THE FEDERAL ARBITRATION ACT DOES NOT PROVIDE AN INDEPENDENT BASIS FOR FEDERAL COURT JURISDICTION TO RESOLVE ARBITRAL DISPUTES

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Rachael Luken Carp

May 9, 2022

Summary
On March 31, 2022, the United States Supreme Court issued an opinion in the case of Badgerow v. Walters, 142 S. Ct. 1310 (2022), holding that the “look-through” approach to jurisdiction set forth in Section 4 of the Federal Arbitration Act, 9 U.S.C. §1 et seq. (FAA), does not apply to motions to confirm or vacate arbitral awards under Sections 9 and 10 of the FAA because the FAA does not confer automatic federal jurisdiction; rather, a federal court must have an independent jurisdictional basis (i.e., diversity or federal question) to resolve an arbitral dispute.

Background and Procedural History
After a FINRA arbitration panel dismissed Denise Badgerow’s wrongful termination lawsuit, she filed suit in Louisiana state court to vacate the arbitration award.  Walters, her former employer, removed the case to federal district court and applied to confirm the award.  Badgerow moved to remand the case to state court, arguing that the federal court lacked jurisdiction under Sections 9 and 10 of the FAA to confirm or vacate the award.  The district court determined that it had jurisdiction to retain the case and the Fifth Circuit Court of Appeals confirmed.  The Supreme Court reversed.

The Supreme Court’s Analysis
Delivering the opinion for the Court, Justice Kagan explained that the FAA authorizes a party to an arbitration agreement to seek the court’s assistance in a variety of circumstances.  Section 4 authorizes a party to ask the court to compel arbitration.  Sections 9 and 10 authorize a party to request that a court confirm or vacate an arbitration award.  However, the FAA does not give federal courts automatic jurisdiction to decide these requests.  The federal court must have an “independent jurisdictional basis” to do so.

The Court distinguished this case from its earlier decision in Vaden v. Discover Bank, 556 U.S. 49 (2009) which held that, to determine jurisdiction, Section 4 of the FAA requires federal courts to “look through” the petition to compel arbitration to the “underlying substantive controversy” between the parties, even though that controversy is not before the court.  See 556 U.S. at 62.  Section 4 of the FAA provides that a party “aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction … of the subject matter of a suit arising out of the controversy between the parties…”  9 U.S.C. §4, emphasis added.  The Vaden Court reasoned that the “save for such agreement” language instructed the court to “look through” the motion to compel arbitration to the underlying controversy to evaluate jurisdiction.

In Badgerow, by contrast, the Court determined that Sections 9 and 10 of the FAA do not permit a “look through” approach because they do not contain the same statutory instruction as Section 4.  Without specific statutory instruction to the court to look at the underlying substantive controversy for jurisdiction, a federal court may exercise jurisdiction only if it has an independent basis to do so.  Because Sections 9 and 10 apply to the confirmation or vacatur of arbitration awards (which do not present a federal question), and not to the underlying controversy, likely the only basis for federal jurisdiction over such petitions is diversity of citizenship.  If the parties are not diverse, as was the case in Badgerow, a federal court does not have jurisdiction to decide a petition under Section 9 or 10 of the FAA and the action belongs in state court.

 
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