Last week, in a decision authored by Justice Ginsburg, the Supreme Court announced that a federal court may “look through” a Federal Arbitration Act § 4 petition to determine whether it is predicated on a controversy that arises under federal law. Under the well-pleaded complaint rule, a suit “arises under” federal law when the plaintiff’s statement of the cause of action shows that it is based on federal law. The Court held that the language of § 4 (“save for the arbitration agreement…”) directs federal courts to “look through” the petition itself to determine proper jurisdiction. Justice Ginsburg stated that federal courts should assume the absence of the arbitration agreement and determine jurisdiction based on the parties’ underlying dispute.
With this in mind, the Court held that the underlying controversy between Vaden and Discover Bank did not support federal jurisdiction. The controversy arose from Vaden’s alleged debt and not any federal law or other basis for federal jurisdiction. The Court thus declined federal jurisdiction. Chief Justice Roberts filed an opinion concurring in part and dissenting in part. Vaden v. Discover Bank, No. 07-773, (U.S. Mar. 9, 2009).
This post written by John Black.