A Uniform Theory of Federal Court Jurisdiction Under the Federal Arbitration Act

44 Pages Posted: 5 Jun 2016

Date Written: 2016

Abstract

The Federal Arbitration Act (FAA) is considered an anomaly among federal statutes. The protections of the FAA are substantive law, yet citing to the FAA is insufficient to invoke the federal courts’ jurisdiction. Instead, parties seeking federal court assistance on arbitration matters must have independent jurisdictional grounds, usually federal question or diversity jurisdiction. This requirement stems from FAA Section 4, which states that jurisdiction lies in any district court which, “save for the agreement, would have jurisdiction under title 28 . . . of the controversy.” Courts across the country are encountering serious difficulty interpreting this language and have created upwards of a dozen different legal tests for jurisdiction.

These tests turn largely on a handful of non-salient factors, notably the presence or absence of underlying state court litigation. Some courts interpreted the “controversy” language as requiring courts to “look through” the federal court motion to the substance of the arbitral controversy. Other courts “look through” only to the subject of underlying state litigation. Still other courts refuse to “look through” to anything at all, relying solely on the pleadings before them.

In 2009, the Supreme Court’s decision in Vaden v. Discover Bank determined that FAA Section 4 required the district courts to “look through” the federal court documents, consider the merits of underlying state-court litigation, and apply the well-pleaded complaint rule. The Vaden decision, however, is both incorrect and imprudent. The decision was incorrect on its merits under both a textual and policy analysis. The Court was imprudent because it only addressed a small portion of cases falling under the FAA’s jurisdiction. Significant questions and circuit splits still plague the courts.

A simplified, uniform test would greatly alleviate all of this confusion. Specifically, a test interpreting Section 4 to allow a “look through” to the arbitral controversy in all instances would best serve the intent of the FAA, the courts, and the litigants in streamlining litigation issues. While this change could be accomplished statutorily or through the common law, a common law change is proposed to shortcut congressional inaction on arbitration issues.  

Keywords: arbitration, jurisdiction, federal courts

JEL Classification: K19, K40

Suggested Citation

Blankley, Kristen, A Uniform Theory of Federal Court Jurisdiction Under the Federal Arbitration Act (2016). George Mason Law Review, Vol. 23, No. 3, 2016, Available at SSRN: https://ssrn.com/abstract=2789953

Kristen Blankley (Contact Author)

University of Nebraska Lincoln ( email )

United States

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