With the Supreme Court of the United States’s decision to grant certiorari in Jules v. Andre Balazs Properties, the upcoming case challenging the scope of federal-court jurisdiction to confirm or vacate arbitration awards, federal practitioners, particularly in the Fourth Circuit, should take notice.  The case will resolve a potential circuit split on whether a district court’s initial assertion of jurisdiction to stay a case pending arbitration serves as a “jurisdictional anchor” giving the court jurisdiction to later confirm or vacate the arbitration award even if the court would otherwise lack jurisdiction.

 The issue directly implicates whether courts in the Fourth Circuit may continue to follow SmartSky Networks, LLC v. DAG Wireless, Ltd., 93 F.4th 175 (4th Cir. 2024), which strictly construes the jurisdictional prerequisites under the Federal Arbitration Act (FAA) in light of Badgerow v. Walters, 596 U.S. 1 (2022) to require an independent jurisdictional basis for a federal court to exercise jurisdiction over a Section 9 or 10 application to confirm or vacate an arbitration award. Depending on how the Court resolves the questions presented in the certiorari filings, the decision could upend or reinforce the Fourth Circuit’s approach, with significant ramifications for arbitration-related litigation strategy.

Background — FAA Sections 4, 9, 10, and the “Look-Through” Problem

Under the FAA, parties may ask a court to compel arbitration (Section 4), to confirm or enforce an arbitration award (Section 9), or to vacate or modify an award (Sections 10 and 11).  Section 4 allows a court to hear a petition to compel arbitration if the court would have jurisdiction “save for [the arbitration] agreement,” over “a suit arising out of the controversy between the parties.” Historically, many courts treated the confirmation or vacatur process as a continuation of the underlying federal litigation.  This was particularly true where the original complaint asserted federal question or diversity claims.

In Vaden v. Discover Bank, 556 U.S. 49 (2009), the Supreme Court endorsed a “look-through” approach for Section 4 petitions: a district court should imagine the arbitration agreement does not exist and assess whether it would have jurisdiction over the underlying dispute.  By contrast, in Badgerow, the Supreme Court rejected application of that “look-through” logic to Sections 9 and 10.  It reasoned that the text of those provisions lacks Section 4’s “save-for” language, and therefore a separate “independent basis” for subject-matter jurisdiction must appear “on the face of the application.”

That reasoning called into question a ubiquitous but previously unchallenged assumption:  whether a court that stayed a federal lawsuit pending arbitration, only to have the parties return for confirmation or vacatur of the award, retained jurisdiction solely because the case originated in federal court.

The Fourth Circuit’s Interpretation: SmartSky Networks

The Fourth Circuit in SmartSky concluded “no”—a district court must have an independent jurisdictional basis to confirm or vacate an award under Section 9 or 10.  SmartSky sued in the Middle District of North Carolina alleging, among other things, trade secret misappropriation and contract-related claims under federal law.  The district court stayed the case pending arbitration, and the arbitrator entered a final award in favor of SmartSky.  SmartSky returned to the district court and moved to confirm the award under Section 9.  Defendants responded by moving to vacate under Section 10.  The district court confirmed the award.

On appeal, the Fourth Circuit reversed.  It held that under Badgerow, the district court lacked subject matter jurisdiction to confirm the award because the enforcement motion (and the related vacatur motion) did not allege any independent federal cause of action.  The Fourth Circuit rejected SmartSky’s argument that the original complaint’s federal nature “anchored” jurisdiction for the enforcement phase.  Instead, the Fourth Circuit reasoned that Sections 9 and 10 actions are separate proceedings, so their jurisdiction must stand on their own.  

In so doing, the Fourth Circuit recognized this approach differed from other circuits.  The Fourth Circuit dismissed the idea that the prior stay to compel arbitration under Section 3 conferred “continuing jurisdiction” on the district court.  As the court observed, only FAA Section 8 (governing admiralty and arbitration in rem proceedings) expressly provides that a court may “retain” jurisdiction to resolve an award.  This authority does not exist elsewhere in the FAA.

As a result, the Fourth Circuit remanded the action for further proceedings, effectively shutting the door on enforcement in federal court absent a new, independent jurisdictional hook.

Second Circuit Analysis of the Facts and Holdings in Jules

In Jules v. Andre Balazs Properties, the Second Circuit affirmed the Southern District of New York’s confirmation of an adverse arbitration award against plaintiff Adrian Jules and his former attorney, Thomas Farinella, rejecting both procedural and jurisdictional challenges. Factually, the dispute began when Jules sued several Balazs-affiliated entities in federal court alleging extensive employment-related claims under federal and California law, despite having signed a broad arbitration agreement with Chateau Holdings, his actual employer.

The district court stayed the action under Section 3 and compelled arbitration.  During the arbitration, Jules unsuccessfully tried to add new parties and claims and ultimately withdrew from the process; the arbitrator went on to issue a sanctions-laden award against him.  

On appeal, the Second Circuit held that issues such as whether Chateau Holdings materially breached the arbitration agreement by purportedly failing to pay fees were delegated to the arbitrator under both the agreement’s “any dispute arising out of this Agreement” clause and its incorporation of JAMS rules, which independently vested the arbitrator with authority over jurisdictional and arbitrability issues.  

On the jurisdictional question, the court acknowledged that the petition to confirm the award revealed no independent basis for federal jurisdiction under Badgerow, and that the FAA itself confers none.  But relying on its pre-Badgerow precedents, the Second Circuit held that the district court’s original exercise of federal-question jurisdiction and entry of a Section 3 stay created a “jurisdictional anchor” permitting post-arbitration proceedings in the same case.  The court also allowed Chateau Holdings, a non-party to the original civil action but a party to the arbitration, to join the motion to confirm, noting that Section 9 authorizes any arbitration party to seek confirmation.  Ultimately, the panel concluded that Jules and Farinella had not met their “heavy burden” under Section 10 to vacate the award and therefore affirmed confirmation of the arbitrator’s ruling.

The Certiorari Petition

On Friday, the Supreme Court granted certiorari to resolve whether federal courts may confirm or vacate arbitration awards after staying a case pending arbitration, even where the face of the confirmation or vacatur motion shows no independent basis for jurisdiction.

The cert petition argues there is a “circuit split,” or at least a risk of one, over whether a stay under Section 3 allows for a return to federal court under Sections 9 or 10.  Petitioner argues that the Fourth Circuit’s opinion in SmartSky conflicts with the Seventh Circuit’s post-Badgerow opinion in Kinsella v. Baker Hughes Oilfields Operations, LLC, 66 F.4th 1099 (7th Cir. 2023), and the Second Circuit’s opinion in Jules.  The Respondents counter that the split is overstated, contending that only the Fourth Circuit has adopted the petitioner’s position.  Most other circuits have not yet had the chance to apply Badgerow in analogous circumstances.

Depending on how the Court rules, the certiorari decision could swing one of two ways, with different implications for practitioners, litigants, and corporate counsel drafting arbitration clauses.

Scenario A: The Court Upholds SmartSky (and Badgerow), Narrowing Jurisdiction

If the Supreme Court affirms the Fourth Circuit’s reasoning (or otherwise holds that a stay-then-enforce is not sufficient to confer continuing jurisdiction), the effect will be to narrow federal courts’ ability to enforce arbitration awards.  Under this scenario:

• Parties will need an independent basis for federal jurisdiction when confirming or vacating awards, such as diversity among the parties.
• In federal-complaint cases where the arbitrable issues are purely contractual, enforcement may not be possible in federal court.  Parties may be forced to litigate the enforcement or vacatur of the arbitration award in state court.
• Practitioners will need to pay careful attention during contract drafting to whether arbitration awards might need to be enforced or vacated.  If so, practitioners will need to analyze whether the venue for post-award litigation will be state or federal court.

This outcome would reinforce the Fourth Circuit’s approach in SmartSky as a reliable model for limiting federal-court involvement post-arbitration.  Such a decision would tether judicial review to jurisdictional factors on the face of the motion to enforce or vacate rather than to the history of the underlying litigation.

Scenario B: The Court Rejects SmartSky, Adopting the “Continuing Jurisdiction” Approach

Alternatively, the Supreme Court could depart from the Fourth Circuit’s narrow interpretation of jurisdiction, holding that a district court that previously stayed a federal action retains jurisdiction to confirm or vacate an arbitration award under the FAA on that basis alone.  Under such a decision:

• The traditional path of arbitrating and then returning to the original federal court for enforcement or vacatur would be restored, expanding the number of federal courts interpreting the FAA’s enforcement and vacatur provision.
• Practitioners could continue to rely on the convenience and procedural efficiencies of a “single-docket” workflow, rather than initiating separate state-court actions, which may include a rotating group of judges riding the circuit.
• The decision would arguably re-center federal courts in the arbitration ecosystem, reinforcing the federal framework for arbitration, rather than relegating enforcement to state forums and their varying rules and interpretations of the FAA.

Implications for the Fourth Circuit

From the vantage of a litigator or arbitration counsel practicing in the Fourth Circuit, there are several connected implications:

1. Uncertainty in venue planning.  Until the Supreme Court decides, parties and counsel face uncertainty about whether federal confirmation or vacatur will survive.  For new agreements, drafters will likely factor this risk in, especially where state-court litigation is unattractive.
2. Heightened attention to jurisdictional predicates.  In drafting pleadings to confirm or vacate, litigants must pay careful attention to what jurisdictional hooks (federal question, diversity) are included, or else risk dismissal under SmartSky if enforcement of arbitral awards is required later.
3. Potential forum-shifting strategy.  Some parties may consider initiating enforcement or vacatur in state court immediately, even where the original case started in federal court, to reduce the risk of federal dismissal or the impact of the one-year statute of limitations under Section 9 (confirming awards) or the three-month statute of limitations under Section 12 (vacating or modifying awards).

The grant of certiorari likely will offer clarity in the Fourth Circuit and beyond.  If the Supreme Court affirms the reasoning of SmartSky (or a narrower enforcement standard), state-court enforcement filings may increase, leaving interpretation of the FAA’s narrow vacatur provisions to the state courts.  If the Supreme Court reverses the reasoning of SmartSky, the result will likely restore federal courts as the principal enforcement forum, reinforcing the FAA as a unified, national arbitration framework and reducing procedural fragmentation.

Who to Contact?

Matt Abee, Madison Guyton, and Ashley Hawkins with Nelson Mullins are available to answer questions about how Jules v. Andre Balazs Properties may impact enforcement of arbitration agreements.  Please reach out to Nelson Mullins for more information about how your arbitration provisions may be impacted by the case.

These materials have been prepared for informational purposes only and are not legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  As portions of this alert may have been created with the benefit of artificial intelligence or large-language models, Internet subscribers and online readers should not act upon this information without seeking professional counsel.