What You Need to Know
- The decision in Badgerow v. Walters does not change the use of forced arbitration by the securities industry against investors, the president of PIABA says.
- The Supreme Court ruled that courts cannot “look through” to the underlying dispute to establish federal subject-matter jurisdiction.
The Supreme Court’s recent 8-1 decision to nullify a method to get into federal court to challenge or confirm an arbitration award will not change the FINRA arbitration process itself, but it will push more cases to state court, according to attorney Michael Edmiston, with Jonathan Evans & Associates.
On March 31, the Supreme Court ruled that courts cannot “look through” to the underlying dispute to establish federal subject-matter jurisdiction.
However, the Supreme Court’s decision in Badgerow v. Walters et al, in which advisor Denise Badgerow alleged she was unlawfully fired from Ameriprise affiliate REJ Properties, “will push more efforts to confirm or vacate arbitration awards to the state courts,” said Edmiston, president of the Public Investors Advocate Bar Association, or PIABA, a group of lawyers who represent investors in disputes with the securities industry.
Bottom line, according to Edmiston: “The Badgerow decision does not change the use of forced arbitration by the securities industry against investors. The securities industry will not give up arbitration’s benefits of confidentiality and risk management because a method to get into federal court to challenge or confirm an arbitration award has been nullified.”
Under the Federal Arbitration Act, a party to an arbitration agreement may ask a federal court to confirm or vacate an arbitral award.
The justices stated: “The question presented here is whether that same ‘lookthrough’ approach to jurisdiction applies to requests to confirm or vacate arbitral awards under the FAA’s Sections 9 and 10. We hold it does not.”
As the court’s decision states, Badgerow “initiated an arbitration proceeding against her employer’s principals, alleging that she was unlawfully terminated. After [Financial Industry Regulatory Authority] arbitrators dismissed Badgerow’s claims, she filed suit in Louisiana state court to vacate the arbitral award.”