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Look Through: Second Circuit Holds that District Courts Must “Look Through” a Section 9 Petition to Confirm to Ascertain Subject Matter Jurisdiction

May 13th, 2019 Amount in Controversy, Arbitration Practice and Procedure, Awards, Confirmation of Awards, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Diversity Jurisdiction, FAA Chapter 1, FAA Chapter 2, FAA Chapter 3, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 4, Federal Arbitration Act Section 9, Federal Courts, Federal Question, Look Through, Petition to Modify Award, Petition to Vacate Award, Subject Matter Jurisdiction, United States Court of Appeals for the Second Circuit No Comments » By Philip J. Loree Jr.
Look Through

In Landau v. Eisenberg, ___ F.3d ___, No. 17-3963, slip op. (May 1, 2019) (per curiam), the U.S. Court of Appeals for the Second Circuit recently held that district courts must “look through” a Section 9 petition to confirm an arbitration award to determine whether the court has subject matter jurisdiction to adjudicate the petition. District courts must therefore ascertain whether the district court would, absent an arbitration agreement, have had subject matter jurisdiction over the underlying controversy that resulted in the arbitration, and ultimately the award.

While the Second Circuit ruled in a per curiam decision, the issue it decided was of first impression. But it followed on the heels of, and heavily relied on, Doscher v. Sea Port Grp. Sec., LLC, 832 F.3d 372, 379-89 (2d Cir. 2016), which held that district courts should look through a Section 10 or 11 petition to ascertain the existence of federal subject matter jurisdiction. Doscher instructed federal courts to focus not on whether the Section 10 and 11 FAA award review and enforcement process presented substantial federal questions, but on the same thing they would have focused on had they been asked to compel arbitration of the controversy: whether the underlying controversy, in keeping with the well-pleaded complaint rule, would have been within the Court’s subject matter jurisdiction had it not been submitted to arbitration. See Doscher, 882 F.3d at 379-89.  

While Eisenberg and Doscher concerned the question whether federal-question subject matter jurisdiction exists over FAA Sections 9, 10, and 11 petitions, the reasoning of those cases also applies to the question whether there is federal subject matter jurisdiction over such petitions based on the diversity jurisdiction.

The Problem Addressed byEisenberg and Doscher

Problem | Issue

The Federal Arbitration Act is “something of an anomaly in the realm of federal legislation: It bestows no federal jurisdiction but rather requires for access to a federal forum an independent jurisdictional basis over the parties’ dispute.” Vaden v. Discover Bank, 556 U.S. 49, 59 (2009).

Section 4 of the FAA, which governs motions to compel arbitration, provides that to determine the “independent jurisdictional basis” the court must ascertain whether “save for such agreement, [the district court] would have jurisdiction. . . of the subject matter of a suit arising out of the controversy [claimed to be arbitrable][:]”

[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 (emphasis added).

The Supreme Court held in Vaden that “§ 4 of the FAA does not enlarge federal court jurisdiction,” 556 U.S. at 66, and district courts must “look through” the petition to the controversy between the parties to ascertain whether the court had subject matter jurisdiction over the controversy. 556 U.S. at 62. District courts must therefore “assume the absence of the arbitration agreement and determine whether it would have jurisdiction under title 28 without it.” Id. at 63.

But section 4 of the FAA expressly specifies the circumstances under which a federal district court will have jurisdiction over an application to compel arbitration, whereas Sections 9, 10, and 11 of the FAA—which address applications to confirm, vacate, and modify awards—say nothing about subject matter jurisdiction. The availability of relief under those portions of the FAA is not conditioned on either the existence of a lawsuit over which the Court already has subject matter jurisdiction (and which may have been stayed pending arbitration under Section 3 of the FAA) or on a party having previously invoked the court’s jurisdiction by filing a proceeding to compel arbitration under Section 4.

Sections 9, 10, and 11 of the FAA do not in and of themselves vest jurisdiction in a district court simply because they are part of a federal statute—the FAA requires an independent basis for federal subject matter jurisdiction. But what determines subject matter jurisdiction, the nature of the petition to confirm, vacate, or modify the award, or the nature of the underlying dispute that ultimately resulted in the arbitration award?   

Assessing Subject Matter Jurisdiction: Look Solely at the Post-Award Petition or Look Through that Petition to the Underlying Controversy?

Why

Suppose Party A, a citizen of California has an arbitration agreement with Party B, a citizen of New York, which requires arbitration of disputes between them arising out of a business contract. A breach of contract dispute arises in which Party A makes, in good faith, a claim for $100,000 in damages against Party B, exclusive of costs and interest.

Party A demands arbitration of the dispute, Party B complies with the arbitration agreement and proceeds to submit Party A’s claim to arbitration. Party B prevails in the arbitration and the arbitrator makes an award denying the claim and awarding no damages to any of the parties. Both the agreement and the award are purely domestic and fall solely under Chapter 1 of the FAA, so there is no question whether the Court might have federal question subject matter jurisdiction under Chapters 2 or 3 of the FAA. 

Party B then applies to confirm the take-nothing award in a federal district court in New York. Does the New York federal district court have subject matter jurisdiction?

The two principal sources of federal subject matter jurisdiction are federal question jurisdiction and diversity jurisdiction. 28 U.S.C. § 1331, which governs federal-question subject matter jurisdiction, provides that “[t]he district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331.

The dispute about whether the award should be confirmed under Section 9 does not present a federal question, because, as we’ve said, the FAA requires an “independent basis” for subject matter jurisdiction; a request to confirm, vacate, or modify an award under FAA Sections 9, 10, or 11 does not in and of itself a federal question make.

“Looking through” to the underlying dispute that resulted in the arbitration award likewise does not provide a basis for federal question jurisdiction. Unlike, say, a claim for a violation of the antitrust laws or federal trademark laws, a breach of contract claim is a garden-variety state law claim that presents no federal question.  

28 U.S.C. Section 1332(a) establishes the federal courts’ jurisdiction based on diversity of citizenship. As pertinent to our hypothetical, it provides that “[t]he district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive  of interests and costs, and is between—(1) citizens of different States.  .  .  .” 28 U.S.C. § 1332(a).

Parties A and B are of diverse citizenship, but whether the amount in controversy is satisfied depends on whether you focus on the petition itself, or look through to the underlying controversy.  

If we consider the amount in controversy solely from the standpoint of the parties’ dispute over whether the award should be confirmed, then there’s a problem. The amount of the award is $0 and the amount in controversy is therefore the sum of $0. And it is far from clear, to say the least, whether it has, within the meaning of Section 1332(a), a “value” that exceeds $75,000.00.

If the dispute over the motion to confirm is the only relevant consideration, then, in all likelihood, there is no federal subject matter jurisdiction because the amount in controversy does not “exceed[] the sum or value of $75,000, exclusive of interests and costs.  .  .  .” 28 U.S.C. § 1332(a).

But if we ascertain subject matter jurisdiction by effectively “looking through” the Section 9 application and considering the dispute that led to the arbitration itself, then a clear case for diversity jurisdiction emerges.  

The controversy out of which the arbitration arose was a $100,000 claim for breach of contract. If there were no arbitration agreement, and Party A made that claim to a federal district court, then the Court would have had subject matter jurisdiction.

Under Eisenberg and Doscher Courts within the Second Circuit Look Through Section 9, 10, and 11, Petitions for Post-Award Relief

Look Through

Under Eisenberg and Doscher courts in the Southern District should look through to the underlying controversy leading up to the award to ascertain whether it has subject matter jurisdiction over a Section 9, 10, or 11, petition. In a case like that set forth in our hypothetical, such a court would find jurisdiction based on diversity of citizenship.

As intimated earlier, federal courts have original jurisdiction under proceedings concerning awards falling under Chapter 2 of the FAA (implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards) or Chapter 3 of the FAA (implementing the Inter-American Convention on International Commercial Arbitration). When an award falls under one of those conventions, the court is deemed to have subject matter jurisdiction, irrespective of the amount in controversy, and irrespective of whether the court would have subject matter jurisdiction based on a “look through” analysis. See 9 U.S.C. § 202, 203, & 302.   

Want to Read About Appellate Jurisdiction under the Federal Arbitration Act?

Read Loree Reinsurance and Arbitration Law Forum Post here.

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