Federal Jurisdiction Limited When Confirming Or Setting Aside Domestic Arbitration Awards

• Published date: 07 April 2022
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution
• Law Firm: Holland & Knight
• Author: Ms Marisa Marinelli and Arantxa Cuadrado

Highlights

• Federal jurisdiction may not be available for petitions to confirm or vacate a domestic arbitration award when the only basis for jurisdiction is that the underlying dispute involves a federal question.
• The U.S. Supreme Court held that the "look through" approach is limited to petitions under Section 4 and refused extending it to petitions under Sections 9 and 10 of the Federal Arbitration Act (FAA).

In a recent decision involving arbitration, the U.S. Supreme Court held that federal courts do not have subject-matter jurisdiction to confirm or vacate a domestic arbitration award under Sections 9 and 10 of the Federal Arbitration Act (FAA) when the only basis for jurisdiction is that the underlying dispute involves a federal question. In so doing, the court eschewed extending the "look through" provision of Section 4 of the FAA, which allows a court to look at the subject matter of the underlying dispute when determining whether it has jurisdiction to hear a motion to compel arbitration, to a motion to confirm or vacate an award. The case is Denise A. Badgerow, v. Greg Walters, et al., No. 20-1143, 2022 WL 959675 (U.S. Mar. 31, 2022).

Background

Denise Badgerow, an associate financial advisor with a Louisiana financial service company, initiated a Financial Industry Regulatory Authority (FINRA) arbitration proceeding against the three principals of the corporation after her termination. Badgerow sought damages for tortious interference of contract and for violation of Louisiana's whistleblower law. The FINRA panel dismissed all of her claims with prejudice.

Badgerow then filed a petition in Louisiana state court to vacate the arbitration award. The defendants removed the action to federal court, and Badgerow filed a motion to remand, asserting that the federal court lacked subject-matter jurisdiction over the petition to vacate. The district court held that it had subject-matter jurisdiction over the petition to vacate, denied remand and denied vacatur of the FINRA arbitration award. The U.S. Court of Appeals for the Fifth Circuit affirmed, and Badgerow petitioned for a writ of certiorari before the Supreme Court.

The "Look Through" Approach

The issue before the Supreme Court was whether the district court had jurisdiction over the petition to confirm or vacate the FINRA arbitration award because the parties' underlying substantive dispute would have fallen within the federal court's jurisdiction, or conversely, whether the federal court was...