US Rising Star Inc. v. Amazon.com, Inc. et al
DECISION AND ORDER DENYING MOTION FOR REMAND denying 11 Motion to Remand. Since this court has diversity jurisdiction over Rising Star's petition, its motion for remand is DENIED. The clerk is respectively directed to close the motion at Docket No. 11 and to remove it from the court's list of open motions.. (Signed by Judge Colleen McMahon on 5/23/2023) BY ECF TO ALL COUNSEL (kv)
Case 1:23-cv-00778-CM Document 22 Filed 05/23/23 Page 1 of 9
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
RISING STAR INC.,
Case No. 23-Civ-778
AMAZON.COM, INC., a Delaware
corporation; AMAZON.COM SERVICES,
LLC, a Delaware limited liability company,
DECISION AND ORDER DENYING MOTION FOR REMAND
Petitioner Rising Star (“Rising Star”) and Respondents Amazon.com, Inc. and
Amazon.com Services, LLC (referred to, collectively, as “Amazon”) are embroiled in a
bitter contract dispute. Rising Star was a third-party vendor on Amazon’s online
marketplace. Before it could join Amazon’s platform to sell its products, Rising Star agreed
to be bound by the “Amazon Services Business Solution Agreement” (“Vendor
Agreement”). Section 3 of the Vendor Agreement empowers Amazon to deactivate any
vendor accounts that it believes have abused Amazon systems or repeatedly violated
Amazon policies. Section 2 of the Vendor Agreement also gives Amazon the sole
discretion to withhold payment of a vendor’s sales proceeds if Amazon determines that the
vendor has abused systems or violated policies—in effect creating a liquidated damages
clause for breach of the Vendor Agreement.
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On July 2, 2021, Amazon notified Rising Star that Rising Star’s account had been
deactivated because Amazon had determined that Rising Star had manipulated customer
reviews of its products, in violation of multiple Amazon policies. While Rising Star
appealed Amazon’s determination through its internal process, Amazon confirmed that
Rising Star’s account would remain deactivated. On January 5, 2022, Amazon notified
Rising Star that, pursuant to Section 2 of the Vendor Agreement, Amazon would not
disburse $1.148 million in Rising Star’s sales proceeds.
On April 8, 2022, Rising Star filed a Demand for Arbitration with the American
Arbitration Association, seeking the withheld funds and claiming Amazon had, among
other claims, breached the Vendor Agreement. (Dkt. No. 11 (Mot. to Remand”) ¶ 12). On
May 3, 2022, Amazon answered Rising Star’s demand and asserted that it was Rising Star
that had breached the contract. (Dkt. No. 1-2 (“Final Award”) ¶ 15). On September 30,
2022, the Arbitrator entered an award denying all of Rising Star’s claims and ordering that
Amazon could retain all sales proceeds. (Mot. to Remand ¶ 13).
On December 29, 2022, Rising Star filed its Petition to Vacate the Final Award in
the Supreme Court of the State of New York, County of New York, as Index No.
655052/2022 (the “State Action”). Id. ¶ 15. Rising Star’s asserted bases for seeking to
vacate the Award are (1) that the Arbitrator “exceed[ed] [his] power”; (2) “irrational[ity]”;
(3) “manifest disregard for the law”; and (4) the Arbitrator’s alleged “corruption, fraud, or
misconduct.” (Pet. to Vacate at 9).
On January 30, 2023, Amazon timely removed the action to this Court. (Dkt. No. 1
(“Notice of Removal”)). In its Notice of Removal, Amazon contends that this Court has
diversity jurisdiction pursuant to 28 U.S.C. § 1332. Id. at ¶¶ 4–5.
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On March 22, 2023, Rising Star filed a Motion for Remand, arguing that this court
lacks diversity jurisdiction. (Dkt. No. 11). 1 Petitioner asserts that a recent Supreme Court
case, Badgerow v. Walters, 142 S. Ct. 1310 (2022), curtails this court’s diversity
jurisdiction over Section 10 petitions, and that diversity jurisdiction does not otherwise
exist because there is a lack of diversity between the parties and the amount in controversy
does not exceed $75,000. (Id. ¶ 18). All of these arguments fail.
First, Petitioner makes a misguided argument that the Supreme Court’s recent
decision in Badgerow v. Walters, 142 S. Ct. 1310 (2022), somehow abrogated this court’s
power to exercise subject matter jurisdiction over petitions to vacate arbitration awards,
even where diversity jurisdiction exists pursuant to 28 U.S.C. § 1332 (Mot. to Remand at
14–17). Badgerow does no such thing.
In Vaden v. Discover Bank, 556 U.S. 49, 62 (2009), the Supreme Court held that, to
determine whether subject matter jurisdiction existed for petitions to compel arbitration
pursuant to Section 4 of the Federal Arbitration Act (“FAA”), district courts should “‘look
through’ the petition [to compel arbitration] to the ‘underlying substantive controversy’
between the parties—even though that controversy is not before the court.” Subsequently,
district courts applied the same “look through” approach to determine whether they had
subject matter jurisdiction over petitions to confirm or vacate arbitration awards, pursuant
to Sections 9 and 10 of the FAA.
Rising Star additionally argues that this court must remand its petition because its claims
do not arise under federal law. Mot. to Remand at 12. However, Amazon does not assert that
this court has federal question jurisdiction over this case.
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In Badgerow, the plaintiff commenced an arbitration asserting a claim for unlawful
termination under both federal and state law. Badgerow, 142 S. Ct. at 1322. After losing in
the arbitration, she sued in state court to vacate the judgment. Respondents removed to the
district court. Citing Vaden, the district court determined it had federal question jurisdiction
over the case. On appeal, the Supreme Court concluded that the “look through” rule
articulated in Vaden could not be applied to Section 9 petitions to confirm or Section 10
petitions to vacate; rather it held that, for Section 9 and Section 10 petitions, subject matter
jurisdiction must be apparent on the face of the application. Id. at 1314.
Badgerow did not eliminate district courts’ subject matter jurisdiction over petitions
to vacate where an independent jurisdictional basis is apparent from the face of the petition.
The Court specifically used diversity jurisdiction as an example of an independent
jurisdictional basis that would be obvious on the face of a petition brought under Section 9
or Section 10, Id. at 1316, and assumed in its opinion that district courts would continue to
exercise diversity jurisdiction over Section 9 and Section 10 petitions if the requirements
for § 1332 diversity are met. Id. at 1321. The Second Circuit has not suggested that it
understands Badgerow as having limited the power of district courts to exercise diversity
jurisdiction over Section 9 and Section 10 petitions as long as diversity jurisdiction is
apparent from the petition to vacate. Bissonnette v. LePage Bakeries Park St., LLC, 49
F.4th 655, 666 (2d Cir. 2022) (J. Jacobs, concurring).
So the question is whether § 1332 diversity is apparent from the face of the petition
to vacate the award.
Petitioner avers that the parties are not diverse because “Both the Petitioner and
Respondents are US companies-domestic entities.” (Mot. to Remand ¶ 23). However, as
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any first year law student should know, diversity exists in any civil action between citizens
of different states or any action between citizens of a state and citizens or subjects of a
foreign state. 28 U.S.C. § 1332. “A corporation is a citizen of both the State or foreign state
where it is incorporated and of the State or foreign state where it has its principal state of
business ….” Calderon v. Carmona, 2022 WL 2307674, at *4 (S.D.N.Y. June 27, 2022).
“[F]or purposes of diversity jurisdiction, a limited liability company has the citizenship of
its membership.” Handelsman v. Bedford Vill. Assocs. Ltd. P’ship, 213 F.3d 48, 51–52 (2d
Cir. 2000) (citations omitted).
Petitioner effectively concedes diversity on the face of the Petition because it pleads
facts showing complete diversity. Petitioner is a corporation formed under the laws of
California with its principal place of business in China. (Pet. to Vacate at 1, 13).
Respondent Amazon.com, Inc. is a Delaware corporation with its principal place of
business in Seattle, Washington. (Id. at 1). Respondent Amazon.com Services, LLC is a
Delaware limited liability company with its principal place of business in Seattle,
Washington. (Id.). The sole member of Amazon.com Services, LLC is Amazon.com Sales,
Inc., which is a Delaware corporation having its principal place of business in the State of
Washington (and which is wholly owned by co-Respondent Amazon.com, Inc.). (Notice of
Removal ¶ 9).
Complete diversity exists.
Petitioner also contends that this court cannot exercise diversity jurisdiction over its
petition because the amount in controversy does not exceed $75,000. This argument
requires a more nuanced response.
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The Second Circuit has not adopted a particular approach for determining the
amount in controversy in proceedings to confirm or vacate arbitration awards. Nakakuki v.
Bello, 2020 WL 1529441, at *2 (S.D.N.Y. Mar. 31, 2020) Courts in this Circuit have
historically applied two approaches: the “demand” approach and the “award” approach.
Erdheim v. Harris, 2019 WL 3219385, at *2 (S.D.N.Y. July 17, 2019). Under the
“demand” approach, a court “construes the amount a party demanded in the underlying
arbitration as the amount in controversy.” Legacy Agency, Inc. v. Scoffield, 559 F. Supp. 3d
195, 204–05 (S.D.N.Y. 2021). Under the “award” approach, a court “construes the amount
awarded as the amount in controversy.” Id. Petitioner argues that, after Badgerow, this
court may only apply the “award” approach, (Mot. to Remand at 13–14), and at least some
of my colleagues have declined to apply the “demand” approach because they believe it
uses the same “look through” logic that the Court held impermissible in Badgerow. See
Conmed Corp. v. First Choice Prosthetic & Orthopedic Serv., Inc., 2023 WL 157957, at *7
(N.D.N.Y. Jan. 11, 2023); Mitchell v. Frattini, 2022 WL 17157027, at *3 (S.D.N.Y. Nov.
22, 2022). Respondents disagree and they urge this court to apply the “demand” approach. 2
Under either approach, this court has jurisdiction.
Respondents additionally argue that this court should consider the amount in controversy
met because, alongside vacatur, Rising Star also asks this court to reach the merits of its
underlying claims, rule in its favor, and order Amazon to release the sales. (Pet. to Vacate at
10 ¶ 33). However, filings in an FAA proceeding can “can only be made and heard in the
manner provided by law for the making and hearing of motions.” ISC Holding AG v. Nobel
Biocare Finance AG, 688 F.3d 98, 112 (2d Cir. 2012). It is procedurally improper for
petitioner to attach its claims to its petition for vacatur, so the amount sought in Rising Star’s
claims cannot independently satisfy the amount in controversy requirement. Mitchell v.
Frattini, 2022 WL 17157027, at *3 (S.D.N.Y. Nov. 22, 2022).
Case 1:23-cv-00778-CM Document 22 Filed 05/23/23 Page 7 of 9
This court certainly has diversity jurisdiction over the petition if I use the “demand
approach” to the amount in controversy requirement. Rising Star pleads in its arbitration
demand to the AAA that Rising Star is entitled to relief and remittance of over $1 million
in sales proceeds from Amazon, a sum that indisputably exceeds $75,000. (Dkt. 1-3 ¶ 47).
But this petition also satisfies the amount in controversy requirement based on the
Where an arbitrator finds a respondent not liable and awards $0 to the petitioner, a
petitioner seeking to vacate the award (or a respondent seeking to confirm the award) does
not satisfy the amount in controversy requirement under the “award approach.” This
effectively precludes petitioning a federal court for relief. See FED. PRAC. & PROC. JURIS. §
3569 (3d ed.); see also Sierra v. Bally Total Fitness Corp., 2007 WL 1028937, at *3
(E.D.N.Y. Mar. 30, 2007).
However, Rising Star is mistaken that the arbitrator in this case issued a “$0” award
in the arbitration. In its Demand for Arbitration, Rising Star asserted claims for breach of
contract and the implied covenant of good faith and fair dealing, conversion, and violation
of bailment, and sought disbursal of the $1.148MM. (Dkt. 1-2 at 51). Amazon not only
denied liability, it asserted that Rising Star had “breached the [Vendor Agreement] by
engaging in reviews abuse . . . in violation of Amazon policy to which [Rising Star] agreed
to adhere, by failing to provide accurate information about Rising Star, and by failing to
complete successfully an in-person identity verification interview . . . ,” and claimed that,
pursuant to the Vendor Agreement, it was entitled to keep the $1.148MM. (Id. at 54). In its
final decision, the arbitrator found that it was Rising Star that had violated various
provisions of the Vendor Agreement and that Section 2 of the Vendor Agreement was an
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enforceable liquidated damages clause. (Id. at 70–72). The arbitrator further held that
Rising Star’s claim for conversion failed because Rising Star’s “acknowledged violation of
Amazon policies and  failure to provide ‘at all times accurate and complete’ information .
. .” (i.e., breach of the Vendor Agreement) entitled Amazon to retain Rising Star’s sales
proceeds pursuant to Section 2 of the Vendor Agreement. (Id. at 72–73).
Petitioner interprets the arbitrator’s decision as meaning the arbitrator found no
liability and made an award of “$0.” But there was a finding of liability and an award—the
arbitrator held that Rising Star had breached the Vendor Agreement, and so Amazon was
entitled to the full value of damages contemplated by the liquidated damages clause (the
$1.148MM in sales proceeds withheld by Amazon). It matters not that Amazon, engaging
in “self-help,” had already retained the sales proceeds; the Arbitrator’s holding that
Amazon could retain the withheld funds is effectively an award to Amazon in the amount
of $1.148MM. Rising Star so alleges in its own Petition to Vacate, which states that the
Final Arbitration Award “allowed Amazon to retain over 1.1 million dollars of Petitioner’s
entire sales proceeds.” (Pet. to Vacate at 8 ¶ 22, 10 ¶ 32). Thus, under the award approach,
the amount awarded by the arbitrator (to Amazon) was approximately $1.148MM, which
Since this court has diversity jurisdiction over Rising Star’s petition, its motion for
remand is DENIED.
The clerk is respectively directed to close the motion at Docket No. 11 and to
remove it from the court’s list of open motions.
Case 1:23-cv-00778-CM Document 22 Filed 05/23/23 Page 9 of 9
Dated: May 23, 2023
BY ECF TO ALL COUNSEL
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