Ortiz-Espinosa v. BBVA Securities of Puerto Rico, Inc.
852 F.3d 36
| 1st Cir. | 2017Background
- In 2006 claimants (Ortiz-Espinosa, his wife, their conjugal partnership, and a retirement plan) opened brokerage accounts with BBVA Securities; substantial losses (≈$2.05M) followed and claimants alleged broker misconduct and securities law violations.
- Claimants filed a FINRA arbitration (2009–2012) alleging federal securities claims, PR securities claims, torts, contract claims, and ERISA allegations; the FINRA panel denied all claims and issued an award in favor of respondents.
- Claimants filed a petition in Puerto Rico court to vacate/modify the award under the Puerto Rico Arbitration Act (PRAA); respondents removed to federal district court asserting federal-question jurisdiction via a "look-through" to the underlying federal securities claims.
- The district court applied the look-through test, declined to vacate the award, and confirmed it; claimants appealed both the denial of remand and the confirmation.
- The First Circuit (panel) held that the Federal Arbitration Act (FAA) governs, adopted the look-through approach for post-award proceedings under FAA §§ 9–11, found federal-question jurisdiction, and affirmed the district court’s refusal to vacate and its confirmation of the award.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal courts have subject-matter jurisdiction over a petition to vacate/modify an arbitration award | Claimants: They sued under PRAA and invoked state law; federal court lacks jurisdiction because petition pleads state-law vacatur grounds | Respondents: FAA applies; court may "look through" the vacatur petition to the underlying dispute to find federal-question jurisdiction | Court: FAA governs; adopt look-through for §§ 9–11; federal-question jurisdiction exists because underlying dispute arises under federal law |
| Whether the FAA or PRAA standards govern review of the award | Claimants: PRAA applies because petition invoked state statute | Respondents: FAA applies to arbitration agreements involving interstate commerce | Court: FAA applies; district court need not choose precisely here because FAA and PRAA grounds are substantially similar, but FAA governs enforcement |
| Whether arbitrators were evidently partial or guilty of misconduct (bases for vacatur under FAA §10) | Claimants: Arbitrators ignored overwhelming evidence, counsel made an admission, one arbitrator made biased comments, and relevant prior-act evidence was improperly excluded | Respondents: Denial of relief reflects merits; comments and evidentiary rulings do not show bias or prejudice; exclusion was proper or harmless | Court: Claimants failed to show evident partiality or prejudicial misconduct; rulings fell within arbitrators’ latitude; vacatur not warranted |
| Whether award should be modified or corrected under FAA §11 | Claimants: Calculation/number errors flow from errors of law/fact and warrant modification | Respondents: §11 permits only correction of evident arithmetic or descriptive errors, not mere merits reversal | Court: §11 does not permit modification for the claimed merits errors; no basis to modify; confirm the award |
Key Cases Cited
- Vaden v. Discover Bank, 556 U.S. 49 (look-through approach for §4 petitions to compel arbitration)
- Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576 (FAA §§9–11 provide exclusive federal vacatur/modify grounds; FAA governs enforcement absent clear contractual agreement to state law)
- Bernhardt v. Polygraphic Co. of Am., 350 U.S. 198 (FAA applies to contracts evidencing transactions involving commerce)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (federal courts’ role in arbitration enforcement; FAA does not itself create a federal cause of action for jurisdictional purposes)
- Stolt-Nielsen S.A. v. Animal-Feeds Int’l Corp., 559 U.S. 662 (reservation on whether "manifest disregard" survives Hall Street)
- Doscher v. Sea Port Grp. Sec., LLC, 832 F.3d 372 (2d Cir. adopting look-through for §10 vacatur petitions)
- Magruder v. Fid. Brokerage Servs. LLC, 818 F.3d 285 (7th Cir. rejecting look-through for §10 petitions)
- Goldman v. Citigroup Glob. Mkts. Inc., 834 F.3d 242 (3d Cir. rejecting look-through for §10 petitions)