The opinion of the court was delivered by: William C. Conner, District Judge.
This action involves a challenge by plaintiffs William and
Norma Hough to an arbitration award resolving a dispute between
the parties arising from plaintiffs' securities account with
the defendant Merrill Lynch, Pierce, Fenner & Smith ("Merrill
Lynch"). The action is presently before the Court on
defendant's motion to dismiss plaintiffs' complaint pursuant to
Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack
of federal subject matter jurisdiction or, alternatively,
pursuant to Rule 12(b)(6) Fed.R.Civ.P. for failure to state a
claim upon which relief can be granted. In addition, Merrill
Lynch has moved this Court for an order pursuant to Rule 11
Fed.R.Civ.P. for sanctions on the ground that the complaint is
not well grounded in fact and warranted by existing law or a
good faith argument for the extension, modification or reversal
of existing law.
The underlying dispute arose in 1987 from the execution of
plaintiffs' order to sell certain bonds held in their account
with Merrill Lynch. Plaintiff William T. Hough apparently had
solicited quotes from brokers both at Merrill Lynch and at the
firm of Donaldson, Lufkin & Jenrette ("DLJ") to buy from him
(or to sell on his behalf) $400,000 face value Missouri State
Housing Development Bonds which were held by Merrill Lynch on
plaintiffs' behalf. The same bonds were subsequently sold
twice, by both Merrill Lynch and DLJ.
On May 23, 1987, DLJ brought an action in New Jersey Superior
Court against Hough to recover the loss of approximately
$37,948 incurred as a result of the failure to receive delivery
of the bonds from Hough. Donaldson, Lufkin & Jenrette v.
William and Norma Hough, Superior Court of New Jersey, Law
Division, Somerset County, Docket No. L-050498-87 (Mahon, J.).
Trial of the action took place in July 1989. After trial, the
New Jersey court found in favor of plaintiff DLJ and awarded it
$37,428 plus costs. Id. The Houghs settled DLJ's claim against
them by paying $35,000. Complaint ¶ 12(b).
On or about February 18, 1989, the Houghs filed a Statement
of Claim with the National Association of Securities Dealers
("NASD") naming Merrill Lynch as respondent. Shortly after the
Statement of Claim was filed, the NASD referred the matter to
the arbitration program of the Municipal Securities Rulemaking
Board ("MSRB") for resolution. See Exh. B to the Complaint. In
the arbitration, the Houghs sought to recover from Merrill
Lynch the amount of their post-judgment settlement with DLJ,
litigation costs and attorneys fees, punitive and other
damages. Id. The arbitration was conducted on November 2 and 3,
1989, and the five member panel issued its arbitration award on
December 11, 1989, awarding the Houghs $17,500. See Exh. E to
On December 29, 1989, Mr. Hough wrote to the panel requesting
"reconsideration and modification" of the arbitration award.
See Exh. A to the Complaint. On January 11, 1990, the panel
denied Hough's request. Complaint ¶ 2. On April 11, 1990, this
action was commenced seeking an order either modifying the
arbitral award or vacating the award and remanding the matter
The complaint alleges that the jurisdiction of this Court is
based on diversity, 28 U.S.C. § 1332, and also on the Sherman
Act, 15 U.S.C. § 1-7, the Federal Trade Commission Act,
15 U.S.C. § 45-58, the Clayton Act, 15 U.S.C. § 12-27, and the
Lanham Act, 15 U.S.C. § 1051 et seq. Complaint ¶ 3.
Defendants allege that the complaint fails to meet the
requirements of diversity jurisdiction because it fails to meet
the amount in controversy requirement of 28 U.S.C. § 1332.*fn1
In determining whether the amount in controversy requirement
has been met, courts apply the "legal certainty" test which
requires dismissal of an action when it appears to a legal
certainty that the plaintiff's claim is for less than the
jurisdictional minimum. St. Paul Mercury Indemnity Co. v. Red
Cab Co., 303 U.S. 283, 58 S.Ct. 586, 82 L.Ed. 845 (1938). In
applying the legal certainty test, resort to matters outside
the pleadings may be used to amplify the meaning of the
complaint's allegations. Zacharia v. Harbor Island spa, Inc.,
684 F.2d 199, 202 (2d Cir. 1982), citing Givens v. W.T. Grant
Co., 457 F.2d 612 (2d Cir.), vacated, 409 U.S. 56, 93 S.Ct.
451, 34 L.Ed.2d 266, on remand, 472 F.2d 1039 (2d Cir. 1972).
Plaintiffs' seventh cause of action (Complaint ¶¶ 63-68)
requests that this Court, in the event that it refuses to
modify the award, "refuse to affirm the award, and remit/remand
the award to the MSRB with an order that the MSRB retry the
case before new arbitrators." As this motion is, in part, a
motion to vacate the arbitration award and to remand for
Court will look to the possible award that might result from
the desired rehearing. In actions seeking declaratory or
injunctive relief, the amount in controversy is measured by the
pecuniary value of the rights being litigated. Hunt v.
Washington State Apple Advertising Commission, 432 U.S. 333,
347, 97 S.Ct. 2434, 2443, 53 L.Ed.2d 383 (1977). The relief
sought on the present motion may be measured similarly.
In this action to vacate the arbitration award the amount in
controversy may be regarded as either the value to plaintiff of
the relief sought or the loss to defendant if the relief is
granted. Plaintiffs contend that the amount in controversy in
this action is the full amount of the original claim which was
resolved by the arbitration award.
In their Statement of Claim before the MSRB plaintiffs
requested a total judgment of at least $3 million for
violations of the Sherman Act and of the Clayton Act. Exh. A to
the Complaint ¶¶ 74-76. Nearly twenty years ago, the Court of
Appeals for the Second Circuit ruled that "the pervasive public
interest in enforcement of the antitrust laws, and the nature
of the claims that arise in such cases, combine to make . . .
antitrust claims . . . inappropriate for arbitration." American
Safety Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821,
827-28 (2d Cir. 1968). Since that time the foundations of the
American Safety doctrine have been significantly eroded. Gemco
Latinoamerica, Inc. v. Seiko Time Corp., 671 F. Supp. 972
(S.D.N.Y. 1987), adhered to, in part, dismissed, in part, on
reconsideration, 685 F. Supp. 400 (S.D.N.Y. 1988).
The Supreme Court has held that nothing in the federal
antitrust laws prohibits parties from agreeing to arbitrate
antitrust claims arising out of international commercial
transactions. Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87
L.Ed.2d 444 (1985). Finding it "unnecessary to assess the
legitimacy of the American Safety doctrine as applied to
agreements to arbitrate arising from domestic transactions" it
"confess[ed] to some skepticism of certain aspects of the
American Safety doctrine." 473 U.S. at 629, 632, 105 S.Ct. at
3355, 3356. Although the holding of Mitsubishi was limited to
international transactions, the Supreme Court nonetheless
rejected the concerns that had been used to justify the
non-arbitrability of antitrust claims. Id. at 632-40, 105 S.Ct.
at 3356-60. The principles and reasoning set forth in
Mitsubishi have been used by the Court in later cases to find
that RICO and securities claims are arbitrable in the domestic
context. See Rodriguez de Quijas v. Shearson/American Express,
Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989)
(holding that claims under the Securities Act of 1933 are
arbitrable); Shearson/American Express, Inc. v. McMahon,
482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (holding that
claims under the Securities Act of 1934 and the RICO statutes
are arbitrable). The federal policy in favor of arbitration
agreements has provided the foundation for the Court's recent
expansion of the types of claims that they may encompass. Most
recently, the Court of Appeals for the Second Circuit held that
agreements to arbitrate statutory claims arising under ERISA
are enforceable. Bird v. Shearson Lehman/American Express,
Inc., 926 F.2d 116 (2d Cir. 1991). In the aftermath of such
decisions it seems unlikely that the principle of Mitsubishi
will be limited to international transactions. In fact, in
Gemco, Judge Knapp of this Court found that "none of ...