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Archive for the ‘Federal Question’ 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 No Comments »

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 »

Subject Matter Jurisdiction in FAA Proceedings: Eighth Circuit Demonstrates It’s a Trap for the Unwary

August 23rd, 2023 Amount in Controversy, Application to Compel Arbitration, Arbitration Law, Arbitration Practice and Procedure, Award Vacated, Awards, Challenging Arbitration Awards, Confirmation of Awards, FAA Chapter 1, 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 5, Federal Arbitration Act Section 7, Federal Arbitration Act Section 9, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, Look Through, or Modify Award, 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 4, Section 5, Section 7, Section 9, United States Court of Appeals for the Eighth Circuit Comments Off on Subject Matter Jurisdiction in FAA Proceedings: Eighth Circuit Demonstrates It’s a Trap for the Unwary

Introduction

Subject Matter Jurisdiction | Petition to Confirm | Petition to Vacate The U.S. Court of Appeals for the Eighth Circuit recently decided a case that provides a good—and simple—example of how subject matter jurisdiction can be a trap for the unwary, especially for parties seeking to confirm or vacate arbitration awards under the Federal Arbitration Act (the “FAA”). In Prospect Funding Holdings (N.Y.) v. Ronald J. Palagi, P.C., No. 22-1871, slip op. (8th Cir. Aug. 7, 2023), the Eighth Circuit vacated a district court’s judgment vacating two arbitration awards because the petitioner failed to plead the citizenship of the parties and therefore could not establish the requisite independent basis for subject matter jurisdiction. But there was more to it than that. Continue Reading »

Ninth Circuit Clarifies Arbitral Summons Jurisdiction and Venue under New York Convention

August 19th, 2022 Application to Enforce Arbitral Summons, Arbitral Subpoenas, Arbitration Law, Arbitration Practice and Procedure, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, FAA Chapter 1, FAA Chapter 2, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 201, Federal Arbitration Act Section 202, Federal Arbitration Act Section 203, Federal Arbitration Act Section 204, Federal Arbitration Act Section 7, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, International Arbitration, New York Convention, Nuts & Bolts, Nuts & Bolts: Arbitration, Petition to Enforce Arbitral Summons, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Section 7, Statutory Interpretation and Construction, Subject Matter Jurisdiction, Subpoenas, United States Court of Appeals for the Ninth Circuit, United States Supreme Court, Venue Comments Off on Ninth Circuit Clarifies Arbitral Summons Jurisdiction and Venue under New York Convention

Summons | Petition to EnforceThe United States Court of Appeals for the Ninth Circuit recently provided useful guidance on what might be described as the arcane of the arcane: arbitral summons or subpoena practice in cases governed by Chapter Two of the Federal Arbitration Act, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention” or the “New York Convention”). See 9 U.S.C. § 201, 202. We’ve discussed arbitral summons practice in domestic cases—itself an arcane subject— in posts published in 2020, here, here, and here.

In Jones Day v. Orrick, Herrington & Sutcliffe, LLP, No. 21-16642, slip op. (9th Cir. Aug. 1, 2022), the Court made important rulings concerning (a) federal court subject matter jurisdiction over a Chapter One arbitral summons in a case governed by Chapter Two of the FAA, and (b) proper venue for enforcing an arbitral summons in a case where the third-party witness is not subject to personal jurisdiction in the district embracing the seat of the arbitration.

Yes, these rulings may appear arcane, but they are highly relevant to those who arbitrate cases falling under the New York Convention, especially cases involving arbitrations sited in the U.S. where one or more parties are citizens of foreign states, or where the agreement or award arises out of a commercial, legal “relationship involving property located outside the U.S., envisages performance or enforcement abroad, or has some other reasonable relationship with one or more foreign states.” See 9 U.S.C. § 202.

Background

Jones Day arose out of an arbitration between a law firm (the “Firm”) and a former partner, a German national (the “Former Partner”), who was based in Paris, and left Jones Day to join another firm (the “Competitor Firm”). The arbitration agreement designated Washington, D.C. as the arbitration situs. The parties’ arbitration agreement fell under the Convention. See 9 U.S.C. § 202.

The Firm requested the arbitrator to issue a subpoena or summons to the Competitor Firm, requiring it to appear before the arbitrator in Washington, D.C. and produce documents.

When the Competitor Firm did not appear and produce documents, the Firm attempted to enforce the subpoena in the Superior Court for the District of Columbia, but the D.C. court dismissed the proceeding for lack of personal jurisdiction. The Competitor Firm had its principal place of business in San Francisco and was apparently not amenable to personal jurisdiction in the District of Columbia.

The Court also ruled that, under Section 7 of the Federal Arbitration Act, the Competitor Firm was required to enforce the arbitral summons in a United States Federal District Court.

The Firm then persuaded the Arbitrator to issue revised subpoenas requiring two of the Competitor Firm’s partners, who resided in the Northern District of California, to appear before the Arbitrator in San Jose, California, which is within the Northern District of California.

When the Competitor Firm refused to comply with the revised arbitral summons, the Firm commenced an action in the United States District Court for the Northern District of California against the Competitor Firm and the two summonsed partners.

The district court denied the application on the ground that it had no authority to enforce the summonses because under Section 7 of the FAA (a) the only court that can enforce an arbitral summons is the court in which the arbitrator sits; (b) Washington D.C. was the designated arbitration situs; and (c) the arbitrator can “sit” in one location only, here Washington, D.C. Having denied the application on improper venue grounds, the district court declined to decide whether it had federal subject matter jurisdiction over the application.

Ninth Circuit Determines the District Court had Subject Matter Jurisdiction to Enforce the Arbitral Summons

The Court engaged in a textual analysis of Chapter Two to determine whether there was subject matter jurisdiction over the petition. Section 203, the Court explained, confers on federal courts original subject matter jurisdiction, irrespective of the amount in controversy, over “[a]n action or proceeding falling under the Convention.” 9 U.S.C. § 203; Jones Day, slip op. at 6.

The parties did not dispute, and the Court held, that the application to enforce the summons was an “action or proceeding.” There was also no question that the parties’ arbitration agreement “fall[s] under the Convention” within the meaning of 9 U.S.C. § 202; slip op. at 6.

The question was whether the “action or proceeding” to enforce arbitral summons falls under the Convention. The Competitor urged that “because Congress ‘conspicuously’ did not include [in Chapter Two] a provision regarding petitions to enforce an arbitral summons, such a petition is not an action or a proceeding encompassed under § 203.” Slip op. at 7. To the contrary, said the Competitor Firm, Chapter Two expressly authorizes only three actions or proceedings: (a) “orders to compel arbitration, 9 U.S.C. § 206[; (b)] appointments of arbitrators in accordance with an arbitration agreement, id.[; and (c)]. . . orders confirming arbitration awards, 9 U.S.C. § 207.” Slip op. at 7.

The Competitor attempted to support its argument by arguing that “‘fall under’ means to be ‘listed or classified as’ or ‘included in’. . . .” Slip op. at 7 (quoting Webster’s New World Dictionary and MacMillan Contemporary Dictionary).

The Court, however, rejected that argument, explaining that “dictionaries from around 1970” (Chapter Two’s enactment date) “embrace a broader definition of ‘fall under’. . . .” Slip op. at 7 (quoting Compact Edition of the Oxford English Dictionary Vol. I 955 (1971) (the “Compact Edition”) and Oxford Dictionary of Current Idiomatic English Vol. I 102 (1975) (“Oxford Idiomatic”). Those dictionaries defined “fall under” as “‘[t]o be brought under the operation or scope of, be subject to’[,]” slip op. at 7 (quoting Compact Edition), and to “‘be classified as, be placed within a certain category[.]’” Slip op. at 7 (quoting Oxford Idiomatic).

The Court’s Arbitral Summons Subject Matter Jurisdiction Conclusion is Further Supported by the Convention’s and Chapter Two’s Structure 

 The Court found further support in the Convention’s and Chapter Two’s structure suggesting that to “fall under” the Convention, specific actions or proceedings need not be explicitly stated in the Convention or Chapter Two.

The Court relied heavily on the U.S. Supreme Court’s 2020 decision in G.E. Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 (2020), in which “the [U.S. Supreme] Court determined that the domestic doctrine of equitable estoppel, which permits the enforcement of arbitration agreements against nonsignatories, does not conflict with the Convention, and so is applicable in international arbitrations.” Slip op. at 8 (citations omitted).

Outokumpu concerned Article II(3) of the Convention, which provides that “courts of a contracting state ‘shall. . . refer the parties to arbitration.” Convention, Art. II(3). The arbitration challenger in Outokumpu argued that Article II(3) authorized Courts to refer only signatory “parties” to the arbitration, and did not permit courts to use the equitable estoppel doctrine to refer nonsignatories to arbitration.

Outokumpu reasoned that Convention “Article II(3) does not preclude application of the domestic doctrine of equitable estoppel because it ‘contains no exclusionary language; it does not state that arbitration agreements shall be enforced only in the identified circumstances.’” Jones Day, slip op. at 8 (quoting Outokumpu, 140 S. Ct. at 1645)  (emphasis in original). The Supreme Court, explained the Ninth Circuit, “viewed a counter interpretation inappropriate because ‘the provisions of Article II contemplate the use of domestic doctrines to fills gaps in the Convention.’” Slip op. at 8 (quoting Outokumpu, 140 S. Ct. at 1645). The Supreme Court therefore “did not ‘read the nonexclusive language of [Article II(3) of the Convention] to set a ceiling that tacitly precludes the use of domestic law to enforce arbitration agreements.’” Slip op. at 8-9 (quoting Outokumpu, 140 S. Ct. at 1645; bracketed material in original).

The Ninth Circuit said the Supreme Court’s analysis applied equally to the question whether the Convention or Chapter Two of the FAA contemplated a petition to enforce an arbitral summons. Slip op. at 9. “There is[,]” said the Ninth Circuit, “no language in [Chapter Two or the Convention]. . . that limits the tools that may be utilized in international arbitrations in ways domestic arbitrations are not so limited.” Slip op. at 9.

The Ninth Circuit concluded that the Competitor Firm’s “argument that the only permissible judicial actions or proceedings are those explicitly listed in Chapter Two . . . runs afoul of Chapter Two and the Convention’s plain language, structure, and objectives.” Slip op. at 9. The Court said the only limitation in the Convention or Chapter Two is 9 U.S.C. § 208, “which as the Supreme Court noted in [Outokumpu]. . . , disallows only those processes provided for in domestic arbitrations under Chapter One that conflict with Chapter Two of the Convention.” Slip op. at 9 (citations omitted). But enforcement of an arbitral summons does not conflict with Convention or Chapter Two—such enforcement “only aids in the arbitration process.” Slip op. at 9. 

The Court’s Arbitral Summons Subject Matter Jurisdiction Conclusion is Further Supported by Section 205, Chapter Two’s Removal Jurisdiction Provision

The Court found further support for its subject matter jurisdiction conclusion in Section 205 of the FAA, which concerns the removal jurisdiction of federal court in Chapter Two cases.

Section 205 states that “[w]here the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States for the district and division embracing the place where the action or proceeding is pending.” 9 U.S.C. § 205. Significantly, a district court’s removal jurisdiction is triggered when the subject matter of the state court action or proceeding “relates toan “agreement or award falling under the Convention.” 9 U.S.C. § 205 (emphasis added). See Jones Day, slip op. at 9-10.

As the Ninth Circuit astutely observed, “[i]f ‘falling under’ in § 203 is not deemed at least as coextensive with ‘relates to’ in § 205, then that would mean Congress intended the district courts to have a narrower scope of original jurisdiction than removal jurisdiction in enforcing international arbitration awards.” Slip op. at 10 (quoting 9 U.S.C. § 205). But, said the Court, inferring such an intent would contravene “the very purpose of the Convention and the Chapter Two implementing procedures[,]” which “is to encourage arbitration and to authorize district courts to take actions necessary to ensure that the parties’ underlying controversy is successfully resolved through arbitration.” See slip op. at 10 (citation and quotation omitted).

As the Ninth Circuit explained, imputing such an intent would lead to strange results: “The irony of [the Competitor Firm’s]. . . contrary position is that, in this very case where it asserts the Northern District of California lacks original jurisdiction, the same court would have had removal jurisdiction under FAA § 205 had Jones  Day filed its petition to enforce the summons in San Francisco Superior Court.” Slip op. at 10.

The Competitor Firm could, said the Court, in this case have removed the case to federal court for purpose of “opposing enforcement” of the arbitrator’s summons. Slip op. at 10. The Ninth Circuit said “[t]his would be an absurd result, especially in light of congressional policy to enforce arbitration-not resist it-and the proceedings that further arbitration of international disputes.” Slip op. at 10 (citing 9 U.S.C. §§ 206, 207).

The Court then exhaustively discussed cases from the Fifth, Second, and Eleventh Circuit that supported its conclusion that “falling under” in Section 203 and “relate to” in Section 205 have “the same meaning for purposes of articulating the federal courts’ original jurisdiction in § 203.” Slip op. at 11 & 9-13; see Stemcor USA Inc. v. CIA Siderurgica do Para Cosipar, 927 F.3d 906 (5th Cir. 2019); Scandinavian Reinsurance Co. v. Saint Paul Fire & Marine Ins. Co., 668 F.3d 60 (2d Cir. 2012); Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte Int’l GmbH, 921 F.3d 1291, 1299 (11th Cir. 2019). These cases “expansive[ly]” construed Section 203, and the Court formulated from them a two-part test for determining if under the Convention and Chapter Two a federal court has original jurisdiction over an action or proceeding.

The Ninth Circuit’s Test for Whether a Federal District Court has Original Jurisdiction under Section 203 over an Action or Proceeding to Enforce an Arbitral Summons

Drawing from its interpretation of Section 203 and 205, and cases construing those provisions, the Court held “that a federal court has original jurisdiction over an action or proceeding if two requirements are met: (1) there is an underlying arbitration agreement or award that falls under the Convention, and (2) the action or proceeding relates to that arbitration agreement or award.” Slip op. at 13. The Court further explained that, “for purposes of the second requirement, we adopt the meaning of ‘relates to,’ which we previously defined for purposes of § 205, as whether the proceeding ‘could conceivably affect the outcome of the plaintiff’s case.” Slip op. at 13 (quoting Infuturia Global Ltd. v. Sequus Pharms., Inc., 631 F.3d 1133, 1138 (9th Cir. 2011) (emphasis in original; internal citation omitted)).

The Ninth Circuit Concludes that the District Court had Subject Matter Jurisdiction over the Arbitral Summons Enforcement Petition 

The Ninth Circuit had no difficulty finding that the district court had subject matter jurisdiction. First, the case unquestionably involved an arbitration agreement “falling under” the Convention because it involved an “arbitration agreement between [the Firm], an international law firm residing for jurisdictional purposes in Washington D.C., and its former non-U.S. citizen partner. . . .” Slip op. at 14; see 9 U.S.C. § 202 (defining agreements and awards falling under the Convention).

Second, the arbitral summons petition ” relates to the underlying arbitration agreement, as the arbitrator determined that evidence [to be] adduced. . . may be material to resolving the dispute.” Slip op. at 14.

As respects the “relates to” requirement, the Court went a step further and declared that the Section 7 arbitral summons enforcement proceedings were “[n]ot only. . . ‘related to’ an arbitration agreement falling under the Convention[]” but were “necessary ancillary proceedings that ensure the proper functioning of the underlying arbitration.” Slip op. 14. They present to the Court an “aspect of enforcing the parties’ agreement to arbitrate. . .”—“the enjoyment of a key procedural attribute of the arbitration the parties bargained for.” Slip op. at 15 (quotation and citation omitted). “Recognizing and enforcing arbitration agreements includes[,]” said the Ninth Circuit, “facilitating the arbitration process and providing arbitrators—in both domestic and international arbitrations—with access to the ancillary actions and proceedings necessary to arrive at an arbitration award.” Slip op. at 15-16. And that “includes arbitral subpoenas and their enforcement.” Slip op. at 15-16.

Venue was Proper in the Northern District of California

Section 204 of the FAA did not authorize venue in the Northern District of California and therefore the question was whether Section 204 was exclusive or permissive. If exclusive, venue would be improper. If permissive, venue would be proper if authorized by the General Venue Statute, 28 U.S.C. § 1391.

The Court held that Section 204 was permissive and venue was proper under the General Venue Statute. The district court held that venue did not lie in the Northern District of California because (a) [Chapter One,] Section 7 of the FAA “provides for enforcement of an arbitral summons in the ‘district in which such arbitrators, or a majority of them are sitting[,]” slip op. at 19 (quoting 9 U.S.C. § 7); (b) “Washington D.C. [, rather than a place within the Northern District of California,] is the ‘seat of the underlying arbitration,’” and, accordingly, (c) “[the district court]. . . lacked jurisdiction to enforce the summons.” Slip op. at 19.

But putting aside the parties’ dispute about whether Section 7 provides for venue, and if so where, FAA Section 204 provides for venue in actions and proceedings falling under the Convention. The district court did not consider that provision, including whether Section 204 is exclusive or permissive. See slip op. at 19 & n.4.

Convention Venue Statute: FAA Section 204

Section 204, entitled “Venue,” states that “[a]n action or proceeding over which the district courts have jurisdiction pursuant to section 203 of this title may be brought in any such court in which save for the arbitration agreement an action or proceeding with respect to the controversy between the parties could be brought, or in such court for the district and division which embraces the place designated in the agreement as the place of arbitration if such place is within the United States.” 9 U.S.C. § 204.

Although the Court did not discuss them, there are two reasons why Section 204 did not authorize venue over the proceeding. First, an “action or proceeding with respect to the controversy between the parties” to the arbitration agreement—i.e., between the Firm and the Former Partner—would not have been properly venued in the Northern District of California. The Court did not consider whether Section 204 might be interpreted to authorize venue based on the arbitral summons enforcement controversy between the Firm and the Competitor Firm.

Second, even though the Firm followed the usual procedure of having the arbitrator convene a hearing in a district in which the witness would be within the enforcing court’s subpoena power, Section 204 provides for venue based on where the arbitrators are sitting only in cases where the arbitrators are sitting “in the place designated in the agreement as the place of arbitration. . . .” 9 U.S.C. § 204. Washington, D.C. was the place designated in the parties’ agreement as the arbitration situs, and obviously Washington, D.C. is not in the Northern District of California.

Whether Section 204 is a Mandatory or Permissive Venue Statute

Because Section 204 did not provide for venue, the issue boiled down to whether Section 204 is a mandatory venue provision or a permissive one. The Court held that Section 204 was permissive, and that venue was therefore proper under the General Venue Statute, 28 U.S.C. § 1391, because the Competitor Firm’s principal place of business was within the Northern District of California. See slip op. at 20.

First, the Court discussed how Section 1391 was intended to ensure that, if there was personal jurisdiction over a defendant, venue would always be proper in some district. Absent evidence that Congress intended to restrict the broad scope of venue provided by Section 1391, another federal statute providing for venue will be construed to be permissive, not mandatory. Slip op. at 16-17.

Second, the Court found that “[n]othing in the text of § 204 indicates that Congress intended. . . [Section 204] to be exclusive or restrictively applied.” Slip op. 17. Section 204, the sole venue provision in FAA Chapter Two, is  silent about the General Venue Statute, and uses the permissive language “‘may be brought’ to describe the additional authorized venues.” Slip op. at 17 (quoting 9 U.S.C. § 204).

Third, the Court explained that Cortez Byrd Chips, Inc. v. Bill Harbert Constr. Co., 529 U.S. 193 (2000) “inform[ed]” its “reading of § 204.” Slip op. at 17. Cortez Byrd addressed whether the venue provisions of Sections 9, 10, and 11 of FAA Chapter One—which authorize venue for post-award litigation in the district where the award was made—were mandatory or permissive. Slip op. at 17-18.

Cortez Byrd held that the venue provisions of FAA Sections 9, 10, and 11 were permissive and that the venue for post-award litigation was proper as long as it was proper under those sections or under the General Venue Statute. Slip op. at 17-18 (citing Cortez Byrd, 529 U.S. at 199-200, 204). When the FAA was enacted in 1925 the General Venue Statute had a more limited scope, providing for venue only in the district where the defendant resided. Slip op. at 18.

The venue provisions in FAA Sections 9, 10, and 11 expanded the scope of the then-in-effect General Venue Statute, authorizing venue in the district where the award was made. The U.S. Supreme Court reasoned that “‘[t]he enactment of the special venue provisions in the FAA thus had an obviously liberalizing effect, undiminished by any suggestion, textual or otherwise, that Congress meant simultaneously to foreclose a suit where the defendant resided.’” Slip op. at 17-18 (quoting Cortez Byrd, 529 U.S. at 200).

Fourth, the Court explained that in Textile Unlimited, Inc. v. A. BMH & Co., Inc., 240 F.3d 781 (9th Cir. 2001) it had “expanded” the Cortez Byrd rationale by holding that “the FAA venue provision in 9 U.S.C. § 4, governing actions to compel arbitration, is likewise permissive rather than exclusive.” Slip op. at 18. “We understood Cortez Byrd[,]” said the Court, “to instruct us to ‘weave the various venue strands of the [Federal Arbitration] Act together into a seamless fabric which does not clash with other federal venue statutes.’” Slip op. at 18 (quoting Textile Unlimited, 240 F.3d at 784).

Fifth, the Court rejected the Competitor Firm’s argument that FAA Section 201 transformed Section 204 into a mandatory venue provision. Slip op. at 19-20. Section 201 states the “Convention. . .  shall be enforced in the United States courts in accordance with this chapter.” 9 U.S.C. § 201.

The Competitor Firm argued that the term “shall” in Section 201 rendered Section 204’s venue provision mandatory. The Competitor Firm relied on Johnson v. Payless Drug Stores Nw., Inc., 950 F.2d 586 (9th Cir. 1991), which held in a Title VII case that 42 U.S.C. § 2000e-5(f) was a mandatory venue provision that superseded the General Venue Statute. But the Court explained that “Title VII. . . expressly provided that the venue ‘provisions of section 2000e-5(f) . . . shall govern’ employment discrimination actions.” ” Slip op. at 19-20 (quoting Johnson, 950 F.2d at 587). Johnson therefore concluded that the “language [of 42 U.S.C. § 2000-e-16(d)] ‘is mandatory.’” Slip op. at 19-20 (quoting Johnson, 950 F.2d at 587).

The Ninth Circuit distinguished the explicit statutory command of 42 U.S.C. § 2000e-16(d) from Section 204’s language, which it deemed not to be mandatory. Slip op. at 20.

Because the Court had subject matter jurisdiction, the parties did not dispute that venue was proper under the General Venue Statute, and because there were no other challenges to the petitions, the Ninth Circuit reversed the district court and remanded “with instructions to enforce . . . [the Firm’s] petitions to compel [the Competitor Firm] and its partners to comply with the arbitral summonses.” Slip op. at 20-21.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, or the services that the Loree Law Firm offers, then please contact the author, Philip Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. has more than 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation. He is licensed to practice law in New York and before various federal district and federal appellate courts.

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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 »

CPR Interviews Downes, Faulkner & Loree About Recent SCOTUS Developments

December 8th, 2021 Amount in Controversy, Appellate Practice, Application to Compel Arbitration, Application to Stay Litigation, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Contract Defenses, CPR Speaks Blog of the CPR Institute, Diversity Jurisdiction, Equal Footing Principle, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Courts, Federal Question, International Arbitration, International Institute for Conflict Prevention and Resolution (CPR), International Judicial Assistance, Laches, Loree and Faulkner Interviews, Moses Cone Principle, Nuts & Bolts, Nuts & Bolts: Arbitration, Petition to Compel Arbitration, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Section 3 Stay of Litigation, Small Business B-2-B Arbitration, Stay of Litigation, Stay of Litigation Pending Arbitration, Subject Matter Jurisdiction, United States Supreme Court, Waiver of Arbitration Comments Off on CPR Interviews Downes, Faulkner & Loree About Recent SCOTUS Developments

CPR | SCOTUS | Sundance | Morgan | Interview | Downes | Faulkner | Loree

Steps and columns on the portico of the United States Supreme Court in Washington, DC.

Arbitration is an important topic this year at the U.S. Supreme Court (“SCOTUS”). On Monday, November 23, 2021 the International Institute of Conflict Protection and Resolution (“CPR”) conducted a video interview of Professor Angela Downes,  Assistant Director of Experiential Education and Professor of Practice Law at the University of North Texas-Dallas College of Law; Dallas-based arbitrator, attorney, and former judge Richard D. Faulkner, Esq.;  and Loree Law Firm principal Philip J. Loree Jr. about three recent SCOTUS arbitration-law developments. To watch and listen to the video-conference interview, CLICK HERE or HERE.

As reported in CPR’s blog, CPR Speaks, the three SCOTUS arbitration-law developments are:

  1. SCOTUS’s recent decision to Grant Certiorari in Morgan v. Sundance Inc.No. 21-328, which will address the question: “Does the arbitration specific requirement that the proponent of a contractual waiver defense prove prejudice violate this Court’s instruction that lower courts must ‘place arbitration agreements on an equal footing with other contracts?’” Morgan v. Sundance, Inc., No. 21-328, Petition for a Writ of Certiorari (the “Petition”), Question Presented (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)). (See SCOTUS Docket here for more information and copies of papers.) Prior to SCOTUS granting certiorari, we discussed the Morgan petition in detail here.
  2. Two SCOTUS petitions for certiorari that address the issue whether, for purposes of 28 U.S.C. 1782’s judicial-assistance provisions, an arbitration panel sited abroad is a “foreign or international tribunal” for purposes of the statute, which permits “any interested person” to seek U.S. judicial assistance to obtain evidence in the U.S. for use abroad. These petitions are AlixPartners LLP v. The Fund for Protection of Investors’ Rights in Foreign StatesNo. 21-518, and ZF Automotive US Inc. v. Luxshare Ltd.No. 21-401. Information about these cases is available at Bryanna Rainwater, “The Law on Evidence for Foreign Arbitrations Returns to the Supreme Court,” CPR Speaks(Oct. 22, 2021) (available here) and “CPR Asks Supreme Court to Consider Another Foreign Tribunal Evidence Case,” CPR Speaks (Nov. 12, 2021) (available here).
  3. Badgerow v. WaltersNo. 20-1143, a recently-argued SCOTUS case that presents the question “[w]hether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the FAA where the only basis for jurisdiction is that the underlying dispute involved a federal question.” See id., Question Presented Report, here. The case was argued before SCOTUS on November 2, 2021, and you can listen to the oral argument here. The oral argument is discussed in Russ Bleemer, “Supreme Court Hears Badgerow, and Leans to Allowing Federal Courts to Broadly Decide on Arbitration Awards and Challenges,” CPR Speaks (November 2, 2021) (available here).

Our good friend Russ Bleemer, Editor of CPR’s newsletter, Alternatives to the High Cost of Litigation, did a fantastic job conducting the interview.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

Application to Compel Arbitration | The Businessperson’s Federal Arbitration Act FAQ Guide III | The Nuts and Bolts of Pre-Award Federal Arbitration Act Practice under Sections 2, 3, and 4 (Part II)

April 22nd, 2020 Application to Compel Arbitration, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, FAA Chapter 1, FAA Chapter 2, FAA Chapter 3, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, Federal Arbitration Act Section 4, Federal Courts, Federal Question, Gateway Disputes, Gateway Questions, Look Through, New York Arbitration Law (CPLR Article 75), Nuts & Bolts, Nuts & Bolts: Arbitration, Small Business B-2-B Arbitration, State Arbitration Statutes, Subject Matter Jurisdiction 2 Comments »
compel arbitration

Today’s segment of the Businessperson’s Federal Arbitration ACT FAQ Guide focuses on the nuts and bolts of applying to compel arbitration under Section 4 of the Federal Arbitration Act.

The last installment addressed the following questions:

  1. What Gateway Disputes do Sections 2, 3, and 4, Address, and How do they Address them?  
  2. How does Section 3 Work in Practice?

After discussing Section 4 generally and dividing the statute into five parts, this segment addresses an FAQ relating to the first of those five parts: “Under Section 4, who May Petition what Court when and for what?” Future segments will address FAQs relating to the other four parts of Section 4.  

Application to Compel Arbitration: Section 4 and its Component Parts

Section 4, which sometimes used in tandem with Section 3, but which is available as an independent remedy when a party simply refuses to arbitrate without attempting to litigate the allegedly arbitrable dispute, authorizes courts to compel parties to arbitrate the disputes they’ve promised to submit to arbitration.

Section 4 consists of 386 words jammed into a single paragraph and is thus a little daunting at first blush. It is easier to digest and follow if we divide it into subparagraphs or subsections, which we do below. The subsection letters and captions in bold are not part of the statute, but are added for ease of reference and clarity:  

Continue Reading »

Businessperson’s Federal Arbitration Act FAQ Guide II: Three Threshold Questions about the Federal Arbitration Act

January 21st, 2020 Arbitration Practice and Procedure, Businessperson's FAQ Guide to the Federal Arbitration Act, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, FAA Chapter 1, FAA Chapter 2, FAA Chapter 3, FAA Preemption of State Law, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 1, Federal Arbitration Act Section 2, Federal Arbitration Act Section 4, Federal Courts, Federal Question, Inter-American Convention on International Commercial Arbitration, New York Arbitration Law (CPLR Article 75), New York Convention, Nuts & Bolts: Arbitration, Panama Convention, Practice and Procedure, Rights and Obligations of Nonsignatories, Small Business B-2-B Arbitration, State Arbitration Law, State Arbitration Statutes, State Courts, United States Court of Appeals for the Second Circuit, United States Supreme Court 1 Comment »
Federal Arbitration Act | Arbitrator

This second instalment of the Businessperson’s Federal Arbitration Act FAQ Guide addresses three threshold questions pertinent to the Federal Arbitration Act (the “FAA” or “Federal Arbitration Act”):

1. Does Chapter 1 of the FAA apply to my arbitration agreement?

2. Assuming it does, will a federal district court have subject matter jurisdiction over FAA litigation concerning the agreement or any awards made under it?

3. Does the Federal Arbitration Act apply in state court?

Does Chapter 1 of the FAA Apply to My Arbitration Agreement?

If your written arbitration agreement is contained in a maritime contract or a contract affecting commerce, or concerns a dispute arising out of such a contract, then it falls under Chapter 1 of the Federal Arbitration Act, unless it falls within Section 1’s exemption for contracts of employment of transportation workers engaged in interstate commerce. (See here.) It may also fall under Chapters 2 or 3 of the FAA, which implement the New York and Panama Conventions.

In our first instalment of this FAQ guide (here) we explained that Federal Arbitration Act Section 2, as interpreted by the U.S. Supreme Court, applies to written, pre-dispute arbitration agreements in: (a) “maritime contract[s]” (“Maritime Contracts”); or (b) “contract[s] evidencing a transaction involving commerce. . . .” (“Contracts Affecting Commerce”). It also applies to written post-dispute arbitration agreements “to settle by arbitration a controversy thereafter arising out of such [Maritime Contracts or Contracts Affecting Commerce], or the refusal to perform the whole or any part thereof. . . .” 9 U.S.C. § 2; see Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273-282 (1995)Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 55-58 (2003).

Section 2’s requirement that an arbitration agreement be “written” seems simple enough, and, for the most part, it is, at least in wholly domestic arbitrations to which Chapters 2 or 3 of the FAA do not concurrently apply. But there are some caveats.

First, just because a contract is required to be “written” doesn’t necessarily mean the arbitration agreement must be signed. The arbitration agreement between the parties need only be in writing, although the arbitration-agreement proponent would need to show that the parties assented to the writing.

For example, suppose A agrees to provide services for B and further agrees that any disputes arising out of or relating to their agreement will be submitted to arbitration. A and B proceed to memorialize their agreement in a writing, including the agreement to arbitrate, spelling out the essential terms of their agreement. While the writing is not signed or initialed, both parties agree that it reflects the essential terms of the parties’ bargain. The written memorialization of the agreement is sufficient to establish a “written” agreement, even though it is not signed by the party opposing its enforcement. 

Second, provided there is a written agreement between at least two parties,  persons who are not parties to that agreement (“nonparties”) may, in appropriate circumstances, enforce the agreement or be bound by it if general principles of state law permit that result. Such general principles include “‘assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel[.] . . .’” . Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009) (citations omitted). This Term the United States Supreme Court is to determine whether such principles apply in cases governed by Chapter 2.

As respects whether a “contract” “evidenc[es] a transaction involving commerce,” the U.S. Supreme Court has interpreted Section 2 broadly to mean the Federal Arbitration Act applies to arbitration agreements in contracts or transactions that “affect” commerce, that is, to any contract or transaction that Congress could regulate in the full exercise of its Commerce Clause powers. See Allied-Bruce, 513 U.S. at 281-82; U.S. Const. Art. I, § 8, Cl. 3 (giving Congress power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes”).

Whether a contract “affects” commerce depends on the facts concerning, among other things, the parties, the contract’s subject matter, and the actual or contemplated transactions constituting the contract’s performance or contemplated performance. See Alafabco, 539 U.S. at 56-57. A party does not have to demonstrate that the contract has a “specific” or “substantial” “effect upon interstate commerce if in the aggregate the economic activity in question would represent a general practice subject to federal control.” Id. (citations and quotations omitted).  The question is whether the “aggregate economic activity in question” “bear[s] on interstate commerce in a substantial way.” Id. at 57.

Assuming that Chapter 1 of the FAA Applies to my Arbitration Agreement, Will a Federal District Court have Subject Matter jurisdiction over FAA Litigation Concerning the Agreement or any Awards Made under it?

Not necessarily. Unless an arbitration agreement also falls under Chapters 2 or 3 of the FAA, then there must be an independent basis for federal subject matter jurisdiction.

Continue Reading »

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 Comments Off on Look Through: Second Circuit Holds that District Courts Must “Look Through” a Section 9 Petition to Confirm to Ascertain Subject Matter Jurisdiction
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 by Eisenberg 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?   

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