Law stated as of 21 Jan 2020 • USA (National/Federal)
In Quezada v. Bechtel OG & C Construction Services, Inc., the US Court of Appeals for the Fifth Circuit held that in determining whether a court has federal question subject matter jurisdiction over a petition to confirm, vacate, or modify an arbitration award under FAA's Sections 9, 10, or 11, the court may "look through" the petition to the underlying dispute between the parties.
On January 14, 2020, in Quezada v. Bechtel OG & C Construction Services, Inc., the US Court of Appeals for the Fifth Circuit held that in determining whether a court has federal question subject matter jurisdiction over a petition to confirm, vacate, or modify an arbitration award under the Federal Arbitration Act's (FAA) Sections 9, 10, or 11, the court may "look through" the petition to the underlying dispute between the parties ( (5th Cir. Jan. 14, 2020)).
In June 2017, plaintiff Nicole Quezada and her former employer, Bechtel, jointly submitted an employment dispute concerning Bechtel's alleged violations of the Americans with Disabilities Act of 1990 (ADA) to the American Arbitration Association (AAA) in accordance with Bechtel's employee dispute resolution policy. The policy called for the arbitrator to apply the substantive law that would govern in the federal district court located where the arbitration occurs. The arbitrator issued a final award finding that Quezada showed discrimination and failure to accommodate, but that her termination did not violate the ADA. Despite finding the termination not actionable, the arbitrator awarded Quezada nearly $100,000 for back-pay, front-pay, compensatory damages, and nominal damages alongside nearly $300,000 in attorneys' fees and pre- and post-judgment interest. Bechtel sought to vacate or modify the award in the US District Court for the Southern District of Texas, asserting that:
The arbitrator exceeded his authority under the parties' submissions.
The finding that Quezada's termination was unlawful precluded its monetary award beyond nominal damages under governing law.
Quezada then moved to confirm the award and the district court ruled in her favor, concluding that it had federal question subject matter jurisdiction and Bechtel was not entitled to vacatur under the grounds provided by the FAA.
Bechtel appealed to the Fifth Circuit. The court first set out, sua sponte, to determine whether it and the district court had jurisdiction over the dispute, even though the parties were in agreement that the both courts had jurisdiction. It explained that while the FAA allows parties to an arbitration agreement to petition courts to confirm final awards, it does not bestow federal jurisdiction over domestic arbitral disputes and thus requires courts to find an independent jurisdictional basis before entertaining a dispute. Since the present dispute did not involve parties of diverse citizenship or a maritime contract, the Fifth Circuit sought to establish whether it had subject matter jurisdiction arising under a federal question.
The Fifth Circuit looked to the US Supreme Court's approach in Vaden v. Discover Bank, 556 U.S. 49 (2009), which addressed the standard for determining federal jurisdiction when faced with a petition to compel arbitration under Section 4 of the FAA. In Vaden, the Supreme Court adopted a "look through" approach, holding that a federal court may look through a Section 4 petition to the underlying dispute between the parties to determine whether it is predicated on an action that arises under federal law.
The Fifth Circuit noted that a circuit split developed post-Vaden regarding whether the same approach applies to petitions under Sections 9, 10, and 11 of the FAA to respectively confirm, vacate, and modify arbitration awards. The court ultimately joined the US Courts of Appeals for the First, Second, and Fourth Circuits in finding that motions brought under FAA's Sections 9, 10, and 11 are subject to Vaden's look through approach.
Applying the look through approach, the Fifth Circuit then found that it had federal question subject matter jurisdiction because the underlying dispute in the present case arose out of the ADA, a federal statute. The court affirmed the district court's finding of jurisdiction and proceeded to affirm its ruling on the merits.