Pershing LLC v. Kiebach et al

Filing 43

ORDER AND REASONS denying 23 Motion to Dismiss for Lack of Jurisdiction. Signed by Judge Lance M Africk. (lag)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

PERSHING LLC

CIVIL ACTION

VERSUS

No. 14-2549

THOMAS KIEBACH ET AL.

SECTION I

ORDER AND REASONS
Before the Court is a motion 1 filed by defendants to dismiss the above-captioned matter
pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter
jurisdiction. Plaintiff, Pershing LLC (“Pershing”), opposes 2 the motion. For the following
reasons, the motion is DENIED.
BACKGROUND
Pershing is a limited-liability company that provides financial services to brokerage
firms. 3 Defendants each entered into a “Client and Margin Agreement” with Pershing, which
made Pershing “the carrier of the accounts of [defendants] as clearing broker.” 4 Each account
was subject to an arbitration agreement which stated that disagreements between the parties
would be submitted to arbitration before the Financial Industry Regulatory Authority
(“FINRA”). 5

1

R. Doc. No. 23.
R. Doc. No. 28.
3
R. Doc. No. 1, ¶ 1. Pershing is incorporated in Delaware with its principal place of business in
New Jersey. Its single member is a Delaware corporation with its principal place of business in
New York. R. Doc. No. 1, ¶ 1.
4
R. Doc. 1-1, at 2.
5
R. Doc. No. 1, ¶ 6; R. Doc. No. 1-1, at 3.
2

In connection with its financial services, Pershing was also the clearing broker for the
Stanford Group Company, a broker-dealer that allegedly sold worthless securities to defendants. 6
Defendants filed a statement of claim with FINRA seeking to recover compensatory damages in
the amount of $80,000,000.00, their alleged losses in the R. Allen Stanford Ponzi scheme. 7
Arbitration of defendants’ claims occurred in New Orleans, Louisiana in October 2014. 8 On
November 3, 2014, the FINRA arbitration panel denied all of defendants’ claims “in their
entirety” and ordered Pershing to pay defendants “$10,000.00, which represents the costs of
having to examine a witness in New York City on October 7, 2014.” 9
On November 7, 2014, Pershing, claiming diversity jurisdiction, filed a complaint in this
Court “in the Form of [a] Motion To Confirm Arbitration Award and for Judgment” pursuant to
the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq. 10 Defendants then filed a motion
asserting that this Court lacks subject matter jurisdiction because the amount in controversy does
not exceed the $75,000 threshold required by 28 U.S.C. § 1332. 11 At the same time, defendants
also filed an answer and counterclaim seeking to vacate the award. 12 The counterclaim is
expressly conditioned on the Court finding that it has subject matter jurisdiction and denying
defendants’ motion to dismiss. 13
LAW AND ANALYSIS
“Federal courts have limited jurisdiction, and a claim is properly dismissed for lack of
subject matter jurisdiction when the court lacks statutory or constitutional power to adjudicate
6

R. Doc. No. 1, ¶¶ 6-9.
R. Doc. No. 1, ¶ 9.
8
R. Doc. No. 1, ¶ 10.
9
R. Doc. No. 1, ¶¶ 13-14.
10
R. Doc. No. 1, at 1 (emphasis and capitalization altered).
11
R. Doc. No. 23.
12
R. Doc. No. 24.
13
R. Doc. No. 24, at 1-2.
7

2

the claim.” Crawford v. U.S. Dep’t of Homeland Sec., 245 F. App’x 369, 374 (5th Cir. 2007)
(citing Home Builders Ass’n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir.
1998)). A motion to dismiss filed pursuant to Rule 12(b)(1) “allow[s] a party to challenge the
subject matter jurisdiction of the district court to hear a case.” Ramming v. United States, 281
F.3d 158, 161 (5th Cir. 2001). The district court may base its determination as to its subject
matter jurisdiction on: “(1) the complaint alone; (2) the complaint supplemented by undisputed
facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the
court’s resolution of disputed facts.” Id. “The burden of establishing subject matter jurisdiction
in federal courts rests on the party seeking to invoke it.” St. Paul Reinsurance Co. v. Greenberg,
134 F.3d 1250, 1253 (5th Cir. 1998); see also Patterson v. Weinberger, 644 F.2d 521, 523 (5th
Cir. 1981).
“It is well established that the FAA is not an independent grant of federal jurisdiction.”
Smith v. Rush Retail Ctrs., Inc., 360 F.3d 504, 505 (5th Cir. 2004). Rather, the FAA authorizes a
district court to consider arbitration-related matters 14 “if the court would have jurisdiction, save
for [the arbitration] agreement, over a suit arising out of the controversy between the parties.”
Vaden v. Discover Bank, 556 U.S. 49, 52 (2009) (internal quotation marks omitted) (alterations
in original). Pershing claims that diversity is an independent basis of jurisdiction over this
matter, 15 and the parties do not dispute that complete diversity of citizenship exists.16
Accordingly, the only issue is whether the amount in controversy exceeds the $75,000 threshold.

14

For example, the FAA allows Courts to compel arbitration, 9 U.S.C. § 4, or confirm arbitration
awards. 9 U.S.C. § 9. The FAA also allows parties to move to vacate, modify, or correct an
award. 9 U.S.C. § 12.
15
R. Doc. No. 1, ¶ 3.
16
See R. Doc. No. 1, ¶ 2; R. Doc. No. 23, at 3; R. Doc. No. 24, at 3, ¶ 2; see also R. Doc. No. 28,
at 4 n.1.
3

A federal district court has jurisdiction to hear a civil action “where the matter in
controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between”
citizens of different states. 28 U.S.C. § 1332(a). Where the plaintiff has claimed, as in this case,
“a sum certain that exceeds the requisite amount in controversy, that amount controls if made in
good faith.” Allen v. R&H Oil & Gas Co., 63 F.3d 1326, 1335 (5th Cir. 1995). In such cases,
“[t]o justify dismissal, ‘it must appear to a legal certainty that the claim is really for less than the
jurisdictional amount.’” St. Paul Reinsurance Co., 134 F.3d at 1253 (quoting St. Paul Mercury
Indem. Co. v. Red Cab Co., 303 U.S. 283, 289 (1938)); see also Grant v. Chevron Phillips Chem.
Co., 309 F.3d 864, 869 (5th Cir. 2002); Allen, 63 F.3d at 1335.
“Among the circuits, there is a split of authority as to the basis for determining the
amount in controversy in a suit to confirm or vacate an arbitration award,” and “the Fifth Circuit
has not considered the issue.” U-Save Auto Rental of Am. Inc. v. Furlo (U-Save I), 608 F. Supp.
2d 718, 720-21 (S.D. Miss. 2009). The D.C. Circuit recently recognized that “other circuits have
used three different approaches to this question: the award, the demand and the remand
approaches.” Karsner v. Lothian, 532 F.3d 876, 882 (D.C. Cir. 2008). “Under the award
approach, the amount in controversy is determined by the amount of the underlying arbitration
award regardless of the amount sought.” Id. “Pursuant to the demand approach, the amount in
controversy is the amount sought in the underlying arbitration rather than the amount awarded.”
Id. “The remand approach appears to apply if the petition includes a request to remand and
reopen the arbitration proceeding, in which case the amount in controversy is the amount sought
in the underlying arbitration.” Id.

4

Pershing argues that the Court should apply the demand approach, 17 and defendants
argue that the Court should apply the award approach. 18 The remand approach, which Pershing
describes as a corollary to the award approach, 19 is inapplicable because Pershing’s complaint
does not ask the Court to re-open arbitration but, rather, to confirm the arbitration that has
already taken place. 20 Cf. Mitchell v. Ainbinder, 214 F. App’x 565, 566 (6th Cir. 2007) (“Where,
as here, the petitioner seeks to reopen the arbitration, the amount in controversy ‘includes the
matter at stake in the arbitration.’”); Peebles v. Merrill Lynch, Pierce, Fenner & Smith Inc., 431
F.3d 1320, 1325 (11th Cir. 2005) (“[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.”);
Sirotzky v. N.Y. Stock Exchange, 347 F.3d 985, 989 (7th Cir. 2003) (“[T]he amount in
controversy in a suit challenging an arbitration award includes the matter at stake in the
arbitration, provided the plaintiff is seeking to reopen the arbitration.”); Bull HN Info. Sys., Inc.
v. Hutson, 229 F.3d 321, 329 (1st Cir. 2000) (“[T]he jurisdictional amount is met here for several
reasons: the remand sought . . . meant that [defendant] might recover the sums he sought, in
excess of $75,000, and, in any event, the issue of benefits, with a value in excess of $75,000,
remained to be arbitrated.”) (footnote omitted). Defendants’ counterclaim does not alter this
conclusion because it is expressly conditioned on the Court denying their motion to dismiss and,
therefore, the counterclaim is irrelevant for the purpose of deciding this motion. 21 Moreover,
defendants’ counterclaim does not request that the Court reopen the arbitration proceedings.

17

R. Doc. No. 28, at 4-14.
R. Doc. No. 23-2, at 4-6.
19
R. Doc. No. 28, at 5-6.
20
R. Doc. No. 1, at 5.
21
R. Doc. No. 24, at 1-2.
18

5

Under the award approach, used by the Sixth and Eleventh Circuits, there is no question
that the Court would lack subject matter jurisdiction over this case because, as stated, the FINRA
arbitration panel awarded defendants only $10,000.00. 22 See Baltin v. Alaron Trading Corp., 128
F.3d 1466, 1472 (11th Cir. 1997) (“The maximum remedy sought by the Baltins was the vacatur
of the arbitration award of $36,284.69. Diversity jurisdiction did not exist because it was a ‘legal
certainty’ that the amount in controversy was less than $50,000, the amount required for federal
jurisdiction at the time the Baltins filed suit.”) (footnote omitted); Ford v. Hamilton Invs., Inc.,
29 F.3d 255, 260 (6th Cir. 1994) (“Mr. Ford’s complaint alleges that the arbitration panel
awarded Hamilton Investments $26,666.63, plus $3,857.53 in interest. The total of these figures
obviously does not exceed $50,000 . . . . A claim for vacation of an arbitral award in the amount
of $50,000 or less is not sufficient for diversity jurisdiction.”); cf. Fernicola v. Toyota Motor
Corp., 313 F. App’x 408, 409 (2d Cir. 2009) (“[T]here was no basis for the district court to add
potential damages from [a counterclaim dismissed by the arbitrator] to the damages Appellant
actually sought in his complaint, i.e., relief from having to pay approximately $47,000.”).
Under the demand approach, used by the Ninth and D.C. Circuits, the Court would
maintain subject matter jurisdiction over this case because defendants sought $80,000,000.00 in
compensatory damages in the underlying arbitration. 23 See Karsner v. Lothian, 532 F.3d 876,
884 (D.C. Cir. 2008) (“[W]e adopt the demand approach . . . .”); Merrill Lynch, Pierce, Fenner
& Smith, Inc. v. Moore, 171 F. App’x 545, 546 (9th Cir. 2006) (“‘[T]he amount at stake in the
underlying litigation, not the amount of the arbitration award, is the amount in controversy for
the purposes of diversity jurisdiction.’ . . . The arbitration award granted $75,000 to Merrill
Lynch as well as denied various counterclaims, including Moore’s claim for $2,000,000 in
22
23

R. Doc. No. 1, ¶¶ 13-14.
R. Doc. No. 1, ¶ 9.
6

compensatory damages.”) (quoting Theis Research, Inc. v. Brown & Bain, 400 F.3d 659, 662
(9th Cir. 2005)). 24
The few district courts within the Fifth Circuit which have considered this issue have not
arrived at a consensus. See, e.g., Curbelo v. Hita, No. 09-133, 2009 WL 2191084, at *5 (W.D.
Tex. July 22, 2009) (“[T]he Court concludes that when an applicant seeks only to confirm a prior
arbitration award in federal court, and asserts § 1332 diversity as the independent basis for
federal jurisdiction, the amount in controversy is to be calculated according to the size of the
award sought to be confirmed.”); U-Save I, 608 F. Supp. 2d at 720-23 (discussing the demand
approach favorably and quoting Karsner, 532 F.3d at 883-84); Mannesmann Dematic Corp. v.
Phillips, Getschow Co., No. 00-2324, 2001 WL 282796, at *2 (N.D. Tex. Mar. 16, 2001) (“In the
absence of any controlling Fifth Circuit authority, this court will adopt the [award] approach
taken by the Sixth and Eleventh Circuits in cases substantially similar to the one at bar.”).
Given the absence of any guiding Fifth Circuit authority, the split between other circuit
courts, and the lack of consensus among district courts within the Fifth Circuit, the Court must
decide an undecided question of law in this circuit. Each approach has strengths and weaknesses,
and the issue is one that will be resolved by the Fifth Circuit. However, having considered the
above-cited thoughtful opinions, the Court finds that the demand approach is more appropriate.

24

See also Bad Ass Coffee Co. of Haw. v. Bad Ass Coffee Ltd. P’ship, 25 F. App’x 738, 742-43
(10th Cir. 2001). Two U.S. District Courts within the Tenth Circuit have interpreted Bad Ass
Coffee’s approach differently. One court has held that the Tenth Circuit follows the demand
approach, and another has held that it follows the award approach. Compare HomeQuest Mortg.,
LLC v. HRB Tax Grp., Inc., No. 14-2008, 2014 WL 3845147, at *3 (D. Kan. Aug. 5, 2014)
(“[T]he Court believes the Tenth Circuit has adopted a ‘demand’-based standard that district
courts must use to determine the amount in controversy in actions seeking to confirm or vacate
arbitration awards.”), with Guerzon v. Gen. Steel Domestic Sales, LLC, No. 11-014161, 2011
WL 3608451, at *1 (D. Colo. Aug. 15, 2011) (citing Bad Ass Coffee to find that “the amount in
controversy appears to be less than $20,000 when considering the award to Plaintiffs minus the
amount they must pay to Defendants for costs and fees.”).
7

This Court need not blind itself to the actual implications of this case on the basis of
technical distinctions. Pershing asks this Court to enter an enforceable judgment confirming the
arbitrators’ determination that defendants are not entitled to their claimed $80,000,000.00 in
damages, but only $10,000.00 in arbitration-related costs. 25 Although a myopic view of this case
would indicate that only $10,000.00 is presently at stake, the reality is that Pershing’s petition to
confirm the arbitration award is but the last stage of litigation that began with the arbitration
before the FINRA arbitration panel. Cf. Webb v. Investacorp, Inc., 89 F.3d 252, 256 (5th Cir.
1996) (“In considering the jurisdictional amount requirement [regarding a petition to compel
arbitration] the court should look through to the possible award resulting from the desired
arbitration, since the petition to compel arbitration is only the initial step in a litigation which
seeks as its goal a judgment affirming the award.”) (quoting Davenport v. Procter & Gamble
Mfg. Co., 241 F.2d 511, 514 (2d Cir. 1957)); see also Karsner, 532 F.3d at 884 (“[U]nlike the
award approach, the demand approach permits the district court to exercise jurisdiction
coextensive with the ‘diversity jurisdiction that would have otherwise been present if the case
had been litigated rather than arbitrated.’”) (quoting Bull HN, 229 F.3d at 329).
The Court is particularly troubled that adopting the award approach would promote
needless litigation and gamesmanship. Had either party moved to compel arbitration before it
began, the Court clearly would have had jurisdiction to entertain a motion to confirm a resulting
arbitration award of any size. See U-Save Auto Rental of Am. Inc. v. Furlo (U-Save II), 368 F.
App’x 601, 602 (5th Cir. 2010); Choice Hotels Int’l, Inc. v. Shiv Hospitality, L.L.C., 491 F.3d

25

R. Doc. No. 1, at 5 (“Pershing respectfully requests that this Court grant the following relief: 1.
Confirm the Award entered by the Panel dated November 3, 2014; 2. Enter judgment that
Pershing is not liable on Defendants’ claims but must pay Defendants $10,000.00 to reimburse
the costs of examining a witness in New York City; and 3. Grant any further relief that the Court
deems just and equitable.”).
8

171, 175-76 (4th Cir. 2007); see also Karsner, 532 F.3d at 883 (“The award approach would
apply two different jurisdictional tests depending on the action the petitioner seeks, resulting in
jurisdiction over a petition to compel arbitration of a claim but not necessarily over a petition to
confirm/vacate an arbitration award arising from the same claim.”). Were it to adopt the award
approach, this Court would force litigants to file potentially frivolous or unnecessary motions to
compel arbitration in order to preserve their right to a federal forum for review of the eventual
award. Conversely, adopting the demand approach ensures that federal courts will be able to
entertain “dispute[s] [that are] sufficiently important to warrant federal-court attention,” see
Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 562 (2005), without requiring
litigants to jump through needless procedural hoops.
The Court finds that the amount in controversy for the purpose of establishing diversity
jurisdiction over a motion to confirm an arbitration award corresponds to the amount of the
demand in the underlying arbitration. Defendants’ demand for $80,000,000.00 exceeds the
jurisdictional threshold of 28 U.S.C. § 1332(a). Accordingly, this Court has subject matter
jurisdiction in the above-captioned matter.
CONCLUSION
For the foregoing reasons,
IT IS ORDERED that the motion is DENIED.
IT IS FURTHER ORDERED that, pursuant to 28 U.S.C. § 1292(b), this Court finds
that this order and reasons involves a controlling question of law as to which there is substantial
ground for difference of opinion and that an immediate appeal from this order and reasons may
materially advance the ultimate termination of this ligation. See Linton v. Shell Oil Co., 563 F.3d
556, 557-58 (5th Cir. 2009). The controlling issue of law is the proper method of determining the

9

amount in controversy for the purpose of establishing diversity jurisdiction over a petition to
confirm an arbitration award. As described above, there are substantial grounds for a difference
of opinion. Circuit courts outside of this circuit, as well as district courts within the Fifth Circuit,
which have considered this issue have taken different approaches. The Court finds that an
immediate appeal may materially advance the ultimate termination of this litigation because a
decision by the Fifth Circuit that reverses this order and reasons would immediately terminate
litigation in the above-captioned matter due to a lack of subject matter jurisdiction, thereby
potentially saving the parties and the Court a great deal time of time, effort, and expense that
would otherwise be required with respect to the forthcoming motions practice and voluminous
filings directed at the merits of the case. Furthermore, an immediate appeal may also materially
advance the ultimate termination of parallel litigation that is currently pending in the U.S.
District Court for the Middle District of Louisiana, which involves a similar question of law. 26

New Orleans, Louisiana, April 22, 2015.

_______________________________________
LANCE M. AFRICK
UNITED STATES DISTRICT JUDGE

26

Kiebach v. Pershing LLC, Civil Action No. 15-66 (M.D. La. filed Feb. 9, 2015); see also R.
Doc. No. 28, at 13-14.
10