United States District Court, E.D. Pennsylvania
NORMA L. SHAPIRO, District Judge.
Before the court are petitioner William Lex's ("Lex's") Petition to Vacate Arbitration Award (paper no. 1) and respondent Marvin Weinar's ("Weinar's") Cross-Petition to Confirm Arbitration Award (paper no. 17). Lex's Petition to Vacate is granted, in part, and denied, in part, and Weinar's Cross-Petition to Confirm is denied as untimely.
Lex, a Pennsylvania citizen and securities broker, began advising Weinar, a New Jersey citizen, in 2004. Primarily selling insurance products and variable and fixed annuities, Lex worked as an independent broker for more than thirty-five years. In the early 1980s, Lex affiliated with a New York-based broker-dealer, McGinn Smith & Co., Inc. ("McGinn Smith"). McGinn Smith was registered with the United States Securities and Exchange Commission ("SEC") and was a member firm of the Financial Industry Regulatory Authority ("FINRA"). When Weinar first consulted Lex, Lex was an independent contractor with McGinn Smith. Based on Weinar's income, assets, and financial objectives, Lex advised Weinar to invest a portion of his assets in "LLC Notes, " a type of private placement promissory note. Weinar's account with Lex was non-discretionary; Lex was not able to make investment decisions on Weinar's behalf. Weinar earned approximately $100, 000 in interest from his investment in the LLC Notes and used the money to purchase additional notes.
Between 2006 and 2010, the principals of McGinn Smith were diverting client investment funds and using them for personal purposes. McGinn Smith and its affiliates were placed in receivership and had their assets frozen on April 20, 2010, by a temporary restraining order filed in Securities & Exchange Commission v. McGinn Smith & Co., 1:10-CV-00457 (N.D.N.Y. Apr. 20, 2010). Because of the SEC action against McGinn Smith, Weinar's investments lost all value. In December 2010, Weinar initiated the underlying arbitration against Lex under Section 13302 of the FINRA Code of Arbitration Procedure. Weinar, seeking compensatory damages in excess of $440, 000, alleged that Lex had breached numerous duties by recommending "unsuitable and inappropriate" investments and transactions.
Three FINRA arbitrators held the arbitration in Philadelphia, Pennsylvania. On February 14, 2013, the arbitrators entered an award in favor of Weinar; Lex was ordered to pay compensatory damages of $270, 000 plus six percent interest, compounded annually, and fees of $7, 862.50. Arbitration Award at 3 (paper no. 1, ex. A). The arbitrators further ordered that, upon Lex's payment of the award, Weinar had to assign Weinar's interest in the LLC Notes to Lex. Id. Weinar lost approximately $440, 000 of his personal funds by investing in the worthless LLC Notes.
On the day the arbitrators entered the award, Weinar filed a petition to confirm arbitration award in the New York State Supreme Court under the New York arbitration statute, N.Y. CVP. Law §§ 7501-7514. Petition to Confirm Arbitration Award, Weinar v. Lex, No. 650495-13 (N.Y. Sup Ct., N.Y. Cnty. Feb. 14, 2013). Lex filed a notice of removal to the U.S. District Court for the Southern District of New York. Notice of Removal, Weinar v. Lex, No. 13-CV-01511 (S.D.N.Y. Mar. 6, 2013). Lex filed a motion to dismiss for lack of personal jurisdiction or, in the alternative, to transfer the action to the Eastern District of Pennsylvania.
On April 3, 2013, Lex filed a petition to vacate arbitration award (paper no. 1) under the Federal Arbitration Act ("FAA"). Weinar filed a motion to dismiss, transfer, or stay the action, and the court ordered the action stayed pending the Southern District of New York decision on personal jurisdiction over Lex.
The Southern District of New York granted Lex's motion to dismiss for lack of personal jurisdiction. With no appeal from that decision having been filed, this court removed the action from administrative suspense. Weinar filed a Cross-Petition to Confirm Arbitration Award under the FAA (paper no. 17).
The court has jurisdiction under 28 U.S.C. § 1332(a)(1). Lex is a Pennsylvania citizen, Weinar is a New Jersey citizen, and the underlying arbitration award exceeds $270, 000. Personal jurisdiction and venue are uncontested.
Petitioner filed his vacatur petition under the FAA. Although the FAA does not constitute an independent basis for federal jurisdiction, a diversity case may be brought under the FAA when the underlying arbitration agreement affects interstate commerce. Goodwin v. Elkins & Co., 730 F.2d 99, 108-09 (3d Cir. 1984), cert. denied, 469 U.S. 831 (1984). It is undisputed that the underlying contract containing the arbitration agreement and establishing Lex ...