Arbitration – Subject Matter Jurisdiction

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7th Circuit Court of Appeals

Case Name: Michael Magruder v. Fidelity Brokerage Services, LLC

Case No.:15-1846

Officials: WOOD, Chief Judge, and POSNER and EASTERBROOK, Circuit Judges.

Focus: Arbitration – Subject Matter Jurisdiction

Appellant seeks to receive stock certificates from respondent unsuccessfully. The issue at hand is more appropriately adjudicated at the state level.

“It is not clear to us that §240.15c3–3(l)(1) establishes a federal right. It says that “[n]othing stated in this section shall be construed as affecting the absolute right of a customer of a broker or dealer to receive in the course of normal business … the physical delivery of certificates for … [f]ully  paid securities to which he is entitled”. This declares that the section does not affect the customer’s right to receive certificates to which “he is entitled.” And when is a customer so entitled? That seems to be left to contracts between customer and broker, or to state corporate law.. . . One passage in Lefkovitz v. Wagner, 395 F.3d 773 (7th Cir. 2005), could be read as inconsistent with Doerge and Minor. We remarked of one particular arbitration: “[T]here was neither complete diversity nor a federal question; and an arbitration award cannot be enforced in federal court unless the dispute giving rise to the award would have been within the court’s jurisdiction to resolve had the dispute given rise to a lawsuit rather than to an arbitration.” 395 F.3d at 781. This implies a belief that, if the arbitrator resolves a federal issue, then §1331 supplies jurisdiction over an action under §9 or §10. But Lefkovitz did not hold this; it stated that neither complete diversity nor a federal question existed. Lefkovitz did not discuss Doerge or Minor and had no reason to do so. Even when a federal court finds jurisdiction, as this passage in Lefkovitz did not, an unreasoned assertion of jurisdiction lacks precedential value. See, e.g., Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 90–92 (1998) (drive by juris  dictional rulings may be ignored). The question addressed in Doerge, Minor, and our decision today simply was not on the table in Lefkovitz, which does not modify circuit law.”

Vacated and remanded w/ instructions to dismiss

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.