Supreme Court Underscores State Courts’ Role in Enforcing Federal Arbitration Act

Employers seeking to confirm or overturn an arbitration award in court may find themselves doing so in state court more frequently after the U.S. Supreme Court’s decision in Badgerow v. Walters, No. 20-1143 (March 31, 2022). In a case arising from an employment dispute, the Court held that a federal court faced with an application to confirm or vacate an award pursuant to the Federal Arbitration Act (FAA) may not “look through” to the underlying dispute to decide whether it has jurisdiction over the application. The practical effect of the decision is that a party trying to confirm or vacate an arbitration award will often have to turn to state, not federal, courts to do so, something the Court called a “feature of the statute.” Id. at 16.

Tricky Jurisdictional Questions Under the FAA

The FAA, 9 U.S.C. § 1, et seq., allows parties to ask courts for help at several points in the arbitration process. Under Section 4, parties may seek to compel arbitration in accordance with the applicable arbitration agreement. Sections 9 and 10 of the FAA come into play after the arbitration has taken place: A party may apply to a court to confirm or vacate, respectively, the arbitrator’s award. But because the FAA doesn’t independently authorize federal jurisdiction over such requests, federal courts don’t automatically have jurisdiction to hear them.

Badgerow addressed how federal courts are to determine whether they have jurisdiction to decide a request under Section 9 or 10. For jurisdictional purposes, should courts “look through” to the underlying dispute, or should they limit their inquiry to the application itself?

The backdrop for the Court’s Badgerow decision was a case called Vaden v. Discover Bank. 556 U.S. 49 (2009). There, the Court held that a district court assessing a Section 4 petition to compel arbitration should indeed look through the petition to the underlying substantive dispute to decide whether the court has jurisdiction to decide the petition to compel arbitration. Id. at 62. In other words, if the district court would have had jurisdiction to hear the underlying dispute, it has jurisdiction to decide a motion to compel that dispute to arbitration under the parties’ contract.

Applications to confirm or vacate an arbitration award are different, the Court held in Badgerow, in spite of “thought-provoking” policy arguments to the contrary. No. 20-1143 at 12. Because Sections 9 and 10 of the FAA lack certain “distinctive language directing a look-through” that is present in Section 4, a court evaluating an application to confirm or vacate an award must confine its jurisdictional analysis to the application itself — it can’t consider the underlying dispute as a jurisdictional hook. Id. at 2; see also id. at 4–9 (textual analysis of Sections 4, 9, and 10 of the FAA).

Practical Effects: You’ll Probably Need to Go to State Court to Confirm or Vacate an Award

The facts of Badgerow illustrate the likely effects of the Supreme Court’s decision. Petitioner Denise Badgerow alleged unlawful termination under state and federal law against her former employer and lost at arbitration. Id. 2. When she asked a state court to vacate the award, her employer removed to federal court and filed a petition to confirm the arbitrator’s decision. Id. Badgerow moved to remand to state court, arguing that the federal court lacked jurisdiction to decide the application. Id. at 2–3. The federal court, applying Vaden’s look-through approach to the Section 9 and 10 requests, held that it had jurisdiction to decide those requests, as the underlying dispute presented a federal question. Id. at 3. The Fifth Circuit affirmed, and, as described above, the Supreme Court reversed. Id. at 1–4.

As a result, Badgerow and her former employer are likely (following further proceedings in the Fifth Circuit) to wind up back in state court because the face of their dueling applications to confirm and vacate the award do not evince a basis for federal jurisdiction. Although the underlying dispute raises a federal question, an arbitration award “is no more than a contractual resolution of the parties’ dispute.” Id. at 6. And “quarrels about legal settlements — even settlements of federal claims — typically involve only state law, like disagreements about other contracts.” Id.

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Although the opinion is technical, the main takeaway from Badgerow is clear: Employers seeking to confirm or vacate an arbitration award should be prepared to ask a state, not federal, court to do so. An exception to this general principle likely exists where the diversity of the parties is apparent on the face of the application to the court. But even where diversity is clear, as the dissent pointed out, it may still be difficult for a court to determine whether the amount-in-controversy requirement for diversity jurisdiction is satisfied based solely on the application itself. Badgerow, No. 20-1143, at 6 (Breyer, J., dissenting).

More generally, this case reaffirms what employers already know: The law surrounding arbitration, and the jurisdiction of federal courts in relation to arbitration, is complicated.