John P. Biscanin v. Merrill Lynch & Co. , 407 F.3d 905 ( 2005 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 03-1659
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John P. Biscanin, as Successor *
Conservator of Dolores W. O'Keefe; *
as Co-administrator of the Estate of *
Dolores W. O'Keefe; as Trustee of the *
Dolores W. O'Keefe Living Trust dated *
September 20, 1990, and as Trustee of *
the Michael A. O'Keefe Sub-trust of the *
Dolores W. O'Keefe Irrevocable Trust * Appeal from the United States
dated July 12, 1996, * District Court for the Western
* District of Missouri.
Appellant, *
*
v. *
*
Merrill Lynch & Co., Inc.; Merrill *
Lynch & Co. International, Ltd.; *
Thomas M. Friedman; Richard J. *
Paradise; Bradley Stratton; *
Chad G. Bushaw, *
*
Appellees. *
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Submitted: January 14, 2005
Filed: May 6, 2005
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Before LOKEN, Chief Judge, and MORRIS SHEPPARD ARNOLD and HANSEN,
Circuit Judges.
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MORRIS SHEPPARD ARNOLD, Circuit Judge.
John Biscanin appeals from the district court's dismissal of his complaint,
which asks that an arbitration award be vacated. The complaint's theory is that the
award reflects a manifest disregard of applicable federal law. We conclude that the
complaint should be dismissed for lack of subject-matter jurisdiction because the
claim of manifest disregard is patently meritless.
Mr. Biscanin is one of the administrators of the estate of Dolores O'Keefe.
Ms. O'Keefe was a wealthy woman; she had tens of millions of dollars' worth of
corporate stock in a trust. In the mid-1990s, her children and her conservator met
with financial advisors from Merrill Lynch to determine the best way to move the
stock from her trust into trusts for her children – a move that had been approved by
a state court. The details of Merrill Lynch's advice are unimportant; it suffices to say
that for several years Merrill Lynch advised the conservator and the children on the
best way to effect the wealth transfer.
Following Ms. O'Keefe's death, Mr. Biscanin filed a claim with the National
Association of Securities Dealers (apparently pursuant to an arbitration agreement
that the conservator had entered into with Merrill Lynch). The NASD appointed an
arbitration panel. At the arbitration hearing, Mr. Biscanin requested millions of
dollars in relief for Merrill Lynch's supposedly actionable advice. The panel awarded
Mr. Biscanin "$100,000 as compensatory damages" and denied "all other claims and
requests of relief ... with prejudice."
Mr. Biscanin then filed the complaint in this case, asking the court to vacate
the arbitration award pursuant to Section 10 of the Federal Arbitration Act, 9 U.S.C.
§ 10. The defendants moved to dismiss the complaint for lack of subject-matter
jurisdiction, see Fed. R. Civ. P. 12(b)(1), and failure to state a claim upon which relief
may be granted, see Fed. R. Civ. P. 12(b)(6). While the complaint was pending
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before the district court, a Kansas state court confirmed the arbitration award. The
district court concluded that the res judicata effect of the Kansas decision precluded
it from finding in Mr. Biscanin's favor and dismissed the complaint. It did not,
however, decide whether it had subject-matter jurisdiction, as it concluded that
questions regarding res judicata belong to a small group of issues that can be decided
before subject-matter jurisdiction, cf. Ruhrgas AG v. Marathon Oil Co. 526 U.S. 574,
583-88 (1999). We affirm the judgment of the district court because we conclude that
there is no jurisdiction over the subject matter of this case.
The parties agree that the only possible basis for jurisdiction in this case is
federal-question jurisdiction. Federal-question jurisdiction exists when "the
plaintiff's right to relief necessarily depends on resolution of a substantial question
of federal law." Franchise Tax Bd. v. Construction Laborers Vacation Trust,
463 U.S. 1, 27-28 (1983).
Mr. Biscanin argues that subject-matter jurisdiction exists because his claim
that the arbitrators manifestly disregarded federal law when making their award
requires the court to resolve a substantial federal question. He cites two cases in
support of the proposition that a claim of manifest disregard of federal law triggers
federal-question jurisdiction, Greenberg v. Bear, Stearns & Co., 220 F.3d 22, 27 (2d
Cir. 2000), and Luong v. Circuit City Stores, Inc., 368 F.3d 1109, 1112 (9th Cir.
2004). In Greenberg, 220 F.3d at 27, the Second Circuit concluded that "review for
manifest disregard of federal law necessarily requires the reviewing court to ...
determine what the federal law is ... [and] whether the arbitrator's decision manifestly
disregarded that law. This process so immerses the federal court in questions of
federal law and their proper application that federal question subject matter
jurisdiction is present." The Luong court adopted this reasoning. 368 F.3d at 1112.
We assume for the sake of argument that a claim of manifest disregard of
federal law could endow the court with subject-matter jurisdiction. Though we are
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not certain that we agree with Greenberg, we need not press the matter because we
can "choose among threshold grounds for denying audience to a case on the merits,"
Ruhrgas AG, 526 U.S. at 585.
A court does not obtain subject-matter jurisdiction just because a plaintiff
raises a federal question in his or her complaint. Hagans v. Levine, 415 U.S. 528,
537-38 (1974); Bell v. Hood, 327 U.S. 678, 682-83 (1946). If the asserted basis of
federal jurisdiction is patently meritless, then dismissal for lack of jurisdiction is
appropriate. Hagans, 415 U.S. at 537-38; Perpetual Securities, Inc. v. Tang, 290 F.3d
132, 137 (2d Cir. 2002). Because this is a facial rather than a factual challenge to
jurisdiction, we determine whether the asserted jurisdictional basis is patently
meritless by looking to the face of the complaint, see McKenzie v. City of White Hall,
112 F.3d 313, 316 (8th Cir. 1997), and drawing all reasonable inferences in favor of
the plaintiff, see Mattes v. ABC Plastics, Inc., 323 F.3d 695, 698 (8th Cir. 2003);
Crumpley-Patterson v. Trinity Lutheran Hosp., 388 F.3d 588, 590 (8th Cir. 2004).
Mr. Biscanin's complaint recites the following as the basis of his allegation that the
arbitrators manifestly disregarded the law: "The [arbitration] Panel blatantly and
willfully ignored clearly applicable and well-settled [federal] law ... Proper
application of the law required the Panel to make an award to [Mr. Biscanin] ... of
$2,913,898. There is no other possible rational, logical or lawful result."
To demonstrate that arbitrators manifestly disregarded the law, a party must
show that the arbitrators were fully aware of the governing law and refused to apply
it. Stark v. Sandberg, Phoenix, & von Gontard, 381 F.3d 793, 802 (8th Cir. 2004),
petition for cert. filed, 73 U.S.L.W. 3473 (U.S. Feb. 2, 2005) (No. 04-1056). The
disregard must appear clearly in the record of the arbitration, and "there must be some
evidence in the record, other than the result, that the arbitrators were aware of the law
and intentionally disregarded it." Lincoln Nat'l Life Ins. Co. v. Payne, 374 F.3d 672,
674-75 (8th Cir. 2004); see also Marshall v. Green Giant Co., 942 F.2d 539, 550 (8th
Cir. 1991); Prudential-Bache Sec., Inc. v. Tanner, 72 F.3d 234, 240-41 (1st Cir.
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1995); O.R. Sec., Inc. v. Professional Planning Assocs., Inc., 857 F.2d 742, 747 (11th
Cir. 1988).
Mr. Biscanin's assertion that the arbitrators manifestly disregarded federal law
is clearly untenable. The essence of his claim is that the size of the award proves that
the arbitrators manifestly disregarded the law. Though the text of the complaint
supports other reasonable inferences about the essence of his claim, Mr. Biscanin's
arguments on appeal preclude us from drawing them. Cf. Crowley Cutlery Co. v.
United States, 849 F.2d 273, 278-79 (7th Cir. 1988). In his reply brief, Mr. Biscanin
writes the following: "Whether there has been manifest disregard of applicable law
must always be gleaned from the surrounding circumstances. Here those
circumstances are that the panel acknowledged applicable law by referring to
Biscanin's papers but then set about to disregard it as evidenced by the award."
(Based on language earlier in the paragraph from which we draw this excerpt – and
Mr. Biscanin's opening brief – it is clear that Mr. Biscanin is using the term "award"
here to refer to the size of the award.) In other words, Mr. Biscanin admits that his
only evidence that the arbitrators disregarded the law is the size of the award.
We conclude that Mr. Biscanin's allegation of manifest disregard is so
untenable as to be patently meritless. As we have previously explained, circuit
precedent forecloses his argument that the result obtained provides the necessary
proof that the arbitrators disregarded the law. Lincoln Nat'l, 374 F.3d at 675;
Marshall, 942 F.2d at 550. What is more, Mr. Biscanin does not try to distinguish his
case from Lincoln National or Marshall (apart from the argument that a New York
state court has relied on the size of an award to find disregard), nor does he argue that
they are wrong. (He had the opportunity to do both of these things because Merrill
Lynch argued in its brief that more than the result is necessary to show disregard.)
His claim is obviously doomed to fail, then, and as such, it is patently meritless. In
a similar case, the Second Circuit agreed, finding that a claim foreclosed by circuit
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precedent was patently meritless and so did not provide a basis for federal-question
jurisdiction. Perpetual Sec., Inc., 290 F.3d at 138-39.
Because the asserted basis of federal jurisdiction is patently meritless, we
vacate the district court's dismissal on res judicata grounds and remand to that court
for entry of an order dismissing the action for lack of subject-matter jurisdiction. See
Hagans 415 U.S. at 536-38.
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