United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 22, 2008 Decided July 15, 2008
No. 07-7080
JOSEPH R. KARSNER, IV,
APPELLEE
v.
PAMELA LOTHIAN AND
THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.,
APPELLEES
MELANIE SENTER LUBIN, MARYLAND SECURITIES
COMMISSIONER,
APPELLANT
Appeal from the United States District Court
for the District of Columbia
(No. 07cv00334)
John B. Howard, Jr., Deputy Attorney General, Office of the
Attorney General for the State of Maryland, argued the cause for
the appellant. Douglas F. Gansler, Attorney General for the
State of Maryland, and Kelvin M. Blake, Assistant Attorney
General, were on brief.
Charles T. Mason, III was on brief for amicus curiae Public
Investors Arbitration Bar Association.
2
Rex A. Staples was on brief for amicus curiae North
American Securities Administrators Association, Inc.
Richard J. Magid argued the cause for appellee Joseph R.
Karsner, IV. George S. Mahaffey, Jr. was on brief.
Before: HENDERSON, Circuit Judge, and EDWARDS and
WILLIAMS, Senior Circuit Judges.
Opinion for the court filed by Circuit Judge HENDERSON.
KAREN LECRAFT HENDERSON, Circuit Judge: Melanie
Lubin, the Maryland Securities Commissioner (Commissioner),
appeals the district court’s denial of her motion to intervene as
of right in an arbitration confirmation proceeding. See Karsner
v. Lothian, No. 07cv334 (D.D.C. Apr. 9, 2007) (minute order).
In the underlying arbitration, the panel had recommended—
pursuant to a settlement agreement—that a customer complaint
and the ensuing arbitration be expunged from the disciplinary
record of a securities broker-dealer who was licensed in
Maryland. See Pet. to Confirm Arbitration Award, Ex. 1 (Feb.
12, 2007). The Commissioner contends that the district court
erred in denying intervention because she has a substantial
interest in ensuring the integrity of her records. We agree and
reverse and remand for the reasons set forth below.
I.
Pamela Lothian (Lothian) was a customer of Joseph R.
Karsner, IV (Karsner), a securities broker-dealer registered both
with the Financial Industry Regulatory Authority (FINRA) and
with the State of Maryland.1 This case arises out of a FINRA
1
FINRA is the successor of the National Association of Securities
Dealers (NASD). In July 2007, NASD and the New York Stock
Exchange (NYSE) consolidated their “member regulation operations”
into one self-regulatory organization (FINRA). See SEC Release No.
34-56145 (July 26, 2007).
3
arbitration that settled the complaint Lothian lodged against
Karsner.
A. Regulatory Background
The Securities Exchange Act of 1934, 15 U.S.C. §§ 78a et
seq. (Exchange Act), “provides a comprehensive system of
federal regulation of the securities industry.” Austin Mun. Sec.,
Inc. v. Nat’l Ass’n of Sec. Dealers, Inc., 757 F.2d 676, 680 (5th
Cir. 1985). The Maloney Act, Pub. L. No. 75-719, 52 Stat. 1070
(1938) (amending the Exchange Act, 15 U.S.C. §§ 78o et seq.),
“established extensive guidelines for the formation and
oversight of self-regulatory organizations, such as the NASD,
and the registered stock exchanges, including the New York
Stock Exchange (NYSE) and the American Stock Exchange.”
Austin Mun. Sec., 757 F.2d at 680. Pursuant to the Maloney
Act, any association of securities broker-dealers seeking to
register as a “national securities association” must “fil[e] with
the [SEC] an application for registration . . . containing the rules
of the association.” 15 U.S.C. §§ 78o-3(a). An association must
“comply with the [Exchange Act] and its own rules,” id.
§ 78s(g)(1)(A), “enforce compliance . . . by its members and
persons associated with its members,” id., and maintain
registration and disciplinary data of its members, id. § 78o-3(i).
Further, although a national securities association is a self-
regulatory entity, it remains subject to the SEC’s oversight and
control. Id. § 78s(b). For example, any proposed change in the
association’s rules must be filed with the SEC and “[n]o
proposed rule change shall take effect unless approved by the
[SEC].” Id. § 78s(b)(1). The SEC may “abrogate, add to, and
delete from . . . the rules of a self-regulatory organization . . . as
the [SEC] deems necessary or appropriate to insure the fair
administration of the self-regulatory organization [or] to
conform its rules to requirements of this chapter.” Id. § 78s(c).
FINRA, as NASD’s successor, is “the only officially
registered ‘national securities association’ under [the Exchange
4
Act].” Nat’l Ass’n of Sec. Dealers, Inc. v. SEC, 431 F.3d 803,
804 (D.C. Cir. 2005). “By virtue of its statutory authority,
[FINRA] wears two institutional hats: it serves as a professional
association, promoting the interests of it[s] members . . . and it
serves as a quasi-governmental agency, with express statutory
authority to adjudicate actions against members who are accused
of illegal securities practices and to sanction members found to
have violated the Exchange Act or Securities and Exchange
Commission . . . regulations issued pursuant thereto.” Id.
(citing 15 U.S.C. § 78o-3(b)(7)).
FINRA requires a broker-dealer member to arbitrate a
dispute with a customer if “[r]equired by a written agreement”
or “[r]equested by the customer” and “[t]he dispute arises in
connection with the business activities of the member.” NASD
Manual § 12200. Any customer dispute resulting in arbitration
is included in the member’s Central Registration Depository
(CRD)2 record and a member “seeking to expunge information
from the CRD system arising from disputes with customers must
obtain an order from a court of competent jurisdiction directing
such expungement or confirming an arbitration award
containing expungement relief.” Id. § 2130(a). According to
Rule 2130(b), a broker-dealer member of FINRA “petitioning a
court for expungement relief or seeking judicial confirmation of
an arbitration award containing expungement relief must name
[FINRA] as an additional party and serve [FINRA] with all
appropriate documents.” Id. § 2130(b).
A broker-dealer doing business in Maryland must also
register with the Maryland Securities Division. See Md. Code
Ann., Corps. & Ass’ns § 11-401 (2007 Repl. Vol.). To register,
2
“The CRD system serves as an electronic filing system for the
securities industry and as a means of gathering, organizing, and
retrieving information used by state (including Maryland) and federal
securities regulators.” Appellant’s Br. 5-6.
5
the broker-dealer must agree to, inter alia, the inclusion of
relevant information (such as customer complaints and
arbitrations) in the CRD. Id. § 11-405; Md. Code Regs.
02.02.02.01. The North American Securities Administrators
Association, Inc. (NASAA) maintains and administers the CRD
database pursuant to an agreement with FINRA. See CRD
Agreement Amendment, ¶ 3(e) (Dec. 13, 1996).
B. Karsner
Karsner, a mutual fund broker-dealer registered with FINRA
and the Maryland Securities Division, was employed by Legacy
Financial Services, Inc. (Legacy) in Gambrills, Maryland.3 On
October 19, 2004, Pamela Lothian, one of Karsner’s mutual
fund customers, began a FINRA arbitration proceeding against
Karsner and Legacy by complaining that Karsner had induced
her to invest in unsuitable investments and had negligently
managed her account resulting in losses of approximately
$104,638. Before the arbitration hearing, Lothian settled her
claims against Karsner and Legacy. Pursuant to the settlement
agreement, Lothian received $47,000 in exchange for
abandoning her claims and stipulating to the expungement of all
references to the dispute from Karsner’s CRD record. On
February 14, 2006, the arbitration panel approved the stipulated
award, dismissed with prejudice Lothian’s claims against
Karsner and Legacy and “recommend[ed] the expungement of
all reference to the . . . arbitration from Respondent Karsner’s
registration record maintained by the NASD Central
3
Legacy was incorporated in California and registered as a broker-
dealer in Maryland in 1996. BrokerCheck Report, Legacy Financial
Services, Inc., CRD No. 38697 (generated June 24, 2008), available
at http://brokercheck.finra.org. It appears that it is no longer doing
business as Legacy. See Bruce Kelly, Legacy Financial Close Shop:
Indie Broker-Dealer Sells Most Reps to Multi-Financial Securities,
Investment News, Sept. 3, 2007, available at 2007 WL 17582642.
6
Registration Depository.” Pet. to Confirm Arbitration Award,
Ex. 1.
Karsner filed a petition to confirm the Stipulated Award in
the district court on February 12, 2007, naming Lothian and
NASD as respondents. Id. ¶ 14. NASD notified NASAA of the
filing and NASAA in turn notified Commissioner Lubin. On
March 20, 2007, the Commissioner moved to intervene pursuant
to Federal Rule of Civil Procedure 24(a)(2) in order to oppose
the expungement of Karsner’s CRD record.4 The district court
denied the motion to intervene by minute order on April 9, 2007.
Two days later, the district court granted Karsner’s petition to
confirm the Stipulated Award. Karsner v. Lothian, No. 07cv334
(D.D.C. Apr. 11, 2007).
The Commissioner then filed a motion to reconsider the
district court’s denial of intervention, which was denied by
minute order on April 27, 2007. Karsner v. Lothian, No.
07cv334 (D.D.C. Apr. 27, 2007). On May 3, 2007, the
Commissioner filed a timely notice of appeal of the denial of
intervention and simultaneously moved to stay the expungement
of Karsner’s CRD record pending the appeal. The
Commissioner did not, however, appeal the confirmation order.
Although the district court initially denied the Commissioner’s
motion to stay, Karsner v. Lothian, No. 07cv334 (D.D.C. May
30, 2007), it subsequently—again by minute order—stayed this
case and eleven others in which Karsner seeks confirmation of
arbitration awards recommending expungement. Karsner v.
Lothian, No. 07cv344 (June 13, 2007).
4
Rule 24(a)(2) provides in part that the court “must permit anyone
to intervene who . . . claims an interest relating to the property or
transaction that is the subject of the action, and is so situated that
disposing of the action may as a practical matter impair or impede the
movant’s ability to protect its interest, unless existing parties
adequately represent that interest.” Fed. R. Civ. P. 24(a)(2).
7
II.
Before addressing the merits, we must resolve the threshold
issues of the district court’s subject matter jurisdiction and
mootness.
A. Subject Matter Jurisdiction
The Commissioner argues that the district court lacked
subject matter jurisdiction over Karsner’s petition and that the
Court should therefore vacate the district court’s order.
Appellant’s Br. 13.
Although the Federal Arbitration Act (FAA) constitutes
federal law, “the Supreme Court has interpreted the statute as
not itself bestowing jurisdiction on the federal district courts.”
Kasap v. Folger Nolan Fleming & Douglas, Inc., 166 F.3d 1243,
1245-46 (D.C. Cir. 1999) (citing Southland Corp. v. Keating,
465 U.S. 1, 16 n.9 (1984) (FAA “creates federal substantive law
requiring the parties to honor arbitration agreements, [but] . . .
does not create any independent federal-question jurisdiction
under 28 U.S.C. § 1331 (1976) or otherwise”); Moses H. Cone
Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32
(1983) (cause of action under FAA requires “diversity of
citizenship or some other independent basis for federal
jurisdiction”)). Here, jurisdiction—if it exists—must be based
on 28 U.S.C. § 1332(a)(1) (“The district courts shall have
original jurisdiction of all civil actions where the matter in
controversy exceeds the sum or value of $75,000, exclusive of
interest and costs, and is between . . . citizens of different States
. . . .”). The parties’ diversity of citizenship is clear but the
amount in controversy requires us to consider a question of first
impression in our Circuit.
Other circuits have used three different approaches to this
question: the award, the demand and the remand approaches.
Under the award approach, the amount in controversy is
determined by the amount of the underlying arbitration award
8
regardless of the amount sought. See, e.g., Ford v. Hamilton
Invs., Inc., 29 F.3d 255, 260 (6th Cir. 1994). Pursuant to the
demand approach, the amount in controversy is the amount
sought in the underlying arbitration rather than the amount
awarded. See, e.g., Am. Guar. Co. v. Caldwell, 72 F.2d 209, 211
(9th Cir. 1934); see also Bull HN Info. Sys., Inc. v. Hutson, 229
F.3d 321, 328-30 (1st Cir. 2000) (applying demand approach to
bifurcated arbitration proceeding). The remand approach
appears to apply if the petition includes a request to remand and
reopen the arbitration proceeding, in which case the amount in
controversy is the amount sought in the underlying arbitration.
See, e.g., Peebles v. Merrill Lynch, Pierce, Fenner & Smith Inc.,
431 F.3d 1320, 1325-26 (11th Cir. 2005).
Of the three approaches, the award approach has the least
appeal. The Sixth and Eleventh Circuits have followed the
award approach, see Ford, 29 F.3d at 260; Baltin v. Alaron
Trading Corp., 128 F.3d 1466, 1472 (11th Cir. 1997), but in
neither case was the petitioner seeking to reopen the arbitration
and thus the court had no opportunity to consider the remand
approach. Moreover, the Eleventh Circuit appears to have more
recently adopted the remand approach, explaining that “a federal
court has subject matter jurisdiction where a party seeking to
vacate an arbitration award is also seeking a new arbitration
hearing at which he will demand a sum which exceeds the
amount in controversy for diversity jurisdiction purposes.”
Peebles, 431 F.3d at 1325-26. While the award approach can
work if the petitioner seeks confirmation of an arbitration award,
it can also be inconsistent with the court’s exercise of
jurisdiction over a petition to compel arbitration. That is, the
FAA provides that the district court has jurisdiction over a
petition to compel if it “would have jurisdiction under Title 28,
in a civil action or in admiralty of the subject matter of a suit
arising out of the controversy between the parties.” 9 U.S.C.
§ 4; see also Moses Cone, 460 U.S. at 25 n.32 (“Section 4
provides for an order compelling arbitration only when the
9
federal district court would have jurisdiction over a suit on the
underlying dispute.”); Jumara v. State Farm Ins. Co., 55 F.3d
873, 877 (3d Cir. 1995) (“[T]he amount in controversy in a
petition to compel arbitration or appoint an arbitrator is
determined by the underlying cause of action that would be
arbitrated.”); cf. Webb v. Investacorp, Inc., 89 F.3d 252, 257 (5th
Cir. 1996) (“[T]he district court properly looked to the amount
of Investacorp’s claim in the underlying arbitration to determine
the amount in controversy in this action for declaratory relief.”).
The award approach would apply two different jurisdictional
tests depending on the action the petitioner seeks, resulting in
jurisdiction over a petition to compel arbitration of a claim but
not necessarily over a petition to confirm/vacate an arbitration
award arising from the same claim.5 See Christopher L. Frost,
Welcome to the Jungle: Rethinking the Amount in Controversy
in a Petition to Vacate an Arbitration Award Under the Federal
Arbitration Act, 32 Pepp. L. Rev. 227, 261-62 (2005).
In contrast, the demand approach has merit and has recently
been applied by two other circuit courts. For example, the Ninth
Circuit recently upheld the exercise of diversity jurisdiction over
a petition to vacate an arbitration award of $0. Theis Research,
Inc. v. Brown & Bain, 400 F.3d 659, 664-65 (9th Cir. 2005); see
also Am. Guar., 72 F.2d at 211.6 The First Circuit has observed
5
Additionally, the award approach may discourage arbitration
because it effectively punishes parties for choosing arbitration over
litigation to settle a dispute. Frost, supra p.9, at 254-55. For example,
if the claimant in arbitration seeks $100,000 and is awarded only
$50,000, a petition to confirm/vacate would be below the
jurisdictional amount. But if the claimant had instead filed suit in
federal court, jurisdiction would have existed. See 28 U.S.C. § 1332.
6
In Theis, the Ninth Circuit noted American Guaranty’s
declaration that “‘[i]t is the amount in controversy which determines
jurisdiction, not the amount of the award’” and concluded that its
10
that the demand approach recognizes the “close connection
between arbitration and subsequent enforcement proceedings”
and “carr[ies] out the federal policies in favor of arbitration.”
Bull HN Info. Sys., 229 F.3d at 329. Bull analogizes to litigation
“where the claim in a court complaint exceeds $75,000 but the
jury awards less than $75,000,” noting that “there is diversity
jurisdiction” over such a claim. Id. A contrary approach to
arbitration—for example, “where the sums at issue before the
arbitrator at the start of the arbitration exceed $75,000, [but] the
final (non-partial) award is for less than $75,000”—“could be
thought to undermine” “federal policies in favor of arbitration.”
Id. And, as noted earlier, the demand approach is consistent
with the court’s jurisdiction over a petition to compel
arbitration. The demand approach thus avoids the potential
problem (under the award approach) that the court could compel
arbitration but then lack jurisdiction to review the arbitration it
ordered. Further, unlike the award approach, the demand
approach permits the district court to exercise jurisdiction
coextensive with the “diversity jurisdiction that would have
otherwise been present if the case had been litigated rather than
arbitrated.” Bull HN Info. Sys., 229 F.3d at 329. Accordingly,
we adopt the demand approach and conclude that, because
Lothian sought $104,638.00 plus punitive damages, fees and
costs in arbitration, the $75,000-plus threshold for diversity
jurisdiction is met. Pet. to Confirm Arbitration Award, Ex. 1.
While maintaining that the district court has jurisdiction over
his petition, Karsner argues that the Commissioner must assert
an independent ground of subject matter jurisdiction to
intervene. We observed in EEOC v. National Children’s
Center, Inc., 146 F.3d 1042, 1046 (D.C. Cir. 1998), that “[p]rior
to the enactment of [28 U.S.C. § 1367], courts granted
holding is consistent with American Guaranty. 400 F.3d. at 663
(quoting Am. Guar., 72 F.2d at 211) (alteration in Theis).
11
intervention as of right without requiring an independent
jurisdictional basis, on the theory that such claims were within
the ancillary jurisdiction of the district courts.” Section 1367(a)
now grants the district court “supplemental jurisdiction over all
other claims that are so related to claims in the action within
such original jurisdiction that they form part of the same case or
controversy under Article III of the United States Constitution.”
28 U.S.C. § 1367(a). Section 1367(b), in turn, ousts the district
court of supplemental jurisdiction over parties “seeking to
intervene as plaintiffs under Rule 24 . . . when exercising
supplemental jurisdiction over such claims would be
inconsistent with the jurisdictional requirements of section
1332.” Id. § 1367(b) (emphasis added). Because the
Commissioner is not seeking to intervene as a plaintiff (or
petitioner)—she is instead opposing Karsner’s petition to
expunge—section 1367(b) does not bar the Commissioner’s
intervention as of right. See Aurora Loan Servs., Inc. v.
Craddieth, 442 F.3d 1018, 1025 (7th Cir. 2006) (permitting
intervention as of right despite lack of independent basis of
subject matter jurisdiction therefor because “[t]he evident
purpose of [section 1367(b)] is to prevent a two-step evasion of
the requirement of complete diversity of citizenship by a person
who, being of the same citizenship as the defendant, waits to sue
until a diverse party with which it is aligned sues the defendant,
and then joins the suit as an intervening plaintiff”). We thus
conclude that the district court possesses subject matter
jurisdiction over both Karsner’s petition and the
Commissioner’s motion to intervene.7
7
We further note our own jurisdiction to review the district court’s
denial of the Commissioner’s motion to intervene pursuant to 28
U.S.C. § 1291. See Acree v. Republic of Iraq, 370 F.3d 41, 49 (D.C.
Cir. 2004) (“The District Court’s denial of a motion to intervene is an
appealable final order.”) (citing Fund for Animals, Inc. v. Norton, 322
F.3d 728, 732 (D.C. Cir. 2003)).
12
B. Mootness
Before briefing the merits, Karsner moved to dismiss the
Commissioner’s appeal as moot because the Commissioner did
not appeal the district court’s confirmation order. He maintains
that even if the Court reverses the district court’s denial of the
Commissioner’s motion to intervene, “the ultimate relief sought
by Appellant—vacatur of that portion of the Arbitration Award
that called for expungement of Lothian’s claim against Karsner
from the CRD—can no longer be granted” because the
Commissioner failed to appeal the confirmation order.
Appellee’s Br. 32.
While it would have been prudent for the Commissioner to
have appealed the confirmation order, see, e.g., Alternative
Research & Dev. Found. v. Veneman, 262 F.3d 406, 410 (D.C.
Cir. 2001); Mausolf v. Babbitt, 125 F.3d 661, 666 (8th Cir.
1997), the Commissioner’s appeal of the denial of intervention
is not doomed by her failure to do so. In Williams & Humbert
Ltd. v. W & H Trade Marks (Jersey) Ltd., 840 F.2d 72 (D.C. Cir.
1988), six individuals sought to intervene as defendants in a
trademark action. The district court denied intervention and
granted summary judgment to the plaintiff. Id. at 74. Although
the intervenors appealed the denial of intervention, they failed
to appeal the grant of summary judgment. Id. Nonetheless, this
Court considered the appeal, vacated the district court’s denial
of intervention and remanded the case, concluding that “subject
to the District Court’s ruling on the subject of timeliness, the
appellants have made out a case for intervention as of right as
defendants and counter-claimants in the proceedings.” Id. at 77.
We observed that “[a]ppellants and appellee agree that the
summary judgment is not before the Court, but that if the
[intervenors are] permitted to intervene, [they] will be in a
position to attack that judgment by proper motion.” Id. at 74
(citing Fed. R. Civ. P. 60); see also In re Vitamins Antitrust
Class Actions, 215 F.3d 26, 28 (D.C. Cir. 2000) (reviewing
13
denial of motion to intervene by individuals who opted out of
class action even though they did not appeal settlement
agreement between class and defendants). As occurred in
Williams & Humbert, the Commissioner asserts that she will file
a Rule 60(b) motion to attack the judgment as void if permitted
to intervene8 and, accordingly, the Commissioner’s appeal is not
moot.
C. Intervention
Intervention as of right obtains if the party seeking
intervention “claims an interest relating to the property or
transaction that is the subject of the action, and is so situated that
disposing of the action may as a practical matter impair or
impede the movant’s ability to protect its interest, unless
existing parties adequately represent that interest.” Fed. R. Civ.
P. 24(a)(2). We have identified four prerequisites to intervene
as of right: “(1) the application to intervene must be timely; (2)
the applicant must demonstrate a legally protected interest in the
action; (3) the action must threaten to impair that interest; and
(4) no party to the action can be an adequate representative of
the applicant’s interests.” SEC v. Prudential Sec. Inc., 136 F.3d
153, 156 (D.C. Cir. 1998). The Commissioner’s satisfaction of
the second, third and fourth factors is straightforward: the
second factor because Maryland has a recognized property
interest in the CRD (pursuant to the agreement between NASAA
and NASD and Maryland law)9, the third factor because the
8
Rule 60(b)(4) provides that “the court may relieve a party or its
legal representative from a final judgment, order, or proceeding . . .
[if] the judgment is void.” Fed. R. Civ. P. 60(b)(4).
9
The CRD Agreement between NASAA and NASD (now FINRA)
states that “[t]he data on CRD Uniform Forms filed with the CRD
shall be deemed to have been filed with each CRD State in which the
applicant seeks to be licensed and with [FINRA] and shall be the joint
14
action threatens to alter the CRD by expunging information
about Karsner and the fourth factor because neither Karsner nor
Lothian represents the Commissioner’s interest in protecting the
integrity of the CRD.
The remaining factor, timeliness, “‘is to be judged in
consideration of all the circumstances, especially weighing the
factors of time elapsed since the inception of the suit, the
purpose for which intervention is sought, the need for
intervention as a means of preserving the applicant’s rights, and
the probability of prejudice to those already parties in the case.’”
United States v. British Am. Tobacco Austl. Servs., Ltd., 437
F.3d 1235, 1238 (D.C. Cir. 2006) (quoting United States v. Am.
Tel. & Tel. Co., 642 F.2d 1285, 1295 (D.C. Cir. 1980)).
Although we usually review a district court’s “denial of
intervention for untimeliness under the abuse of discretion
standard,” id., here we review de novo because the district court
failed to provide any findings for us to review. See Cook v.
Boorstin, 763 F.2d 1462, 1468 (D.C. Cir. 1985) (where “there
are essentially no factual findings to which to defer . . . we must
make our own determination [regarding intervention]”). Using
the British American Tobacco Australia Services factors, we
conclude that the Commissioner’s motion was timely. First, less
than one month elapsed between Karsner’s filing of his petition
property of the applicant, [FINRA], and those CRD States.” CRD
Agreement Amendment, ¶ 3(e) (Dec. 13, 1996) (emphasis added).
The Commissioner is the “official custodian” of the Securities
Division’s records, see Md. Code Ann., State Gov’t § 10-611 (2004
Repl. Vol and 2007 Supp.); Md. Code Ann., Corps. & Ass’ns § 11-
405 (2007 Repl. Vol.), including broker-dealer registrations. See id.
§§ 11-404, 11-405; Md. Code Regs. 02.02.02.01. A “public record”
is defined as “any documentary material that . . . is made by a unit or
instrumentality of the State government . . . or received by the unit or
instrumentality in connection with the transaction of public business,”
Md. Code Ann., State Gov’t § 10-611.
15
in the district court and the Commissioner’s motion to intervene.
Second, the Commissioner’s intervention protects Maryland’s
interest in the integrity of its public records. Finally, the
Commissioner moved to intervene before the district court took
any action—even by minute order—and thus did not act so late
as to prejudice proceedings in that court.10
Moreover, the Commissioner asserts that if remand is
ordered, she will move under Rule 60(b)(4) to void the district
court’s confirmation order. As we have explained, however,
“[r]elief under Rule 60(b)(4) is not available merely because a
disposition is erroneous.” Combs v. Nick Garin Trucking, 825
F.2d 437, 442 (D.C. Cir. 1987). “Rather, before a judgment may
be deemed void within the meaning of the rule, it must be
determined that the rendering court was powerless to enter it.”
Id. (quotation omitted). Section nine of the FAA provides for
the judicial confirmation of an arbitration award.11 But the
district court confirmed the arbitrators’ recommendation of
10
Karsner contends that the Commissioner’s motion to intervene
was untimely because it was not filed within the FAA’s 90-day
window to file a notice to modify or vacate an arbitration award. See
9 U.S.C. § 12 (“Notice of a motion to vacate, modify, or correct an
award must be served upon the adverse party or his attorney within
three months after the award is filed or delivered.”). The
Commissioner, however, seeks the vacatur of the district court’s
confirmation order—not the arbitration award—and therefore the
FAA’s 90-day deadline is irrelevant.
11
See 9 U.S.C. § 9 (“If the parties in their agreement have agreed
that a judgment of the court shall be entered upon the award made
pursuant to the arbitration, and shall specify the court, then at any time
within one year after the award is made any party to the arbitration
may apply to the court so specified for an order confirming the award,
and thereupon the court must grant such an order unless the award is
vacated, modified, or corrected as prescribed in sections 10 and 11 of
this title.”) (emphases added).
16
expungement. An expungement recommendation, however, is
not an award and, accordingly, the district court is without
section 9 authority to “confirm” it. See Utility Audit, Inc. v.
Horace Mann Serv. Corp., 383 F.3d 683, 687 (7th Cir. 2004)
(“‘[R]ecommend’ is defined as ‘to suggest that (a particular
action) should be done.’” (quoting Cambridge International
Dictionary of English (1995))); Black’s Law Dictionary (8th ed.
2004) (defining “award” as a “final judgment or decision”).12
For the foregoing reasons, we reverse the district court’s
denial of intervention as of right. Because the confirmation
order has not been appealed, however, we must remand for
further proceedings consistent with this opinion. If on remand
the Commissioner successfully moves under Rule 60(b)(4) to
void the district court’s confirmation order, the district court
may not subsequently grant expungement relief without
identifying a source of authority—other than section 9 of the
FAA—giving it the power to do so. In this regard, NASD Rule
2130, entitled “Obtaining an Order of Expungement of
Customer Dispute Information from the [CRD],” should be
analyzed. As noted earlier, Rule 2130(a) requires a broker-
dealer member of FINRA (like Karsner) to “obtain an order
from a court of a competent jurisdiction directing such
expungement or confirming an arbitration award containing
expungement relief.” NASD Rule 2130(a) (emphases added).
Regarding the confirmation of an arbitration award “containing
expungement relief,” we do not read this language to include a
mere recommendation of expungement relief but rather the
12
Interestingly, Karsner himself requested only that the arbitration
panel dismiss Lothian’s complaint and “award [him] forum fees,
attorneys’ fees and any other costs and fees incurred by [him] in
defending this action.” Pet. to Confirm Arbitration Award, Ex. 1.
17
arbitration award must direct expungement.13 And if, instead,
the FINRA member asks the court itself to “direct”
expungement, Rule 2130(b) requires that NASD (now FINRA)
be named as a party unless NASD (now FINRA) waives the
requirement upon certain “affirmative judicial . . . findings.”
NASD Rule 2130(b). Moreover, although the NASD Rules
require SEC approval, see 15 U.S.C. § 78s(b),14 the Rules do not
13
In 1999, NASD issued a notice imposing a moratorium on
arbitrator-ordered expungement of information from the CRD
because, according to NASAA, “under the laws of certain states,
information filed with the CRD system is deemed to have been filed
with those states, and . . . is therefore a state record subject to all of the
regulations and protocols that apply to state records.” NASD Notice
to Members 99-09, 47-48 (Feb. 1999), available at
http://www.finra.org/RulesRegulation/NoticestoMembers. Further,
“in [NASAA’s] opinion, state laws do not currently recognize the
authority of an arbitrator to expunge a state record or do not otherwise
currently permit such expungements due to record keeping
requirements.” Id. The moratorium appears to remain in effect. See
NASD Notice to Members 04-16, 213 (Mar. 2004), available at
http://www.finra.org/RulesRegulation/NoticestoMembers (“Rule 2130
continues the requirement started with the January 1999 moratorium
that a court of competent jurisdiction must order or confirm all
expungement directives before NASD will expunge customer dispute
information from the CRD system.”); cf. Pet. to Confirm Arbitration
Award, Ex. 1 (“The Panel recommends the expungement of all
reference to the above-captioned arbitration from Respondent
Karsner’s registration record maintained by the NASD Central
Registration Depository (‘CRD’), with the understanding that,
pursuant to NASD Notice to Members 04-16, Respondent Karsner
must obtain confirmation from a court of competent jurisdiction before
the CRD [sic] will execute the expungement directive.”).
14
Rule 2130 was approved by the SEC in 2003. Order Granting
Approval of NASD Proposed Rule Change Concerning the
Expungement of Customer Dispute Information From the Central
18
come within the meaning of 15 U.S.C. § 78aa which gives a
federal court “exclusive jurisdiction of violations” of rules and
regulations promulgated under the Securities Exchange Act of
1934, 15 U.S.C. §§ 78a et seq. See Ford v. Hamilton Invs., Inc.,
29 F.3d 255, 259 (6th Cir. 1994) (“[T]he mere fact that the
arbitration was conducted before the NASD as required by the
association’s rules does not make the case one that arises out of
the federal securities laws.”).
So ordered.
Registration Depository System, 68 Fed. Reg. 74,667 (Dec. 24, 2003).