Arbitration in the Courts

Absent diversity of citizenship, federal courts lack jurisdiction over petitions to confirm or vacate domestic arbitration awards, even where the underlying claims arise under federal law.

U.S. Federal courts are courts of limited jurisdiction, which Congress and the Constitution have defined to include two main categories: “diversity” jurisdiction (suits between citizens of different states or between U.S. and foreign citizens) and “federal question” jurisdiction (suits involving claims based on federal law). In turn, while the Federal Arbitration Act (the “FAA”) authorizes a party to an arbitration agreement to petition for various forms of relief, it does not itself create the subject-matter jurisdiction necessary for a federal court to resolve them. Rather, the federal court must have an independent jurisdictional basis to do so, or the petition must be brought in state court.

In Vaden v. Discover Bank, 556 U. S. 49 (2009), the Supreme Court held that for petitions to compel arbitration under Section 4 of the FAA, federal question jurisdiction is determined by “looking through” the petition to the underlying claim sought to be arbitrated. If that claim would, save for the arbitration clause, be subject to federal jurisdiction, the federal court has jurisdiction over the petition to compel. This approach is required by the express terms of Section 4, which allows a petition to compel arbitration in a “United States district court which, save for agreement, would have jurisdiction,” meaning the statute requires courts to assume the absence of the arbitration agreement in determining whether they have jurisdiction over petitions to compel. Thus, in actions to compel arbitration, federal jurisdiction depends on the nature of the underlying claim. Absent diversity of citizenship, a petition to compel may be brought in federal court if the claim sought to be arbitrated raises a federal question.