A plaintiff sought post-arbitral relief in federal court. The district court concluded that it had federal question jurisdiction and, on appeal, in Quezada v. Bechtel OG & C Construction Services, Inc., the Fifth Circuit joined the First, Second, and Fourth Circuits in adopting the “look through” test for petitions to confirm, vacate, or modify arbitration awards. By contrast, the Third, Seventh, Ninth, and D.C. Circuits have rejected the “look through” test. While state court post-arbitral relief is available, the strategy for practitioners looking to preserve federal question jurisdiction varies by circuit court.
July 24, 2020 Top Story
Fifth Circuit Adopts "Look Through" Test for Arbitration Awards
Circuit split grows over jurisdiction for post-arbitral relief claims
By Katherine G. Vazquez
The Fifth’s Circuit Decision
As required by an employment contract, an employee and employer jointly submitted an employment dispute to the American Arbitration Association. The employee claimed that the employer engaged in discrimination, failure to accommodate, and retaliation in violation of the Americans with Disabilities Act. The arbitrator issued a final award for the employee.
The employer sought modification of the award in the U.S. District Court for the Southern District of Texas. The employee moved to confirm the award. The district court held that it had subject matter jurisdiction over the action since the action arose under federal law. The court then denied the employer’s motion, and a timely appeal followed.
The U.S. Court of Appeals for the Fifth Circuit affirmed after it examined the basis for the district court’s jurisdiction. The Fifth Circuit joined several other circuits and adopted the “look through” analysis that was set forth by the U.S. Supreme Court in Vaden v. Discover Bank. In Vaden, the Supreme Court rejected the well-pleaded complaint rule used to analyze federal question jurisdiction when faced with a petition to compel arbitration under section 4 of the Federal Arbitration Act (FAA). Instead, the Court adopted the “look through approach.” Under this approach “[a] federal court may ‘look through’ a § 4 petition to determine whether it is predicated on an action that ‘arises under’ federal law.” That is, courts should examine the underlying dispute potentially subject to arbitration to determine if it presents a federal question.
The Fifth Circuit found that the underlying dispute between the employer and employee arose out of the Americans with Disabilities Act, a federal statute. The arbitration claims would be subject to federal question jurisdiction absent the arbitration agreement. Therefore, the district court had authority to resolve the parties’ motions under sections 9, 10, and 11 of the Federal Arbitration Act.
Circuit Split Deepens
Vaden adopted the “look through” approach for section 4 of the Federal Arbitration Act. However, it did not decide whether the same approach applies to sections 9, 10, or 11. Therefore, a circuit split developed after the Vaden decision. The Fifth Circuit joined the First, Second, and Fourth Circuits in applying the “look through” analysis to confirm, vacate, or modify an arbitration award under sections 9, 10, or 11, respectively. On the other side of the split, the Third, Seventh, Ninth, and D.C. Circuits have rejected the “look through” analysis.
The Fifth Circuit reasoned that the virtues of the “look through” analysis include permitting a petitioner “to ask a federal court to compel arbitration without first taking the formal step of initiating or removing a federal-question suit—that is, without seeking federal adjudication of the very questions it wants to arbitrate rather than litigate.”
The appellate court further found that rejecting the “look through” analysis would create an “inefficient and formalistic” process where a litigant would be forced to “preserve federal jurisdiction over a motion to vacate, modify, or confirm an arbitration award by first filing a motion to compel arbitration under section 4, which benefits from the look-through approach.” With the “look through” analysis, the parties would not have to first file in federal court for the sole purpose of preserving federal jurisdiction to later review the award.
Practical Implications
The existence of the circuit split “really shouldn’t have much practical influence or significance unless federal enforcement jurisdiction is vitally important, as otherwise state courts remain available for post-arbitral relief,” explains John H. Mathias Jr., Chicago, IL, cochair of the ABA Section of Litigation’s International Litigation & Dispute Resolution Committee.
If federal jurisdiction is important to the practitioner who is in one of the circuits that has not adopted the “look through” analysis, then “the case highlights two potential strategic points, that could come up in some situations,” opines Henry L. Parr, Greenville, SC, cochair of the Section of Litigation’s International Litigation & Dispute Resolution Committee. “First, if a party knows well ahead of time that it will be important to have federal jurisdiction for a motion to confirm, vacate, or modify arbitration awards under FAA sections 9, 10, and 11, respectively, then it might be advisable to consider filing an action in federal court and then moving to compel arbitration and stay the federal action pending the arbitration, if that is possible,” says Parr.
“Second, until the Supreme Court resolves the circuit split over the ‘look through’ approach to jurisdiction for these motions, proceeding in state court might be the safest route, especially since there is a time deadline to make some of the motions,” Parr adds.
Katherine G. Vazquez is a contributing editor for Litigation News.
Hashtags: #FederalArbitrationAct #Arbitration #ArbitrationAwards
Related Resources
- Ortiz-Espinosa v. BBVA Sec. of Puerto Rico, Inc., 852 F.3d 36, 47(1st Cir. 2017).
- Doscher v. Sea Port Group Sec., LLC, 832 F.3d 372, 381 (2d Cir. 2016).
- Goldman v. Citigroup Glob. Markets Inc., 834 F.3d 242, 252 (3d Cir. 2016).
- McCormick v. Am. Online, Inc., 909 F.3d 677, 679 (4th Cir. 2018).
- Magruder v. Fid. Brokerage Services LLC, 818 F.3d 285, 288 (7th Cir. 2016).
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