Ruling on an important Federal Arbitration Act (FAA) procedural issue that has divided the circuit courts, the U.S. Supreme Court has decided that the “look-through” approach often used in determining whether federal jurisdiction exists to decide motions to compel arbitration filed under Section 4 of the FAA does not apply to motions to confirm or vacate arbitration awards filed under Sections 9 and 10 of that statute.  The Court’s 8-1 opinion in Badgerow v. Walters, authored by Justice Kagan, rested primarily on the principle of statutory construction that when Congress includes particular language in one section of a statute but omits it in another section of the same statute, that choice should generally be treated as deliberate.

The FAA does not itself create a basis for federal jurisdiction.  Rather, a federal court must independently have either diversity or federal question jurisdiction before it can act under the FAA.  Earlier, in Vaden v. Discover Bank, the Supreme Court held that federal courts may “look through” a motion to compel arbitration brought under Section 4 of the FAA to determine whether the underlying substantive dispute between the parties created a basis for federal jurisdiction.  The Court based that decision on the text of Section 4, which provides that a “United States district court which, save for [the arbitration] agreement, would have jurisdiction” over “the controversy between the parties” can entertain a motion to compel arbitration.  Because Sections 9 and 10 of the FAA do not contain such language, the Badgerow Court concluded that federal courts cannot employ the “look-through” approach in determining whether jurisdiction exists to adjudicate a motion to confirm or vacate an arbitration award.

For practitioners, the Court’s ruling means that even if a federal court employed the “look-through” approach in granting a motion to compel arbitration, it will not be able to decide a subsequent motion to confirm or vacate the arbitration award unless there is an independent basis for exercising federal jurisdiction over the motion.  If federal jurisdiction does not exist, a state court will need to decide the motion to confirm or vacate the award.  In his dissent, Justice Breyer argued that such a result will cause “unnecessary complexity and confusion.”  He queried: “Why prohibit a federal court from considering the results of the very arbitration it has ordered and is likely familiar with?  Why force the parties to obtain relief … from a state court unfamiliar with the matter?”  Nevertheless, according to the Badgerow majority: “Even the most formidable policy arguments cannot overcome a clear statutory directive …. However the pros and cons shake out, Congress has made its call.”

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