Badgerow v. Walters

Wikipedia · Justia (with opinion) · Docket · oyez.org

Argued on Nov 2, 2021.
Decided on Mar 31, 2022.

Petitioner: Denise A. Badgerow.
Respondent: Greg Walters, et al..

Advocates:

• Daniel L. Geyser (for the Petitioner)

Facts of the case (from oyez.org)

Denise Badgerow was employed as an associate financial advisor with REJ Properties, Inc., a Louisiana corporation, from January 2014 until July 2016, when she was terminated. During her employment with REJ, Badgerow signed an agreement to arbitrate any disputes that may arise between her and the three principals of the corporation.

After her termination, Badgerow initiated an arbitration proceeding against the three principals before an arbitration panel of the Financial Industry Regulatory Authority (FINRA), seeking damages for tortious interference of contract and for violation of Louisiana’s whistleblower law. The panel dismissed all of her claims with prejudice.

Badgerow then brought a new action in Louisiana state court, asking the court to vacate the dismissal because the whistleblower claim was obtained by fraud. The principals removed the action to federal court, and Badgerow filed a motion to remand for lack of subject-matter jurisdiction. The district court held that it had subject-matter jurisdiction over the petition to vacate and denied remand. On the merits, the court found no fraud and denied vacatur of the FINRA arbitration panel’s dismissal. The U.S. Court of Appeals for the Fifth Circuit Circuit affirmed.

Question

Do federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award when the only basis for jurisdiction is that the underlying dispute involved a federal question?

Conclusion

Federal courts do not have subject-matter jurisdiction to confirm or vacate an arbitration award because the “look-through” approach recognized in the context of Section 4 does not apply in the context of Sections 9 and 10. Justice Elena Kagan authored the 8-1 majority opinion.

In Vaden v. Discover Bank, 556 U.S. 49 (2009), the Court recognized that in the context of Section 4 of the Federal Arbitration Act (FAA), a federal court may “look through” the petition for arbitration to the “underlying substantive controversy” to decide whether it has jurisdiction. Its decision in that case relied on “distinctive” language in Section 4 that directed the “look through” approach. Sections 9 and 10, at issue in this case, do not contain that same language, so the “look through” approach does not apply.

Justice Stephen Breyer authored a dissenting opinion arguing that the majority’s narrow focus on the statute’s literal words “creates unnecessary complexity and confusion,” while consideration of the statute’s purposes would lead to a better and clearer outcome.