Scales v. Ace Hotel NY

Background

William Scales proceeded without a lawyer and filed this action against Ace Hotel NY. His amended complaint alleged that Ace Hotel NY withheld documents and submitted false documents during an arbitration involving Scales, his union representatives, and Ace Hotel NY concerning contributions to his 401(k) account. It also alleged that Ace Hotel NY made derogatory statements about him, including calling him a liar. The amended complaint asserted negligence, breach of contract, and claims concerning the withholding or submission of false information during the arbitration.

Ace Hotel NY moved to dismiss. It argued that, if the amended complaint were treated as a request to overturn an arbitration award, the request was filed after the three-month deadline under the Federal Arbitration Act.

Jurisdiction analysis

The court addressed subject-matter jurisdiction before considering the timeliness argument. Subject-matter jurisdiction is a federal court’s legal authority to hear a case.

The court held that the Federal Arbitration Act did not independently establish federal-question jurisdiction. Although the Act allows a party to ask a federal court to vacate an arbitration award, it requires a separate basis for federal jurisdiction. The amended complaint did not describe the arbitration agreement, identify the contract containing it, or allege facts showing that the contract was governed by federal law. The court also found that the amended complaint did not assert another federal claim. Its claims for defamation, breach of contract, and negligence arose under state law. The court further explained that an allegation of criminal perjury would not provide a basis for federal jurisdiction because federal criminal statutes do not create private lawsuits for damages or other relief.

The court also found that the amended complaint did not establish diversity jurisdiction. Such jurisdiction requires an amount in controversy exceeding $75,000 and complete diversity between the parties. Scales alleged that he was a citizen of New York, but alleged that Ace Hotel NY’s citizenship was unknown. The complaint identified an address for Ace Hotel NY on West 29th Street in New York, New York, and did not allege facts showing that the parties were citizens of different states.

Disposition

The court granted Ace Hotel NY’s motion to dismiss without prejudice to Scales seeking permission to file a second amended complaint alleging facts establishing subject-matter jurisdiction. The court stated that Scales could, but was not required to, seek leave to amend. It directed him to file a letter by January 7, 2025, explaining any new facts and requesting permission to amend. Alternatively, he could seek relief in state court. If he did not file the letter, or could not in good faith allege facts supporting federal-question or diversity jurisdiction, the case would be dismissed without prejudice to refiling in state court. Judge Lorna G. Schofield did not decide whether the alleged arbitration-related claim was untimely.