By Russ Bleemer
The U.S. Supreme Court expressed skepticism this morning about a petitioner’s argument that federal court jurisdiction over an arbitration matter under Federal Arbitration Act Sec. 4 on enforcing the submission to the ADR process does not also carry federal jurisdiction over to later FAA sections on confirming and overturning awards.
Today’s arguments in Badgerow v. Walters, No. 20-1143, the sole arbitration case on the current term’s docket, appeared to support the Court affirming a Fifth U.S. Circuit Court of Appeals decision confirming an arbitration award, rather than sending the case back to state court.
Petitioner’s attorney Daniel L. Geyser, a partner in the Denver and Dallas’s offices of Haynes and Boone, addressed opposition for his FAA interpretation from the bench during this morning’s oral arguments, which were streamed at the Court’s website.
His adversary, Washington, D.C., Williams & Connolly partner Lisa Blatt, told the court that confining federal court jurisdiction to arbitration enforcement requests under Sec. 4’s submission coverage but not the Sec. 9 enforcement provision and the Sec. 10 challenge provision would “decapitate the FAA.”
The argument leaned heavily toward allowing federal court jurisdiction for the enforcement questions, with Geyser facing resistance among the members of the Court during his argument.
The Court presented the question starkly, “Whether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the FAA where the only basis for jurisdiction is that the underlying dispute involved a federal question.”
But it also provided a back story on the docket page:
This case presents a clear and intractable conflict regarding an important jurisdictional question under the Federal Arbitration Act (FAA), 9 U.S.C. 1-16.
As this Court has repeatedly confirmed, the FAA does not itself confer federal question jurisdiction; federal courts must have an independent jurisdictional basis to entertain matters under the Act. In Vaden v. Discover Bank, 556 U.S. 49 (2009), this Court held that a federal court, in reviewing a petition to compel arbitration under Section 4 of the Act, may “look through” the petition to decide whether the parties’ underlying dispute gives rise to federal-question jurisdiction. In so holding, the Court focused on the particular language of Section 4, which is not repeated elsewhere in the Act.
After Vaden, the circuits have squarely divided over whether the same “look through” approach also applies to motions to confirm or vacate an arbitration award under Sections 9 and 10. In Quezada v. Bechtel OG & C Constr. Servs. Inc., 946 F.3d 837 (5th Cir. 2020), the Fifth Circuit acknowledged the 3-2 “circuit split,” and a divided panel held that the “look-through” approach applies under Sections 9 and 10. In the proceedings below, the Fifth Circuit declared itself “bound” by that earlier decision, and applied the “look-through” approach to establish jurisdiction. That holding was outcome determinative, and this case is a perfect vehicle for resolving the widespread disagreement over this important threshold question.
The case involves a FINRA arbitration brought by former Louisiana employee of a unit of Ameriprise Financial Services Inc. against principals in the firm, which accompanied a federal court suit against the employer, as well as an EEOC claim. The federal courts backed an arbitration award against the employee and for the principals.
In her attempt to overturn the federal courts’ jurisdiction on enforcement of the claim, the employee seeks to return to her state court claims challenging the award based on a fraud allegation against the principals. For full background, see Bryanna Rainwater, “Next at the Supreme Court: Badgerow’s Attempt to Reevaluate FAA Jurisdiction,” CPR Speaks (Sept. 15) (available here).
Daniel Geyser’s argument on behalf of the petitioner that the so-called look-through approach to analyzing federal court jurisdiction doesn’t apply to every FAA section met swift and strong resistance from the bench. Justice Clarence Thomas led off questioning asking if the jurisdiction provided by the FAA was done in “a roundabout way” under Geyser’s formulation. The attorney countered that Congress could have put deployed “a free-standing provision that applied globally” instead of the designation about jurisdiction on backing arbitration submission agreements under Section 4.
The discussion led to a disagreement with the justices over the jurisdiction of the federal courts in matters with diversity and matters with federal questions. “In a federal question case,” said Geyser in response to skepticism about the difference from Justice Stephen Breyer, “the pleading before the Court under Section 9 and Section 10 is not the underlying case. It’s the attempt to enforce the arbitration contract. It’s saying, I want the arbitration contract enforced, not ‘I want to adjudicate the federal question.’”
But Breyer persisted, citing Vaden where an underlying matter might be employment or antitrust. “It doesn’t seem to make very much sense to say: Okay, go there, get an injunction” to send a case to arbitration, he said, but “when it comes time to enforce it, you can’t go there. . . . Why you separate [Section 4] from the rest of it, I can’t get it.”
When Breyer conceded that there were language differences in the statute allowing for enforcement, Geyser agreed, noting, “I’d say that there is radically different language between Section 4 and the other sections.”
Geyser discussed with the Court the prospect of the federal courts having jurisdiction over hundreds of thousands of arbitrations after Chief Justice John G. Roberts Jr. questioned whether the problem was the fact that the case presents “the somewhat unusual situation where this is a federal statute that we have said does not give rise to federal jurisdiction.”
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Respondents’ attorney Lisa Blatt faced more discussion and less resistance from the justices. She opened by noting that “the FAA is structured sequentially to facilitate all stages of arbitration to resolve the same underlying controversy,” and the continuing federal jurisdiction–from the early provisions providing for ensuring submission to arbitration to the later enforcement questions–makes sense.
“Congress presumably did not want federal courts to enforce arbitration agreements at the front end,” said Blatt, “only to see state courts to force do-overs at the back end.”
Justice Elena Kagan challenged Blatt on the lack of textual support for federal jurisdiction in FAA Sections 9 and 10. She countered that the statute’s referral to motions makes it procedural, with more of an inquiry needed for full jurisdiction. “It reads like . . . a federal . . . arbitration procedural act,” said Blatt, adding that when the act was passed, “The Federal Rules of Procedure didn’t exist.”
Blatt insisted that the statute provided grounds for the federal courts to decide on enforcing arbitration awards by looking at the underlying action. “You have plenty of textual hooks because you’ve got the word ‘motion,’” she explained, “and courts every day understand that motions aren’t — you know, motions don’t need a free standing. . . .”
She continued, telling Chief Justice Roberts, “[T]his is the Federal Arbitration Act, so they were obviously thinking about cases that could otherwise be litigated in federal court. Whether that’s just diversity or a federal question, these are federal . . . controversies and these are treated as applications or requests to facilitate the arbitration from cradle to grave.”
In his rebuttal, Daniel Geyser warned that finding that the enforcement and challenge FAA sections carry federal jurisdiction, “you’re expanding federal jurisdiction to decide a bunch of cases that–where there is no advantage to having a federal court spend its expertise and bandwidth looking at cases that the state courts have faithfully handled.”
The transcript to today’s arguments are available on the U.S. Supreme Court website here. The Court is expected to decide the case before the term ends at the end of June.
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The author edits Alternatives for CPR Speaks’ publisher, the International Institute for Conflict Prevention and Resolution.