California Consumer Finance Litigation : California Consumer Finance Litigation Lawyer & Attorney : O'Rielly & Roche Law Firm : San Francisco, Oakland, Bay Area, Los Angeles

The U.S. Supreme Court granted certiorari to determine "whether district courts, petitioned to order arbitration pursuant to §4 of the FAA, may 'look through' the petition and examine the parties’ underlying dispute to determine whether federal-question jurisdiction exists over the §4 petition."

The Supreme Court reversed and remanded. The Court held federal courts may "look through" a §4 petition to determine whether federal jurisdiction exists over a suit arising out of the controversy between the parties.  Applying that process here, the Court found no federal jurisdiction over this dispute.  The Court noted that, while the doctrine of complete preemption recasts a state-court claim as a federal claim, and may form the basis of federal court jurisdiction despite the "well-pleaded complaint" rule, this does not apply to counterclaims.  Thus, a state law claim that is completely preempted by federal law may form the basis of federal court jurisdiction because it is recast as a federal question, but a state law counterclaim asserted by a defendant will not, even if the doctrine of complete preemption applies to the counterclaim.

A majority of the Court declined to accept the position urged by the dissent, namely that a federal court would have jurisdiction over the dispute that Discover Bank wished to arbitrate: “whether Discover Bank charged illegal finance charges, interest and late fees."  Because these points were asserted by defendant Vaden in her counterclaim, the Court held they could not form the basis of federal court jurisdiction for purposes of a §4 petition.  The Court noted that Discover Bank could move to compel arbitration in Maryland state court under state law arbitration statutes.