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Supreme Court's Ameriprise Decision Won't Change FINRA Arb Process: Attorney

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What You Need to Know

  • The decision in Badgerow v. Walters does not change the use of forced arbitration by the securities industry against investors, the president of PIABA says.
  • The Supreme Court ruled that courts cannot “look through” to the underlying dispute to establish federal subject-matter jurisdiction.

The Supreme Court’s recent 8-1 decision to nullify a method to get into federal court to challenge or confirm an arbitration award will not change the FINRA arbitration process itself, but it will push more cases to state court, according to attorney Michael Edmiston, with Jonathan Evans & Associates.

On March 31, the Supreme Court ruled that courts cannot “look through” to the underlying dispute to establish federal subject-matter jurisdiction.

However, the Supreme Court’s decision in Badgerow v. Walters et al, in which advisor Denise Badgerow alleged she was unlawfully fired from Ameriprise affiliate REJ Properties, “will push more efforts to confirm or vacate arbitration awards to the state courts,” said Edmiston, president of the Public Investors Advocate Bar Association, or PIABA, a group of lawyers who represent investors in disputes with the securities industry.

Bottom line, according to Edmiston: “The Badgerow decision does not change the use of forced arbitration by the securities industry against investors. The securities industry will not give up arbitration’s benefits of confidentiality and risk management because a method to get into federal court to challenge or confirm an arbitration award has been nullified.”

Under the Federal Arbitration Act, a party to an arbitration agreement may ask a federal court to confirm or vacate an arbitral award.

The justices stated: “The question presented here is whether that same ‘lookthrough’ approach to jurisdiction applies to requests to confirm or vacate arbitral awards under the FAA’s Sections 9 and 10. We hold it does not.”

As the court’s decision states, Badgerow “initiated an arbitration proceeding against her employer’s principals, alleging that she was unlawfully terminated. After [Financial Industry Regulatory Authority] arbitrators dismissed Badgerow’s claims, she filed suit in Louisiana state court to vacate the arbitral award.”

However, REJ “removed the case to Federal District Court and applied to confirm the award. Badgerow then moved to remand the case to state court, arguing that the federal court lacked jurisdiction to resolve the parties’ requests — under Sections 10 and 9 of the FAA, respectively — to vacate or confirm the award.”

The District Court applied the look-through approach, finding jurisdiction in the federal-law claims contained in Badgerow’s underlying employment action. The Fifth Circuit affirmed.

The Badgerow decision by the Supreme Court, Edmiston said, “only addresses a narrow jurisdictional issue after an arbitration award is issued and a party seeks to enforce or vacate an arbitration award. If a party wants to convert an award to a judgment or vacate an award, it has to do so in a court of competent jurisdiction. When a party seeks to vacate an award, the other side has to seek to confirm it assuming it wants to be able to enforce the award.”

In most arbitration award situations, including FINRA arbitrations, “the moving party can go to state court to enforce or vacate an award,” Edmiston explained. “In some instances, a federal court may have jurisdiction, usually, diversity jurisdiction.”

The “look-through” argument addressed in Badgerow “was another method to get a petition to confirm or vacate into federal court,” Edmiston said.

“Badgerow lost her arbitration proceeding and sought vacatur in state court.”

The opposing party, Edmiston continued, “successfully removed the vacatur proceeding from state court to federal court and won confirmation (defeated the vacatur proceeding and confirmed the award as a judgment). The appeals and subsequent decision by the Supreme Court flowed from that jurisdictional maneuver.”