SCOTUS to Consider FAA Subject-Matter Jurisdiction Case

The Supreme Court of the United States has agreed to resolve a circuit split regarding whether a federal court has subject-matter jurisdiction to confirm or vacate an arbitration award under the Federal Arbitration Act (“FAA”) in situations where the court only has jurisdiction because the underlying dispute involves a federal question.

In Badgerow v. Walters, et al., No. 20-1143, a Louisiana woman, Badgerow, was employed as a financial advisor by a Louisiana corporation whose three principals were independent franchise advisors for Ameriprise. Following her termination, Badgerow initiated a FINRA arbitration proceeding against the three principals claiming they committed tortious interference of contract and violated Louisiana’s whistleblower law.  In addition, Badgerow added a separate declaratory judgment claim seeking to hold Ameriprise jointly liable for the alleged actions of the principals.

After a FINRA arbitration panel dismissed all of Badgerow’s claims with prejudice, she filed a motion to vacate the panel’s award solely with regard to the principals in a Louisiana state court.  The principals successfully removed the case to the Eastern District of Louisiana and sought to confirm the FINRA panel’s award.  Badgerow then filed a motion to remand the case back to state court based on a lack of federal subject-matter jurisdiction.

The Eastern District of Louisiana ruled that it had federal subject-matter jurisdiction and denied Badgerow’s motion to remand the case.  The federal court also confirmed the FINRA arbitration panel’s award.  In response, Badgerow filed an appeal with the U.S. Court of Appeals for the Fifth Circuit.

On appeal, Badgerow’s sole challenge related to the district court’s holding that it had federal subject-matter jurisdiction in the case.  The Fifth Circuit relied on both U.S. Supreme Court precedent and its own recent precedent to analyze Badgerow’s claim.  The appellate court stated:

In Vaden v. Discover Bank, 556 U.S. 49 (2009), the Supreme Court adopted the so-called “look-through” analysis for determining federal jurisdiction in actions to compel arbitration under section 4 of the FAA. Although the instant proceeding is a petition to vacate under FAA section 10, our court has held that “motions brought under sections 9, 10, and 11 [of the FAA], each of which provides the ability to seek a different remedy in district court following an arbitration award, are subject to the look-through approach endorsed in Vaden.” Quezada v. Bechtel OG & C Constr. Servs., Inc., 946 F.3d 837, 843 (5th Cir. 2020). Under this analysis, “a federal court should determine its jurisdiction by ‘looking through’ [an FAA] petition to the parties’ underlying substantive controversy.” Vaden, 556 U.S. at 62. If “looking through” to the claims involved in the underlying dispute (in this case, the claims brought in the FINRA arbitration proceeding) shows that the dispute itself (i.e. the dispute that was presented to the FINRA arbitrators) could have been brought in federal court, then federal jurisdiction lies over the FAA petition. Id.

After examining the facts of the case, the Fifth Circuit affirmed the lower court’s holding:

In this opinion, we have held that the district court had jurisdiction over Badgerow’s petition to vacate, which was filed in, and removed from, the Louisiana state court. To resolve that question, we have first acknowledged that we are bound by our court’s Quezada decision to apply the look-through analysis as defined by the Supreme Court in Vaden. Applying the look-through analysis, we have held, first, that the district court correctly found that Badgerow’s Title VII declaratory judgment claim against Ameriprise in the FINRA arbitration was a federal-law claim. We have held, second, that all of Badgerow’s claims against the Principals and Ameriprise in the FINRA arbitration arose from the same common nucleus of operative fact, and that under the principle of supplemental jurisdiction, federal jurisdiction obtains over Badgerow’s state-law tortious interference and whistleblower claims. The district court therefore properly held that Badgerow’s federal claim against Ameriprise in the FINRA arbitration invested federal jurisdiction over Badgerow’s Louisiana petition to vacate the FINRA arbitration award as to the Principals. Because there was federal jurisdiction over the removed petition to vacate, denial of remand back to the Louisiana state court was proper.

In February, Badgerow filed a petition for certiorari with the U.S. Supreme Court.  According to her petition, the question presented in the case is:

Whether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the FAA where the only basis for jurisdiction is that the underlying dispute involved a federal question.

On Monday, the nation’s highest court agreed to consider the case.  Please check back later for additional updates on this matter!

Photo by: Ian Hutchinson on Unsplash