PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

DISCOVER BANK; DISCOVER FINANCIAL 

SERVICES, INCORPORATED,

Plaintiffs-Appellees,

v.

BETTY E. VADEN,

Defendant-Appellant,

v.  No. 06-1221

FEDERAL DEPOSIT INSURANCE

CORPORATION,

Amicus Curiae.

JOHN R. KUCAN, JR.; TERRY COATES,

Amici Curiae. 

Appeal from the United States District Court

for the District of Maryland, at Baltimore.

William D. Quarles, Jr., District Judge.

(1:03-cv-3224-WDQ)

Argued: November 29, 2006

Decided: June 13, 2007

Before WILKINSON and DUNCAN, Circuit Judges, and

Joseph R. GOODWIN, United States District Judge for the

Southern District of West Virginia, sitting by designation.

Affirmed by published opinion. Judge Duncan wrote the majority

opinion, in which Judge Wilkinson concurred. Judge Goodwin wrote

a dissenting opinion. 

Reversed by Supreme Court, March 9, 2009
COUNSEL

ARGUED: John Andrew Mattingly, Jr., BALDWIN, BRISCOE &

MATTINGLY, CHTD., Lexington Park, Maryland, for Appellant.

Martin C. Bryce, Jr., BALLARD, SPAHR, ANDREWS & INGERSOLL, Philadelphia, Pennsylvania, for Appellees. ON BRIEF:

Joseph W. Hovermill, Matthew T. Wagman, John C. Celeste, MILES

& STOCKBRIDGE, P.C., Baltimore, Maryland; Alan S. Kaplinsky,

BALLARD, SPAHR, ANDREWS & INGERSOLL, Philadelphia,

Pennsylvania, for Appellees. Sara A. Kelsey, General Counsel, Richard J. Osterman, Jr., Assistant General Counsel, Colleen J. Boles,

Senior Counsel, Kathleen V. Gunning, Counsel, FEDERAL

DEPOSIT INSURANCE CORPORATION, Arlington, Virginia, for

Amicus Curiae Federal Deposit Insurance Corporation. F. Paul Bland,

Jr., TRIAL LAWYERS FOR PUBLIC JUSTICE, Washington, D.C.;

J. Jerome Hartzell, HARTZELL & WHITEMAN, L.L.P., Raleigh,

North Carolina; Carlene McNulty, NORTH CAROLINA JUSTICE

CENTER, Raleigh, North Carolina, for Amici Curiae John R. Kucan,

Jr., and Terry Coates.

OPINION

DUNCAN, Circuit Judge: 

For the second time, we hear an appeal in a dispute between Appellees Discover Bank and Discover Financial Services, Inc., a servicing

affiliate of Discover Bank ("DFS," and, together with Discover Bank,

"Discover"), and Appellant Betty E. Vaden ("Vaden"). This case

arises from Vaden’s failure to pay a credit card balance and DFS’s

resulting suit against her in state court. Vaden responded with several

class-action counterclaims against DFS. Discover Bank then filed suit

in federal district court under § 4 of the Federal Arbitration Act

("FAA"), seeking to compel arbitration of Vaden’s counterclaims. 

In the first appeal, we decided as a threshold matter that the federal

courts possess subject matter jurisdiction under § 4 of the FAA if the

underlying dispute presents a federal question. On remand, we

directed the district court to decide whether such a federal question

2 DISCOVER BANK v. VADEN
exists here. More specifically, we asked the district court to determine

whether Discover Bank or DFS was the real party in interest with

respect to Vaden’s state court counterclaims. If Discover Bank were

found to be the real party in interest, then the Federal Deposit Insurance Act ("FDIA"), 12 U.S.C. § 1811 et seq., would be implicated

because Discover Bank is a state-chartered, federally insured bank. In

that event, we asked the district court to determine whether the FDIA

completely preempted Vaden’s state law usury claims. If the district

court found that the claims were completely preempted and therefore

a federal question existed, it then had to determine whether there was

a genuine issue of material fact regarding the existence of an arbitration agreement between Vaden and Discover Bank. 

The district court found that this case presented a federal question

and accordingly denied Vaden’s motion to dismiss for lack of subjectmatter jurisdiction and stayed her state-court counterclaims pending

arbitration. We agree that a federal question exists here and that the

district court properly compelled arbitration. Therefore, we affirm. 

I.

In 1990, Vaden obtained a Discover credit card. The card was

issued by Discover Bank, a Delaware-chartered, federally insured

bank. DFS is a servicing affiliate of Discover Bank. According to the

servicing agreement between DFS and Discover Bank, DFS performs

such functions as marketing and servicing Discover Bank loan products and collecting on accounts pursuant to instructions from Discover Bank. J.A. 531-38. In June 1999, Discover mailed Vaden a new

Platinum Discover Card. Discover claims that Vaden’s account was

automatically converted to Platinum status at this time. Vaden’s

"Cardmember" statements, however, identified her as a regular Cardmember until September 1999. In July 1999, Discover mailed Vaden

a "Notice of Amendment to Discover Platinum Cardmember Agreement" (the "Notice of Amendment"). J.A. 33. This notice, which

applied only to Platinum Cardmembers, included a provision requiring arbitration of disputes. 

In July 2003, on behalf of Discover Bank, DFS sued Vaden in

Maryland state court for nonpayment of a card balance in excess of

$10,000. Vaden then filed class-action counterclaims based solely on

DISCOVER BANK v. VADEN 3
Maryland law against DFS. These counterclaims include a breach-ofcontract claim and claims that certain fees and interest rates were

charged in violation of applicable Maryland statutes that regulate

finance charges, late fees, and compounding of interest on consumer

credit accounts. In that proceeding, DFS was identified as "Discover

Financial Services, Inc. (Discover), SVC Affiliate of Discover Bank,

F/K/A Greenwood Trust Co., a DE chartered state bank and issuer of

the Discover Card." 

Shortly after Vaden filed these counterclaims, Discover filed a petition in federal court seeking to compel arbitration of Vaden’s statecourt counterclaims based on the arbitration provision in the Notice

of Amendment. Discover had made no previous requests to Vaden for

arbitration. The district court granted Discover’s motion to compel

arbitration. 

Vaden timely appealed and this court heard argument on that

appeal in December 2004. In January 2005, we considered the issue

of whether subject-matter jurisdiction existed. See Discover Bank v.

Vaden, 396 F.3d 366, 367 (4th Cir. 2005) ("Vaden I"). We held in

Vaden I that "when a party comes to federal court seeking to compel

arbitration, the presence of a federal question in the underlying dispute is sufficient to support subject-matter jurisdiction." Id. at 367.

We declined to decide whether such an underlying federal question

existed in this case. Id. On remand, we directed the district court to

determine whether a federal question existed and guided it to examine

whether Discover Bank was the real party in interest with respect to

Vaden’s state-court claims and whether these claims were completely

preempted by the FDIA.1

Answering these questions, the district court found that Discover

Bank was the real party in interest and that Vaden’s state court usury

claims were completely preempted. Also, the district court found that

there was no issue of material fact regarding the existence of an arbitration agreement between Vaden and Discover Bank, and accordingly granted Discover’s request for arbitration. 

1Much of the dissent’s discussion explicates its dissatisfaction with

Vaden I. The holding in Vaden I is, of course, the law of the case, and

beyond the reach of this appeal. 

4 DISCOVER BANK v. VADEN
Vaden again timely appealed the district court’s ruling, which

appeal is before us now. Vaden argues that DFS is the real party of

interest, and thus the FDIA is not implicated and the federal court is

without subject-matter jurisdiction over the dispute. Vaden also contends that compelling arbitration was improper for two reasons: (1)

Discover lacks standing because it failed to satisfy the relevant statutory requirements for compelling arbitration, and (2) there was not a

valid arbitration agreement between Vaden and Discover Bank. 

II.

We turn first to the question of whether the federal courts have

subject-matter jurisdiction over Discover Bank’s § 4 petition for arbitration under the FAA. 

Under § 4 of the FAA, a district court may issue an order compelling arbitration if the court would otherwise "have jurisdiction under

Title 28, in a civil action . . . of the subject matter of a suit arising

out of the controversy between the parties." 9 U.S.C. § 4 (2000)

(emphasis added). Section 4 does not require a party to actually file

suit regarding the underlying controversy; the FAA requires only that

a party be aggrieved by another party’s failure to arbitrate a controversy, "the subject matter of which would fall within the jurisdiction

of this Court, were an actual suit to arise out of the controversy."

Reynolds & Reynolds Co. v. Image Software, Inc., 254 F. Supp. 2d

761, 765 (S.D. Ohio 2003); see Vaden I, 396 F.3d at 369 ("We thus

hold that a federal court possesses subject-matter jurisdiction over a

case when the controversy underlying the arbitration agreement presents a federal question."); id. at 370 ("The text of § 4 requires us to

consider jurisdiction as it arises out of the whole controversy between

the parties."); Tamiami Partners, Ltd. v. Miccosukee Tribe, 177 F.3d

1212, 1223 n.11 (11th Cir. 1999) (suggesting that "it is appropriate to

look through the arbitration request to assess whether the underlying

dispute between the parties is grounded in federal law). Thus, a § 4

petition to compel arbitration is properly in federal court if the underlying dispute presents a federal question.2 Moses H. Cone Mem’l

2Were diversity jurisdiction to exist, this alone would be sufficient to

confer federal jurisdiction. Here, however, diversity jurisdiction is not

present. See 28 U.S.C. § 1332. 

DISCOVER BANK v. VADEN 5
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983); Vaden

I, 396 F.3d at 367. A court must therefore look through the arbitration

claim and examine the underlying state-court action. 

The Supreme Court has explained that even when a complaint

alleges only violations of state law, the case may nevertheless center

on a federal question, and therefore be removable,3 if federal law

completely preempts the state law claims. Caterpillar Inc. v.

3The dissent argues that complete preemption is purely a removal doctrine and therefore that we improperly invoke it upon the unique procedural posture of this case. Although complete preemption did originate

in the removal context, we conclude that it also applies to the unique procedural posture of this case. Complete preemption creates an exception

to the well-pleaded complaint rule: "On occasion, the Court has concluded that the pre-emptive force of a statute is so ‘extraordinary’ that

it ‘converts an ordinary state common law complaint into one stating a

federal claim for purposes of the well-pleaded complaint rule.’" Caterpillar, 482 U.S. at 393 (quoting Metropolitan Life Ins. Co. v. Taylor, 481

U.S. 58, 65 (1987)). The doctrine, therefore, does not flow from the procedural act of removal, but from the dominance of federal law over the

preempted state law. Thus, it is not a logical leap to apply this principle

to the instant case. To hold otherwise would have the perverse result of

returning to state court otherwise completely preempted federal claims

because of the unanticipated nature of a defendant’s counterclaims. 

Moreover, the question of whether complete preemption is a "removal

doctrine," see Dissenting Op. at 20, is irrelevant. The point is simply

whether Discover Bank’s arbitration petition presents a federal question.

See 9 U.S.C. § 4 (2000) (district court may order arbitration if the court

would otherwise "have jurisdiction under Title 28, in a civil action . . .

of the subject matter of a suit arising out of the controversy between the

parties."). We held as much in Vaden I, stating "the plain text of § 4

requires us to ask whether any basis for subject matter jurisdiction would

exist for the case in the absence of the arbitration agreement," Discover

Bank v. Vaden (Vaden I), 396 F.3d 366, 373 (4th Cir. 2005), and holding

"the presence of a federal question in the underlying dispute is sufficient

to support subject-matter jurisdiction," id. at 367. The Vaden I panel was

unanimous on this point, and other courts have also refused to unduly

restrict federal jurisdiction over Section 4 petitions. See, e.g., Tamiami

Partners, Ltd. v. Miccosukee Tribe, 177 F.3d 1212, 1223 n.11 (11th Cir.

1999). 

6 DISCOVER BANK v. VADEN
Williams, 482 U.S. 386, 393 (1987). This is the "complete preemption doctrine." Id. Caterpillar explains that "[o]nce an area of

state law has been completely pre-empted, any claim purportedly

based on that pre-empted state law is considered, from its inception,

a federal claim, and therefore arises under federal law." Id.

Complete preemption is an exception to the well-pleaded complaint

rule. Although generally a case may not "be removed to federal court

solely because of a defense or counterclaim arising under federal

law," Topeka Hous. Auth. v. Johnson, 404 F.3d 1245, 1247 (10th Cir.

2005), complete preemption is an exception to this rule and so federal

jurisdiction is proper, even though the preemption is only raised as a

defense. See Caterpillar, 482 U.S. at 393; see also Topeka Hous.

Auth., 404 F.3d at 1247 (noting that complete preemption is an exception to the general rule barring removal based on counterclaims) (citing 14B Charles Alan Wright, Arthur R. Miller & Edward H. Cooper,

Federal Practice & Procedure § 3722.1, at 508 (3d ed. 1998)).4

4The Supreme Court’s holding in Holmes Group, Inc. v. Vornado Air

Circulation Sys., Inc., 535 U.S. 826 (2002), relied upon by Vaden and

cited by the dissent, is not to the contrary. The Court reaffirmed "the

principle that federal jurisdiction generally exists ‘only when a federal

question is presented on the face of the [plaintiff’s] properly pleaded

complaint.’" Id. at 831 (quoting Caterpillar, 482 U.S. at 392). Holmes

Group did not, however, involve complete preemption. Moreover, the

Court grounded its holding in policies underlying the well-pleaded complaint rule, noting that, under the federal patent statute at issue in that

case, federal jurisdiction could not obtain based solely upon defendant’s

answer. Id. at 831. In complete preemption cases, however, "claims are

so ‘necessarily federal’ that they will always permit removal to federal

court, even if they are raised only by way of defense." Wright, Miller,

& Cooper, supra, § 3722.1 at 508. As such, "the complete-preemption

doctrine overrides such fundamental cornerstones of federal subjectmatter jurisdiction as the well-pleaded complaint rule and the principle

that the plaintiff is master of the complaint." Id.

The Holmes court was also concerned about allowing a defendant to

evade a plaintiff’s choice of state forum and the well-pleaded complaint

rule by asserting federal counterclaims: this is the opposite of the facts

here. In this case, the only claims advanced by Vaden’s counterclaims

purport to be state law claims. There is no danger that defendant Vaden

DISCOVER BANK v. VADEN 7
In misapprehending that complete preemption is a narrow exception to the general rule that federal jurisdiction must appear on the

face of the complaint, the dissent fails to appreciate the fundamental

distinction between complete and ordinary preemption. Its interpretation would deny Discover Bank a federal forum even if Discover

were a nationally—as opposed to state—chartered bank operating

under a federal law the Supreme Court has expressly held to completely preempt state law. See infra Part II.B. The fallacy inherent in

the dissent’s view is patent: it would render the concept of complete

preemption a nullity. 

For subject-matter jurisdiction to exist in this case, then, two

requirements must be satisfied: (1) a federal law other than the FAA

must be invoked; and (2) said federal law must completely preempt

the state law claims in question. The district court, at our direction,

found that there was a federal question in the underlying dispute

because Discover Bank was the real party in interest in the state-court

proceedings, thereby implicating the FDIA, and that the FDIA completely preempted Vaden’s state-court usury claims against Discover

Bank. We now consider its determinations, discussing each in turn.

We review questions of subject-matter jurisdiction de novo, Lontz v.

Tharp, 413 F.3d 435, 438 (4th Cir. 2005).

A.

First, we look to whether a federal law is invoked by the underlying state court dispute. See Caterpillar, 482 U.S. at 393. To resolve

this question we must answer another: whether Discover Bank, as

might frustrate plaintiff Discover Bank’s choice of state forum. To the

contrary, it is Discover who filed the arbitration complaint in federal

court and Vaden who is resisting federal jurisdiction. 

Moreover, the whole point of the complete preemption doctrine is that

plaintiff’s choice of forum is not given preference, but must instead yield

to Congress’ intent that some claims, even those cloaked in state-law

trappigs, are really federal causes of action. In this, complete preemption

is an exception to the well-pleaded complaint rule: when complete preemption obtains, a plaintiff may not avoid a federal forum by asserting

only state claims. 

8 DISCOVER BANK v. VADEN
opposed to DFS, is the real party in interest with respect to Vaden’s

counterclaims.5 On the face of the pleadings, DFS, not Discover

Bank, is the party to the state-court dispute. If Discover Bank is not

the real party in interest with respect to the counterclaims, the FDIA

does not apply because DFS is not a bank,6 and therefore the counterclaims implicate no federal law. The parties’ styling of the pleadings

does not control our analysis, however; we must decide whether

Vaden’s state-court counterclaims are really directed at Discover

Bank rather than DFS. See Vaden I, 396 F.3d at 372 n.3. The district

court found that Discover Bank was the real party of interest with

respect to Vaden’s counterclaims, and we agree. 

One of our most fundamental procedural rules is that an action

must be brought by the party that has the right to enforce the claim

and has a significant interest in the litigation. See Va. Elec. & Power

Co. v. Westinghouse Elec. Corp., 485 F.2d 78, 83 (4th Cir. 1973) (citing Fed. R. Civ. P. 17(a)). The identity of the "real" party may not

5The dissent calls this inquiry an "unnecessary detour," citing Federal

Rule of Civil Procedure 17(a). See Dissenting Op. at 23 n. 4. It is mistaken. To begin with, Discover Bank is not a defendant in the federal

action, but a petitioner filing a "verified complaint in the nature of a petition to compel arbitration and enjoin defendant’s prosecution of her state

court counterclaim." In any case, as the FDIC’s amicus brief demonstrates, courts must routinely determine whether a bank, rather than one

of its business partners, may resort to the preemptive scope of the NBA

or the FDIA. To avoid this analysis would allow a plaintiff to artfully

plead state law claims against a non-bank defendant and thus frustrate

Congress’ intent that certain causes of action are always federal. See,

e.g., Krispin v. May Dep’t Stores Co., 218 F.3d 919, 924 (8th Cir. 2000)

(finding complete preemption under National Bank Act although bank

extending credit was not a party to the state court action). The real-partyin-interest analysis is also necessary to prevent a defendant from falsely

asserting that it is a bank and thus preempting large swaths of state law

which Congress did not intend to displace. See, e.g., In re Community

Bank of Northern Va., 418 F.3d 277, 297 (3d Cir. 2005) (finding complete preemption inapplicable because the loans at issue were made by

a non-depository institution). 

6

It is uncontested that DFS is not a bank, state-chartered or otherwise,

and therefore neither the National Banking Act nor the FDIA applies to

it. 

DISCOVER BANK v. VADEN 9
always be apparent from the face of pleadings; it may be necessary

to look beyond the pleadings to the facts of the dispute. See Vaden

I, 396 F.3d at 373 n.3; see also Phipps v. FDIC, 417 F.3d 1006, 1011

(8th Cir. 2005) ("[W]e are required to look beyond the plaintiffs’ artful attempts to characterize their claims to avoid federal jurisdiction."). Such is the case here. 

The need to look carefully at the facts to determine the real party

in interest is particularly compelling in this instance because of the

unique and complex relationships among the parties through the various phases of this litigation.7

 The instant suit began when DFS, identified as "Discover Financial Services, Inc. (Discover), SVC Affiliate

of Discover Bank, F/K/A Greenwood Trust Co., a DE chartered state

bank and issuer of the Discover Card," sued Vaden in Maryland state

court for an unpaid credit card balance. Vaden counterclaimed against

DFS, alleging damages based upon improper assessment of fees and

interest charges: "[T]hus, her claims were directed against the entity

that extended her credit, charged her interest and had a right to bring

the collection action—the lender." Amicus Br., FDIC, at 2. Vaden

would have us simply accept DFS as the lender, and thus real party

in interest, and deny Discover Bank’s role as originator of her Cardmember account. The facts, however, show that Discover Bank was

the lender here and therefore the real party in interest. 

There are several pieces of evidence we find instructive in construing the relationship between Vaden and Discover Bank. The Cardmember agreements issued to Vaden are of particular significance.

These agreements conclusively demonstrate that Discover Bank was

the entity that extended Vaden credit and set the interest and fees of

which Vaden complains.8See e.g., J.A. 26-27, 29-31, 206-07. The

agreements allow Discover Bank to levy periodic finance charges and

7At our request, the Federal Deposit Insurance Corporation submitted

an amicus brief assessing the issue of whether Discover Bank was the

real party in interest on these facts. We find its analysis of the record

helpful in parsing the various agreements and documents that delineate

the relationship among Discover Bank, DFS, and a cardmember such as

Vaden. 

8Some of these documents reference Greenwood Trust Company,

which was Discover Bank’s predecessor. 

10 DISCOVER BANK v. VADEN
late fees, as well as to change the rate of finance charge with thirty

days’ notice. Id. In addition, the arbitration agreement in question was

between Discover Bank and Vaden only, as they were the only two

parties to the original Cardmember agreement. See J.A. 33-34, 499.

The servicing agreement between Discover Bank and DFS also supports our finding that Discover Bank is the real party in interest here.

That agreement provides that DFS will service certain Discover Bank

"loan products," J.A. 531-38, and DFS must perform all marketing

and collection services under instructions from Discover Bank, J.A.

532-33. One of the service activities DFS performed was mailing

monthly bills to cardmembers. Nothing on the statements that DFS

mailed to Vaden identified DFS as the lender. To the contrary, mailing billing statements is consistent with DFS’s admitted role as a servicing agent. DFS also brings collection actions pursuant to the

servicing agreement, as it did here in suing Vaden for her unpaid balance on Discover Bank’s behalf. See J.A. 533. 

In addition, as the FDIC points out, the servicing agreement specifies that:

DFS will not be responsible for violations of federal or state

law, including usury laws, fee restrictions or privacy laws,

to the extent that DFS acts consistently with directions or

supervision received from [Discover Bank] or its agents. . . .

[Discover Bank] will be solely responsible for establishing

the annual percentage yields and rates, insurance premiums, and other charges and fees for its credit cards, deposit

accounts and other products and for ensuring that such

yields, rates, premiums, charges or fees are in compliance

with state and federal laws. 

J.A. 531-32 (emphasis added). The agreement establishes a clear division of authority between DFS and Discover Bank, designating Discover Bank as the party in charge of setting the terms and conditions

of lending money through its credit cards. DFS, although it could

evaluate consumer credit applications, could only do so under guidelines set forth by Discover Bank. Id.

Importantly, the servicing agreement also provides that Discover

Bank will indemnify DFS for any damages caused by Discover Bank.

DISCOVER BANK v. VADEN 11
J.A. 536. This includes any potential judgment from Vaden’s state

court counterclaims against DFS. Discover Bank acknowledges that

it would be bound by any judgment resulting from the state-court litigation, even though it was not officially a party to it, because DFS

was acting on its behalf. Appellee’s Br. at 24 n.7. Nor would DFS be

permitted to keep any funds collected from a Cardmember in its own

name: it must immediately deposit all such funds in Discover Bank’s

accounts. J.A. 534. 

A final source of support for the conclusion that Discover Bank is

the real party in interest is found in Discover Bank’s financial statement and prospectuses for the sale of interests in credit card receivables through securitizations. Discover Bank’s independently-audited

financial statement explains that credit-card loans make up the majority of the bank’s consumer loans and are assets of the bank. J.A. 511,

519. The bank’s prospectuses identify Discover Bank as the issuer of

the Discover credit card and owner of the Discover Card account. J.A.

543, 619-622. These same prospectuses reaffirm Discover Bank’s

right to set the terms for essential aspects of a cardholder’s account:

the rate for periodic finance charges, late fees, credit limits, minimum

monthly payments, credit-worthiness criteria, charge-off policies, and

collection practices. J.A. 613, 619, 621, 623. Service and operating

tasks are delegated to DFS. J.A. 620, 622. 

This evidence notwithstanding, Vaden argues that DFS, and not

Discover Bank, is the real party in interest with respect to her statelaw counterclaims. She points to several items in the record for support, including the pleadings themselves, Morgan Stanley’s Annual

report on Discover, and press releases from DFS. In particular, Vaden

proffers certain press releases stating that DFS operates the Discover

Card brand as evidence that DFS is the real party in interest. The

functions attributed to DFS in these press releases, however, are consistent with its role as a servicing entity and do not establish it as a

lender. Importantly, Vaden herself does not contest the fact that it is

Discover Bank and not DFS that set the interest rate on her account.

None of these documents suggest that DFS operated as a lender or

had any authority to alter or set vital terms of Vaden’s Cardmember

account. Moreover, these documents are secondary sources of information, rather than primary sources such as the servicing agreement

and Discover Bank’s prospectus. We are unpersuaded by Vaden’s

12 DISCOVER BANK v. VADEN
arguments, as we find the evidence she proffers to be consistent with

the conclusion that Discover Bank is the real party in interest. 

On these facts, we hold that Discover Bank is the real party in

interest with respect to Vaden’s state court counterclaims. Because

Discover Bank is a state-chartered, federally insured bank, the FDIA

is implicated by these claims against the bank.9

B.

We turn next to the question of whether § 27 of the FDIA "completely preempts" state law usury claims against a state-chartered,

federally insured bank that is the real party in interest of a state court

dispute.10

In interpreting any statute, we turn first to the text of the statute

itself. Section 27(a) of the FDIA provides in part:

In order to prevent discrimination against State-chartered

insured depository institutions . . . with respect to interest

rates . . . such State bank[s] . . . may, notwithstanding any

State constitution or statute which is hereby preempted for

9

In finding Discover Bank to be the real party in interest here, we

emphasize the heavily fact-dependent nature of our analysis and its consequent parameters. Clearly, a state-chartered, federally insured bank

will not always be the real party in interest for purposes of invoking the

FDIA. For example, in Goleta National Bank v. Lingerfelt, 211 F. Supp.

2d 711, 718-19(E.D.N.C. 2002), a payday lender had "leased" an association with the Goleta National Bank in order to avoid state usury laws.

The Lingerfelt court held that the non-bank payday lender, rather than

Goleta National Bank, was the real lender and therefore the complete

preemption doctrine did not apply. Id.; see also Flowers v. EZPawn

Okla., Inc., 308 F. Supp. 2d 1191, 1196 (N.D. Ok. 2003) (finding that

EZPawn—not the affiliated bank—was the real lender and therefore no

subject-matter jurisdiction existed). Such cases are distinguishable from

the facts here. 

10Because Vaden "conceded" that the FDIA completely preempted her

state-law claims, the district court’s analysis of this issue was cursory.

We note, however, that a party may not create jurisdiction by concession

and thus address this issue directly. 

DISCOVER BANK v. VADEN 13
the purposes of this section, take, receive, reserve, and

charge on any loan or discount made, or upon any note, bill

of exchange, or other evidence of debt, interest . . . at the

rate allowed by the laws of the State . . . where the bank is

located. 

12 U.S.C. § 1831d(a)(emphasis added). The statute’s express preemption provision indicates that at the very least, Congress contemplated

ordinary express preemption when drafting this statute. 

However, to decide the more specific question of whether Congress

intended complete preemption of state-court usury claims, as distinguished from ordinary express preemption, we look beyond the text,

to Congress’s intentions in enacting the statute. The legislative history

of the FDIA is instructive in this regard. It tells us that Congress

intended to "allow[ ] competitive equity among financial institutions,

and reaffirm[ ] the principle that institutions offering similar products

should be subject to similar rules." 126 Cong. Rec. 6,908 (1980)

(Statement of Sen. Bumpers). The FDIA was enacted in part to "provide[ ] parity, or competitive equality, between national banks and

State chartered depository institutions. . . ." 126 Cong. Rec. 6,900

(1980) (Statement of Sen. Proxmire). 

Keeping in mind the purpose underlying the FDIA’s enactment, we

turn to the question of whether Congress intended the FDIA to completely preempt state-law usury claims against state-chartered banks.

Although this is an issue of first impression in this court, we are not

wholly without guidance as far as federal banking laws are concerned.

The Supreme Court has addressed the issue within the context of the

National Bank Act ("NBA"), 12 U.S.C. §§ 1 et seq., which is to

national banks as section 27 of the FDIA is to state-chartered banks.11

11The Supreme Court’s recent decision of Watters v. Wachovia ___

U.S. ___, 127 S. Ct. 1559 (2007), is instructive, though not precisely on

point. In Watters, the court held that a national bank’s "mortgage business, whether conducted by the bank itself or through the bank’s operating subsidiary" is subject to federal, and not state, regulatory oversight.

Id. at 11. Although neither the FDIA nor state court usury claims were

at issue, the Court’s holding did reaffirm the basic principle elucidated

in Beneficial National Bank v. Anderson, 539 U.S. 1, 11 (2003), that federal banking laws preempt state law. "[T]he States can exercise no control over national banks, nor in any wise affect their operation, except in

so far as Congress may see proper to permit." Watters, 127 S.Ct. at 6. 

14 DISCOVER BANK v. VADEN
In Beneficial, the Supreme Court held that the NBA completely preempts state-court usury claims against national banks. 539 U.S. at 11.

The Court explained that "[b]ecause §§ 85 and 86 provide the exclusive cause of action" for usury claims, there is "no such thing as a

state-law claim of usury against a national bank." Id. As a result, even

though the plaintiff’s complaint did not mention federal law, his cause

of action arose under federal law and defendant National Bank’s

removal to federal court based on complete preemption under the

NBA was proper. Id. at 10-11. 

One of our sister circuits has compared the NBA to the FDIA and

found that both statutes completely preempt state-law usury claims.12

The Third Circuit has held that the NBA and FDIA are interpreted in

para materia and therefore the doctrine of complete preemption

applies to the FDIA as well. In In re Community Bank of N. Va., 418

F.3d 277, 295 (3d Cir. 2005), the court found that Section 1831d(a)

"completely preempts any state law attempting to limit the amount of

interest and fees a federally insured, state-chartered bank can charge."

Indeed, not only does the FDIA contain an express preemption clause

—"notwithstanding any State constitution or statute which is hereby

preempted for the purposes of this section"—but it also "incorporates

verbatim the language of § 85 of the NBA." Id. at 295. "When Congress borrows language from one statute and incorporates it into a

second statute, the language of the two acts ordinarily should be interpreted the same way." Id. at 295-96. Therefore, complete preemption

was held to apply to state usury claims against state-chartered, federally insured banks, just as it does to claims against national banks. 

The First Circuit has also compared the NBA and FDIA, although

not in the context of complete preemption. The dispute in Greenwood

Trust Co. v. Massachusetts, 971 F.2d 818, 821 (1st Cir. 1992), arose

when the Commonwealth of Massachusetts notified Greenwood that

its late-fee policy violated state law. Greenwood reacted to the threat

of potential litigation from the state by filing for declaratory and

12In contrast, one federal court has held that the FDIA does not contemplate complete preemption. See Saxton v. Capital One Bank, 392 F.

Supp. 2d 772, 780-84 (S.D. Miss. 2005) (distinguishing Beneficial Nat’l

Bank as being grounded in the federal interest that protects national

banks from state taxation). For the reasons above, we disagree. 

DISCOVER BANK v. VADEN 15
injunctive relief in federal court on the grounds that the FDIA13

expressly preempted state law usury claims. In assessing whether the

FDIA expressly—not completely—preempted state usury laws, the

court explained that Congress enacted the FDIA to level the playing

field between national and state banks regarding the levying of interest rates. Greenwood Trust, 971 F.2d at 826. "The historical record

clearly requires a court to read the parallel provisions of [the FDIA]

and the Bank Act in pari materia." Id. (emphasis omitted).14

We find the logic of our sister circuits compelling. We note as well

that the FDIC further supports our finding of complete preemption.15

The agency has "uniformly construed Section 1831d in pari materia

with Sections 85 and 86 [of the NBA]." Amicus Br., FDIC, at 10

13Greenwood refers to the FDIA as the "DIDA," but the statutory provision at issue is the same, 12 U.S.C. § 1831d(a). 971 F.2d at 827. 

14There is one difference between the relevant provisions of the NBA

and the FDIA that we must pause to consider. The NBA states that an

action must be "commenced within two years from the time the usurious

transaction occurred," 12 U.S.C. § 86, while the FDIA states that a person aggrieved "may recover in a civil action commenced in a court of

appropriate jurisdiction not later than two years after the date of such

payment." 12 U.S.C. § 1831d(b) (emphasis added). As both statutes

speak to the creation of a federal cause of action, we do not read the

phrase "a court of appropriate jurisdiction" as inconsistent with the complete preemption doctrine. Rather, we agree with the First Circuit that the

differences in the statutes are an insufficient basis upon which to distinguish them: "[a]lthough there are niggling variations, the key phraseology is substantially identical." Greenwood Trust, 971 F.2d at 827.

Indeed, it would be anomalous to interpret the inclusion of a general

forum-selection provision such as the one in the FDIA as precluding

complete preemption. 

15The FDIC’s interpretation of § 1831d is entitled to only limited deference under Skidmore v. Swift & Co., 323 U.S. 134 (1994). In its brief,

the agency points to no regulation or other formal statement of its policy

that was adopted with notice-and-comment rulemaking or through formal

adjudication. Therefore, "we defer to the agency’s interpretation only to

the extent that the interpretation has the power to persuade." U.S. Dep’t

of Labor v. N.C. Growers Ass’n, 377 F.3d 345, 354 (4th Cir. 2004) (citing Skidmore, 323 U.S. at 134). We defer only to the extent that we are

persuaded by the FDIC’s interpretation. See Skidmore, 323 U.S. at 140.

16 DISCOVER BANK v. VADEN
(emphasis omitted). "[U]nder Section 1831d(a), state banks were provided interest rate authority comparable to that of national banks.

Interest charges include not only the numerical percentage rate

assigned to a loan but also late payment fees, over the limit fees and

other similar charges." Id. (citing 12 C.F.R. § 7.4001(a)) (footnote

omitted). In arguing that the FDIA completely preempts state-law

usury claims, the FDIC relies on Beneficial National Bank, agreeing

with the First and Third Circuits, that in § 1831d, "Congress created

a federal cause of action that entirely replaced . . . the analogous area

of state law." Id. at 13. 

We find the analyses of the FDIC and our sister circuits persuasive.

Given the express preemption language of the FDIA, the statute’s legislative history affirming Congress’ intent to provide competitive

equality between national and state-chartered banks, the virtual identity of the preemption language in the NBA and that of the FDIA, and

the Supreme Court’s finding of complete preemption under the NBA,

we are hard-pressed to conclude other than that Congress intended

complete preemption of state-court usury claims under the FDIA. As

the final step in our analysis, we turn to a consideration of whether

Vaden’s state law counterclaims fall into this completely preempted

category. 

Vaden’s state court counterclaims challenge certain fees and interest rates charged on her Discover card account.16 She argues that these

fees and interest rates were in violation of Maryland laws regulating

finance charges, late fees, and compounding of interest on consumer

credit accounts. See Md. Code Ann., Comm. Law §§ 12-502, -506,

-506.2 (2005).17 Vaden’s complaints regarding the fees and interest

charged on her cardmember account fall squarely within the FDIC’s

16We recognize that not all of Vaden’s claims fall into the state-court

usury claim category. The scope of the arbitration agreement, however,

subsumes all of Vaden’s various counterclaims, including her breach of

contract claims asserting fraud and violations of good faith and fair dealing as well as her claims of "unfair and deceptive trade practices." While

those non-usury claims arguably fall outside the preemptive scope of the

FDIA, see Saxton v. Capital One Bank, 392 F. Supp. 2d 772, 783 (S.D.

Miss. 2005) (collecting cases), complete preemption of any one of

Vaden’s counterclaims should suffice to provide a federal forum under

the complete preemption doctrine. 

17In contrast, Delaware’s commercial laws, governing Discover Bank,

allow banks to charge late fees, interest, and compound interest according to the cardholder agreement. See Del. Code Ann. tit. 5, §§ 941(8),

943, 945, 950, 952 (2005). 

DISCOVER BANK v. VADEN 17
definition of "usury" charges. See 12 C.F.R. § 7.4001(a) (defining

usury charges as the numerical periodic rate, late payment fees, overlimit fees, and other charges). We therefore conclude that Vaden’s

claims are completely preempted by the FDIA.18 We emphasize again

that our holding only extends so far as a state-chartered, federally

insured bank is the real party of interest with respect to the preempted

state-court claims. 

III.

Lastly, we turn to the issue of whether an arbitration agreement

binds Vaden and Discover Bank so as to make compelling arbitration

proper. Pursuant to our instructions in Vaden I, the district court also

examined "whether there was a question of material fact about the

existence of an arbitration agreement." 396 F.3d at 373 n. 4. Vaden

appeals the district court’s findings that an arbitration agreement

existed between the parties and that her claims are subject to arbitration because she failed to opt out of that agreement. Discover Bank

v. Vaden, 409 F. Supp. 2d 632, 639 (D. Md. 2006) (citing Snowden

v. Checkpoint Check Cashing, 290 F.3d 631, 634 (4th Cir. 2002), for

the proposition that a "court must order arbitration once it is satisfied

that an agreement for arbitration has been made and has not been honored"); see 9 U.S.C. § 4. 

Significantly, under both Delaware and Maryland law, Vaden bears

the burden of rebutting the presumption of receiving the arbitration

agreement, which was included in a Notice of Amendment to the

Cardmember agreement.19 See Graham v. Commercial Credit Co.,

194 A.2d 863, 865 (Del. Ch. 1963) (holding "that mail which is prop18To find otherwise would undermine the statute’s purpose, which is

to provide state banks parity with national banks: if we found no complete preemption here, we would be treating state banks differently under

the FDIA than national banks are treated under the NBA. Such a result

clearly cuts against Congress’s intentions in grafting language from the

NBA to the FDIA. 

19We agree with the district court’s conclusion that Discover satisfied

the requirements for the presumption of receipt, as it provided unrebutted

affidavits detailing the procedures and practices for mailing the Notice

of Amendment. 

18 DISCOVER BANK v. VADEN
erly addressed and posted . . . is presumed to be duly received by the

addressee"); Marsheck v. Bd. of Trustees of the Fire & Police

Employee’s Ret. Sys. of the City of Balt., 749 A.2d 774, 785 (2000)

(explaining the presumption of receipt arising from proper mailing).

Vaden’s only evidence to support her claim that she did not receive

it is her own statement that she did not, and mere denial is insufficient

to rebut the presumption of receipt. We find no error in the district

court’s analysis of this issue and so affirm based on the reasoning of

the district court.20

20Vaden also attempts to escape arbitration by arguing that Discover

fails to satisfy the relevant statutory standing requirements for compelling arbitration. We cannot agree. 

Intriguingly, the alleged defect in standing Vaden points to is her own

failure to "unequivocally refuse" a request for arbitration. See Appellant’s Br. at 43. The FAA, under which Discover brings suit, states that

"[a] party aggrieved by the alleged failure, neglect, or refusal of another

to arbitrate under a written agreement for arbitration may petition any

United States district court . . . for . . . arbitration." 9 U.S.C. § 4. Vaden

contends that, because Discover did not request arbitration with her

before filing suit, she never refused arbitration and therefore Discover is

not "[a] party aggrieved by [her] failure . . . to arbitrate." Id. Accordingly,

she argues, Discover has not met the requirement for filing a petition. See

Appellant’s Br. at 41-44. One sister circuit has held that an action to

compel arbitration is proper when the party against whom the motion to

compel is made has commenced litigation that is the subject matter of the

parties’ arbitration agreement. See, e.g. PaineWebber Inc. v. Faragalli,

61 F.3d 1063, 1066 (3d Cir. 1995) (finding that an action to compel arbitration is proper when the other party refuses to arbitrate by "unambiguously manifesting an intention not to arbitrate the subject matter of the

dispute"). 

Although Vaden did not initiate the original suit, she counterclaimed

in state court and has litigated extensively—to the tune of not one, but

two appeals before this court—to avoid arbitration of her claims. To

agree with Vaden’s arguments that she has not refused a request for arbitration in the meaning of the statute would create an absurd result:

reversing a motion to compel arbitration against a party who argues that

she never refused to arbitrate in the first place. Neither common sense

nor precedent countenances such a result, and so we find no defect of

standing here. 

DISCOVER BANK v. VADEN 19
IV.

For the foregoing reasons, we affirm the district court’s finding that

Discover Bank is the real party in interest with respect to Vaden’s

state-court counterclaims, and we hold that the FDIA completely preempts state-court usury claims against a state-chartered, federally

insured bank to the extent that the bank is the real party in interest

with respect to those claims. We also affirm the district court’s finding that there was no issue of material fact with respect to the existence of an arbitration agreement between Vaden and Discover and

therefore affirm the district court’s grant of Discover’s motion to

compel arbitration. 

AFFIRMED

GOODWIN, District Judge, dissenting: 

The district court and the majority inexplicably use the removal

doctrine of complete preemption to recharacterize a counterclaim in

a state court civil action as federal. From that process, they pluck an

"independent" basis for federal subject matter jurisdiction to support

this action to compel arbitration. As I find no independent basis for

federal court jurisdiction exists, I respectfully dissent. 

In Vaden I, the court heard an appeal from a case brought under the

FAA, which did not have an independent jurisdictional basis on its face.1

1

It is well established that the FAA standing alone does not provide a

basis for federal jurisdiction. See Southland Corp. v. Keating, 465 U.S.

1, 15 n.9 (1984); Moses H. Cone Memorial Hosp. v. Mercury Constr.

Corp., 460 U.S. 1, 25 n.32 (1983) ("The Arbitration Act is something of

an anomaly in the field of federal court jurisdiction. It creates a body of

federal substantive law establishing and regulating the duty to honor an

agreement to arbitrate, yet it does not create any independent federalquestion jurisdiction."). Therefore, before a district court may entertain

a petition under the FAA, there must be an independent basis of jurisdiction. Owens Ill., Inc. v. Meade, 186 F.3d 435, 439-40 (4th Cir. 1999)

("Section 4 of the FAA confers jurisdiction in the district court over petitions to compel arbitration only to the extent that the federal court would

otherwise have jurisdiction over the case. On that basis, this case must

include another independent basis to establish federal jurisdiction."). 

20 DISCOVER BANK v. VADEN
The panel found that "[a] federal court may . . . hear a § 4 petition to

compel arbitration if, but for the arbitration agreement, subject matter

jurisdiction over the case would otherwise exist by virtue of a properly invoked federal question in the underlying dispute." Discover

Bank v. Vaden (Vaden I), 396 F.3d 366, 373 (4th Cir. 2005) (emphasis added). The court in Vaden I remanded the case to the district

court with instructions to determine whether "such a federal question

exists in this case." See id. at 373. The Vaden I panel hypothesized

that Ms. Vaden’s counterclaims alleging illegal interest rates and late

fees might present issues of such substantial federal interest as to be,

in effect, federal claims under the FDIA. See Vaden I, 396 F.3d at 373

n.3. The panel suggested to the district court that if it found that Discover Bank, "as opposed to merely Discover Financial Services, is a

party of interest in the state law suit," then a federal question may be

presented.2Id. at 373 n.3. Upon remand, the district court found that

Discover Bank was the real party in interest with respect to the counterclaims and on that basis bootstrapped an additional party into the

case to defend the counterclaims. Discover Bank v. Vaden, 409 F.

Supp. 632, 637 (D. Md. 2006). 

My disagreement with the majority opinion centers on its finding

of "arising under" jurisdiction in a counterclaim. Federal question

jurisdiction cannot be predicated on federal issues that may arise later

in an action by way of defense or counterclaim. Arthur R. Miller, Artful Pleading: A Doctrine in Search of Definition, 76 Tex. L. Rev.

1781, 1783 (1998) (citing Takeda v. Northwestern Nat. Life Ins. Co.,

765 F.2d 815, 821-22 (9th Cir. 1998)). 

My conclusion that there is no properly invoked federal question

in the underlying case relies on basic principles of "arising under"

jurisdiction. Federal courts are courts of limited jurisdiction. See, e.g.,

Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)

2

I do not know what it is to be "a party of interest" in a lawsuit, and

the panel in Vaden I gave no explanation. The district court, parties, and

apparently now the majority have treated this as an inquiry into who "the

real party in interest" is in Ms. Vaden’s counterclaims. The majority

states, "[m]ore specifically, we asked the district court to determine

whether Discover Bank or DFS was the real party in interest with respect

to Vaden’s state court counterclaims." Op. at 3. 

DISCOVER BANK v. VADEN 21
("Federal courts . . . possess only that power authorized by the Constitution and statute, which is not to be expanded by judicial decree.").

Article III of the Constitution gives federal courts the power to hear

cases "arising under" the Constitution, laws, and treaties of the United

States. U.S. Const. art. III, § 2, cl. 1. This grant of power is not selfexecuting. Congress did not give the federal courts general federal

question jurisdiction until the Judiciary Act of 1875. Act of Mar. 3,

1875, ch. 137, § 1, 18 Stat. 470, 470 (current version at 28 U.S.C.

§ 1331 (1994)). Although the language of § 1331 tracks Article III’s

arising under language, the Supreme Court has given § 1331 a limiting construction. Miller, 76 Tex. L. Rev. at 1782. "One of the keystones of this limiting construction is the ‘well-pleaded complaint

rule’ articulated by the Supreme Court in Louisville & Nashville R.R.

v. Mottley and constantly reaffirmed by the federal judiciary." Id. For

the Court to have jurisdiction under § 1331, it must be clear from the

face of a well-pleaded complaint that there is a federal question; the

federal issue must exist as part of the plaintiff’s cause of action. Louisville & Nashville R.R. v. Mottley, 211 U.S. 149, 152-54 (1908). A

federal right must be an essential element of the plaintiff’s claim; "the

controversy must be disclosed upon the face of the complaint,

unaided by the answer or by the petition for removal." Gully v. First

Nat’l Bank in Meridian, 299 U.S. 109, 112-13 (1936). This rule also

serves the essential administrative function of establishing the existence of a federal question at the onset of litigation. Miller, 76 Tex.

L. Rev. at 1783. The well-pleaded complaint rule applies equally to

original and removal jurisdiction and has prevented federal courts

from asserting jurisdiction over many cases in which federal issues

have actually been raised. Id. "This bright-line rule prevents the disruption, to both the system and the litigants, of shifting a case

between state and federal fora in the middle of an action as federal

issues arise or fall out." Id.

State courts, on the other hand, are courts of general jurisdiction.

The Supreme Court has held that not only do state courts have the

ability to hear federal claims, but that in all but the most exceptional

circumstances they must hear federal claims. See generally Testa v.

Katt, 330 U.S. 386 (1947) (establishing that state courts have a general obligation to hear federal claims). This ability and obligation of

22 DISCOVER BANK v. VADEN
state courts to hear federal claims and enforce federal law is derived

from the Supremacy Clause of the U.S. Constitution.3

In the case before this court seeking to compel arbitration, federal

jurisdiction is purportedly based upon defendant’s state court counterclaim alleging illegal late fees and interest rates. There was no diversity jurisdiction and no federal question appeared on the face of the

complaint. In affirming the district court, the majority undertook an

examination of the state counterclaims using novel understandings of

procedural rules as to parties4 and a completely puzzling view of the

doctrine of complete preemption. This process led the majority of this

panel to agree with the district court that Ms. Vaden’s counterclaims

provided federal subject matter jurisdiction over the underlying case,

and therefore an independent jurisdictional basis existed to permit the

court to decide the petition to compel arbitration under the FAA. This

was error. There was no "properly invoked federal question" in the

underlying state case. 

3The Supremacy Clause provides in pertinent part: "This Constitution,

and the Laws of the United States which shall be made in Pursuance

thereof . . . shall be the supreme Law of the Land; and the Judges in

every State shall be bound thereby, any Thing in the Constitution or

Laws of any State to the Contrary notwithstanding." U.S. Const. art. VI,

cl. 2. 

4The "party of interest" inquiry suggested in Vaden I was but another

unnecessary detour which resulted in the parties, the district court, and

the majority becoming procedurally lost. Federal Rule of Civil Procedure 17(a) states in pertinent part "[e]very action shall be prosecuted in

the name of the real party in interest." I am puzzled by the majority’s

"real party in interest" analysis, which appears to be backward. A defendant can never be a real party in interest. 

By its very nature, Rule 17(a) applies only to those who are asserting

a claim. 6A Charles Alan Wright, Arthur R. Miller, and Mary Kay Kane,

Federal Practice & Procedure § 1543 (2d ed. 1987) (emphasis added).

The real party in interest requirement is not limited to original plaintiffs

but must also be satisfied for purposes of asserting a counterclaim. Id.

(emphasis added). Here the counterclaimant was Ms. Vaden. No part of

Rule 17(a) suggests an inquiry into whether an entity might be a proper

defendant. Quite generally people can and do sue whomever they intend.

If Discover Financial Services believed it was not the proper party to be

sued it could have filed a motion for summary judgment. 

DISCOVER BANK v. VADEN 23
The Court in Holmes Group, Inc. v. Vornado Air Circulation Systems, 535 U.S. 826, 830 (2002), addressed the question of whether a

counterclaim can serve as the basis for arising under jurisdiction. The

Court held that it could not. The Court noted that the well-pleaded

complaint rule has long governed whether a case "arises under" federal law for purposes of § 1331. Holmes Group, Inc., 535 U.S. at 830

(citing Phillips Petroleum Co. v. Texaco Inc., 415 U.S. 125, 127-128,

(1974) (per curiam)). The Court stated, "a counterclaim — which

appears as part of the defendant’s answer, not as part of the plaintiff’s

complaint — cannot serve as the basis for ‘arising under’ jurisdiction." Holmes Group, Inc., 535 U.S. at 831 (citing In re Adams, 809

F.2d 1187, 1188 n.1 (5th Cir. 1987); FDIC v. Elefant, 790 F.2d 661,

667 (7th Cir. 1986); Takeda v. Northwestern National Life Ins. Co.,

765 F.2d 815, 822 (9th Cir. 1985); 14B C. Wright, A. Miller, & E.

Cooper, Federal Practice & Procedure § 3722, pp. 402-414 (3d ed.

1998)). The Court concluded, "[f]or these reasons, we decline to

transform the longstanding well-pleaded-complaint rule into the

‘well-pleaded-complaint-or-counterclaim rule’ urged by respondent."

Holmes Group, 535 U.S. at 832 (emphasis in original). 

The majority attempts to evade the clear holding in Holmes Group

by misapplying the doctrine of complete preemption to counterclaims.

The majority fails to recognize that complete preemption is solely a

removal doctrine that is analytically applied to recharacterize allegations made in a plaintiff’s complaint. The majority sets about its

explication of its novel jurisdictional construct in footnotes two and

three. Op. at 5, 6. An examination of these footnotes exposes the erroneous legal formulation upon which the majority opinion depends. 

In footnote three, the majority acknowledges that complete preemption is a removal doctrine, stating, "[a]lthough complete preemption did originate in the removal context, we conclude that it also

applies to the unique procedural posture of this case." Op. at 6 n.3.

The majority offers as support for this proposition the following quote

from Caterpillar, Inc. v. Williams, 482 U.S. 386, 393 (1987):

On occasion, the Court has concluded that a preemptive

force of a statute is so extraordinary that it converts an ordinary state common law complaint into one stating a federal

claim for purposes of the well-pleaded complaint rule. 

24 DISCOVER BANK v. VADEN
Contrary to the majority’s apparent understanding, that passage

makes plain that the doctrine of complete preemption has but one purpose — that is, the recharacterization of a plaintiff’s state complaint

so that it may be considered federal for the purposes of the wellpleaded complaint rule. The well-pleaded complaint rule states that,

"a defendant may not remove a case to federal court unless the plaintiff’s complaint establishes that the case ‘arises under’ federal law."

Franchise Tax Bd., 463 U.S. at 10 (footnote omitted; emphasis

added). The complete preemption doctrine thus works to treat a plaintiff’s state complaint as federal from its inception, thus permitting

removal. "In the case of complete preemption . . . Congress ‘so completely preempt[s] a particular area that any civil complaint raising

this select group of claims is necessarily federal in character.’" Darcangelo v. Verizon Commc’ns, Inc., 292 F.3d 181, 187 (4th Cir. 2002)

(quoting Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64 (1987))

(emphasis added). 

The majority’s holding results in the adoption of a "well-pleaded

counterclaim rule," rejected by the Court in Holmes Group as it

would leave the acceptance or rejection of the state forum to the counterclaimant. "It would allow a defendant to remove a case brought in

state court under state law, thereby defeating plaintiff’s choice of

forum, simply by raising a federal counterclaim." Holmes Group, 535

U.S. at 831. Or in the case of a dispute requiring arbitration, it would

deprive the state court of its concurrent jurisdiction to enforce the

FAA. See Moses H. Cone, 460 U.S. at 25, 25 n.32 (noting that "enforcement of the [FAA] is left in large part to the state courts"). 

Footnote three in the majority opinion concludes: "To hold otherwise would have the perverse result of returning to state court otherwise completely preempted federal claims because of the

unanticipated nature of a defendant’s counterclaims." Op. at 6 n.3.

Not to quibble, but the counterclaims never left state court, as the case

was not removed or removable. No accepted theory of federal jurisdiction would put this claim properly before a federal court. In any

event, what the majority characterizes as a perverse result is an accurate description of our legal system and the overlapping jurisdiction

of state and federal courts. Federal counterclaims are adjudicated in

state court every day. (See, e.g., City & County of Honolulu v. Sherman, 129 P.3d 542 (Haw. 2006) (adjudicating counterclaims based on

DISCOVER BANK v. VADEN 25
the federal Religious Land Use and Institutionalized Persons Act of

2000 (RLUIPA)); Villas West II of Willowridge v. McGlothin, 841

N.E. 2d 854 (Ind. App. 2006) (adjudicating at trial Fair Housing Act

counterclaim); Salon Enterprises, Inc. v. Langford, 31 P.3d 290 (Kan.

App. 2000) (adjudicating FLSA counterclaims); Wash. Suburban

Sanitary Comm’n v. CAE-Lin Corp., 622 A.2d 745 (Md. 1993) (granting summary judgment as to § 1983 counterclaims)).

I completely disagree with the majority’s conclusion in footnote

three. I believe Holmes Group is controlling here. In an attempt to

support its contention that Holmes Group does not contradict its conclusion, the majority misinterprets the text of Wright & Miller. The

majority in footnote three, selectively quotes Wright & Miller. A key

portions is omitted. The omission substantially distorts the textual discussion. In context this section of the treatise states (omitted portion

in bold):

In contrast, under the complete-preemption doctrine, which

has been invoked in a significant—and ever-increasing—

number of cases and contexts, a narrow class of claims are

so "necessarily federal" that they always will permit

removal to federal court. In these cases, federal law "not

only preempts a state law to some degree but also substitutes

a federal cause of action for the state cause of action,

thereby manifesting congress’s intent to permit removal."

Thus, if a plaintiff files suit in state court based upon a

state cause of action, and the defendant removes the case

on the basis of complete preemption, the federal district

court will recharacterize the plaintiff’s state cause of

action as a federal claim for relief, making the removal

proper on the basis of federal question jurisdiction. In

this sense, the complete-preemption doctrine overrides such

fundamental cornerstones of federal subject matter jurisdiction as the well-pleaded complaint rule and the principle that

the plaintiff is master of the complaint. 

14B Charles Alan Wright, Arthur R. Miller & Edward H. Cooper,

Federal Practice & Procedure § 3722.1 at 508, 511 (3d ed. 1998)

(emphasis added). Without omissions, the referenced passage makes

clear that the doctrine of complete preemption is exclusively focused

26 DISCOVER BANK v. VADEN
on claims in a plaintiff’s complaint and offers no support for the

majority’s jurisdictional theory. 

Finally, I am constrained to say that I am troubled by the court’s

use of the FAA as a make weight for jurisdiction. The FAA was

designed to make arbitration agreements as enforceable as other contracts, but not more so. Prima Paint, 388 U.S. 395, 404 n.12 (1967).

It did not intend "to elevate [them] over other forms of contract." Id.

The Supreme Court has made clear that the plain language of § 4 forbids federal courts from adjudicating the merits of the dispute to be

arbitrated. Yet, this court interprets § 4 to require the district courts

to address the underlying dispute carefully enough to determine

whether it states a federal question. The federal court does this, not

so that it can resolve any of the parties’ rights or remedies under federal law, but simply so it can take subject matter jurisdiction of a § 4

FAA action that is often nothing more than an ordinary contract

action. Cmty. State Bank v. Strong, ___ F.3d ___, 2007 WL 1225343,

*13 (11th Cir. 2007) (J. Marcus concurring). 

With respect, I believe the approach taken by the majority here,

and the panel in Vaden I, is mistaken. Vaden I puts this court at odds

with at least four of our sister circuits. See Westmoreland Corp. v.

Findlay, 100 F.3d 263, 267-69 (2d. Cir. 1996); Prudential-Bache

Sec., Inc. v. Fitch, 966 F.2d 981, 986-88 (5th Cir. 1992); Smith Barney, Inc. v. Sarver, 108 F.3d 92, 94 (6th Cir. 1997); Wisconsin v. HoChunk Nation, 463 F.3d 655, 659 (7th Cir. 2006). The clear weight

of authority is that § 4 does not make federal question jurisdiction

over a petition to compel arbitration dependent on the nature of the

underlying dispute to be arbitrated. Community State Bank, 2007 WL

1225343 at *12. Actions are regularly filed under the FAA, and the

approach adopted by this court, finding federal question jurisdiction

where the court is asked only to enforce a private contract, considerably, and in my view unjustifiably, expands federal court jurisdiction.

Community State Bank, 2007 WL 1225343 at *12. I do not believe

we should look beyond the face of the arbitration petition to determine jurisdiction. 

The district court erred in determining it had subject matter jurisdiction. There is no properly invoked federal question in the underlying case. Therefore there is no independent basis for jurisdiction over

DISCOVER BANK v. VADEN 27
the suit seeking enforcement under the FAA. I would remand to the

district court with instructions to dismiss the case for lack of subject

matter jurisdiction.

28 DISCOVER BANK v. VADEN