U.S. Supreme Court Limits Federal Court Review to Confirm or Vacate Arbitration Awards in the Case of Badgerow v. Walters

On March 31, 2022, the U.S. Supreme Court of the United States rendered a decision in the case Badgerow v. Walters. This is a very important decision in the field of arbitration awards, especially now that so many cases proceed to arbitration. The U.S. Supreme Court stated that an application to confirm or vacate an arbitration award filed in a federal district court must have an independent jurisdictional basis, either one which gives the federal court one of two types of jurisdiction: federal-question jurisdiction or diversity jurisdiction.

By way of background, the U.S. Supreme Court indicated as follows:

The Federal Arbitration Act (FAA), 9 U. S. C. §1 et seq., authorizes a party to an arbitration agreement to seek several kinds of assistance from a federal court. Under Section 4, for example, a party may ask the court to compel an arbitration proceeding, as the agreement contemplates. And under Sections 9 and 10, a party may apply to the court to confirm, or alternatively to vacate, an arbitral award.

Yet the federal courts, as we have often held, may or may not have jurisdiction to decide such a request. The Act’s authorization of a petition does not itself create jurisdiction. Rather, the federal court must have what we have called an “independent jurisdictional basis” to resolve the matter. Hall Street Associates, L. L. C. v. Mattel, Inc., 552 U. S. 576, 582, 128 S. Ct. 1396, 170 L. Ed. 2d 254 (2008).

See Badgerow v. Walters, No. 20-1143, 2022 U.S. LEXIS 1794, at *6-7 (Mar. 31, 2022.)

The U.S. Supreme Court goes on to state that “[i]n Vaden v. Discover Bank, 556 U. S. 49, 129 S. Ct. 1262, 173 L. Ed. 2d 206 (2009), we assessed whether there was a jurisdictional basis to decide a Section 4 petition to compel arbitration by means of examining the parties’ underlying dispute.” See Badgerow v. Walters, No. 20-1143, 2022 U.S. LEXIS 1794, at *7 (Mar. 31, 2022.)

In further reference to the Vaden case, the U.S. Supreme Court stated:

The text of Section 4, we reasoned, instructs a federal court to “look through” the petition to the “underlying substantive controversy” between the parties—even though that controversy is not before the court. Id., at 62, 129 S. Ct. 1262, 173 L. Ed. 2d 206. If the underlying dispute falls within the court’s jurisdiction—for example, by presenting a federal question—then the court may rule on the petition to compel. That is so regardless whether the petition alone could establish the court’s jurisdiction.

See Badgerow v. Walters, No. 20-1143, 2022 U.S. LEXIS 1794, at *7 (Mar. 31, 2022.)

In the instant case, the question before the U.S. Supreme Court was defined as follows:

The question presented here is whether that same “look-through” approach to jurisdiction applies to requests to confirm or vacate arbitral awards under the FAA’s Sections 9 and 10.

See Badgerow v. Walters, No. 20-1143, 2022 U.S. LEXIS 1794, at *7 (Mar. 31, 2022.)

The U.S. Supreme Court “[held] it does not”, indicating that “[t]hose sections lack Section 4’s distinctive language directing a look-through, on which Vaden rested”, and “[w]ithout that statutory instruction, a court may look only to the application actually submitted to it in assessing its jurisdiction.” See Badgerow v. Walters, No. 20-1143, 2022 U.S. LEXIS 1794, at *7 (Mar. 31, 2022.)

Furthermore, the U.S. Supreme Court held that “[t]he statutory plan, as suggested above, makes Section 9 and 10 applications conform to the normal—and sensible—judicial division of labor: The applications go to state, rather than federal, courts when they raise claims between non-diverse parties involving state law.” See Badgerow v. Walters, No. 20-1143, 2022 U.S. LEXIS 1794, at *25 (Mar. 31, 2022)(citing supra, at 5-6.)

In other words, with applications or petitions to compel arbitrations, a federal court, per the FAA, is to assume the absence of an arbitration agreement and “look-through” to the underlying facts, per Vaden, in determining whether there exists jurisdiction to hear the petition. The opposite is the case with applications or petitions to confirm or vacate an arbitration award, per Badgerow. With Badgerow petitions, the court cannot “look” to the underlying facts but must “assess” from the face of the petition whether there is an independent jurisdictional basis to hear the petition to confirm or vacate an arbitration award.

In summary, all this means that since federal district courts are courts of limited jurisdiction, an application or a petition to confirm or vacate an arbitration award filed in a federal district court must have an independent jurisdictional basis, either one which gives the federal court one of two types of jurisdiction: federal-question jurisdiction or diversity jurisdiction. Otherwise, the “enforceability of an arbitration award”, without an independent jurisdictional basis, is “no more than a contractual resolution of the parties’ dispute”. This also means that parties will have to look to state courts to confirm or vacate arbitration awards, where there is no independent jurisdictional basis in federal court. The practical result of this Badgerow decision is that most petitions to confirm or vacate an arbitration award will be filed in state courts. This is a key policy ruling by the U.S. Supreme Court, which indicated, “Were it otherwise, every arbitration in the country, however distant from federal concerns, could wind up in federal district court”.

Although it can be complicated to navigate the elements of arbitration agreements or arbitration awards, our experienced attorneys can help. We know how difficult it can be to confirm or vacate arbitration awards and our firm is here to assist you. Contact the Law Offices of Thomas Paschos & Associates, P.C. today for more information about the services we provide. Our NJ office # is 856-354-1900 and our PA office # is 215-636-0555. Or, you can email us at TPaschos@paschoslaw.com.