Supreme Court Poised To Decide FAA Post-Award Jurisdictional Issue

In a 2022 decision, Badgerow v. Walters, the U.S. Supreme Court held that under Sections 9 and 10 of the Federal Arbitration Act (FAA), a federal court may exercise jurisdiction over post-award motions to confirm or vacate the award only if the motion establishes diversity or federal-question jurisdiction on its face. It may not exercise jurisdiction merely on the basis that the underlying dispute, save for the arbitration agreement, would have been justiciable in federal court. The Court has now agreed to decide whether a federal court that initially exercises jurisdiction and stays a case pending arbitration maintains jurisdiction over a post-award motion where jurisdiction would otherwise be lacking.

The federal courts of appeals have sharply disagreed on this issue. In Jules v. Andres Balazs Properties, the Second Circuit held that the initial exercise of jurisdiction creates a "jurisdictional anchor" that confers jurisdiction over a subsequent Section 9 or 10 motion to confirm or vacate, even if jurisdiction would otherwise be absent. By contrast, the Fourth Circuit has held that in such a case a court must establish an independent basis for jurisdiction over a Section 9 or 10 motion to confirm or vacate. The Supreme Court granted certiorari in Jules to resolve this conflict.

By way of background, the FAA does not itself create a basis for federal jurisdiction. Rather, a federal court must independently have either diversity or federal question jurisdiction before it can act under the FAA. In 2009, in Vaden v. Discover Bank, the Supreme Court held that federal courts may "look through" a motion to compel arbitration brought under Section 4 of the FAA to determine whether the underlying substantive dispute between the parties created a basis for federal jurisdiction. The Court based that decision on the text of Section 4, which provides that a "United States district court which, save for [the arbitration] agreement, would have jurisdiction" over "the controversy between the parties" can entertain a motion to compel arbitration. Because Sections 9 and 10 of the FAA do not contain such language, the Badgerow Court concluded that federal courts cannot employ the "look-through" approach in determining whether jurisdiction exists to adjudicate a motion to confirm or vacate an arbitration award.

Jules involved employment discrimination and other claims arising under state and federal law. Pursuant to an arbitration agreement between the parties, the district court stayed the proceedings pending arbitration and later granted the defendants' motion to confirm the resulting award. Jules challenged the district court's subject matter jurisdiction to confirm the award because under Badgerow, the defendants' motion to confirm did not reveal a basis for diversity or federal subject matter jurisdiction on its face, since the defendants did not argue that their motion to confirm itself created any independent basis for federal jurisdiction, but instead asserted that because the district court had jurisdiction over Jules' original complaint and issued a stay under Section 3, it retained jurisdiction to resolve the motion to confirm. However, the Second Circuit distinguished Badgerow because it involved an action commenced in state court and subsequently removed to federal court for the sole purpose of vacating the arbitral award, whereas Jules started as a federal question suit before it was stayed pending arbitration. The Second Circuit relied on pre-Badgerow precedent holding that a court that orders arbitration retains jurisdiction to determine a motion to confirm or vacate the arbitration award. It held that Badgerow did not require a different result, though it acknowledged there is a circuit split on the issue.

Arbitration practitioners will eagerly await the decision in Jules since the ruling will affect arbitration and litigation venue strategies and the drafting of post-award motions. The Court is expected to rule by the end of June.

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