Section 2 of the Federal Arbitration Act makes agreements to arbitrate “enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2 (2012). However, as Justice Brennan once wrote, the Federal Arbitration Act “is something of an anomaly in the field of federal-court jurisdiction. It creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal-question jurisdiction under 28 U.S.C. § 1331 or otherwise.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983) (citation omitted)).
This is true because under Section 4, a court has jurisdiction to hear a motion to compel arbitration when “save for such [arbitration] agreement, [the court] 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.” The substantive protections of Section 2 are “equally binding on state and federal courts,” but the federal courts must have independent federal jurisdiction.
In 2009, in Vaden v. Discover Bank, theSupreme Court applied the “well-pleaded complaint rule,” and interpreted the word “controversy” in Section 4 to mean the underlying state court litigation. Under this interpretation, courts can “look through” the four corners of the arbitration petition filed in federal court to consider any underlying state court complaint.
However, the Supreme Court found that federal jurisdiction was lacking because Discover Bank’s original complaint did not invoke a federal claim. The majority rejected a broader “look through” to the controversy subject to arbitration, which would have included the federal law counterclaims. (The dissent argued that Section 4 encompassed the entire arbitral controversy.)
In Doscher v. Sea Port, No. 15 Civ. 2814 (2d Cir. Aug. 11, 2016) (Wesley, J.), the Second Circuit held that Vaden overruled a previous decision from the Second Circuit that precluded it from using the look-through approach in determining whether federal question jurisdiction exists over an arbitration petition, Greenberg v. Bear, Stearns & Co., 220 F.3d 22 (2d Cir. 2000). While the District Court correctly applied Greenberg, we conclude that the Supreme Court’s subsequent decision in [Vaden] casts doubt upon Greenberg’s continued vitality. Upon reconsideration of Greenberg, therefore, we conclude that the reasoning of Vaden and the nature of the Act require overruling Greenberg.”
Thus, in the Second Circuit, District Courts will now apply the look-through approach when deciding if the court has jurisdiction over a petitioner to enforce or vacate an arbitration petition.