‘LOOKING THROUGH’ FOR JURISDICTION

At issue in the third case argued Monday, Vaden v. Discover Bank, is whether a federal court’s subject matter jurisdiction over a petition to compel arbitration must be supported by the petition itself, or whether the court can “look through” the motion to determine the presence of a federal question in the underlying dispute between the parties.

Discover Financial Services, on behalf of Discover Bank, sued Betty Vaden for nonpayment of a $10,000 credit card balance, and Vaden filed counterclaims under Maryland law relating to fees, finance charges and interest on the account. Discover filed a petition in federal court to compel arbitration of the counterclaims. The 4th U.S. Circuit Court of Appeals held that Vaden’s counterclaims were pre-empted by the Federal Deposit Insurance Act and that the presence of a federal question in the underlying dispute was sufficient for jurisdiction.

Justices and counsel spent much of the argument hour parsing the language of Section 4 of the Federal Arbitration Act, which governs whether a party may petition a federal district court to compel arbitration.

University of Virginia School of Law Professor Daniel R. Ortiz, arguing for Vaden, told the justices that the “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,” Ortiz said.

Sidley Austin’s Carter G. Phillips, counsel for Discover, ran into some difficult questions from the justices regarding the scope of the underlying dispute between the parties for the purpose of determining jurisdiction.

“It seems to me that your look-through argument is look-through only halfway,” Ginsburg told Phillips. “That is … 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.”

Scalia took up that point as well, saying that under the respondent’s interpretation of the FAA, a court could simply imagine a counterclaim that might become part of an underlying dispute. “It’s very strange to decide federal jurisdiction on the basis … of imagined complaints,” he said.

“It’s close to inconceivable to me that Congress wanted us … to construct litigation that is not yet in existence,” Scalia said.

Justice David Souter questioned why Discover was pushing to enforce the arbitration agreement in federal court at all.

“Why don’t you do it in the state court instead of going through these gymnastics?” Souter asked Phillips.

When Ginsburg asked a similar question, Phillips told her, “The problem is that there is some lack of confidence in the state courts that we will get the same treatment under [FAA] Section 4 that we would get in federal court.”

“Then bring that up here on appeal from the state court,” Souter told him.

“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,” said Phillips.

Stevens then jumped in with a compliment: “You don’t have any trouble.”

“I appreciate that,” the veteran Supreme Court advocate said. Phillips has made a career total of 59 appearances before the high court, according to Sidley Austin’s Web site.

Laurel Newby is a senior editor with Law.com.