Monday, October 6, 2008

Oral Argument in Vaden v. Discover Bank

Discover Vaden v. Discover Bank, 07-773 presents the issue of whether a federal court has jurisdiction over a suit to compel arbitration when the suit to compel arises under state law (the Federal Arbitration Act does not independently confer federal jurisdiction), but the underlying dispute between the parties involves federal law.  The case involves an attempt by a credit-card-issuing bank that sought to compel arbitration of a class-action lawsuit arising from an alleged failure to pay a credit card balance.  Here's the oral argument.

Daniel Ortiz, arguing for the debtors, argued that looking through the arbitration issue to the underlying dispute would be "so broad as to allow parties to compel arbitration in Federal court of nearly any dispute concerning credit card debt."  His textual argument was that the "save for" language in the FAA Section 4 means "save for the arbitration agreement but for the jurisdictional doctrine of ouster."  It didn't take long for Justices Ginsburg, Roberts, and Souter to express skepticism:

JUSTICE STEVENS: The text says nothing about the ouster doctrine.
MR. ORTIZ: No. But read in its historical context, Your Honor --
JUSTICE STEVENS: Rather than literally.
MR. ORTIZ: Well, literally at the time it would have been understood to refer -- to refer to that....
CHIEF JUSTICE ROBERTS: This is a tough -- it's a tough sell.

Carter Phillips, arguing for the bank, tried to argue that this was an "easy" case that could be resolved by interpreting the statute textually.  He quickly, however, ran into two problems, raised by Ginsburg, Roberts, Kennedy, and Scalia.  First, if "save for" means that courts should "look through" the arbitral controversy to the underlying dispute, who gets to define that underlying dispute, and how is that dispute to be determined?  In the present case, for example, would the underlying dispute be the state claim for the debtor's failure to pay the balance, or federal counterclaim for the bank's alleged assessment of excessive fees?  And what would happen when "look through" jurisdiction was predicated not on federal question jurisdiction, but diversity jurisdiction -- how is a court supposed to figure out who the "proper" parties are?  And if a court includes all the potential parties, wouldn't that deprive a plaintiff of the right to frame her suit to get (or avoid) federal jurisdiction?

JUSTICE SCALIA: It's close to inconceivable to me that Congress wanted us to -- to construct litigation that is not yet in existence.

Look for a compromise.  I don't think the Court is going to buy the argument that the "save for" language in Section 4 refers to the ouster doctrine.  On the other hand, "look through" can't mean that federal courts must conjure jurisdictional facts out of thin air.  Look for the Court to adopt "look through," but to find some way of cabining "look through", such as by looking only to the lawsuit (if any) predating the suit to compel arbitration.


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