The question of federal court jurisdiction over arbitration proceedings has historically led to different conclusions. A few years ago, the  United States Supreme Court clarified in Vaden v. Discover Bank that Section 4 of the Federal Arbitration Act (“FAA”) authorizes a federal court to “look through” to the underlying controversy to determine if there is federal court jurisdiction to adjudicate a motion compelling arbitration. Until recently, however, the “look through” approach had not been adopted by the Second Circuit for determining whether a federal court has jurisdiction to hear a motion to vacate an arbitration award.

The Second Circuit recently overturned its previous practice, holding that a party can move to vacate an arbitration award in federal court under Section 10 of FAA if the underlying arbitrated controversy involves a federal question. Doscher v. Sea Port Group Securities, LLC (“Doscher II”). In other words, like for review of a Section 4 petition, a federal court in Second Circuit facing a Section 10 petition can “look through” the petition itself to assess whether there is federal subject matter jurisdiction.

Case Overview

In 2013, Drew Doscher commenced an arbitration against his previous employer, The Seaport Group, LLC and Sea Port Group Securities, LLC (together, “Seaport”), alleging, inter alia, a violation of federal securities laws. After the arbitration panel made its final ruling, Doscher filed a Section 10 petition in the U.S. District Court of Southern District of New York to vacate and modify panel’s award. The district court dismissed Doscher’s petition for lack of subject matter jurisdiction. See Doscher v. Sea Port Group Securities, LLC (“Doscher I”). On appeal, the Second Circuit vacated the district court’s decision and remanded the case.

In 1996, the Second Circuit in Westmoreland Capital Corp. v. Findlay ruled that if a motion to compel arbitration under Section 4 does not show a basis for federal jurisdiction on its face, then “a federal court [does not have] subject matter jurisdiction over an action to compel or stay arbitration merely because the underlying claim raises a federal question.”

In 2000, the Second Circuit relied on the logic of the Westmoreland holding to reject a “look through” approach for a Section 10 petition to vacate an arbitration award in Greenberg v. Bear, Stearns & Co..

However, the U.S. Supreme Court’s 2009 holding in Vaden abrogated the Second Circuit’s Westmoreland decision regarding a federal court’s jurisdiction over a petition to compel arbitration. The Supreme Court noted that denying a “look through” approach – like Westmoreland had held – “would not accommodate a § 4 petitioner who could file a federal-question suit in (or remove such a suit to) federal court, but who has not done so.”

In Doscher II, the Second Circuit noted Vaden as an intervening Supreme Court decision that “‘casts doubt on the prior ruling’ in Greensberg.” Also, the Second Circuit highlighted that “the Supreme Court expressly overruled Westmoreland in its Vaden decision” nine years after Greenberg. The Circuit Court further observed that the holding of Greenberg is also inconsistent with the holding in Vaden that the FAA “bestows no federal jurisdiction but rather requires for access to a federal forum an independent jurisdictional basis over the parties’ dispute.” In other words, the look-through approach for a Section 4 petition provided under Vaden “does not enlarge federal-court jurisdiction.”

Therefore, in Doscher II, the Second Circuit overturned Greenberg and concluded that a look-through approach is similarly appropriate for a Section 10 petition to preserve the same jurisdictional basis for various remedies under FAA and to avoid making Section 4 jurisdiction broader than the jurisdiction under other sections of FAA. In this precedential opinion, the Second Circuit also held that “applying a look-through approach to the entire Act also prevents absurd and illogical discrepancies . . .” For instance, not applying a look-through approach in connection with a Section 10 petition would create an absurdity “that permits parties to file motions to compel arbitration in any case where the underlying dispute raises a federal question but precludes them from seeking the same federal court’s aid under the Act’s other remedial provisions related to the same dispute.”

Conclusion

The Second Circuit has now made clear that a look-through approach can be employed on petitions to compel arbitration and to vacate arbitration awards. Note, however, that other circuits are still split on the proper approach to use to determine whether there is federal court jurisdiction over a FAA Section 10 petition. It still remains to be seen whether the Supreme Court will take up the Section 10 petition analysis and resolve such a split.

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Photo of Rina Kim Rina Kim

M. Rina Kim is a litigation associate, focusing on complex securities and commercial litigation issues surrounding financial statements, disclosures, materiality, and investigations. She has auditing and forensic knowledge in financial statements, books and records, and complex accounting standards, and helps clients transform sophisticated…

M. Rina Kim is a litigation associate, focusing on complex securities and commercial litigation issues surrounding financial statements, disclosures, materiality, and investigations. She has auditing and forensic knowledge in financial statements, books and records, and complex accounting standards, and helps clients transform sophisticated financial contentions into successful resolutions.

Rina is a certified public accountant in Virginia and Washington, D.C., a certified fraud examiner and certified management accountant and a chartered financial analyst candidate. She is also a 2021 Leadership Council on Legal Diversity (LCLD) Pathfinder. Rina maintains an active and diverse pro bono practice, with a focus on immigration law, special education rights, and racial justice and interests. She is native in Korean and proficient in Spanish.

Prior to joining Proskauer, Rina was a manager at KPMG Forensic Services, where she worked on several financial statement audits, fraud and compliance risk assessments, internal whistleblower investigation, anti-bribery and FCPA investigations, and project management of process improvement and implementation surrounding commercial mortgage lending practices and the Servicemembers Civil Relief Act compliance.

Rina is president of the Korean American Bar Association of Washington, D.C. where she has been an officer since 2012. She spearheads infrastructural framework to form a coalition of 13 KABAs to address issues on a national scale, such as refuting misleading narrative on Korean history, supporting diverse law student interests, and fighting for racial justice. She was the host committee coordinator and bilingual mistress of ceremony of the 2016 Conference of International Association of Korean Lawyers. Rina was the editor-in-chief of The George Washington International Law Review and president of The George Washington Graduate Korean Students Association. She served as a law clerk at the U.S. Securities and Exchange Commission’s Division of Enforcement and at the U.S. Department of Justice’s Criminal Division, Fraud Section.