As discussed in earlier posts, the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1, et seq., does not itself provide an independent basis for subject matter jurisdiction over federal court proceedings concerning domestic arbitrations. (In contrast, where the New York Convention applies -- in cases of international or non-domestic arbitrations -- the FAA does itself establish a federal district court’s subject matter jurisdiction over such matters. See FAA § 203, 9 U.S.C. § 203.) Therefore, absent diversity or maritime jurisdiction, a post-award petitioner to confirm or vacate or modify a domestic arbitral award in federal court (under FAA §§ 9, 10, or 11, respectively) must show federal question jurisdiction under 28 U.S.C. § 1331. And, as is often the case regarding jurisdiction issues in the U.S., the federal courts of appeals are split on the analysis that should be made in that regard.
The Fifth Circuit Court of Appeals has now joined the faction that adopts the “look-through” analysis that the U.S. Supreme Court prescribed for analogous purposes in Vaden v. Discover Bank, 556 U.S. 44 (2009). See Quezada v. Bechtel OG&C Construction Services, Inc., No. 19-20042, 2020 U.S. App. LEXIS 1192 (5th Cir. Jan. 14, 2020).
The First, Second and Fourth Circuit Courts of Appeal previously adopted that jurisdictional analysis in connection with motions to confirm or vacate or modify a domestic arbitral award. On the other hand, the Third, Seventh, Ninth, and D.C. Circuit Courts of Appeal have rejected the Vaden look-through analysis with respect to such petitions.
In Vaden, the U.S. Supreme Court ruled, concerning a motion to compel arbitration under FAA § 4, that a federal court would have subject matter jurisdiction if it would have had jurisdiction over the underlying substantive dispute -- i.e., “look-through” jurisdiction. The U.S. Supreme Court thus rejected the typical “well-pleaded complaint” analysis concerning federal question jurisdiction, “under which courts would look to the face of the federal court petition for a basis for federal jurisdiction,” id. at *6, in favor of a “look-through” analysis by which “[a] federal court may ‘look through’ a § 4 petition to determine whether it is predicated on an action that ‘arises under’ federal law,” id., citing Vaden, 556 U.S. at 62.
Since Vaden, several courts of appeals have decided, for varying reasons, including in order to maintain uniformity of treatment of remedies under the FAA, that the same sort of analysis of subject matter jurisdiction should apply, where necessary, with regard to petitions to confirm or to vacate or to modify an arbitral award under FAA §§ 9-11.
On the other hand, the courts of appeals that have rejected application of the Vaden look-through analysis to such FAA petitions have pointed to the particular language of FAA § 4, upon which the Vaden decision was based. FAA § 4 provides in pertinent part:
“A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under title 28 in a civil action … arising out of the controversy between the parties.” (Emphasis added.)
The Third, Seventh, Ninth and D.C. Circuit Courts of Appeal relied on the uniqueness of that “but for” language in FAA § 4 to distinguish the subject matter jurisdiction analysis under that provision from the conventional “well-pleaded complaint” analysis that, they opined, should apply with regard to petitions under other provisions of the FAA, including Sections 9-11.
That “well-pleaded complaint” analysis requires that the petition under the FAA itself must concern “the resolution of a substantial question of federal law.” It should be recognized that, as a practical matter, this inherently restrictive approach makes federal question jurisdiction over post-award petitions virtually unattainable. In contrast, the “look-through” analysis of federal question jurisdiction makes the federal courts more accessible for those essential purposes -- confirmation or vacatur or amendment of domestic awards. In light of the important role intended for the federal courts in enforcing arbitration agreements post-award, it would arguably make no sense to effectively exclude federal question jurisdiction over those cases. See, e.g., Ortiz-Espinosa v. BBVA Sec. of P.R., Inc., 852 F.3d 36, 45 (1st Cir. 2017).
In Quezada, respondent Bechtel sought to vacate an arbitrator’s award against it and in favor of a former employee based on a claim under the Americans with Disabilities Act (“ADA”). (The monetary award was arguably controversial inasmuch as it appeared to be inconsistent in large part with the arbitrator’s own underlying findings, including that Quezada’s termination by Bechtel was not actionable.) Claimant Quezada moved to confirm it. The district court found that it had jurisdiction over Bechtel’s motion to vacate but that there was no basis under the FAA on which to do so. According deference to the arbitrator’s award and considering the narrow grounds for vacatur provided by the FAA, the district court denied Bechtel’s vacatur motion and granted Quezada’s confirmation motion. See 2020 U.S. App. LEXIS 1192 at *3-*4. The Fifth Circuit Court of Appeals affirmed.
The Court of Appeals first examined the basis for the district court’s subject matter jurisdiction. It acknowledged that an independent jurisdictional basis was required in connection with controversies touching domestic arbitration under the FAA, see id. at *5, and that federal question jurisdiction would have to be established independently of the FAA, id. at *6. The appellate court reviewed the circuit split concerning the applicable analysis in that regard, found the “look-through” analysis approach to be persuasive, and adopted it. See id. at *12-*13. And it found that the claims that were arbitrated in Quezada -- ADA claims -- would indeed have been a sound basis for federal question jurisdiction in the absence of the arbitration agreement. Id. at *13.
As the circuit split in this regard deepens, there appears to be no pending certiorari petition potentially teeing this issue up for SCOTUS. Consequently, arbitrating parties should be aware of the pertinent law in jurisdictions in which they expect to seek to confirm or to vacate or to modify a domestic award, as the case may be, inasmuch as that may have significant implications for whether their post-award petition ought to be filed in a state court or a federal court.