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The Federal Arbitration Act (FAA) does not confer federal subject matter jurisdiction, but an argument that an arbitration award reflects the manifest disregard of the federal law may be sufficient to establish federal subject matter jurisdiction for the motion for confirm an award, held a New York federal court.
In Lightwave Communications, LLC v. Verizon Services Corp., No. 07 Civ. 6519(JSR), 2007 WL 2460369 (S.D. N.Y. Aug. 31, 2007), Lightwave both provided and purchased telecommunications services from Verizon.
Verizon was obligated, under federal law, to provide telecommunications services to Lightwave. Pursuant to federal law, charges for Verizon network elements were to be reasonable and nondiscriminatory. Lightwave and Verizon entered into a Wholesale Agreement for Lightwave to service 10,000 customers.
Under the Wholesale Agreement, Verizon billed Lightwave on a monthly basis. Lightwave detected many billing inaccuracies and reported the errors to Verizon. When the parties could not resolve these issues through Verizon’s internal review process, Lightwave took the dispute to arbitration pursuant to the Wholesale Agreement dispute resolution procedures.
The arbitrator awarded both Lightwave and Verizon their respective entitlements. Lightwave filed a motion in federal court seeking confirmation of the amount it was awarded. However, it also sought vacatur of other aspects of the award on grounds that the arbitrator exceeded his powers and manifestly disregarded federal law.
In return, Verizon moved to dismiss the action for lack of subject matter jurisdiction. The Court noted that the FAA does not confer subject matter jurisdiction on the federal courts. There must be an independent basis of jurisdiction before federal district courts can evaluate petitions to confirm or vacate.
Further, raising federal-law claims in the underlying arbitration is insufficient to supply the independent basis, but federal jurisdiction may still attach if the ultimate disposition depends on the resolution of a substantial question of federal law. Where the arbitrator’s alleged manifest disregard of federal law forms a key part of the petitioner’s complaint about the award, the federal questions thereby presented are substantial enough to support federal jurisdiction.
In dismissing the action, the Court noted that Lightwave did not present evidence that indicated there was any genuine issue of federal law before the arbitrator that he could have manifestly disregarded. Lightwave did not show the arbitrator’s manifest disregard of federal law to be the key part of its motion to vacate, and as a result, the federal questions presented were not substantial enough to support federal jurisdiction.
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