Welcome to the Jungle: Rethinking the Amount in Controversy in a Petition to Vacate an Arbitration Award Under the Federal Arbitration Act

Abstract

The Luong opinion was not the beginning of the debate over the proper method for determining the amount in controversy in a petition to vacate an arbitration award under the Federal Arbitration Act. Neither was the opinion's withdrawal the end of the matter. In response to this "troubling issue," courts have adopted three different approaches for determining the amount in controversy. Some courts look to the amount of the arbitrator's award as the amount in controversy. Other courts look to the amount of the original demand in arbitration so long as the party seeking vacatur requests that the district court remand the matter to arbitration. One court looks to the amount of the underlying arbitration demand irrespective of whether remand is requested.

The purpose of this article is to analyze the different approaches of the courts to this issue, and to consider which of these approaches best comports with the policies underlying federal diversity jurisdiction and arbitration. Part II discusses general background principles. It begins with a summary of the scope of the Federal Arbitration Act and the nature of vacatur proceedings as authorized by the Act. Part II also includes a discussion of general jurisdictional principles, and the breadth of federal jurisdiction in vacatur actions.

Part III analyzes existing federal case law regarding the amount in controversy in a petition to vacate an arbitration award under the Federal Arbitration Act. Part III includes an explanation of the three predominant methods of determining the amount in controversy, which we will call the arbitration demand, arbitration award, and remand approaches. The part also explores the potential overlap in the application of the approaches.

Part IV examines the three approaches in light of longstanding jurisdictional principles. Recognizing that the vacatur action could not exist independent of the underlying arbitration, but is a natural extension of the ongoing chain of events flowing therefrom, the author posits that the approach most consistent with long lines of jurisdictional jurisprudence is to look to the original demand in arbitration. The author takes the novel approach that filing the petition to vacate is in essence an appeal of the arbitration award. Viewing the vacatur action as the appeal it is, this part concludes that, according to traditional litigation principles, the amount in controversy must be determined with reference to the original action (the arbitration demand), not the appeal (the vacatur petition).

Part V outlines the different approaches to determining the amount in controversy in light of policies underlying arbitration. The author posits that looking solely to the amount of the arbitration award fails to strike an appropriate balance between fairness and efficiency policy goals, but that the arbitration demand approach protects those principles.