Supreme Court Limits Federal Courts' Say Over Arbitration Awards
By Corey Bartkus
On Thursday, the United States Supreme Court held that federal courts do not have the authority to search an arbitration dispute for a federal question that would establish jurisdiction to confirm or deny an arbitral award.[1] The Supreme Court ruled 8-1 that the text of the Federal Arbitration Act does not entitle federal courts to “look through” the underlying dispute in order to establish federal question jurisdiction to hear requests to confirm or deny awards.[2]
In so ruling, the Supreme Court reversed a Fifth Circuit order from September 2020, which found that a U.S. District Court in Louisiana correctly asserted jurisdiction over a bid by a financial advisor to upend a Financial Industry Regulatory Authority arbitration upholding her firing.[3] The Court held that the U.S. District Court incorrectly applied the “look through” approach as a way to confirm or deny arbitral awards.[4]
The Supreme Court had previously blessed the “look through” approach for petitions to compel arbitration under Section 4 of the Federal Arbitration Act in its 2009 decision in the Vaden v. Discover Bank case.[5] The “look through” approach refers specifically to the practice of federal courts “looking through” a petition to compel arbitration to the “underlying substantive controversy” to see whether the petition falls within a court’s jurisdiction.[6] If a court determines after looking through the underlying controversy that the petition falls within its jurisdiction—for example, by presenting a federal question—then a court may properly rule on it.[7]
The Supreme Court had allowed the “look through” approach for petitions to compel arbitration because specific language in Section 4 of the Federal Arbitration Act instructs federal courts to do so.[8] However, the Supreme Court held that Sections 9 and 10 of the Act—dealing with applications to confirm or vacate arbitral awards—“contain none of the statutory language on which Vaden relied,” and thus “under ordinary principals of statutory construction, the look-through method should not apply.”[9][10]
The Takeaway
The Supreme Court’s new ruling means that applications to confirm or vacate arbitral awards must reveal a jurisdictional basis on their face in order for federal courts to rule on them. Contact the attorneys at Campbell Litigation to help you navigate this new ruling.
[1] https://www.supremecourt.gov/opinions/21pdf/20-1143_m6hn.pdf
[2] Id.
[3] https://law.justia.com/cases/federal/appellate-courts/ca5/19-30687/19-30687-2020-09-11.html
[4] https://www.supremecourt.gov/opinions/21pdf/20-1143_m6hn.pdf
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] The sole dissent in the case came from Justice Stephen Breyer, who broke with the other Justices because he believed the Supreme Court should have looked beyond the statute’s text to its purposes and “the likely consequences of our interpretation.” “Otherwise, we risk adopting an interpretation that, even if consistent with text, creates unnecessary complexity and confusion.”