Ferdowsi v. JPMorgan Chase Bank, N.A.

[4] 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA [7] 8 ARASH FERDOWSI, et al., Case No. 24-cv-04644-MMC 9 Plaintiffs, ORDER DIRECTING PARTIES TO 10 v. SHOW CAUSE WHY ACTION SHOULD NOT BE DISMISSED 11 JPMORGAN CHASE BANK, N.A., et al., Defendants. [12] 13 FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER FOR 14 FIRST REPUBLIC BANK, Counterclaimant, [15] v. 16 ARASH FERDOWSI, et al., 17 Counterclaim Defendants. [18] 19 On March 14, 2025, the Court conducted a case management conference, at 20 which time the Court advised the parties of its intent to issue a written order directing the 21 parties to show cause why the above-titled action should not be dismissed. 22 Having reviewed all filings to date, as well as the comments made by counsel at 23 the case management conference, the Court will, for the reasons stated below, direct the 24 parties to show cause why the instant action, consisting of (1) plaintiffs Arash Ferdowsi 25 and Arash Ferdowsi Revocable Trust's (collectively, "Ferdowsi") Complaint for 26 Declaratory Judgment and (2) defendant/counterclaimant Federal Deposit Insurance 27 Corporation, as Receiver for First Republic Bank's ("FDIC-R") Counterclaims, should not 1 be dismissed.1 2 BACKGROUND 3 A. Ferdowsi's Complaint 4 The following factual allegations, contained in the Complaint, are assumed true for 5 purposes of the instant Order. 6 On January 9, 2020, Ferdowsi entered into a contract, titled Investment 7 Management Agreement, with First Republic Investment Management, Inc. ("FRIM"), 8 which contract "govern[ed] multiple accounts, including that of the Arash Ferdowsi 9 Revocable Trust ['Trust']" and which included an arbitration agreement, providing that any 10 disputes the parties have will be resolved through arbitration. (See Compl. ¶ 23.) 11 Additionally, on January 9, 2020, Ferdowsi, in his capacity as trustee of the Trust, signed 12 a Trust Account Application to set up a brokerage account with First Republic Securities 13 Company, LLC ("FRSC"); the Application includes an arbitration agreement, providing 14 that any disputes the parties have will be resolved through arbitration. (See Compl. 15 ¶ 24). At the time Ferdowsi entered into the above-referenced arbitration agreements, 16 FRIM and FRSC were wholly owned subsidiaries of First Republic Bank. (See Compl. 17 ¶ 5.) Subsequently, on May 1, 2023, First Republic Bank "failed" and was "sold" by the 18 FDIC-R to Chase Bank, which, that same date, "acquired" from the FDIC-R, as "assets of 19 First Republic Bank," the "shares" First Republic Bank had held in FRIM and FRSC. 20 (See Compl. ¶¶ 5, 33.) 21 On July 30, 2024, Ferdowsi instituted an arbitration proceeding by filing with the 22 Financial Industry Regulatory Authority ("FINRA") a Statement of Claim, naming as a 23 respondent Arif Ahmed ("Ahmed"), a "registered investment advisor," as well as two 24 entities, specifically, JPMorgan Private Wealth Advisors LLC ("JPMPWA"), the successor 25 to FRIM, and JPMorgan Securities LLC ("JPMS"), the successor to FRSC, which entities [26] 1 The remaining party in the instant action, defendant JPMorgan Chase Bank, N.A. [27] ("Chase Bank"), does not seek affirmative relief, but does seek resolution in its favor of 1 are, respectively, an "investment advisory firm" and a "broker-dealer." (See Compl. Ex. A 2 ¶ 1.) In said arbitration proceeding, Ferdowsi asserts seven Counts, each arising from 3 his allegation that Ahmed, as well as JPMPWA and JPMS (collectively, "JPM Wealth"), 4 beginning in April 2020 and ending in October 2023 (see Compl. Ex. A ¶ 2), "plac[ed] 5 their financial interests ahead of . . . Ferdowsi's by steering him into MLIs [Market-Linked 6 Investments] that allowed them to collect excessive fees" (see Compl. Ex. A ¶ 30), which 7 conduct the respondents assertedly "conceal[ed]" from Ferdowsi (see Compl. Ex. A ¶ 49) 8 and assertedly caused him losses of "over $225 million [dollars]" (see Compl. Ex. A ¶ 76). 9 Prior to filing his arbitration claim, however, Ferdowsi, in February 2024, 10 "demanded in writing" that JPM Wealth compensate him for his asserted losses, and, in 11 response thereto, "JPMorgan's counsel" stated that "the FDIC retained liability for this 12 matter, has granted indemnity to JPM, and is the real party in interest." (See Compl. 13 ¶ 43.)2 14 In light thereof, Ferdowsi, by the instant action, asserts that, (1) "[s]ubject to any 15 contrary finding by the FINRA arbitrator, Ferdowsi has the right under his arbitration 16 agreements with JPM Wealth to bring and maintain a FINRA Arbitration against JPM 17 Wealth to resolve the controversies and claims in the FINRA Arbitration" and 18 (2) "Ferdowsi’s FINRA Arbitration and the claims that Ferdowsi asserts therein are in no 19 way barred or otherwise affected by the fact that those claims were not presented in the 20 administrative claims process of the First Republic Bank Receivership." (See Compl., 21 Prayer for Relief ¶ 1.) 22 B. FDIC-R's Counterclaims 23 The following factual allegations, contained in the Counterclaims, are assumed 24 true for purposes of the instant Order. 25 On May 1, 2023, (1) the Commissioner of the Financial Protection and Innovation [26] 2 Ferdowsi understood such response to be a contention that his "claims must be [27] brought as part of the FDIC administrative claims process and [could] only be asserted 1 of the State of California ("the Commissioner") "took possession of the property and 2 business of First Republic Bank . . . and ordered that the [b]ank be liquidated" (see 3 Countercl. Ex. 1 at 1); (2) the Commissioner "appoint[ed] and tender[ed] to the [FDIC-R] 4 the appointment as receiver of [First Republic] Bank" (see id.); (3) the FDIC-R accepted 5 the appointment (see Countercl. Ex. 1 at 2), and "succeeded by operation of federal law 6 to all rights, title, powers, privileges, assets[,] and liabilities" of First Republic Bank (see 7 Countercl. ¶ 6); and (4) the FDIC-R "entered into a Purchase and Assumption Agreement 8 with Chase Bank, under which the FDIC-R transferred to Chase Bank "substantially all 9 assets" of First Republic Bank, including FRSC and FRIM (see Countercl. ¶ 7), but did 10 not transfer to Chase Bank the "liabilities" of FRSC and FRIM, which it "retained" for itself 11 (see id.). 12 Thereafter, the FDIC-R "published notice to all creditors or potential claimants 13 against the failed First Republic Bank of the requirement to submit claims and comply 14 with [an] administrative claims process" before a deadline of September 5, 2023. (See 15 Countercl. first ¶ 12.)3 Ferdowsi did not submit a claim to the FDIC-R by the September 16 5, 2023, deadline. (See Countercl. first ¶ 13.) 17 In February 2024, Ferdowsi "submitted a demand letter to Chase," which 18 forwarded the letter to the FDIC-R. (See id.) On February 15, 2024, the FDIC-R sent to 19 Ferdowsi a document titled "Notice to Discovered Claimant to Present Proof of Claim," 20 stating therein it had "discovered that [Ferdowsi] may have a claim against the Failed 21 Institution," i.e., First Republic Bank, setting forth the showing that must be made to 22 submit a claim after the deadline, and indicating that a "late-filed claim" had to be 23 submitted no later than May 15, 2024. (See Countercl. Ex. 3.) Ferdowsi did not submit a 24 claim by May 15, 2024. (See Countercl. first ¶ 13.) Instead, Ferdowsi initiated the 25 above-referenced arbitration proceeding against against JPMPWA, JPMS (see 26 Countercl. first ¶ 14), and Ahmed, who, the FDIC-R asserts, was an employee of First [27] 1 Republic Bank (see Countercl. first ¶ 14, second ¶ 11), Thereafter, on October 9, 2024, 2 the FDIC-R filed in the arbitration proceeding a "Notice of Substitution," whereby it 3 contended it was the "real party in interest to defend against [Ferdowsi's] claims based 4 upon alleged acts and omissions occurring prior to the May 1, 2023[,] failure of First 5 Republic Bank." (See Countercl. second ¶ 16.) 6 Based on the above, the FDIC-R contends it is entitled to a declaratory judgment 7 that Ferdowsi is "barred" from "maintaining and pursuing [his] claims relating to acts or 8 omissions prior to the failure of First Republic Bank on May 1, 2023, in FINRA arbitration 9 or any other proceeding other than this Court." (See Countercl., Prayer for Relief ¶ A.) 10 Additionally, the FDIC-R contends it is entitled to a permanent injunction imposing such a 11 bar. (See Countercl., Prayer for Relief ¶ B.) 12 C. Joint Case Management Statement 13 The Court accepts, as accurate, the following factual assertions that are included 14 in the Joint Case Management Statement filed March 7, 2025, and have not been 15 disputed therein or at the conference: (1) the FDIC-R's Notice of Substitution, filed in the 16 arbitration proceeding, was not accepted by FINRA (see Statement at 1:23-24, 26) and 17 the arbitration is set to begin on December 8, 2025, and to conclude on January 16, 2026 18 (see id. at 3:24). 19 DISCUSSION 20 The Court has fully reviewed the matter, and, for the reasons set forth below, it 21 would appear that the Court lacks subject matter jurisdiction to consider the claims made 22 in the Complaint and in the Counterclaims. 23 Under Article III of the Constitution, "federal courts are limited to deciding 'cases' 24 and 'controversies.'" See Bova v. City of Medford, 564 F.3d 1093, 1095 (9th Cir. 2009). 25 "Two components of the Article III case or controversy requirement are standing and 26 ripeness." Id. at 1096 . “[A] claim is not ripe for adjudication if it rests upon contingent 27 future events that may not occur as anticipated, or indeed may not occur at all." Id. 1 not occur, the plaintiff likely will not have suffered an injury that is concrete and 2 particularized enough to establish the first element of standing." Id. 3 The Court next considers whether the claims made by Ferdowsi, in his Complaint, 4 and by the FDIC-R, in its Counterclaims, are ripe. 5 As noted, Ferdowsi, in his Complaint, seeks two declarations, namely, that he has 6 the "right" to "bring and maintain" in arbitration the seven Counts he has asserted therein 7 against JPM Wealth and Ahmed and that said Counts are not "barred" by his failure to 8 present an administrative claim to the FDIC-R. (See Compl., Prayer for Relief ¶ 1.) In its 9 Counterclaims, the FDIC-R asserts what it characterizes as "essentially a mirror image" 10 of Ferdowsi's claims. (See Joint Case Management Statement at 3:13-14.) 11 The filings to date indicate that the parties to the instant action disagree as to 12 whether JPM Wealth can be held liable for conduct by its predecessors FRIM and FRSC 13 occurring prior to the failure of First Republic Bank and whether Ahmed was employed by 14 JPM Wealth. In particular, the defendants take the position here, and presumably, the 15 respondents in the arbitration proceedings have taken or will take the position there, that 16 only the FDIC-R can be held responsible for such conduct. 17 Whatever action the arbitrator ultimately takes as to such issue, however, remains 18 to be seen, and, consequently, it appears that, until those "contingent events occur, 19 neither [party] will have suffered an injury that is concrete and particularized enough to 20 survive the standing/ripeness inquiry." See Bova, 564 F.3d at 1097 . Moreover, even if 21 either party were to demonstrate a cognizable injury, it appears that the Court lacks 22 jurisdiction to redress it. See id. at 1096 (noting, "[t]o have standing, a plaintiff must have 23 suffered an injury . . . that can be redressed by a favorable decision of the court"). To 24 date, neither Ferdowsi nor the FDIC-R has cited to any case holding or statute providing 25 that a district court has the authority to intervene in a pending arbitration for the purposes 26 sought. Indeed, the cases that have had occasion to address the question of intervention 27 have found the district court lacked such authority. See Aerojet-General Corp. v. 1 in enjoining arbitrator from proceeding to arbitrate in defendant's chosen forum; noting 2 || “judicial review prior to the rendition of a final arbitration award should be indulged, /f at 3 || all, only in the most extreme cases") (emphasis added); see also In re Sussex, 781 F.3d 4 1065, 1072-73 (9th Cir. 2015) (holding district court erred in removing arbitrator from 5 || ongoing arbitration; noting in years since Aerojet-General's 1973 decision leaving open 6 || possibility of judicial review prior to rendition of final arbitration award, Ninth Circuit has 7 || "never... subsequently approved of such an intervention"); Blue Cross Blue Shield of 8 || Mass. v. BCS Ins. Co., 671 F.3d 635, 638 (7th Cir. 2011) (holding “judges must not 9 || intervene in pending arbitration [proceedings] to direct arbitrators to resolve an issue one 10 || way rather than another"). 11 CONCLUSION g 12 For the reasons stated above, the parties are hereby DIRECTED TO SHOW s 13 CAUSE, in writing and no later than April 16, 2025, why the above-titled action should 14 || not be dismissed for lack of subject matter jurisdiction. As of April 16, 2025, the Court will 2 15 || take the matter under submission, unless the parties are advised that further briefing a 16 || and/or oral argument would be of assistance. 17 IT IS SO ORDERED. 19 |] Dated: March 26, 2025 fab, Chat IME M. CHESNEY 20 United States District Judge