Arbitration: Seventh Circuit Issues Jurisdictional Reminder (Web)

In, Wise v. Wachovia Securities, LLC, 2006 U.S. App. LEXIS 13929 (7th Cir. 2006)(available at http://www.ca7.uscourts.gov/tmp/U70JXAPU.pdf), the Honorable Richard A. Posner refused to vacate an arbitral award under both the non-statutory, “manifest-disregard of the law” doctrine or the grounds for vacating an award found under 9 U.S.C. § 10.  In this run-of-the-mill Seventh Circuit case Judge Posner took the opportunity to once again remind litigants in the Seventh Circuit that there must be an independent basis of jurisdiction to entertain a petition to vacate an award under Chapter 1 of the Federal Arbitration Act (FAA). (See Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 26 (stating that the Federal Arbitration Act 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 (1976 ed., Supp. V)).

The FAA was enacted on February 12, 1925, yet still, more than 80 years later, plaintiffs continue trying to base federal jurisdiction on the FAA despite the fact that the Act “confers federal jurisdiction in cases involving arbitration only of disputes that, were they litigated rather than arbitrated, would be within federal jurisdiction.”  Luckily, Wachovia noted that there was diversity of citizenship in this case, so the court was able to review the dispute on its merits.

--John Ousley, CPR Intern