By: Sean King
Last month, the Supreme Court in Badgerow v. Walters, restricted federal courts’ subject-matter jurisdiction to confirm or vacate an arbitration award.[i] Justice Kagan, writing for the 8-1 majority, explained that sections 9 and 10 of the Federal Arbitration Act (FAA) do not provide federal courts with an “independent jurisdictional basis.”[ii] To determine whether federal courts may assess an award, these courts may only look to the “application submitted to it in assessing its jurisdiction.”[iii] In other words, courts can no longer “look through” the application to the substantive dispute.[iv]
Denise Badgerow worked as a financial advisor for REJ Properties, a firm run by her employer’s principals, referred to collectively as “Walters.”[v] Pursuant to her employment agreement, Badgerow filed an arbitration action against Walters alleging she was unlawfully fired.[vi] The arbitrators sided with Walters.[vii] Believing fraud played a role in the arbitration decision, Badgerow sued Walters in a Louisiana state court.[viii] Walters removed the case to a federal district court, and applied to confirm the arbitral award.[ix] Badgerow moved to remand the case back to state court, arguing “the federal court lacked jurisdiction over the parties requests – under sections 10 and 9, respectively – to vacate or confirm the award.”[x] The district court found in favor of Walters and confirmed the arbitration award.[xi] The Fifth Circuit affirmed and the Supreme Court grant certiorari.[xii]
In Vaden v. Discover Bank, decided a little over a decade ago, the Supreme Court held that parties seeking to compel arbitration pursuant to section 4 of the FAA could “look through” the petition to the underlying dispute to establish jurisdiction.[xiii] Under section 4, “a party to an arbitration agreement may petition for an order to compel arbitration in a ‘United States district court which, save for [the arbitration] agreement, would have jurisdiction’ over ‘the controversy between the parties.’”[xiv] The “save for” provision in section 4 indicates the court should disregard the arbitration provision and see whether the district court has jurisdiction via the “underlying substantive controversy” between the two parties.[xv]
Here, the district court, in an effort to be consistent, erroneously applied the “look through” approach with sections 9 and 10 of the FAA.[xvi] Sections 9 and 10, which address requests for federal courts to review arbitral awards, lack the necessary language directing a look through to the underlying dispute.[xvii] Neither section 9 nor 10 “contain the statutory language on which Vaden relied”[xviii] and neither sections have a “save for” clause.[xix] Consequently, the “look through” does not apply to sections 9 and 10.[xx]
Without the “look through” approach, federal courts may only address the controversy if the face of the application shows another basis for federal jurisdiction—diversity or federal question jurisdiction. Here, the controversy did not satisfy diversity jurisdiction because both parties were from Louisiana.[xxi] Additionally, neither application raised a federal issue.[xxii] The controversy did involve the settlement of a federal claim.[xxiii] However, because the award is a “contractual resolution” it “typically involve[s] only state law.”[xxiv] Ultimately, because there was no independent basis for federal jurisdiction the district court should have remanded to the state court.[xxv]
The recent decision appears to depart from the “look through approach” adopted in Vaden. In his dissent, Justice Breyer argued the majority should have focused on the FAA’s purpose rather than on its literal words.[xxvi] He believed the majority’s reliance on the text “creates unnecessary complexity and confusion.”[xxvii] Alternatively, he argued, consideration of the statute’s purpose would lead to a better and clearer outcome.[xxviii]
The Court specifically noted this ruling gives state courts “a significant role in implementing the FAA.”[xxix] As a result of this ruling, state courts will likely be called upon more than federal courts for petitions of arbitration awards.[xxx] Absent an independent basis for federal review on the face of the petition, this may limit forum shopping and allow petitioners easier access to judicial review.
[i] Badgerow v. Walters, 142 S. Ct. 1310 (2022)
[ii] Id. at 1314.
[iii] Id.
[iv] Id.
[v] Id. The respondents in this case are Greg Walters, Thomas Meyer, and Ray Trosclair. The court refers to all of them as “Walters.” Id.
[vi] Id. Bridgerow’s contract “required her to bring claims arising out of her employment to arbitration.” Id.
[vii] Id.
[viii] Id.
[ix] Id.
[x] Id.
[xi] Id.
[xii] Id. at 1315.
[xiii] Id. at 1316 (citing Vaden v. Discover Bank, 556 U.S. 49, 62 (2009)).
[xiv] Id. (emphasis added).
[xv] Id.
[xvi] Id. at 1314
[xvii] Id. at 1314.
[xviii] Id. at 1316.
[xix] Id.
[xx] See id.
[xxi] Id. at 1316.
[xxii] Id.
[xxiii] Id.
[xxiv] Id.
[xxv] Id. at 1322.
[xxvi] Id. (Breyers, J., dissenting)
[xxvii] Id.
[xxviii] Id. The Court has previously recognized the statutes’ purpose to “reflect[] a clear “‘policy of rapid and unobstructed enforcement of arbitration agreements.’” Id. (quoting Cortez Byrd Chips, Inc. v. Bill Harbert Constr. Co., 529 U.S. 193, 194 (2000)).
[xxix] Id. (majority opinion).
[xxx] Look at Me, Not Through Me: Supreme Court Limits Federal Jurisdiction for Post-arbitration Award Petitions, The Nat. L. Rev. (Apr. 15, 2022), https://www.natlawreview.com/article/look-me-not-through-me-supreme-court-limits-federal-jurisdiction-post-arbitration.
