Odeon Capital Group, LLC et al v. Ackerman
Filing
21
OPINION AND ORDER re: 14 MOTION to Remand to State Court (re-submitted to remedy ECF filing error) filed by Mathew Van Alstyne, Evan Schwartzberg, Odeon Capital Group, LLC. In the instant case, Petitioners do not dispute that whe n they filed their petition to vacate the arbitration in state court on December 18, 2015, the parties were diverse of citizenship. See Pet. Br. at 2-3. Further, no party disputes that any other elements of federal diversity jurisdiction are not sati sfied. Accordingly, the Court finds that Respondent properly removed the petition to vacate to federal court on January 13, 2016. See 28 U.S.C. § 1441. The Court therefore denies Petitioners' motion to remand. The parties are directed to ph one Chambers jointly within two business days to set oral argument on the cross-motions to confirm or to vacate the arbitration award. The Clerk of Court is directed to close docket entry 14. (As further set forth in this Order.) (Signed by Judge Jed S. Rakoff on 2/29/2016) (kko) Modified on 3/1/2016 (kko).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------x
OD~ON
CAPl~AL
GKUUP,
LLL,
MATHEW VAN ALSTYNE, and
EVAN SCHWARTZBERG,
16 Civ. 274
Petitioners,
OPINION AND ORDER
-v-
BRET ACKERMAN,
Respondent.
-------------------------------------x
This motion to remand presents the question of whether
diversity of citizenship, for the purpose of assessing federal
subject matter jurisdiction over a motion to vacate an
arbitration award, is measured as of the date a party filed the
motion in court or as of the date the underlying arbitration was
filed. The Court holds that diversity in such cases is assessed
as of the date a party filed the motion in court, not the date
the underlying arbitration was filed. Accordingly, the Court
finds that diversity of citizenship exists between the parties
to the instant case and denies the motion to remand.
By way of background, on June 26, 2014, Bret Ackerman, a
former employee of Odeon Capital Group, LLC, a New York-based
broker-dealer, filed an arbitration proceeding before the
Financial Industry Regulatory Authority ("FINRA"). See
Memorandum of Law in Support of Petitioners' Motion to Remand
1
("Pet. Br."),
Dkt. 15, at 1; Memorandum of Law in Opposition to
Petitioners' Motion to Remand ("Resp. Opp. Br."), Dkt. 17, at 2;
Declaration of Mark D. Knoll in Support of Motion to Remand
("Knoll Declaration"), Dkt. 12, Exhibit A. At the time he filed
the arbitration proceeding, Mr. Ackerman was a citizen and
resident of New York. See Pet. Br. at 2; Resp. Opp. Br. at 3;
Knoll Declaration, Exhibit B. In the arbitration, Mr. Ackerman
brought several claims against the Petitioners here - Odeon
Capital Group, LLC, Mathew Van Alstyne, and Evan Schwartzberg relating to breach of Mr. Ackerman's employment contract,
discrimination on the basis of disability, and retaliation. See
Knoll Declaration, Exhibit A.
1
On November 19, 2015, a FINRA
arbitration panel issued an award,
finding in favor of Mr.
Ackerman on two of his claims and holding petitioners liable for
unpaid wages in the amount of $1,102,193, plus interest on that
award and attorneys'
fees and costs. See Knoll Declaration,
Exhibit C.
On December 18, 2015, Petitioners filed a petition to
vacate the arbitration award in the Supreme Court of the State
of New York, New York County. See Knoll Declaration, Exhibit D.
Petitioners argued that the arbitrators' ruling was the result
t Mr. Ackerman,
in the arbitration proceedings, also brought claims against
Bonwick Capital Partners LLC, but the arbitration panel denied these claims
in their entirety, and Bonwick is not part of the instant petition to vacate
the arbitration award. See Knoll Declaration, Exhibit A, at 2; Knoll
Declaration, Exhibit C, at 2.
2
of arbitrator misconduct that deprived Petitioners of a fair
hearing and that the award was in manifest disregard of the law.
See id. at 5. Therefore, according to Petitioners, there were
grounds for vacatur of the arbitration award pursuant to the
Federal Arbitration Act,
9 U.S.C.
Civil Practice Law and Rules
§
(CPLR)
10 et seq. and New York
§
7511. See id. at 16, 20.
On January 13, 2016, Mr. Ackerman, the Respondent,
filed a
notice of removal to federal court and filed an amended notice
of removal the next day. See Notice of Removal,
Notice of Removal,
Dkt. l; Amended
Dkt. 4. Respondent alleged in his notice of
removal that this Court has diversity jurisdiction pursuant to
28 U.S.C.
§
1332(a) (1) because Mr. Ackerman is now a citizen and
resident of Santa Monica, California, and Petitioners are
citizens of New York. See Amended Notice of Removal,
4-9. 2 On February 18, 2016,
Dkt.
4,
~~
Petitioners filed a motion to remand
to state court. See Notice of Motion to Remand,
Dkt. 14.
Petitioners argued that removal to federal court was improper
because diversity of citizenship did not exist between the
parties when the arbitration proceeding commenced, since at that
time Mr. Ackerman was a citizen and resident of New York. See
Pet. Br. at 3. Respondent opposed the motion to remand on the
basis that the relevant date for assessing diversity of
2 On February 1,
2016, Respondent also filed a cross-motion to confirm the
arbitration award. See Notice of Cross-Motion to Confirm Arbitration Award,
Dkt. 6.
3
citizenship is not when the underlying arbitration was filed,
but when the petition to vacate the arbitration award was filed
in state court, by which point Mr. Ackerman had moved to
California. See Resp. Opp. Br. at 2-3. For the reasons stated
below, the Court finds that Respondent has the more accurate
view of the matter.
3
The federal removal statute provides that "[e]xcept as
otherwise expressly provided by Act of Congress, any civil
action brought in a State court of which the district courts of
the United States have original jurisdiction, may be removed by
the defendant or the defendants, to the district court of the
United States
embracing the place where such action is
pending." 28 U.S.C.
§
1441(a). Further, "[t]he district courts
shall have original jurisdiction of all civil actions where the
matter in controversy exceeds the sum or value of $75,000
and is between U.S.C.
§
(1)
1332(a) (1)
citizens of different States
4
" 28
However, "[i]f at any time before final
3
While the Court denies Petitioners' motion to remand, the Court does not
view this motion as frivolous, as Respondent suggests. See Resp. Opp. Br. at
18. As Petitioners forthrightly acknowledge, their argument is novel. See
Petitioners' Reply in Support of Motion to Remand ("Pet. Reply Br."), Dkt.
19, at 3. But the novelty of a claim need not be a strike against it, and the
practice of raising claims that seek to extend existing law can be helpful in
clarifying legal standards, as it is here.
4
Petitioners, as stated supra, moved to vacate the arbitration award
to the Federal Arbitration Act, 9 U.S.C. § 10 et seq., in addition to
7511. See Knoll Declaration, Exhibit D, at 20. But the petition does
rise to federal question jurisdiction - and no party in the instant
litigation claims that it does - because the Federal Arbitration Act
4
pursuant
CPLR §
not give
"creates
judgment it appears that the district court lacks subject matter
jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c)
"[W]hether federal diversity jurisdiction exists is
determined by examining the citizenship of the parties at the
time the action is commenced." Linardos v.
945,
947
(2d Cir. 1998)
Fortuna, 157 F.3d
(citation omitted). "[W]here [the] basis
of removal is diversity then diversity of citizenship must exist
at [the] time [the] action was filed in state court as well as
at [the] time of removal." United Food
&
Commercial Workers
Union, Local 919, AFL-CIO v. CenterMark Properties Meriden
Square, Inc., 30 F.3d 298, 301
(2d Cir. 1994)
(citation
omitted). As to the law that governs when an action is
considered to have commenced, "[i]n diversity cases .
law determines the
. state
. questions of what events serve to
commence an action and to toll the statute of limitations."
Diffley v. Allied-Signal,
Inc.,
921 F.2d 421,
423
(2d Cir. 1990)
(internal quotation marks omitted). Since the parties here do
not dispute that New York state law governs this issue, see Pet.
Br. at 4; Resp. Opp. Br. at 4, the Court looks to New York state
law to determine when the action was commenced for the purpose
of measuring diversity of citizenship.
a body of federal substantive law establishing and regulating the duty to
honor an agreement to arbitrate, yet it does not create any independent
federal-question jurisdiction." Moses H. Cone Mem'l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 25 n.32 (1983).
5
New York state law recognizes two forms of civil judicial
proceedings: actions and special proceedings. See CPLR § 103(b)
("[a]ll civil judicial proceedings shall be prosecuted in the
form of an action, except where prosecution in the form of a
special proceeding is authorized."). Applications made via
"special proceeding" may include applications to compel or stay
arbitration, or to confirm or vacate an arbitration award. See
CPLR
§
7503, 7510, 7511. However, as Respondent notes, and
Petitioners concede, arbitration itself is no longer a "special
proceeding" in New York. See Resp. Opp. Br. at 5; Pet. Br. at 5;
See Pet. Reply Br. at 1 n.5; Knickerbocker Ins. Co. v. Gilbert,
268 N.E.2d 758,
760
(N.Y. Ct. App. 1971) . 5 The question, then,
is
whether arbitrations are "actions" under New York law.
CPLR
§
7502(a), part of CPLR Article 75,
states that "[a]
special proceeding shall be used to bring before a court the
first application arising out of an arbitrable controversy which
is not made by motion in a pending action." Thus, while CPLR
§
7502(a) does not expressly state that arbitration is not itself
a "pending action," it clearly implies as much - for why would
Article 75 authorize parties to bring special proceedings to
vacate arbitration awards
(see CPLR
§
7502,
7511)
if such
s Petitioners argue that the decision of the New York Court of Appeals in
Knickerbocker supports their position that arbitration is an "action," see
Pet. Br. at 5-6, but the Court does not read that case as addressing the
issue in any material, let alone binding, respect.
6
applications could simply be made by motion in the underlying
arbitration, which on Petitioners' theory would be a "pending
action"?
The logical inference from the text of Article 75 is that
special proceedings related to arbitration, and not arbitration
itself, constitute judicial proceedings. As Professor Vincent
Alexander writes in his commentary on the CPLR, "[u]nder the
CPLR, an arbitration is not a special proceeding .
. Today, a
special proceeding is simply the mechanism by which judicial
intervention is sought in connection with the arbitration.
Unless a related action is already pending, the first
application to a court with respect to arbitration is to be
prosecuted in the form of a special proceeding." Consolidated
Laws of New York Annotated, C7502:1
(McKinney's 2014)
citations omitted). Also instructive is Knoll N. Am.,
IBF Grp.,
Inc.,
601 N.Y.S.2d 224
(N.Y. Sup. Ct. 1993)
(internal
Inc. v.
In that
case, the court held that the New York Business Corporation Law,
which prohibits a foreign corporation doing business in New York
from maintaining "any action or special proceeding" in New York
until it obtains authority to do so, applies only to a
"proceeding pending in a court
(whether instituted by action or
special proceeding)," and not to the "out of court institution
of arbitration.
11
Knoll,
601 N.Y.S.2d at 226. As the court there
7
noted, "[t]he adoption of the CPLR changed prior law so that
arbitration is no longer considered a judicial proceeding until
the making of an application with respect thereto, whether by
institution of a special proceeding under Article 75 or by
motion in a pending action." Id.
Additionally, other provisions of New York law support the
distinction between civil judicial proceedings, on the one hand,
and arbitration, on the other. See, e.g., New York Judiciary Law
§
475, Attorney's Lien in Action, Special, or Other Proceeding
("From the commencement of an action,
special or other
proceeding in any court or before any state, municipal or
federal department
. or the service of an answer containing
a counterclaim, or the initiation of any means of alternative
dispute resolution including, but not limited to, mediation or
arbitration .
& Campo,
. ")
(emphasis added)); Matter of Taylor, Jacoby
617 N.Y.S.2d 168, 168
(1st Dep't 1994)
(upholding the
denial of attorneys' application to assert a lien on funds
obtained by their client in an arbitration award, when those
attorneys had not appeared in an Article 75 proceeding that the
other party brought to confirm the award, because the lien
statute provided for the lien to be asserted "only by 'the
attorney who appears for a party'
proceeding") .
8
in the action or special
These provisions of New York law may not absolutely compel
the conclusion that arbitration is not an action for the purpose
of assessing diversity of citizenship. See Dixie Yarns,
Forman,
906 F. Supp.
929,
935
(S.D.N.Y. 1995)
Inc. v.
("[w]here
arbitration may be differentiated from court 'action' in one
context, such a distinction may not be warranted in another.")
6
Nevertheless, the Court is persuaded by both the text of CPLR
Article 75 and by other provisions of New York law that
arbitration is distinct from either actions or special
proceedings. Therefore, the civil judicial proceeding in the
instant dispute should be deemed to have "commenced," for the
purpose of assessing diversity of citizenship, when Petitioners
filed their petition in state court to vacate the arbitration
award.
It remains only to note that, while Petitioners adduce
several additional arguments for why arbitration ought to count
as an "action" for the purpose of assessing diversity
jurisdiction, none of these arguments is persuasive. Petitioners
contend,
for example, that the notice of an intent to arbitrate
6 In Dixie Yarns,
the court found that an arbitration proceeding qualified as
an "action for money damages" for the purpose of applying New York Debtor and
Creditor Law § 273-a, which required a fraudulent conveyor to be "a defendant
in an action for money damages." Se~ Dixie Yarns, 906 F. Supp. at 935-37. The
Court finds that the provisions in Dixie Yarns - and the interest in
preventing defendants from fraudulently conveying their assets while claims
against them are being arbitrated - differ greatly from the considerations
relevant to a determination of diverse citizenship.
9
stops the running of the statute of limitations. See Pet. Br. at
5-6, citing CPLR § 7502(b)
("If, at the time that a demand for
arbitration was made or a notice of intention to arbitrate was
served, the claim sought to be arbitrated would have been barred
by limitation of time had it been asserted in a court of the
state, a party may assert the limitation as a bar to the
arbitration on an application to the court"); In re Cohoes
Indus. Terminal,
Inc., 78 B.R. 681, 704
(Bankr. S.D.N.Y. 1987)
("The statute of limitations on a claim submitted to arbitration
stops running when .
served.")
. a notice of intention to arbitrate is
(citation omitted)
text of CPLR
§
In the Court's view, however, the
7502(b) does not clearly stand for the
proposition that service of a notice of intent to arbitrate
stops the running of the statute of limitations, and even if
this proposition is correct, it does not follow that arbitration
is an "action" for the purpose of determining diversity of
citizenship. In fact,
CPLR
§
7502(b)
seems to reinforce the
distinction between arbitration, on the one hand, and judicial
proceedings "asserted in a court of the state," on the other.
Petitioners also argue that evaluating diversity of
citizenship in accordance with the date the arbitration was
initiated would align with certain federal courts' approach to
the amount in controversy requirement - the other prong of
10
federal diversity jurisdiction. See 28 U.S.C. 1332(b); Pet. Br.
at 7-8; Pet. Reply Br. at 3. Petitioners note that some courts,
including the D.C. Circuit, have used the "demand approach" to
measure the amount in controversy. See Pet. Br. at 8. According
to the "demand" approach, the amount in controversy is
determined by the amount sought in the underlying arbitration,
not the amount awarded by the arbitrators. See Karsner v.
Lothian, 532 F.3d 876, 884
(D.C. Cir. 2008)
("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.")
(internal quotation marks omitted) . 7
In the Court's view,
Petitioners have not presented
controlling authority for the proposition that the amount in
controversy should be measured as of the initial demand for
7
Petitioners cite two S.D.N.Y. cases that have, Petitioners contend,
"followed the demand approach," Pet. Br. at 9. As the Court reads these
cases, however, neither clearly endorses the demand approach across the range
of arbitration-related court proceedings. See Wise v. Marriott Int'l, Inc.,
06-cv-11439, 2007 WL 2200704, at *4 (S.D.N.Y. July 30, 2007) ("When a
petitioner seeks confirmation or vacatur of an award, without seeking a
remand for further arbitration proceedings, the amount in controversy is the
value of the award itself to the petitioner.
. When a petitioner seeks a
vacatur of the award and a remand for further arbitration proceedings, this
Court looks to the underlying amount claimed in the arbitration demand to
determine the amount in controversy.") (internal quotation marks omitted);
North Am. Thought Combine, Inc. v. Kelly, 249 F. Supp. 2d 283, 286 (S.D.N.Y.
2003) ("[A] court should look to the value of the relief requested in the
arbitration complaint only where a defendant has prevailed in the
arbitration. In all other situations, a court should look to the value of the
award itself.") .
11
arbitration.
Further, even if the "demand approach" is correct,
this does not mean that diversity of citizenship should be
measured as of the date that arbitration begins, since
considerations specific to the amount in controversy, and not
applicable to diversity of citizenship, may be at work.
8
The
Court therefore declines to evaluate diversity of citizenship so
as to track some courts'
"demand" approach to assessing the
amount in controversy.
Petitioners additionally assert,
in an argument that seems
to be rooted in public policy, that assessing diversity of
citizenship at the time the arbitration commences "would prevent
forum shopping and gamesmanship by litigants who change
residencies during the pendency of a dispute," Pet. Br. at 10.
Moreover,
in Petitioners' view, determining diversity of
citizenship as of the date a petition is filed in court would
"lead to situations where, during the course of an arbitration
where, during the course of an arbitration, whether a federal
court would have jurisdiction to hear motions to compel, stay,
vacate or confirm could change, quite literally, day by day."
Pet. Reply Br. at 3. The Court does not consider such a result
For example, it may sometimes be appropriate to measure the amount of
controversy based on the arbitration demand because this is the amount that a
party to a particular type of subsequent court proceeding - for example, a
motion to vacate the arbitral award and remand for further arbitration
proceedings - continues to seek by way of the court proceeding. See Wise,
2007 WL 2200704, at *4.
8
12
to be nearly as problematic as Petitioners suggest. Moreover,
there may well be a public policy argument in favor of finding
that arbitration and court actions are distinct proceedings: a
court action is not simply annexed to arbitration as an
auxiliary or afterthought. Most importantly, the Court finds
that the text of CPLR Article 75 and other provisions of New
York law, as discussed supra, clearly support the conclusion
that arbitration is neither an action nor a special proceeding,
and so diversity of citizenship may not be assessed as of
arbitration's commencement.
In the instant case, Petitioners do not dispute that when
they filed their petition to vacate the arbitration in state
court on December 18, 2015, the parties were diverse of
citizenship. See Pet. Br. at 2-3. Further, no party disputes
that any other elements of federal diversity jurisdiction are
not satisfied. Accordingly, the Court finds that Respondent
properly removed the petition to vacate to federal court on
January 13, 2016. See 28 U.S.C.
§
1441. The Court therefore
denies Petitioners' motion to remand. The parties are directed
to phone Chambers jointly within two business days to set oral
argument on the cross-motions to confirm or to vacate the
arbitration award.
The Clerk of Court is directed to close docket entry 14.
13
Dated:
J~~u.s.u.J.
New York, NY
February 29, 2Ulb
14
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