Opinion ID: 146487
Heading Depth: 1
Heading Rank: 2

Heading: The Decision in Vaden.

Text: Vaden arose when a Discover Bank affiliate sued in state court to recover past-due charges, the credit card holder asserted state law counterclaims, and Discover Bank filed a § 4 petition in federal court to compel arbitration of the counterclaims. The district court entered an order compelling arbitration, and a divided Fourth Circuit panel affirmed, adopting the look through approach to federal question jurisdiction and concluding that at least some of the state law counterclaims were completely preempted by federal law and therefore established a federal question basis for § 4 jurisdiction. Discover Bank v. Vaden, 489 F.3d 594, 597-98 (4th Cir. 2007). The Supreme Court granted certiorari in view of the conflict among lower federal courts on whether district courts ... may `look through' the petition and examine the parties' underlying dispute to determine whether federal question jurisdiction exists over the § 4 petition. 129 S.Ct. at 1270. The Court addressed that issue and an additional question presented by the procedural posture of the case: if look through is the proper approach to federal question jurisdiction, may a district court exercise jurisdiction over a § 4 petition when the petitioner's complaint [in the underlying state court action] rests on state law but an actual or potential counterclaim rests on federal law? Id. at 1268. Turning to the first question, the Court concluded that [t]he text of § 4 drives our conclusion that a federal court should determine its jurisdiction by `looking through' a § 4 petition to the parties' underlying substantive controversy. Id. at 1273. The phrase save for [the arbitration] agreement in § 4 directs the federal court to assume the absence of the arbitration agreement and determine whether it `would have jurisdiction under title 28' without it. Id. The reference in § 4 to the controversy between the parties logically means the substantive conflict between the parties. Id., citing Moses H. Cone, 460 U.S. at 25 n. 32, 103 S.Ct. 927 (Section 4 provides for an order compelling arbitration only when the federal district court would have jurisdiction over a suit on the underlying dispute; hence, there must be diversity of citizenship or some other independent basis for federal jurisdiction.). The Court noted that the no-look-through approach adopted by most circuits has curious practical consequences. It would permit a federal court to entertain a § 4 petition only when a federal-question suit is already before the court, when the parties satisfy the requirements for diversity-of-citizenship jurisdiction, or when the dispute over arbitrability involves a maritime contract. Id. at 1275. The Court was unanimous in adopting the look through approach to federal question jurisdiction. See id. at 1279 (Roberts, C.J., dissenting). Turning to the second question, the Vaden majority held that a district court has federal question jurisdiction under § 4 only if, `save for' the [arbitration] agreement, the entire, actual `controversy between the parties,' as they have framed it, could be litigated in federal court. Id. at 1275. Because the controversy between Discover Bank and Vaden was precipitated by Discover's state-court claim for the balance due on Vaden's account, which did not arise under federal law, and because a federal counterclaim, even when compulsory, does not establish [28 U.S.C. § 1331] `arising under' jurisdiction, [3] the Court held that the district court lacked jurisdiction to entertain Discover's § 4 petition to compel arbitration. Four dissenting justices argued that the controversy to which district courts should look under § 4 is the specific dispute asserted to be subject to arbitration, not a broader underlying controversy that may contain state law claims not subject to arbitration. Vaden, 129 S.Ct. at 1280 (Roberts, C.J., dissenting).