by Andrew Flake
Just last Friday, the Supreme Court took up review of an arbitration question with enormous implications for where, in state courts or federal district courts, certain applications to confirm arbitration awards will need to be filed.
First, the background. Before a federal district court compels arbitration, it must have jurisdiction. To determine that jurisdiction, the district court, under the Supreme Court’s 2009 opinion in Vaden v. Discover Bank, interpreting Section 4 of the FAA, views the underlying dispute, not based on the petition itself, but on the actual dispute between the parties. If it is a copyright dispute, or one in which the parties are diverse and the amount in controversy is sufficient — in other words, if the case is one that could have been brought in federal court but for the arbitration agreement — the district court has jurisdiction to compel arbitration. The district court may “look through” the petition. That is what Section 4’s text provides, and what the Supreme Court authorized.
But when it comes to confirming or vacating an arbitration award, the Supreme Court, in its 2022 Badgerow v. Walters decision, decided differently. In a case that arrived in federal court, following removal, on an application to confirm the award, the Court reviewed the text of Sections 9 and 10 of the FAA (dealing with confirmation and vacatur, respectively), and concluded that “Congress has not authorized a federal court to adjudicate a Section 9 or 10 application just because the contractual dispute it presents grew out of arbitrating different claims…That would indeed be jurisdictional ‘expan[sion] by judicial decree.'” In short, in a confirmation or vacatur proceeding, there is no “look-through” of the parties’ applications.
On December 5, in Jules v. Andre Balazs Properties, the Supreme Court granted certiorari to the Second Circuit to decide a post-Badgerow question that has split the circuit courts: In a different procedural posture, one in which the district court originally compelled arbitration and stayed the proceeding before it, does the same district court have jurisdiction to confirm that later arbitration award? Is there, in effect, a jurisdictional anchor that permits the same court to vacate or confirm, even if without look-through jurisdiction?
The question has a lot of practical importance, particularly since last year, in Smith v. Spizziri, the Court determined that a district court, once it compels arbitration under Section, has no discretion to dismiss an action. It must stay the action.
It is possible that in the case below, the Court decides district courts can review an award post-stay, at least to confirm under Section 9, even if there would not otherwise be subject matter jurisdiction on the face of the petition to confirm. One of the comments the Court made in deciding a stay is required was about the “supervisory role that the FAA envisions for the courts,” with an example offered, citing Section 9, of “facilitating recovery on an arbitration award.” For a district court to compel arbitration, stay the entire action, and then upon receipt of an award, require dismissal and recourse to a state court for confirmation, would be highly inefficient and does not seem consistent with that supervisory role.
On the other hand, in Badgerow, the majority opinion written by Judge Kagan, though presented with arguments based on the uniformity and ease of application of a “look-through” approach in all FAA proceedings, favored its textual analysis. As with other questions of arbitration procedure that reach the Supreme Court, the argument and decision will be interesting as much for the individual result as for what insights into arbitration practice, and the Justices’ views of the FAA, they may share. ABF