The United States Supreme Court granted certiorari in Badgerow v. Walters, No. 20-1143 on May 17, 2021.  The question presented is “[w]hether federal courts have subject matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the [Federal Arbitration Act (“FAA”)] where the only basis for jurisdiction is that the underlying dispute involved a federal question.”

In Vaden v. Discover Bank, 556 U.S. 49 (2009), the Supreme Court held that a federal court, in reviewing a petition to compel arbitration under Section 4 of the FAA, may “look through” the petition to decide whether the parties’ underlying dispute gives rise to federal question jurisdiction.  Alan Kaplinsky and Martin Bryce of Ballard’s Consumer Financial Services group successfully represented the defendant in the District Court and the Fourth Circuit with respect to that issue.  The text of Section 4, which states that petitions to compel arbitration may be brought before “any United States district court which, save for such agreement, would have jurisdiction under title 28 . . . of the subject matter of a suit arising out of the controversy between the parties,” drove the Supreme Court’s holding in Vaden.  556 U.S. at 62.

Sections 9 and 10 of the FAA do not contain such language, however.  Since Vaden, the Circuits have divided over whether the same “look-through” approach applies to motions to confirm or vacate an arbitration award under Sections 9 and 10 of the FAA.

The First, Second, Fourth and Fifth Circuits have all concluded, consistent with Vaden, that the federal courts may look through the motion to confirm or vacate to the parties’ underlying dispute when assessing the existence of federal question jurisdiction.  The Fifth Circuit, for instance, reasoned: “‘[t]he [FAA] was enacted as a single, comprehensive statutory scheme,’” and “this principle of uniformity dictates using the same approach  for  determining  jurisdiction  under each section of the statute.”  Quezada v. Bechtel OG & C Constr. Servs., Inc., 946 F.3d 837, 842 (5th Cir. 2020).  The Fifth Circuit believed that “provid[ing] a different jurisdictional rule for section 4 would be, in essence, to expand jurisdiction for section 4 motions,” contrary to “[t]he rule that the FAA is  not  an  independent  basis  for  federal  jurisdiction  and  does not enlarge existing grounds for jurisdiction.”  Id.

The Third and Seventh Circuits have taken the contrary position.  The Seventh Circuit explained that Vaden could not be extended to motions arising under Sections 9 and 10 because neither section has any language comparable to Section 4’s “save for such agreement” language on which the Supreme Court relied in VadenMagruder v. Fidelity Brokerage Servs. LLC, 818 F.3d 285, 288 (7th Cir. 2016).  The Seventh Circuit also found it significant that its position “harmonizes the law of arbitration with the law of contracts.” Id.  As the Court noted, “if parties settle litigation that arose under federal law, any contest about that settlement needs an  independent  jurisdictional  basis,” even though the suit originally asserted federal claims. Id.  According to the Seventh Circuit, the same rule should apply to arbitration. Id.

Since there still remains less hostility to arbitration in the federal courts, we are hopeful that the Supreme Court will affirm the Fifth Circuit’s opinion.  Badgerow will likely be argued in the Fall with a decision expected next year.