Janus Distributors LLC v. Roberts
1:16-cv-02130
D. Colo.May 5, 2017Background
- Roberts worked for Janus Distributors LLC (Nov 2012–Nov 2014); resigned during investigation for charging personal expenses to a Janus card.
- Janus filed a Form U5 reporting Roberts was under investigation for fraud; the Form U5 is retained in FINRA’s CRD and is visible to prospective employers.
- Roberts pursued FINRA arbitration against Janus seeking expungement of the Form U5 entry and damages for defamation.
- A FINRA panel issued an award favoring Roberts: recommended expungement and awarded over $500,000 (award language left ambiguous whether damages derived from expungement remedy or tort).
- Janus petitioned this Court under the Federal Arbitration Act (FAA), 9 U.S.C. § 10, to vacate the arbitration award; Roberts moved to dismiss for lack of subject-matter jurisdiction.
- The district court concluded the FAA does not itself create federal-question jurisdiction and that the Securities Exchange Act did not supply an independent federal basis; it dismissed Janus’s petition without prejudice under Rule 12(b)(1).
Issues
| Issue | Plaintiff's Argument (Janus) | Defendant's Argument (Roberts) | Held |
|---|---|---|---|
| Whether FAA §10 supplies federal-question jurisdiction to vacate the arbitration award | FAA §10 authorizes federal courts to vacate awards, so federal jurisdiction exists | FAA does not create an independent federal cause of action or federal-question jurisdiction | FAA does not create jurisdiction; §10 alone is not a basis for federal-question jurisdiction — dismissal granted |
| Whether the Securities Exchange Act supplies federal-question jurisdiction | SEC oversight of FINRA and the Award’s conflict with FINRA/SEA rules makes resolution depend on federal securities law | Mere reference to SEA/FINRA oversight is insufficient; no federal issue is necessarily raised | The petition does not present a substantial federal question; SEA does not confer jurisdiction here |
| Whether FINRA rules (and SEC approval) transform the dispute into federal/state action | Janus: FINRA’s SEC-related origin makes the dispute federal | Roberts: FINRA is a private self-regulatory organization; SEC approval alone is not state action | Court: SEC approval alone does not make FINRA action federal; FINRA-rule breaches are private-law matters |
| Whether to apply the “look-through” approach to §10 petitions (i.e., examine underlying arbitration claims to determine jurisdiction) | Janus: court should look through the award to the underlying FINRA disclosure dispute | Roberts: look-through is unnecessary and not pleaded as jurisdictional basis | Court declined to decide the circuit split on look-through as it was unnecessary to disposition |
Key Cases Cited
- Southland Corp. v. Keating, 465 U.S. 1 (describing FAA as not creating independent federal-question jurisdiction)
- Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (FAA does not by itself create jurisdiction; independent basis required)
- Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1 (well-pleaded complaint rule; federal-question standards)
- Vaden v. Discover Bank, 556 U.S. 49 (look-through approach adopted for §4 petitions to compel arbitration)
- ACAP Financial, Inc. v. U.S. Securities & Exchange Comm’n, 783 F.3d 763 (characterizing FINRA as quasi-governmental for industry oversight context)
- Blum v. Yaretsky, 457 U.S. 991 (government approval of private action does not necessarily create state action)
- Desiderio v. NASD, 191 F.3d 198 (SEC approval of FINRA forms does not subject them to constitutional/state-action constraints)
- Ford v. Hamilton Investments, 29 F.3d 255 (breach of FINRA rules does not, by itself, raise federal securities-law questions)
- Karsner v. Lothian, 532 F.3d 876 (describing CRD and addressing FINRA-related issues)