First Circuit Affirms District Court’s Confirmation Of Arbitration Award Under The “Look-Through” Test

by Carlton Fields

The background of this matter could be found here. In sum, Plaintiffs Dr. Luis Ortiz-Espinosa and his wife Maritza Soto-Garcia, the conjugal partnership they formed, Espinosa-Soto, and Luis Ortiz-Espinosa, as trustee of Centro Dermatologico San Pablo PSC Retirement Plan (“Plaintiffs”) had two sets of brokerage investment accounts with defendant BBVA Securities of Puerto Rico, Inc. Plaintiffs’ accounts were opened in 2006 with over $2.6 million, and by 2009, the accounts had suffered losses of over $2.049 million. Believing that BBVA and the securities broker employed by BBVA who managed their accounts were responsible for the losses, Plaintiffs commenced arbitration before the Federal Industry Regulatory Authority (“FINRA”) against BBVA and the securities broker, asserting several claims under both federal and Puerto Rico law.

A FINRA arbitration panel conducted seventeen hearing sessions in Puerto Rico, and then issued an award, denying Plaintiffs’ claims. Plaintiffs then filed a complaint in Puerto Rico court, requesting that the court vacate or modify the arbitration award under the Puerto Rico Arbitration Act. Defendants removed the case to Puerto Rico federal court, arguing that the district court had federal question jurisdiction and also had supplemental jurisdiction over the state law claims. Plaintiffs moved to remand the case to Puerto Rico court for lack of jurisdiction. The federal district court denied the motion to remand after applying the look-through approach, a test which the Supreme Court had previously determined applies under the FAA with respect to motions to compel arbitration. Under this approach, a court may “look through” the motion to compel to determine if it is predicated on an action that “arises under federal law.” Thus, the district court “looked through” the motions to confirm and vacate and determined that the underlying statement of claim in the arbitration alleged claims based on federal securities laws. The district court subsequently denied Plaintiffs’ petition to vacate or modify the arbitration award and granted the petition to confirm the award, noting that disturbing the arbitration award was “not warranted” under either under the Federal Arbitration Act (“FAA”) or Puerto Rico law. Plaintiffs appealed to the First Circuit.

The First Circuit first found that the FAA applied to this it involves an arbitration agreement in a transaction involving commerce. It then held that the look-through approach is the correct test in arbitration award enforcement proceedings, noting that federal courts have an important role in enforcing arbitration agreements post awards, and thus, it would not make sense to exclude federal question jurisdiction over those cases. The First Circuit also noted that the look-through approach is the only possible approach that would provide such federal jurisdiction. The First Circuit also determined that federal jurisdiction existed as there was no question that Plaintiffs’ claims in the arbitration involved federal securities laws arising under federal laws. Finally, the First Circuit found that the district court did not err in refusing to vacate the award and in confirming it. Thus, the First Circuit affirmed the Puerto Rico federal district court’s confirmation of the arbitration award.

Ortiz-Espinosa v. BBVA Securities of Puerto Rico, Inc., No. 16-1122 (1st Cir. 2017).


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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