On August 11, 2016, the US Court of Appeals for the Second Circuit held in Doscher v. Sea Port Grp. Sec., LLC et. al. that district courts may look through a petition filed under Section 10 of the Federal Arbitration Act (FAA) (9 U.S.C. § 10) to determine if the underlying dispute raises a federal question ( (2d Cir. Aug. 11, 2016)).

The plaintiff commenced arbitration against his former employers and several other defendants, alleging breach of contract, retaliatory discharge, and unjust enrichment. He later amended his statement of claim to include claims for securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission. The claims were subject to arbitration because the plaintiff's former employers were members of the Financial Industry Regulatory Authority (FINRA) and FINRA's internal rules require arbitration of such disputes. After the arbitration panel awarded him a portion of the damages sought, the plaintiff filed a petition under Section 10 of the FAA to vacate and modify the award. The plaintiff argued that:

The plaintiff asserted that the district court had jurisdiction over his petition because:

The district court rejected both arguments, ruling that violations of internal FINRA rules do not present questions of federal law and that the Second Circuit's decision in Greenberg v. Bear, Stearns & Co. (220 F.3d 22 (2d Cir. 2000)) foreclosed reliance on the Exchange Act's Section 10(b) claim. In Greenberg, the Second Circuit had held that a district court may exercise federal-question jurisdiction over an FAA Section 10 petition stating a federal question on its face. Under that holding, a district court could not "look through" the petition to determine if the underlying dispute involves substantial questions of federal law.

The Second Circuit rejected the plaintiff's assertion that FINRA Rule 13505 is a rule of federal law conferring jurisdiction on federal courts. The Second Circuit noted that the rule in question directs FINRA to require that the arbitration panel require the parties to cooperate and does not directly govern the arbitration panel's conduct. Therefore, the Second Circuit concluded that the asserted violation was too attenuated to constitute a manifest disregard of federal law.

The Second Circuit did, however, determine that it should revisit its Greenberg precedent in light of the Supreme Court's decision in Vaden v. Discover Bank (556 U.S. 49 (2009)). In Vaden, the Supreme Court held that a federal court may look through a petition under Section 4 of the FAA to determine whether it is based on an action arising under federal law. While there is a textual difference between Section 4 of the FAA at issue in Vaden and Section 10 at issue in this case, the Second Circuit noted that applying a look-through approach to Section 4 but not to Section 10 would enlarge jurisdiction under just one portion of the same jurisdictional statute. Finding no justification for such an illogical inconsistency, the Second Circuit held that a look-through approach also may be applied in determining whether a petition under Section 10 of the FAA raises a federal question. The court vacated the district court's order and remanded for consideration in light of its holding.

Practitioners should be aware that there is a circuit split as to whether a federal court has subject matter jurisdiction to review or enforce an arbitration award simply because the underlying dispute at issue in the arbitration was federal (see Magruder v. Fid. Brokerage Servs. LLC, 818 F.3d 285 (7th Cir. 2016)). In Magruder, the US Court of Appeals for the Seventh Circuit found that the Supreme Court’s holding in Vaden applies only to petitions under Section 4 of the FAA. The Seventh Circuit distinguished petitions under Section 10, noting the textual differences between the provisions and the difference between compelling arbitration and seeking to modify or vacate an arbitral award. While compelling arbitration gives rise subject-matter jurisdiction under Vaden, the Seventh Circuit likened the arbitral resolution of the claim to a settlement, which cannot be challenged without an independent jurisdictional basis.