April 2022 in Brief: Business Litigation & Dispute Resolution

Dispute Resolution

Supreme Court Restricts the Ability of Federal Courts to Confirm or Vacate Arbitral Awards

By Leslie Ann Berkoff, Partner at Moritt Hock & Hamroff LLP, Chair of Dispute Resolution Practice Group

A recent decision of the Supreme Court, Badgerow v. Walters et al., 142 S.Ct. 1310 (March 31, 2022), has restricted the ability of the federal courts to confirm or vacate arbitral awards under Sections 9 and 10 of the Federal Arbitration Act (FAA). Justice Elena Kagan authored a decision on behalf of an 8–1 majority of the court, finding that the “look through” approach endorsed by the Court in decisions concerning Section 4 of the FAA does not apply for petitions to confirm or vacate an award under Sections 9 or 10 of the FAA.

The “look through” approach developed in the case of Vaden v. Discover Bank et al., 556 U.S. 49 (2009), directs a Court to look past the existence of an arbitration agreement and examine the facts of an underlying dispute when determining whether it has jurisdiction to hear a petition to compel arbitration. Specifically, Section 4 of the FAA only allows a party to compel arbitration in a “United States district court which, save for the [arbitration] agreement, would have jurisdiction.” This has been interpreted to mean that if the facts and nature of the dispute would either give rise to either a federal question or diversity jurisdiction, the Court could rule on the motion to compel.

By contrast, the Court in Badgerow recognized that Sections 9 and 10 of the FAA do not contain the same aforementioned textual language as Section 4. Given Sections 9 and 10 do not contain similar language, the Court reasoned that there was no statutory basis to “look through” to the nature or facts of the underlying dispute, and held that absent the same, a federal court could not assume jurisdiction over such actions and instead the state court would need to rule on the award. The Court noted that the FAA does not in and of itself create subject matter jurisdiction.

As a matter of practical application, parties and their lawyers will now have to assess whether an independent basis for federal court jurisdiction exists on the face of any petition (disregarding the facts of the underlying dispute) to confirm or vacate an arbitral award when considering whether to proceed in federal or state court.

As recognized by Justice Kagan in writing for the Court, “Congress could have replicated Section 4’s look-through instructions in Sections 9 and 10” or “drafted a global look-through provision” applicable throughout the FAA, but instead “Congress did neither. And its decision governs.” Id.

The impact of the ruling is significant. A party seeking to confirm, vacate, or modify an award will now have to identify a separate grant of federal jurisdiction and not rely upon the FAA in order to seek relief from a federal court. The Courts will have to independently assess the existence of the same without relying on the “look through” approach. Absent success in such an approach, parties will have to rely upon the state courts for the confirmation of arbitral awards in what may otherwise be potential federal question cases.