The Fourth Circuit Court of Appeals recently held that it lacked jurisdiction over a petition to vacate an arbitration award.
Petitioners Stanley and Gail Friedler and several other individuals opened brokerage accounts with Stifel, Nicolaus & Co. The petitioners were unhappy with the management of their accounts and filed claims for arbitration alleging mismanagement with FINRA. The arbitration panel ruled for Stifel. The petitioners moved to vacate FINRA’s award. The district court denied the petitioners’ motion, and the petitioners appealed to the Fourth Circuit.
The Fourth Circuit questioned whether the federal courts had jurisdiction in light of the Supreme Court’s decision in Badgerow v. Walters, 596 U.S. 1 (2022), which held that “the face of [a] petition [to vacate arbitration awards] must contain an independent jurisdictional basis beyond the Federal Arbitration Act (‘FAA’) itself.” Both parties argued the courts had jurisdiction.
The Fourth Circuit disagreed. It rejected the parties’ argument “that because the ‘face of the petition’ asserts that the arbitration panel manifestly disregarded federal securities laws, the district court had federal-question jurisdiction over the dispute.” The Fourth Circuit explained that a “petition to vacate an arbitration award doesn’t raise the merits of the underlying claim, but rather the ‘enforceability of an arbitral award,’ which is ‘no more than a contractual resolution of the parties’ dispute.’” The court also disagreed with the argument “that a claim of manifest disregard is a creature of federal common law that itself gives rise to federal-question jurisdiction.”
The Fourth Circuit therefore vacated and remanded the district court’s decision with instructions to dismiss the petition to vacate the arbitration award.
Friedler v. Stifel, Nicolaus & Co., No. 22-1895 (4th Cir. July 18, 2024).