March 09, 2009

Supreme Court Decides Vaden v. Discover Bank

On March 9, 2009, the Supreme Court decided Vaden v. Discover Bank, No. 07-773.

Section 4 of the Federal Arbitration Act is a jurisdictional oddity. It authorizes federal district courts to entertain petitions to compel arbitration, but only if, were it not for the arbitration agreement, the court "would have jurisdiction under title 28 . . . of a suit arising out of the controversy between the parties." In Vaden, the Court held that, a federal court must look through the arbitration petition to the underlying substantive dispute to determine whether it "would have jurisdiction" for purposes of Section 4. The Court further held that the standard rules apply for assessing federal jurisdiction over that underlying dispute, including the rules that require courts to look only to the well-pleaded complaint and not to any counterclaim. If the underlying lawsuit has been filed, the way it is actually postured will control the jurisdictional analysis. If the lawsuit has not been filed, the situation is less clear.

Justice Ginsburg delivered the opinion of the Court. Chief Justice Roberts filed an opinion concurring in part and dissenting in part, in which Justices Stevens, Breyer and Alito joined.

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