CMS Long‑Term Care Arbitration Rule Cannot Supply Federal‑Question Jurisdiction for FAA § 10 Vacatur Petitions: Third Circuit Reaffirms Badgerow and Grable Limits

Introduction

This Third Circuit decision addresses a recurrent jurisdictional puzzle at the intersection of the Federal Arbitration Act (FAA), federal agency regulations, and the “arising under” grant in 28 U.S.C. § 1331. In Williams v. ProMedica Health Systems, Inc., No. 24‑1369 (3d Cir. Dec. 2, 2024) (not precedential), the Court affirmed dismissal of a petition to vacate an arbitral award under FAA § 10(a)(4) for lack of subject‑matter jurisdiction. The petitioner, Darrell Williams, argued the parties’ arbitration agreement was invalid because it failed to comply with the Centers for Medicare & Medicaid Services’ (CMS) long-term care arbitration regulation, 42 C.F.R. § 483.70(m)(2)(i). The central question: can a party invoke federal‑question jurisdiction to vacate an arbitration award based on alleged noncompliance with the CMS rule?

The panel—Judges Restrepo, Montgomery‑Reeves, and Ambro (opinion by Judge Ambro)—held that the answer is no. Because both parties are Pennsylvanians, diversity jurisdiction was unavailable. And because neither the FAA nor the CMS regulation creates a private right of action, and the embedded CMS issue is neither colorable nor “substantial” in the Grable sense, the petition did not “arise under” federal law. The decision underscores two limits: (1) the FAA does not supply federal‑question jurisdiction for confirmation/vacatur proceedings; and (2) CMS’s long‑term care arbitration rule—by its own terms and as interpreted by the Eighth Circuit—does not regulate the validity or enforceability of private arbitration agreements.

Summary of the Opinion

The FAA creates substantive arbitration law but not federal‑question jurisdiction. A party seeking vacatur under § 10 must identify an independent jurisdictional basis (Badgerow v. Walters).
No federal cause of action exists here. Neither the CMS regulation nor the Federal Register Act creates a private right of action; § 10 of the FAA is jurisdictionally inert standing alone (Merrell Dow; Moses H. Cone).
No embedded federal question supports § 1331 jurisdiction. Williams’s theory—that the CMS rule makes the agreement invalid because it was not explained to the resident’s representative—is “wholly insubstantial” for jurisdictional purposes (Arbaugh; BELL v. HOOD). CMS expressly stated the rule does not regulate enforceability, and the Eighth Circuit has said the same (Northport Health Servs.).
Even setting aside the “wholly insubstantial” doctrine, the claim does not satisfy Grable/Gunn’s “substantial federal issue” test. The question’s importance to the federal system as a whole is low; federal courts need not oversee this kind of private contract enforceability dispute.
Result: Affirmed. The district court correctly dismissed for lack of subject‑matter jurisdiction.

Case Background

Williams sued ProMedica in Pennsylvania state court for injuries his mother allegedly suffered in a long‑term care facility. ProMedica compelled arbitration based on an agreement signed by the mother, not by Williams (her legal representative). The arbitration panel held it had competence to decide arbitrability and deemed the agreement valid and enforceable against Williams. On the merits, the panel entered summary judgment for ProMedica because Williams did not file a certificate of merit required for professional negligence claims under Pennsylvania law.

The day before the state court confirmed the award, Williams filed a federal petition to vacate under FAA § 10(a)(4) in the Western District of Pennsylvania, arguing the agreement was invalid under a CMS rule effective September 16, 2019—about a month after the agreement was signed—requiring that a facility explain a proposed arbitration agreement in a manner the resident and representative understand, 42 C.F.R. § 483.70(m)(2)(i). The district court dismissed for lack of subject‑matter jurisdiction; this appeal followed.

Detailed Analysis

Precedents and Authorities Cited

Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 25 n.32 (1983): The FAA creates substantive law about arbitration but does not itself confer federal‑question jurisdiction.
Badgerow v. Walters, 596 U.S. 1 (2022): Parties seeking to confirm or vacate awards under FAA §§ 9–11 must show an independent jurisdictional basis; no “look‑through” jurisdiction for these post‑award proceedings.
Gunn v. Minton, 568 U.S. 251 (2013): Explains the Grable “embedded federal question” pathway to § 1331 jurisdiction and emphasizes that “substantiality” turns on importance to the federal system as a whole, not to the parties.
Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308 (2005): Articulates the four‑factor test for when state‑law claims with embedded federal issues “arise under” federal law.
MERRELL DOW PHARMACEUTICALS INC. v. THOMPSON, 478 U.S. 804 (1986): Federal law can impose obligations without creating a private right of action; absent a federal cause of action, § 1331 jurisdiction is usually lacking.
Arbaugh v. Y & H Corp., 546 U.S. 500, 513 n.10 (2006) and BELL v. HOOD, 327 U.S. 678 (1946): A purported federal claim that is “wholly insubstantial and frivolous” cannot support § 1331 jurisdiction.
ROSADO v. WYMAN, 397 U.S. 397, 404 (1970) and HAGANS v. LAVINE, 415 U.S. 528, 538 (1974): Acknowledge analytic tensions in the substantiality doctrine but confirm its continued vitality.
Smith v. Kansas City Title & Trust Co., 255 U.S. 180 (1921): Example where an embedded federal issue (constitutionality of federal bonds) justified federal‑question jurisdiction due to overarching federal interests.
Northport Health Services of Arkansas, LLC v. U.S. Department of Health & Human Services, 14 F.4th 856, 868–69 (8th Cir. 2021): The 2019 CMS long‑term care arbitration rule does not govern the enforceability of private arbitration agreements. CMS similarly stated in the Federal Register that it lacks power to annul valid contracts and does not purport to regulate enforceability. See 84 Fed. Reg. 34718, 34729 (July 18, 2019).

Legal Reasoning

1) No federal cause of action

The Court began from first principles: federal courts are courts of limited jurisdiction. This petition could proceed in federal court only if there is diversity jurisdiction (28 U.S.C. § 1332) or federal‑question jurisdiction (28 U.S.C. § 1331). Diversity was undisputedly absent. Under § 1331, the ordinary route is that federal law creates the cause of action. But the FAA is “jurisdictionally inert”—it authorizes confirmation and vacatur and prescribes standards, yet it does not itself open the federal courthouse door. Moses H. Cone; Badgerow.

Williams argued that because the CMS regulation is “legally binding,” it provides the federal cause of action. The Court rejected that move as a category error. Whether a federal regulation imposes obligations does not answer whether it creates a private right of action. Merrell Dow makes clear that obligations without a right of action do not create § 1331 jurisdiction. Here, neither the CMS rule nor the Federal Register Act creates a private right for residents or representatives to sue over arbitration disclosures. And FAA § 10 does not substitute as a jurisdictional grant. Thus, no federal cause of action exists.

2) No embedded federal question under Grable/Gunn

Williams alternatively contended that his vacatur challenge “arises under” federal law because it turns on the meaning and effect of the CMS rule. The panel addressed this in two steps.

First, applying the Bell/Arbaugh “substantiality doctrine” (distinct from Grable’s “substantial federal issue” prong), the Court held the CMS‑based theory of invalidity and unenforceability is “wholly insubstantial.” CMS explicitly disclaimed any intent or power to regulate the enforceability of arbitration agreements, and the Eighth Circuit has confirmed that understanding. When federal law by its own terms does not govern the enforceability question, a claim premised on such an effect is too insubstantial to ground jurisdiction.
Second, even ignoring Bell/Arbaugh, the claim fails Grable/Gunn. The embedded CMS question is not “substantial” in the sense that matters to § 1331—i.e., its importance to the federal system as a whole. Unlike Grable (IRS tax enforcement) or Smith (validity of federal bonds), the enforceability of a private arbitration clause in a nursing home contract does not implicate a strong, systemic federal interest in uniformity or the vindication of federal administrative action in a federal forum. Moreover, entertaining such cases in federal court would disrupt the federal‑state balance by transforming ordinary state‑law contract enforceability disputes into federal questions.

The Court also noted the temporal wrinkle: the CMS rule became effective a month after the agreement was signed. Although that point further undermines the CMS argument, the panel’s holding does not ultimately depend on retroactivity; its primary conclusions are that there is no federal cause of action and, separately, no qualifying federal question under either Bell/Arbaugh or Grable/Gunn.

Impact and Implications

This decision, though not precedential, has several practical and doctrinal implications:

FAA vacatur and confirmation petitions belong in state court absent diversity or an independent federal cause of action. After Badgerow, parties cannot “look through” to underlying federal issues for §§ 9–11 proceedings; they must find an independent jurisdictional hook. Williams reinforces that point in the Third Circuit.
CMS’s 2019 long‑term care arbitration regulation is not a jurisdictional ticket. It sets conditions of participation for facilities but does not create privately enforceable rights and does not regulate the validity or enforceability of arbitration agreements. Attempting to frame a vacatur petition as arising under that regulation will not create § 1331 jurisdiction.
Grable/Gunn’s “substantial federal issue” pathway remains a narrow corridor. Private contract enforceability disputes—even when they cite federal regulations—rarely raise questions “important to the federal system” akin to federal tax collection or the federal bond market.
Bell/Arbaugh “wholly insubstantial” screening is alive and well. Federal courts may dismiss for lack of jurisdiction when the purported federal foundation is plainly foreclosed by the text and regulatory history of the cited federal authority.
Litigation strategy in long‑term care arbitration challenges should focus on state law. Challenges based on formation, capacity, unconscionability, agency, or compliance with state‑law disclosure obligations are matters for state courts. Federal court ordinarily will not be available unless diversity exists.

Complex Concepts Simplified

FAA § 10(a)(4): Allows a court to vacate an arbitration award if “the arbitrators exceeded their powers.” But the FAA does not create federal‑question jurisdiction; it supplies rules, not a forum.
Federal‑question jurisdiction (§ 1331): Lets federal courts hear cases “arising under” federal law. Typically requires that federal law create the cause of action—or, in rare cases, that a state‑law claim necessarily raises a substantial federal issue under Grable.
Private right of action: A statutory or regulatory grant allowing a private party to sue to enforce a federal obligation. Without it, a federal duty usually cannot be litigated as a standalone federal claim in federal court.
Grable/Gunn test: A state‑law claim can “arise under” federal law only if a federal issue is necessarily raised, actually disputed, substantial (important to the federal system), and resolvable in federal court without upsetting the federal‑state balance.
“Wholly insubstantial” doctrine (Bell/Arbaugh): Courts can dismiss for lack of jurisdiction when the federal claim is plainly frivolous or foreclosed. This is distinct from Grable’s “substantial” prong; one asks whether the federal claim has any colorable substance, the other asks how important the federal issue is to the federal system.
CMS long‑term care arbitration rule (42 C.F.R. § 483.70(m)(2)(i)): Requires facilities, if they propose arbitration, to ensure the agreement is explained in a manner the resident and representative understand. CMS stated that it does not regulate the enforceability of arbitration agreements and lacks power to annul valid contracts.
Pennsylvania certificate of merit: In professional negligence cases, Pennsylvania requires a certificate of merit attesting to a reasonable probability that the defendant’s conduct fell outside acceptable professional standards. Failure can be dispositive on the merits in arbitration or court.

Discussion of Precedents’ Influence

The opinion’s backbone is Badgerow’s insistence that FAA post‑award proceedings stand on their own jurisdictional feet—no look‑through, no exceptions. Moses H. Cone supplies the broader principle that the FAA is not an independent jurisdictional grant. Merrell Dow forecloses reliance on a federal regulation’s “binding” character absent a private right of action. The pair of Arbaugh and Bell provides a filter to dispose of jurisdictional theories that are plainly untenable. And Gunn/Grable frame the embedded‑issue analysis, which fails here because enforcing private contracts is quintessentially state law and the federal system has no special stake in uniform federal adjudication of the CMS rule’s non‑enforceability clause.

Northport Health Services is particularly salient: it reads the same CMS rule and confirms that it does not regulate enforceability. That external circuit authority, coupled with CMS’s own Federal Register statements, renders the CMS theory not merely weak but “wholly insubstantial” for jurisdictional purposes.

Practical Guidance

Venue choice: If you seek to vacate or confirm an arbitration award and diversity is lacking, file in state court unless you have a distinct federal cause of action (rare).
CMS rule arguments: These can inform state‑law unconscionability or formation arguments, but they do not create federal jurisdiction and, per CMS and Northport, do not themselves render agreements unenforceable.
Preserve state‑law defenses early: Challenges to authority, assent, agency, and disclosure should be raised at the arbitration’s outset. Consider whether the arbitration clause delegates arbitrability issues to the arbitrator.
Be mindful of timing and parallel proceedings: Filing a federal petition on the eve of state‑court confirmation risks dismissal under Badgerow. If the state court has already confirmed, other doctrines (e.g., Rooker‑Feldman, preclusion) may complicate federal relief.

Conclusion

Williams v. ProMedica reinforces a clear jurisdictional rule: FAA § 10 vacatur petitions require an independent basis for federal jurisdiction, and the CMS long‑term care arbitration rule does not furnish one. The CMS regulation neither creates a private right of action nor governs the enforceability of private arbitration agreements; attempts to recast state‑law contract enforceability disputes as federal questions will fail both because they are “wholly insubstantial” and because they do not satisfy Grable’s stringent “substantial federal issue” requirement. The upshot is practical and predictable: absent diversity, disputes over the validity and enforceability of nursing‑home arbitration agreements belong in state court, adjudicated under state contract law, not in federal court under § 1331.

Although not precedential, the decision coheres with Supreme Court guidance in Badgerow, Gunn, and Merrell Dow, and with CMS’s own pronouncements and the Eighth Circuit’s Northport ruling. It offers a roadmap for litigants: frame arbitration‑agreement challenges within state law and state fora, and do not expect federal court access merely because a federal regulation is mentioned in the argument.