The Fifth Circuit recently addressed a hard question: what should the court consider when determining the amount in controversy for purposes of federal jurisdiction over an arbitration award? The court decided to rely on the amount originally sought by the claimant in the demand for arbitration. Pershing, LLC v. Kiebach, __ F.3d __, 2016 WL 1375874 (5th Cir. April 6, 2016).
In Pershing, the claimants demanded $80 million in damages from their broker. The arbitration panel rejected their claims, but awarded them $10,000 for expenses. The broker moved to confirm the award in federal court, and the customers sought to have the confirmation suit dismissed for lack of federal jurisdiction. (Why? So they could move to vacate in Louisiana state court, which they must have thought would be more friendly.)
The court then had to decide whether the amount in controversy should be determined by: 1) the amount of the final award or 2) the amount sought in the arbitration demand. The Fifth Circuit sided with the courts that have used the damages sought in the demand. It reasoned that the initial damage amount “recognizes the true scope of the controversy between the parties…the amount at stake is the $80 million that Appellants initially sought in arbitration, not the minimal award.” It also sought to mirror the test for jurisdiction over a motion to compel arbitration, which relies on the amount demanded in the petition.