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Archive for the ‘Modify or Correct Award’ Category

Weighing the “Jurisdictional Anchor”: Post-Badgerow Second Circuit Subject Matter Jurisdiction Requirements for Applications to Confirm, Modify, or Vacate Arbitration Awards

November 13th, 2023 Amount in Controversy, Appellate Jurisdiction, Appellate Practice, Application to Compel Arbitration, Application to Confirm, Application to Enforce Arbitral Summons, Application to Stay Litigation, Arbitral Subpoenas, Arbitration Law, Arbitration Practice and Procedure, Confirmation of Awards, FAA Chapter 1, FAA Chapter 2, FAA Section 16, Federal Arbitration Act 202, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 202, Federal Arbitration Act Section 203, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Arbitration Act Section 5, Federal Arbitration Act Section 7, Federal Arbitration Act Section 9, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, Modify or Correct Award, Motion to Compel Arbitration, Petition or Application to Confirm Award, Petition to Compel Arbitration, Petition to Enforce Arbitral Summons, Petition to Modify Award, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Section 10, Section 11, Section 3 Stay of Litigation, Section 4, Section 5, Section 7, Section 9, Stay of Litigation, Stay of Litigation Pending Arbitration, Subject Matter Jurisdiction, United States Court of Appeals for the Second Circuit Comments Off on Weighing the “Jurisdictional Anchor”: Post-Badgerow Second Circuit Subject Matter Jurisdiction Requirements for Applications to Confirm, Modify, or Vacate Arbitration Awards

Jurisdictional Anchor | Subject Matter JurisdictionThe U.S. Supreme Court decision, Badgerow v. Walters, 142 S. Ct. 1310 (2022) (discussed here), requires that an independent basis for subject matter jurisdiction (usually diversity) must appear on the face of petitions to confirm, vacate, or modify arbitration awards, and, by extension, petitions to enforce arbitral subpoenas or appoint arbitrators. See Badgerow, 142 S. Ct. at 1314, 1320. That independent basis for subject matter jurisdiction cannot be established by “looking through” to the underlying arbitration proceeding. In other words, the federal court cannot base subject matter jurisdiction on whether the court would have had subject matter jurisdiction over the merits of the controversy had they been submitted it to court rather than to arbitration.  See Badgerow, 142 S. Ct. at 1314, 1320.

Badgerow does not change the rule that federal question jurisdiction over a Section 4 petition to compel arbitration can be established by “looking through” to the underlying dispute that is or is claimed to be subject to arbitration. 142 S. Ct. at 1314; see  Vaden v. Discover Bank, 556 U.S. 49, 53 (2009); Hermès of Paris, Inc. v. Swain, 867 F.3d 321, 324-26 (2d Cir. 2017) (diversity of citizenship not determined by “look through”).

Section 4 of the Federal Arbitration Act expressly authorizes a Court to exercise subject-matter jurisdiction on that basis: “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 or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. § 4; see Badgerow, 142 S. Ct. at 1317.

Unlike Section 4, Sections 5 (appointment of arbitrators), 7 (arbitral subpoena enforcement), 9 (confirmation of awards), 10 (vacatur of awards), and 11 (modification of awards), do not expressly authorize the exercise of subject matter jurisdiction on a “look through” basis.  See 142 S. Ct. at 1317-18; 9 U.S.C. §§ 4, 5, 7, 9, 10, & 11.

Badgerow, in the specific context of an action commenced by petition to vacate an award under FAA Section 10—which, in turn, prompted a cross-petition to confirm under FAA Section 9—held that the absence in Sections 9 and 10 of Section 4’s express language authorizing subject matter jurisdiction based on “look through” meant that Congress did not authorize “look through” subject matter jurisdiction for Section 9 and 10 claims (and presumably for claims seeking relief under Sections 5, 7, or 11). See 142 S. Ct. at 1319.

An independent basis for subject matter jurisdiction is required, and in the absence of a federal question appearing on the face of the petition (such as a claim for relief under Chapter Two of the FAA, see 9 U.S.C. § 203; 28 U.S.C. § 1331), the only possible basis for subject matter jurisdiction is diversity of citizenship. See 28 U.S.C. § 1332(a). And there could be no diversity jurisdiction in Badgerow because the parties to the petitions were citizens of the same state. See 142 S. Ct. at 1316.

Badgerow’s reasoning certainly applies to independent, summary proceedings in which the only relief sought is under the FAA. But does it apply with equal force where litigation on the merits of an arbitrable or allegedly arbitrable dispute has commenced, and the motion to compel arbitration is made by motion in the pending action, which is stayed pending arbitration? Can the stayed merits litigation act as what former Associate Justice Stephen G. Breyer, in his Badgerow dissent, referred to as a “jurisdictional anchor” for not only the motion to compel arbitration, but also other subsequent applications for pre- or post-award FAA relief relating to the arbitration?  See Badgerow, 142 S. Ct. at 1326 (Breyer, J., dissenting).

That is an open question in the Second Circuit after Badgerow, although pre-Badgerow the answer was yes. Let’s look at it more closely and try to get a sense of how the Second Circuit might rule on it considering Badgerow. Continue Reading »

2021 Term SCOTUS Arbitration Cases: Is the Pro-Arbitration Tide Beginning to Ebb?

July 18th, 2022 Amount in Controversy, Applicability of Federal Arbitration Act, Application to Appoint Arbitrator, Application to Compel Arbitration, Application to Stay Litigation, Arbitrability, Arbitral Subpoenas, Arbitration Agreements, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Challenging Arbitration Agreements, Challenging Arbitration Awards, Equal Footing Principle, FAA Chapter 1, FAA Transportation Worker Exemption, Federal Arbitration Act Section 1, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 2, Federal Arbitration Act Section 4, Federal Arbitration Act Section 5, Federal Arbitration Act Section 7, Federal Arbitration Act Section 9, Federal Courts, Federal Policy in Favor of Arbitration, Federal Question, Federal Subject Matter Jurisdiction, International Arbitration, International Judicial Assistance, Judicial Review of Arbitration Awards, Look Through, Modify or Correct Award, Moses Cone Principle, Petition or Application to Confirm Award, Petition to Compel Arbitration, Petition to Modify Award, Petition to Vacate Award, Policy, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Presumption of Arbitrability, Richard D. Faulkner, Section 10, Section 11, Section 1782, Section 3 Stay of Litigation, Section 5, Section 6, Section 7, Section 9, Small Business B-2-B Arbitration, State Arbitration Law, Statutory Interpretation and Construction, Subject Matter Jurisdiction, Substantive Arbitrability, Textualism, United States Supreme Court, Vacatur, Waiver of Arbitration Comments Off on 2021 Term SCOTUS Arbitration Cases: Is the Pro-Arbitration Tide Beginning to Ebb?

Introduction: This Term’s SCOTUS Arbitration Cases 

SCOTUS FAA CasesThe 2021 Term was a busy and controversial one for the United States Supreme Court (“SCOTUS”) regarding abortion, First Amendment rights, Second Amendment rights, and administrative agency power.  However, many may not know SCOTUS decided four Federal Arbitration Act cases during the 2021 Term (the “FAA Cases”), as well as a pair of cases consolidated into one concerning whether U.S. Courts may provide under 28 U.S.C. § 1782 judicial assistance to international arbitration panels sited abroad. See Viking River Cruises, Inc. v. Moriana, 596 U. S. ____, No. 20–1573, slip op. (June 15, 2022) (construing FAA); ZF Automotive US, Inc., et al. v. Luxshare, Ltd., 596 U.S. ___, No. 21–401, slip op. (June 13, 2022) (construing 28 U.S.C. § 1782); Southwest Airlines Co. v. Saxon, 596 U.S. ___, No. 21-309, slip op. (June 6, 2022) (construing FAA); Morgan v. Sundance, Inc., 596 U.S. ___, No. 21-328, slip op. (May 23, 2022) (construing FAA); Badgerow v. Walters, 596 U.S. ___, No. 20-1143, slip op. (March 31, 2022) (construing FAA).  

Three of the SCOTUS FAA Cases, Badgerow, Morgan, and Southwest Airlines signal SCOTUS’s apparent intention to construe strictly the Federal Arbitration Act’s text without indulging in any pro-arbitration presumptions or applying arbitration-specific rules intentionally encouraging arbitration-friendly outcomes. ZF Automotive, the 28 U.S.C. § 1782 judicial-assistance case also  employed a strict, textualist approach to interpreting 28 U.S.C. § 1782, used the FAA to help support its conclusion, and held that 28 U.S.C. § 1782 did not authorize U.S. district courts to provide judicial assistance to private arbitration panels sited abroad—an outcome not particularly solicitous of international arbitration. It is therefore at least indirectly supportive of the more textually oriented and arbitration-neutral approach SCOTUS appears to have endorsed with special force during the 2021 Term.  

The SCOTUS 2021 Term FAA Cases are not the first ones in which the Court applied textualist interpretations to the FAA. There are others. See, e.g., New Prime Inc. v. Oliveira, ___ U.S. ___, 139 S. Ct. 532 (2019) (discussed here and here). But common themes in three of those FAA Cases—echoed in ZF Automotive —suggest a marked trend by the Court to interpret the FAA in a less expansive manner that is not presumptively arbitration friendly. The expression of these common themes in four cases decided in a single term is particularly significant because Morgan, Southwest Airlines, and ZF Automotive were decided unanimously by all participating Justices and Badgerow was decided 8-1, with now retired Associate Justice Stephen G. Breyer dissenting.  

Many previous FAA SCOTUS decisions of the last three or four decades have been very indulgent of arbitration. The Court encouraged arbitration proliferation far beyond B-2-B commercial and industry arbitration between sophisticated and resource-laden entities of roughly equal bargaining power.  Arbitration was introduced into consumer and employment disputes and other disputes involving persons (including businesses) of vastly disparate resources and sophistication. SCOTUS made arbitration agreements readily enforceable, interpreted them expansively in favor of arbitration, limited defenses to arbitration agreements and awards, and promoted arbitration to make it, at least in the eyes of some, an attractive alternative to litigation. Critics challenged that view and assailed arbitration as “do it yourself court reform.”  The SCOTUS arbitration decisions developed and implemented an expansive federal policy in favor of arbitration and a presumption of arbitrability and championed a very pro-arbitration approach to arbitration law in general.  

That SCOTUS, the lower federal courts, and eventually even the skeptical state courts that are bound by its FAA decisions, have been solicitous and supportive of arbitration is unsurprising. The assumed (but not necessarily realized) benefits of arbitration have long been touted by academics and promoted by business and industry representatives.  Of course, courts have for many years recognized that arbitration helps reduce docket congestion, which was exacerbated by COVID and remains a problem today, even with the help of proliferated arbitration proceedings. Arbitral dispute resolution is also a very impressive business sector in and of itself, generating billions in revenues for law firms, arbitrators, and arbitration providers. It therefore has many proponents.  

But Badgerow, Morgan, Southwest Airlines, and ZF Automotive suggest that SCOTUS is rethinking its prior expansive, and highly-arbitration-friendly approach to the FAA and might be more willing to entertain seriously arguments for interpreting: (a) arbitration agreements less expansively, and more like ordinary contracts; and (b) Sections 10 and 11 of the FAA strictly according to their text and not in an exceedingly narrow manner designed to encourage, arbitration-award-favoring outcomes. These cases may also embolden lower courts, especially the state courts, to do the same. Continue Reading »