Sacks v. Dietrich

The federal district court has jurisdiction over state law claims against arbitrators when the central question of the case is the violation of regulatory authorities arbitration rules.

Sacks entered into a contract to represent a client in a securities arbitration proceeding before the Financial Industry Regulatory Authority (FINRA). FINRA appointed defendants Dietrich and Boesch as arbitrators to the case. During the first appearance, respondents moved to disqualify Sacks under FINRA rules. The arbitrators agreed and granted the motion. Sacks filed a complaint in state court against the arbitrators alleging interference with contract and prospective economic advantage. The defendants removed the case to federal district court, and the court grated the defendant’s motion to dismiss based on arbitral immunity. Sacks appealed, arguing that the district court did not have jurisdiction over the case and the doctrine of arbitral immunity did not apply. The Ninth Circuit held that under federal law, the district court has subject matter jurisdiction over state law contract claims when the crux of the argument is based the arbitrators exceeding their jurisdiction. The Court further held that the doctrine of arbitral immunity applied to the case because the arbitrators were acting within their jurisdiction and the claims were based on their decisional functions agreed to by contract. AFFIRMED.