Richard Hale v. Morgan Stanley Smith Barney LLC ( 2020 )

RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 20a0381p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
RICHARD “RIP” HALE, ┐
Claimant-Appellant, │
│
> No. 20-3412
v. │
│
│
MORGAN STANLEY SMITH BARNEY LLC, │
Respondent-Appellee. │
┘
Appeal from the United States District Court
for the Southern District of Ohio at Dayton.
No. 3:19-cv-00229—Walter H. Rice, District Judge.
Argued: November 18, 2020
Decided and Filed: December 15, 2020
Before: COLE, Chief Judge; DONALD and READLER, Circuit Judges.
_________________
COUNSEL
ARGUED: Peter K. Newman, THE NEWMAN LAW GROUP LLC, Dayton, Ohio, for
Appellant. Tracy L. Gerber, GREENBERG TRAURIG, LLP, West Palm Beach, Florida, for
Appellee. ON BRIEF: Peter K. Newman, THE NEWMAN LAW GROUP LLC, Dayton, Ohio,
for Appellant. Tracy L. Gerber, Beth A. Black, GREENBERG TRAURIG, LLP, West Palm
Beach, Florida, Brigid F. Cech Samole, GREENBERG TRAURIG, P.A., Miami, Florida, for
Appellee.
_________________
OPINION
_________________
BERNICE BOUIE DONALD, Circuit Judge. Dissatisfied with several disciplinary
actions taken against him at work, Plaintiff Richard “Rip” Hale sought recourse against his
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employer, Defendant Morgan Stanley Smith Barney LLC, d/b/a Morgan Stanley Wealth
Management (“Morgan Stanley”), through arbitration. When this arbitration was unsuccessful,
Hale filed suit in district court, seeking to vacate the arbitration award pursuant to the Federal
Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et seq. The district court never reached the merits of
Hale’s claims however, finding that it lacked subject-matter jurisdiction. Because we find that
diversity jurisdiction has been satisfied, we REVERSE and REMAND.
I.
Hale has been employed by Morgan Stanley as a financial advisor since 1984. Though
Hale prospered financially at Morgan Stanley, he was disciplined on several occasions between
2013 and 2016. Believing that he was wrongly reprimanded by his employer, Hale initiated an
arbitration action, and requested damages for his claims of negligence, defamation, breach of
fiduciary duty, and intentional infliction of emotional distress. Following an arbitration hearing
that lasted four days, and during which eleven witnesses testified, the arbitrator issued an award
denying all of Hale’s claims and awarded him $0 in damages.
Following the arbitration decision, Hale filed suit in district court, requesting that the
arbitration award be vacated pursuant to §§ 10(a)(3) and 10(a)(4) of the FAA. Morgan Stanley
subsequently filed a motion to dismiss the case on jurisdictional grounds. The district court ruled
in favor of Morgan Stanley, holding that the court lacked diversity and federal question
jurisdiction over the suit. Hale timely appealed to this Court.
II.
We apply a de novo standard when reviewing the district court’s determination of
jurisdiction. Dealer Comput. Servs., Inc. v. Dub Herring Ford, 547 F.3d 558, 560 (6th Cir.
2008).
Our Court, being one of limited jurisdiction, possesses only power authorized by the
Constitution and statute to adjudicate cases. Kokkonen v. Guardian Life Ins. Co. of Am.,
511 U.S. 375, 377 (1994). The party asserting subject-matter jurisdiction bears the burden of
establishing that such jurisdiction exists. Id. When a party makes a facial challenge to the
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district court’s subject-matter jurisdiction under Rule 12(b)(1)—as is the case here—we must
take as true all material allegations of the complaint. Carrier Corp. v. Outokumpu Oyj, 673 F.3d
430, 440 (6th Cir. 2012).
With regard to diversity jurisdiction, it is firmly established that parties attempting to
demonstrate that such jurisdiction exists must show that: (1) the matter in controversy exceeds
the sum or value of $75,000, exclusive of interest and costs; and (2) there is complete diversity
of citizenship between the disputing parties. 28 U.S.C. § 1332(a). The parties in the instant case
concede that they are diverse in citizenship, but disagree as to whether the amount in controversy
requirement has been satisfied. Morgan Stanley asserts that since the arbitrator did not award
Hale any damages, the amount in controversy is $0. Conversely, Hale argues that the amount in
controversy is met because he requested a damages award of $14.75 million in his complaint
(filed as a motion to vacate).1 In finding that it lacked diversity jurisdiction, the district court
cited to Ford v. Hamilton Inv., Inc., 29 F.3d 255 (6th Cir. 1994) in support of its decision.
Because the district court’s reliance on Ford was misplaced, we agree with Hale.
In Ford, the plaintiff sought to vacate the arbitrator’s award of approximately $30,000
under the FAA. Id. at 257. The Court held that based on the general federal rule that it is
appropriate to “decide what the amount in controversy is from the complaint itself,” Horton v.
Liberty Mut. Ins. Co., 367 U.S. 348, 353 (1961), even though the plaintiff counter-claimed more
than $50,000 against the defendant in the arbitration proceeding, 2 because the award that the
plaintiff asked to be vacated was only that of the $30,000 arbitration award, it clearly fell below
the amount in controversy threshold under 28 U.S.C. § 1332(a). Ford, 29 F.3d at 260. The
conclusion reached by the Court in Ford was not that the amount of the arbitrator’s award
should be considered when calculating the amount in controversy in this context, but that in
making such determinations, it is necessary to look to the amount alleged to be in controversy in
the complaint. See Theis Research, Inc. v. Brown & Bain, 400 F.3d 659, 665 (9th Cir. 2005)
1Hale contends in his complaint that the district court should award him all of the remedies he requested in
the arbitration action. He then points the district court to the opening statement from the arbitration hearing (which
he attached to the complaint) that lists the $14.75 million in damages he sought in arbitration.
2When Ford was decided, the jurisdictional amount in controversy was $50,000, but was later increased to
$75,000. See Federal Courts Improvement Act of 1996, Pub. L. No. 104-317, § 205, 110 Stat. 3847.
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(noting that “the Sixth Circuit was quite clear that had the losing party [in Ford] sought to
challenge the arbitrator’s denial of that party’s counterclaims, the amount in controversy would
have been met”) (citing Ford, 29 F.3d at 260). Accordingly, in actions where a party seeks to
vacate a $0 arbitration award pursuant to § 10 of the FAA, courts should look to the complaint
for purposes of assessing whether § 1332(a)’s jurisdictional amount in controversy requirement
has been met.
This rule was similarly applied by the Court in Mitchell v. Ainbinder, 214 F. App’x 565
(6th Cir. 2007). In Mitchell, the Court reaffirmed that district courts “should consider the
amount alleged in a complaint” when determining the amount in controversy. Id. at 566 (quoting
Mass. Cas. Ins. Co. v. Harmon, 88 F.3d 415, 416 (6th Cir. 1996)). And in cases where the
petitioner seeks to vacate a $0 arbitration award and reopen his arbitration, the Court held that
the amount in controversy includes the amount sought in the underlying arbitration. Id. at 566–
67. While the district court distinguished Ford and Mitchell by indicating that the former
involved a request to vacate an arbitration award and the latter included a demand to reopen an
arbitration, there is no meaningful difference between the two forms of relief—and Morgan
Stanley has not provided sufficient support for a finding to the contrary.3 Ford and Mitchell
therefore both stand for the same proposition: when a petitioner disputes an issued arbitration
award—either through vacation or seeking to reopen arbitration—courts need only to review the
relief requested in the complaint to determine the amount in controversy.
When that rule is applied here, it becomes evident that the district court had diversity
jurisdiction over this case. In his complaint, Hale sought to vacate the $0 award, arguing that the
arbitrator should have awarded him almost $15 million in damages—certainly more than the
amount necessary to satisfy § 1332(a). Therefore, the minimum amount in controversy was met,
and the district court had the subject-matter jurisdiction necessary to adjudicate Hale’s claims.4
3This is especially true when it is considered that plaintiffs, like Hale, are presumably seeking vacation of
an arbitration award in order to reenter arbitration.
4Because diversity jurisdiction was satisfied, we will not address the parties’ federal question jurisdiction
contentions.
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III.
For the foregoing reasons, we REVERSE the district court’s judgment and REMAND
this case for further proceedings consistent with this opinion.