Justices limit federal court review of arbitration cases

WASHINGTON (CN) — In an 8-1 opinion released on Thursday morning, the Supreme Court ruled in favor of an employee in a gender-based discrimination claim and settled a jurisdictional issue in an arbitration dispute. 

The ruling reverses a lower court decision and finds that in some circumstances, federal courts do not have jurisdiction to confirm, vacate or modify an arbitral award. Justice Elena Kagan wrote the opinion of the court and Justice Stephen Breyer was the sole dissenter. 

Denise Badgerow was fired from a Louisiana financial service company after raising concerns about workplace harassment and violations of securities laws to Ameritrade. The three principals who ran the firm — including Greg Walters — were advisors for Ameriprise Financial Services and terminated Badgerow a day after they were contacted by an Ameriprise compliance officer about the alleged workplace violations. 

Badgerow filed an arbitration proceeding with a panel of the Financial Industry Regulatory Authority. The panel sided with Walters and dismissed the case with prejudice. Badgerow then tried to move her case to state court to vacate the arbitration decision but her former employer argued the case should stay in federal court. A district court sided with Walters and denied Badgerow’s remand motion, and the Fifth Circuit affirmed. Badgerow then appealed to the Supreme Court, which agreed to add the case to its docket. 

The case concerns a jurisdictional dispute over a provision in the Federal Arbitration Act and asked the court to consider if federal courts have jurisdiction to assess arbitration awards under two sections of the law where their only basis is the dispute involved a federal law question. 

Examining an approach developed under the court’s 2009 ruling in Vaden v. Discover Bank, Kagan's opinion delves into whether the “look-through” approach — which allows a federal court to exercise jurisdiction over an FAA application when the underlying substantive dispute would have fallen within the court’s jurisdiction — can establish jurisdiction when an application seeks to confirm, vacate or modify an arbitration award. 

The majority found that the look-through approach doesn’t apply to requests to confirm or vacate an arbitration award. 

Kagan said the issue before the justices required them to decide where a federal court should look to determine whether a suit brought before it has an independent jurisdictional basis. 

“An obvious place is the face of the application itself,” the Obama appointee wrote. 

But, Kagan said, the district court had to look beyond the text to find a basis for jurisdiction. 

“In other words, the court had to look through the Section 9 and 10 applications to the underlying substantive dispute, although that dispute was not before it,” she wrote. “Could the court do so?” 

Kagan explains that Vaden approved the look-through approach for petitions that fell under Section 4 of the FAA but petitions under Sections 9 and 10 contain different language. 

“But Sections 9 and 10, in addressing applications to confirm or vacate an arbitral award, contain none of the statutory language on which Vaden relied,” Kagan wrote. 

She continued, “They do not instruct a court to imagine a world without an arbitration agreement, and to ask whether it would then have jurisdiction over the parties’ dispute. Indeed, Sections 9 and 10 do not mention the court’s subject-matter jurisdiction at all. So under ordinary principles of statutory construction, the look-through method for assessing jurisdiction should not apply.” 

In his dissent, Breyer said the majority’s opinion is an unnecessarily complex and confusing interpretation of the text. 

“When interpreting a statute, it is often helpful to consider not simply the statute’s literal words, but also the statute’s purposes and the likely consequences of our interpretation,” the Clinton appointee wrote. “Otherwise, we risk adopting an interpretation that, even if consistent with text, creates unnecessary complexity and confusion. That, I fear, is what the majority’s interpretation here will do.” 

Daniel Geyser, an attorney from Haynes and Boone representing Badgerow, and Lisa Schiavo Blatt, an attorney with Williams & Connolly representing Walters, did not respond to requests for comment following the ruling. 

Follow @KelseyReichmann

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