This morning, the Supreme Court issued two unanimous decisions of interest to employees and employers. In the first, the Court held that the Federal Aviation Administration Act does not preempt state law negligent hiring claims against truck drivers, trucking companies and brokers where the plaintiff had been injured by a big rig in a traffic accident. Montgomery v. Caribe Transport II, LLC, No. 24-1238 (5-14-26). In the second, the Court held that federal courts retain jurisdiction over lawsuits filed alleging federal or diversity questions (like employment discrimination) which were stayed pending arbitration so that the federal court can confirm or vacate the later arbitration decision. Jules v. Balazs Properties, No. 25-83 (5-14-26). In this case, the arbitrator ruled in favor of the employer and awarded $34.5K in sanctions against the employee. “[A]federal court that has previously stayed claims in a pending action under §3 of the Federal Arbitration Act (FAA . . . has jurisdiction to confirm or vacate a resulting arbitral award as to those claims under §9 and §10. . . . Because a federal court in this scenario has jurisdiction over the original claims and does not lose that jurisdiction while the case is stayed pending arbitration, it retains jurisdiction to determine whether the arbitral award re solving those claims is valid and should be confirmed.” In other words, a “court with the power to stay the action under §3 has the further power to confirm [or vacate] any ensuing arbitration award.”
According to the Court’s decision in Jules, the
plaintiff worked for the employer hotel and brought a lawsuit alleging
employment discrimination under federal and state law after he was fired during
the pandemic. The case was stayed
pending arbitration pursuant to an agreement he had previously signed. The arbitrator ruled in favor of the employer
on all claims and issued the employer an award of $34,500 in sanctions (when
the plaintiff refused to ultimately participate in the arbitration hearing),
which it sought to confirm and enforce in the stayed federal court proceeding. The plaintiff argued that the federal court no
longer had jurisdiction because there was allegedly no longer any federal
question or diversity jurisdiction.
After an arbitral award has issued,
federal courts may confirm, vacate, or modify such an award under §9, §10, or
§11. Un der §9, a court must confirm an award upon request “unless the award is
vacated, modified, or corrected as prescribed in sections 10 and 11.” The
grounds for vacatur and modification are limited.
. . .
. . . For a federal court to have jurisdiction
over an arbitral dispute, it is not enough that the dispute implicates the FAA.
That is because the FAA is “‘something of an anomaly’ in the realm of federal
legislation.” . . . Although the FAA is a federal statute that
provides federal standards, it “does not itself create [federal] jurisdiction.”
. . . Instead, given the FAA’s “nonjurisdictional
cast,” a federal court must have an “‘independent jurisdictional basis’” for
granting FAA relief. . . . That could
come, for example, in the form of diversity jurisdiction if a dispute under the
FAA arises between citizens of different States with over $75,000 at issue. . . . Or a court may have federal-question
jurisdiction if an FAA motion implicates a federal issue (other than one under
the FAA).
In light of this, the Court will look through the
allegations of a petition to compel arbitration to the underlying substantive
dispute to determine whether federal jurisdiction exists. However, when the parties proceeded directly
to arbitration (without being ordered to do so by a federal court), the Court
will not look through the petitions to vacate or confirm an arbitration award
to determine whether federal jurisdiction exists.
The plaintiff argued that the petition to confirm the award
did not meet diversity jurisdiction (because it was less than $75K) and did not
raise a federal question. The Second Circuit and Supreme Court rejected this
argument out of hand.
To start with, . . , assessing jurisdiction over a §9 or §10
motion in a case originally filed in federal court does not require “looking
through” the filed action. Instead, the court may assess its jurisdiction by
looking at the suit that is already before it. As Badgerow explained,
“[j]urisdiction to decide [a] case includes jurisdiction to decide [a] motion”
within that case, and usually “there is no need to ‘look through’ the motion in
search of a jurisdictional basis outside the court.” . . .
Here, the District Court had
original jurisdiction, under 28 U. S. C. §1331, over [the plaintiff’s] federal
claims. It was this very jurisdiction that authorized the court to adjudicate
the arbitrability of [his] 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.” . . .
. . .
It is true that, by the time the
parties filed the §9 and §10 motions here, the arbitrator had issued an award
that marked “a contractual resolution of the parties’ dispute.” . . . As [plaintiff] argues, that out-of-court
resolution functioned like a release, which could serve as an affirmative
defense and be used to “resolve the original claim” filed in court. . . . The fact that the arbitral award may “resolve”
[his] original claims, however, only underscores why the District Court’s
original jurisdiction extends to the parties’ §9 and §10 motions. Those motions
required the District Court to assess whether there were grounds to vacate the
award. . . . They were thus integral to determining whether
the award would continue to serve as a valid defense to the original claims
that had been stayed, but were still pending, in District Court until the court
confirmed the award. . . .
. . . this Court has held that federal courts
have the power to incorporate private settlements into orders of the court when
resolving claims that are the subject of those settlements. In Kokkonen v.
Guardian Life Ins. Co. of America, 511 U. S. 375 (1994), for example, the
Court made clear that a federal “court is authorized to embody [a] settlement
contract in its dismissal order” and later “enforc[e]” that “settlement
agreement.” . . . Similarly, the Court has recognized federal
courts’ jurisdiction to embody contracts “arrived at by negotiation between the
parties” as consent judgments in certain circumstances. . . . . Federal courts also routinely resolve
disputes over private settlements in class actions, which can be settled “only
with the court’s approval.” . . . In each scenario, as here, the parties reach a
contractual resolution of claims filed in federal court, and the federal court
has juris diction to resolve disputes over that private settlement and embody
the settlement in a court order resolving the case.
. . .
Under the rule the Court adopts
today, this scheme con tinues to work well: The FAA requires a stay, rather
than dismissal, so that a court that has granted a §3 stay can superintend the
arbitration to the end, including through confirmation or vacatur. On Jules’s
theory, however, things would fall apart. Without an independent jurisdictional
ba sis (like complete diversity and more than $75,000 at stake) on the face of
a §5, §7, §9, or §10 motion, Jules concedes that a court that grants a
mandatory §3 stay has little to do but wait until the arbitration concludes
and, finally, dismiss the claims. It would be curious for §3 to mandate keeping
cases on federal dockets for essentially no reason at all in the cases where
federal interests are likely at their highest: those, like this one, involving
live federal questions. More plausibly, a court that grants a §3 stay retains
jurisdiction to see the case through and provide the FAA’s “procedural
protections” along the way.
NOTICE: This summary is designed merely to inform and alert
you of recent legal developments. It does not constitute legal advice and does
not apply to any particular situation because different facts could lead to
different results. Information here can change or be amended without notice.
Readers should not act upon this information without legal advice. If you have
any questions about anything you have read, you should consult with or retain
an employment attorney.
