controversy is not in excess of $75,000
because the Arbitration Award is not the object of this litigation. Rather, the object of
3
The Court previously ordered Respondents to show cause why this case should not be remanded for
failure to establish diversity of citizenship at the time of removal, namely the citizenship of the members of
Respondent limited liability companies in its removal papers. (Doc. #22). The Court later issued an Order
of no further action on its Order to Show Cause, satisfied that this action is between citizens of different
states. (Doc. #27). Thus, the only dispute is regarding the amount in controversy.
3
this litigation is to modify the award because it is imperfect as a matter of form, which
has no monetary value, and to confirm the arbitration award as to Mr. Eastman being
deemed the prevailing party as to Respondent MSSB’s claims so he can recover his
attorney’s fees.
DISCUSSION
The Federal Arbitration Act does not confer subject matter jurisdiction over
petitions to vacate arbitration awards, nor does it create independent federal question
jurisdiction. See Baltin v. Alaron Trading Corp., 128 F.3d 1466, 1469 (11th Cir. 1997),
cert. denied, 525 U.S. 841, 119 S. Ct. 105, 142 L. Ed. 2d 84 (1998). Independent
grounds for subject matter jurisdiction must be demonstrated. Id. When Respondents
removed this action to this Court, it argued that the Court had subject matter jurisdiction
over this action pursuant to 28 U.S.C. § 1332. Pursuant to 28 U.S.C. § 1332, district
courts have original subject matter jurisdiction over civil actions where the amount in
controversy exceeds the sum or value of $75,000 and the action is between citizens of
different states. See 28 U.S.C. § 1332(a)(1).
The Court typically looks to the complaint to establish the amount in controversy.
McGee v. Sentinel Offender Serv’s, LLC, No. 11-14077, 2013 WL 2436658, at *4 (11th
Cir. June 6, 2013). Where the complaint does not assert a specific amount of damages,
“the removing defendant must prove by a preponderance of the evidence that the
amount in controversy exceeds the jurisdictional requirement.” McGee, 11-14077, 2013
WL 2436658 at *4 (quoting Williams v. Best Buy Co., 269 F.3d 1316, 1319 (11th Cir.
2001)). To determine if the removing defendant has done so, the court looks to the
Notice of Removal. Williams, 269 F.3d at 1319. Additionally, “[a] removing defendant
4
may rely on its own affidavits, declarations, or other documentation to establish the
amount in controversy.” McGee, 11-14077, 2013 WL 2436658 at *4 (citing Pretka v.
Kolter City Plaza II, Inc., 608 F.3d 744, 755 (11th Cir. 2010)).
“Because removal
jurisdiction raises significant federalism concerns, federal courts are directed to
construe removal statutes strictly.” Univ. of South Alabama v. Am. Tobacco Co., 168
F.3d 405, 411 (11th Cir. 1999) (citing Shamrock Oil & Gas Corp. v. Sheets, 313 U.S.
100, 108-09, 61 S. Ct. 868, 872, 85 L. Ed. 1214 (1941)). “Indeed, all doubts about
jurisdiction should be resolved in favor of remand to state court.” Id. The burden of
establishing subject matter jurisdiction lies with the party invoking removal. Id. at 41112.
In this case, the Petition does not state that it seeks any specific amount of
money damages, and seeks an award of attorney’s fees. The amount of attorney’s fees
is not indicated in the Petition and its exhibits provide no information upon which to
make a calculation of the amount of attorney’s fees. Therefore, the allegations of the
Petition are insufficient to establish that the amount in controversy exceeds $75,000.
Looking to the Notice of Removal (Doc. #1), it states that the amount in
controversy exceeds the sum or value of $75,000 because Petitioner’s Motion seeks to
modify and confirm a final arbitration, which awarded FA Notes approximately
$216,597.75 in damages plus post-award interest at the statutory interest rate of 4.75%
per annum, was in excess of $75,000. Respondents argues that even though Petitioner
seeks confirmation, and does not contest the amount of the award, the amount in
controversy is still recognized by some courts to either be the amount of the award or
the amount demanded by the claimant in the underlying action, i.e., the “award” and
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“demand” approaches. A third approach, the “mixed” or “remand” approach, blends the
first two approaches. In applying this approach, a court looks to the amount of the
original demand where the party seeking vacatur requests that the district court remand
the matter to arbitration.
Respondents assert that under the “award” approach, courts determine the
amount in controversy based on the amount of the award rendered by the arbitration
panel, which in this case is $216,597.75. Respondents argue that this approach has
been impliedly recognized by the Eleventh Circuit in Baltin v. Alaron Trading Corp., 128
F.3d 1466, 1472 (11th Cir. 1997). In Baltin, the court held that the district court did not
have diversity jurisdiction over a case in which the maximum remedy sought by
petitioner investors was the vacatur of the arbitration award of $36,284.69 against them.
Id. The Court agrees that the Eleventh Circuit applied the award approach in this case
that examined the remedy sought by the petitioner. The Eleventh Circuit has since
issued another opinion on the issue though in Peebles v. Merrill Lynch, 431 F.3d 1320
(11th Cir. 2005), in which the court applied the remand approach. In Peebles, the
petitioner requested that the arbitration award be vacated and the matter be remanded
for a hearing before a new arbitration panel. The court held that “a federal court has
subject matter jurisdiction where a party seeking to vacate an arbitration award is also
seeking a new arbitration hearing at which he will demand a sum which exceeds the
amount in controversy for diversity jurisdiction purposes.” Id. at 1325. The Court noted
that the Baltin case did not speak to the issue raised, because in Baltin the maximum
remedy sought by the investors was the vacatur of an arbitration award against them
which did not exceed the minimum required for diversity purposes. Id.
6
In the instant case, though, neither Party has moved to vacate or even modify the
arbitration award, and the maximum remedy sought by Eastman is not the vacatur of an
arbitration award entered against him, as in Baltin. Thus, as recognized in Pebbles,
Baltin does not speak to the issues raised in this case. Further, neither Party is seeking
to remand this action to the arbitration panel. Eastman is not demanding a sum that
exceeds the amount in controversy. In fact, the Parties agree that the award entered
against Mr. Eastman and in favor of FA Notes should be modified in part to correct a
scrivener’s error and confirmed. The Parties only disagreement is regarding the award
of attorney’s fees. Thus, the Court concludes that the monetary threshold of $75,000
for diversity jurisdiction under 28 U.S.C. § 1332(a) has not been met on the face of
Respondents’ Notice of Removal.
Attorney’s fees are not generally included in determining the jurisdictional amount
in controversy unless the award of fees is authorized by a statute or contract. Smith v.
GTE Corp., 236 F.3d 1292, 1305 (11th Cir. 2001). In this case, the Parties allege that
the terms of the Notes allow for the award of attorney’s fees to a prevailing party, but as
the Petitioner argues, Respondents did not include any information in its Notice of
Removal with respect to attorney’s fees that will allow the Court to determine whether
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the amount in controversy exceeds the $75,000 threshold.4 Thus, the matter will be
remanded.5
Finally, Petitioner argues that he is entitled to costs and expenses, including
attorney’s fees, incurred as a result of the improper removal of this action pursuant to 28
U.S.C. § 1447(c). “An order remanding the case may require payment of just costs and
any actual expenses, including attorney fees, incurred as a result of the removal.” 28
U.S.C. § 1447(c). The Supreme Court clarified the standard for awarding attorney fees
in removal cases, stating that “absent unusual circumstances, courts may award
attorney's fees under § 1447(c) only where the removing party lacked an objectively
reasonable basis for seeking removal. Conversely, when an objectively reasonable
basis exists, fees should be denied.” Martin v. Franklin Capital Corp., 546 U.S. 132,
141, 126 S. Ct. 704, 163 L. Ed. 2d 547 (2005). The Court finds based upon the briefing
submitted to the Court that Respondents had an objectively reasonable basis for
seeking removal in this case. Therefore, Petitioner’s request for removal attorney’s fees
and costs is denied.
Accordingly, it is now
ORDERED:
(1) Petitioner's Unopposed Motion to Reinstate Original Petition in the Form of a
Motion to Modify in Part and Confirm Arbitration Award and Award Attorney's
4
Respondent FA Notes also does not include any information regarding the total amount of fees and
costs to be awarded in its Motion to Confirm Arbitration Award (Doc. #30). Rather, Respondents asks the
Court to determine the amount following the Court’s ruling on entitlement. (Doc. #30, p. 8). Petitioner
likewise does not state any specific amount of attorney’s fees incurred but states that the amount to be
awarded should be determined by the Court, with no supporting documentation.
5
The Court also notes that jurisdictional discovery to obtain information that would establish that the court
has jurisdiction is disfavored by the Eleventh Circuit where a plaintiff challenges the jurisdictional
allegations. Lowery v. Alabama Power Co., 483 F.3d 1184, 1217-18 (11th Cir. 2007).
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Fees; and Petitioner's Motion to Remand (Doc. #29) is GRANTED to the
extent that the original Petition is reinstated and this matter is REMANDED to
the Circuit Court of the Twentieth Judicial Circuit in and for Collier County,
Florida.
(2) The Clerk is directed to remand the case to the Twentieth Judicial Circuit in
and for Collier County, Florida, and to transmit a certified copy of this Order to
the Clerk of that Court.
(3) The Clerk is directed to CLOSE this case and terminate all previously
scheduling deadlines and other pending motions as moot.
DONE and ORDERED in Fort Myers, Florida this 8th day of October, 2013.
Copies: All Parties of Record
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