Labor & Employment Law Daily Wrap Up, ARBITRATION—9th Cir.: District court, lacking jurisdiction, erred in granting Tesla’s petition to confirm zero-dollar award, (Apr 15, 2025)

By Tulay Turan, J.D.

A court cannot find jurisdictional facts by “looking through” a Section 9 petition to the underlying substantive dispute.

Ruling that a district court lacked subject matter jurisdiction to confirm a zero-dollar arbitration award, the Ninth Circuit vacated the court’s order granting Tesla and Elon Musk’s petition to confirm. The court did not have jurisdiction because jurisdictional facts establishing the amount in controversy were not found on the face of the FAA Section 9 petition, and a court cannot “look through” the underlying substantive dispute to find such facts. Thus, the court remanded the action to the district court with instructions to dismiss (Tesla Motors, Inc v. Balan, No. 22-16623 (9th Cir. Apr. 14, 2025)).

The employee worked for Tesla as an automotive design engineer. In 2017, the Huffington Post published an article about her. She alleged that, after seeing the article, Tesla responded by publishing defamatory statements about her including accusations that she stole company money and resources.

Defamation complaint. In January 2019, the engineer filed a complaint for defamation against Tesla in the U.S. District Court for the Western District of Washington. Tesla filed a motion to compel the lawsuit to arbitration on the ground that the engineer’s claim was subject to a mandatory arbitration agreement contained in her employment agreement. The company further requested that the court either dismiss or stay the action. In June 2019, the Western District of Washington granted in part and denied in part Tesla’s motion to compel arbitration.

Arbitration begins. Thereafter, the engineer submitted an arbitration demand, and the process began. The arbitrator later put the proceedings on hold after Tesla appealed the order partially denying its motion to compel arbitration. The Ninth Circuit reversed the district court’s order in March 2021, holding that the entirety of her claim was arbitrable.

The district court accordingly entered an order that her entire defamation claim was subject to arbitration and granted Tesla’s earlier request, dismissing the case. The engineer amended her arbitration demand, added Elon Musk as a new party to the case, and brought a separate defamation claim against him based on a statement he allegedly made in August 2019 that she considered defamatory.

Arbitration ends. In August 2021, the arbitrator determined that California law should be applied. Tesla and Musk moved to dismiss the defamation claims based on California’s one-year statute of limitations. Because both statements were made more than a year before claims were filed, the arbitrator granted the motion and issued an award in Tesla and Musk’s favor on each of the engineer’s claims.

Appeal. In December 2021, Tesla and Must petitioned the Northern District of California to confirm the award. The court granted the petition to confirm, and the engineer timely appealed, arguing the district court lacked subject matter jurisdiction to confirm the award.

No jurisdiction. The Ninth Circuit agreed with the engineer that the district court lacked subject matter jurisdiction to confirm the award pursuant to Badgerow v. Walters, 596 U.S. 1 (2022), and, thus, it vacated the district court’s order granting Telsa and Musk’s petition to confirm.

A petitioner seeking to confirm or vacate an arbitration award must have a jurisdictional basis separate from the FAA’s “authorization of a petition [which] does not itself create jurisdiction.” Thus, for federal question jurisdiction to attach in a suit brought under the FAA, the complaint must include an averment under federal law other than Sections 9 or 10 of the FAA. Here, the application failed to satisfy this requirement, leaving Tesla to argue that the district court had diversity jurisdiction to confirm the award.

No “look through.” However, the court found the Supreme Court’s decision in Badgerow controlled this case and precluded diversity jurisdiction. In Badgerow, the court confronted the question of whether Sections 9 and 10 of the FAA (governing confirmation and vacatur of arbitration awards, respectively) authorized a court to find jurisdictional facts by “look[ing] through” Section 9 and 10 applications to the “underlying substantive dispute.” The Supreme Court ruled that Congress did not intend such a jurisdictional look-through approach with Sections 9 and 10 where express language authorizing the approach was included in Section 4 but absent in Sections 9 and 10.

Zero-dollar award. Because a look-through approach is prohibited under Badgerow, the facts establishing a jurisdictional basis must be present on the face of the application or petition to confirm an arbitration award. In other words, facts establishing that the amount in controversy exceeds $75,000 must be present on the face of a Section 9 petition to confirm an arbitration award before a district court can assert diversity jurisdiction over the action.

Here, that requirement was not satisfied. Tesla and Musk went to the district court to confirm a zero-dollar award dismissing the engineer’s claims. On its face, a petition to confirm a zero-dollar award cannot support the controversy requirement. Thus, because jurisdictional facts establishing the amount-in-controversy requirement were not found on the face of the petition, and a court cannot look through the petition to the underlying substantive controversy under Section 9, the Ninth Circuit held the district court did not have subject matter jurisdiction.

Not a stay case. The court also rejected Tesla’s attempt to characterize the case as a Section 3 case involving a stay. The district court did not stay the case, but rather, dismissed it. Tesla never contested the dismissal and never appealed the issue. Because Tesla never appealed the dismissal, even assuming Tesla was correct that the dismissal was in error under the Supreme Court’s decision in Smith v. Spizzirri, 601 U.S. 472 (2024), that unappealed and now-binding judgment was a dismissal, not a stay.

This is a Section 9 case, the Ninth Circuit reiterated, and the district court lacked subject matter jurisdiction as previously explained. Thus, the court vacated the order confirming the arbitration award and remanded to the district court with instructions to dismiss for lack of jurisdiction.

The case is No. 22-16623.

Judge: VanDyke, L.

Attorneys: Roshni Chaudhari Kapoor and Michael Weil (Morgan Lewis & Bockius) for Tesla Motors, Inc. Arthur Hawgood, III, and William Moran, II (Arthur William, LLP) for Cristina Balan.

Companies: Tesla Motors, Inc.

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