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Jurisdiction Issues

Federal Circuit Declines to Hear Challenge to Patent Board’s Decision Even Though Decision Allegedly Involved Adjudicating Issues Subject to Arbitration

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The Federal Circuit Court of Appeals recently declined to hear an appeal or grant a writ of mandamus seeking review of a decision by the Patent Trial and Appeal Board to institute inter partes review proceedings even though those proceedings were allegedly subject to arbitration.

MaxPower Semiconductor Inc. sought to appeal the Patent Trial and Appeal Board’s decision to institute inter partes review proceedings involving four of MaxPower’s patents. In the alternative, MaxPower sought a writ of mandamus to review the board’s decision. In relevant part, MaxPower argued that “the collateral order doctrine warrant[ed] immediate review because its challenge implicates questions of whether the Board can institute proceedings that are subject to arbitration.”

The Federal Circuit rejected MaxPower’s arguments for review, including its argument that it was entitled to immediate review because the question whether the board could institute proceedings subject to arbitration was implicated. The court explained that “[i]f MaxPower [was] truly not raising matters that are absolutely barred from appellate review … then MaxPower can meaningfully raise its arbitration-related challenges after the Board’s final written decisions. We therefore cannot say that MaxPower has established jurisdiction to review these decisions under the collateral order doctrine.”

In re MaxPower Semiconductor, Inc., No. 2021-146 (Fed. Cir. Sept. 8, 2021).

Eleventh Circuit Rules FAA Does Not Create Subject Matter Jurisdiction

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Brett-Andrew Nelson filed a petition to confirm an arbitration award issued by the Sitcomm Arbitration Association. The award purported to award Nelson $500,000 from each of the four defendants based on their breach of an unspecified “contractual agreement.” Nelson claimed the district court had subject matter jurisdiction to confirm the award based solely on 9 U.S.C. § 9. The district court dismissed the petition with prejudice, finding no evidence of a valid contract between the parties. On appeal, the Eleventh Circuit Court of Appeals held sua sponte that the district court lacked subject matter jurisdiction over Nelson’s petition. While the petition claimed jurisdiction based on section 9 of the FAA, the Eleventh Circuit found the FAA does not create jurisdiction on its own; there must instead be an independent jurisdictional foundation. Because Nelson failed to establish subject matter jurisdiction, the court found the district court should have dismissed the petition without prejudice, rather than with prejudice. The matter was thus vacated and remanded for the limited purpose of allowing the district court to dismiss the case without prejudice.

Nelson v. Jackson, No. 21-10440 (11th Cir. Aug. 2, 2021).

Connecticut Supreme Court Finds State Law Statutory Limitation Period to Vacate Arbitration Award Confers Jurisdiction on State Courts and Not Preempted by FAA

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Plaintiff A Better Way Wholesale Autos Inc. filed an application in Connecticut state court seeking to vacate an arbitration award issued in favor of the defendants, James Saint Paul and Julie J. Saint Paul. The defendants filed motions to confirm the award and for attorneys’ fees, and to dismiss the plaintiff’s application. The defendants argued that the application was untimely under Connecticut Statutes section 52-420 (b) and that the trial court therefore lacked subject matter jurisdiction. The trial court order granting the defendant’s motions and dismissing the plaintiff’s application was affirmed on appeal. The Supreme Court of Connecticut framed the issues as: (1) whether Connecticut’s 30-day statutory limitation for seeking to vacate an arbitration award is “jurisdictional” in that it implicates the subject matter jurisdiction of state courts; and (2) whether the Connecticut statute is preempted by the FAA, which has a three-month limitation period for seeking to vacate.

With regard to the jurisdictional issue, the plaintiff claimed that section 52-420 (b) did not confer jurisdiction because the arbitration clause between the parties explicitly provided that any arbitration “shall be governed by the [FAA] … and not by any state law concerning arbitration.” But the Supreme Court agreed with the courts below that parties cannot privately agree to have the FAA’s three-month limitation period apply to a vacatur action filed in Connecticut state court, so as to override the limitation period in section 52-420 (b). The Supreme Court also found it is “hornbook law” that parties cannot confer subject matter jurisdiction on a court by consent or agreement. The Supreme Court was similarly unpersuaded by the plaintiff’s preemption argument, finding the time limitation in section 52-420 (b) does not impede the federal policy of enforcing arbitration agreements.

A Better Way Wholesale Autos, Inc. v. Saint Paul, No. SC 20386 (Conn. Apr. 15, 2021).

Third Circuit Affirms District Court’s Vacatur of Arbitration Award Where There Was No Agreement To Arbitrate, Leaving the Arbitrator Without Power To Act

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In early 2017, Transco received authorization from the federal government to construct a natural gas pipeline that required rights-of-way over several tracts of private property, including property owned by Regec. After failed negotiations as to how much money Regec should be paid for Transco’s use of his property, Transco brought a condemnation action, under the Natural Gas Act 15 U.S.C. § 717, against Regec in the United States District Court for the Middle District of Pennsylvania.

Regec filed a copy of a “foreign final judgment via arbitration award,” which described an alleged breach by Transco of a “contract” it entered into with Regec via “tacit acquiescence.” Transco did not participate in the arbitration, yet the arbitrator awarded Regec approximately $55 million and mailed a copy of the arbitration award to Transco’s office in Texas.

Even though the filing containing the arbitration award was struck by the district court, Regec nevertheless requested confirmation of the award under the Federal Arbitration Act. Transco responded with a motion to vacate the award under § 10(a) of the FAA, claiming that the award is “null and void.” The district court granted Transco’s motion by order entered October 8, 2019. Regec appealed.

On appeal, the Third Circuit held that it had jurisdiction under the FAA to review the October 8 order because the FAA provides grounds for immediate appeal distinct from principles of “finality” under 28 U.S.C. § 1291, certain grounds which were present in this case.

Addressing the merits of the October 8 order, the panel affirmed the district court’s vacatur of the arbitration award.

The panel rejected Regec’s jurisdictional challenge, finding that the district court had supplemental jurisdiction under 28 U.S.C. § 1367(a) to rule on Transco’s motion to vacate because the subject of the arbitration award was “so related” to the claims in the condemnation action, such that the contract giving rise to the arbitration award was formed as a result of litigation events in the condemnation action.

The panel also rejected Regec’s service-related challenge, holding that the district court did not err in finding Transco used a proper method to serve the motion to vacate, since service of a motion to confirm the arbitration award by a U.S. Marshal is unnecessary where a party is already before the court. Because service was proper, the panel also concluded that the motion to vacate was timely under the FAA.

Most significantly, the panel held that the district court did not err in granting Transco’s motion to vacate the arbitration award, which was based primarily on its conclusions that “the parties never agreed to arbitrate and so the arbitrator here had no jurisdiction,” and that “Transco received no notice of the ex parte arbitration proceeding or opportunity to be heard, and … suffered prejudice as a result.”  The panel found that arbitrator acted outside the scope of his contractually delegated authority—issuing an award that simply reflects his own notions of economic justice rather than drawing its essence from the contract—because there is no discernable agreement between the parties to arbitrate the dispute described by Regec. The panel made clear that absent an arbitration agreement, the arbitrator was without power to act.

Transcon. Gas Pipe Line Co LLC v. Permanent Easement for 2.59 Acres, Temp. Easements for 5.45 Acres & Temp. Access Easement for 2.12 Acres in Pine Grove Twp., Schuylkill Cty., PA, Tax Parcel No. 21-04-0016.000 361, Chapel Drive, Pine Grove, Pine Grove Twp., Schuylkill Cty. PA, No. 19-2738 (3d Cir. Oct. 28, 2020).

Fifth Circuit Affirms That District Court in Texas Lacks Jurisdiction to Vacate Arbitration Award in Florida

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Defendants-appellees picked up work orders from the plaintiff-appellant in its Florida offices, performed field work in Florida, and sent invoices to the plaintiff-appellant in Texas, who eventually stopped paying the invoices. The defendants-appellees commenced a AAA arbitration, and a Florida arbitrator eventually found in their favor. The plaintiff-appellant filed suit in Texas seeking to vacate the arbitration award under state law, which defendants-appellees opposed under FRCP 12(b)(2), (b)(3), (b)(5) and under the Colorado River abstention doctrine. The Western District of Texas dismissed the suit for lack of personal jurisdiction.

The circuit court focused on whether the defendants-appellees had “minimum contacts” in Texas, such that a Texas court could exercise specific personal jurisdiction over them. Looking at the parties’ contract, the place of performance was Florida. The circuit court dismissed the remainder of the plaintiff-appellant’s arguments in favor of jurisdiction, notably the argument that the parties’ agreement contained a Texas choice-of-law clause. “While such clauses can be probative of purposeful availment, they’re never dispositive.” Here, despite the Texas choice-of-law clause, the parties’ agreement does not suggest that they expected to resolve their disputes in Texas. In fact, the agreement required arbitration take place in accordance with the AAA’s venue-selection rules, i.e., as close as possible to the project in Florida. Finding no jurisdiction, the circuit court concluded that, “[i]n short, this is Florida’s problem. Not Texas’s.”

Sayers Const., LLC v. Timberline Const., Inc., et al., No. 19-51099 (5th Cir. Oct. 2, 2020)