Law360 “Justices Could Clarify Post-Badgerow Arbitration Jurisdiction”

By Dave Pegno

If the U.S. Supreme Court grants a July 22 petition for certiorari in Jules v. Andre Balazs Properties, it could provide some clarity on an arbitration jurisdiction issue lingering since the court's 2022 decision in Badgerow v. Walters.[1]

It's a familiar enough story — a plaintiff files a complaint in federal court, only to be sent off to arbitration after the defendant files a motion to compel. Then, after the arbitration is concluded, the loser seeks to challenge the award in court, while the winner wants it confirmed. But where are those competing contentions litigated? It can be an important question for litigants.

The U.S. Court of Appeals for the Second Circuit most recently weighed in regarding the jurisdiction of federal courts to hear such proceedings with its April 25 decision in Jules v. Andre Balazs Properties.

Prior Circuit Court Opinions

Other circuit courts had previously reached differing conclusions on this issue. The genesis of this circuit split was the Badgerow ruling, which rejected the look-through theory of subject matter jurisdiction, adopted by the Second Circuit as well as other circuit courts.

Under that theory, courts looked through to the underlying claims in the arbitration to determine whether federal courts had subject matter jurisdiction over postaward petitions to confirm or vacate the award. If the underlying claims in the arbitration would have come under the federal court's jurisdiction, including if they asserted federal law claims, then the

court had jurisdiction over the ensuing postaward proceedings.

No dice, said the Supreme Court. After a close reading of the Federal Arbitration Act, the court ruled that federal courts have subject matter jurisdiction over actions to vacate or confirm only if the postarbitration proceeding has "an independent jurisdictional basis," such as diversity jurisdiction or where the application to the court itself raises federal questions beyond merely invoking the FAA.[2]

Badgerow did not address whether, where an action is brought in federal court in the first instance, and then the court issues an order compelling arbitration and staying the case pending that arbitration, the court retains jurisdiction to entertain postaward proceedings.

Pre-Badgerow Supreme Court rulings suggested that there would be jurisdiction, but Badgerow's requirement of an "independent jurisdictional basis" calls that reading of those calls into question.[3]

Justice Stephen Breyer's lone dissent in Badgerow foreshadowed the issue by suggesting that a party could, in effect, create a "jurisdictional anchor" for petitions to confirm or vacate by bringing an action in federal court, which is then ordered to arbitration and stayed, which would then give the court potential jurisdiction "over related FAA motions."[4]

This jurisdictional question could arise any time an action is initially brought in federal court based on federal question jurisdiction and then stayed pending arbitration. That is particularly so since the Supreme Court decided last year in Smith v. Spizzirri that where a motion to compel arbitration is granted and one of the parties requests that the action be stayed rather than dismissed pending arbitration, the court must stay and cannot dismiss the case.[5]

The first circuit court to weigh in on this question post-Badgerow was the U.S. Court of Appeals for the Seventh Circuit in Kinsella v. Baker Hughes.[6] There, the plaintiff brought an ADA claim against his employer, which the parties subsequently jointly moved to stay pending arbitration, after which the plaintiff sought to vacate the resulting award.[7]

Although the court noted that there appeared to be diversity jurisdiction, which would provide an "independent jurisdictional basis," the court ruled in addition that under its prior decisions "the district court's stay did not impact its jurisdiction to confirm or vacate the arbitration award" and "Badgerow does not change these conclusions."[8]

The court therefore ruled, in 2023, that it had subject matter jurisdiction. Next came the U.S. Court of Appeals for the Fourth Circuit's decision in SmartSky Networks LLC v. DAG Wireless Ltd., which came to a different result.[9]

In that case, the plaintiff filed a federal court action asserting federal and state law claims and sought injunctive relief, while shortly thereafter commencing an arbitration against one of the federal court defendants. The injunctive relief was denied without prejudice, the court case was stayed and all parties agreed to submit the case to arbitration.[10]

The arbitrators issued an award in favor of the plaintiff, which the plaintiff successfully moved to confirm in the stayed federal court action.[11]

The Fourth Circuit engaged in a lengthy analysis of the jurisdictional issue, determined that Badgerow's requirement of an "independent jurisdictional basis" requires courts to look at the postarbitration application itself to determine if there is subject matter jurisdiction, not the underlying, stayed lawsuit, and held, in 2024, that that underlying lawsuit could not serve as a "jurisdictional anchor" for applications to confirm or vacate an award.[12]

The Fourth Circuit further closely analyzed the pre-Badgerow cases that, as noted, suggested that the Supreme Court had ruled a prior stayed action in which arbitration has been compelled could serve as a vehicle for petitions to confirm or vacate, and determined that they involved different issues and the language contained in them was dicta, and thus, that the cases "do not provide any escape from Badgerow's holding that there must be an independent basis for subject matter jurisdiction."[13]

The court in SmartSky noted the Seventh Circuit's ruling in Kinsella, but declined to follow it"[c]onsidering the clear mandates of Badgerow."[14] The U.S. Court of Appeals for the Third Circuit appears to have joined Team Kinsella in August 2024, citing that case in George v. Rushmore Service Center, upholding jurisdiction in a brief footnote that does not address SmartSky nor any of the jurisdictional issues that Badgerow raises.[15]

Jules v. Andre Balazs

Enter the Second Circuit. In Jules v. Andre Balazs Properties,[16] the plaintiff brought a federal court employment discrimination action, the court stayed the action pending arbitration and later confirmed the resulting award.[17]

In a summary order, the Second Circuit noted the jurisdictional issue that Badgerow raised and that there was a circuit split on the issue. However, it further noted that the Second Circuit had previously ruled that a court that stays an action pending arbitration has the power to rule on later confirmation proceedings.[18]

It stated that "absent an express overruling or abrogation, we will not reconsider a prior panel's binding decision unless it is 'entirely undermine[d]' by an intervening decision of the en banc Court or the Supreme Court."[19] It held that Badgerow did not "entirely undermine" either its own prior decisions or the prior Supreme Court decisions that SmartSky had found unpersuasive, and "[w]e therefore consider ourselves bound to apply them and conclude that the district court retained jurisdiction."[20]

Thus, the Second Circuit effectively punted until the Supreme Court decides the issue, if it ever does. Although Jules is a summary order and therefore not technically precedential, and it involved a pro se litigant, it seems unlikely that another Second Circuit panel will rule that Jules got it wrong on the fundamental question of subject matter jurisdiction when it retained jurisdiction to decide the case.

Conclusion

What the Supreme Court will make of this issue — if it even decides to hear it — is difficult to say. In deciding matters concerning the FAA, including those relating to jurisdiction, the court's decisions have been driven by a close adherence to the FAA's text. But there is no obvious textual answer to this jurisdictional issue.

On the one hand, the court has said the statute requires that postaward proceeding must have an "independent jurisdictional basis." On the other hand, the court has said that a stay of a federal court action is mandatory when one party requests it pending arbitration — if the statute permits continuing jurisdiction over the stayed action, why not permit confirmation proceedings in that action?

The Fourth Circuit's decision in SmartSky is easily the most comprehensive to date, and it is consistent with Badgerow's emphasis on the limited jurisdiction of the federal courts, but that doesn't mean it will carry the day.

The current uncertainty can present litigants with something of a dilemma — a party may want the convenience and efficiency of proceeding with a postaward motion in an existing federal forum, but not wish to invest the time and resources in such a proceeding only for there to be a later determination that the court lacked subject matter jurisdiction to hear the case.

Adding this case to the Supreme Court docket for the next term would be a welcome development to reduce uncertainty for litigants who find themselves in this familiar situation.[21]

[1] 596 U.S. 1 (2022).

[2] Id. at 5, 8.

[3] See Cortez Byrd Chips, Inc. v. Bill Harbert Constr. Co., 529 U.S. 193, 202 (2000) (a "court with the power to stay the action under § 3 has the further power to confirm any ensuing arbitration award."); Marine Transit Corp. v. Dreyfus, 284 U.S. 263 (1932).

[4] 596 U.S. at 26 (Breyer, J., dissenting).

[5] Smith v. Spizzirri, 601 U.S. 472 (2024).

[6] 66 F. 4th 1099 (7th Cir. 2023)

[7] Id. at 1102.

[8] Id. at 1103.

[9] 93 F.4th 175 (4th Cir. 2024).

[10] Id. at 178-79.

[11] Id. at 179-80.

[12] Id. at 181-84.

[13] Id. at 184-87

[14] Id. at 184 n.8. The Seventh Circuit also rejected the district court's decision upholding jurisdiction that led to the Second Circuit ruling discussed below.

[15] George v. Rushmore Serv. Ctr., LLC, 114 F.4th 226, 238 n.16 (3d Cir. 2024).

[16] Nos. 23-1253(L), 23-1283(Con), 2025 WL 1201914 (2d Cir. Apr. 25, 2025).

[17] 2025 WL 1201914, at *1. Jules appears to have a peculiar procedural history. Initially, the plaintiff was represented by counsel in the district court, who then also represented him in the arbitration. After the award, which included sanctions on both the plaintiff and counsel, the attorney withdrew from representing the plaintiff and appeared as an "Interested Party". The plaintiff, appearing pro se in the district court, raised the Badgerow jurisdictional issue (his former lawyer did not), which is not too shabby for a pro se litigant bringing a claim concerning his former job in hotel guest relations.

[18] 2025 WL 1201914, at *2.

[19] Id. (brackets in Jules, quoting Sullivan v. Am. Airlines, Inc., 424 F.3d 267, 274 (2d Cir. 2005)).

[20] Id.

[21] The petition for certiorari in Jules can be found at 2025 WL 2071132.

This article first appeared in Law360 on August 11, 2025. David S. Pegno is a founding member of Dewey Pegno & Kramarsky.