March 31, 2022

Supreme Court Decides Badgerow v. Walters

On March 31, 2022, the U.S. Supreme Court decided Badgerow v. Walters, No. 20-1143, reversing the Fifth Circuit, and holding that federal courts may only look to the application to confirm or vacate an arbitral decision in assessing jurisdiction.

Denise Badgerow initiated an arbitration action against Greg Walters, Thomas Meyer, and Ray Trosclair (collectively, Walters) alleging unlawful termination under federal and state law. The arbitrators sided with the employer and dismissed Badgerow’s claims. Badgerow then sued Walters to vacate the arbitral decision in state court. Walters removed the lawsuit to federal court and applied to confirm the arbitral award. The district court determined that it had jurisdiction over the pending applications using a look-through approach that considered the substance of the parties’ underlying substantive dispute, which raised federal-law claims. The United States Court of Appeals for the Fifth Circuit affirmed.

In an 8-1 decision, the Supreme Court reversed and remanded the case for further proceedings, concluding that the district court could not use a look-through approach to determine whether it had jurisdiction to confirm or vacate an arbitral decision. The Court first emphasized that a federal court may entertain an action brought under the Federal Arbitration Act only if it has an independent jurisdictional basis. The Court next turned to where courts should look to determine whether an action brought under Section 9 or 10 has an independent jurisdictional basis. The Court began with the face of the applications to confirm and vacate the arbitral award. The Court noted that disputes about the enforceability of an arbitral award, standing alone, typically only raise matters of state law, like disagreements about other contracts. In this case, the face of the applications did not support the exercise of diversity jurisdiction or federal question jurisdiction.

The Court then considered whether a federal court could use a look-through approach to identify a jurisdictional basis that was not apparent on the face of the application but could be gleaned from the underlying controversy. This look-through method applies to Section 4 petitions to compel arbitration based on unique statutory language that allows petitions to be filed in a “United States district court, which, save for [the arbitration] agreement, would have jurisdiction” over “the controversy between the parties.” Sections 9 and 10, which govern applications to confirm or vacate arbitral awards, do not contain this “save for” clause. The Court concluded that the omission of the “save for” provision in Sections 9 and 10 means that the look-through method for assessing jurisdiction does not apply. Instead, federal courts must use usual jurisdictional rules to determine whether they have jurisdiction over applications to confirm or vacate arbitral awards. The application of traditional jurisdictional rules effectuates the FAA’s statutory plan to require Section 9 and 10 applications to go to state, rather than federal, courts when they raise claims between non-diverse parties involving state law.

Justice Kagan authored the opinion for the Court, in which Chief Justice Roberts and Justices Thomas, Alito, Sotomayor, Gorsuch, Kavanaugh, and Barrett joined. Justice Breyer filed a dissenting opinion.

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