Supreme Court backs jurisdiction in FAA arbitration case

A federal court that stayed an employment discrimination case based on a binding arbitration clause retained jurisdiction to decide the merits of an arbitral award in favor of the employer notwithstanding the employee’s contention that the parties’ opposing motions to confirm and vacate failed to independently support federal question or diversity jurisdiction, a unanimous U.S. Supreme Court has ruled.

The plaintiff in the case, Adrian Jules, worked at the Chateau Marmont Hotel in Los Angeles between 2017 and 2020. After being terminated in March 2020, Jules sued the owner of the hotel, Andres Balazs Properties, and other affiliated entities domiciled in New York in the U.S. District Court for the Southern District of New York, alleging violations of both federal and state employment discrimination law.

The court issued a stay in the case pursuant to §3 of the Federal Arbitration Act after finding that an arbitration agreement Jules signed at the time he was hired was binding and applied to his discrimination claims. The arbitrator subsequently issued a final award finding no merit to Jules’ claims of discrimination. Further, the arbitrator awarded $34,500 in sanctions to the defendants.

In the U.S. District Court case, the defendants filed a motion to confirm the award under §9 of the FAA. On the other hand, Jules moved to vacate the arbitral award under §10 on various grounds.

Moreover, in opposing confirmation of the award, Jules argued that the District Court lacked jurisdiction because the parties §9 and §10 motions did not present federal questions nor satisfied the requirements for diversity jurisdiction. On this point, the plaintiff cited the U.S. Supreme Court’s 2022 decision in Badgerow v. Walters in which the court observed that, although a federal statute, the FAA in and of itself does not create federal jurisdiction.

The District Court disagreed and confirmed the arbitral award. The 2nd U.S. Circuit Court of Appeals affirmed, concluding that a court’s power to stay an action under §3 brings with it the power to confirm any ensuing arbitration award, regardless of whether there is an independent jurisdictional basis for §9 and §10 proceedings.

The U.S. Supreme Court affirmed after granting the plaintiff’s petition for certiorari.

Click here to read the full text of the Supreme Court’s May 14 decision in Jules v. Andres Balazs Properties.

TO THE POINT: “Here, the District Court had original jurisdiction, under 28 U.S.C. §1331, over Jules’s federal claims. It was this very jurisdiction that authorized the court to adjudicate the arbitrability of Jules’s claims under the parties’ contract to begin with, before staying litigation pending arbitration. Nothing in the FAA eliminated that jurisdiction while the parties arbitrated. So when the parties returned to court after arbitration with §9 and §10 motions, the court had the same ‘jurisdiction to decide the case,’ and thus ‘jurisdiction to decide th[ose] motion[s],’ that it possessed from the start. ‘The court had federal question subject matter jurisdiction and … never lost it.’…

“In Badgerow, the question was whether anything in §9 or §10 of the FAA affirmatively authorized an unusual approach premising jurisdiction on claims never filed before the court. Here, the question is instead whether there is anything in the FAA that precludes the normal operation of federal jurisdiction regarding live claims that are still pending before a federal court. There is not. A federal court with jurisdiction to stay claims pending arbitration under §3 of the FAA has the same jurisdiction to resolve motions to confirm or vacate a resulting arbitral award.”

— Justice Sonia Sotomayor, opinion of the court