Kaplan v. Merrill Lynch, Pierce, Fenner & Smith Inc.

Background

Adam S. Kaplan and Daniel E. Kaplan petitioned to vacate, or cancel, a Financial Industry Regulatory Authority arbitration award entered in favor of Merrill Lynch, Pierce, Fenner & Smith Inc. The Kaplans had sought removal of allegedly retaliatory, defamatory, and false statements that Merrill Lynch filed with the regulator on Form U5 notices. After a two-day hearing, a three-person arbitration panel issued its award on November 16, 2021.

The Kaplans filed their federal petition on February 16, 2022. That day, their lawyer emailed the petition to Merrill Lynch’s arbitration counsel and asked whether he would accept service by email. Counsel later said he would not. The next day, a paralegal attempted personal service and then mailed the petition. Merrill Lynch was ultimately served through a process server on February 24, 2022.

Jurisdiction

The court explained that the Federal Arbitration Act authorizes requests to confirm or vacate arbitration awards but does not itself create federal jurisdiction. The Kaplans relied on diversity jurisdiction, which requires parties from different states and an amount in controversy exceeding $75,000. Although the parties agreed that the Kaplans were citizens of Florida and Merrill Lynch was a citizen of New York, the court found that the amount allegation was conclusory.

The Kaplans did not identify a specific amount or explain how their request to expunge Form U5 statements involved monetary damages. The parties had also stipulated in the arbitration that the Kaplans would not seek damages and waived claims for damages. The court therefore concluded that the Kaplans had not established diversity jurisdiction and that the petition had to be dismissed.

Timeliness and Service

The Federal Arbitration Act requires notice of a request to vacate an arbitration award to be served within three months after the award is delivered. The court determined that the deadline was February 16, 2022. Under Federal Rule of Civil Procedure 5, email service was permitted only if Merrill Lynch or its lawyer had consented to email service in writing.

The court held that Merrill Lynch’s agreement to receive email communications during the FINRA arbitration did not establish written consent to email service in the later federal lawsuit. Because the Kaplans had not obtained that consent by February 16, and their personal service and mailing attempts occurred afterward, the court concluded that service was untimely. The court stated that the petition was subject to dismissal with prejudice on that ground.

Disposition

The court granted Merrill Lynch’s motion to dismiss the Kaplans’ petition to vacate. It denied the Kaplans’ motion for additional discovery as moot and denied their request for permission to file a sur-reply. The court directed the clerk to terminate the motions and close the case.