Reading Joint Apprenctice & Elec. Comm. v. Hiester, 2016 U.S. Dist. LEXIS 163328 (E.D. Pa. Nov. 28, 2016):

I. Introduction

Plaintiff Reading Joint Apprentice and Electrical Committee seeks to confirm an arbitration award it secured against Defendant Eric Hiester for breaching the parties' contract. Hiester has not responded to this suit, and the Committee has moved for the entry of a default judgment. Because the Court lacks subject matter jurisdiction to confirm the award, its motion is denied, and this case is dismissed.

II. Background²

2   Because Hiester is in default, he has admitted the factual allegations pleaded against him. Comdyne I, Inc. v. Corbin, 908 F.2d 1142, 1149 (3d Cir. 1990).

Reading Joint Apprentice and Electrical Committee is a "labor-management group" composed of representatives from Local Union No. 743 of the International Brotherhood of Electrical Workers and from the Reading Division of the Penn-Del-Jersey Chapter of the National [*2]  Electrical Contractors Association. Mem. Supp. Mot. Default J. 1, ECF No. 4. The Committee was created pursuant to a collective bargaining agreement between Local 743 and the Contractors Association, and its purpose is to administer a trust fund that provides for a five-year apprentice training program for prospective electricians.³

3   Joining the Committee as Plaintiffs are Local 743 and Ryan Helms, one of the individual trustees. For ease of reference, the Court will simply refer to the Committee, which was the signatory to the contract at issue.

Apprentices who participate in the program have a choice of how to repay the cost of their training. They can either repay the amount in cash, or they can commit to work for a union employer who makes regular contributions to the Committee. For each year of work they perform for a union employer they receive credits toward their outstanding tuition balance, and after five years, their tuition is paid in full.

Eric Hiester participated in the program from 2007 to 2012. Each year, he entered into an "Apprentice Scholarship Loan Agreement" with the Committee, which set forth his obligation to repay the cost of his training. See Compl. Exs. 1A-E, ECF [*3]  No. 1-1. After he completed the program, Hiester worked for a union employer for three years and earned credits toward his tuition balance. But in early 2015, a Local 743 organizer discovered that Hiester had taken a job with a non-union employer. That triggered a default under Hiester's Loan Agreements, which obligated him to immediately repay the remaining balance in cash.

The Committee sent Hiester a letter demanding payment, but Hiester did not comply. After three months had passed, the Committee initiated an arbitration proceeding against him pursuant to an arbitration clause that was included in each of the Loan Agreements. Hiester did not participate in the proceeding, and the arbitrator awarded the Committee $8,060 (representing Hiester's outstanding tuition balance and the costs of the arbitration). See Compl. Ex. 4.

The Committee then commenced this action to confirm the arbitration award. As with the arbitration proceeding, Hiester has not answered this suit, and the Committee has moved for the entry of a default judgment against him.

III. The Court lacks subject matter jurisdiction to confirm the arbitration award.

Section 9 of the Federal Arbitration Act allows a party to an arbitration [*4]  to apply to a court for an order confirming the arbitration award if the parties contemplated doing so in their arbitration agreement. But the Act does not provide federal subject matter jurisdiction to hear an application to confirm an award. Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 581-82 (2008). That means that if a party wishes to confirm an arbitration award in federal court, the party must first find a basis for federal subject matter jurisdiction.

Importantly, that basis for jurisdiction must arise solely from the application to confirm the arbitration award, not from the underlying dispute that the parties submitted to arbitration. See Goldman v. Citigroup Glob. Markets Inc., 834 F.3d 242, 255 & n.10 (3d Cir. 2016). That means that a district court may not "look through" the § 9 application to the underlying dispute to find a basis for jurisdiction. Id.⁴ Instead, jurisdiction must arise from the questions presented by the § 9 application itself. That sharply limits the district courts' ability to confirm arbitration awards, because "the court's function in confirming . . . an arbitration award is severely limited." Amicizia Societa Navegazione v. Chilean Nitrate & Iodine Sales Corp., 274 F.2d 805, 808 (2d Cir. 1960). When, as here, the three-month period for the losing party to object to the award has already passed, see 9 U.S.C. § 12, "the successful party has a right to assume the award is valid and untainted, and to obtain [*5]  its confirmation in a summary proceeding." Florasynth, Inc. v. Pickholz, 750 F.2d 171, 177 (2d Cir. 1984). Absent diversity (which is not present here), that leaves little room for a federal question to arise, because all the court is being called upon to do is enforce the parties' contractual agreement to arbitrate their disputes. See Comprehensive Accounting Corp. v. Rudell, 760 F.2d 138, 139 (7th Cir. 1985) (Posner, J.).⁵

4   To reach that conclusion, Goldman had to distinguish the Supreme Court's decision in Vaden v. Discover Bank, which held that a court may look to the underlying dispute to find a basis for subject matter jurisdiction to hear a petition to compel arbitration under § 4 of the Federal Arbitration Act. 556 U.S. 49, 62 (2009). Observing that there are both textual and practical differences between § 4, which governs petitions to compel arbitration, and §§ 9 and 10, which govern applications to confirm or modify arbitration awards, Goldman concluded that Vaden's reasoning was confined to the former. While that settles the matter for this Third Circuit District Court, it is notable that the circuits have recently split over the issue. Compare Goldman, 834 F.3d 242, and Magruder v. Fid. Brokerage Servs. LLC, 818 F.3d 285 (7th Cir. 2016), with Doscher v. Sea Port Grp. Sec., 832 F.3d 372 (2d Cir. 2016).

5   The lack of jurisdiction in this case does not turn on this principle because even if the Court could look to the underlying dispute over Hiester's breach of the repayment provision in the Loan Agreements, that [*6]  dispute would not supply a basis for subject matter jurisdiction.

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