John G. Roberts, Jr.: We will hear argument next in Vaden v. Discover Bank. Mr. Ortiz.
Daniel R. Ortiz: Thank you, Mr. Chief Justice, and may it please the Court: This case poses two substantive issues: First, whether section 4 of the Federal Arbitration Act impliedly repeals section 1331's "well-pleaded complaint" requirement? Only if it does can a district court look through a petition to compel arbitration that itself contains no Federal question to ground Federal subject matter jurisdiction on a Federal question lurking somewhere in the dispute sought to be arbitrated. And, second, if section 4 does repeal this part of section 1331, can a completely pre-empted State-law counterclaim in a pending State-court lawsuit furnish look-through jurisdiction? Your Honors, at bottom this is ae dispute between two radically different conceptions of Federal question jurisdiction. One view, Respondents', is so broad as to allow parties to compel arbitration in Federal court of nearly any dispute concerning credit card debt; and one, Petitioner's, narrowly confined subject matter jurisdiction to those disputes where the arbitration agreement itself arguably arises under Federal law. But, Your Honors, the ordinary, the original meaning of section 4, the structure of the overall Federal Arbitration Act, and the purposes of the Federal Arbitration Act all militate strongly in favor of the Petitioner's view of subject matter jurisdiction here. First, the language. The words "save for such agreement", Your Honors, as the words "save for" themselves suggest, necessarily imply that the agreement exerts some negative effect on otherwise existing jurisdiction.
John G. Roberts, Jr.: That simply means that you can't bring an action in Federal court because the agreement says you can't. The agreement says you've got to arbitrate. So if you throw the agreement out save for such agreement, the question is whether or not you could then bring the action in Federal court.
Daniel R. Ortiz: Your Honor, the -- those words "save for such agreement" were originally intended to refer to the hoary doctrine of ouster, which barred the Federal courts from subject matter jurisdiction in such suits. The words "but for" suggest that the agreement itself somehow impairs jurisdiction.
Ruth Bader Ginsburg: Mr. Ortiz, why isn't section 2 of the Arbitration Act sufficient to take care of the ouster doctrine, whatever may have been left of it?
Daniel R. Ortiz: Your Honor, section 2 says that an arbitration agreement shall be valid, irrevocable, and enforceable. At the time when section 2 was enacted, the Federal courts were still split between law and equity. Section 2 by itself could well have made such arbitration agreements enforceable, but only in law. Section 4, "save for such agreement", makes clear that there is no--
Ruth Bader Ginsburg: I'm not sure that I follow that, because it seems to me -- where did this doctrine of ouster come from? It came from the courts. The courts said, no, we won't enforce arbitration agreements if it would oust us of jurisdiction. Why would a court reading section 2 not say, well, that rule never made any sense in the first place, so we're not going to follow it? It's not any rule that Congress has imposed on the courts.
Daniel R. Ortiz: --Your Honor, section 2 by itself would not have made clear that in -- such agreements were enforceable in equity. As Justice Story wrote in Tobey v. County of Bristol, bills in equity were thought in the Federal courts to be ill-founded in point of jurisdiction to support a motion to compel arbitration. And so although under section 2 such an agreement might be enforceable in law -- damages might be available, penalty clauses might be enforced in law, a party might also be able to recover the expenses incurred in an arbitration that was revoked before the arbitration came to its conclusion -- that would not be clear that--
Ruth Bader Ginsburg: That may have been the historic model. This was never a notion that Congress enforced on the courts. They imposed it on themselves. So my question remains why shouldn't the Court then say this agreement has been declared enforceable, the ouster doctrine didn't have much to recommend it in the beginning, but certainly not any more; we can change it?
Daniel R. Ortiz: --No, Your Honor. It is true that Congress in the Federal Arbitration Act abrogated the ouster doctrine. The only question is whether section 2 would do so by itself or whether section 4 was necessary because of the division between law and equity at the time.
David H. Souter: I'm just not getting the -- I have never understood this argument and I still don't understand it now. What is it in the text of section 2 that would seem to leave it inadequate to touch equity as well as law?
Daniel R. Ortiz: Your Honor, section 2 says that arbitration agreements shall be valid, irrevocable and enforceable, but it does not say how they could be enforced.
David H. Souter: Exactly. And why, therefore, would anyone -- why would anyone be drawing distinctions as to how? It would be enforceable in any way that an agreement might appropriately be enforced in the courts of the United States at the time -- or any courts, for that matter, at the time the act was passed.
Daniel R. Ortiz: Your Honor, if Congress wanted to be very clear that ouster in all of its forms was no longer any kind of issue in enforcing arbitration agreements, it took the extra step in section 4.
David H. Souter: It -- it made a categorical statement in section 2. Why did it need to be any clearer than that?
Daniel R. Ortiz: Well, because, Your Honor, it would be the case that arbitration agreements could be enforceable, but just not enforceable in the way that might be most helpful.
David H. Souter: Well, it could be, but why in the world would anyone draw that inference?
Daniel R. Ortiz: Your Honor, because there were separate bars at law and equity at the time -- at the time of ouster. Under law, there was some room in some jurisdictions for there to be enforcement, not across the board. In equity there was an even higher standard at the time against jurisdiction.
Antonin Scalia: I have the same problem that Justice Souter does, especially since section 2 refers to equity. It says they will be irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. Obviously this -- this section was meant to apply to equitable actions. You wouldn't dismiss them in law for a -- a ground that only existed in equity?
Daniel R. Ortiz: But that particular section, Justice Scalia, is meant to refer to ordinary State contract doctrines in law and equity, which would make the overall contract unenforceable. The "save for" language is specifically directed at ouster, which is a jurisdictional doctrine rather than one of substantive contract law.
Antonin Scalia: I don't know. When it says they are enforceable and makes an exception only for grounds that enable revocation in law or in equity, I would -- I would think that the general command was meant to apply to both law and equity.
Daniel R. Ortiz: Your Honor, the Respondents' view also doesn't take into account the other provisions of the Federal Arbitration Act itself. Under their view, the 4 of the agreement, since the rest of section 4 would accomplish exactly what they think the look-through doctrine that they are arguing for without those four critical words. Also, sections 203 and sections 205 show that when Congress wanted to expand subject matter jurisdiction, it knew how to do so clearly and unequivocally. And in fact, when Congress adopted Section 205 in 1970--
John Paul Stevens: I hate to interrupt you here, but would you explain why the words "save for such agreement" cut back on the jurisdiction? I didn't quite understand your point.
Daniel R. Ortiz: --Justice Stevens, the point is that "save for such agreement" instructs a court to jump over the historical ouster doctrine.
John Paul Stevens: Doesn't it just instruct the court to decide whether, if there were no such agreements, would there be Federal jurisdiction in the underlying dispute?
Daniel R. Ortiz: Yes. Yes, Your Honor.
John Paul Stevens: So in this case there would be.
Daniel R. Ortiz: No, Your Honor, because the underlying dispute between the parties in this case is a -- concerns the arbitration agreement, not the underlying bank debt.
John Paul Stevens: No, it's not the underlying bank debt, but it is an underlying dispute over which this Federal -- if you had brought your class action as an original case, there would have been Federal jurisdiction.
Daniel R. Ortiz: Yes, Your Honor.
John Paul Stevens: So then why doesn't the language read on this case?
Daniel R. Ortiz: Well, Your Honor, the language in -- the language -- the particular language of section 4 is meant to say, save for such agreement but for the doctrine of ouster, setting aside the ouster doctrine whether there would be--
John Paul Stevens: The text says nothing about the ouster doctrine.
Daniel R. Ortiz: --No. But read in its historical context, Your Honor--
John Paul Stevens: Rather than literally.
Daniel R. Ortiz: --Well, literally at the time it would have been understood to refer -- to refer to that, because ouster was the whole problem against which FAA itself was first enacted. FAA--
John G. Roberts, Jr.: This is a tough -- it's a tough sell. When you say "save for such agreement", which I agree with Justice Stevens seems to me you've put the agreement aside and then you say right away then you look at the agreement to see if there is Federal jurisdiction and only the agreement, not through that. So you're throwing it out and then you bring it right back in. It seems--
Daniel R. Ortiz: --Not quite, Your Honor. What -- the rest of that sentence in section 4 instructs the court to look at a suit concerning the subject matter in controversy, which would be a suit seeking specific performance of the arbitration.
John G. Roberts, Jr.: --Of the arbitration agreement?
Daniel R. Ortiz: Yes, sir. So you are -- what the court is instructed to do under the "save for such agreement" clause is to ignore the historical problem of ouster and then to see whether in a suit brought to specifically enforce the arbitration agreement, there would be Federal subject matter jurisdiction.
John G. Roberts, Jr.: Right. And I guess it's -- I mean, you say if it said save for the historic doctrine of ouster, then it would be easy to say, and then you look at the arbitration agreement. But it says "save for such agreement" and then you look at the agreement.
Daniel R. Ortiz: Well, you're not quite looking at the agreement. And this makes clear, I believe, that ouster was the problem being referred to in those four words in section 4. It says a suit arising out of a controversy. It's instructing the Federal courts to determine Federal subject matter jurisdiction for a section 4 proceeding, which was completely novel at the time.
Ruth Bader Ginsburg: You just -- you just used the words "arising out of the controversy". "The controversy" is used in several sections of the Arbitration Act, and "the controversy" in other contexts means the underlying dispute between the parties. "The controversy" is not over the enforcement of the arbitration agreement.
Daniel R. Ortiz: With all respect, Justice Ginsburg, it's a little bit more complicated than that. The Federal Arbitration Act uses the word 2, once in section 4 and once in section 5. In section 2, the word "controversy" is embedded in a larger phrase: "Controversy arising out of such contractor transaction. " It is that context for the word 2, both instances in section 2, it is referring to the dispute which is sought to be arbitrated. In section 5, by contrast, the simple word which appears the middle of 4A of the Petitioner's brief, either -- section 5, which deals with the appointment of arbitrators or umpires, it says 5 context that the word "controversy" by itself refers to the controversy over arbitration, not to the underlying dispute.
Samuel A. Alito, Jr.: In Moses H. Cone, didn't the court say that the controversy was the underlying dispute?
Daniel R. Ortiz: Your Honor, that -- this Court, in that footnote 32 of Moses H. Cone, mentioned language that refers to the underlying dispute. In the context of both the sentence, the footnote itself, and the overall case, it is clear that the Court could not have meant that. That phrase is followed immediately by a semicolon and then the word "hence". And after the word "hence" in that same sentence in the same footnote, this Court says, "Hence an independent basis for jurisdiction needs to exist. " which in context makes it clear that it's not referring to look through. Also that sentence cites a Fifth Circuit case, Commercial Metals Company, and the other -- points to the other cases in it. They basically show that an independent -- stand for the proposition that an independent basis of jurisdiction exists, not that there is look through. And, in fact, one of them dealing with Federal-question jurisdiction says that the Federal issue has to appear on the face of the complaint. The rest of footnote 32, Your Honor, is all directed towards -- towards the jurisdictional inertness of the FAA overall. And the case of Moses H. Cone, itself, if look through had been rigorously adopted there, it would have defeated subject-matter jurisdiction because there would not have been complete diversity among the parties.
John G. Roberts, Jr.: But you do think -- you do think we should look through to determine diversity and the amount in question? In other words, not in the Federal-question context, but if it's diversity, you say we do look through the arbitration agreement.
Daniel R. Ortiz: Your Honor, that seems a somewhat different sense of look through; but, to the extent that ordinary, background 1331 or 1332 principles authorize such look through, that is appropriate in arbitration cases as much as it is appropriate outside of arbitration cases. It is Petitioner's contention that section 4 has no independent look-through force. To the extent that look through is appropriate, it is because it is appropriate under section 1332, itself. If under Respondents' view section 4 operates independently to authorize look through, then it would presumably override 1332's normal principle that you do not look through in determining complete diversity. And it would have the overall effect of paradoxically reducing the number of petitions to compel on the diversity side that could be brought in Federal court.
Antonin Scalia: Say that again. I didn't follow that.
Daniel R. Ortiz: The -- the point is a simple one, but it's sometimes hard to express. If you -- if this Court says that section 4 operates independently to authorize look through in section 1331 and section 1332, the courts, district courts, will be in the position of looking through section 1332 petitions to determine whether the parties are completely diverse. It will not be basing the complete diversity determination on the parties before it in the arbitration -- in the petition to compel, itself, but it will be looking through to the underlying dispute. Now, in Moses H. Cone, if the Court had done that, it would have picked up the architect who was dropped from the actual -- between the actual underlying lawsuit and the petition to compel arbitration, and completeness of diversity would have been defeated there.
John Paul Stevens: Is that point argued in Moses -- Moses Cone? Was that point argued in that case?
Daniel R. Ortiz: I do -- I do not know, Your Honor.
Antonin Scalia: Why -- why wouldn't 1332 require complete diversity and require the court to assure itself of that anyway?
Daniel R. Ortiz: No, Your Honor. The question -- 1332 does not authorize look through for purposes of determining completeness of diversity, so if section 4 independently authorizes--
Antonin Scalia: I thought you said it did have a look through, an automatic look through, itself.
Daniel R. Ortiz: --Not under the completeness of diversity, Your Honor. To the extent it has anything equivalent to look through, it's on the amount-incontroversy side of Section 1332.
Antonin Scalia: I see. You are -- you are -- you are limiting it to the amount.
Daniel R. Ortiz: Yes. So, under Respondents' view, there would be -- section 4 would authorize a look through one part of section 1332 and not with respect to another part of section 1332 under--
John Paul Stevens: I am not -- I mean just -- I have to be sure I follow. Why couldn't it require the same look through in a diversity case as it does in a Federal-question case?
Daniel R. Ortiz: --Because, Your Honor, if this Court authorizes look through in Federal-question cases through the arbitration agreement, itself, to the underlying dispute, then if that look -- and that look through comes -- authorization comes from Section 4--
John Paul Stevens: Right.
Daniel R. Ortiz: --then in 1332 cases, this Court would be looking through not only for amount-in-controversy purposes--
John Paul Stevens: Complete diversity.
Daniel R. Ortiz: --but also for complete diversity.
John Paul Stevens: What's wrong with that?
Daniel R. Ortiz: Well, that would have the effect, Your Honor, of not allowing the petitioner to define the contours of the lawsuit and would actually reduce the number of section 1332 petitions that could be brought in Federal court.
John Paul Stevens: Maybe it would. So what?
Daniel R. Ortiz: Well, Your Honor, if that is -- that is an implication that is -- is lurking in Respondents' position, and it is also -- in a case like this it is a little bit worrying as to why ordinary section 1332 principles should not apply.
Stephen G. Breyer: There is a dispute between people. You look at their underlying dispute, the underlying one, and you say: Is there diversity? What's the problem?
Daniel R. Ortiz: Well, Your Honor, that's not actually the way you use Federal -- lower Federal court now.
Stephen G. Breyer: Why -- why wouldn't you do just what I said, just what we started with? You take out the arbitration agreement, and then you look to see what this dispute is about. And if it's about something that happens to involve all people from one side in one State and from another State on the other side, there is jurisdiction. Why is that a problem? I don't understand.
Daniel R. Ortiz: Your Honor, it -- it removes the Petitioner's ability or the plaintiff's ability or the -- similar to the plaintiff's ability in an ordinary lawsuit to define--
Stephen G. Breyer: Why?
Daniel R. Ortiz: --the parties.
Stephen G. Breyer: Why?
Daniel R. Ortiz: Well, because, Your Honor, someone could not bring a section 4 petition in Federal court against maybe one party seeking to force that party into arbitration if there are other parties involved in the underlying dispute where there is no diversity.
Anthony M. Kennedy: All right. So you define "look through" as -- under our hypothetical here as looking through to all people who might potentially be parties under this arbitration agreement.
Daniel R. Ortiz: Well, that would be the implication of taking the kind of look-through theory that Respondents are arguing for in this case and applying it evenhandedly.
Anthony M. Kennedy: I will think about that. I'm -- I'm -- I wasn't -- it wasn't clear to me that that was so.
Daniel R. Ortiz: But, Your Honor, there are also several jurisdictional gaps in the act that are created under Respondents' view. The critical--
John G. Roberts, Jr.: Can I hold up just a second to make sure I understand it. You are saying that, let's say, Person A has an arbitration agreement that implicates Persons B and C. C is diverse, but B is not. They could decide to compel arbitration with respect to B and leave C out of it. But if you follow the look-through doctrine, you would say, well, the dispute is between A and B and C; and so you would be depriving A of their right to frame their own complaint in a way that doesn't create Federal jurisdiction.
Daniel R. Ortiz: --Exactly, Your Honor, and that--
Anthony M. Kennedy: But that's not quite so, because the -- the action could proceed with just A and C, and then it -- it could come to a complete judgment as to them. In the look through for the -- the claims that are involved, the action couldn't possibly proceed without taking account of the pre-emption claim that the Federal -- the Federal claim. You couldn't -- you could decide the case completely in No. 1, the diversity case, but not in No. 2. So there -- so there is a difference. It's true, you don't decide it completely as to all parties.
Daniel R. Ortiz: --When the -- no, Your Honor. But there -- there could under your situation be large parts of the underlying dispute that are not covered under -- and still left to be decided. It is, you know, not the case that necessarily everything would be subject to arbitration.
John G. Roberts, Jr.: Of course, I suppose how that works depends on what the rules are about how you frame the dispute once you do look through. I mean, if there is a pending State suit between A and B, even though C may -- you could have sued C as well, I mean the judge can say, well, I am only going to look through to what the -- the actual litigation is; and if I look at that, that's not a Federal case. And -- and -- and so your position follows.
Daniel R. Ortiz: This Court could; and, interestingly, that wasn't the situation in Moses H. Cone, itself. There, there was a preexisting lawsuit, and this Court did not look through. The court found that there was no problem with the architect being absent from the petition to compel arbitration, itself. Well, Your Honors, there is also, as I mentioned, strange jurisdictional gaps that are created under Respondents' view of this case. Section 4 is the only section of the arbitration -- in the Federal Arbitration Act that has the critical 7, 9, 10, and 11, which allow a court, a Federal court, to compel the attendance of witnesses at ab arbitration. That is Section 7; and then 9, 10, and 11, which respectively allow a Federal court to confirm, vacate, or modify an arbitration once it has happened. None of those sections contain language which under Respondents' view or the Fourth Circuit's view are necessary for there to be look through. In all those cases -- situations, Your Honor, the Federal courts would be in the position of being able to compel arbitration under section 4 but not being able to compel the attendance of witnesses at the arbitration or to subsequently confirm, vacate, or modify an award coming from an arbitration that they, themselves, compelled. The closest Respondent comes to sort of explaining this or trying to jump or leap over this gap, are two amici, two law professors, who argue that this Court should find jurisdiction, subject matter jurisdiction under sections 7, 9, 10 and 11 as an emanation from sections 3 and 4, only one of which actually has the necessary "save for" language. Also, Your Honors, this look-through approach to Federal subject matter jurisdiction violates the core purposes of the Federal Arbitration Act. The Federal Arbitration Act was meant to get things to arbitration quickly and to have arbitrators, not judges, decide them. These -- sometimes often complex jurisdictional inquiries undermine both those aims. Here this case has been pending in Federal court just at the jurisdictional stage for many years now. In the Strong case which is now en banc before the Fifth Circuit -- I'm sorry, the Eleventh Circuit -- Justice -- Judge -- excuse me, Judge Marcus wrote a 32-page opinion.
John G. Roberts, Jr.: Yes, and what really leapt off the page at me in that opinion, he gets to the end, I think he basically presents your position and then he says: Thus, on my reading the relevant portion of section 4 could be rewritten this way. Well, I mean that to me is a confession of error if you have to rewrite the statute to get to your position.
Daniel R. Ortiz: Well, Your Honor, he didn't say it had to be rewritten. He said if you wanted to make it even clearer what was originally intended under section 4 that is how you would do it. That's a far cry from saying that you need to do violence to the statute. Here--
John G. Roberts, Jr.: Well, his rewriting doesn't look very much like section 4 to me.
Daniel R. Ortiz: --Your Honor, if his rewriting, given the disappearance of the ouster doctrine -- he's trying to make it clear to present context what was originally understood at the time the Congress originally enacted the FAA. There is no memory, historical memory or otherwise, of the ouster doctrine, no realization how it actually played out; and against that absence of knowledge, Judge Marcus is trying to educate his readers and the lower courts as to how things need to be done. But certainly the language as originally understood would have -- that save-for language would have been all about, which it is clear from the time was thought by Congress to be the major obstacle to arbitration.
Samuel A. Alito, Jr.: What about the fact that that was not included in the New Jersey statute, nor was it included in -- was it included in the Uniform Arbitration Act?
Daniel R. Ortiz: No, Your Honor. Now--
Samuel A. Alito, Jr.: What's the explanation for that?
Daniel R. Ortiz: --The explanation, Your Honor, is that in New York law and equity have been merged.
Samuel A. Alito, Jr.: I know. And you're saying New Jersey; it was, you know, a very complicated argument about the status of it. What about the Uniform Arbitration Act?
Daniel R. Ortiz: By the later times it appeared that it was closer, coming -- the law and equity across many jurisdictions was coming closer, but at the time in the Federal court system at least, if only because of Justice Story's hostility towards jurisdiction, finding jurisdiction in the Tobey case to build equity seeking specific performance kinds of things, that language is necessarily clear. Your Honors, if there are no further questions I would like to reserve my time for rebuttal.
John G. Roberts, Jr.: Thank you, counsel.
Daniel R. Ortiz: Thank you.
John G. Roberts, Jr.: Mr. Phillips.
Carter G. Phillips: Thank you, Mr. Chief Justice, and may it please the Court: It seems to me that if the argument that just ended doesn't prove anything, it suggests that perhaps the Court ought to follow the simple expedient of read the statute as it's written, apply it as written and come to what strikes me, at least, as a reasonably easy resolution of this particular case. The statute says that a party aggrieved by the alleged failure to arbitrate -- and we have that precisely in this case because the other side has filed a lawsuit against our indemnitee arising out of an underlying dispute -- may petition any United States district court which, save for such an agreement -- it's pretty clear that everybody agrees that in this context you just simply put the agreement aside -- and then you say would have jurisdiction under Title 28 in a civil action of the subject matter of the suit arising out of the controversy between the parties. It seems to me reasonably clear to interpret that language as saying you look to the underlying dispute between the parties.
Ruth Bader Ginsburg: But that's the question that I have, Mr. Phillips. What is the underlying dispute between the parties? It seems to me that your look-through argument is look-through only halfway. That is, if you look -- if you consider the controversy, the suit that was brought in the State court, the controversy is here we have a customer who hasn't paid the amount charged. So we have a suit on a debt. Why isn't that the controversy? You have to make the counterclaim the controversy, which comes up only defensively. It wasn't brought as a lawsuit.
Carter G. Phillips: Justice Ginsburg, the language of section 4 actually talks about the subject matter of a suit arising out of, not the existence of a suit; and section 4 doesn't require that a lawsuit have been filed. So it's not appropriate simply to say to yourself look at what litigation actually exists, because in as many cases as not there is not going to be any litigation ongoing. So the court has to make the hypothetical: would the court have had jurisdiction over the subject matter of this dispute? And the dispute in this case, which Professor Ortiz was very explicit about -- he said specifically that if he had brought this as an affirmative lawsuit it would have arisen under Federal law. It seems to me that's as clear a concession that the nature of this dispute is a question of Federal law. And therefore--
John G. Roberts, Jr.: Who gets to frame -- who gets to frame the complaint? Normally if you're a party and you have a dispute that may implicate Federal law, you have control over the complaint. You don't have to have a -- you don't have to well plead it in a way that implicates a Federal question. You can go out of your way to do it in a way that does not implicate a Federal question; and therefore it would not be, you could not bring it in Federal court. Just as in the diversity example, you can specifically avoid suing people who would create diversity. But in your position the judge has to in his mind write a complaint and see whether there is jurisdiction or not; and how does the judge decide whether to sue diverse parties or not to sue diverse parties?
Carter G. Phillips: --I think what the judge has to do is to take -- is to give the plaintiff in the section 4 complaint the benefit of his allegations. And we have made an allegation here that the subject matter of this dispute arises under Federal law, and we did that not just based on our own assessment of the situation in the abstract, but we did that on the basis that she had filed a very specific claim against us asserting that we had violated essentially section 20.
Ruth Bader Ginsburg: But -- but she chose to assert it only defensively; and it's not a complaint -- the counterclaim if it had been brought as an independent action, everybody agrees qualifies for Federal jurisdiction. But the litigant who has this claim is asserting it only as a defense to a claim that you admit does not qualify for Federal jurisdiction.
Carter G. Phillips: But Justice Ginsburg, I think the difference is that we are not seeking to remove her original lawsuit. That's not -- if that were the case, then I think the argument you're making is a legitimate one. All we are seeking to do is to assert our independent section 4 rights and that's not at all dependent on the--
Ruth Bader Ginsburg: But in the practical effect, what happens? Now you have asserted that you can enforce because of the counterclaim that asserts -- that arises under Federal law. But you say it's is not the same as removal because the underlying claim, your suit on the debt owed, remains in Federal -- State court; but what happens to that claim once you have this arbitration?
Carter G. Phillips: --Well, there are a couple possibilities. I mean, first of all, the arbitration agreement is quite explicit in saying that if, if you -- if this starts off as litigation and then a subsequent claim is made by either of the parties, the parties have the right to enforce the arbitration as to that particular claim. So that's specifically what we did in this particular case. So in theory, at least the collection action would remain in State court as a State cause of action, although it would certainly be available to the Petitioner in this case to say, well, no, if you're going to arbitrate that portion of the case then I'm content to arbitrate the rest of the case as well. So they could do it that way or we could arbitrate the Federal law.
John Paul Stevens: Mr. Phillips--
Carter G. Phillips: I'm sorry?
John Paul Stevens: --Clear up one thing for me. Is it correct, as Justice Ginsburg suggested, that the counterclaim was purely defensive? Didn't it ask for additional relief? The counterclaim, wasn't it a class action?
Carter G. Phillips: Oh, right. Yeah -- no -- exactly. That's absolutely true.
John Paul Stevens: So it was not merely an defense to the action, the State court action.
Carter G. Phillips: Right.
Ruth Bader Ginsburg: I meant -- I didn't mean to say you couldn't get affirmative relief on a counterclaim. Of course you could. But this--
Carter G. Phillips: But I couldn't -- I couldn't remove it--
Ruth Bader Ginsburg: --Chose not to--
Carter G. Phillips: --I think that was the point she was trying to make.
Ruth Bader Ginsburg: --chose not to litigate the case, chose to -- well, I'm being sued, so I'm going to bring up this claim. It wasn't as an original matter.
Carter G. Phillips: Right. I -- I understand that, Justice Ginsburg, but the -- the -- but the point I am trying to make here is that the language of section 4 just talks about the subject matter of the controversy between the parties. It doesn't specifically talk about an existing lawsuit, and frankly it doesn't envision the existence of a specific lawsuit.
Ruth Bader Ginsburg: The controversy between the parties is the credit card company says, customer, you're in default $10,000; and the customer said, if that's so, then I have certain offsets because they charged me too much interest. How do you--
Carter G. Phillips: Well, in that--
Ruth Bader Ginsburg: --how do you -- it's all part of the same controversy, isn't it?
Carter G. Phillips: --But -- no -- well, I mean you could -- you can certainly view it as part of the same controversy, but the -- but the bottom line is, the question is: Would a Federal court have jurisdiction over the dispute that arises under Federal law between the Petitioner and the Respondents? And the answer is clearly yes.
Antonin Scalia: What is the dispute? You say the dispute is not defined by what -- what has been brought in a complaint.
Carter G. Phillips: It's defined by our complaint in section 4.
Antonin Scalia: But you -- from your argument, I would gather that a court would be able to imagine a counterclaim. Once it finds out, you know, what -- what -- what the principal complaint is about, the court could imagine that there would be a counterclaim for interest or for something else.
Carter G. Phillips: Well, I'm not sure -- I'm not even sure--
Antonin Scalia: It's very strange to decide Federal jurisdiction on the basis of -- of imagined -- imagined complaints.
Carter G. Phillips: --Well, I -- I mean the problem with that -- I mean the difficulty arises, Justice Scalia, because the language of the statute does say that the court has to determine whether it would have jurisdiction over the subject matter of the controversy. And then that--
Antonin Scalia: So the problem with his -- I mean with his interpretation, you don't have to imagine anything.
Carter G. Phillips: --Well, with his interpretation, you have to imagine everything. In point of fact, you have to imagine that this had something to do with ouster when it doesn't use the word "ouster".
Antonin Scalia: Well--
Carter G. Phillips: It has to do with equity and law when it uses "equity" and "law" in other contexts. And--
Antonin Scalia: --You don't have to imagine complaints. You -- you don't have to invent litigation.
Carter G. Phillips: --Well, no. That's true, but what it -- but -- but the flip side of that is that this is a section, a fundamental provision, of the Federal Arbitration Act that apparently was designed to provide a basis of Federal jurisdiction for the Gila Indian Tribe claims. It seems inconceivable to me that Congress had that narrow an interpretation of section 4 in mind when it passed this particular law.
Antonin Scalia: It's close to inconceivable to me that Congress wanted us to -- to construct litigation that is not yet in existence.
Carter G. Phillips: But I think all of this really is talking -- I mean this is not significantly different--
John Paul Stevens: --answer that the litigation does exist.
Carter G. Phillips: --Right.
Antonin Scalia: No, but your position is it doesn't have to exist. Had that litigation not been brought, had the motion to arbitrate been brought before a lawsuit was filed, that the court would still have to consider what is the dispute between the parties and what kind of complaints could that dispute have generated.
Carter G. Phillips: And it may well be, Justice Scalia, that in that context the answer is that the court will say that the claim is unripe; that we don't know for sure whether or not this is going to congeal into a real dispute between the parties. And if that's the case, obviously, then the court does not have to go forward. But you don't have to worry about that in the context of this particular litigation because that dispute has congealed. The parties are at loggerheads over the particular issue in this case. And -- I'm sorry.
Ruth Bader Ginsburg: There would be nothing inappropriate about a State court entertaining that excessive interest claim, but applying Federal law to it. I mean the -- 1831(d) says that Federal law governs the interest--
Carter G. Phillips: Right.
Ruth Bader Ginsburg: --Not state usury law. So you could have this case going on in State court.
Carter G. Phillips: Right.
Ruth Bader Ginsburg: And the State court would be perfectly competent to apply the Federal law.
Carter G. Phillips: Right. Although, you know, that's to the -- obviously, that sets aside the arbitration agreement completely.
David H. Souter: Well, why does it set aside? This is the thing I guess I don't understand about the case, and that is what is really driving your side, given the difficulties that I share with the Justices on my right and left here. And the -- the tacit assumption seems to be that you in fact are going to get shortchanged on your arbitration right if you have to bring your arbitration claim in a State court. And I don't see that.
Carter G. Phillips: Well, first of all, section 4 doesn't apply in--
David H. Souter: I know section 4 doesn't, but section 2 does.
Carter G. Phillips: --To be sure, section 2 does, but whether or not--
David H. Souter: You can -- based on the Federal act, you can in State court claim your right to enforce the arbitration agreement.
Carter G. Phillips: --Right, but the flip side of that is--
David H. Souter: Why don't you do it in the State court instead of going through these gymnastics?
Carter G. Phillips: --Because we have serious doubts as to whether or not in fact we will have our Federal rights protected as zealously as we would in a Federal court.
Anthony M. Kennedy: Speaking of gymnastics, can I ask you if you had foreseen this problem, could you have brought a declaratory judgment action to establish that your Federal claim--
Carter G. Phillips: Yes.
Anthony M. Kennedy: --controls this dispute and could you have then said that you wanted this arbitrated?
Carter G. Phillips: Yes, Justice Kennedy. I believe we could have done both of those.
Anthony M. Kennedy: Why didn't you do that? Why are we here?
Carter G. Phillips: Well, because we brought the action under section 4, which I think--
Anthony M. Kennedy: I mean, could you still do that after this case?
Carter G. Phillips: --Assuming there's no statute of limitations issue, and I don't know that there would be, but that would available. But it still seems to me that the bottom-line question is: Are you entitled to bring an action under section 4?
Stephen G. Breyer: So your theory -- I mean basically I think you concede that the other side has a point in sometimes it will be difficult to say what the dispute is precisely and, therefore, difficult to know if precisely this dispute does or does not -- one that you can get into Federal court on. For example, it hasn't even arisen. You know, there is no lawsuit. And I guess what would happen, what the judge should say is they should say to you you'd like to have this in Federal court, wouldn't you, this dispute? What's it about?
Carter G. Phillips: Right.
Stephen G. Breyer: And once he says what's it about, both sides will say, well, basically it started off -- it's just about collecting some money from in-state parties. So that's not Federal.
Carter G. Phillips: Right.
Stephen G. Breyer: So that, you know, something could happen here. It could happen that they could decide they want to sue in a big class action and get huge amounts of money under usury laws of the State which don't exist, so they have to proceed under an FDIC reg, and then it could be Federal. And the judge might say to you: "What? " "You're just imagining. " And that would be up to the judge.
Carter G. Phillips: Right, and the judge would have the discretion to decide--
Stephen G. Breyer: It's a kind of a defense.
Carter G. Phillips: --Right.
Stephen G. Breyer: But you'd say then it might be the case that it wouldn't be so hard to decide.
Carter G. Phillips: Right. There could be a letter that says, look, what you're doing here violates Federal law, and if you don't stop it, we are going to take action against you. And then we have to sit there and wait.
Stephen G. Breyer: A real suit. And--
Carter G. Phillips: But they are here. They are here.
Stephen G. Breyer: --And in a real suit, there is a class action brought not just on behalf of the one you're trying to sue but on behalf of everybody, where they have to proceed under a Federal reg, and they are going to get a huge amount of money, and you say that's what we want arbitrated.
Carter G. Phillips: And that's precisely what we've asked for here, Justice Breyer.
Stephen G. Breyer: So this one is not so hard to figure out.
Carter G. Phillips: Right.
Stephen G. Breyer: There might be some that are.
Carter G. Phillips: Right, and there's no question about that, and it's--
John G. Roberts, Jr.: What's hard to figure out, you have, let's say, a franchisee, and you have a dispute with the franchisor. And the franchisee says it's an antitrust violation, and I'm going to sue you under the California antitrust law, and he does. And the Federal court says, we've looked through and says, well, you could have sued under the Federal antitrust law. And you -- yes, I could have; I deliberately didn't. And then they say, well, this is something that could have been brought in Federal court. And that really deprives a plaintiff of his right to frame his complaint as he sees fit.
Carter G. Phillips: --And I understand that, Mr. Chief Justice. And in the right case, you know, I'm not sure how I would come out in that particular--
Stephen G. Breyer: Well, in his case, in the Chief Justice's case, wouldn't you say they don't get into court, probably don't because they are bringing this under a State law?
Carter G. Phillips: --You see, I would comply with the original complaint.
John G. Roberts, Jr.: No. But you just say, is the dispute one that could have been brought in Federal court?
Carter G. Phillips: Right. Well, that's exactly what the Eleventh Circuit held.
John G. Roberts, Jr.: It's a violation of the Sherman Act.
Carter G. Phillips: Right.
John G. Roberts, Jr.: Of course, it could be brought in Federal court.
Carter G. Phillips: Well -- and in the right case, the Federal -- you know, if I had to go that far, I might well make that argument, Mr. Chief Justice, but in this case I don't have to go that far. And I think all the Court needs to resolve is in a situation where the parties have a very concrete dispute between them, one that arises exclusively under Federal law, and a party seeks to have that claim arbitrated under section 4 pursuant to--
Ruth Bader Ginsburg: That claim doesn't--
John Paul Stevens: Let me get one fact.
Carter G. Phillips: --I'm sorry.
John Paul Stevens: Is the State court suit still pending?
Carter G. Phillips: Yes, the State court suit is pending.
John Paul Stevens: So there are two separate underlying actions.
Carter G. Phillips: The State court has stayed its hand pending the outcome of the Federal litigation. So we'll see what happens. But, obviously, as I say--
Ruth Bader Ginsburg: --But there could be nothing left for the State court to do after you have the arbitration. I mean, not that you arbitrate about interest due on a nonexistent debt. I mean, you have to have the two things together.
Carter G. Phillips: --Well, I mean, in some ways, as I say, it seems to me that's Petitioner's right or potentially -- or ours. I suppose either side could ask to have that arbitrated, but the truth is if you took--
Ruth Bader Ginsburg: I just can't envision a case where what you haven't effected is taking a case, a debt, simple debt, no diversity a State court case.
Carter G. Phillips: --Right.
Ruth Bader Ginsburg: And you remove the State court from the picture and gotten it over into Federal court to order the arbitration and any follow-up to the arbitration. It just seems to me you have effected -- accomplished what you could not have accomplished by the -- by removal, which you admit that you can't remove on the basis of a counterclaim.
Carter G. Phillips: But see, Justice Ginsburg, I think that's not right. I think that actually what happens is you eliminate what I perceive to be the Federal question in this through the arbitral process. You still have the underlying collection action. If the Court says, no, there is no violation of the usury laws, you have not overcharged, you have not made any mistakes, the question we still have is a claim on the debt and her obligation to pay it. Now, whether she wants to adjudicate that in State court or resolve it as part of the arbitral process, that's really up to her as far as how that goes. But the arbitration agreement could not be plainer in saying that you can divide up the claims for purposes of seeking arbitration, and that seems to fit perfectly well with an effort to say that there is a specific claim here that arises exclusively under Federal law, and that, therefore, we can enforce our arbitration rights pursuant to that section 4 right. And that's, frankly, all we are trying to accomplish here, Justice Ginsburg. The second part of the statute which is the -- you know, the one that has obviously created the greatest amount of controversy here, is, you know, "would have jurisdiction over the subject matter. " Again, it seems to me that this is the easiest case the Court is going to face in this area, because here is one where there is no question--
Antonin Scalia: That's what worries me. [Laughter] If we accept your theory, this is the easiest case, what about the hard cases that are further down the line?
Carter G. Phillips: --Well, I think what's going to happen -- I candidly don't think they are going to come up that much, in part because these issues have been around a long time. You know, it's not like there have been dozens of these kinds of issues arising over time. I don't think it's likely to be that big a problem. But again, it seems to me that district courts have the authority to resolve this, because if they don't believe that there really is a Federal claim that would justify exercise of section 4, they can say that. If they do, then they will -- then they will send it. I mean, look -- the other thing about this is, you know, the other side makes a big fuss about federalism, but we are not asking to take the issues away from the Federal court -- from the State courts to the Federal courts. What we are asking for is what everybody has agreed to here, which is to have these disputes resolved by arbitration.
Ruth Bader Ginsburg: But you could have asked for that in the State court as well, and--
Carter G. Phillips: There is no question about that, Justice Ginsburg. The problem is that there is some lack of confidence in the State courts that we will get the same treatment under section 4 that we would get in Federal court. And Congress created that right.
David H. Souter: Then bring that up here on appeal from the State court.
Carter G. Phillips: Well, I wish it were that easy to get this Court to grant review of everything that I bring up here in the first place.
John Paul Stevens: You don't have any trouble. [Laughter]
Carter G. Phillips: I appreciate that.
John Paul Stevens: It's not really -- of getting constants from Federal judges; the arbitrators can decide this question.
Carter G. Phillips: Right.
John Paul Stevens: The arbitrator might decide there is no preemption.
Carter G. Phillips: Right. But the -- and that's fine and we have to live with that. And obviously, since we can't change the standards of review on the back end under sections 9, 10 and 11, we are going to be pretty much stuck with that -- with that determination. But the truth is the bigger risk is that the trial judge, the State court will not send it to arbitration.
John Paul Stevens: May I ask this, I haven't reread the Moses Cone case, but is your adversary correct in saying that there would have been no jurisdiction in that case it we followed your view?
Carter G. Phillips: No.
John Paul Stevens: Because the arbitrator was not of diverse citizenship from the other parties?
Carter G. Phillips: I mean, It wasn't litigated. It's not clear on the face of the opinion. So if there is something he knows that I don't know, maybe. But I -- I -- certainly nothing in there that reflects that -- that view of the world.
John Paul Stevens: But -- if, in fact, were a nondiverse party in the Moses Cohen, there should have been no jurisdiction?
Carter G. Phillips: Well, now, the nondiverse party issue, it depends on how you read section 4. You know, section 4 talks about the parties. And the parties there I don't think means parties to the underlying controversy. I think there parties refers specifically to the dispute in front of the court. So I don't think the pass-through problem for 1332 applies in that particular context for complete diversity. I don't think Congress envisioned you would look beyond the immediate dispute under section 4 to see whether there are additional parties, except to the extent, obviously, that you would have necessary and indispensable party litigation that might bring them in. I think the assumption is you take the complaint as it's written, and then you look to see whether or not there is amount of controversy. For that you have to go beyond because the dispute with respect to arbitration is not going to get you anywhere near that number. And you have to look beyond for Federal questions to see whether or not there is a Federal issue there to be enforced.
Stephen G. Breyer: Is this right? I'm asking if it may sound favorable to you, then I'll get a good response in rebuttal.
Carter G. Phillips: I'm not going to give a good response?
Stephen G. Breyer: If you read it the other way -- if you read it the other way, the way the Petitioners want to read it, then is this so or not? That then you look to see if there is Federal jurisdiction of the arbitration agreement; is that right?
Carter G. Phillips: Under their interpretation?
Stephen G. Breyer: Yes, under their interpretation.
Carter G. Phillips: Yes.
Stephen G. Breyer: So, what you could have is you could have two parties sign an arbitration agreement that lasts for a year that governs all disputes between them, and one is from Vermont; the other from California.
Carter G. Phillips: Right.
Stephen G. Breyer: So there is jurisdiction. And all the disputes happen to involve just pure matters of -- that never could come into Federal court. I mean there are such matters you could argue about.
Carter G. Phillips: Sure. Right.
Stephen G. Breyer: But nevertheless, we have a Federal court issuing this injunction, under their theory.
Carter G. Phillips: Right. Assuming the amount of--
Stephen G. Breyer: Assuming they are right.
Carter G. Phillips: --Assuming the amount of controversy -- I mean, it could have an amount--
Stephen G. Breyer: Oh, I see. The arbitration agreement has to meet the amount in controversy.
Carter G. Phillips: --Right. It has to have an independent basis for Federal jurisdiction.
Stephen G. Breyer: All right. So then probably no arbitration agreement in itself meets the amount.
Carter G. Phillips: Well, that's exactly our point. That's why you have to look through.
Stephen G. Breyer: So if you didn't look through, then this would apply to nothing?
Carter G. Phillips: Pretty much that's our view of the case.
Stephen G. Breyer: If the arbitration--
Carter G. Phillips: Yes. I'm sure my opponent will say something different than that.
Stephen G. Breyer: --The arbitration agreement has to -- they talk about the arbitration agreement, then you could have really important Federal questions in substantive issues--
Carter G. Phillips: Yes.
Stephen G. Breyer: --that couldn't come in because the arbitration agreement doesn't? Or you could have State questions that would suddenly come in because the arbitration agreement does. The arbitration -- but now you're saying, well, that second case is never going to arise.
Carter G. Phillips: Probably not.
Stephen G. Breyer: Probably not, because no arbitration agreement has -- so then it becomes a nullity of the statute?
Carter G. Phillips: Right.
Stephen G. Breyer: Except to overcome the ouster. Okay. We've got your side of it. [Laughter]
Antonin Scalia: Well, it makes a nullity of it, except that it gets into the Federal court the decision on the arbitration agreement, which was the object of this stuff, whatever -- whatever the underlying claim is, whether it's a Federal claim or not. As I understood the purpose of the Arbitration Act, it was to make sure that arbitration was -- was honored not just in Federal cases but in State cases as well. And it's entirely compatible with that, that sometimes a Federal court will -- will direct arbitration in a case this involves an underlying controversy that's purely non-Federal.
Carter G. Phillips: Oh absolutely. I mean, you know, in a situation -- it depends on how you interpret it. If you interpret it the way that the Petitioner does in saying that you can't have any look through -- now he softens that and says, well, no, you can have look through for diversity. But if you accept the idea that section 4 only makes you look at the dispute at the arbitration level, then the reality is you're going to have no cases that are going to be covered, because you're never going to satisfy the amount in controversy. And then the issue is why do you get to look through for diversity purposes and never get to look through for Federal question purposes? And it -- it seems to me the much easier way to reconcile the language of the statute is to say, of course, you look through to see, particularly if you have an unquestioned Federal question dispute that's being litigated between the parties; we know that; there is not an issue before us. In fact, he has conceded as much even here in court today. And so, it seems to me that's the solution to this case. Now admittedly, there will be other cases where you may have right in these questions, and there will be other cases where the parties will have to fight at the Federal district court level as to precisely what's at issue and what the plaintiff really means to be fighting over. And it may be in some instances you won't get an order that directs arbitration. But that's not this case.
Ruth Bader Ginsburg: --Why isn't it proper to look to see -- the party who wants arbitration has a dispute; the dispute is we are owed money by the debtor. Why shouldn't the court say, well, we'll see what your case is about; if your case would qualify for Federal jurisdiction, fine. But we are not going to look to see what the defendants cases is or might be. We'll just look at your case and that's how we will define the controversy.
Carter G. Phillips: Well, there are two problems with that. First of all, the statute talks about the subject matter of the controversy. It doesn't talk about the specific controversy. And second of all, the statute clearly envisions that there are going to be situations where there is no complaint, there is no underlying State court cause of action, and it still envisions in that situation that a district court is going to have to determine whether or not it would have jurisdiction.
Ruth Bader Ginsburg: But then you'll have not only a hypothetical claim, because nothing has been brought, but an hypothetical answer by way of counterclaim to that claim.
Carter G. Phillips: But it seems to me that's precisely what the language "would have jurisdiction over the subject matter of the controversy. " asks this Court to make a determination of.
Ruth Bader Ginsburg: So you would come into the court and say there is no suit going on anywhere, but if we were to bring this suit in State court, the defendant could have brought this Federal counterclaim? That's a lot of hypothesis.
Carter G. Phillips: But it seems to me, Justice Ginsburg, the better way to think about this is what if we were getting letters from the Petitioner saying you are engaged in usurious conduct, you're outrageous, you got to stop what you're doing, we are going to bring a class action against you, you had better change your behavior tomorrow, and they don't sue us, and they don't sue us, and they don't sue us? And then the question is are we entitled to go to court to get that resolved and are we entitled to have the resolution to that issue as a matter of arbitration?
John Paul Stevens: Mr. Phillips, the answer to a better hypothetical is what if there had been no original collection action but they had brought such an action.
Carter G. Phillips: Right. Well, that's -- actually, you're right.
John Paul Stevens: That's the case you're really saying. You're saying that is like this case.
Carter G. Phillips: That is this case.
John Paul Stevens: And Justice Ginsburg is suggesting it's not, because it happens to arise out of a different -- quite different dispute.
Carter G. Phillips: Right. I thought your question absolutely nailed it because you said, would this -- you know, if you brought that suit could you and would you, and the answer is yes, you could, and therefore you know as -- without any question that it's a Federal suit.
Ruth Bader Ginsburg: Excuse me--
John Paul Stevens: As I understand your opponent, they would agree there was no jurisdiction even in that case.
Carter G. Phillips: Right. I think that's no doubt that that's their position.
Ruth Bader Ginsburg: --What do you do with the assertion that sections 9 through 11 are not in sync with your view, because they would not give you -- you could go in and -- to compel arbitration but once the arbitration was award -- an award was made, you would not have access to the Federal courts to enforce the award?
Carter G. Phillips: Well, I mean the interesting thing about 9, 10 and 11 is if anything the language is broader than our language. If we didn't have the 4 says have you been aggrieved, do you have a right of action, and do you have a remedy for that action? I mean, without this rigamarole that we've been talking about this whole time, we would have -- we would easily have a 1331 action. So if anything you would argue that 9, 10 and 11 arise under Federal law regardless. Now if you don't want to go that far, then it seems to me you just say you read sections 9, 10 and 11 and pairing material with the limitation in Section 4 and you wouldn't read it any broader than that. But there is no basis for taking the unlimited languages in 9, 10 and 11 and somehow distorting that to more narrowly limit the rights that we have under Section 4. So I--
Samuel A. Alito, Jr.: But the Petitioner says you never clearly clarify the particular Federal on which the jurisdiction rests on this case. What -- can you clarify that?
Carter G. Phillips: --Yes. This case arises under section 4 through Section 27.
Samuel A. Alito, Jr.: Section 4 creates the Federal--
Carter G. Phillips: Yes, it does create it, because section 4, without the "would have jurisdiction" language clearly would be arising under jurisdiction, in my judgment, and the only thing -- and then it places an additional requirement on you. You can't just use the contract that gets you into Federal court. You have to then look to see whether you would have had an underlying cause of action or an underlying Federal claim or whether there would have been diversity jurisdiction on the underlying claim.
Antonin Scalia: Why -- why can't you have sort of modified look, through like a modified limited hangout or whatever it was? That is to say, you can look through for the purpose of determining whether the arbitration agreement raises a Federal question. But that doesn't mean you have to look through to determine whether the underlying controversy raises a Federal question.
Carter G. Phillips: Because I think -- I think the reference in the statute to controversy clearly envisions the underlying dispute between the parties, because it's not just the arbitration agreement and it's not even just the controversy; it's the subject matter of the controversy, and you compare that to section 2 and it's clear that what the Congress has in mind there is the underlying dispute between the parties.
Anthony M. Kennedy: Is the Petitioner's -- I'm sorry I didn't get a chance to ask the Petitioner -- is the Petitioner's argument for a limited look through compromised in any way by the Beneficial Bank case which allows removal if there is a Federal defense?
Carter G. Phillips: Well, I mean, I don't know if it's compromised by it. I think it -- the Beneficial case makes it absolutely clear that we have here a Federal claim and therefore--
Anthony M. Kennedy: That's of course in the context of a defense, as opposed to a counterclaim.
Carter G. Phillips: --Right. But again I don't think -- I don't think section 4 is asking the courts to make that determination. I think what section 4 is asking the Court to look at is the subject matter of the controversy, and is it -- is it clear under the circumstances that there is in fact a Federal claim underlying it? And here there is no question on that. I ask you to affirm.
John G. Roberts, Jr.: Thank you, Mr. Phillips. Mr. Ortiz, you have three minutes remaining.
Daniel R. Ortiz: Thank you, Your Honor. Just a few quick points. I think this Court should be exactly clear how much Federal question jurisdiction the look-through theory would create. So long as a Federal issue can be imagined anywhere in the lawsuit, there would be Federal question jurisdiction under this theory, and this is almost by definition going to be the case in any dispute concerning credit card debt, either because of the theory of complete pre-emption from the FDIA, or because of the theory used in the Strong case before the Eleventh Circuit that RICO's prohibition on the collection of unlawful debt--
Anthony M. Kennedy: What about a Federal defense?
John Paul Stevens: That isn't quite true, because here there is a definition in the Federal claim in your counterclaim.
Daniel R. Ortiz: --I'm sorry, Your Honor?
John Paul Stevens: There is a definition of the controversy in your counterclaim and in their response.
Daniel R. Ortiz: No -- there -- in general, if you accepted their theory, as long as there is an issue that could be spun as a Federal issue which there will always be in a credit card debt collection case and just -- in most States, that on look-through theory would be--
John Paul Stevens: You're suggesting that every credit card debtor would have a class action?
Daniel R. Ortiz: --Your Honor, every -- it does not have to be a class action to establish what would serve--
Stephen G. Breyer: That's your view, but I mean believe me, I think I can keep that problem under control. That was your original point. I see the point, it's going to spread too far; you'd have to have some rules that cabin it. Assume I got that under control; maybe I don't. This is a case of "well, his brother was worse. " What do you want to say about the criticisms of the horrible things that happen if we adopt your position?
Daniel R. Ortiz: --Well, Your Honor, Respondent argues that this is an easy case, or at least over time the courts will decide these things to make the jurisdictional inquiry -- inquiries clear. Petitioner does not believe that is true. For example, here the real party in interest dispute consumed much of the court's time. The lower courts have gone both ways on this issue. It's incredibly fact-dependent. There is no easy answer for it. Also, Your Honor, Petitioner does not believe that the Declaratory Judgment Act would have been appropriate in this case. Declaratory judgments are discretionary and in this context of where you have a pending State court lawsuit Petitioner believes that a Federal district court would be very cautious before permitting one. Also Your Honor, if in the context of declaratory judgment action presumably the district court would have to take the State court admission into account, and in particular here it was admitted that the account was with Discover Financial Services not with the bank. Also, Your Honors, this -- Respondents try to portray Petitioner's position as siphoning off all Federal question jurisdiction. That is not true. Under Petitioner's view, a lot of Federal question jurisdiction -- some would remain. It would just be that the arbitration agreement itself would have to sound in Federal law. ERISA arbitration agreements would still be covered. Some labor agreements would still be covered. There would be--
John G. Roberts, Jr.: I'm sorry, what do you mean would still be covered?
Daniel R. Ortiz: --Would still be covered under Petitioner's theory of what section 4 means. So for example, Mr. Chief Justice--
John G. Roberts, Jr.: Which would still be in Federal court.
Daniel R. Ortiz: --Would still be in Federal court. Thank you.
John G. Roberts, Jr.: Thank you, counsel. The case is submitted.


Earl Warren: Number 12, State of California, Plaintiff, versus the State of Washington. Mr. Howland, you may proceed.
Speaker: May it please the Court. I speak on behalf of the motion made by the State of California. California, as leave of the Court, with permission to file a complaint in the original jurisdiction of this Court, the defendant is in the State of Washington. The two States are the only parties to the proceeding. The case involves trade barriers between those two States. Washington has discriminated and thus discriminate against interstate commerce in wine. In so doing, Washington denies the citizens of other States, trade privileges, in the sale and distribution of wine, which it freely accords to its own citizens. It does so in order to protect its own wine industry against the competition of out-of-state and foreign wines. And for this, we submit, there is no sanction in the Constitution of the United States. Violated by these statutes, another official acts of the State of Washington, are the constitutional rights of the State of California itself, as a State, in addition to the constitutional rights of its citizens and industry. The purpose of this action is to enjoin official acts of the State of Washington which, we submit, violate the Federal Constitution. Supporting the position taken by California in this case, the State of New York has filed a brief, amicus curiae. This was (Inaudible) from a significant source, because second only to the State of California, the State of New York is the next largest wine-producing state in the union. Washington opposes the filing of this complaint. The principle argument is that California has no standing to sue, that it is not a proper plaintiff. And that in filing -- this seeking to file its complaint, the California is acting only as a nominal plaintiff on behalf of its wine industry and the members of its wine industry. Issue has been joined on this point in the briefs which have been filed. And with the Court's permission, my main effort, in this oral argument, will be addressed to the proposition that -- that California thus have standing to sue. Indeed, I shall show that California is the only plaintiff legally capable of bringing this action. And the reason is that the complaint amongst other things, alleges an injury to the State as -- that is to say to the executive branch of the State Government. The complaint in this case discloses two aspects to the case. On the one hand, it is a case of the type which is some -- has previously been before the Court, where a State sues his plaintiff in the role of parens patriae to assert its -- to assert an injury to its quasi-sovereign rights and where it is suing on cause of -- causes of action, which it derives from its citizens. That is one aspect of the case. But also very much in the case and which bears directly upon this question of California standing to sue is the fact that California alleges its own cause of action. California has searched that it, as a State, independently of its citizens, has been denied constitutional rights which it enjoys.
Felix Frankfurter: Did I understand you to say that you were -- you do not intend to address yourself to the merits of the complaint?
Speaker: No, sir. I said that my -- my principal effort in this argument, with the Court's permission, would be to demonstrate California standing to sue.
Felix Frankfurter: Yes, but I gathered that -- that the merits are going to be strikingly treated the argument?
Speaker: No, sir.
Felix Frankfurter: You will be moved.
Speaker: I will do it if he reminds.
Felix Frankfurter: I beg your pardon.
Speaker: Yes.
Felix Frankfurter: (Inaudible)
Speaker: In the -- in -- in establishing California standing to sue, I think that there's no great disagreement concerning the applicable law. In order to invoke the -- the original jurisdiction of this Court, the complaint state must establish two things. And I'm speaking now, particularly about the -- the parens patriae aspects of this case. The complainant's state must show that it has an interest in the subject matter of the litigation which is independent of an -- in -- in addition to for whatever rights of its citizens maybe involved. And, of course, complainant's state must also show that there is an injury to the state interest, although which there is a judicial remedy. If these two tests are met, then the complainant's state has standing to invoke the original jurisdiction.
William O. Douglas: Well, at the present time, the State -- the California wine is the -- is the wine that is sold in the state stores in Washington, isn't that right?
Speaker: That is correct. Yes, sir.
William O. Douglas: You're not -- it's the only wine, I think, that's sold, is it not, in the state stores of Washington?
Speaker: The Washington State stores also deal in New York wine, the wine of other states and the wine of our nations.
William O. Douglas: You know what percentage of the market in the -- the state stores of Washington that California has?
Speaker: Yes, sir. I (Voice Overlap) --
William O. Douglas: It's a very large percentage, isn't it?
Speaker: In -- in order that the Court may understand the interest that the State has in this, I should like, for the next few moments, to explain the rather extraordinary situation or which exists in the State of Washington and I will deal directly --
William O. Douglas: The -- the only wines I've seen in the state stores in Washington are California wines. And there'd be others.
Speaker: There are others, sir.
Felix Frankfurter: Is -- Is Ohio an important state of production line?
Speaker: May I answer that this way, Your Honor, California produces 85% of all the wine that is consumed in this country including foreign wine. In the remaining 15 --
Felix Frankfurter: All the wines consumed?
Speaker: Yes, sir. Including in the remaining 15%, the non-California 15%, New York, Ohio and Michigan and the State of Washington are the principal wine-producing states.
Felix Frankfurter: I'm -- you think it describes me and I heard, you -- I understood you to say that of all the wines consumed in Continent of the United States, of all the wines, importation from the plants is relief (Inaudible) itself of all the wines. 85% of the total is California product.
Speaker: Yes, sir, approximately that rate.
William O. Douglas: Your complaint here is that you can't sell in the grocery stores and -- and other retail outlets in Washington, isn't that right?
Speaker: Our -- our complaint of all three broad types of discrimination, one of them is the battle that you've touched on and that is that Washington wine is distributed in Washington entirely by private enterprise.
William O. Douglas: In grocery stores.
Speaker: From wholesaler, to -- from -- from winery to private wholesaler, to grocery store, tavern, hotel --
William O. Douglas: As I -- as I remember in the State of Washington, you can buy Washington wine in your corner grocery store, but you can't buy California wine there. Is that right?
Speaker: You've can buy California wine, if your grocery store has gone to state liquor store and paid the same retail price per bottle, as if you went there yourself. Then -- and there are grocery stores in Washington, of course, that do carry California wine having purchased it already at a consumer price.
William O. Douglas: If -- if the retail stores in the same basis as Washington state wine, is that right? It can't -- it can't be carried by the retail grocery on the same basis as he can carry --
Speaker: That is correct, sir.
William O. Douglas: Washington --
Speaker: Washington law places no restriction --
William O. Douglas: Is that your --
Speaker: -- on the wine which a -- any of the 4800 retailers can sell.
William O. Douglas: Is that the complaint? Is that the basis of the complaint here?
Speaker: The complaint is, sir, that we cannot -- that California wine does not have the same access to these 4800 licensed retail out -- outlets that is freely accorded to Washington wine and its distribution.
William O. Douglas: That -- that it can't -- it doesn't have the same access to the state liquor stores as --
Speaker: No, sir. That it doesn't have the same access to the retail outlet.
William O. Douglas: To the retail outlet?
Speaker: Yes, sir. California -- pardon me. Washington consumes about one million -- about two million gallons of wine a year.
Earl Warren: Are all the other states, New York, Michigan, Ohio and the foreign wines in the same --
Speaker: They are in precisely --
Earl Warren: (Voice Overlap) --
Speaker: -- the same situation as the California wine is, yes, sir. The -- the only distinction made in Washington law is between what they called domestic wine which is wine produced in the State of Washington from Washington ground fruits and all other wines. Washington consumes about two million gallons a year and about half of it is Washington wines produced in that State. The other half of it comes from out of the State.
Felix Frankfurter: Is Washington -- is Washington exporters, so to speak, for the other states?
Speaker: For all practical purposes, no, sir.
Felix Frankfurter: It's all that the State consumes?
Speaker: There is about 2500 gallons of certain types of fruit brandies that are -- that are exported, but it's -- it's miniscule. Of the million gallons a year that is lawfully imported into the State of Washington, about 90% is California wine in excess of 900,000 gallons a year.
Charles E. Whittaker: When you say California wine, you mean wine from California?
Speaker: That is correct.
Charles E. Whittaker: California doesn't own its part of it?
Speaker: No, sir. By California wine, I mean wine that is produced in the State of California by private producers. The State of California does not manufacture or sell or deal in any of these products in any capacity. After this California wine has been lawfully transported into Washington, it is then subjected to three principal types of discrimination. One is the discrimination of the channels of distribution by which it reaches the consumer. The second is discrimination in the state controls which are exercised over the pricing of wine. And the third is discrimination in the Washington laws and policies in connection with the promotion of the sale of the wine to retailers, who are authorized to sell it to the public. At the wholesale level, Washington has two distinct and separate discriminatory economic systems, as I call them, for the distribution of wine and I call them different economic systems. Because it's not only the rules and the regulations which are different, but under Washington law it is the very nature of the corporate entities and the business -- business establishments which are permitted to exist. This discrimination -- this first discrimination has to do, as I said, over the channels of distribution. Washington wine, the distribution and sale or marketing within that State is entirely a function of private enterprise, from winery, to wholesaler, to retailer to consumer. The State of Washington does not deal in Washington wines at any level of its marketing or distribution. There are 13 wineries in Washington. And each one of them is given of a free choice by Washington law in two respects. The Washington winery can choose its own channels of distribution. It may decide -- the winery may decide to sell directly to the 4800 licensed retailers, or the Washington winery may decide to use the -- the services of private wholesalers. And through the private wholesalers have distribution made on a statewide basis. But --
William O. Douglas: Can't sell to the state liquor stores.
Speaker: They are prohibited by law from doing so, Justice Douglas. But since prior to 1948, at least, the state liquor stores have never dealt in Washington wine.
Felix Frankfurter: Mr. Howland, would you be here if Washington decided to be a dry state? In other words, to ban all liquors --
Speaker: No.
Felix Frankfurter: -- domestically created or brought in from without?
Speaker: No, sir. I would not.
Felix Frankfurter: But you say that if she -- if she allows -- if she (Inaudible) the liquor traffic, and she -- then she can pay (Inaudible) are all producers, if we're taking California and New York (Voice Overlap) --
Speaker: I -- I believe that Justice Frankfurter is almost paraphrasing his own words from the concurring opinion in Frankfurt Distilleries. I quite agree.
Felix Frankfurter: It would be my memory versus yours.
Earl Warren: Mr. Howland, how does it happen that they sell California wines in the state stores, but not Washington wine?
Speaker: That is a direct function of the Washington statute. The Washington statute provides expressly as follows and I should like to read this, Mr. Chief Justice, because the discrimination to which we complain about is right -- there's apparent right on the face of the statutes. All wines manufactured or produced in domestic wineries, that means Washington wineries, maybe sold by the manufacturer or producer thereof, direct to persons holding licenses entitling them to sell wine at retail, under the provisions of this title or to license domestic wine wholesalers or to license domestic wineries. No wines except domestic wines shall be sold within the State except to the Liquor Control Board or by the Board or through the state liquor stores. The exception for domestic wines, no wines except domestic wines, shall be sold within the State except to the State Liquor Control Board.
William O. Douglas: I thought it was the -- that it is -- that the pressure of the interest of the Washington State wine liquors restrict California to the state liquor stores. That was the reason.
Speaker: Well, if I follow you, sir, I think it's a very fair assumption that the pressure for this legislature and the -- the legislation that did emanate in the Washington wine Industry. Washington wine Industry is trying to isolate California wine from the lawful Washington market where different brands of Washington wine are competing on a private industry competitive business basis for the trade -- the trade and custom of Washington consumers. There are 135 private wholesalers of Washington wine. There are wholesalers in the ordinary sense of the word. They do not handle California wine or any out-of-state wine. The very terms of their license calls them a domestic wine wholesaler. These are the only private enterprise wholesalers of wine in the whole State of Washington, 135 of them. And the wineries -- that the Washington wineries have a free choice in selecting which of these wholesalers they want to distribute their respective brands and trade names of -- of wine. These wholesalers operate in limited areas of the State. They have a territorial franchise from the winery that they represent. And all of these wholesalers have substantial sales organizations. They employ wine salesman who go out on regular routes and contact the retail trade and actively solicit the purchase of their Washington wine and promote it -- promote its sale in other ways which I will also mention. Then you have the 4800 licensed retailers, these -- these private retailers, I'm not speaking now about the state liquor stores. These are envisioned. There are 4800 private businessmen in Washington, who are licensed to sell wine at retail, some are licensed to sell by the bottle. These would be the grocery stores, the -- the grocery stores, the supermarkets, the hotels and there are others license to sell wine by the drink. These would be the taverns, the bars, and some types of licensee, or both types of license. These 4800 retailers are solicited by salesmen representing every brand of Washington wine that is produced to please buy of these brands of Washington wine and can I take your order this morning. Note that there is no restriction on the wine which the 4800 retail licensees are authorized to sell. The retail licensee who is the man dealing with the consuming public, can sell California wine, Washington wine, New York wine, or foreign wine one, without any restriction based upon its source placed upon him or by the State of Washington. And that's why I say that the discriminations which we complain are all discriminations that bear on the wholesale distribution, because after the wine has reached the point of the retailer, then so far as the retailer is concerned, the State of Washington exercises no further control upon him. The second type of discrimination involved in this case is the discriminatory of policies and laws of the State of Washington concerning the place of wine. Concerning Washington wine, the State exercises no control over the level of the prices at which Washington wine is sold at any stage of its distribution, winery, wholesaler, retailer. No control over the price of Washington wine. There is one requirement that is significant, Washington law requires that Washington wineries post and specify a delivered price. A price of Washington wine delivered to the retailer and that price must be uniform throughout the State. The fact is that Washington wine is actually delivered to retailers' establishments by the wholesaler. The -- the salesman and the delivery people come into the retail establishment. They service the shelves. They arrange the bottles of Washington wine on the retailer shelf. They go in the back room, open up the cartons from the stock and bring it out and keep fresh and full stock on the retailer shelves. The Washington winery set the price of their wine to the retailer by their own individual judgment and in the light of the market conditions from day-to-day -- or that they find in the competitive situation in which they are brand-for-brand amongst the Washington wines. And this privilege too, is denied of the California producers of wine. California producers or any out-of-state producer of wine has nothing to say about the price at which his product shall be sold within the State of Washington.
William J. Brennan, Jr.: Mr. Howland, in your position that California has standing to maintain these actions, there's no suggestion you say that the California wine industry or members of it could not also maintain an action of their own and they challenge to these Washington statutes?
Speaker: Oh, so far as the law is concerned, this is -- this is quite true, Justice Brennan. Their constitutional rights have been violated. As far as the law is concerned, they are legally entitled to bring their own action.
William J. Brennan, Jr.: But what else is concerned beside the law?
Speaker: The fact that the Washington State Liquor Control Board is the only lawful customer for Washington wine anywhere in the State of Washington. The threat of administrative reprisal just about getting to this, that so far as California wine is concerned, the Washington State Liquor Board has non-reviewable authority. It used its own discretion as to what level or on what price it will put on every bottle of California wine with that it -- that it imports and for which -- which the State Liquor Board, of course, being the only lawful outlet in the State of Washington for California wine. And so you have the -- the remarkable situation that the -- the regulatory agency against whose regulations as you might expect some form of protest, also happens to be the only lawful customer for your product in the whole State.
William J. Brennan, Jr.: Well, Mr. Howland, if there were an action by members of the California wine industry which were successful on an attack on both of these statutes and the regulations in Washington, would there remain any other -- anything else of the State of California be vindicated, any other interest?
Speaker: That would depend entirely upon the details of the relief that were obtained in -- in that kind of a (Inaudible) --
William J. Brennan, Jr.: Well, I'm assuming that the relief on the merits that you're insisting upon --
Speaker: Well --
William J. Brennan, Jr.: -- obtained -- that could be obtained, I take it, could it not, in a -- an action by the members of the California --
Speaker: It is possible.
William J. Brennan, Jr.: And if so, then there'd be no remaining interests to California to vindicate this.
Speaker: That is possible.
Felix Frankfurter: Why do you say that? In the Georgia -- Georgia and Tennessee Copper. I suppose the individual concern that were affected by the fumes Tennessee Copper would've brought some -- assuming there was -- could've bought suit against the Tennessee Copper on the --
Speaker: The individual property owners who (Voice Overlap) --
Felix Frankfurter: Yes.
Speaker: Yes, certainly, they could. Certainly they could've.
Felix Frankfurter: The nuisance against them and individual --
Speaker: Yes.
Felix Frankfurter: Well, I suppose, indeed, the river in New Jersey and the case involving Delaware River, I suppose, the misuse of the river in individual riparian owner might as if the cause of action --
Speaker: I don't think there's any question about it.
Felix Frankfurter: That wouldn't necessarily displace through either the State to sue, because of pervasive effect upon the state interest. I'm not saying that this is this case, but I do not think the mere fact that individuals may impose rights to preclude the States from having an interest. It exceeded those of the individuals put together.
Speaker: Well, I -- I quite agree with that because your -- in your parens patriae case, the Court has insisted that the State must demonstrate an interest of its own. And, of course, if the State has an interest of its own, it is -- it is entitled to sue. And actually in the -- in the nuisance cases that you refer to, the air pollution case, Georgia and Tennessee Cooper and the sewage cases. The causes of action of the State in those cases were technical point of view. The legal cause of action is really the cause of action of the individual citizens. We take the cases where the Court has said that the -- that the State or the complaining state has an interest in the health, comfort, and welfare of its citizens. It's perfectly obvious that the State has no health. This -- you can't be the health of the -- of State Government. State Government can't have health. State Government can't have comfort. What the cause of action that is sued upon is the injury to the health of the citizens, the injury to the comfort of the citizens, the interest -- the injury to the prosperity of the citizens. And what the Court has said in those cases is that the State -- the complainant state has an interest of its own in presenting or pursuing these derivative causes of action.
Hugo L. Black: I'd suppose prior with that, the fact the suits could be brought as they bring complete relief might be relevant consideration from the Court in determining whether (Inaudible) would it not (Inaudible)
Speaker: Well, as I shall show, Mr. Justice Black, the -- in this case when I get to the third of these discriminations, in the matter of -- of the sales promotion program, the State of California has a -- a direct interest of its own. It has certain official functions which its law requires that if it discharge and there is no other plaintiff that is capable of getting relief to the State of California for the injury to -- for the -- for the frustration of its public policies for the restraints and the restrictions put upon its employees and officials in the pursuit of their -- of their duties. It might be that the -- a private case, if a private case were brought, would in some way result in an injunction that would afford some relief to a practical point of view to the State of California. But this is not securing redress to the legal injuries which the State of California itself had suffered and which gives rise to a controversy between two States of the very type that the original jurisdiction of this Court was created to determine. The -- I've mentioned that the authority of the Washington State Liquor Control Board gives a complete discretion over the prices of California wine. And the Board has only one price and that is a retail price per bottle at which they sell to all commerce, be they retailers purchasing for resale, hotels, taverns or whether it'd be the individual consumer. There is no trade discount on wine. And I think it fairly significant that although Washington law prohibits the trade discount on wine, Washington law requires that the Board give not less than 15% trade discount on distilled spirits to what are known as Class H licensees, which are hotels, restaurants and other bars of that type, who sell mixed drinks. But where -- where they -- they are mandated by the statute to give a 15% discount to a hotel who owns a bottle of whiskey to use for serving mixed drinks, the law forbid -- forbids the State Liquor Board to give any trade discount on a bottle of wine to a hotel that wants to sell and has the authority to sell a wine by the Director. The price levels which the Liquor Board has set before -- for California and other out-of-state wines over a long period of time have been, according to the allegations of the complaint, arbitrary and unreasonably high. The Board has purchased California wine at prices which is -- have resulted in a markup of over 100% at the -- taking into account of this -- the -- the price at which it was then put on the shelves of the retail stores for sale. The board price is FOB state liquor store. There is no delivery service for California wine from the state store. The Washington retailers who want California wine must not only pay cartage from the state liquor store, but he has to go to the added inconvenience of arranging for cartage. Whereas, as I've already said in connection with Washington wine, the -- the Washington law requires that the Washington winery specify a delivered price -- a price delivered at the retailer's establishment. The net effects of these pricing policies are simply this, that there are two retail markups, not one, but two retail markups on California wine. First is the -- the markup of anywhere from 68% to 100% which State Liquor Board puts on the wine as it goes through its store. And the second is the markup that anyone of the 4800 retail licensees must necessarily put under his cost, if he wants to avoid selling at a loss and if he wants to even breakeven on his cost of doing business. The retailer --
Earl Warren: We'll recess now, Mr. Howland.