Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Harman v. Wilson-Davis & Co.

United States District Court, D. Utah, Central Division

January 6, 2017

KENT HARMAN, TAMARA HARMAN, JACK HARMAN, SHELLEY HARMAN, BOB HARMAN, and TWILA HARMAN, Plaintiffs,
v.
WILSON-DAVIS & CO., Defendant.

          MEMORANDUM DECISION AND ORDER DENYING PETITION TO VACATE ARBITRATION AWARD

          Clark Waddoups United States District Court Judge

         INTRODUCTION

         This matter is before the court on plaintiffs' Petition to Vacate an Arbitration Award pursuant to 9 U.S.C. § 10(a) of the Federal Arbitration Act (FAA). (Dkt. No. 2.) The court has carefully considered the memoranda and other materials submitted by the parties, the arguments of counsel, as well as the law and facts relating to the motion. Now being fully advised, the court renders the following Memorandum Decision and Order DENYING the petition to vacate. The court first determines that it has federal question jurisdiction over the petition to vacate because the underlying claims subject to arbitration raised federal questions. The court then concludes that the plaintiff failed to state grounds sufficient for the court to vacate the arbitration award pursuant to either the public policy exception or the enumerated reasons for vacatur under § 10 of the FAA.

         FACTUAL BACKGROUND

         Plaintiffs, the Harman family (Harmans), were Idaho farmers. In 2008, the Harmans sold the family farm and sought investment advice from defendant Wilson-Davis & Co. (Wilson- Davis). The Harmans claim Wilson-Davis forged financial statements to increase Mr. Bob Harman's net worth from $1 million to $3.455 million. (Petition to Vacate 3, Dkt. No. 2.) Based on the allegedly falsified net worth, Wilson-Davis sold Mr. Harman tenant-in-common investments that Mr. Harman would otherwise have not likely qualified for based on his actual $1 million net worth. (Id.) The Harmans allege they were damaged by making these investments. The Harmans next claim that Wilson-Davis, in violation of the law, no longer has copies of any due diligence reports conducted by itself or on its behalf by outside firms regarding these investments. (Id.) Specifically, the Harmans claim that Wilson-Davis spoliated these documents. (Id.)

         The parties entered into arbitration and the arbitration panel found no liability against Wilson-Davis on the tenant-in-common investments. (Id.) The Harmans conceded in oral argument that they raised their spoliation claim to the arbitration panel in connection with this investment, but now argue that the panel failed to state whether it found liability as to the spoliation claim. This matter is before the court because the Harmans seek to vacate the panel's award under the judicially created public policy exception set forth by the United States Supreme Court in United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29 (1987), because the panel did not award liability on the Harmans' spoliation claim. (Petition to Vacate 4, Dkt. No. 2.)

         DISCUSSION

         Wilson-Davis challenges the court's subject matter jurisdiction on the grounds that federal law claims in the underlying arbitration are insufficient to supply federal question jurisdiction over a petition to vacate an arbitration award. For this position, Wilson-Davis relied primarily on the holding in Greenberg v. Bear, Stearns & Co., 220 F.3d 22, 26 (2nd Cir. 2000), which was overruled in August 2016 by Doscher v. Sea Port Grp. Sec., LLC, 832 F.3d 372, 389 (2d Cir. 2016). The court asked the parties to provide supplemental briefing on the issue of jurisdiction in light of this development in the law. The court now discusses why it believes it has federal question jurisdiction over the petition to vacate based on the Harmans' underlying federal causes of action that were subject to arbitration.

         1. Jurisdiction Pursuant to 9 U.S.C. § 10 of the Federal Arbitration Act

         Federal courts are courts of limited jurisdiction. They possess only that power authorized by the Constitution and by statute. See Willy v. Coastal Corp., 503 U.S. 131, 136-137 (1992). The Supreme Court has repeatedly held that the FAA statute does not create independent federal-question jurisdiction; therefore, “there must be diversity of citizenship or some other independent basis for federal jurisdiction” for a petition to vacate an arbitration award to be brought in federal court. See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 n.32 (1983). Courts had long held to the general rule that “[s]imply raising federal-law claims in the underlying arbitration is insufficient to supply” independent federal question jurisdiction. Greenberg v. Bear, Stearns & Co., 220 F.3d 22, 26 (2d Cir. 2000). In Vaden v. Discover Bank, 556 U.S. 49 (2009), this rule was rejected for petitions to compel arbitration filed under § 4 of the FAA, and Vaden's holding has subsequently called the rule into question for petitions to vacate an arbitration award filed under § 10. After the Supreme Court's decision in Vaden, there is now a split among the circuits as to whether a court may “look through” a § 10 petition to vacate an arbitration award in order to find federal question jurisdiction based on the underlying federal substantive claims addressed in the arbitration. The Tenth Circuit has not yet addressed the issue.

         In Vaden, the Supreme Court rejected the long-held general rule that a court is required to find jurisdiction on the face of the petition, holding that “a federal court may look through a § 4 petition to compel arbitration to determine whether it is predicated on an action that arises under federal law. Id. at 62 (emphasis added). As a basis for this ruling, the Supreme Court emphasized the unique text present in § 4 of the FAA as follows:

A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition 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, for an order directing that such arbitration proceed in the manner provided in such agreement.

9 U.S.C. § 4 (emphasis added).

         The Supreme Court relied on the “save for” language in the text of § 4 to reach the conclusion that the “look through” approach applies to § 4 petitions. Vaden, 556 U.S. at 49. Specifically, the Supreme Court determined that “[t]he phrase ‘save for [the arbitration] agreement' indicates that the district court should assume the absence of the arbitration ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.