The Supreme Court this week GVR’d an arbitration case involving jurisdictional issues. In this case, Burford German Funding v. Financialright Claims GMBH, the Court granted certiorari, vacated a Third Circuit decision, and remanded for further consideration in light of the Court’s Jules decision from earlier this year.
The Burford case involved a section 1782 application, filed in federal court in Delaware, for assistance in obtaining discovery for a dispute pending in Germany. The respondent in this proceeding asked the federal court to compel arbitration and stay the proceeding pursuant to sections 3 and 4 of the FAA and an arbitration clause in the parties’ agreement. However, the Third Circuit in a 2-to-1 decision found that the district court lacked jurisdiction to compel arbitration under section 4. The Third Circuit found that the section 1782 proceeding was not a “civil action” covered by section 4 of the FAA, and the Third Circuit also found that the district court’s existing jurisdiction over the discovery application did not provide jurisdiction over the section 4 petition.
Jules involved a federal court action that was stayed under section 3 of the FAA, and a party later tried to vacate an arbitral award. Earlier this year, the Court in Jules held that federal courts staying cases under section 3 of the FAA retain subject matter jurisdiction to confirm or vacate arbitral awards. In other words, there is no need to separately demonstrate an independent basis for subject matter jurisdiction for a vacatur or confirmation petition if the case is open and pending in federal court already.
If we extend the principles from Jules and applied them to the Burford case, Jules suggests that because the federal court already possesses jurisdiction to hear the section 1782 application, the court also has jurisdiction to hear an FAA petition to compel arbitration of a dispute related to this discovery proceeding, such as whether the parties breached an agreement by seeking this discovery.
One complicating fact is that, according to briefing in the Burford case, a foreign arbitration tribunal recently decided that the parties’ arbitration clause did not encompass the section 1782 discovery rights. (In general, I am skeptical of the arbitrability of statutory rights under an original understanding of the FAA, and the tribunal’s conclusion about the scope of the clause reaches the same result I would prefer. Also, notice the conceptual overlap of non-arbitrability and the federal court’s findings regarding jurisdiction. In other words, if one believes that the 1782 statutory rights are non-arbitrable as a matter of law, regardless of the contractual scope of the arbitration clause, a federal court could achieve the same result indirectly by finding no subject matter jurisdiction to compel arbitration.) This foreign arbitral award seems to moot the attempt to compel arbitration of the federal discovery proceeding, but the foreign arbitral award may be subject to enforcement or confirmation in the US. In other words, the original cert petition involved jurisdiction to compel arbitration, but the facts of the case now seem to involve jurisdiction regarding post-award relief. If we were applying Chapter 1 of the FAA to this case, it seems that an extension of principles from Jules would allow the federal court in Delaware, where the 1782 application is pending, to confirm an arbitral award related to the 1782 proceeding, without having to find an independent basis for subject matter jurisdiction. The Third Circuit’s earlier decision observed that the respondent in the federal court proceeding had refused to invoke Chapter 2 of the FAA, the provisions related to international arbitration, and instead insisted on relying on Chapter 1 of the FAA. Chapter 2 of the FAA generally provides for federal question subject matter jurisdiction in connection with international arbitration, while Chapter 1’s provisions do not automatically give rise to subject matter jurisdiction in the federal courts. With respect to a foreign arbitral award, a domestic US court may be able to enforce or confirm such an award under Chapter 2 of the FAA, or refuse recognition if there is a valid defense. However, a US court generally would not be able to annul the foreign award.
The case thus returns to the Third Circuit with an additional complication: Jules may undermine the court’s prior jurisdictional reasoning, while the intervening award may undermine the entitlement to compel arbitration. On remand, the court will have to consider both what Jules changes and what remains of the request to compel arbitration in light of the arbitral tribunal’s ruling.