May 24, 2017 Practice Points

Confirmation of Arbitration Award under the “Look-Through” Test

By Mei Yang

On January 20, 2017, the United States Court of Appeals for the First Circuit held that, in determining whether federal jurisdiction existed over a petition to vacate an arbitration award, it was appropriate to look through the petition to the underlying dispute to identify any issues of federal law. The dispute in question involved the federal securities laws and thus clearly arose under federal law. Accordingly, the court held that federal question jurisdiction was present. Ortiz-Espinosa v. BBVA Sec. of P.R., Inc., No. 16-1122, 2017 U.S. App. LEXIS 1206 (1st Cir. Jan. 20, 2017).

In Ortiz, the plaintiffs filed a complaint asking that the court vacate or modify an arbitration award under the Puerto Rico Arbitration Act (PRAA). The defendants removed the case to federal court, and the plaintiffs moved to remand for lack of subject matter jurisdiction.

The district court applied the “Look-Through” test pursuant to which a federal court may "look through" a petition filed under the Federal Arbitration Act (FAA) to determine whether the underlying dispute was predicated on federal law. The district court held that the underlying dispute was based on federal securities law and, thus, that the court had federal question jurisdiction to hear the petition. The court then denied the motion to remand and, after finding no violation of the FAA or Puerto Rican law, it confirmed the award. The plaintiffs then appealed to the First Circuit.

The First Circuit ruled that the FAA applied because the case concerned a transaction involving interstate commerce. The court also ruled that the “Look-Through” approach is the correct way to determine whether a federal court has jurisdiction to confirm or vacate an arbitration award, noting that federal courts have an important role to play in such proceedings and have jurisdiction over cases that concern matters of federal law. Here, because the underlying dispute was based on federal law, the First Circuit affirmed the district court’s assertion of jurisdiction. It also found no error in the district court’s confirmation of the award.

Practice Pointer: There is a split in the circuits as to whether the Look-Through Doctrine is the correct test, with at least the Seventh, Third and D.C. Circuits holding that it is not and the First and Second Circuits holding that it is. Thus, you must check the status of this doctrine in your circuit before filing a motion to confirm, vacate or modify an arbitration award in federal court.

Mei Yang is a 2018 J.D. candidate at DePaul University College of Law in Chicago, Illinois.

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