Sirotzky, Sara v. NY Stock Exchange ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-3240
SARA SIROTZKY,
Plaintiff-Appellant,
v.
NEW YORK STOCK EXCHANGE and
SANFORD C. BERNSTEIN & CO., INC.,
Defendants-Appellees.
____________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 02 C 970—Marvin E. Aspen, Judge.
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ARGUED MAY 21, 2003—DECIDED OCTOBER 29, 2003
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Before FLAUM, Chief Judge, and POSNER and MANION,
Circuit Judges.
POSNER, Circuit Judge. Sara Sirotzky hired the Bernstein
firm to give her investment advice, pursuant to a contract
that provided for arbitration under the arbitration rules of
the New York Stock Exchange of any dispute arising out of
the contract. Sure enough, a dispute arose and Sirotzky
invoked arbitration, seeking $242,000 in damages. The
2 No. 02-3240
arbitrators, after a hearing in Chicago, ruled in Bernstein’s
favor and ordered Sirotzky as the losing party to pay the
New York Stock Exchange $4,800, the NYSE’s fee for
providing the parties with an arbitral forum. Rather than
comply, Sirotzky sued both Bernstein and the Exchange in
an Illinois state court, seeking to vacate the arbitrators’
decision on the ground that at the arbitration hearing
Bernstein had been represented by a lawyer not admitted
to practice in Illinois. After the state judge determined that
the amount in controversy included the damages that
Sirotzky had sought from Bernstein in the arbitration
proceeding and not just the amount of the fee that she had
been ordered to pay the New York Stock Exchange,
Bernstein and the Exchange removed the case to federal
district court under 28 U.S.C. § 1441, the plaintiff and
defendants being of diverse citizenship and the defen-
dants citizens of a state other than Illinois. (Citizens of the
state in which a diversity suit is brought cannot remove. 28
U.S.C. § 1441(b).) The district court ruled that the only
amount in controversy was the fee, which was less than
the minimum amount required for a diversity suit in fed-
eral court, and so he remanded the case to the state court.
That court then decided the merits of Sirotzky’s suit against
her, and her appeal from that decision is pending in the
Illinois Appellate Court.
Sirotzky asked the district court to award her the attor-
ney’s fees that she had incurred in getting the court to
remand her case. The court refused on the ground that the
theory on which the defendants had based their removal
of the case was, though erroneous, not frivolous. She ap-
peals.
An order remanding a removed case “may require
payment of just costs and any actual expenses, including
attorney fees, incurred as a result of the removal,” 28 U.S.C.
No. 02-3240 3
§ 1447(c), and although the statute does not set forth criteria
for the exercise of this authority, the cases are pretty much
at one in holding that the plaintiff must show that the
remand order was correct (that is, that removal was im-
proper), but need not show that the removal was in bad
faith, and that the district court has a broad discretion
in deciding whether to award fees. See Garbie v.
DaimlerChrysler Corp., 211 F.3d 407, 410 (7th Cir. 2000);
Tenner v. Zurek, 168 F.3d 328, 329-30 (7th Cir. 1999); Suder
v. Blue Circle, Inc., 116 F.3d 1351 (10th Cir. 1997); Avitts v.
Amoco Production Co., 111 F.3d 30, 32 (5th Cir. 1997);
Stallworth v. Greater Cleveland Regional Transit Authority, 105
F.3d 252, 258 (6th Cir. 1997); Mints v. Educational Testing
Service, 99 F.3d 1253, 1260-61 (3d Cir. 1996); Morris v.
Bridgestone/Firestone, Inc., 985 F.2d 238 (6th Cir. 1993);
Morgan Guaranty Trust Co. v. Republic of Palau, 971 F.2d 917,
923-24 (2d Cir. 1992).
Our court has taken the further step of holding that,
provided removal was improper, the plaintiff is presump-
tively entitled to an award of fees, as under standard fee-
shifting statutes, such as 42 U.S.C. § 1988. See, besides the
Garbie decision cited in the preceding paragraph, Wisconsin
v. Hotline Industries, Inc., 236 F.3d 363, 367-68 (7th Cir.
2000), and Citizens for a Better Environment v. Steel Co., 230
F.3d 923, 927 (7th Cir. 2000). It is true that the normal fee-
shifting statute does not entitle a party to an award of
attorney’s fees merely for prevailing on a preliminary
ruling, Hanrahan v. Hampton, 446 U.S. 754, 758-59 (1980) (per
curiam); Linda W. v. Indiana Dept. of Education, 200 F.3d 504,
507 (7th Cir. 1999), and it is also true that a remand order is
preliminary to the decision of the case on the merits; but
section 1447(c) expressly authorizes an award of fees for
obtaining such an order. Nevertheless, the entitlement is
not automatic—the presumption is not irrebuttable—and we
4 No. 02-3240
do not think the district judge committed an abuse of
discretion in denying Sirotzky her fees.
A threshold question, not free from doubt, is whether the
district judge was correct to remand the case. (If he was not,
Sirotzky cannot get to first base with her claim for an award
of fees.) Had Sirotzky told the state court that her only
object in seeking to set aside the arbitrators’ award was to
avoid having to pay the New York Stock Exchange’s $4,800
fee, that would have been the amount in controversy and
the suit could not have been removed. But she did not
do that. Not until the oral argument of her appeal to this
court did her lawyer state that his client had no intention of
seeking a new arbitration hearing at which she might win
the $242,000 that she had sought at the original hearing. The
natural and so far as appears the correct assumption until
this disclaimer was made—which was long after the
removal of Sirotzky’s case to the district court—was that she
was seeking to set aside the arbitrators’ decision in favor of
Bernstein so that she could get another shot at the $242,000
that she claimed were the damages caused her by
Bernstein’s alleged breach of contract. Why else would she
bother to sue? To avoid having to pay a paltry $4,800
arbitration fee? Not that $4,800 is paltry in itself, but it is
paltry in relation to the expense of litigation, suggesting that
more must have been at stake. And why did she also ask the
state court to vacate the arbitral award in Bernstein’s
favor—not an award of damages, but an award stating that
Bernstein had no liability—unless she wanted another crack
at Bernstein?
If, as is the inescapable inference from the circumstances
just recited, Sirotzky changed her mind about seeking a new
arbitration only after the case was removed, the remand was
improper, St. Paul Mercury Indemnity Co. v. Red Cab Co., 303
U.S. 283, 291-93 (1938); Chase v. Shop ‘N Save Warehouse
No. 02-3240 5
Foods, Inc., 110 F.3d 424, 429 (7th Cir. 1997); Shaw v. Dow
Brands, Inc., 994 F.2d 364, 366-68 (7th Cir. 1993), because
federal jurisdiction is determined as of the date of removal.
Kanzelberger v. Kanzelberger, 782 F.2d 774, 776-77 (7th Cir.
1986); Tillman v. R.J. Reynolds Tobacco, 253 F.3d 1302,
1306 n. 1 (11th Cir. 2001); Howery v. Allstate Ins. Co., 243 F.3d
912, 916 (5th Cir. 2001); United Food & Commercial Workers
Union, Local 919, AFL-CIO v. CenterMark Properties Meriden
Square, Inc., 30 F.3d 298, 301 (2d Cir. 1994). But this is
provided that the amount in controversy in a suit to set
aside an arbitral decision denying relief is the amount of
relief sought. And a judgment setting aside the arbitrators’
decision would not have put $242,000, or any other amount
of money, in Sirotzky’s pocket. But if a plaintiff sues for
$242,000 in state court, loses, and the case is then removed
to federal court, the amount in controversy is still $242,000,
though we cannot find a case that says this, doubtless
because it is rare, although not unknown, see Decubas v.
Norfolk Southern Corp., 683 F. Supp. 259 (M.D. Ga. 1988);
Haniford v. American Motor Sales Corp., 471 F. Supp. 328(D.S.C. 1974), for a defendant to be able to remove a case
after it has already gone to trial, since a defendant has only
30 days after learning of the basis for removal to exercise his
right to remove. 28 U.S.C. § 1446(b). At any rate, that is the
natural analogy to the present case.
True, two cases at least superficially much like this
one—cases on which the district court relied in holding that
the amount in controversy was only $4,800 in this case—
refuse to consider the possible outcome of the arbitration
proceeding in determining the amount in controversy in
a suit to set aside the arbitrators’ award. Baltin v. Alaron
Trading Corp., 128 F.3d 1466, 1472-73 (11th Cir. 1997); Ford
v. Hamilton Investments, Inc., 29 F.3d 255, 259-60 (6th Cir.
1994). But in neither case was the plaintiff seeking to re-
open the arbitration. Here that was not clear when the case
6 No. 02-3240
was remanded; on the contrary, it seemed clear that the
plaintiff wanted to reopen the arbitration; and the amount
in controversy in any new arbitration proceeding that
might be conducted after the award in the old one was set
aside would be the $242,000 that Sirotzky had sought
originally. It is not as if the arbitrators had ruled that even
if she could prove a breach of contract, her damages would
not exceed the $75,000 minimum amount in controversy
required in a diversity case.
Bull HN Information Systems, Inc. v. Hutson, 229 F.3d 321,
329 (1st Cir. 2000), supports our conclusion that the
amount in controversy in a suit challenging an arbitration
award includes the matter at stake in the arbitration,
provided the plaintiff is seeking to reopen the arbitration.
See also Choice Hotels Int’l, Inc. v. Felizardo, 2003 WL
21998793, at *2 (D. Md. Aug. 12, 2003).
Sirotzky argues that the defendants removed the case
not because they thought she would seek a new arbitra-
tion hearing if she prevailed in state court but because
the state court had determined that there was federal
jurisdiction; and she points out that a state court cannot
confer jurisdiction on a federal court. That is true but the
context in which the state judge issued his order refutes
her interpretation of it. To confirm that the case was re-
movable, the defendants had in the state court proceeding
asked Sirotzky to admit that the amount in controversy
exceeded $75,000. In response she denied that it exceeded
$75,000, but she did not do so on the ground that all that
she was seeking in the lawsuit was $4,800; and it would
of course be odd, as we have suggested, to commence a
lawsuit for so tiny a sum. The apparent basis of her denial
that the amount in controversy exceeded $75,000 was the
legal position that the district judge later accepted and we
have just rejected that the stakes in any reopened arbitra-
tion are irrelevant to the amount in controversy. So the
No. 02-3240 7
defendants asked the state judge to rule that the amount
in controversy included the $242,000 that Sirotzky had
sought in the arbitration and presumably would seek
anew if the arbitrators’ decision against her was overturned,
as they were asking the state judge to do. He obliged, and
the defendants noted this in their removal petition, since
the state judge’s finding, while of course not conclusive,
strengthened their contention that the suit was within
federal jurisdiction and hence removable. The defendants
did not contend that a state judge can order a federal court
to assume jurisdiction over a case.
If anyone has behaved frivolously in this litigation,
justifying a denial of attorney’s fees otherwise presump-
tively available, it is the plaintiff (or the plaintiff’s lawyer).
If in suing to upend the arbitrators’ decision the plaintiff
really just wanted her $4,800 back, why didn’t she say so,
which would have headed off the removal and so avoided
the expense to her of procuring a remand? It is the defen-
dants who should be complaining about having been put
to an unnecessary expense in removing the case and then
fighting the remand. And the judge about having to wrestle
with the issue of removability.
And then there is the dubious merit of the underlying
suit. We have had many cases, though more criminal than
civil, in which a party complains about not having a lawyer;
but Sirotzky’s is our first case in which a party who has
a lawyer is complaining that his opponent does not have
a (licensed) lawyer. Ordinarily a litigant is delighted to
find himself up against an unrepresented party, or a party
represented by a defrocked or otherwise ineligible lawyer.
Yet the cases are divided on whether a judgment is
reversible merely because one’s opponent was not repre-
sented by a licensed lawyer. Compare Alexander v. Robertson,
882 F.2d 421, 423-25 (9th Cir. 1989), and Gomes v. Roney, 151
8 No. 02-3240
Cal. Rptr. 756 (Cal. App. 1979), holding that it is not, with
Leonard v. Walsh, 220 N.E.2d 57, 58 (Ill. App. 1966); cf. Jacobs
v. Queen Ins. Co. of America, 213 N.W. 14, 15 (S.D. 1927); State
ex rel. Mather v. Carnes, 551 S.W.2d 272, 288 (Mo. App. 1977),
holding that it is. A rule of automatic reversal is difficult
to defend, but Sirotzky’s gripe is that at the arbitration
hearing Bernstein’s New York lawyer was permitted to
engage in tactics that an Illinois lawyer would be forbidden
by the rules of ethics governing members of the Illinois bar
to engage in, and if this is right it does suggest a way in
which a litigant can be harmed by the unlicensed status of
his opponent’s lawyer. However, the procedures and
evidentiary rules in arbitration are matters for the arbitra-
tors and the arbitration contract to determine, Mastrobuono
v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57-58 (1995);
Vigortone AG Products, Inc. v. PM AG Products, Inc., 316 F.3d
641, 647 (7th Cir. 2002); Smart v. International Brotherhood of
Electrical Workers, Local 702, 315 F.3d 721, 726 (7th Cir. 2002);
P & P Industries, Inc. v. Sutter Corp., 179 F.3d 861, 867-68
(10th Cir. 1999), rather than for a court to impose. The
rules of the New York Stock Exchange governing arbitra-
tion do not even require parties to be represented by a
lawyer, see Rule 614, Article XI NYSE Constitution and
Arbitration Rules, June 2003, at 17, http://www.nyse.com/
pdfs/Rules.pdf; A Guide to Arbitration at the New York
Stock Exchange, at 1-2, http://www.nyse.com/pdfs/
Guidelns2.pdf, let alone a licensed one, even if they are
institutions rather than individuals and hence would not
in ordinary litigation be allowed to proceed without a
lawyer.
Had Bernstein brought a pit bull to the hearing to intimi-
date the arbitrators, Sirotzky would have grounds for
objection, because the Federal Arbitration Act, which
specifies the grounds on which an arbitration award can
be set aside by a federal court, includes as one of them
No. 02-3240 9
procuring an award by “undue means.” 9 U.S.C. § 10(a)(1).
To that extent federal law, in cases such as this in which
the FAA is applicable, does regulate arbitral procedure.
But it fixes only the most distant of outer bounds. It does
not require the presence of lawyers, licensed or otherwise.
If as happened Bernstein merely was represented by a
lawyer (rather than by a pit bull) not admitted in Illinois,
it was for the arbitrators, not the court, to decide whether
this was a proper procedure.
There is nothing outré about this conclusion. Every tri-
bunal determines, subject to due process limitations not
remotely transgressed in this case, who is eligible to practice
before it. The United States Tax Court, for example, allows
nonlawyers who pass an examination and meet other
qualifications to represent clients before the court. See Tax
Court. R. 200(a)(3); Hawkins v. Commissioner, 85 T.C.M.
(CCH) 1530, 2003 WL 21436740 (U.S. Tax Ct. 2003). Like-
wise the New York Stock Exchange determines eligibility
for practice before the arbitral forums that it provides,
and its rules have not been violated.
For the reasons explained, the district judge did not
abuse his discretion in refusing to award Sirotzky the
attorney’s fees that she incurred in getting her case re-
manded to the state court.
AFFIRMED.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-29-03