Opinion ID: 4027030
Heading Depth: 2
Heading Rank: 1

Heading: Look-Through

Text: Statement To support their argument that a district court should “look through” a motion to vacate and examine the subject matter of the underlying arbitration, the Goldmans principally rely upon an opinion that our Court issued after the District Court dismissed the motion to vacate. That opinion, from a case called Goldman, Sachs & Co. v. Athena Venture Partners, L.P., included a footnote indicating that a district court has subject-matter jurisdiction over a § 10 motion to vacate “pursuant to 28 U.S.C. § 1331 and 15 U.S.C. § 78aa(a) because the underlying arbitration included federal securities law claims.” 803 F.3d 144, 147 n.5 (3d Cir. 2015). Were that statement of law binding on us, the Goldmans would be correct that the District Court had jurisdiction over their motion to vacate. But we are not bound to follow Athena Venture, for two independently sufficient reasons. First, a summary and unexplained jurisdictional ruling like the one in that case has no precedential effect. Using a 14 colloquialism, we have previously observed that “[a] drive-by jurisdictional ruling, in which jurisdiction has been assumed by the parties, and assumed without discussion by the court, does not create binding precedent.” United States v. Stoerr, 695 F.3d 271, 277 n.5 (3d Cir. 2012) (internal quotation and editorial marks omitted). “We therefore are not bound by the bald jurisdictional statement” in a prior opinion of our Court. Id. That understanding comports with similar instruction from the Supreme Court, reaching back to Chief Justice Marshall, who held that there is nothing binding in “a prior exercise of jurisdiction in a case where it was not questioned and it was passed sub silentio.” United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 38 (1952); see also Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 91 (1998) (“We have often said that drive-by jurisdictional rulings ... have no precedential effect.”). The Athena Venture footnote represents just such an unexamined exercise of jurisdiction and so is without precedential effect. Jurisdiction was not disputed, and the case instead revolved entirely around a merits question of whether constructive knowledge of an arbitrator’s misrepresentation could trigger forfeiture of a misconduct claim in a subsequent motion to vacate. See Athena Venture, 803 F.3d at 147-48. The jurisdictional footnote was merely a recapitulation of the jurisdictional statement from the appellants’ brief, which was itself unaddressed by the appellees. Compare id. at 147 n.5 with Brief of Appellants at 1, Goldman, Sachs & Co. v. Athena Venture Partners, L.P., 803 F.3d 144 (3d Cir. 2015) (No. 13-3461), 2014 WL 1315263. Had the adversarial process properly put jurisdiction in issue, we doubt that the jurisdictional ruling 15 would have been the same. Indeed, it could not have been,9 which is the second reason that Athena Venture does not bind us on the question of jurisdiction: it is contrary to our own prior precedent. “In the unique circumstance when our panel decisions conflict and our Court has not spoken en banc, ... the earlier decision is generally the controlling authority.” United States v. Tann, 577 F.3d 533, 541 (3d Cir. 2009). Long before Athena Venture, in a case called Virgin Islands Housing Authority v. Coastal General Construction Services Corp., we applied the well-pleaded complaint rule to a § 10 motion to vacate and refused to look through to the claims in the underlying arbitration, so that jurisdiction would not lie where the allegations “did not include any reference to a federal statute other than the Arbitration Act.” 27 F.3d at 915. “[N]ot only must federal jurisdiction exist aside from the Arbitration Act, but the independent basis must appear on the face of the complaint.” Id. We found jurisdiction lacking where the pleadings did not “contain allegations sufficient under the well-pleaded complaint rule to support a finding of a substantial federal question.” Id. Therefore, even if the Athena Venture jurisdictional statement were anything more than our Court’s unexplained acceptance of the parties’ representations about jurisdiction, it would nonetheless be trumped by the prior holding in Coastal General. 9 That is not to say that the Court could not have determined there was jurisdiction on some other theory, only that it could not have relied on the look-through theory. 16
and § 10 of the FAA To overcome the precedential force of Coastal General, the Goldmans need to point to some intervening change in the law. The closest they come is their invocation of the Supreme Court’s opinion in Vaden v. Discover Bank, 556 U.S. 49, 62 (2009), which held that “[a] federal court may ‘look through’ a § 4 petition [to compel arbitration] to determine whether it is predicated on an action that ‘arises under’ federal law.” The Goldmans argue that we should apply that same look-through treatment to § 10 motions to vacate arbitration awards. While there may be some superficial appeal to treating a § 10 motion to vacate an arbitration award in the same manner as a § 4 motion to compel arbitration, a close reading of Vaden and the relevant provisions of the FAA undercuts the Goldmans’ argument. To begin with, the Vaden opinion made clear that it was doing nothing to disturb the well-pleaded complaint rule or the general proposition that the FAA provides no federal cause of action. Specifically, the Court reaffirmed that federal question jurisdiction under 28 U.S.C. § 1331 works the same for FAA suits as for any others, so that, “[u]nder the longstanding well-pleaded complaint rule, ... a suit ‘arises under’ federal law ‘only when the plaintiff’s statement of his own cause of action shows that it is based upon [federal law].’” Id. at 60 (quoting Louisville & Nashville R. Co. v. Mottley, 211 U.S. 149, 152 (1908)). The Court also said, [t]he body of federal substantive law generated by [the FAA] is equally binding on state and federal courts. ... [The FAA] bestows no 17 federal jurisdiction but rather requires for access to a federal forum an independent jurisdictional basis over the parties’ dispute. Given the substantive supremacy of the FAA, but the Act’s nonjurisdictional cast, state courts have a prominent role to play as enforcers of agreements to arbitrate. Id. at 59 (internal quotation marks, editorial marks, and citations omitted). In explaining why the well-pleaded complaint rule was relaxed for § 4 petitions to allow look-through to the underlying dispute’s subject-matter, the Court focused on the unique language of that portion of the statute, saying, “[t]he text of § 4 drives our conclusion that a federal court should determine its jurisdiction by ‘looking through’ a § 4 petition to the parties’ underlying substantive controversy.” Id. at 62. According to that text: A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. 9 U.S.C. § 4 (emphasis added). The Supreme Court concluded that “[t]he phrase ‘save for [the arbitration] 18 agreement’ indicates that the district court should assume the absence of the arbitration agreement and determine whether it ‘would have jurisdiction under title 28’ without it.” Vaden, 556 U.S. at 62. In addition to giving effect to the words of that provision, the Court reasoned that failing to look through a § 4 petition to the underlying dispute would have “curious practical consequences”: It would permit a federal court to entertain a § 4 petition only when a federal-question suit is already before the court, when the parties satisfy the requirements for diversity-of- citizenship jurisdiction, or when the dispute over arbitrability involves a maritime contract. [Failing to look through] 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 contrast, when the parties’ underlying dispute arises under federal law, the “look through” approach permits a § 4 petitioner to ask a federal court to compel arbitration without first taking the formal step of initiating or removing a federal-question suit – that is, without seeking federal adjudication of the very questions it wants to arbitrate rather than litigate. Id. at 65. Neither the textual nor practical considerations noted by the Court in Vaden apply in a case relying on § 10 of the 19 FAA. Section 10 lacks the critical “save for such agreement” language that was central to the Supreme Court’s Vaden opinion. It provides that “the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration ... .” 9 U.S.C. § 10. There is no reference to the subject matter of the underlying dispute. Thus, while § 4 calls for a court to consider whether it would have jurisdiction over the “subject matter of a suit arising out of the controversy between the parties,” § 10 makes no such demand. We therefore join other courts in holding that § 4 of the FAA should be read differently than § 10 for jurisdictional purposes. Before Vaden, the United States Court of Appeals for the D.C. Circuit had noted that, even if § 4 provides look-through federal question jurisdiction, “the same words are not in § 10.” Kasap v. Folger Nolan Fleming & Douglas, Inc., 166 F.3d 1243, 1247 (D.C. Cir. 1999). Earlier still, the United States Court of Appeals for the Seventh Circuit ruled that there was “no reason to artificially import the language” of § 4 “into § 10, since we do not believe it is necessarily anomalous for Congress to have intended that federal courts take jurisdiction for purposes of a motion to compel where the underlying dispute is federal, but not take jurisdiction on a parallel motion to vacate.” Minor v. Prudential Sec., Inc., 94 F.3d 1103, 1107 (7th Cir. 1996). Explaining why Congress may have treated petitions to compel arbitration and motions to vacate differently, the Seventh Circuit opined that: The central federal interest was enforcement of agreements to arbitrate, not review of 20 arbitration decisions. Thus it would be reasonable for Congress to give federal courts the responsibility of ensuring arbitration agreements are upheld in cases where the courts would otherwise have jurisdiction. However, once the arbitration agreement is enforced, there exists no compelling need for the federal courts to be involved, unless a federal question is actually at issue or diversity is established. The central goal of the FAA will already have been addressed, and well-established rules of federal jurisdiction, including the well-pleaded complaint rule, should govern. Accordingly, merely because a district court may have jurisdiction over a motion to compel arbitration where an underlying federal question is at stake ... does not mean the same holds true in the context of a § 10 motion to vacate. Id. (internal quotation marks, editorial marks, and citation omitted). The Seventh Circuit’s policy rationale meshes exactly with the Vaden Court’s subsequent “practical consequences” argument, 556 U.S. at 65, in explaining why look-through need not apply in the § 10 context. As the Supreme Court noted in Vaden, the reason for a petition to compel arbitration is to resolve the dispute through arbitration rather than going to court, so it would be contrary to the purpose of § 4 to require the petitioner to first bring suit. Id. That logic, however, does not apply to § 10, which takes effect only when the arbitration has concluded. When 21 seeking to vacate the result of an arbitration that has already occurred, the movant is challenging the procedural propriety of the arbitration, which is unrelated to the subject matter of the underlying dispute. The present case is a prime example. The Goldmans complain that they were subject to “voluminous” and “oppressive” discovery demands (App. 289), a “blatantly partial” arbitration panel (App. 289), respondents who “blatantly conceal[ed] evidence” (App. 292), “reprehensible conduct” from CGMI’s lawyers (App. 293), and mediator “perjury” (App. 293). Those are procedural criticisms. There is, in other words, no federal question which a district court could consider in a § 10 dispute such as this one; whereas, in a § 4 case, the petitioner always could have brought a federal question suit before requesting that the court send the matter to arbitration. In concluding that Vaden’s “look-through” basis for jurisdiction does not extend to § 10 motions to vacate, we adopt the reasoning of the Seventh Circuit’s recent decision in Magruder v. Fidelity Brokerage Services LLC, No. 15-1846, 2016 WL 1059469 (7th Cir. Mar. 17, 2016). As discussed there, rejecting look-through in cases involving §§ 9 and 10 of the FAA “harmonizes the law of arbitration with the law of contracts.”10 Id. at . 10 Section 9 of the FAA governs confirmation of arbitration awards and provides that “at any time within one year after the award is made any party to the arbitration may apply to the court ... for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected ... .” 9 U.S.C. § 9. Like § 10, § 9 has none of the look-through language of § 4 that undergirds the Vaden opinion. 22 Put FINRA and its rules aside for a moment and consider what would have happened if [the plaintiff] had sued [the defendant] under the federal securities laws ... . Most litigation ends in settlement – which is to say, in a contract. If [the parties] had reached a contractual solution but later disagreed about performance, could they return to federal court under the securities laws? The answer is no. Id. (citing Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375 (1994)). In short, “[the] conclusion ... that a federal question can suffice to order arbitration under § 4, but not to enforce or set aside the decision under § 9 or § 10, parallels the distinction ... between an original federal claim and a dispute about its contractual resolution.” Id. We therefore hold that a district court may not look through a § 10 motion to vacate to the underlying subject matter of the arbitration in order to establish federal question jurisdiction. Instead, the traditional well-pleaded complaint rule applies so that the motion to vacate must, on its face, “necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.” Grable, 545 U.S. at 314.