Doscher v. Sea Port Group Securities, LLC
2016 U.S. App. LEXIS 14767
2d Cir.2016Background
- Drew Doscher, a former co-head of sales/trading at Seaport, obtained a FINRA arbitration award (~$2.3M) and filed a §10 FAA petition to vacate the award in S.D.N.Y., alleging (1) discovery deficiencies under §10(a)(3) and (2) manifest disregard of FINRA Rule 13505 (party cooperation).
- Doscher argued jurisdiction existed because his underlying arbitration included a §10(b) securities claim and because FINRA rules are federal (SEC‑regulated) so alleged violations raise federal questions on the petition’s face.
- The District Court dismissed for lack of subject‑matter jurisdiction, concluding violations of FINRA rules are not federal law and that Greenberg v. Bear, Stearns barred a “look‑through” to the underlying dispute for §10 petitions.
- On appeal, the Second Circuit considered whether Greenberg remained good law after the Supreme Court’s Vaden decision (which allowed a look‑through for §4 petitions).
- The Second Circuit held FINRA internal rules (as applied to arbitrators or parties) do not, by themselves, present a federal question sufficient on the face of a §10 petition; but Vaden undermined Greenberg’s ban on look‑through and thus Greenberg was overruled.
- The Court vacated and remanded so the district court may apply a look‑through approach to determine §1331 jurisdiction over the underlying dispute.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Doscher’s §10 petition alleges on its face a manifest disregard of federal law (creating §1331 jurisdiction) | Doscher: FINRA Rule 13505 is federal law (SEC‑approved SRO rule), so arbitrators’ alleged disregard raises a federal question on the petition face | Respondents: FINRA rules impose duties only on FINRA, not on arbitrators/parties; alleged rule violations are too attenuated to be federal law for §10 jurisdiction | Held: No — FINRA Rule 13505 alleged violation does not present a federal question on the face of the §10 petition |
| Whether a district court may "look through" a §10 FAA petition to the underlying dispute to determine federal‑question jurisdiction under §1331 | Doscher: Court should look through because the underlying arbitration included a §10(b) federal claim | Respondents: Greenberg prohibits look‑through for §10; jurisdiction must appear on petition face | Held: Overruled Greenberg; court may look through §10 petitions and apply ordinary §1331 analysis to the underlying dispute |
| Whether Greenberg v. Bear, Stearns remains binding after Vaden v. Discover Bank | Doscher: Vaden undermines Greenberg and permits look‑through beyond §4 | Respondents: Greenberg remains controlling; §4’s “save for” language is unique | Held: Vaden is an intervening Supreme Court decision that fractured Greenberg’s rationale; Greenberg overruled |
| Effect of adopting look‑through on statutory consistency and purpose of the FAA | Doscher: (implicit) look‑through aligns with Vaden, avoids anomalous jurisdictional gaps | Respondents: (implicit) limiting look‑through to §4 respects textual differences (no "save for" in §10) | Held: Looking through promotes consistency with Vaden, avoids absurd jurisdictional anomalies, and aligns with FAA’s remedial scheme (remedies available without changing ordinary jurisdictional inquiry) |
Key Cases Cited
- Vaden v. Discover Bank, 556 U.S. 49 (2009) (look‑through approach applied to §4 petitions; analysis driven by §4 text and §1331 principles)
- Greenberg v. Bear, Stearns & Co., 220 F.3d 22 (2d Cir. 2000) (held §10 petitions cannot be looked through; federal question must appear on petition face)
- Westmoreland Capital Corp. v. Findlay, 100 F.3d 263 (2d Cir. 1996) (rejected look‑through for §4; basis for Greenberg’s extension)
- NASDAQ OMX Group, Inc. v. UBS Securities, LLC, 770 F.3d 1010 (2d Cir. 2014) (SRO duties to operate fair market sourced in Exchange Act can create substantial federal issues in state‑law claims)
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, 136 S. Ct. 1562 (2016) (construed §78aa and narrowed Sparta; exclusive federal jurisdiction applies where federal law creates the cause of action or where a substantial federal issue is necessarily raised)
- Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576 (2008) (§10 provides exclusive, narrow grounds for vacatur; manifest disregard treated as judicial gloss)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (FAA embodies federal policy favoring arbitration and creates federal substantive law of arbitrability)