Please join our legal experts to discuss the case, the legal issues involved, and the implications going forward.
- Bradley Hubbard, Senior Associate and Member, Appellate and Constitutional Law Practice Group, Gibson, Dunn & Crutcher
- Elizabeth Kiernan, Associate and Member, Appellate and Constitutional Law Practice Group, Gibson, Dunn & Crutcher
As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.
Dean Reuter: Welcome to Teleforum, a podcast of The Federalist Society's practice groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group Teleforum calls, become a Federalist Society member today at fedsoc.org.
Jenny Mahoney: Welcome to The Federalist Society’s webinar call. In today’s courthouse steps decisions webinar, we discuss Badgerow v. Walters. My name is Jenny Mahoney, and I am Associate Director of Practice Groups at The Federalist Society. As always, please note that all expressions of opinion are those of the experts on today’s call.
Today we are fortunate to have with us Bradley Hubbard and Elizabeth Kiernan. Brad Hubbard is a Senior Associate in the Dallas office of Gibson, Dunn and Crutcher. He was a member of the firm’s Appellate and Constitutional Law Practice Group. He was recognized by the Best Lawyers in America as one to watch in appellate practice.
Liz Kiernan is also an Associate in the Dallas office of Gibson, Dunn and Crutcher. She currently practices with firms Appellate and Constitutional Law Practice Group as well and has represented clients in trial and appellate proceedings in state and federal courts.
Throughout the panel, if you have any questions, please submit them using the Q&A feature at the bottom of your screen so that our speakers will have access to them for when we get to that portion of the webinar.
With that, thank you for being with us today. Brad, the floor is yours.
Bradley Hubbard: Great. Thanks so much, Jenny, and hello, everyone. We’re here to discuss the Court’s decision in Badgerow v. Walters. In that case, an 8-1 Court held that federal jurisdiction over a post-arbitration motion to confirm or vacate an arbitration award under the Federal Arbitration Act must exist independently of the underlying controversy, that there could have been federal jurisdiction over the underlying dispute that the parties’ arbitrated isn’t enough.
I like to do a little bit of background and set the stage, and then Liz will talk a little bit about the circuit split that led to the grant in Badgerow. And then we’ll spend a few minutes talking about the opinion and what it means going forward.
And so, to start with the background, nearly 100 years ago, Congress enacted the Federal Arbitration Act to overcome the judicial resistance to arbitration. And the act declared a national policy favoring arbitration of claims that parties contract to settle in that matter. To that end, the act contemplates a role for the judiciary before, during, and after arbitration. So Sections 3 and 4 of the FAA deal with free arbitration. Section 3 requires courts to stay an action if the issues involved should be before an arbitrator. And Section 4 provides a mechanism for compelling the other party to arbitration. Sections Five and Seven deal with issues that may arise during arbitration, including appointing or replacing an arbitrator and compelling witness attendance. And then Sections 9, 10, and 11 all deal with the post-arbitration phase, that is seeking judicial confirmation, vacatur, or modification of an arbitration award.
And so, despite the fairly thorough regime that Congress established in the FAA, the act does not independently confer federal jurisdiction, which means that there must be an independent—that is non-FAA—jurisdictional basis in order to bring an action under the FAA in federal court.
In 2009—sort of setting the background for how we got here—the Supreme Court addressed this jurisdictional anomaly in Vaden v. Discover Bank, which was a case that involved a motion to compel arbitration under Section 4. In Vaden, there was no diversity jurisdiction because the amount in controversy was too low. And Discover, nevertheless, argued that federal jurisdiction existed because the underlying dispute between the parties—the dispute Discover wanted to arbitrate—arose under federal law. It was a claim under the Federal Deposit Insurance Act.
In a heavily textualist opinion, “The text of Section 4 drove our conclusion,” Justice Ginsburg—writing for Justices Scalia, Kennedy, Souter, and Thomas—held that courts should determine whether there’s federal jurisdiction by looking through to the parties’ underlying dispute. That is, if there would be federal jurisdiction over that dispute, then there’s also jurisdiction to compel that dispute to arbitration. That conclusion, the Court held, was compelled by Section 4’s language, which permits a party to move to compel arbitration in “any United States district court, which, save for the arbitration agreement, would have jurisdiction of the subject matter of a suit arising out of the controversy between the parties.”
And although Vaden was a 5-4 decision, the dissenters—Chief Justice Roberts wrote, and he was joined by Justices Stevens, Breyer, and Alito—agreed that the look-through was appropriate, that a federal court asked to compel arbitration under Section 4 should look through the dispute over arbitrability to the underlying dispute between the parties in determining whether there is jurisdiction to grant the requested relief. Instead, the dispute in Vaden, where it led to the split, was about the application of a case called Holmes Group v. Vornado which deals with whether there’s federal question jurisdiction predicated on counterclaims.
And so, I’m going to turn it over to Liz with the -- the background is that the Vaden court said you could look through the dispute about arbitrability itself to the underlying dispute to determine whether there was federal jurisdiction.
Elizabeth Kiernan: Thanks, Brad. So, as Brad was explaining, there are several other moving pieces to the FAA, and Vaden just addressed one piece: how to determine jurisdiction when reviewing a Section 4 petition to compel arbitration. It didn’t, though, provide any clarity on what to do with the post-arbitration petitions that are laid out in Sections 9, 10, and 11 of the FAA. And these involve petitions to confirm, vacate, or modify an arbitral award. As expected, this quickly led to a split circuit. The First, Second, Fourth, and Fifth Circuits decided to extend the look-through approach of Vaden to these post-arbitration petitions, meaning that when somebody moved to confirm, vacate, or modify an arbitral award, the Court looked through the petition to the underlying substantive controversies to determine if there was federal jurisdiction The Third and the Seventh Circuit, on the other hand, disagree and said that based on the text of Section 9, 10, and 11 of the FAA that the look-through approach of Vaden not carry through.
As Brad mentioned, Vaden was quite a textualist opinion, and the text is where the division of these circuits really turned. The language of Section 4 differs from Sections 9, 10, and 11. As Brad already explained, Section 4 of the FAA commits a party to compel arbitration pursuant to the arbitration agreement and any “United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties.” That language about “would it have jurisdiction of the controversy absent the agreement” was important to the Vaden court and engendered the look-through approach. But that language is absent in Sections 9, 10, and 11.
So, circuits like the Fifth Circuit, which is the circuit that Badgerow arises out of, had to turn elsewhere in order to extend Vaden to these Sections 9, 10, and 11. Those circuits grounded their decisions heavily in policy and the purpose of the FAA, usually rationalizing that there should be uniformity between the pre and post-arbitral petitions and that the FAA heavily favors federal enforcement of arbitration agreements.
For example, the Badgerow decision here relies on a prior Fifth Circuit decision in Quezada v. Bechtel that extended Vaden’s look-through approach to these motions for Sections 9, 10, and 11 on the ground that the same jurisdictional analysis should apply to each section of the FAA because the FAA is “a single comprehensive statutory scheme.” The Fifth Circuit reached that decision over a sharp dissent by Judge Ho who explained that “Fidelity to text best compels me to conclude that the district court lacked jurisdiction in this case.” The Supreme Court later quotes this line of Judge Ho in its majority opinion about fidelity to text being key.
With all that said, we arrive at the Badgerow dispute, and the facts of that case aren’t overly important for our purposes here. So all you really need to know is that a Louisiana resident initiated an arbitration against her Louisiana lawyer, so there was no diversity jurisdiction. And she claimed unlawful termination under both federal and state law. After the arbitrators dismissed her claims, the plaintiff sued in state court to vacate the arbitral award. The defendant then removed the case to federal court based on the underlying federal employment claims and asked the Court to confirm the arbiters’ decisions. So there was both Section 9 and 10 confirm and vacate motions pending before the federal district court.
The Fifth Circuit, relying on its Quezada opinion, looked through and held it had jurisdiction over the underlying federal claims. And these underlying federal claims would be the only basis for jurisdiction in this case because, again, there was no diversity jurisdiction available.
So this case brought the circuit split to the Court, and in an 8-1 decision this time, the Court hewed again very closely to the text, holding that federal jurisdiction over a post-arbitration motion to confirm or vacate an arbitration award must exist independently of the underlying controversies, that there could have been federal jurisdiction over the underlying dispute that the parties arbitrated is not enough.
Writing for the Court, Justice Kagan stressed that the “save-for” language that appears in Section 4 and drove the analysis of Vaden to, as Justice Ginsburg explained, imagine away the arbitration agreement and look to the underlying controversy doesn’t appear in Sections 9 and 10 to confirm or vacate arbitral awards. While oral argument led many to believe that the Court might find this case difficult due to the policy implications that pre-arbitral awards might be -- motions might be available on federal court while post-arbitral awards won’t be and that only diversity cases for post-arbitral awards will be in federal court while cases that might have been going on federal question jurisdiction would be in state court -- the opinion really demonstrates that for eight members of the Court, the case was quite straightforward.
The core analysis boiled down to a single paragraph that says Section 9 and 10 doesn’t contain the same or even comparable look-through language as Section 4, and that resolves the case. The Court, in a lot of lines of its opinion, seemed almost perplexed that the lower courts could have interpreted their precedent on FAA jurisdiction in their careful parsing of the text in Vaden to lead to any other conclusion.
Justice Kagan rebuked the idea that a court could elevate policy or practical implications over the text, saying, “We have no warrant to redline the FAA, importing Section 4’s consequential language into provisions containing nothing like it.” Congress could have replicated Section 4's look-through instruction in Sections 9 and 10 or, for that matter, it could have drafted a global look through provision, applying the approach throughout the FAA. But Congress did neither, and its decisions govern.
Another telling quote from the Court comes when it’s responding to some of the defendant’s policy-based arguments, saying, “The topline answer to those theories reflecting its obviousness, even the most formidable policy arguments cannot overcome a clear statutory directive. It is not for this Court to employ untethered notions of what might be good public policy to expand our jurisdiction. However the pros and cons shake out, Congress has made its call. We will not impose uniformity on a statute’s non-uniform jurisdictional roles.” So the Court heavily counseled, I think it’s fair to read, other courts not to be concerned about practical and purposivist arguments when a text of a statute is clear.
And then reigning all by himself is Justice Breyer. Justice Breyer dissented in this case. And the main difference between Justice Breyer’s views and the majorities’ can be summed up by the first sentence of his dissent, which says, “When interpreting a statute, it is often helpful to consider not simply the statutes literal words but also the statute’s purposes and unlikely consequences of our interpretation.” And he reiterates that point of elevating the policy and purpose of the statute into consideration with the text by saying, “Although this result may be consistent with the statute’s text”—talking about the majorities result—“it creates what Vaden feared—serious consequences and artificial distinctions. It also creates what I feel will be the consequences that are overly complex and impractical.” And so, Justice Breyer really took the purpose of the FAA and the so-called practical applications of not extending the look-through approach to heart, and that underlies his entire dissent. And with that, I’m going to throw it back to Brad, who will discuss a little bit more about what this decision means for practitioners moving forward.
Bradley Hubbard: Yeah. And so, I think, one of the most interesting parts of this decision is less its substantive content and more what it says methodologically about where the Court is. Justice Kagan, writing for an eight justice majority in an opinion that is both heavily textualist and heavily federalist—making good on her assertion that we’re all textualists now—declined to apply Vaden’s look-through approach because the statutory basis for it—the language that Liz and I had discussed—wasn’t there in Sections 9 and 10. And not only did she look at the statutory language, but Justice Kagan went out of her way to criticize Justice Breyer’s dissent for failing to engage with the differences in statutory text between Section 4 on the one hand and Sections 9 and 10 on the other hand and actually quoted Judge Ho’s dissent from the earlier Fifth Circuit opinion in his language about fidelity to text and how that precluded elevating “uniformity concerns over the statutory text.”
In addition to being a very textualist opinion, the opinion is also very federalist. Right? The practical effect of this decision is to push more post-arbitration proceedings—that is, those that are seeking judicial confirmation of an arbitral award—into state court. Right? So, in the event where you lack diversity jurisdiction, that you cannot look through the underlying dispute to find federal jurisdiction, so those cases will end up being in state court for confirmation. But as the Court made clear in Badgerow and it had made clear in Vaden, the FAA, as substantive federal law, is binding on states, and state courts were -- the statute was designed to give state courts a prominent role to play as enforcers of arbitration agreements.
And, I think, that’s it. Liz, did I miss anything, or should we head on to -- I think it looks like we’ve got a couple of questions.
Elizabeth Kiernan: I think we’re ready for questions.
Bradley Hubbard: All right.
Jenny Mahoney: Thank you, Brad and Liz. And just a reminder to the audience, if you want to submit a question for our speakers today, please use the Q&A box that’s located at the bottom of your screen. So the first question we have is, “What is the status of federal question jurisdiction on motions to vacate if there is no look-through jurisdiction for such motions?”
Bradley Hubbard: So, there likely is not federal question jurisdiction in those. The one exception is that Section Two of the FAA does independently confer federal jurisdiction with respect to awards under the convention on the recognition that enforcement of foreign arbitral awards. But again, it doesn’t otherwise confer independent federal jurisdiction. So even if a case involved -- if it was an employment case that involves the title seven question—so the underlying dispute between the parties involves a federal question—if there’s not diversity, the motion to confirm will likely need to be in state court.
Jenny Mahoney: Anything to add, Liz?
Elizabeth Kiernan: No. I think that’s exactly right.
Jenny Mahoney: Okay. The next question we have appears to be -- I’ll just read it from the Q& A box. So this is from David Wilson [sp]. “Assume diverse parties and more than $75,000.00 in dispute. The award is in the respondent’s favor with zero dollars awarded. The respondent seeks to confirm and enter judgment on the award. If the amount in controversy is measured based on the value of the award, there would be no diversity jurisdiction for the confirmation proceedings, right? If so, there would never be diversity jurisdiction for confirmation proceedings where the award findings no liability or liability with” -- I’m sorry -- “from zero dollars to $74,999.00 awarded.”
Bradley Hubbard: The short answer is yes. A couple of other thoughts on that. One, you could always take that to state court to get it confirmed if you wanted to. The other question is whether you would need to get a zero-dollar award confirmed. Right? So there’s an interesting set of cases about whether an arbitral award is entitled to res judicata effect. Assuming you have a zero-dollar award, you would, I assume, want to use that to prevent somebody from – the same party from suing you again. So you’d want to say, “All right, they already brought their claims.” But again, there’s lines of cases about the preclusive effect of prior arbitral awards independent of confirmation. And so, the real reason people -- the reason most people tend to take these awards to court for confirmation is to get help enforcing the judgment. Right?
Oftentimes parties have no problem if parties just pay— you, actually, don’t need to get an award confirmed because the party just pays and then that’s over. If the party doesn’t pay, the arbitrators lack the power, the course of power of the state, to attach assets. So you’d need to go to court. But again, if you don’t have diversity jurisdiction, either because you don’t have complete diversity or the amount in controversy, as in the Badgerow case -- they would just need to go to state court to fight about whether to confirm or vacate the award.
Elizabeth Kiernan: I agree. But I do expect to see that this will probably be a question that comes up in the courts, where somebody tries to confirm an arbitration and mentions that the original claim was for more than the $75,000.00 threshold. And I think that’s probably, going back to substance of the original dispute, but I think that there will probably be some courts that will have to grapple with the question of whether or not you look to the original claim or the actual arbitral award to determine the amount in controversy.
Bradley Hubbard: That’s exactly right. And the other point to keep in mind as you’re thinking about this is, remember that the arbitration dispute itself is a quintessential state law question. Right? It is a question of contract and contract interpretation. Right? What the fight is in court is the parties have contractually agreed about how to resolve disputes between them, including the underlying dispute. So it really should be no surprise that what is otherwise a run-of-the-mill state law contract question can’t get into federal court unless there’s diversity jurisdiction.
Jenny Mahoney: For our next question, can you talk a little bit about the interplay between Badgerow, Vaden, and the trial court’s decision whether to stay or dismiss a case after compelling arbitration?
Bradley Hubbard: Yeah, absolutely. I think there’s a handful of interesting issues that are going on there. And this involves -- so you’ve got a -- a case gets filed. The other party moves to compel arbitration, and they’re successful in doing so. So the first question about which there’s a circuit split or an inter-circuit split or intra-circuit split, and it may not be a split because the Fifth Circuit says you can do both of these things but it says, after ordering the parties to arbitration, under Section 4, do we stay the action, which is what Section 3 contemplates, or do we dismiss the action because there’s nothing left for the Court to do? And like I said, so the Second Circuit has sort of laid out a position, and the Fifth Circuit sort of said, “Well, you can dismiss it or you can stay. It’s up to the Court.” And Badgerow makes that decision, potentially, even more consequential.
Before Badgerow, dismissal had the advantage of getting rid of the case, so you’re out of the courts and fully into arbitration. But it had the disadvantage of turning what would have been a non-appealable interlocutory order compelling arbitration and staying the proceedings into a final appealable judgment because the case had been dismissed, that you could only challenge that decision compelling arbitration after the arbitration was over and you would come back into court to confirm or vacate the award.
After Badgerow, the stay versus dismiss question might also impact a party’s ability to return to federal court to confirm an award if the federal jurisdiction to compel arbitration was premised on looking through to the underlying dispute in the first place. Right? So I think it’s a super interesting question, and that’ll be a place, really, to watch the courts and see what they end up doing there now that that’s all in play.
Jenny Mahoney: Liz, do you have anything that you wanted to add to that?
Elizabeth Kiernan: No, I think --
Jenny Mahoney: Okay.
Elizabeth Kiernan: -- Brad completely covered that. I know he’s very interested in that question.
Jenny Mahoney: Okay. And then you mentioned early on in your analysis that the split involved Sections 9, 10 and 11. But then you only seem to discuss Sections 9 and 10 in the Badgerow case. Was Section 11 involved? If not, do we think the Court’s decision covers that, too?
Elizabeth Kiernan: That’s a good question. It was not involved in the Badgerow case. Each side only moved to confirm or vacate the arbitral award, so the motion to modify was not involved. However, the courts below, when they were addressing these questions, generally addressed them all together and suggested that they all rose and fall together because none of them contain the Section 4 language about "save for" of the arbitration agreement. So, in the Court’s opinion, it didn’t directly address Section 11. But even in its background analysis, when it was getting the lay of the land and what was going on, it did, actually, just like the lower courts, kind of lump all three of the motions to confirm, vacate, or modify under Sections 9, 10, and l1 together, and so did Justice Breyer. In his dissent, he heavily mentioned Section 11 as well. So, based on Justice Kagan’s opinion, which heavily focuses on the text and the fact that Section 4 was very unique in the language it chose to use to create this look-through, I would expect that Badgerow -- well, many courts will consider Badgerow as controlling the Section 11 question as well.
Jenny Mahoney: Okay. Thank you, Liz and Brad. I don’t see any other questions from the audience, so I just want to, on behalf of The Federalist Society, thank both of you for the benefit of your valuable time and expertise today. And I also want to thank our audience for joining and participating. We also welcome listener feedback by email at info@ fedsoc.org.
As always, keep an eye on our website and your emails for announcements about upcoming virtual events. Thank you all for joining today. We are adjourned.
Dean Reuter: Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.