The case of the day is Badgerow v. Walters (S. Ct. 2022). Denise Badgerow was a financial advisor who worked for REJ Properties. REJ was run by Greg Walters and others. Badgerow, whose employment contract had an arbitration clause, brought an arbitration against Walters under federal law and state law for wrongful termination. The arbitrators decided the case in Walters’s favor. Badgerow brought an action in the Louisiana state court to set the award aside. Walters removed the case to the federal court and moved to confirm the award. Badgerow moved to remand the case on the grounds that the court lacked jurisdiction. The court disagreed and confirmed the award. The Fifth Circuit affirmed, and Badgerow sought review in the Supreme Court, which took the case.
The background to the case is that under Hall Street v. Mattel, the Federal Arbitration Act’s provisions on enforcement of agreement to arbitrate and on confirmation of awards do not create federal jurisdiction. You can bring an action under the FAA in an appropriate state court, but if you want to bring it in a federal court, you need to show an independent basis for federal jurisdiction.
How can a movant do this? In a case seeking to compel arbitration, the Court has held that you look through the arbitration agreement to the underlying dispute. If the court would have jurisdiction of the underlying dispute, it has jurisdiction of the motion to compel arbitration. This, according to the Court, follows from the language of the statute, which allows a party aggrieved by a failure to arbitrate to “petition 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, for an order directing that such arbitration proceed in the manner provided for in such agreement.” The phrase “save for that agreement” indicates, according to the Court, that Congress intended the courts to look at the underlying dispute to decide whether or not jurisdiction exists.
Should courts also look to the underlying dispute in actions to confirm or set aside an award? The Court, in an 8-1 decision by Justice Kagan, said no. The key was the text of the statute. The statute on confirmation, 9 USC § 9, lacks the “save for that agreement” language. Without that language, the ordinary rules apply: the statute is not jurisdictional, and so the claim for confirmation of the award must be independently within court’s jurisdiction. In practice, that means that the case must be within the diversity-of-citizenship jurisdiction. Therefore, the court reversed the Fifth Circuit, and Badgerow will be free to seek to set the award aside in the state court.
Justice Breyer dissented. I think his dissent was maybe not so much about this case as about the Justice, in his final term on the Court, making a statement in favor of a kind of judging that is now a little out of fashion. Justice Breyer looked to the purpose and structure of the overall statute and reasoned, essentially, that it doesn’t make much sense to have one rule in cases to compel arbitration and another in cases to confirm awards. Sure, the text is important, but other things are important, too. But the majority rejected this approach, choosing instead to focus just on the text.
I think the decision was right in light of the Court’s existing precedents, but if we were starting from scratch, I would suggest that it doesn’t make much sense to say that a claim to confirm an arbitral award under the FAA doesn’t raise a federal question. Justice Kagan says that such a claim is really a claim under state law. But the FAA’s overarching purpose is to overcome state law hostility to enforcement of agreements to arbitrate by preempting state law to the extent it would refuse to confirm an award within the FAA’s scope. Does it really make sense, then, to say that a claim to confirm is not a claim arising under a law of the United States? But the cases say what they say, so this is water under the bridge.