Vaden v. Discover Bank
Issues
When a party petitions a court to compel arbitration under Section 4 of the FAA, should that court be able look at the facts of the underlying the dispute to find subject matter jurisdiction?
Under the Federal Arbitration Act (“FAA”), a party to a private arbitration agreement may petition a court to compel arbitration. However, the FAA only applies if federal law is implicated. A credit card agreement between Discover Bank and Betty Vaden contained an arbitration provision obligating cardmembers to arbitrate any disputes arising under the agreement. Discover Bank’s affiliate eventually sued Vaden in state court when she failed to make payments, and Vaden counterclaimed under state law. Discover Bank then petitioned the U.S. District Court of Maryland to compel arbitration under Section 4 of the FAA. The district court granted the petition, but the Fourth Circuit remanded, holding that the district court could only compel arbitration if the underlying dispute presented a federal question. The district court found that a federal question existed in the underlying dispute. On appeal, the Fourth Circuit affirmed the district court’s finding that it had jurisdiction because federal banking law preempted Vaden’s state law claims. Vaden argues that the Fourth Circuit’s holding conflicts with other circuits that hold that the petition itself must present a federal question.
The Supreme Court’s decision will resolve a circuit split on whether a federal court has subject matter jurisdiction over Section 4 FAA petitions where jurisdiction is based solely on the complaint for the underlying dispute. If the Court affirms the Fourth Circuit, parties may be able to invoke the FAA to compel arbitration when a federal question arises only in a counter-claim, even though the federal court would not have jurisdiction over the underlying dispute.
Questions as Framed for the Court by the Parties
1. Whether a suit seeking to enforce a state-law arbitration obligation brought under Section 4 of the Federal Arbitration Act, 9 U.S.C. § 4, “aris[es] under” federal law, see 28 U.S.C. § 1331, when the petition to compel itself raises no federal question but the dispute sought to be arbitrated—a dispute that the federal court is not asked to and cannot reach— involves federal law.
2. If so, whether a “completely preempted” state-law counterclaim in an underlying state-court dispute can supply subject matter jurisdiction.
Betty Vaden became a Discover cardmember in 1990. Although Discover Bank issued Vaden her credit card, it contracted many services such as collecting on delinquent accounts to Discover Financial Services (“DFS”). See Discover Bank; Discover Financial Services, Inc. v. Vaden, 489 F.3d 594 (4th Cir. 2007) (hereinafter Vaden II). In June 1999, Discover Bank sent Vaden a Platinum card.