Oriental Fin. Servs. Corp. v. Betancourt-Figueroa

531 F.Supp.3d 485

ORIENTAL FINANCIAL SERVICES CORP., Petitioner,

v.Mariano BETANCOURT-FIGUEROA, et al., Respondents.

Civil No. 20-1191 (ADC)

United States District Court, D. Puerto Rico.

Signed March 31, 2021

Alfredo Fernandez-Martinez, Carlos R. Baralt-Suarez, Pedro Hernandez-Freire, Delgado Fernandez LLC, San Juan, PR, for Petitioner.

Winston Vidal-Gambaro, Winston Vidal Law Office, San Juan, PR, for Respondents.

OPINION AND ORDER

AIDA M. DELGADO-COLÓN, United States District Judge

Respondents Mariano Betancourt-Figueroa and Cristina Quiles-Santos ("respondents") filed a motion to dismiss for lack of subject matter jurisdiction. ECF No. 7 . Petitioner Oriental Financial Services, Inc. ("petitioner" or "Oriental") opposed the motion. ECF No. 8 . For the following reasons, the motion to dismiss is GRANTED .

I. Background

On April 23, 2020, Oriental filed a petition pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 10, to vacate the arbitration award of $37,000 entered on March 24, 2020 in an arbitration proceeding administered by the Financial Industry Regulatory Authority ("FINRA"), captioned Mariano Betancourt-Figueroa and Cristina Quiles-Santos v. Oriental Financial Services Corp. , FINRA Case No. 19-01124. See ECF No 1 . On April 28, 2020, respondents filed a motion to dismiss under Fed. R. Civ. P. 12(b)(1) arguing that this Court lacks subject matter jurisdiction to vacate the award. ECF No. 7 . In opposition, petitioner contends that federal question jurisdiction exists since respondents’ petition before FINRA set forth claims for violations of federal securities law. ECF No. 8 .

II. Standard of Review

Under Rule 12(b)(1), a defendant may move to dismiss a complaint for lack of subject-matter jurisdiction. Fed. R. Civ. P. 12(b)(1). When reviewing a complaint under Rule 12(b)(1), courts "construe the Complaint liberally and treat all well-pleaded facts as true, according the plaintiff[s] the benefit of all reasonable inferences." Town of Barnstable v. O'Connor , 786 F.3d 130, 138 (1st Cir. 2015) (alteration in original) (citation and internal quotation marks omitted). A complaint, so construed, must be dismissed under Rule 12(b)(1) if the Court lacks subject-matter jurisdiction to adjudicate its claims.

Since federal courts are courts of limited jurisdiction, jurisdictional matters must be promptly addressed. Torres Vazquez v. Commercial Union Ins. Co. , 417 F. Supp. 2d 227, 233 (D.P.R. 2006) (citing Spielman v. Genzyme Corp. , 251 F.3d 1 (1st Cir. 2001) ). Accordingly, this Court must determine whether it has jurisdiction to vacate the arbitration award at issue.

III. Analysis

The FAA applies to arbitration agreements "in any maritime transaction or a contract evidencing a transaction involving commerce." 9 U.S.C. § 2. It "provides several mechanisms for enforcing arbitration agreements and awards." Ortíz-Espinosa v. BBVA Sec. of P.R., Inc. , 852 F.3d 36, 42 (1st Cir. 2017). On one hand, sections 3 and 4 of the FAA provide that a court may, upon application, stay litigation pending arbitration and compel arbitration pursuant to an arbitration agreement. 9 U.S.C. §§ 3, 4. Moreover, "[o]nce an arbitration award has issued, FAA sections 9 through 11 supply means for acquiring ‘a judicial decree confirming an award, an order vacating it, or an order modifying or correcting it.’ " Id. (citing Hall St. Assocs., L.L.C. v. Mattel, Inc. , 552 U.S. 576, 582, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008) ). Of particular relevance, section 10 provides the grounds for expedited vacatur of an arbitration award. Id. (citing Hall St. , 552 U.S. at 584, 128 S.Ct. 1396 ).

The importance of post-award federal review afforded through sections 9, 10, and 11 of the FAA was echoed by the First Circuit Court of Appeals, in holding that

[t]hose provisions show that Congress contemplated that the federal courts would have a central role and broad authority to enforce arbitration agreements (including confirming, vacating, or modifying an arbitration award). Sections 9, 10, and 11 provide that proceedings may be brought in ‘the United States court in and for the district wherein the award was made.’ 9 U.S.C. § 10(a) ; accord §§ 9, 11. Ortíz-Espinosa , 852 F.3d at 43.

The FAA, however, "bestow[s] no federal jurisdiction but rather require[es] [for access to a federal forum] an independent jurisdictional basis" over the dispute between the parties. Vaden v. Discover Bank , 556 U.S. 49, 59, 129 S.Ct. 1262, 173 L.Ed.2d 206 (2009) (citations and quotations omitted); see also Ortíz-Espinosa , 852 F.3d at 43 (noting that while the FAA "provisions do not themselves confer jurisdiction, they evidently contemplate that award enforcement will occur in federal courts as a matter of course. In fact, there is no explicit provision for post-award enforcement in state courts.") Consequently, "to open the federal court's door, a party must demonstrate an independent basis for jurisdiction over the arbitration-related dispute." UBS Fin. Servs. v. Asociación De Empleados del Estado Libre Asociado , 223 F. Supp. 3d 134, 137 (D.P.R. 2016) (citing Hall , 552 U.S. at 581, 128 S.Ct. 1396 ).

In ascertaining whether jurisdiction exists to compel arbitration, the Supreme Court held that a federal court may "look through’ a § 4 petition¹ to determine whether it is predicated on an action that ‘arises under’ federal law." Vaden , 556 U.S. at 62, 129 S.Ct. 1262. Under Vaden , "[t]he proper jurisdictional inquiry for a motion to compel arbitration is whether, ‘save for [the arbitration] agreement,’ the court would have jurisdiction ‘over ‘a suit arising out of the controversy between the parties.’ " Id. at 70, 129 S.Ct. 1262 (alteration in original). The Court reasoned that if a federal court were permitted "to entertain a § 4 petition only when a federal-question suit is already before the court, when the parties satisfy the requirements for diversity-of-citizenship jurisdiction, or when the dispute over arbitrability involves a maritime contract," such an "approach would not accommodate a § 4 petitioner who could file a federal-question suit in (or remove such a suit to) federal court, but who has not done so." Ortíz-Espinosa , 852 F.3d at 44 (citing Vaden, 556 U.S. at 65, 129 S.Ct. 1262 ). By contrast, the look-through approach avoids this situation because it allows a party to request an order compelling arbitration without first "seeking federal adjudication of the very questions it wants to arbitrate rather than litigate." Id.

After Vaden , there was a split among the circuits as to the applicability of the look-through approach to post award review by federal courts. Ortíz-Espinosa , 852 F.3d at 44-45.² In Ortíz-Espinosa , the First Circuit Court of Appeals held that the look-through approach cannot be limited to section 4 petitions to compel arbitration and extended its applicability to the FAA's award enforcement provisions, namely, sections 9, 10 and 11 of the FAA. The appeals court reasoned that considering "the important role intended for the federal courts in enforcing arbitration agreements post-award, it would make no sense to effectively exclude federal question jurisdiction over those cases. And, the look-through approach is the only possible approach that would provide such federal jurisdiction." Id.³ After applying the look-through approach, the Court of Appeals found that the claims raised in the arbitration at hand involved federal securities laws and thus the district court properly exercised jurisdiction over claimant's petition to vacate the arbitration award.⁴

A review of the filings reveals that the parties do not dispute the applicability of the "look-through" doctrine to determine whether a district court has subject matter jurisdiction over a motion to vacate an arbitration award under section 10 of the FAA. Consequently, following Ortíz-Espinosa ’s holding, this Court must "look through" to respondents’ statement of claim filed in the FINRA proceedings in order to ascertain whether there is federal jurisdiction over Oriental's request to vacate the arbitration award.

At the outset, the Court must acknowledge that respondents’ motion to dismiss misses the mark when focusing on allegations that diversity jurisdiction is lacking here. Pointedly, petitioner has never alleged diversity jurisdiction. As a threshold matter, nonetheless, this Court must assess whether there is federal subject-matter jurisdiction on any grounds. See Arbaugh v. Y & H Corp. , 546 U.S. 500, 506, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006). In its motion to vacate the arbitration award, Oriental asserts that federal jurisdiction exists because respondents’ "arbitral claims included a claim for violations of a series of alleged duties defined by federal case law." ECF No. 1 at 5. Oriental further argues that respondents’ causes of action before FINRA "arise under federal law" because they "raise disputed and substantial issues of federal law." ECF No. 8 at 8; see also ECF No. 1 . Specifically, Oriental contends that federal question jurisdiction attaches insofar as respondents’ statement of claims before FINRA included alleged violations of federal statutes, such as the Investment Company Act of 1940. Lastly, Oriental proffers that this Court has supplemental jurisdiction as to the Puerto Rico law claims included in the underlying arbitration. See Ortíz-Espinosa , 852 F.3d at 47 (noting that "[a]lthough the statement of claim also includes claims arising under state law, there is no suggestion that those claims do not constitute part of the same controversy as the federal securities law claims.")

Interestingly, Oriental cites Gunn v. Minton , 568 U.S. 251, 133 S.Ct. 1059, 185 L.Ed.2d 72 (2013), to show that even if premised on state law, respondents’ causes of action before FINRA arise "under federal law" conferring jurisdiction to this Court to review its request for vacatur. The opposite result, however, is warranted here under Gunn . Oriental's request for...