Pershing, L.L.C. v. Kiebach, No. 15-30396 (5th Cir. Apr. 6, 2016) [click for opinion]

Thomas Kiebach and the other appellants in this case were investors who suffered financial losses from the R. Allen Stanford Ponzi scheme. They filed a complaint in arbitration seeking $80 million in damages from Appellee Pershing, a clearing broker for Stanford Group Company, alleging Pershing failed to disclose adverse financial information. After a two-week hearing before a FINRA panel, the panel rejected the investors’ claims but nonetheless awarded them $10,000 in compensation for certain arbitration expenses.

When Pershing moved to confirm the award in federal district court, the investors moved to dismiss the action, arguing the arbitration award fell below the amount-in-controversy for diversity jurisdiction. The district court held the $75,000 threshold was satisfied, but certified the issue for interlocutory appeal, citing disagreement among federal courts regarding the proper standard for determining the amount-in-controversy when confirming an arbitration award of less than $75,000.

The Fifth Circuit accepted the interlocutory appeal to decide whether the “award approach” or the “demand approach” should be followed when confronting this issue. Under the award approach, the amount-in-controversy is determined by the amount awarded in arbitration, whereas under the demand approach, it is determined by the amount sought by the claimants in the underlying arbitration.

The Fifth Circuit agreed with the district court’s conclusion that the demand approach is appropriate. Following the demand approach recognized the true scope of the parties’ controversy. The demand approach also avoided the application of two conflicting jurisdictional tests for the same controversy, as a federal district court’s diversity jurisdiction over a motion to compel arbitration depends on the amount demanded in the petition for arbitration. Finally, following the demand approach results in federal jurisdiction coextensive with the diversity jurisdiction that would have otherwise been present had the case been litigated rather than arbitrated.

District Judge Michael P. Mills of the U.S. District Court for the Northern District of Mississippi, sitting by designation, concurred in result only, advocating a case-by-case approach to determining the jurisdictional amount rather than a uniform standard. The concurrence posited that, while the demand approach worked well enough here, a federal court’s duty is to determine whether the jurisdictional amount is satisfied in a particular case, and a single approach could not possibly yield the correct result in all cases.