J.P. Morgan Securities LLC v. Nickel

• Court: District Court, N.D. California
• Decided: April 29, 2025
• Docket: 4:24-cv-02574
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 J.P. MORGAN SECURITIES, LLC, et al., Case No. 24-cv-02574-JST

8 Plaintiffs, ORDER DISMISSING COMPLAINT; 9 v. TERMINATING AS MOOT MOTION TO DISMISS AND MOTION FOR 10 MARK R. NICKEL, et al., PRELIMINARY INJUNCTION 11 Defendants. Re: ECF No. 10, 24

12 13 Before the Court is the motion for preliminary injunction filed by Plaintiffs J.P. Morgan 14 Securities, LLC; J.P. Morgan Private Wealth Advisors LLC; and JPMorgan Chase Bank, N.A. 15 (“JPMC Bank”) (collectively, “Plaintiffs”). ECF No. 10.1 Also before the Court is Defendants’2 16 motion to dismiss for lack of jurisdiction or, in the alternative, to stay and compel arbitration. 17 ECF No. 24. 18 I. BACKGROUND 19 A. Factual Background 20 Plaintiffs allege the following facts in their complaint and their motion for preliminary 21 injunction. Defendants are former employees of First Republic Bank (“FRB”) who signed 22 promissory notes for loans that FRB made to them. See ECF No. 1 ¶¶ 28–162. Under the terms of 23 the promissory notes, if an employee resigned from FRB, the full amount of the loan plus interest 24 1 The Federal Deposit Insurance Corporation as Receiver for First Republic Bank (“FDIC-R”) has 25 appeared as an interested party in this case and filed a joinder in Plaintiffs’ motion for preliminary injunction. ECF No. 12. 26

2 Defendants are Mark R. Nickel, Brian J. Addington, Mark A. Friedman, Mitchell R. Peters, 27 Robert P. Gehlen, David Mucha, Larry L. Rothenberg, Shaun M. Van Vliet, David E. Farber, 1 became due upon the employee’s resignation. See id. Defendants each resigned from FRB in the 2 spring of 2023, but none has repaid the loans. See id. 3 On May 1, 2023, the State of California closed FRB and appointed FDIC-R as receiver for 4 the failed institution. Id. ¶ 15; see id. at 33–36. The same day, FDIC-R entered into a Purchase & 5 Assumption Agreement with JPMC Bank, transferring substantially all assets of FRB to it. 6 Id. ¶ 21. 7 Between July 28, 2023 and February 29, 2024, First Republic Investment Management, 8 Inc. (“FRIM”) and First Republic Securities Company, LLC (“FRSC”)3 commenced arbitration 9 actions before the Financial Industry Regulatory Authority (“FINRA”) against all sixteen 10 defendants, either individually or in groups of up to four, seeking repayment of the outstanding 11 balance on the loans from FRB. See id. ¶¶ 28–162. 12 Each Defendant filed an answer asserting numerous affirmative defenses and 13 counterclaims in the FINRA arbitrations. See ECF Nos. 10-5 to 10-13. FRIM and FRSC then 14 filed answers to Defendants’ counterclaims asserting that those claims stemmed from pre-purchase 15 conduct by the failed institution, FRB, and therefore were ineligible for arbitration under the 16 Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), 12 U.S.C. 17 § 1821; that they are subject to FIRREA’s administrative exhaustion requirement; and that they 18 can only be brought against FDIC-R as receiver for the FRB. See ECF Nos. 24-5, 24-8, 24-10, 24- 19 12, 24-14, 24-17, 24-19, 24-21, 24-25. In two of the arbitrations, FRIM and FRSC also filed 20 motions to dismiss containing the same basic contentions. See ECF Nos. 24-22, 24-26. FINRA 21 denied the motions to dismiss without prejudice in a form order containing no substantive 22 reasoning. See ECF Nos. 24-23, 24-27. In each arbitration, FRIM and FRSC then requested that 23 FINRA join FDIC-R as a necessary party, again arguing that Defendants’ counterclaims and 24 defenses could only be asserted against FDIC-R. See ECF No. 10-14. FINRA denied the request, 25 stating that because FDIC-R was not under its jurisdiction, claims against FDIC-R would need to 26 3 For simplicity, the Court refers to FRIM and FRSC by these acronyms even when describing 27 events that occurred after the names of those entities changed. FRIM is now known as J.P. 1 be brought in another forum. See ECF No. 10-15. 2 B. Procedural Background 3 On April 30, 2024, Plaintiffs filed this action seeking an injunction prohibiting Defendants 4 from: asserting or pursuing any claims, counterclaims, demands, defenses 5 or arguments against Plaintiffs in any proceeding, including but not limited to the arbitrations they have commenced before the Financial 6 Industry Regulatory Authority (“FINRA”) (collectively, the “FINRA Arbitrations”), that arise out of or relate to the failed First 7 Republic Bank, its affiliates, subsidiaries, or its and their successors, including but not limited to those that arise out of or relate to the 8 Advisor Defendants’ employment with or termination from First Republic Bank and specifically the counterclaims they asserted in 9 their respective FINRA arbitrations seeking to avoid their obligations to repay promissory notes[.] 10 ECF No. 1 ¶ 1. 11 Plaintiffs also sought a declaration that FIRREA bars Defendants from pursuing these 12 claims in the ongoing FINRA arbitrations. Id. ¶ 2. On May 3, 2024, Plaintiffs filed a 13 corresponding motion for preliminary injunction. ECF No. 10. FDIC-R joined in the motion as 14 an interested party on May 8, 2024. ECF No. 12. Defendants filed their opposition to the motion 15 on June 4, 2024, ECF No. 26, and Plaintiffs filed a reply on June 18, 2024, ECF No. 32. 16 On June 4, 2024, Defendants filed a motion to dismiss for lack of jurisdiction, or, in the 17 alternative, to stay and compel arbitration. FDIC-R filed an opposition on June 18, 2024, ECF No. 18 31, and Defendants filed a reply on June 25, 2024, ECF No. 34. 19 On July 9, 2024, the Court ordered supplemental briefing on the issue of ripeness. ECF 20 No. 36. On July 25, 2024, FDIC-R moved for a temporary restraining order (“TRO”) to block 21 Defendant Steven Levine’s final arbitration hearing, which was scheduled to begin on August 5, 22 2024, from proceeding until the Court ruled on Plaintiffs’ pending motion for preliminary 23 injunction. ECF No. 39. Defendants filed an opposition on July 29, 2024. ECF No. 42. After 24 holding a status conference on July 30, 2024, see ECF No. 44, the Court denied the motion for 25 TRO on July 31, 2024. ECF No. 47. 26 Defendants filed their supplemental brief regarding ripeness on July 22, 2024. ECF No. 27 37. Plaintiffs and FDIC-R each filed a supplemental brief on August 5, 2024. ECF No. 49–50. 1 On September 4, 2024, the parties requested that the Court not rule on the instant motions 2 because they were trying to settle the case. ECF No. 57. On April 23, 2025, Defendants apprised 3 the Court that they no longer believed that further delays “would assist with settlement 4 negotiations,” and requested that the Court decide the motions. ECF No. 66. 5 II. JURISDICTION 6 The Court begins by examining whether it has jurisdiction over this matter. See Mashiri v. 7 Dep’t of Educ., 724 F.3d 1028, 1031 (9th Cir. 2013) (“Subject matter jurisdiction can never be 8 forfeited or waived, and federal courts have a continuing, independent obligation to determine 9 whether subject matter jurisdiction exists.”). 10 A. Legal Standard 11 “Article III of the Constitution empowers [the lower federal courts] “to adjudicate only 12 ‘live cases or controversies,’ not ‘to issue advisory opinions [or] to declare rights in hypothetical 13 cases.’” Clark v. City of Seattle, 899 F.3d 802, 808 (9th Cir. 2018) (quoting Thomas v. Anchorage 14 Equal Rights Comm’n, 220 F.3d 1134, 1138 (9th Cir. 2000) (en banc)). “At the core of the Article 15 III case-or-controversy requirement is the doctrine of standing.” Habeas Corpus Res. Ctr. v. U.S. 16 Dep’t of Just., 816 F.3d 1241, 1248 (9th Cir. 2016) (citing Lujan v. Defenders of Wildlife, 504 17 U.S. 555, 560 (1992)). “To satisfy ‘the irreducible constitutional minimum of standing,’ a 18 plaintiff must establish three elements: (1) that the plaintiff has ‘suffered an injury in fact—an 19 invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or 20 imminent, not conjectural or hypothetical,’ (2) that there is ‘a causal connection between the injury 21 and the conduct complained of,’ and (3) that it is ‘likely, as opposed to merely speculative, that the 22 injury will be redressed by a favorable decision.’” Hall v. United States Dep’t of Agric., 984 F.3d 23 825, 833 (9th Cir. 2020) (quoting Lujan, 504 U.S. 555, 560–61 (1992) (internal quotation marks 24 and citations omitted)). 25 Courts also apply the related doctrine of ripeness “‘to determine whether a case presents a 26 live case or controversy’ over which [they] have jurisdiction under Article III.” Safer Chems., 27 Healthy Fams. v. U.S. Env’t Prot. Agency, 943 F.3d 397, 411 (9th Cir. 2019) (quoting Clark, 899 1 component’” because the doctrine is “derived ‘both from Article III limitations on judicial power 2 and from prudential reasons for refusing to exercise jurisdiction.”’ Id. (quoting Clark, 899 F.3d at 3 809) (internal quotation marks and citation omitted). Although a court may decline to exercise 4 jurisdiction for prudential reasons where a case meets the requirements of Article III, it may never 5 exercise jurisdiction where constitutional ripeness is lacking. See id. at 412; Spokeo, 6 Inc. v. Robins, 578 U.S. 330, 339 (2016). 7 “Constitutional ripeness is often treated under the rubric of standing because ripeness 8 coincides squarely with standing’s injury in fact prong.” Safer Chemicals, Healthy Fams., 943 9 F.3d at 411 (alteration omitted) (quoting Clark, 899 F.3d at 809). “To satisfy the constitutional 10 ripeness requirement, a case ‘must present issues that are definite and concrete, not hypothetical or 11 abstract.’” Id. (quoting Clark, 899 F.3d at 809). “[A] claim is not ripe for adjudication if it rests 12 upon contingent future events that may not occur as anticipated, or indeed may not occur at all.” 13 Bova v. City of Medford, 564 F.3d 1093, 1096 (9th Cir. 2009) (quoting Texas v. United States, 523 14 U.S. 296, 300 (1998)). “That is so because, if the contingent events do not occur, the plaintiff 15 likely will not have suffered an injury that is concrete and particularized enough to establish the 16 first element of standing.” Id. (citing Lujan, 504 U.S. at 560). 17 The rule that Article III courts may only adjudicate cases or controversies “is ‘not relaxed 18 in the declaratory judgment context.’” San Diego Cnty. Credit Union v. Citizens Equity First 19 Credit Union, 65 F.4th 1012, 1022 (9th Cir. 2023), cert. denied, 144 S. Ct. 190 (2023) (quoting 20 Gator.com Corp. v. L.L. Bean, Inc., 398 F.3d 1125, 1129 (9th Cir. 2005) (en banc)). “The 21 Declaratory Judgment Act does not confer jurisdiction.” Id. at 1022–23 (citing 28 U.S.C. 22 §§ 2201–02 and Allen v. Milas, 896 F.3d 1094, 1099 (9th Cir. 2018)). Accordingly, a party 23 seeking declaratory relief must establish that its case is justiciable under the Article III doctrines of 24 standing and ripeness. San Diego Cnty. Credit Union, 65 F.4th at 1022; see also 50 Exch. Terrace 25 LLC v. Mount Vernon Specialty Ins. Co., No. 223CV09557JLSMAR, 2024 WL 628363 (C.D. Cal. 26 Feb. 13, 2024) (dismissing declaratory judgment action for lack of Article III standing and 27 ripeness and noting that a “[p]laintiff cannot sidestep its inability to plead ‘an actual and 1 B. Discussion 2 Plaintiffs ask the Court to declare that FIRREA bars Defendants from asserting certain 3 counterclaims and other arguments in ongoing arbitrations and to enjoin them from pursuing those 4 claims while the remaining aspects of the arbitrations proceed. They make this request although 5 they have already submitted their arguments regarding FIRREA to the arbitration panels and have 6 yet to receive a decision. The answer to the question whether Defendants’ counterclaims 7 implicate conduct that occurred before or after Plaintiffs purchased FRB’s assets will determine 8 whether FIRREA applies to the counterclaims at all. See Benson v. JPMorgan Chase Bank, N.A., 9 673 F.3d 1207, 1215 (9th Cir. 2012). Accordingly, the applicability of FIRREA to the 10 counterclaims in question has not been established in the arbitration proceeding, nor has it been 11 established that FINRA would adjudicate the claims if it were to determine that FIRREA applies. 12 See, e.g., ECF No. 10-15 (responses from FINRA declining to add FDIC-R as a party to the 13 arbitrations and explaining that it lacks jurisdiction over claims asserted against FDIC-R, which is 14 not a party to the arbitration). 15 “A case is ripe where the essential facts establishing the right to declaratory relief have 16 already occurred.” Terpin v. AT&T Mobility, LLC, 399 F. Supp. 3d 1035 (C.D. Cal. 2019) 17 (quoting Boeing Co. v. Cascade Corp., 207 F.3d 1177, 1192 (9th Cir. 2000)) (internal quotation 18 marks omitted). Finding a sufficiently alleged injury on the present record would require the 19 Court either to speculate how the FINRA panels will decide the relevant factual issue or to decide 20 that issue in their stead. Plaintiffs have not persuaded the Court that it has jurisdiction to do either. 21 As the Court detailed in its order denying FDIC-R’s motion for a TRO, ECF No. 47 at 5–7, 22 other district courts have held that disputes depending on the outcome of an issue in an ongoing 23 arbitration are not ripe for adjudication. In Young Habliston, for example, Judge Berman Jackson 24 determined that plaintiffs’ claim that a FINRA arbitration panel made unfair rulings was unripe 25 because the arbitration remained ongoing. Young Habliston v. Finra Regulation, Inc., No. 15-cv- 26 2225 (ABJ), 2017 WL 396580, at *5 (D.D.C. Jan. 27, 2017) (“Since the arbitration is still 27 ongoing, plaintiffs’ challenge to the proceeding is not ripe for review.”). 1 ripe in Cristo v. U.S. Sec. & Exch. Comm’n, No. 19CV1910-GPC(MDD), 2020 WL 2735175, at 2 *7–8 (S.D. Cal. May 26, 2020) (Cristo I); and Cristo v. U.S. Sec. & Exch. Comm’n, No. 3 19CV1910-GPC(MDD), 2020 WL 4040340, at *4–6 (S.D. Cal. July 17, 2020) (Cristo II). In 4 Cristo I, the court determined that because “[t]he outcome of the arbitration has yet to be 5 determined[,] under an Article III analysis, Plaintiff has not shown and cannot show that he has 6 suffered any concrete injury or that any harm is imminent.” 2020 WL 2735175, at *8. Shortly 7 thereafter, the remaining defendants in the case also moved to dismiss, and the court again granted 8 dismissal on ripeness grounds. Cristo II, 2020 WL 4040340, at *5 (“These allegations concern 9 conduct currently pending with the arbitration panel which are not yet concluded, and are 10 therefore, not ripe.”). 11 Here, if the arbitration panel makes an award that exceeds its authority, Plaintiffs can seek 12 relief from that decision in federal court. See 9 U.S.C. § 10(a)(4); Cristo II, 2020 WL 4040340, at 13 *6 (“[O]nce the arbitration panel issues its decision, Plaintiff may seek to vacate or confirm the 14 arbitration award . . . . Therefore, Plaintiff may seek relief from the arbitrator panel’s decision 15 once it is completed but not before.”); cf. Ohio Forestry Ass’n, Inc. v. Sierra Club, 523 U.S. 726, 16 734–35 (1998) (holding that cost of potential future litigation did not justify immediate review of 17 an otherwise unripe matter and observing that “the disadvantages of a premature review that may 18 prove too abstract or unnecessary ordinarily outweigh the additional costs of—even repetitive— 19 postimplementation litigation”). 20 Of course, the arbitration panel could also agree with Plaintiffs’ arguments that 21 Defendants’ counterclaims concern pre-purchase conduct and dismiss them based on FIRREA, as 22 happened in Saffer v. JP Morgan Chase Bank, N.A., 225 Cal. App. 4th 1239 (2014). In that case, 23 plaintiff asserted claims against Washington Mutual Bank and Chase Manhattan Bank in 24 California state court. JP Morgan Chase Bank (“JPMC”) answered the complaint as the “acquirer 25 of certain assets and liabilities of Washington Mutual Bank from the FDIC acting as receiver.” Id. 26 at 1244. JPMC then successfully moved to compel arbitration. Once there, JPMC moved to 27 dismiss plaintiff’s claims as barred by FIRREA, and the arbitrator granted the motion. Id. at 1245. 1 if the arbitration is not enjoined. ECF No. 10 at 25.4 2 Plaintiffs rely heavily on Axon Enterprise v. FTC, 598 U.S. 175, 191–92 (2023). In Axon, 3 the Supreme Court held that district courts had jurisdiction to consider plaintiffs’ constitutional 4 challenge to the structure of the Securities Exchange Commission and Federal Trade Commission 5 despite the statutory requirement that claims be exhausted through the agency and then reviewed 6 in a court of appeals. Id. at 180. 7 Axon differs from this case in at least two key respects. First, the claims that ALJs’ tenure 8 protections violated Article II were “extraordinary claims” that superseded the “ordinary statutory 9 review scheme,” id., both because of their constitutional nature and the fact that they challenged 10 the administrative boards’ very existence, see id. at 194–96. By contrast, Plaintiffs here do not 11 challenge the legitimacy of FINRA or its panels. Indeed, they do not even want to stop the 12 arbitrations in their entirety—FRIM and FRSC initiated these arbitrations and continue to 13 participate in them, including by having raised the same arguments before the panels that they now 14 raise here. They only ask this Court to enjoin their opponents’ claims ahead of the arbitrators’ 15 impending decision on the same issues. 16 Second, the Axon plaintiffs initiated their constitutional challenges in the district courts 17 “before the ALJ hearing began” or at the time that the agency charged them with violations. Id. at 18 182. The Axon plaintiffs did not first assert their constitutional arguments in the administrative 19 proceedings, then file concurrent lawsuits in the district court while the ALJs were still 20 considering the question. Unlike this Court, the district courts in Axon were not asked to decide a 21 question that had been raised in a parallel proceeding and remained pending before that 22 decisionmaker. 23 Here, whether the claims pertain to pre- or post-purchase conduct is an open factual 24 question in the arbitrations, and the existence of Plaintiffs’ alleged injury is contingent on the 25 4 JPMC then successfully moved to confirm the arbitration award in the California Superior Court, 26 and plaintiff appealed. The California Court of Appeal dismissed the appeal due to a lack of subject matter jurisdiction, “resulting from [plaintiff] Saffer’s failure to timely exhaust his 27 administrative remedies with the FDIC as required by FIRREA.” Saffer, 225 Cal. App. 4th at 1 outcome of that question. Plaintiffs’ alleged injury is therefore speculative. Because of this open 2 factual issue, this Court cannot conclude that Plaintiffs are being forced to conduct an illegitimate 3 arbitration or that such harm is “certainly impending.” United States v. Streich, 560 F.3d 926, 931 4 (9th Cir. 2009), cert. denied, 558 U.S. 920 (2009) (emphasis in original); see also Addington, 606 5 F.3d at 1179 (“A question is fit for decision when it can be decided without considering 6 ‘contingent future events that may or may not occur as anticipated, or indeed may not occur at 7 all.’” (quoting Cardenas v. Anzai, 311 F.3d 929, 934 (9th Cir. 2002)); MedImmune, Inc. v. 8 Genentech, Inc., 549 U.S. 118, 127 (2007) (explaining that declaratory judgment actions that 9 satisfy the case-or-controversy requirement must “admi[t] of specific relief through a decree of a 10 conclusive character, as distinguished from an opinion advising what the law would be upon a 11 hypothetical state of facts (quotation omitted)). Like the plaintiffs in Young Habliston and Cristo, 12 they instead present a premature request for this Court to decide a pending issue in an ongoing 13 arbitration.5 14 Plaintiffs also argue that the Ninth Circuit’s decision in Benson, 673 F.3d at 1209, requires 15 the Court to resolve the question of whether Defendants’ counterclaims pertain to pre- or post- 16 purchase conduct by examining the pleadings filed with FINRA. ECF No. 49 at 13–14. In 17 Benson, the Ninth Circuit held that “a claim that is functionally, albeit not formally,” against a 18 failed institution is subject to the FIRREA exhaustion requirement. Benson, 673 F.3d at 1214. 19 But Benson did not involve an arbitration or other parallel proceeding. 20 In addition to Benson, FDIC-R relies on unpublished district court decisions in which 21 courts enjoined arbitrations because the claims therein were barred by FIRREA or the analogous 22 Federal Credit Union Act. ECF No. 50 at 7 (citing Multibank 2010-1 SFR Venture LLC v. 23 Saunders, No. 2:11-CV-1245 JCM (CWH), 2011 WL 5546960, at *3 (D. Nev. Nov. 14, 2011); 24 Nat’l Credit Union Admin. Bd. v. Lormet Cmty. Fed. Credit Union, No. 1:10 CV 1964, 2010 WL 25 4806794, at *4, 7 (N.D. Ohio Nov. 18, 2010); People’s Tr. Fed. Credit Union v. Nat’l Credit 26

27 5 FDIC-R also seeks to distinguish these cases because they did not involve FIRREA. See ECF 1 Union Admin. Bd., No. CR 16-0611 JB/SCY, 2016 WL 4491635, at *10 (D.N.M. Aug. 8, 2016)). 2 As the Court noted in its order denying the motion for TRO, none of these cases considered the 3 issue of ripeness, nor does it appear that any of them involved a live factual dispute before an 4 arbitration panel about pre- versus post-purchase conduct. See ECF No. 47 at 7–8. Thus, these 5 cases are not helpful. 6 Finally, Plaintiffs assert prudential arguments that the Court should decide their claims due 7 to the congressional intent behind FIRREA. ECF No. 49 at 14–16. Prudential considerations, 8 however, including statutes providing for judicial review, cannot “make a claim constitutionally 9 ripe.” Safer Chems., Healthy Fams., 943 F.3d at 412 (emphasis in original). “Injury in fact is a 10 constitutional requirement, and [i]t is settled that Congress cannot erase Article III’s standing 11 requirements by statutorily granting the right to sue to a plaintiff who would not otherwise have 12 standing.” Id. (quoting Spokeo, 578 U.S. at 339) (alteration in original) (internal quotation marks 13 omitted). “And while Spokeo itself addressed Article III standing, the same is necessarily true of 14 Article III ripeness, which is also a constitutional requirement.” Id. (citations omitted). Plaintiffs 15 “must therefore establish that their case is justiciable under the Article III doctrines of standing 16 and ripeness.” Id. 17 In sum, finding that Plaintiffs have alleged a sufficiently imminent injury at this juncture 18 would require the Court to find, at least implicitly, that Defendants’ counterclaims in the FINRA 19 proceedings pertain to pre-purchase conduct. Plaintiffs have raised and submitted that issue to the 20 FINRA panels, and it remains pending before them. On this record, Plaintiffs have not established 21 that an actual controversy is ripe for this Court’s adjudication. See, e.g., Young Habliston, 2017 22 WL 396580, at *5. 23 CONCLUSION 24 Because the Court lacks subject matter jurisdiction over this unripe dispute, the action is 25 / / / 26 / / / 27 / / / 1 dismissed without prejudice. The motion to dismiss or to compel arbitration, ECF No. 24, and the 2 || motion for preliminary injunction, ECF No. 10, are terminated as moot. 3 IT IS SO ORDERED.

4 Dated: April 29, 2025 5 JON S. TIGAR 6 nited States District Judge 7 8 9 10 11 12

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