The National Arbitration Forum Blog

Thanks to Google Reader for spotting Ross Runkel’s LawMemo blog post. The Supreme Court this morning granted certiorari in Vaden v. Discover Bank, et al. (Docket number 07-773).

According to Ross, Discover Bank sued Vaden in state court for nonpayment of her credit card balance. Vaden counterclaimed, raising state-law claims for breach of contract and violation of state statutes regulating credit card fees and charges. In response, Discover Bank petitioned a federal district court to compel arbitration of Vaden's state-court counterclaims. The federal district court granted the motion to compel arbitration. The 4th Circuit affirmed (2-1).

The principal issue in the case is whether the federal courts had subject matter jurisdiction to hear the petition to compel arbitration. Since the Federal Arbitration Act (FAA) itself does not create federal jurisdiction, there must be a federal question or diversity of citizenship. The 4th Circuit held (2-1) that federal courts had jurisdiction because the underlying dispute presented a federal question.

Specifically, the Fourth Circuit found that the underlying dispute presented a federal question because Discover Bank’s status as a federally-insured bank meant that Vaden’s counterclaims implicated the Federal Deposit Insurance Act (FDIA). The court also found that Vaden's counterclaims are completely preempted by the FDIA.

The DISSENT argued that the federal court should look no further than the face of the petition to compel arbitration to see whether a federal question exists; existence of a federal question does not depend on the nature of the underlying dispute to be arbitrated. This approach corresponds with the Seventh Circuit’s more limited view of FAA jurisdiction in Wisconsin v. Ho-Chunk Nation, 463 F.3d 655 (7th Cir. 2006).

Vaden v. Discover Bank, et al. marks four arbitration cases granted cert by the U.S. Supreme Court. You can read about the other three cases here on the National Arbitration Forum Blog.