On March 31, 2022, the U.S. Supreme Court released its decision in Badgerow v. Walters et al., No. 20-1143, holding the “look-through” approach to determining federal jurisdiction for enforcement of arbitration agreements under the Federal Arbitration Act (FAA) does not apply to requests to confirm or vacate arbitral awards under sections 9 and 10 of the FAA.
Notably, the opinion took a textual approach to interpreting the FAA. That is, perhaps, an indicator of how new Justice Coney Barrett will approach FAA cases, but of course there are four more FAA cases to be decided by the Supreme Court this term. As a reminder, this decision is not relevant to New York Convention or Inter-American Convention cases, which benefit from a separate FAA provision directly conferring Federal court jurisdiction.
The summary for Justice Kagan’s opinion explains the reasoning well. Parts of it are set forth below.
(a) Congress has granted federal district courts jurisdiction over two main kinds of cases: suits between citizens of different States as to any matter valued at more than $75,000 (diversity cases), 28 U. S. C. §1332(a), and suits “arising under” federal law (federal-question cases), §1331. Normally, a court has federal-question jurisdiction whenever federal law authorizes an action. But because this Court has held that the FAA’s provisions do not themselves support federal jurisdiction, a federal court must find an independent basis for jurisdiction to resolve an arbitral dispute. In this case, neither application reveals a jurisdictional basis on its face. So to find an independent basis for jurisdiction, the District Court had to look through the Section 9 and 10 applications to the underlying substantive dispute, where a federal-law claim satisfying §1331 indeed exists.
In Vaden [v. Discover Bank, 556 U. S. 49 (2009), where the Supreme Court had applied the “look-through” approach to proceedings under FAA Section 4 to compel arbitration], this Court approved the look-through approach for a Section 4 petition by relying on that section’s express language. That language provides that a party to an arbitration agreement may petition for an order to compel arbitration in a “United States district court which, save for [the arbitration] agreement, would have jurisdiction” over “the controversy between the parties.” “The phrase ‘save for [the arbitration] agreement,’ ” the Court stated, “indicates that the district court should assume the absence of the arbitration agreement and determine whether [the court] ‘would have jurisdiction . . .’ without it” by looking through to the “underlying substantive controversy” between the parties. ****
Sections 9 and 10 of the FAA contain none of the statutory language on which Vaden relied. So under ordinary principles of statutory construction, the look-through method should not apply. “[W]hen Congress includes particular language in one section of a statute but omits it in another section of the same Act,” this Court generally takes the choice to be deliberate. Collins v. Yellen, 594 U. S. ___, ___. That holds true for jurisdictional questions, as federal “district courts may not exercise jurisdiction absent a statutory basis.” Exxon Mobil Corp. v. Allapattah Services, Inc., 545 U. S. 546, 552. Because a statutory basis for look-through jurisdiction is lacking in Sections 9 and 10, the Court cannot reach the same result here as in Vaden. ****
(b) Walters presents a two-part argument to justify exercising jurisdiction here. Walters first claims that Section 4’s language does not authorize look-through jurisdiction, but is only a capacious venue provision designed to give applicants a broad choice among federal courts possessing jurisdiction. Walters next construes Section 6—which requires any FAA application to “be made and heard in the manner provided by law for the making and hearing of motions”—to provide the basis for an FAA-wide look-through rule.
Walters’s reading of Section 4 does not comport with how Vaden understood Section 4 or with the actual text of that provision, which never mentions venue, and refers only to jurisdiction. And Walters’s Section 6 argument fares no better. Courts do not possess jurisdiction to decide ordinary motions by virtue of the look-through method. So Congress would not have prescribed that method by telling courts, as Section 6 does, to treat FAA applications like motions.
Justice Kagan also rejected Walters’ public policy arguments.
(c) **** Walters claims that a uniform rule will promote “administrative simplicity”; that the look-through approach will be “easier to apply” than a test grounding jurisdiction on the face of the FAA application itself; and that the look-through rule will provide federal courts with more comprehensive control over the arbitration process. *** But “[e]ven the most formidable policy arguments cannot overcome a clear statutory directive.” BP p.l.c. v. Mayor and City Council of Baltimore, 593 U. S. ___, ___. And anyway, Walters oversells the superiority of his proposal. First, uniformity in and of itself provides no real advantage here because courts can easily tell whether to apply look-through or the normal jurisdictional rules. Second, the use of those ordinary rules, in the context of arbitration applications, is hardly beyond judicial capacity. And third, there are good reasons why state, rather than federal, courts should handle applications like the ones in this case.