Wait, What Court? The Path to Arbitration and from Award

Imagine this: 

You have an arbitration clause, but your opponent refuses to arbitrate. You will have to go to court to require it to arbitrate the dispute.  But which court? 

You know the Federal Arbitration Act (FAA) declares that arbitration contracts  “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  It’s a federal law, so your first instinct is to go to federal court to enforce your contract.  After all, arbitration appears to be the darling of federal law. Federal courts routinely – and often, it seems to you, enthusiastically -- enforce arbitration agreements.

Federal Jurisdiction

But there is a problem. The FAA, although it is a federal statute, does not provide an independent basis for jurisdiction in federal court.  You must find jurisdiction somewhere else. 

In your current case, the broad arbitration clause requires arbitration of “any and all disputes of whatsoever nature” arising between the parties.  Your dispute involves an alleged breach of a patent license, including a claim that the opposing party has infringed your client’s patents after refusing to make royalty payments.  The claim is in the millions of dollars

First, you look at the most common place to find federal jurisdiction: diversity jurisdiction under 28 U.S.C. § 1332.  But both your client and its adversary are citizens of the same state.  You keep looking.

Taking a Look Through

Finally, you hit upon “look through” jurisdiction, established by Vaden v. Discover Bank, 556 U.S. 44 (2009).  The question for the Vaden court was whether a federal court had jurisdiction to compel arbitration under section 4 of the FAA.  If it applied the “well pleaded complaint rule” usually applied  to assess jurisdiction, it  would not have jurisdiction.  Remember the FAA doesn’t provide an independent basis for jurisdiction. 

The Court applied a new rule for arbitration, based on section 4. That section says a party may petition for an order to compel arbitration in a “United States district court which, save for [the arbitration] agreement, would have jurisdiction” over “the controversy between the parties.”   So, the Court decided it should “look through” the petition to compel arbitration to see if the underlying dispute “arises under” federal law.  If so, there is jurisdiction to require arbitration.  If not, there isn’t.  

In the Vaden case, the dispute was a matter of state law, so there was no jurisdiction.  Other courts  applying the look-through test have, of course, found jurisdiction. 

Your case has a basis for federal jurisdiction.  Patent infringement is prohibited by a federal law under 35 U.S.C. § 271.  You go to federal court, and the judge orders the dispute to arbitration. 

Taking Another Look

The arbitration goes fairly well.  You think you should have been awarded more damages for infringement, but your client did receive a large award.

Unfortunately, your opponent still hasn’t embraced arbitration.  It won’t pay the award. You will need to go to court to enforce the award under the FAA.  Well, you think, I’ll go back to the same court that sent us to arbitration, confirm the award, and get a judgment.

Not so fast.  Your opponent contests jurisdiction in the very same court that sent your dispute to arbitration.  What?! Surely the very court that sent you to arbitration should also be the court to enforce the award that results from that arbitration.  And the Second Circuit, among other federal appeals courts, agrees with you.  See, Doscher v. Sea Port Group Sec., LLC, 832 F.3d 372, 381 (2d Cir. 2016).  Refusing jurisdiction in a situation like this, it said, would be contrary to the FAA’s clear intent to provide broad jurisdiction of federal courts over arbitration awards.  Other circuits have gone the other way, but not your circuit.  You remain confident.    

Supreme Disappointment

Then disappointment hits.  While your arguments were pending before the district court, the Supreme Court issues its decision in Badgerow v. Walters, No. 20–1143 (S. Ct. March 31, 2022).  Here is what Justice Kagan said, writing for the majority, after summarizing the look-though approach used to determine jurisdiction to compel arbitration:

The question presented here is whether that same “look-through” approach to jurisdiction applies to requests to confirm or vacate arbitral awards under the FAA’s Sections 9 and 10.  We hold it does not. Those sections lack Section 4’s distinctive language directing a look-through, on which Vaden rested. Without that statutory instruction, a court may look only to the application actually submitted to it in assessing its jurisdiction.

In other words, the court will look through a claim to send a dispute to arbitration.  But that’s it.  Absent an independent basis of federal jurisdiction, a state court will have to enforce the award.

Congress Did This

What kind of way is that to run a system? And what of arbitration being the darling of federal law?  Well, those concerns didn’t overcome what the FAA actually says.   

As Justice Kagan noted, sections 9 and 10 of the FAA, which provide for enforcement or vacation of arbitration awards, don’t have the “save for” language section 4 does.  It was that unique language which allowed looking through the petition to compel arbitration to find jurisdiction.  The federal courts simply cannot pull jurisdiction “out of thin air,” she noted.  Congress limited the role of federal courts in the FAA in favor of state courts in a number of areas, and they did that for enforcement and vacatur.   

Remain Calm and Carry On

 Because you prefer to practice in federal court, you are disappointed by all this. But all is certainly not lost.  The FAA still applies in state court, preempting any contrary state law.  So, the standard for affirming or attacking your award is still the same favorable standard that a federal court would apply.   

So, off you go to state court, still armed with the FAA.