U.S. Supreme Court

Supreme Court Adds an Arbitration Case for the 2021-2022 Term

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By Mark Kantor

Today is an important day in the US Supreme Court, as the Court agreed for the first time in many years to hear a case on abortion rights.  Court watchers will rightly focus extensively on that development.

In far-less significant news, but perhaps of interest to the arbitration community, this morning the U.S. Supreme Court also denied certiorari in Selden v. Estate of Silverman, 20-895, a Federal Arbitration Act case involving (1) whether vacatur on public policy grounds is permitted and (2) the proper standard for “evident partiality” vacatur.  The March 2020 Nebraska Supreme Court decision in the matter stands, upholding the confirmation of an arbitration as well as sanctions and attorneys fees.

The Court, however did grant certioraritoday in another FAA case, Badgerow v. Walters, No. 20-1143 (documents available at https://www.scotusblog.com/case-files/cases/badgerow-v-walters/).

The Question Presented in Badgerow is:

Whether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the Federal Arbitration Act when the only basis for jurisdiction is that the underlying dispute involved a federal question.

Badgerow is thus a dispute regarding when, if at all, the U.S. federal courts have “federal question” jurisdiction over an FAA confirmation/vacatur dispute.  It will accordingly be of primary interest for U.S. litigators seeking a court ruling on whether a local state court or a federal court is the proper forum to decide whether an arbitration award can be confirmed or vacated under the FAA when the underlying arbitration award resolves a question of federal law.

Federal courts are forums of limited jurisdiction.  Longstanding jurisprudence holds that the FAA itself does not create federal court jurisdiction.  Rather, a party seeking to have a U.S. federal court forum for an FAA-related dispute must find an independent ground for jurisdiction. 

The implementing statutes for the New York and Panama Conventions do, however, expressly create federal subject matter jurisdiction for their covered international awards.  Consequently, the issue does not arise for those awards.

Badgerow poses the question of whether a federal court may “look through” to see if the underlying subject matter of the arbitration award resolves a “Federal question” and, if the answer is “yes,” take jurisdiction of the case.

The petitioner’s cert petition summarizes the legal issue and circuit split succinctly:

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 [failure to arbitrate under agreement; petition to United States court having jurisdiction for order to compel arbitration], 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 circuit courts 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 question presented is:

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.

[Emphasis is in the brief, which can be found here.]

The dispute will likely come up for oral argument before the U.S. Supreme Court sometime in its October Term.

Badgerow is the second arbitration case slated for the new fall term.  On March 22, the Court agreed to hear Servotronics Inc. v. Rolls-Royce PLC, et al., No. 20-794, which will examine “[w]hether the discretion granted to district courts in 28 U.S.C. §1782(a) to render assistance in gathering evidence for use in ‘a foreign or international tribunal’ encompasses private commercial arbitral tribunals, as the Fourth and Sixth Circuits have held, or excludes such tribunals without expressing an exclusionary intent, as the Second, Fifth, and, in the case below, the Seventh Circuit, have held.”

Argument dates for both cases are expected this summer.

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Mark Kantor is a member of CPR-DR’s Panels of Distinguished Neutrals. Until he retired from Milbank, Tweed, Hadley & McCloy, he was a partner in the firm’s Corporate and Project Finance Groups. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). He also is Editor-in-Chief of the online journal Transnational Dispute Management. He is a frequent contributor to CPR Speaks, and this post originally was circulated to a private list serv and adapted with the author’s permission.

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Supreme Court Denies Review on the Interplay Between the U.S. Bankruptcy Code and the Federal Arbitration Act

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By Amy Foust

The Supreme Court today denied certiorari in GE Capital Retail Bank v. Belton, No. 20-481, an arbitration case in a bankruptcy matter.  The question presented by petitioner GE Capital, and rejected in this morning’s order list by the Court, was “whether provisions of the Bankruptcy Code providing for a statutorily enforceable discharge of a debtor’s debts impliedly repeal the Federal Arbitration Act, 9 U.S.C. § 1 et seq.”

The U.S. Bankruptcy Code section in question, 11 U.S.C. § 524(a)(2), provides in part:

A discharge in a case under this title— …

(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived[.]

The case, on cert petition from the Second U.S. Circuit Court of Appeals in New York, suggests a tension between this section of the bankruptcy code and the Federal Arbitration Act, which provides that written agreements to arbitrate are “valid, irrevocable, and enforceable” (9 U.S.C. §2), and that if there is no issue with the making of the agreement, a court “shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.” 9 U.S.C. §4. 

The underlying dispute was a putative class action related to GE Capital’s efforts to collect debts discharged in bankruptcy.  The plaintiffs–the discharged debtors–brought contempt proceedings under § 524 arguing a violation of the injunction against continued recovery.  GE Capital moved to have the dispute referred to arbitration. 

The case of Respondent Belton and two others similarly situated were addressed in a consolidated decision by the federal bankruptcy court in New York’s Southern District, finding that referring these cases to arbitration would defeat the purpose of seeking bankruptcy protections.  The U.S. District Court for the Southern District reversed the bankruptcy court and sent Belton’s case to arbitration. 

But around the same time, the Second Circuit decided Anderson v. Credit One Bank, N.A., 884 F.3d 382 (2d Cir. 2018), a case involving similar facts to GE Capital. In Anderson, an appeals panel found an inherent conflict between § 524 and the FAA because the discharge injunction is critical to the bankruptcy code’s purpose; the contempt claim requires the bankruptcy court’s continuing supervision, and denying the court the power to enforce its own injunctions would undermine bankruptcy code enforcement. 

In response to a request for reconsideration in view of Anderson, the U.S. District Court reversed itself and denied the motion to compel arbitration.  GE Capital appealed to the Second Circuit, which affirmed the district court. 

GE Capital then appealed to the Supreme Court, framing the issue as an implied repeal of the FAA, citing the Court’s support from Epic Systems v. Lewis, 138 S. Ct. 1612, 1627 (2018), where the Court rejected a request to have the National Labor Relations Act override the Federal Arbitration Act. 

In a response to GE Capital’s request asking the nation’s top court to decline to hear the case, Respondent Belton had argued that the Second Circuit was correct in its analysis of this narrow issue, which is not the subject of any circuit split and did not merit the Court’s attention.

So the Second Circuit decision stands, allowing the respondents to proceed with contempt sanctions against major banks for continuing attempts to recover debts that had been subject of a bankruptcy discharge.

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The author is an LLM candidate studying dispute resolution at the Straus Institute, Caruso School of Law at Malibu, Calif.’s Pepperdine University, and an intern with the CPR Institute through Spring 2021.

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