One might expect that the plain text of a statutory provision would be in line with the overall goal of the law. But when that statute is the Federal Arbitration Act (FAA), it’s not necessarily the case. And many people even differ on what the original intent of the FAA was in 1925. In our June 16, 2021 blog article, we outlined the issues and challenges in Badgerow v. Walters, No. 20-1143, which was argued before the Supreme Court on Nov. 2, 2021. In Badgerow, the Court must decide whether federal courts have subject matter jurisdiction to confirm or vacate an award under Sections 9 and 10 of the FAA, as opposed to Section 4, which governs petitions to compel arbitration. See 9 U.S.C. §§ 9 and 10 compared to § 4.

As we stated in our June 16 blog, if the Court’s opinion is driven solely by the language of the act’s Section 4, it could have a far different result then the presumed purpose of the FAA – to facilitate enforcement of arbitration agreements.

The Supreme Court’s prior decisions laid the groundwork for many of the interpretive concerns raised during the oral argument. For example, “[T]he Act is ‘something of an anomaly’ in the realm of federal legislation: It ‘bestow[s] no federal jurisdiction but rather require[es] [for access to a federal forum] an independent jurisdictional basis over the parties’ dispute.’” Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), quoting Moses H. Cove Memorial Hospital v. Mercury Const. Corp., 460 U.S. 1, 25, n. 32 (1983).

And in Vaden v. Discover Bank, 566 U.S. 49, 66 (2009), Justice Ginsburg found the unique language of Section 4 providing that a petition to compel arbitration can be filed in “any United States district which, save for [the arbitration] agreement, which would have jurisdiction under title 28,” was persuasive authority. She construed the language to mean that “the district court should assume the absence of the arbitration agreement and determine whether it would have jurisdiction … without it.” See 556 U.S. at 66. But Sections 9 and 10 do not have the “look through” language. Regardless, the Fifth Circuit concluded that the difference in language didn’t end the inquiry, but instead, the FAA was to be treated as “a single comprehensive statutory scheme.” Quezada v. Bethtal OG & C Servs., Inc., 946 F.3d 837, 842 (5th Cir. 2020). Could the forthcoming Badgerow opinion upend the enforcement of arbitration agreements in federal courts, or would it simply be consistent with the FAA’s unusual history?

The justices had many questions but received few totally satisfying answers.

Counsel for petitioner Denise Badgerow took the position that whether the look-through approach applies to applications to enforce or vacate an arbitration award under Sections 9 and 10 “is controlled by the FAA’s plain text, and competing statutory arguments are not close.” The exception “is found solely in Section 4” and “applies exclusively to petitioners under that single section.” (Transcript at 3.)

That position caused Justice Kagan to ask,

So, on your theory, when would Sections 9 and 10 give federal courts jurisdiction? Is it only in diversity cases?

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[I]sn’t that a little bit backwards, that it ends up that you put diversity cases in the federal court system and you take all the cases that involve federal questions and say … the federal courts don’t have anything to do with those cases? (Transcript at 14.)

Counsel for the petitioner attempted to bolster his language-driven argument by pointing out that “state courts, in fact, play a prominent role in enforcing the Act, and in large part, the Act is left to enforcement in state courts.” (Transcript at 16.)

In response, counsel for the respondents argued that “petitioner’s approach would decapitate the FAA.” While “Petitioner says state courts are equally good. But, unlike FAA’s standards for confirmation and vacatur, state courts often revisit the merits under their own state arbitration acts.” (Transcript at 33-34.) Indeed, the brief for the respondents cited authority demonstrating that different states permit an award to be vacated “based on a court’s reassessment of the legal and factual issues decided by the arbitrators.” (Brief at 46.)

During the respondent’s argument, Chief Justice Roberts made the telling comment:

[I]t is the [FAA] … an odd creature in that … it doesn’t by itself give rise to jurisdiction. And it seems to me that one reason … why that is, is because they recognize that people arbitrate all sorts of disputes, and they don’t want all the 380,000 … cases being brought in federal court, just like you don’t want [the enforcement of settlement agreements] being brought in federal court just because it arose out of a federal case. (Transcript at 46.)

The petitioner’s rejoinder during the argument invoked the Court’s prior rulings and belittled attempts to harmonize Sections 4, 9 and 10.

My friend said our reading will decapitate the [FAA]. I think that’s odd because our reading is in fact, the reading that was the overwhelming majority view … for a quarter of a century. The only courts that have started questioning whether our reading is correct is in light of the Court’s opinion in Vaden … not because of a textual reason … they said, as a policy matter … if the look-through approach applies at the start it should probably apply at the finish. (Transcript at 57.)

But the petitioner maintained that this was not how statutes were to be construed and it was “a senseless reading of the statute itself.” (Id.)

So, coming full circle, the gulf remained between the petitioner’s position that the language of Section 4 drove the result, while the respondents relied, in part, on an argument that the narrow statutory construction advocated by Badgerow would lead to the questionable result of only diversity cases presenting federal courts with jurisdiction under Sections 9 and 10 but not those raising federal questions.

Bottom Line

Oral argument in Badgerow revealed the lack of any easy answers. If a pure textual approach is followed, some federal arbitral awards could be left in state court, where federal standards are not necessarily followed.