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Fifth Circuit Applies 'Look Through' Standard to Removal of Case Seeking to Vacate FINRA Award Under FAA

by George Friedman

September 2020

George Friedman

This article was first published on Securities Arbitration Alert (SAA) Blog, here.

The Fifth Circuit holds that the District Court was correct when it applied the “look through” standard to determine that it had jurisdiction to remove a State Court action to vacate an Award.

A FINRA Panel rendered an Award denying AP Badgerow’s claims against Ameriprise and three “franchise advisors,” triggering a Petition to vacate in a Louisiana Trial Court. The Respondents then removed the case to federal court. Thereafter, the District Court found it had jurisdiction and later confirmed the Award, finding no fraud in its procurement as Badgerow had alleged. At issue in Badgerow v. WaltersNo. 19-30766 (5th Cir Sep. 15, 2020), was whether the District Court acted properly in determining it had federal subject matter jurisdiction to support removal.

“Look Through” Standard Under FAA Section 4 Motions to Compel

Although the FAA does not confer federal subject matter jurisdiction, the Supreme Court in Vaden v. Discover Bank, 556 U.S. 49 (2009), held that jurisdiction over an FAA section 4 petition to compel arbitration is determined by the nature of the underlying dispute. This was based on FAA section 4 language providing that a motion to compel arbitration can be brought in “any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties.” The Vaden standard became known as the “look through” test.

Majority of Circuits Extend the Standard to Award Confirmation

Over the years, a majority of Circuits considering the question (First, Second, Fourth, and Fifth) have extended the “look through” standard to post-award motions to confirm or vacate/modify. See, for example, Doscher v. Sea Port Group Securities, LLC, 832 F.3d 372 (2d Cir. 2016), where the Second Circuit extended Vaden’s “look through” jurisdictional test to motions to confirm (FAA section 10) or modify (FAA section 11) Awards. The Third and the Seventh Circuits have adopted a contrary view, limiting the look-through standard to actions to enforce PDAAs. See, for example, Goldman v. Citigroup Global Markets Inc., 834 F.3d 242 (3d Cir. 2016).

Applying the “Look Through” Standard to Removal

Applying the “look through” test to the underlying FINRA arbitration, the Court finds that the District Court had federal subject matter jurisdiction to support removal of the vacatur action filed in State Court. Says the unanimous Opinion: “Applying the look-through analysis, we have held, first, that the district court correctly found that Badgerow’s Title VII declaratory judgment claim against Ameriprise in the FINRA arbitration was a federal-law claim. We have held, second, that all of Badgerow’s claims against the Principals and Ameriprise in the FINRA arbitration arose from the same common nucleus of operative fact, and that under the principle of supplemental jurisdiction, federal jurisdiction obtains over Badgerow’s state-law tortious interference and whistleblower claims. The district court therefore properly held that Badgerow’s federal claim against Ameriprise in the FINRA arbitration invested federal jurisdiction over Badgerow’s Louisiana petition to vacate the FINRA arbitration award as to the Principals.”

 

(ed: *Makes sense to us. **Only the jurisdictional issue was before the Fifth Circuit, “not in any instance, the merits of the confirmation of the FINRA arbitration dismissal award.”)

 

 

 

George H. Friedman is the publisher and Editor-in-Chief of the Securities Arbitration Alert, a weekly online publication covering the latest developments in financial services arbitration and mediation. He is also the principal of George H. Friedman Consulting, LLC, providing expert advice on arbitration and mediation in general and the FINRA dispute resolution forum in particular.

 

He is former Executive Vice President - Dispute Resolution of the Financial Industry Regulatory Authority (“FINRA”), a position he held through January 2013. He held the same title at NASD, which consolidated with NYSE Member Regulation to form FINRA in 2007. In this capacity, he was in overall charge of FINRA's dispute resolution program, carried out by the company's four regional offices and 72 hearing locations in the United States and abroad, 200 employees, and an annual budget of $50 million. He also served as Secretary of the Securities Industry Conference on Arbitration. He has been referred to by the U.S. Court of Appeals—4th Circuit as a “leading arbitration expert.” He is a member of the American Arbitration Association's National Roster of Neutrals.

 

Mr.Friedman is an Adjunct Professor of Law at Fordham Law School, where he has taught a course on alternative dispute resolution since 1996. He is Chairman of the Board of Directors of Arbitration Resolution Services, Inc. of Coral Springs, Florida. Arbitration Resolution Services is an innovative online arbitration services company facilitating an affordable alternative to costly courtroom litigation and in-person arbitration for resolving Business-to-Business, Business-to-Individual, and Vehicle and Property Damage disputes. ARS is unique in that its entire process can be completed online through the company website.

 

In his extensive dispute resolution career, he previously held a variety of positions of responsibility at the American Arbitration Association, most recently as Senior Vice President from 1994 to 1998. He joined NASD in 1998 as Senior Vice President of NASD's Dispute Resolution Division, and was named Executive Vice President in 2002.

 

Mr. Friedman received a B.A. in Political Science from Queens College, and a Juris Doctor from Rutgers Law School - Newark, where he was an editor of the Law Review. He is admitted to the New York and New Jersey Bars and the United States Supreme Court, and is a Certified Regulatory and Compliance Professional. Mr. Friedman is a member of the Securities Experts Roundtable, and of several bar associations. He is past chair of the Committee on Alternative Dispute Resolution of the New York County Lawyers Association. He is a member of the Banking Advisory Committee of Bergen (NJ) Community College.

 

Mr. Friedman has lectured extensively on the subject of alternative dispute resolution, and has the distinction of being one of the architects of the American Arbitration Association’s Due Process Fairness Protocols for both employment arbitration and health care dispute resolution, and assisted in creating the Consumer Due Process Protocol. He has published often, with articles appearing in the Securities Arbitration Commentator, the ABA's Dispute Resolution Magazine, the New York Law Journal, the Rutgers Law Review, and the National Law Journal. He has blogs at Arbitration Resolution Services, Inc., the Securities Arbitration Commentator, and the World Future Society, among others.



Website: secarbalert.com

Additional articles by George Friedman
The views expressed by authors are their own and do not necessarily reflect the views of Resourceful Internet Solutions, Inc., Arbitrate.com or of reviewing editors.
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