Earlier this week, the U.S. Supreme Court held that federal courts lack the authority to hear applications to confirm or vacate arbitral awards under Sections 9 and 10 of the Federal Arbitration Act (FAA) absent a jurisdictional basis independent of the underlying dispute. The opinion, Badgerow v Walters et al. resolved a split in lower federal courts in the application of the "look through" approach in assessing federal jurisdiction in Section 9 and 10 petitions.

The "look through" approach, articulated by the Court in 2009 in Vanden v. Discover Bank et al., found that Section 4 of the FAA governing petitions to compel arbitration expressly permits federal courts to look to the underlying dispute in assessing whether diversity or subject matter confers jurisdiction to entertain petitions to compel arbitration.1

Specifically, the Court noted that Section 4 of the FAA allows a party to compel arbitration in a "United States district court which, save for the [arbitration] agreement, would have jurisdiction." Under the Court's reasoning in Vanden, a federal court is directed by the FAA (and the U.S. Congress) to assume the absence of an arbitration agreement and look through to the facts of the underlying dispute in assessing whether it has the jurisdiction to hear a petition to compel arbitration.

Contrastingly, the Badgerow Court found that Sections 9 and 10 of the FAA contains none of the language present in Section 4 authorizing a federal court to look through to the facts of an underlying dispute in assessing its own jurisdiction in petitions to confirm or vacate under the FAA.  The Court reasoned that because federal courts may not exercise jurisdiction absent a statutory basis, and found no statutory basis in Sections 9 and 10 to "look through" to the underlying dispute, it held that absent an independent jurisdictional basis in an action to confirm or vacate an arbitral award, federal courts may not assume jurisdiction over such actions.

As a matter of practical application, parties and their lawyers will now have to assess whether an independent basis for federal court jurisdiction exists on the face of any petition (disregarding the facts of the underlying dispute) to confirm or vacate an arbitral award when considering whether to proceed in federal or state court.  

Footnote

1. See 28 U.S.C § 1332(a)(Diversity) and 28 U.S.C § 1331 (Federal Question)

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