Supreme Court Rejects “Look-Through” Federal Jurisdiction Analysis for Post-Arbitration Reviews

March 31, 2022

Following a completed arbitration, one or both of the parties involved typically seek judicial review of the arbitral order. The prevailing party may file a petition to confirm the arbitration award (usually required to enforce any judgment), while the losing party may move to vacate the award on certain limited grounds. These post-arbitration filings are usually governed by the Federal Arbitration Act (FAA), which narrowly circumscribes judicial review of the arbitration award.

But, because the FAA does not itself confer federal subject-matter jurisdiction, federal courts have taken diverging views on how they should determine whether they possess jurisdiction to review an arbitral award. Some courts adopt a “look-through” analysis, where the court looks to whether it would have had jurisdiction over the underlying dispute between the parties but for their agreement to arbitrate — which is the approach a court must take when determining whether it has jurisdiction over a motion to compel arbitration. Others reject this approach, holding that the statutory text of the FAA that governs judicial review of arbitral awards does not allow this “look-through” approach. These courts look only to the dispute over enforcement or vacatur of the arbitral award to decide whether they have jurisdiction.

On March 31, 2022, the U.S. Supreme Court issued Badgerow v. Walters, No. 20-1143, resolving this split in authority. The court’s decision, grounded in Sections 9 and 10 of the FAA, rejects the “look-through” approach for determining whether a federal court has jurisdiction over a post-arbitration petition. But Badgerow does more than resolve the split in authority regarding how a federal court should determine its jurisdiction to review an arbitration award. The court’s holding places state courts at the heart of post-arbitration proceedings.

Parties who enter into an arbitration agreement ordinarily must navigate the FAA both at the commencement of a dispute and at its resolution. At the start, Section 4 of the FAA allows a party to file a petition to compel arbitration in federal court. After the arbitration occurs and an award is entered, Sections 9 and 10 allow a party to file a petition to confirm or vacate the arbitral award. Importantly, however, none of these sections themselves confer federal jurisdiction. Instead, a federal court may consider applications made under these sections only when it possesses an independent basis for jurisdiction over the parties. If, for example, the parties are from different states and the amount in controversy exceeds $75,000, then the court possesses federal diversity jurisdiction. Or, if the movant seeks relief under federal law (aside from the FAA itself), then the court possesses federal question jurisdiction.

Often, however, the parties are not diverse and no federal law is implicated beyond the FAA itself. In a prior decision, Vaden v. Discover Bank, 556 U.S. 49 (2009), the Supreme Court considered how a federal court should determine whether it possessed jurisdiction in the context of a petition to compel arbitration under Section 4 of the FAA. Section 4 provides that “a party aggrieved” by the “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.” The court determined that this language requires a court to “look through” the petition to determine whether it would have jurisdiction over the underlying controversy but for the arbitration agreement. Accordingly, if the underlying dispute between the parties arises under federal law, then the court has federal subject-matter jurisdiction over the petition to compel arbitration.

The court did not at that time, however, have occasion to opine on whether post-arbitral proceedings governed by Sections 9 and 10 of the FAA similarly require a court to engage in a “look-through” analysis to determine if it possesses jurisdiction. While these sections provide that petitions may be filed in the “United States court in and for the district within which such award was made,” they say nothing about when that court would have jurisdiction.

Nevertheless, both before and after Vaden, some federal courts considering post-arbitration petitions reasoned that they should determine their jurisdiction by following the “look-through” analysis they would utilize if confronting a petition to compel arbitration. These courts reasoned that the FAA should be read uniformly, such that the same analysis for determining jurisdiction applies to each of its sections.

Badgerow involved just this scenario. The U.S. District Court for the Eastern District of Louisiana “looked through” the parties’ cross-petitions for confirmation and vacatur of an arbitral award to the underlying dispute — concerning a financial adviser’s alleged wrongful termination — and determined it would have subject-matter jurisdiction over it because it involved federal employment laws. The 5th U.S. Circuit Court of Appeals affirmed this approach.

The Supreme Court’s decision decisively rejects it. As the court explains, “Sections 9 and 10, in addressing applications to confirm or vacate an arbitral award, contain none of the statutory language on which Vaden relied. Most notably, those provisions do not have Section 4’s ‘save for’ clause.” Accordingly, “they do not instruct a court to imagine a world without an arbitration agreement, and to ask whether it would then have jurisdiction over the parties’ dispute.” In fact, they “do not mention subject-matter jurisdiction at all.”

Because Sections 9 and 10 contain none of the jurisdictional language contained in Section 4, the Supreme Court held that “under ordinary principles of statutory construction, the look-through method for assessing jurisdiction should not apply.” As the court explained, “we have no warrant to redline the FAA, importing Section 4’s consequential language into provisions containing nothing like it.” While Congress “could have replicated Section 4’s look-through instruction in Sections 9 and 10,” it did not do so, and “its decision governs.” In so holding, the court rejected any “policy” argument for reading the FAA “uniformly,” because “even the most formidable policy arguments cannot overcome a clear statutory directive.” The court also noted that such arguments “oversold the superiority” of allowing federal courts to conduct a “look-through” analysis under Sections 9 and 10.

The practical effect of Badgerow is that parties will more frequently be required to file post-arbitral motions in state court, even if an initial motion to compel arbitration was adjudicated in federal court. The court’s decision explicitly endorses this result, noting that “enforcement of the Act … is left in large part to the state courts.” The court reasoned that this accords with the “normal — and sensible — judicial division of labor” because a petition to confirm or vacate an award is, at its heart, an adjudication of “state-law contractual rights” set forth in an arbitration agreement.

Badgerow is certain to change the nature of post-arbitration review, moving a substantial number of petitions for confirmation or vacatur off the dockets of federal courts and onto those of state courts. Practitioners would be well-advised, following the Supreme Court’s decision, to carefully consider where they can obtain either confirmation or vacatur of an arbitration award.