Overview
First Tuesday Update is our monthly take on current issues in judgment enforcement. Last month the United States Supreme Court heard oral argument in Badgerow v. Walters, et al., Case No. 20-1143 (Nov. 2, 2021). This case involves a dispute between Denise Badgerow, a former employee, and the owners of the investment-firm, the employer that terminated her. As an investment firm, Badgerow agreed to arbitrate employment disputes under the FINRA rules. Badgerow commenced a FINRA arbitration but lost. Thereafter, Badgerow sought to vacate the award in Louisiana state court. The employer removed the case to federal court asserting federal-question jurisdiction and moved to confirm the award that dismissed Badgerow’s claims. The motion to remand was denied and the district court confirmed the arbitration award. The sole question before the Supreme Court is whether the Federal Arbitration Act (FAA) confers subject matter jurisdiction to confirm or vacate domestic arbitration awards in federal court where the only basis for such subject matter jurisdiction is the assertion that the underlying dispute that was arbitrated involved a federal question. Federal courts can of course adjudicate confirmation or vacation of domestic arbitrations if there is diversity jurisdiction. And, international arbitrations under the New York Convention have an independent basis for federal question subject matter jurisdiction.
Federal court jurisdiction over domestic arbitrations is not assessed on a blank slate. There are two Supreme Court made rules at play: First, the FAA does not itself confer federal-question jurisdiction—the federal courts must have an independent jurisdictional basis to hear a case under the FAA. Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008). Second, in Vaden v. Discovery Bank, 556 U.S. 49 (2009), the Court held that a federal court could compel arbitration under Section 4 of the FAA if, on a “look through” basis, the underlying dispute were to give rise to federal-question jurisdiction. Certiorari was granted on the following specific issue: “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.” See Badgerow, 141 S. Ct. 2620 (May 17, 2021).
Section 4 of the FAA—which is aimed at compelling arbitration when a party is resisting the agreement to arbitrate a dispute—specifically states that the party seeking to compel arbitration “may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties . . . .” 9 U.S.C. § 4. In Vaden, the Supreme Court ruled that if the underlying dispute to be arbitrated involved federal law (or the parties were diverse), a federal court had jurisdiction to compel jurisdiction.
This specific language in Section 4 regarding compelling arbitration does not appear in other sections of the FAA and in particular in Sections 9 and 10, which govern confirming and/or vacating an award. Both parties took narrow positions and did not press for a uniform handling of federal jurisdiction in domestic arbitration cases. Badgerow argued that the specific language in Section 4 means that the “look through” exception to find federal jurisdiction only applies to that section and not confirmation or vacatur. If that were correct, in Badergrow there would be no federal jurisdiction, so the federal case would be remanded to Louisiana state court where Badgerow could try again to vacate the award. The other side argued that in all cases federal courts should “look through” to the underlying dispute and if there is a federal question at issue, then the federal court would have jurisdiction. Because the underlying dispute between the parties involved claims of gender discrimination under federal law, such a reading would affirm the lower court’s decision and dispose of the case.
At oral argument, the Justices’ questions focused on several broader issues: should the Court come up with a uniform, predictable system for the federal courts’ role in enforcing and vacating arbitral awards; it is an odd result that a federal court can compel arbitration but not enforce or vacate the award in the same proceeding it compelled arbitration; is an arbitration award about the underlying federal question or enforcing a state law contract (i.e., an agreement to arbitrate); can the federal courts handle the volume of increased cases if the rule were changed; and will the appeals courts be constantly ruling on “look through” jurisdiction for arbitrations when the parties contracted for a streamlined dispute resolution process. The Court is bound to struggle with these questions because there are no clear textual answers and the current system is disjointed where the federal courts have more power to compel arbitration than they do to enforce the award from that same arbitration. A decision is expected in June.
Whatever your specific circumstances, we can help enforce an arbitration award as a judgment in court. Feel free to contact us directly with any questions.
