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

Heading: The Law Pre-Vaden.

Text: First enacted in 1925, the core provision of the FAA provides that a written agreement requiring arbitration of controversies arising out of a contract evidencing a transaction involving commerce... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. § 2. Section 2 creates a substantive rule applicable in state as well as federal courts. Southland Corp. v. Keating, 465 U.S. 1, 16, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984). However, section 4 contains only a limited grant of federal court jurisdiction, permitting a party to seek an order compelling arbitration in any United States district court which, save for [the arbitration] agreement, would have jurisdiction under Title 28 ... of the subject matter of a suit arising out of the controversy between the parties. 9 U.S.C. § 4. Thus, the FAA bestow[s] no federal jurisdiction but rather requir[es] an independent jurisdictional basis. Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396, 1402, 170 L.Ed.2d 254 (2008), citing Moses H. Cone, 460 U.S. at 25 n. 32, 103 S.Ct. 927. In nearly all cases, a party filing a § 4 petition to compel arbitration will allege as an independent basis of federal jurisdiction either a federal question under 28 U.S.C. § 1331, or diversity of citizenship under 28 U.S.C. § 1332(a). A. Diversity Cases. Diversity jurisdiction turns on two issues, is there complete diversity of citizenship between the parties, and does the amount in controversy exceed $75,000. See, e.g., Advance America, 526 F.3d at 1172. Prior to Vaden, all courts of appeals adopted the same approach in resolving § 4 diversity jurisdiction disputes. They determined the first issue, whether there is diversity of citizenship, by looking only to the parties in the federal action to compel arbitration, whether or not the claim(s) to be arbitrated were part of a parallel state court action that included other, non-diverse parties, unless a non-diverse party would be necessary and indispensable to the federal action under Rule 19 of the Federal Rules of Civil Procedure. [2] As the leading case addressing this issue explained, As with any federal action, diversity of citizenship is determined by reference to the parties named in the proceeding before the district court, as well as any indispensable parties who must be joined pursuant to Rule 19. Distajo, 66 F.3d at 445. To resolve the second issue, amount in controversy, courts uniformly applied a limited look through approach, determining whether the value at stake in the arbitration being sought in the federal action could exceed $75,000, regardless whether the claim(s) to be arbitrated were part of a broader parallel state court action in which the total amount in controversy might be greater. Advance America, 526 F.3d at 1174-75; accord Geographic Expeditions, Inc. v. Lhotka, 599 F.3d 1102, 1106-08 (9th Cir.2010), a post- Vaden case; We Care Hair, 180 F.3d at 841; Hamilton, 150 F.3d at 160-61. B. Federal Question Cases. Unlike the uniform approach to § 4 diversity jurisdiction issues prior to Vaden, a circuit split developed in deciding whether § 4 petitions to compel arbitration were supported by an independent basis of federal question jurisdiction. The majority of circuits to address the issue held that § 4 should not be interpreted to mean that a federal court has subject matter jurisdiction over an action to compel or stay arbitration merely because the underlying claim raises a federal question. Westmoreland Capital Corp. v. Findlay, 100 F.3d 263, 268 (2d Cir.1996). Thus, in these circuits, unless the federal action to compel arbitration included an additional claim arising under federal law, § 4 petitioners could not establish an independent basis of federal question jurisdiction. Two circuits disagreed, concluding that § 4 directs a district court ... to `look through' the § 4 arbitration petition at the underlying dispute in order to determine whether there was a federal question. Cmty. State Bank v. Strong, 485 F.3d 597, 606 (11th Cir.2007); accord Discover Bank v. Vaden, 396 F.3d 366, 368-70 (4th Cir.2005). The Supreme Court granted certiorari from the Fourth Circuit's second decision in Vaden to resolve this circuit conflict.