The Majority Looks At The Amount-In-Controversy In The Underlying Dispute, And The Concurring Opinions Looks At The Amount Involved In The Discovery Dispute.
The panel in Maine Community Health Options v. Albertsons Companies, Inc., No. 20-35931 (9th Cir. 3/31/21) (Hurwitz, Fletcher; Watford concurring) determines how "the amount-in-controversy requirement in 28 U.S.C. § 1332(a) is satisfied in an action under Section 7 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 7, seeking enforcement of a third-party subpoena issued by arbitrators." Let's unpack that question.
Section 7 of the FAA authorizes district courts to enforce third-party arbitration subpoenas. However, merely invoking the FAA to enforce discovery does not create federal jurisdiction -- one still needs an independent basis for federal jurisdiction. One basis for federal jurisdiction is diversity jurisdiction where the parties are citizens of different states and the amount-in-controversy exceeds $75,000. 28 U.S.C. § 1332(a).
How does one apply these seemingly simple rules to a third-party subpoena issued by arbitrators to obtain requested documents, when the company requesting documents and the company producing documents are citizens of different states? Does one look at the amount at stake in the discovery request, or the amount at stake in the underlying arbitration that generated the third-party subpoena? And does one focus on the benefit to the plaintiff or the detriment to the defendant in a discovery dispute in order to determine amount-in-controversy?
In Maine Community Health Options, an overbilling dispute concerning Maine Community and Navritus Health Solutions, LLC, a pharmacy benefits manager, over Navritus's billings, the underlying dispute between those two companies involved potentially $17 million, clearly far above the amount-in-controversy requirement for diversity jurisdiction. But that's not how the majority opinion analyzed the issue. Instead, the majority focused on the amount involved in the discovery dispute between Maine Community, and Albertsons, which was the third party subpoenaed to produce the documents. In a way, that makes sense, because Maine Community filed its action in federal court to enforce the subpoena against Albertsons, invoking § 7, but the underlying dispute was between Maine Community and Navritus, and that dispute was in arbitration. Hence, the parties to the federal action are only Maine Community and the third party it subpoenaed. And typically, one would look at a complaint in federal court rather than a claim in arbitration to determine amount-in-controversy.
Writing for the majority, Judge Hurwitz explains "we agree with the Second Circuit that the amount-in -controversy in a Section 7 enforcement action can be measured by either the benefit to the plaintiff or the detriment to the defendant that would result from enforcement of the subpoena." In this case, Abertsons claimed the cost to it of production was $1,400, i.e., far below the jurisdictional amount-in-controversy requirement. But in this case, Maine Community provided a good faith allegation that the value of the subpoenaed information to it exceeded $75,000, and Albertsons failed to show "to a legal certainty" that the claim was less than the jurisdictional amount.
Concurring, Judge Watford reached the same outcome by a very different route. He would have looked at the amount-in controversy in the underlying arbitration -- $17 million. If the court could have had diversity jurisdiction in the original dispute, then it could have approved third party subpoenas against third parties. So Judge Watford would ask whether the court would have jurisdiction over the underlying dispute. And if it wouldn't have had jurisdiction, then the subpoena wouldn't issue.
COMMENT: Under the majority opinion, one needs here to look at the amount-in-controversy in the action filed in federal court between the parties to the discovery. Under the concurring opinion, one needs to look at the amount-in-controversy in the underlying arbitration. Is it really easier to do one rather than the other?
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