Federal Arbitration Act & Diversity Jurisdiction (Part 2) — Jurisdiction to Confirm Award Based on Unarbitrated, Stayed Claims

Following up on our post of August 23, 2008, concerning the D.C. Circuit’s decision Karsner v. Lothian, 532 F.3d 876, 882-883 (D.C. Cir. 2008), the following is from U-Save Auto Rental of Am., Inc. v. Furlo, 2009 U.S. Dist. LEXIS 26341 (S.D. Miss. Mar. 31, 2009)):

At issue on defendants' motion is whether this court had jurisdiction based on diversity of citizenship to enter its order and judgment confirming an arbitrator's award in favor of plaintiff U-Save for an amount less than the $75,000 jurisdictional minimum required for diversity jurisdiction. U-Save has responded in opposition to defendants' motion, insisting that the court has diversity jurisdiction notwithstanding that the amount of the arbitrator's award was under $75,000 since defendants had demanded recovery of an amount in excess of $75,000. Having considered the parties' memoranda of authorities and other pertinent authorities, the court now concludes that there is subject matter jurisdiction and that consequently, the court's judgment confirming arbitration award stands.

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Among the circuits, there is a split of authority as to the basis for determining the amount in controversy in a suit to confirm or vacate an arbitration award. See Karsner v. Lothian, 532 F.3d 876, 882-883 (D.C. Cir. 2008) (acknowledging split). The Fifth Circuit has not considered the issue ***>

In Karsner v. Lothian, supra, the court explained the divergence of circuit holdings on this amount in controversy issue, stating that while the issue was one of first impression in the D.C. Circuit,

Other circuits have used three different approaches to this question: the award, the demand and the remand approaches. Under the award approach, the amount in controversy is determined by the amount of the underlying arbitration award regardless of the amount sought. See, e.g., Ford v. Hamilton Invs., Inc., 29 F.3d 255, 260 (6th Cir. 1994). Pursuant to the demand approach, the amount in controversy is the amount sought in the underlying arbitration rather than the amount awarded. See, e.g., Am. Guar. Co. v. Caldwell, 72 F.2d 209, 211 (9th Cir. 1934); see also Bull HN Info. Sys., Inc. v. Hutson, 229 F.3d 321, 328-30 (1st Cir. 2000) (applying demand approach to bifurcated arbitration proceeding). The remand approach appears to apply if the petition includes a request to remand and reopen the arbitration proceeding, in which case the amount in controversy is the amount sought in the underlying arbitration. See, e.g., Peebles v. Merrill Lynch, Pierce, Fenner & Smith Inc., 431 F.3d 1320, 1325-26 (11th Cir. 2005).

Karsner, 532 F.3d at 883. The court in Karsner settled on the demand approach***

This court considers the court's reasoning in Karsner persuasive. However, even if the Fifth Circuit were to conclude that the amount of the arbitrator's award controlled the amount in controversy in an action to confirm or vacate an arbitration award which is brought separate from the original action to compel arbitration, the court is of the opinion that jurisdiction is proper in this case since the application to confirm the arbitration award is brought in and as part of the original action to compel arbitration.

The court acknowledges defendants' argument that the court's order compelling arbitration was a final decision that terminated this action, and that U-Save's application for confirmation was "a completely new action," which requires an independent basis for jurisdiction. However, while this case was administratively closed following entry of the agreed order compelling arbitration, as U-Save notes, the court's order compelling arbitration was not a "final" order, inasmuch as it specifically contemplated further action by this court, reciting that the claims in the Florida state court against Sandy Miller and Specialty Van Rental, which were not included in the agreed order compelling arbitration, would be stayed pending the outcome of that arbitration and/or until a final ruling by this court on whether arbitration of the claims against those defendants would be compelled. Thus, entry of the order compelling arbitration did not dismiss this action and terminate the court's jurisdiction over this matter. There was nothing to prevent U-Save from coming back into this court, on the basis of jurisdiction previously established, to seek confirmation of the arbitration award. Accordingly, the court denies the motion to dismiss for lack of subject matter jurisdiction.