Judith Goldman v. Citigroup Global Markets Inc
2016 U.S. App. LEXIS 15335
| 3rd Cir. | 2016Background
- Judith and Kenneth Goldman arbitrated FINRA claims against Citigroup Global Markets Inc. (CGMI) and broker Barry Guariglia alleging unsuitable high‑risk trading, improper margining, a devastating margin call, securities fraud, and related state law claims.
- FINRA mediation produced a settlement with Merrill Lynch but not CGMI; Goldmans alleged CGMI spied on confidential mediation and the mediator denied it under oath.
- A FINRA panel heard evidence over multiple days, granted CGMI’s motion to dismiss after the Goldmans rested, and found no proof a margin call occurred; the panel dismissed all claims and allocated fees.
- The Goldmans repeatedly sought district‑court relief (TROs, injunctions) during arbitration; courts denied relief and instructed them to await the arbitration award before seeking vacatur.
- After the award issued, the Goldmans filed a § 10 FAA motion to vacate in the Eastern District of Pennsylvania, alleging panel partiality, procedural misconduct, and manifest disregard of federal margin rules; the district court dismissed for lack of subject‑matter jurisdiction.
- The Third Circuit affirmed, holding § 10 motions cannot be "looked through" to the underlying arbitration for federal‑question jurisdiction and that the Goldmans’ pleading did not on its face present a substantial federal question.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a § 10 motion to vacate can "look through" to the underlying arbitration to establish federal‑question jurisdiction | Goldmans: Under Athena Venture and Vaden, court should look through to underlying securities claims (federal) to get § 1331 jurisdiction | CGMI: § 10 lacks § 4’s "save for such agreement" language; well‑pleaded complaint rule controls and look‑through does not apply | Held: No look‑through for § 10; apply well‑pleaded complaint rule (affirmed) |
| Whether the FAA § 10 itself creates federal jurisdiction for vacatur motions | Goldmans: § 10 confers federal jurisdiction to vacate FAA awards | CGMI: Precedent confirms FAA does not create jurisdiction; independent basis required | Held: FAA does not create jurisdiction; independent federal question or diversity required (affirmed) |
| Whether allegations that the arbitrators "manifestly disregarded" federal margin law create a substantial federal question | Goldmans: Panel manifestly disregarded 15 U.S.C. § 78g and 12 C.F.R. § 220.12 by finding no margin call | CGMI: Dispute is factual; statutes/regulations cited are not actually contested on their meaning; claim is essentially contract/arbitration misconduct | Held: Manifest‑disregard claim here is factual/supportive of misconduct, not a necessarily raised, disputed, and substantial federal issue—insufficient for § 1331 (affirmed) |
| Whether FINRA rule violations or SRO status convert the vacatur claim into a federal question | Goldmans: FINRA is an SRO under the ’34 Act; alleged procedural violations implicate federal oversight and thus federal law | CGMI: FINRA membership alone does not transform routine arbitration‑process complaints into significant federal issues; facts unlike NASDAQ OMX | Held: Mere involvement of an SRO and FINRA rule complaints do not present a substantial federal question; distinguish NASDAQ OMX (affirmed) |
Key Cases Cited
- Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (Sup. Ct.) (FAA creates federal substantive law but not federal‑question jurisdiction)
- Vaden v. Discover Bank, 556 U.S. 49 (Sup. Ct.) (§ 4 look‑through for jurisdiction due to § 4 text; does not disturb well‑pleaded complaint rule)
- Grable & Sons Metal Products v. Darue Engineering, 545 U.S. 308 (Sup. Ct.) (tests for when a state‑law claim raises a substantial federal issue)
- Gunn v. Minton, 568 U.S. 251 (Sup. Ct.) (Grable/ substantiality inquiry focuses on importance to federal system)
- Hall Street Associates v. Mattel, 552 U.S. 576 (Sup. Ct.) (statutory grounds in §§ 10 and 11 are exclusive; called manifest‑disregard’s status into question)
- Goldman Sachs & Co. v. Athena Venture Partners, L.P., 803 F.3d 144 (3d Cir.) (panel opinion contained an unexamined footnote suggesting look‑through for underlying securities claims)
- Virgin Islands Hous. Auth. v. Coastal Gen. Constr. Servs. Corp., 27 F.3d 911 (3d Cir.) (applied well‑pleaded complaint rule to § 10 motions; refused look‑through)
- NASDAQ OMX Grp., Inc. v. UBS Securities, LLC, 770 F.3d 1010 (2d Cir.) (found federal jurisdiction where SRO/NASDAQ regulation was pervasively federal and implicative of national securities market)