The 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.
Motions or Applications to Compel Arbitration and Stay Litigation Where a Party Brings Suit on Arbitrable or Allegedly Arbitrable Claims: A “Jurisdictional Anchor” for other FAA Proceedings?
After thoughtfully discussing several examples of how the Badgerow decision makes it more difficult to obtain federal jurisdiction over FAA proceedings, Associate Justice Stephen G. Breyer’s Badgerow dissent posited that “it may be possible to eliminate some of the problems by using a federal-question lawsuit or Section 4 motion as a “jurisdictional anchor.” See Badgerow, 142 S. Ct. at 1326.
What did Justice Breyer mean by “jurisdictional anchor”? He explained that “if a party to an arbitration agreement files a lawsuit in federal court but then is ordered to resolve the claims in arbitration, the federal court may stay the suit and possibly retain jurisdiction over related FAA motions.” 142 S. Ct. at 1326 (citations omitted). “[S]ome courts[,]” Justice Breyer continued, “have held that if a federal court adjudicates a Section 4 motion to order arbitration the court retains jurisdiction over any subsequent, related FAA motions.” 142 S. Ct. at 1526 (citing Maine Community Health Options v. Albertsons Cos., 993 F.3d 720 (9th Cir. 2021) (Watford, J., concurring); McCormick v. America Online, Inc., 909 F.3d 677, 684 (4th Cir. 2018), abrogated on other grounds, Badgerow, 142 S. Ct. at 1314.
While Justice Breyer’s dissent saw the “jurisdictional anchor” approach as a way of narrowing some of the jurisdictional gaps exposed by Badgerow’s textual interpretation of the FAA, he believed that basing the assertion of “jurisdiction over these later motions on the presence or absence of a federal lawsuit or Section 4 motion” was “to turn jurisdiction on a totally artificial distinction—particularly when the very purpose of arbitration is to avoid litigation.” 142 S. Ct. at 1326 (Breyer, J., dissenting) (citations and quotation omitted).
Weighing the Anchor pre-Badgerow: Smiga v Dean Witter Reynolds
Under Second Circuit pre-Badgerow law, “a court which orders arbitration retains jurisdiction to determine any subsequent application involving the same agreement to arbitrate, including a motion to confirm the arbitration award.” Smiga v. Dean Witter Reynolds, Inc., 766 F.2d 698, 705 (2d Cir. 1985).
The Smiga rule has a somewhat curious origin—the Second Circuit derived it from Marchant v. Mead-Morrison Mfg. Co., 29 F.2d 40, 43 (2d Cir. 1928), a case that concerned the timing and propriety of a removal petition, which came up for review because the court below denied a motion to remand. Marchant did not concern continuing subject matter jurisdiction. “What transpired from the application to the [New York] state Supreme Court,” said the court, “and the entry of an order appointing an arbitrator, to and including the application for confirmation of the award made by the arbitrators, was a suit for the specific performance of the contract.” 29 F.2d at 43. The Court explained that “[i]t was all one arbitration proceeding, to settle the controversies which had arisen between the parties. They were not separable controversies.”
The Court therefore held that the district court erred by not granting the motion for remand. No federal suit to confirm the award could have been brought because “[t]he plea of a pending suit in the state court would have been available to the defendant.” 29 F.2d at 43. Accordingly, the district court should have remanded the matter to the state court. See 29 F.2d at 43.
Smiga arguably draws more direct support from the 1932 U.S. Supreme Court decision, Marine Transit Co. v. Dreyfus, 284 U.S. 263, 275-76 (1932), in which SCOTUS said “where the court has [the statutory] authority. . . to make an order for arbitration, [it]. . . also has authority to confirm the award or to set it aside for irregularity, fraud, ultra vires or other defect.” Id. Smiga, did not, however, cite Dreyfus.
Understanding When and Why Smiga’s “Jurisdictional Anchor” Rule Makes Sense Most: Embedded Versus Independent Proceedings
Whatever its origins, Smiga’s “jurisdictional anchor” rule makes sense from a practical and legal perspective in situations where the “anchor” is the Court’s subject matter jurisdiction over a pre-existing plenary action out of which the arbitration litigation arises, and where the parties have requested, and the court has granted, a Section 3 stay of litigation. To fully appreciate why, understand that FAA litigation can be subdivided into two different procedural contexts: (1) “embedded proceedings,” in which FAA motion practice arises out of a pre-existing federal court action that involves claims or issues, the merits of which are or are claimed to be arbitrable, Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 87 (2000); and (2) “independent proceedings,” summary FAA proceedings brought in federal court to compel or stay arbitration, appoint arbitrators, enforce arbitral summonses (i.e., arbitral subpoenas), or vacate, modify, correct, or confirm arbitration awards, in “in which a request to order arbitration [or other relief available under the FAA] is the sole issue before the court. ” Randolph, 531 U.S. at 87.
Badgerow involved an independent, summary proceeding to vacate an award. Like other standalone, summary FAA applications, it was commenced by petition, and did not arise out of a pre-existing, plenary action.
Embedded proceedings are different. They arise out of lawsuits over which the Court unquestionably has subject matter jurisdiction, whether based on federal question or diversity. The basis for that subject matter jurisdiction appears on the face of the complaint.
The FAA comes into play in embedded proceedings because plaintiff seeks to litigate claims that are or are claimed to be arbitrable. FAA Section 3—without requiring the Court to have any additional basis for subject matter jurisdiction then that alleged in the complaint—authorizes and, “on application of one of the parties[,]” requires, the Court to stay the litigation pending arbitration, “providing the applicant for the stay is not in default in proceeding with such arbitration.” 9 U.S.C. § 3. (See LLF Post here.)
The jurisdictional predicate for a Section 3 motion is the jurisdictional predicate for the lawsuit itself, be it diversity or federal question jurisdiction.
Whether or not in conjunction with a motion for a stay under Section 3, FAA Section 4 authorizes a Court to compel arbitration. (See, e.g., LLF Posts here, here, here, here, & here.)
Despite the language in Section 4 concerning “look through” subject matter jurisdiction, in an embedded proceeding a court would have subject matter jurisdiction even without that “look through” language because in an embedded proceeding, subject matter jurisdiction over the suit already exists. There is a pre-existing lawsuit pending before the court and the motion to compel is simply a motion made in a pending, plenary action over which the Court has subject matter jurisdiction. See 9 U.S.C. § 6.
In the context of an “embedded proceeding” the Smiga “jurisdictional anchor” rule works well and is fully consistent with the requirement that FAA proceedings must be supported by a subject matter jurisdiction basis independent from the FAA. If a lawsuit is filed; a party requests, and the Court grants, a stay of the proceedings; the Court compels arbitration under Section 4; and the parties later apply in the same action to confirm, vacate, or modify an award, or to request relief under FAA Sections 5 or 7, then entertaining such a request (or requests) for relief should be uncontroversial from a subject matter jurisdiction perspective. See, e.g., Smiga, 766 F.2d at 705; Stolt-Nielsen SA v. Celanese AG, 430 F.3d 567, 573 (2d Cir. 2005); Harry Hoffman Printing v. Graphic Com, 912 F.2d 608, 611-12 (2d Cir. 1990); see also Amgen, Inc. v. Kidney Ctr. of Delaware Cnty, 95 F.3d 562, 567 (7th Cir. 1996) (“Because the embedded proceeding is contained within litigation for which subject matter jurisdiction is established, the district court faces no questions about its jurisdiction to issue orders concerning the arbitration.”)
Importance of a Section 3 Stay of Litigation
The existence of a stay of litigation is critical to the existence of a dependable, jurisdictional anchor in an embedded proceeding. Without a stay of litigation, a grant or denial of a motion to compel arbitration could result in a final, appealable order within the meaning of 9 U.S.C. § 16(a)(3). See Randolph, 531 U.S. at 85-87. Putting aside technical jurisdiction-related arguments that either party might be made, it seems doubtful that a district court in such an embedded proceeding would—without evidence of an independent basis for subject matter jurisdiction—be particularly receptive to (a) entertaining a motion for FAA relief made in a now closed, finally-disposed of, case; and (b) using the now fully adjudicated (and presumably moot) controversy as the independent basis for subject matter jurisdiction in that case. But cf. Combs v. Same Day Delivery Inc., No. 1:22-cv-00520-MKV, slip op. at 6-8 (S.D.N.Y. Sep. 20, 2023) (finding subject matter jurisdiction over motion to vacate award where parties had stipulated to arbitrate claims, dismiss merits suit without prejudice, and proceed to arbitration; citing conflicting cases from other jurisdictions). In theory, a court might, without ordering a stay, retain jurisdiction over future FAA proceedings, but whether that approach would cure the post-Badgerow jurisdictional problem remains to be seen.
Limited Utility in Independent Proceedings
The jurisdictional anchor theory has limited utility, if any, in the independent proceeding context. First, by the time an application for other FAA relief would ordinarily be asserted in an independent proceeding, the case would likely be fully adjudicated by a final decision, or a pending appeal will have divested the district court of jurisdiction related to the arbitration. Section 3 of the FAA does not apply to independent proceedings and so ordinarily once the petition is decided, there is generally a final order with respect to arbitration within the meaning of Section 16(a)(3), and the summary proceeding is either over or will proceed to appeal. See 9 U.S.C. § 16(a)(3); Randolph, 531 U.S. at 85-87.
If the case is over, and no appeal is taken, then there is nothing left to act as a jurisdictional anchor, placing the person seeking FAA relief in essentially the same position as it would be in the absence of a Section 3 stay (see above). On the other hand, if the case is appealed, then the district court is divested of jurisdiction over the matters previously before it, Coinbase, Inc. v. Bielski, 143 S. Ct. 1915, 1919-20 (2023), which arguably may nullify whatever jurisdictional-anchor effect the petition to compel might otherwise have had. While in theory, and as we’ve said, a Court may be able to retain jurisdiction to hear subsequent applications, after Badgerow it is unclear whether such retention of jurisdiction would constitute a permissible “jurisdictional anchor.”
Second, it is questionable whether the Court’s subject matter jurisdiction over a standalone petition to compel arbitration can be considered an adequate, independent basis for subject matter jurisdiction over future FAA applications arising out of the arbitration compelled. Unlike an embedded proceeding, where subject matter jurisdiction is independent from the FAA, in an independent proceeding that is not the case.
Federal question jurisdiction for a petition to compel can be established based on “look through,” but Badgerow establishes that in independent proceedings commenced under other provisions of the FAA, jurisdiction cannot be established by looking through to the underlying controversy. A Second Circuit panel might find it anomalous to allow subsequent or simultaneous Section 5, 7, 9, 10, and 11, proceedings to take a jurisdictional “piggy-back ride” on an independent Section 4 proceeding, even though the jurisdictional basis for that Section 4 proceeding would not support independent proceedings brought under Sections 5, 7, 9, 10, or 11.
There might, in an appropriate factual setting, be arguments for the court to exercise ancillary (or collateral matter) jurisdiction or, under 28 U.S.C. § 1367, supplementary jurisdiction, including after the issuance of a final decision, but we’ll leave to a future post discussion of those possibilities. See, e.g., PTA–FLA, Inc. v. ZTE USA, Inc., 844 F.3d 1299, 1308-1313 (11th Cir. 2016).
Whether Smiga’s Jurisdictional Anchor Theory Survives Badgerow is an Open Question in the Second Circuit
The Badgerow majority opinion said nothing about whether the jurisdictional anchor principle might provide an independent subject-matter-jurisdiction basis in an embedded proceeding. That comes as no surprise because Badgerow arose in the context of an independent proceeding to vacate an arbitration award.
In footnote 6 of the majority opinion, the Court said it expressed no view on whether it would have jurisdiction over “a Section 5 petition to appoint an arbitrator that is made in tandem with a Section 4 petition over which a federal court has jurisdiction.” Badgerow, 142 S. Ct. at 1321 n.6 (quotation and citation omitted). Again, no surprise—“Section 5 [was] not at issue” in Badgerow. 142 S. Ct. at 1321 n.6.
Post-Badgerow the Second Circuit has said that the continuing viability, if any, of the Smiga jurisdictional anchor rule, is an open question. In Malkin v. Shasha, No. 21-2675, slip op. at 5-6 (2d Cir. Apr. 20, 2023) (summary order), the Court said “[t]he Shasha Respondents cannot rely on the ‘jurisdictional anchor’ approach posited by Justice Breyer’s dissent in Badgerow. . . , and which we have previously endorsed, see Smiga v. Dean Witter Reynolds, Inc., 766 F.2d 698, 705 (2d Cir. 1985), because even assuming that that approach remains viable and consistent with the majority opinion in Badgerow, it would have no application here, where the Shasha Respondents point to a different lawsuit than the one at issue in this appeal—one in which no order directing the parties to arbitrate was entered-as their ‘jurisdictional anchor.’” Malkin, slip op. at 5-6.
In his concurring opinion in Bissonnette v. LePage Bakeries Park St. LLC, 49 F.4th 655, 666-67 (2d Cir. 2022) (Jacobs, J., concurring), reh’g en banc den., Feb. 15, 2023, cert granted on other grounds, No. 23-51 (U.S. Sept. 29, 2023), Senior Circuit Judge Dennis Jacobs explained that “[it] is too early to say whether issuance of a stay pursuant to Section 3 may allow parties to seek enforcement, vacatur, or modification of an award. . . or seek other assistance under the FAA, . . . without need for an independent basis for federal jurisdiction—though Justice Breyer’s dissent in Badgerow suggests as much.” 49 F.4th at 666-667. Senior Judge Jacobs pointed out in the next sentence that the Second Circuit has said “‘practitioners who wish to preserve access to federal courts for later disputes over arbitrators, subpoenas, or final awards [may] attempt to “lock in” jurisdiction by filing a federal suit first, followed by motions to compel and a stay of proceedings.’” 49 F.4th 667 (quoting Doscher v. Sea Port Grp. Sec., LLC, 832 F.3d 372, 387 (2d Cir. 2016), abrogated on other grounds by Badgerow, 142 S. Ct. 1310 (2022)).
As further authority for a possible “jurisdictional anchor,” Judge Jacobs quoted the MacNeil et al arbitration law treatise, Federal Arbitration Law: Agreements, Awards, and Remedies under the Federal Arbitration Act, which “explain[ed] that when a district court stays proceedings pending arbitration, ‘[a]fter an award, parties desiring to confirm, vacate, or modify the award, can return to the federal court in which the stayed litigation is pending for determination of those issues,’ as ‘[t]he court had federal question subject matter jurisdiction and has never lost it.’” 49 F.4th at 667 (quoting Ian R. MacNeil et al., Federal Arbitration Law: Agreements, Awards, and Remedies under the Federal Arbitration Act § 9.2.3.1 (Supp. 1999)).
How Might the Second Circuit Rule on this Issue Post-Badgerow?
Obviously it is difficult to predict how a three-judge-panel of the Second Circuit might in the future rule on an issue like this one, especially when we do not know which Judges will be on that future panel, and what opinions concerning arbitration law or federal subject matter jurisdiction they have joined in or written. That said, we think that persuasive arguments can be made in support of the continuing viability of Smiga’s jurisdictional anchor principal in embedded proceedings where the arbitration proponent has requested a mandatory stay of arbitration. We also think that there is a reasonable chance that a Second Circuit three-judge panel would be persuaded by those arguments.
The chances are better in a scenario where the suit that forms the basis for federal subject matter jurisdiction was brought by the arbitration opponent. That would militate against a finding that the sole purpose of bringing the federal litigation was to provide a jurisdictional springboard for Federal Arbitration Act proceedings, which is designed to make an end run around the stricter subject matter jurisdiction rules prescribed by Badgerow for independent proceedings.
The use of a petition to compel arbitration in an independent proceeding to establish a jurisdictional anchor for simultaneous or subsequent applications to appoint arbitrators, enforce subpoenas, or confirm, vacate, or modify awards, would, for the reasons previously discussed, present to a Second Circuit panel a more challenging question.
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 J. Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.
Philip J. Loree Jr. (bio, here) 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 courts and circuit courts of appeals.
ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.
Photo Acknowledgment
The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.
Tags: 1331, 1332(a), 1367(c), Ancillary, Appoint, arbitral, Badgerow, Bielski, Coinbase, compel, Confirm, Dean Witter, Discretion, Diversity, Dreyfus, Embedded Proceeding, enforce, Federal Arbitration Act, federal question, Green Tree, Griggs, Independent Proceeding, Jurisdiction, Jurisdictional Anchor, look through, Marine Transit, Modify, of Litigation, Randolph, retain jurisdiction, Second Circuit, Section 10, Section 11, Section 16, Section 3, Section 4, Section 5, Section 7, Section 9, Smiga, stay, Subject Matter Jurisdiction, subpoena, Summons, Supplemental, Vacate, Vaden
