Supreme Court Ruling Limits Federal Jurisdiction Over Arbitration Awards

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The U.S. Supreme Court has issued a decision clarifying when federal courts have the jurisdiction to rule on motions to confirm, modify, or vacate arbitration awards under the Federal Arbitration Act (FAA). The court’s decision will significantly limit the circumstances in which parties to an arbitration award will be able to file these types of motions in federal rather than state courts. 

For background on the issue, it is important to know that before arbitration occurs, it is common for one party to attempt to avoid arbitration; often, a court will become involved to enforce an arbitration agreement. In this case, the Supreme Court has previously ruled that under Section 4 of the FAA, if the action is predicated on a question under federal law, a federal court will have jurisdiction. This is often known as the “look-through” approach to jurisdiction.

However, after an arbitration award is reached, it is similarly common for one or both parties to attempt to avoid the outcome of the arbitration or to confirm it. So in the case of Badgerow v. Walters, the court was asked to address whether or not the look-through approach applies to motions to modify, vacate, or confirm awards under Sections 9 and 10 as well, or must these motions be filed in state courts.

In the Supreme Court’s decision, they found that the answer is no; the look-through approach is limited to Section 4, and motions to modify, vacate, or confirm an award under Section 9 or 10 must generally be filed in state court.

According to the Court’s interpretation, the clear language of Section 4 requires the use of the look-through approach. However, this textual support does not exist in Sections 9 and 10. Instead, a federal court must solely rely on the motion itself to determine whether it possesses jurisdiction. Given that in the majority of cases, the question of whether to modify, vacate, or confirm will be based on questions regarding the interpretation or enforcement of a contract on its face rather than questions of federal law, these motions will generally fall under state law rather than federal. 

This means that with the exception of cases involving diversity jurisdiction in which the parties are citizens of different states and the value of the issue in question is greater than $75,000, federal courts will rarely have jurisdiction over these motions. 

Employer Takeaways

For employers, what this means is that they will generally be forced to file motions to modify, vacate, or confirm arbitration awards in state courts. Learn More

This is not likely to be welcomed by most employers, given that state courts have generally proven less favorable to arbitration. This means that the outcome of the arbitration is likely to prove at least somewhat less reliable, but most of the benefits of arbitration will generally remain.

Knowledge is power, and learning is the first step. If you’re interested in more information on fair chance hiring, check out our resource, Adverse Action Notice Protocols in Compliance With FCRA

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