Vaden v. Discover Bank

Facts of the Case

The servicing affiliate of Discover Bank filed a complaint in Maryland state court to recover past-due charges under state law. The cardholder Betty Vaden filed a counterclaim alleging violations of Maryland’s credit laws. Discover Bank then invoked the arbitration clause in the cardholder agreement and filed a petition under the Federal Arbitation Act,

Question

1) Does a suit seeking to enforce a state-law arbitration obligation brought under Section 4 of the Federal Arbitration Act establish federal subject matter jurisdiction when the petition to compel raises no federal question, but the dispute itself does raise a federal question?2) If not, can a preempted state-law counterclaim supply federal subject matter jurisdiction?

CONCLUSION

No and No. The Supreme Court held that a federal court may look through a Section 4 petition to determine whether the claim establishes federal subject matter jurisdiction. However in this case, the Court recognized the dispute did not bring itself under federal subject matter jurisdiction. With Justice Ruth Bader Ginsburg writing for the majority and joined by Justice Antonin G. Scalia, Justice Anthony M. Kennedy, Justice David H. Souter, and Justice Clarence Thomas, the Court reasoned that Discover’s claim against Mr. Vaden did not arise under federal law nor did Mr. Vaden’s preempted counterclaims create federal subject matter jurisdiction.Chief Justice John G. Roberts concurred in part and dissented in part, and was joined by Justice John Paul Stevens, Justice Stephen G. Breyer, and Justice Samuel A. Alito. He agreed with the majority in that a federal court asked to compel arbitration should look through the dispute to determine whether it has subject matter jurisdiction. However, he disagreed that federal subject matter jurisdiction was not found in this case, as the controversy between the parties was controlled by the Federal Deposit Insurance Act.

Case Information

  • Citation: 556 US 49 (2009)
  • Granted: Mar 17, 2008
  • Argued: Oct 6, 2008
  • Decided Mar 9, 2009