Badgerow v. Walters – Answering Vaden’s Questions and Limiting Its Application

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Introduction

            The Supreme Court’s decision in Vaden v. Discover Bank, 556 U.S. 49 (2009), held that district courts can “look through” a motion to compel arbitration to the underlying case to determine if federal question jurisdiction exists. Id. at 70. Following this decision, district courts grappled with federal jurisdiction for other types of arbitration motions. Depending on how broadly the court read Vaden, courts split on whether the “look through” doctrine applied in four areas: 1) motions to stay and compel arbitration (“front end motions”) in federal question cases (decided by Vaden); 2) front end motions in diversity cases; 3) motions to confirm, vacate, or modify arbitration awards (“back end motions”) in federal questions cases; and 4) back end motions in diversity cases. See Kristen M. Blankley, A Uniform Theory of Federal Court Jurisdiction Under the Federal Arbitration Act, 23 Geo. Mason L. Rev. 525, 554 (2016) (setting forth categories).

            By the time the Court decided Badgerow v. Walters, __ U.S. __, 2022 WL 959675 (Mar. 31, 2022), lower courts created multiple tests for all of these categories, other than the one Vaden answered. While the Badgerow case could have clarified and simplified the law, it leaves more questions than it answers.

The Badgerow Decision

            In Badgerow, Denise Badgerow arbitrated – and lost – a claim of unlawful termination against a firm run by, inter alia, Greg Waters. Id. at *3. Following the arbitration, Badgerow filed a motion to vacate in state court. Simultaneously, Waters filed a motion to confirm in federal court. Id. Both the district court and the court of appeals in the vacatur case held that the court had federal question jurisdiction by looking through the Section 9 motion to the federal question decided in the arbitration. Id. at **3-4.

            The Supreme Court reversed, holding that the “look through” doctrine is only available to courts considering motions to compel under Section 4 of the Federal Arbitration Act (FAA). Id. at *5. Justice Kagan, writing for the majority, relies on a highly textualist reading of the FAA to reach this outcome. The majority correctly summarizes Vaden, which held that the text of Section 4 confers jurisdiction when the court would have had jurisdiction “save for” the arbitration agreement. Id. However, the majority rejected the possibility of extending Vaden’s holding to Sections 9, 10, and 11 of the FAA because those provisions do not contain similar “save for” language. Id. The Court treats the lack of the “save for” language as a deliberative choice on the part of Congress. Id. at *6.    

            The majority opinion rejects the many practical concerns raised from treating jurisdiction differently on front-end motions and back-end motions. The Court, however, finds no reason to create uniform rules on jurisdiction when the textual provisions are different. Id. at *8. The Court also rejects concerns that different jurisdictional rules for different motions will cause consternation for the lower courts. Id. Finally, the Court surmises that Congress, in 1925, reasonably could have created broader jurisdiction for motions to compel arbitration than motions to confirm or vacate. Id.

            Ultimately, the Court limits Vaden to other cases involving a similar procedural posture, i.e., cases involving “front end” motions. For “back end” motions, no “look through” is available, and the court must find jurisdiction within the four corners of the motion. The Court reserved for another day questions involving jurisdiction on other parts of the FAA that similarly lack “save for” language.

            Justice Breyer dissented, and his opinion unsurprisingly relies on a large host of tools of statutory interpretation. He begins by discussing the practical consequences of a system that utilizes different jurisdictional rules for different motions and the confusion this ruling might give lower courts. Id. at *10. He relies on the whole act rule as a reason to treat jurisdictional requirements the same throughout the statute. Id. at *11. He questions the application of the majority’s rule to FAA Section 5, dealing with the appointment of arbitrators, and FAA Section 7, dealing with arbitrator subpoena power, because neither of these provisions contains a “save for” clause. Id. Justice Breyer also considers the potential loss of jurisdiction by a federal court that has jurisdiction over a Section 4 motion prior to the arbitration but lacks a federal question in a motion to confirm or vacate. Id. at *12.

            Justice Breyer cites precedent holding that Congress intended for the FAA to provide a simple, streamlined process for parties who need assistance from courts on matters relating to arbitration. Id. at *13. He noted that simple, uniform jurisdictional rules would meet this purpose, rather than creating a patchwork of jurisdictional rules based on the procedural posture of the case.

Implications and Unanswered Questions

            The Badgerow holding answers one of Vaden’s lingering questions. The Court has now decided that federal court jurisdiction for motions under Section 9 (confirmation) and Section 10 (vacatur) must be evident from the four corners of the motion. In other words, there is no ability to “look through” the motion to support jurisdiction.   

            The Badgerow holding, however, fails to account for other complications arising from Vaden. Following Vaden, the lower courts split on the jurisdictional test for “front end” motions in diversity cases. The Badgerow case discusses generally that the “look through” doctrine is available for Section 4 motions, but the Court does not provide any guidance on amount-in-controversy jurisdiction (which is admittedly outside the question presented).

            This opinion raises important unanswered questions regarding jurisdiction over “back end” motions as well. First, the Court’s holding suggests that federal courts may never have jurisdiction on “back end” motions under federal question jurisdiction. The Court is clear that the underlying substance of the dispute cannot be used to justify federal question jurisdiction. The Court also suggests that these cases will almost always involve questions of enforcement under state law. The majority’s decision casts doubt that any court has federal question jurisdiction over these petitions.

            Second, Justice Breyer questions whether a court having jurisdiction over a motion to compel might lose jurisdiction on a “back end” motion. Prior to Badgerow, the courts were assumed to retain jurisdiction over cases involving a motion to compel. In fact, the stay provision in Section 3 suggests that the court’s work may not be complete at the time the court compels arbitration. This new holding might lead courts to hold that they lose for those “back end” motions, even when they properly decided ”front end” issues on these cases.

            Third, the majority opinion leaves open the question of determining the amount-in-controversy for “back end” motions. Would a court have jurisdiction to hear a motion to confirm, vacate, or modify a complete defense award (i.e., a $0 award) or other award lower than $75,000? Currently, some lower courts consider the amount demanded in the arbitration, but Badgerow casts doubt on whether the court can “look through” to the amount originally demanded.

            Fourth, the “save for” language only appears in Section 4, and Justice Breyer questions how jurisdiction may lie for motions to appoint an arbitrator and motions to subpoena witnesses. If these motions require jurisdiction from the four corners of the motions, significant questions arise as to whether these motions could ever meet either the federal question test or the amount-in-controversy test without looking through to the subject of the arbitration.

            Although the majority relies on a simple, textual basis for its opinion and suggests that courts will find the rules in Vaden and Badgerow easy to implement, significant questions and concerns still remain for lower courts. Time will tell if these concerns are overblown or if wasteful, collateral litigation will follow from these narrow jurisdictional holdings.