The Supreme Court has granted certiorari on an issue involving domestic arbitration that has divided the federal courts of appeal (Badgerow v. Walters, Docket No. 20-1143):
Do federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the Federal Arbitration Act (FAA) where the only basis for such jurisdiction is that the underlying dispute involved a federal question?
The federal courts of appeal are split on this issue. The 1st, 2nd, 4th, and 5th Circuits have ruled that federal courts have jurisdiction over such motions, because the court can “look through” the motion to determine if the underlying arbitration proceeding would have been subject to federal jurisdiction but for the arbitration clause. See Quezada v. Bechtel OG & C Constr. Servs., 946 F.3d 837 (5th Cir. 2020); McCormick v. Am. Online, Inc., 909 F.3d 677 (4th Cir. 2018); Ortiz-Espinosa v. BBVA Secs. of Puerto Rico, Inc., 852 F.3d 36 (1st Cir. 2017); and Doscher v. Sea Port Group Secs., LLC, 832 F.3d 372 (2d Cir. 2016). The 3rd and 7th Circuits, however, have ruled that federal courts do not have jurisdiction over such motions. These courts have held that the court cannot “look through” the motion to determine if the underlying proceeding would have been subject to federal jurisdiction. Rather, they apply the traditional “well-pleaded complaint” rule, so that a motion to confirm or vacate an arbitration award must, on its face, necessarily raise a federal issue or otherwise have a basis for federal jurisdiction. See Goldman v. Citigroup Global Markets, Inc., 834 F.3d 242 (3d Cir. 2016); Magruder v. Fid. Brokerage Services LLC, 818 F.3d 285 (7th Cir. 2016).
This jurisdictional quandary arises because the FAA’s domestic arbitration provisions under Chapter 1 do not bestow an independent basis for federal court jurisdiction, unlike Chapter 2 of the FAA, which governs international arbitration and implements the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards — and provides for federal court jurisdiction.
In Vaden v. Discover Bank, 556 U.S. 49 (2009), the Supreme Court addressed the proper standard for determining federal jurisdiction when faced with a petition to compel arbitration under Section 4 of the FAA. The Court rejected the standard articulation of the well-pleaded complaint rule ordinarily used to analyze federal jurisdiction, under which courts would look to the face of the federal court petition for a basis for federal jurisdiction. Instead, the Court adopted the so-called “look through” approach. Under this approach, “[a] federal court may ‘look through’ a § 4 petition to determine whether it is predicated on an action that ‘arises under’ federal law.” Id. at 62. Thus, whereas the well-pleaded complaint rule would require that the Section 4 motion to compel itself evinces a federal cause of action, under Vaden, courts examine the underlying dispute potentially subject to arbitration to determine whether that dispute presents a federal question.
In reaching this result, the Supreme Court relied in part on the language of Section 4, which states that a proponent of arbitration may seek an order compelling arbitration in “any United States district court which, save for [the arbitration] agreement, 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.” The Court also held that the look-through approach was consistent with basic jurisdictional tenets and practical considerations, because failure to look through to the arbitration proceeding’s subject matter “would permit a federal court to entertain a § 4 petition only when a federal-question suit is already before the court, when the parties satisfy the requirements for diversity-of-citizenship jurisdiction, or when the dispute over arbitrability involves a maritime contract.” Id. at 65. Such an “approach would not accommodate a § 4 petitioner who could file a federal-question suit in (or remove such a suit to) federal court, but who has not done so.” Id.
After Vaden, however, the circuit courts have split over whether the same logic applies to motions to confirm an arbitration award under Section 9 of the FAA, to vacate an award under Section 10, or to modify an award under Section 11. The circuits are divided principally because Sections 9, 10, and 11 lack the “save for [the arbitration] agreement” language of Section 4 that was, at least in part, the basis for the Supreme Court’s ruling in Vaden. The 3rd and 7th Circuits maintain that the absence of that language in Sections 9, 10 and 11 compels a different jurisdictional analysis for the various motions that can be brought after an arbitration award has been issued under the FAA. The 1st, 2nd, 4th and 5th Circuits, however, reason that although this “save for” language is absent in these other sections, the Supreme Court’s guidance in Vaden and the background principles animating its jurisdictional analysis under the FAA require the use of the same look-through approach for post-award motions as those brought pre-award under Section 4.
In the current context, an employee of a Louisiana financial service company, Denise Badgerow, who was on the losing side of an employment-related arbitration, is now asking the Supreme Court to resolve the circuit split in a petition for certiorari she filed in February 2021, in a case entitled Badgerow v. Walters, No. 20-1143, 2021 WL 706204 (Feb. 2021). Badgerow originally filed a petition to vacate the arbitration award as to certain defendants in Louisiana state court. The defendants removed the action to federal court. Badgerow moved to remand, asserting that the federal court lacked subject-matter jurisdiction over her petition to vacate. The district court held that it did have subject-matter jurisdiction, denied the remand, and then denied Badgerow’s motion to vacate the arbitration award. Badgerow appealed to the U.S. Court of Appeals for the 5th Circuit, solely on the jurisdictional issue. The 5th Circuit affirmed, following the “look through” analysis that the court had adopted in Quezada and finding that Badgerow’s assertion of a federal law claim in the underlying arbitration was sufficient for the court to have jurisdiction over her motion to vacate. See Badgerow v. Walters, 975 F.3d 469 (5th Cir. 2020). Badgerow’s petition for certiorari followed, in which she argued that the jurisdictional issue “is ripe and cries out for a definitive resolution by this Court.”
The Supreme Court will decide this issue in the fall of 2021.