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Posts Tagged ‘Subject Matter Jurisdiction’

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 »
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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Up Narrow Arbitration Clause Creek without a Papalote?—Narrow Arbitration Clauses and the Difference between Interpretation and Performance

March 26th, 2019 Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Federal Arbitration Act Section 4, Federal Policy in Favor of Arbitration, Practice and Procedure, Presumption of Arbitrability, United States Court of Appeals for the Fifth Circuit 1 Comment »
Narrow Arbitration Clauses: Papalote
Hang Glider or Papalote

I am told “papalote” is a Spanish word meaning “kite” or “hang glider.” It also appears in the name of a party to a recent decision of the U.S. Court of Appeals for the Fifth Circuit concerning narrow arbitration clauses, Papalote Creek II, L.L.C. v. Lower Colo. River Auth., No. 17-50852, slip op. (5th Cir. Mar. 15, 2019) (“Papalote II”). The party was Papalote Creek II, L.L.C. (“Papalote”). It won the appeal.

What was the appeal about? Narrow arbitration clauses, and in particular whether a dispute about maximum, aggregate liability under a wind-energy purchase and sale contract was a dispute “with respect to performance” within the meaning of the parties’ narrow arbitration clause.

The appeal was not the first, but the second, and the procedural history was tangled, both in terms of what transpired in the disputed arbitration and in the district court. The first appeal, Papalote I, resulted in a remand because at the time the district court compelled arbitration, the district court lacked subject matter jurisdiction. The issue on which the arbitration proponent sought arbitration was not ripe, even though it became ripe during the time Papalote I was pending. See Lower Colo. River Auth. v. Papalote Creek II, L.L.C., 858 F.3d 916 (5th Cir. 2017) (“Papalote I”).

By the time Papalote I was decided, the arbitration panel had ruled against Papalote, the arbitration opponent. But Papalote I obligated the district court to vacate the arbitration award and to reconsider the issue of whether arbitration should be compelled under the narrow arbitration clause.

On remand the district court adhered to its previous decision that the dispute fell within the scope of the narrow arbitration clause, which resulted in another order to compel arbitration and the second appeal, Papalote II.

On the second appeal the Fifth Circuit reversed the district court’s decision on arbitrability, ruling that the dispute was not about “performance,” but about “interpretation.” Going forward that means that the parties will either have to settle their dispute or litigate it in court, even though they’ve both no doubt already spent not only a good deal of time, but money, litigating about arbitration, and arbitrating a dispute they did not mutually consent to arbitrate. (Perhaps for Papalote that’s not necessarily a bad outcome, but it’s just speculation on our part.)

Bottom line: Irrespective of whether the parties considered the potential consequences associated with their narrow arbitration clause, at least one of them (and perhaps even both) may, at least to some extent, now feel like they’re up that proverbial creek without a paddle—or even a papalote….

This post takes a closer look at Papalote II, focusing exclusively on the issue whether the dispute fell within or without the scope of the parties’ narrow arbitration clause.

Narrow Arbitration Clauses: Papalote II Background

Narrow Arbitration Clauses

In Papalote II the Fifth Circuit held that a narrow arbitration clause that covered disputes about the “performance” of a contract did not cover a dispute concerning the meaning of an aggregate liability provision in a wind-energy contract. That dispute, said the Court, concerned the interpretation of the contract, not its performance, and therefore the arbitration opponent was not required to submit it to arbitration.

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Arbitration Law FAQ: Chapter 1 of the Federal Arbitration Act

February 27th, 2019 Applicability of Federal Arbitration Act, Arbitration Agreements, Arbitration and Mediation FAQs, Federal Arbitration Act Section 1, Federal Arbitration Act Section 2, Nuts & Bolts: Arbitration Comments Off on Arbitration Law FAQ: Chapter 1 of the Federal Arbitration Act
Chapter 1 Federal Arbitration Act 1

This Arbitration Law FAQ guide briefly explains what the Federal Arbitration Act is, and then answers some frequently asked questions about Chapter 1 of the Act. It is not legal advice, nor a substitute for legal advice, and should not be relied upon as such.

If you desire or require legal advice or representation in a matter concerning commercial, labor, or any other arbitration-law matter, then do not hesitate to contact a skilled and experienced arbitration-law attorney. This guide provides some general information that may be able to assist you in your search for legal representation, or in simply obtaining a better understanding of some arbitration-law basics.

Arbitration Law FAQS: What is the Federal Arbitration Act?

Wholly Groundless Exception 3 - Chapter 1 Federal Arbitration Act 2

The Federal Arbitration Act is a federal statute enacted in 1925 that makes certain (but not all) arbitration agreements “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. It was originally, and for many years, known as the “United States Arbitration Act,” but for simplicity’s sake we’ll refer to it as the “Federal Arbitration Act,” the “FAA,” or the “Act.”

It was passed at a time when courts were, for the most part, unwilling to enforce agreements to arbitrate because they thought that such agreements “divested” their “jurisdiction” over disputes that would ordinarily be decided by courts. In other words, many courts thought it wrong for courts to lend their assistance to the enforcement of contracts under which parties would agree to submit their disputes to private decision makers.

Even by the time the FAA was passed, arbitration was not new. For example, it can be traced back at least as far as medieval times, when various guilds used it as a way of resolving disputes according to what became known as the “law merchant,” an informal body of rules and principles that merchants believed should be applied to their disputes, but which common law courts did not, at the time, apply. The first arbitration agreement was reportedly included in a reinsurance contract in the late 18th century, and George Washington apparently included an arbitration clause in his will.  

The FAA, as originally enacted, consisted of 14 provisions. In 1970 Congress designated those first 14 provisions as “Chapter 1” of the FAA, and added a “Chapter 2,” which consists of various provisions implementing and enabling the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (a/k/a the “New York Convention”). In 1988 Congress added two additional provisions to Chapter 1 of the FAA, Sections 15 and 16. In 1990 Congress added to the FAA a Chapter 3, which consists of provisions implementing and enabling the Inter-American Convention on International Commercial Arbitration (a/k/a the “Panama Convention”).

The remainder of this FAQ guide focuses on Chapter 1 of the FAA.

Arbitration Law FAQs: What does Chapter 1 of the FAA do apart from declaring certain arbitration agreements to be valid, irrevocable, and enforceable?

Section 2 of the Federal Arbitration Act is sometimes referred to as the Act’s “enforcement command.” It is the provision that declares certain (but not all) arbitration agreements to be “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.

Under Section 2, “arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.” Schein v. Archer & White Sales, Inc., 586 U.S. ____, slip op. at *4 (Jan. 8, 2019) (citation and quotation omitted). Section 2 also “requires courts to place arbitration agreements on an equal footing with all other contracts.” Kindred Nursing Centers Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1424 (2017) (quotations and  citations omitted).    


Section 1 of the FAA provides some definitions and exempts from the FAA a fairly limited universe of agreements that would otherwise fall within the scope of the Act. See 9 U.S.C. § 1. The other provisions of Chapter 1 implement the enforcement command by lending judicial support to the enforcement of arbitration agreements and awards. These are briefly summarized below:

Section 3 – Requires courts to stay litigation in favor of arbitration. 9 U.S.C. § 3.

Section 4 – Provides for courts to compel arbitration.

Section 5 – Provides for courts to appoint arbitrators when there has been a default in the arbitrator selection process.

Section 6 – Provides that motion practice rules apply to applications made under the FAA, thereby expediting the judicial disposition of such applications. 

Section 7 – Provides for the judicial enforcement of certain arbitration subpoenas.

Section 8 – Provides that where the basis for federal subject matter jurisdiction is admiralty, then “the party claiming to be aggrieved may begin his proceeding [under the FAA]…by libel and seizure of the vessel or other property….” 9 U.S.C. § 8.

Section 9 – Provides for courts to confirm arbitration awards, that is, enter judgment upon them.

Section 10 – Authorizes courts to vacate arbitration awards in certain limited circumstances.

Section 11 – Authorizes courts to modify or correct arbitration awards in certain limited circumstances.

Section 12 – Provides rules concerning the service of a motion to vacate, modify, or correct an award, including a three-month time limit.

Section 13 – Specifies papers that must be filed with the clerk on motions to confirm, vacate, modify, or correct awards and provides that judgment entered on orders on such motions has the same force and effect of any other judgment entered by the court.

Section 14 – Specifies that agreements made as of the FAA’s 1925 effective date are subject to the FAA.

Section 15 – Provides that “Enforcement of arbitral agreements, confirmation of arbitral awards, and execution upon judgments based on orders confirming such awards shall not be refused on the basis of the Act of State doctrine.”

Section 16 – Specifies when appeals may be taken from orders made under the FAA, and authorizing appeals from final decisions with respect to arbitration.

How can I tell if an arbitration agreement or award is governed by Chapter 1 of the Federal Arbitration Act?


Whether an arbitration agreement falls under the FAA depends on whether: (a) the arbitration agreement is in writing; and (b) is part of a “maritime transaction” or of a contract that affects interstate commerce.

The starting point is, as before, Federal Arbitration Act Section 2’s enforcement command, which provides, with bracketed text added:

[A] A written provision [B] in any maritime transaction or [C] a contract evidencing a transaction involving commerce [D] to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or [E] an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, [F] shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2.

Section 2’s requirement that an arbitration agreement be “written” (Part [A]) seems simple enough, and, for the most part, it is. But remember, just because a contract is required to be “written” doesn’t mean the arbitration agreement must be signed.

As respects whether a “contract” “evidenc[es] a transaction involving commerce” (Part [C]), 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 Terminix Cos. v. Dobson, 513 U.S. 265, 268, 281-82 (1995); 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 Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56-57 (2003). 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.

Parts [A] through [D]] of Section 2 make the Federal Arbitration Act applicable to written, pre-dispute arbitration “provision[s]” in “maritime transactions” or in “contract[s] evidencing transactions involving commerce….” These arbitration provisions are “pre-dispute” arbitration agreements because they are defined by Part [D] as “provision[s]” “to settle a controversy thereafter arising out of such contract or transaction, or [out of] the refusal to perform the whole or any part” of such contract or transaction….”  9 U.S.C. § 2 (emphasis added). In other words, agreements to submit future disputes to arbitration.

Parts [A] through [E] of Section 2 make the FAA applicable also to written, post-dispute arbitration agreements, that is, agreements to arbitrate existing disputes arising out of “maritime transactions” or “contract[s] evidencing transactions involving commerce….”  To that end Part [E] makes Section  2 applicable to “agreement[s] in writing to submit to arbitration an existing controversy arising out of”  “maritime transaction,” (Part [B]) “contract evidencing a transaction involving commerce” (Part [C]), or “refusal to perform the whole or any part” of such a contract or transaction. (Part[D]). 9 U.S.C. § 2 (emphasis added).

Arbitration Law FAQs: Are there any Arbitration Agreements Falling Under FAA Section 2 that are Exempt from Chapter 1 of the FAA?

Contracts of Employment 1 Federal Arbitration Act Section 1
Federal Arbitration Act Section 1

Yes. Section 1 of the FAA provides that “nothing [in the FAA] shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” According to the United States Supreme Court, this exemption applies “only” to “contracts of employment of transportation workers.” Circuit City Stores, Inc. v. Adams, 532 U. S. 105, 119 (2001). But those “contracts of employment” include not only contracts establishing an employer-employee relationship, but also contracts establishing independent contractor relationships. New Prime Inc. v. Oliveira, 586 U.S. ___, slip 6, 7, & 15 (Jan. 15, 2019).

Arbitration Law FAQs: If the Chapter 1 of the Federal Arbitration Act applies, does that mean all FAA litigation falling under Chapter 1 can be brought in federal court?

No. Chapter 1 of the Federal Arbitration Act does not confer an independent basis for federal court subject matter jurisdiction over applications for the relief authorized by Chapter 1. Put differently making an application under the FAA does not raise a “federal question” over which a federal court could, under 28 U.S.C. § 1331, base subject matter jurisdiction.

But that doesn’t mean that federal courts cannot have subject matter jurisdiction over Chapter 1 Federal Arbitration Act proceedings. If the requirements for diversity jurisdiction are met, including complete diversity of citizenship between the parties, and an amount in controversy that exceeds $75,000.00, excluding interest and costs, then a federal court will have subject matter jurisdiction under the diversity jurisdiction. See 28 U.S.C. § 1332. 

Does Chapter 1 of the Federal Arbitration Act apply in state court?


Yes. State courts are required to enforce arbitration agreements under Section 2 of the FAA. Basically, they must enforce arbitration agreements falling under the FAA, putting them on the same footing as other contracts. See Kindred Nursing Centers, 137 S. Ct. at 1424.     

Most or all states have their own arbitration statutes. New York’s arbitration statute, for example, is codified in Article 75 of the New York Civil Practice Law and Rules (“CPLR”). Depending on applicable state law, state courts may carry out Section 2’s enforcement command using their own arbitration statute’s provisions, even if they are different than those provided by Chapter 1 of the FAA. But if enforcement of the FAA through the provisions of the state’s arbitration code would undermine the purposes and objectives of the FAA, then the offending state arbitration code provisions would be preempted (i.e., superseded) by the FAA to the extent that they conflict with the FAA.

If you are interested in learning more about the Federal Arbitration Act, see here, here, and here.

Photo Acknowledgments:

The photos featured in this post were licensed from Yay Images and are subject to copyright protection under applicable law. L&L added text to the first three photos from the top.

Travelers Indemnity Co. v. Bailey: United States Supreme Court Holds 1986 John-Manville Bankruptcy Court Injunction Bars Direct Asbestos-Related Claims Against The Travelers

July 8th, 2009 Asbestos-Related Claims, United States Supreme Court Comments Off on Travelers Indemnity Co. v. Bailey: United States Supreme Court Holds 1986 John-Manville Bankruptcy Court Injunction Bars Direct Asbestos-Related Claims Against The Travelers


On June 18, 2009 the United States Supreme Court ruled 7-2 that an injunction (the “1986 Injunction”)  incorporated into the 1986 Johns-Manville Corp. (“Manville”) bankruptcy reorganization order (the “1986 Order”) barred claims made directly against Manville’s insurer, the Travelers Indemnity Company (“Travelers”), even though those claims were derivative of Travelers’ alleged wrongdoing, as opposed to that of Manville.  See Travelers Indemnity Co. v. Bailey, ___ U.S. ___ (June 18, 2009) (Souter, J.) (copy available here).  The Court held that:  (a) the claims fell within the terms of the 1986 Injunction; and (b) the claimants were barred by res judicata from collaterally attacking the Bankruptcy Court’s subject-matter jurisdiction to enter the 1986 Order containing the 1986 Injunction.  Slip op. at 1-2 & 9-10. 

The decision should bring some degree of finality to Manville’s insurers’ exposure to asbestos-related claims, which has been a moving target for quite some time.  The effect, if any, the decision may have on reinsurance claims and disputes is not yet clear.  That said, now that Travelers’ liabilities presumably can more easily be quantified, cedents, retrocedents, reinsurers and retrocessionaires whose claims and liabilities are derived from Travelers’ and other Manville insurers’ liabilities might be in a better position to attempt to settle or commute those claims and liabilities.  And, in a more general sense, the decision provides some guidance on how bankruptcy-court channeling-injunctions should be interpreted, and the extent to which, if at all, such injunctions may be collaterally attacked for lack of subject-matter jurisdiction.  Continue Reading »