COMMUNITY STATE BANK, CASH AMERICA FINANCIAL SERVICES, INC., CASH AMERICA INTERNATIONAL, INC., GEORGIA CASH AMERICA, INC., DANIEL R. FEEHAN v. JAMES STRONG
No. 06-11582
United States Court of Appeals, Eleventh Circuit
April 27, 2007
D. C. Docket No. 04-02608-CV-WSD-1 [PUBLISH]
versus
Respondent-Appellee.
Aрpeal from the United States District Court for the Northern District of Georgia
(April 27, 2007)
Before CARNES and MARCUS, Circuit Judges, and JORDAN,* District Judge.
* Honorable Adalberto J. Jordan, United States District Judge for the Southern District of Florida, sitting by designation.
At issue today is whether the district court erred in dismissing, for lack of subject matter jurisdiction, the petition of a bank and its servicing affiliates to compel arbitration under the Federal Arbitration Act,
I. Background
This action arises out of a “payday” loan -- a small, high-interest loan due to be repaid within a few weeks, usually on the borrower‘s next pay day. Many states, including Georgia, have various usury laws that generally prohibit such high-interest loans. Thus, no one doubts that when so-called “payday stores” extend loans directly to Georgia residents -- that is, without the involvement of any out-of-state bank -- they may not charge interest in excess of that permitted under Georgia law. However, Section 521 of the Depository Institutions Deregulation and Monetary Control Act
The legal gray area occurs when such out-of-state banks “partner” with Georgia payday stores to extend loans to Georgians. Such partnerships have been the subject
On February 6, 2004, respondent James E. Strong (“Strong“), a Georgia resident, visited one of seventeen payday stores owned and operated by petitioner Georgia Cash America, Inc., a Georgia corporation. Georgia Cash America is an affiliate of petitioners Cash America Financial Services, Inc., a Delaware corporation, and Cash America International, Inc., a Texas corporation. Petitioner Daniel Feehan is the Chief Executive Officer of all three Cash America entities (collectively, “Cash America“). According to petitioners, Cash America markets, services, and collects payday loans on behalf of petitioner Community State Bank (“the bank“), an FDIC-insured bank chartered by the state of South Dakota. Strong took out a loan for $200,
Nevertheless, instead of repaying his loan, Strong commenced what he characterized as a clаss action lawsuit against Georgia Cash America, Cash America International, and Feehan (“state defendants“) -- but not the bank or Cash America Financial Services -- in Georgia state court (the “state court action“). See Strong v. Ga. Cash Am., Inc., No. 2004A7104-6 (Ga. St. Ct.).3 The state court complaint
In response, the state defendants (Georgia Cash America, Cash America International, and Feehan) -- along with the bank -- served Strong with a Notice of Intent to Arbitrate pursuant to the terms of the agreement. The letter referred to Strong‘s state lawsuit challenging the loan as void and unenforceable, and claimed that the loan was indeed lawful. Specifically, the letter said that contrary to Strong‘s allegations, the loan was made by the bank, not by Cash America, and thus that the legality of the interest was governed by Section 27 of the FDIA, not by Georgia usury law. The letter then demanded that Strong dismiss his state court lawsuit and participate in individual, binding arbitration. Strong, through counsel, responded that he believed the contract he entered into with Cash America was “unconscionable and unenforceable,” and thus that he intended to pursue his class action suit in state court. Pet. Ex. D at 1.
On September 7, 2004, Strong‘s opponents took two actions in response. First, the state court defendants -- Georgia Cash America, Cash America International, and
Second, the state court defendants -- along with both the bank and Cash America Financial Services -- commenced the instant independent action in the same United States district court by filing a Verified Petition to Compel Arbitration and
The petition alleges federal question jurisdiction under
Strong moved to dismiss this independent FAA petition for lack of subject matter jurisdiction. Characterizing the disputes petitioners seek to arbitrate as his own state-court claims, Strong argued that even if usury claims against state-chartered banks are completely preempted by federal law (although, he suggested, they are not), his state-court complaint did not raise any usury claims against any bank. Thus, he arguеd, his state-court claims do not state a federal question and thus do not provide the district court with subject matter jurisdiction over the instant petition to compel arbitration.
The district court agreed with Strong, and granted Strong‘s motion to dismiss the FAA petition to compel arbitration for lack of subject matter jurisdiction. The district court, too, characterized the claims to be arbitrated as those “asserted in the State-Court Action” and, reiterating the reasoning of its remand order in the parallel state court action, again held that Strong‘s state complaint did not state a federal question. Specifically, the court determined that Section 27 does not completely
Petitioners then timely filed the instant appeal.
II. Subject Matter Jurisdiction
We review de novo a district court‘s grant of a motion to dismiss for lack of subject matter jurisdiction. Asociacion De Empleados Del Area Canalera v. Panama Canal Comm‘n, 329 F.3d 1235, 1237-38 (11th Cir. 2003).
“In a given case, a federal district court must have at least one of three types of subject matter jurisdiction: (1) jurisdiction under a specific statutory grant; (2) federal question jurisdiction pursuant to
A.
Tamiami Partners Ltd. ex rel. Tamiami Development Corp. v. Miccosukee Tribe of Indians of Florida, 177 F.3d 1212 (11th Cir. 1999) (“Tamiami III“), established the test in this circuit for determining federal question jurisdiction over a
In the first attempt, the developer allеged that the tribe could not unilaterally terminate the agreement without first arbitrating its complaints, and sought to compel such arbitration. We held that the developer merely stated an ordinary breach of contract claim, and we dismissed the claim for lack of federal question jurisdiction. Tamiami Partners, Ltd. v. Miccosukee Tribe, 999 F.2d 503, 508 (11th Cir. 1993) (“Tamiami I“).
Meanwhile, the tribe had begun denying gaming licenses to the developer‘s employees. In the second attempt, the developer alleged that this was an abuse of the
Finally, on its third attempt, the developer pled the same facts regarding the licensing dispute but sought a declaration that the licensing dispute was arbitrable, confirmation of an arbitration award concerning part of that dispute, and compelled arbitration of still other aspects of the licensing dispute. The Tamiami III panel noted that
these very same claims were before this court in Tamiami II, albeit in the context of a direct breach of contract suit against the Tribe. The Tamiami II panel concluded that these claims arose under federal law because the Agreement incorporated -- by operation of law if not by reference -- the provisions of IGRA and its associated regulations regarding licensing procedures.
Tamiami III, 177 F.3d at 1222-23. The panel concluded that “federal law is equally implicated when these claims are presented in the arbitration context,” and added the following critical footnote:
The Federal Arbitration Act empowers a district court to issue an order compelling arbitration if the court, “save for [the arbitration] agreement, would have jurisdiction under title 28, in a civil action...of the subject matter of a suit arising out of the controversy between the parties.”
9 U.S.C. § 4 (1994). Thus, it is appropriate for us to “look through” Tamiami‘s arbitration request at the underlying licensing dispute in order to determine whether Tamiami‘s complaint states a federal question.
Id. at 1223 n.11 (alteration and omission in original). The Tamiami III panel then held that the developer‘s second amended complaint stated a federal question. Id. at 1223.
We read Tamiami III as holding that
B.
However, we think that the district court too easily assumed that the dispute petitioners seek to arbitrate is defined by Strong‘s state-court complaint. Petitioners are the “initiating parties” in the arbitration proceeding that they seek to initiate, and they are the plaintiffs in this independent action. We therefore look to petitioners’ own statement of the dispute or disputes they wish to arbitrate, and in this, they are not limited to seeking compelled arbitration of claims that have been brought against them in court. Under the FAA, any party to such an agreement may seek to compel any dispute that falls within the scope of the agreement upon a showing that the other party has “fail[ed], neglect[ed], or refus[ed]” to participate in arbitration of it.
for removal jurisdiction to lack in one, but subject matter jurisdiction to be present in the other.
Id. at 1363. Second, McCollum argued that a federal court has subject matter jurisdiction over a
The “underlying dispute” that 1st Franklin seeks to arbitrate is not McCollum‘s quarrel with 1st Franklin‘s codefendant Dingle, but McCollum‘s quarrel with 1st Franklin. Although 1st Franklin accuses McCollum of suing Dingle just to defeat removal, for present purposes we assume that McCollum honestly believes that Dingle is for some reason independently liable to McCollum. So there are two “underlying disputes,” McCollum v. Dingle and McCollum v. 1st Franklin, even though both may arise from the same transaction. 1st Franklin seeks to arbitrate only McCollum v. 1st Franklin, and there is undoubtedly diversity in that underlying dispute. There is, therefore, federal subject matter jurisdiction over the petition.
C.
Petitioners state in their petition that, among other things, “[i]n the arbitration demanded by this Petition, Petitioners will seek a declaration that the interest on [Strong‘s] Loan is governed by Section 27 and that the Loan is lawful.” Pet. ¶ 11. Under Tamiami III, we must “look through” the petition to compel arbitration and instead ask: If petitioners had brought this dispute in federal district court as a claim under the Declaratory Judgment Act,
We established the test for determining whether a claim under the Declaratory
Petitioners allege that “[b]ased on the allegations currently set forth in the State Complaint, including allegations that the Cash America Petitioners violated the Georgia Racketeer Influenced and Corrupt Organizations statute, State Complaint at 87-96, [Strong] is in a position, if he chose, to amend the State Complaint to allege violations against Petitioners of the federal Racketeer Influenced and Corrupt
Petitioners correctly note that an action under the Georgia RICO statute,
“‘Enterprise’ means any person,...corporation,...or other legal entity; or any...association, or group of individuals associated in fact although not a legal entity;
and it includes illicit as well as licit enterprises and governmental as well as other entities.”
In his state court complaint, Strong alleged that the payday lenders comprised a “criminal enterprise” that targeted a common victim -- namely, “Georgia‘s most vulnerable and desperate consumers.” Pet. Ex. A ¶¶ 91, 94. He alleged that they violated the Georgia RICO statute through a pattern of racketeering activity that
The same allegations could easily serve as the basis for a claim alleging a violation of the federal RICO statute. Like the Georgia RICO statute, the federal RICO statute imposes civil liability16 upon those who, “through collection of an unlawful debt...maintain...any interest in or control of any enterprise which is engaged in...interstate...commerce,” or “participate...in the conduct of such enterprise” through employment or association, or who conspire to do the same.
Like the Georgia act, the federal act defines an “enterprise” as “any individual,...corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.”
Strong does not deny that the facts he alleges in his complaint in support of a
Household Bank involved short-term loans issued by a bank at the request of a tax preparation service for its customers to cover the amount of the customer‘s anticipated tax refund. Some loan recipients initiated a class action lawsuit against the bank in the United States District Court for the Northern District of Illinois, alleging both federal and state claims. That lawsuit eventually settled. Over 600 Alabama loan recipients, however, had chosen to opt out of the class action suit. In short order, some of them threatened in an affidavit that if a similar settlement were not reached with the bank, they would “pursue litigation through the Courts here in
We agreed, and held that “a federal district court has subject-matter jurisdiction over a declaratory judgment action if, as here, a plaintiff‘s well-pleaded complaint alleges facts demonstrating the defendant could file a coercive action arising under federal law.” Id. at 1259. The district court in that case had held that federal question jurisdiction was lacking, reasoning that
if a declaratory judgment plaintiff may seek relief in federal court based on the fact that the declaratory judgment defendant may assert a federal claim, even though he may also limit his coercive action to only state claims, that is tantamount to allowing a declaratory judgment plaintiff to force the other party to litigate a claim that he may have no intention of pursuing.
Finally, we addressed the defendant borrowers’ argument, similar to Strong‘s here, that they had informed the district court that they did not intend to file a federal claim against the bank or the tax preparation service, and that after the instant declaratory judgment action was filed, some defendants had in fact filed non-federal claims in state court. We held that “[i]n determining whether a district court has subject-matter jurisdiction, we must look to the facts as they existed at the time the action was filed,” id. at 1259, and as of that time (and, indeed, up to the time of our appellate decision), “[t]he Alabama Defendants ha[d] not entered into a settlement agreement or filed a release of their federal claims in this matter, nor [hа]d they request[ed] the district court to enter judgment against them. Regardless of their present renunciation, without a binding, judicially enforceable agreement, the Alabama Defendants could still put [the bank] and [the tax preparation service] to the
On August 6, 2004, Strong filed suit in state court against the payday lenders. His complaint included a state RICO claim, but emphasized that it did not include any federal claims. On September 9, the state-court payday defendants removed that action to federal court. On the same day, the payday defendants and the bank joined in filing the instant FAA petition.
Strong plainly made a strategic decision not to bring any federal claims against the state-court defendants in an attempt to prevent his lawsuit from being removed to federal court. That Strong chose not to bring a federal RICO action, however, does not mean that he “could” not have done so. Without “a binding, judicially enforceable agreement,” Strong could still have put petitioners to the task of defending against a non-frivolous federal RICO claim. Indeed, on the same day that petitioners filed the instant petition, the state-court defendants removed Strong‘s action to federal court, and had they succeeded (Strong would not move to remand for another week, and the district court would not grant that motion for another three months), Strong would no longer have had any reason not to amend his complaint to add a federal RICO claim. We have previously held that the fact that a plaintiff “chose to initiate the action in state court without [federal] claims” is not a
Kidder, Peabody & Company, Inc. v. Maxus Energy Corp., 925 F.2d 556 (2d Cir. 1991), which we discussed at some length and with approval in Household Bank, see 320 F.3d at 1259-60, presented a fact pattern similar to the one we confront in this case. There, the declaratory judgment defendant, Maxus, had threatened to bring
A controversy ceases to be “real and immediate” when “the issues presented are no longer ‘live’ or when the parties lack a legally cognizable interest in the outcome.” Powell v. McCormack, 395 U.S. 486, 496 (1969)....This is not a case where the parties have entered into a settlement, or where the defendant has entered into a binding, judicially enforceable agreement. In those situations, the claims inarguably were moot. By contrast, Maxus attempts to unilaterally bar Kidder‘s claims for declaratory relief simply by representing that it will not bring an action under the federal securities laws.
Without a declaratory judgment, Maxus again could put Kidder to the task of defending against the federal securities claims. A judicial declaration that Maxus is barred from asserting the [federal claims] would both settle the matter between these parties once and for all and dispel all uncertainty regarding the liability of Kidder for these claims.
Id. at 563 (emphasis added, citations and quotation marks omitted). The situation is similar here. Neither the fact that Strong brought a suit asserting only state-law claims nor the fact that he has since represented that he will not amend that complaint
Because petitioners’ § 4 FAA arbitration petition alleges facts which demonstrate that Strong could file a federal RICO claim against them, under Household Bank, the district court would have federal question jurisdiction over a declaratory judgment action by petitioners that the loan is lawful and its interest rate is governed by Section 27. And because one of the underlying disputes to be arbitrated plainly includes this declaratory judgment action, and because when we “look through” under Tamiami III that action arises under federal law, the district court had federal question jurisdiction over petitioners’ action to compel arbitration. Since the claims-to-be-arbitrated that are reflected in Strong‘s usury complaint “arise out of a common nucleus of operative fact with” the declaratory judgment claim, they “form part of the same case or controversy under Article III of the United States Constitution” and we easily find that the district court has supplemental jurisdiction over them under
The district court‘s judgment dismissing thе petition for lack of subject matter jurisdiction is reversed and remanded for further proceedings. On remand, the district court should enforce the parties’ agreement to arbitrate if and when the court satisfies itself “that the making of the agreement for arbitration or the failure to comply therewith is not in issue.”
REVERSED AND REMANDED.
As should be clear from the majority opinion, I concur in the judgment and in all other aspects of our opinion in this case. I do so because I believe that we are bound by Tamiami Partners Ltd. ex rel. Tamiami Development Corp. v. Miccosukee Tribe of Indians of Florida, 177 F.3d 1212 (11th Cir. 1999) (“Tamiami III“), which held that the text of
Indeed, Tamiami III‘s stance puts this Court squarely at odds with at least four of our sister circuits, and aligns us with just one other circuit. Compare Westmoreland Capital Corp. v. Findlay, 100 F.3d 263, 267-69 (2d Cir. 1996) (“[T]he text of
Moreover, this issue on which the circuits are plainly split is an important one. Actions are regularly filed under the FAA, and the approach adopted by our Court in Tamiami III and by the Fourth Circuit in Vaden, which finds federal question jurisdiction to compel arbitration whenever the dispute before the arbitrator raises a federal question even though the federal court itself is asked only to enforce a private contract, considerably expands federal court jurisdiction. At the very least, this important issue merits more consideration than we were able to give it in Tamiami III, where we were confronted, for the third time, with a multi-count complaint presenting an array of complex issues including many that were federal in nature.
In urging reconsideration of Tamiami III‘s holding, I stress three points. First, Tamiami III is in considerable tension with the Supreme Court‘s jurisprudence articulating the longstanding well-pleaded complaint rule. Second, Tamiami III is also in some tension with the path adopted in our own precedent applying the well-pleaded complaint rule to FAA actions. Third, while the text of § 4 is susceptible to
I. Tamiami III Is in Tension with the Well-Pleaded Complaint Rule
My first serious reservation with the rule that Tamiami III announces is that it is in considerable tension with the Supreme Court‘s case law construing what it
Nearly a century of Supreme Court case law developing the well-pleaded complaint rule requires a federal court to find federal question jurisdiction only where the necessary elements of the petitioner‘s cause of action present such a question, or where the determination of his suit depends on the resolution of a substantial question of federal law. See, e.g., Shulthis v. McDougal, 225 U.S. 561, 569 (1912) (suit does not arise under federal law “unless it really and substantially involves a dispute or controversy respecting the validity, construction, or effect of [federal] law, upon the determination of which the result depends“); Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 27-28 (1983) (federal question jurisdiction exists only
When I consider the allegations that were essential to petitioners’ § 4 cause of action in this case, I cannot find lurking in them any federal question. I reach this conclusion in three steps: first, although reference to the FAA necessarily appears in petitioners’ statement, due to the “anomalous” nature of the FAA, this reference plainly is insufficient to confer federal jurisdiction over the petition; second, the remaining necessary elements of the instant FAA petition sound in contract and do not state a federal question; and, finally, the allegations found in the petition that do aver a federal question -- specifically, allegations concerning Section 27 and those embodied in the application for declaratory judgment -- are not part of a well-pleaded § 4 FAA petition but rather are wholly unnecessary, and thus under the well-pleaded
A.
First, as we noted in the majority opinion, although reference to the FAA necessarily appears in petitioners’ statement, it is by now well-established that the FAA is an “anomaly in the field of federal-court jurisdiction,” and the mere fact that petitioners bring an action under the FAA is by itself insufficient to confer federal jurisdiction over the petition. Moses H. Cone Mem‘l Hospital v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983) (“The Arbitration Act is something of an anomaly in the field of federal-court jurisdiction. It creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal-question jurisdiction under
agreement, would have jurisdiction under
B.
Second, the remaining necessary elements of the instant FAA petition sound in contract and do not state a federal question. A
Because the right to compel arbitration is based on the parties’ agreement to arbitrate, the district court, in adjudicating a
Given the contractual basis of a party‘s right to compel arbitration and the district court‘s limited and equally contract-based role in enforcing that right, it should come as no surprise that a
Applying these elements to this case, a well-pled petition necessarily would have alleged the following: (1) a dispute exists between Strong and the petitioners over whether the loan is enforceable -- as evidenced by Strong‘s failure to pay back the loan according to its terms, by his initiation of a lawsuit alleging that the loan is void, and by the parties’ correspondence regarding arbitration; (2) the parties’ written
C.
Third, although the instant petition often refers to Section 27, such references are not part of a well-pled
First, petitioners sometimes characterize the dispute to be arbitrated as involving Section 27. As I have just explained, the existence of an arbitrable dispute between the parties is indeed one of the “essential elements” of a well-pled
Even if it were somehow necessary for petitioners to characterize the dispute in a way that refers to Section 27 -- say, as a dispute about “whether the loan is governed by Section 27 or by Georgia usury law” -- this mere reference would be insufficient to confer federal question jurisdiction over the petition. It is a “long-settled understanding that the mere presence of a federal issue in a state cause of action does not automatically confer federal-question jurisdiction,” nor does it automatically render the cause of action “the kind of adjudication for which jurisdiction would serve congressional purposes and the federal system.” Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 813-14 & n.11 (1986). Under the well-pleaded complaint rule, for a suit to arise under federal law, the “result” of the suit must “depend[]” on the “determination” of “a dispute or controversy respecting the validity, construction, or effect of [federal] law,” Shulthis, 225 U.S. at 569; see also Franchise Tax Bd., 463 U.S. at 27-28 (1983) (federal question jurisdiction exists only when the “well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff‘s right to relief necessarily depends on resolution of a substantial question of federal law“). The result of petitioners’ suit to compel arbitration continues to depend wholly on an interpretation of the parties’ agreement to arbitrate, not on an interpretation of Section 27.
Second, petitioners refer to Section 27 in an attempt to show that Strong‘s claims-to-be-arbitrated arise under federal law, and that their own
There is a third arguable relevance that Section 27 could have to today‘s petition (although it is not clear that any of pеtitioners’ actual references to Section 27 were intended for this purpose): Section 27 may serve in the petition as a
Under the well-pleaded complaint rule, however, pleadings that simply anticipate the respondent‘s federal defense (or offer a federal reply to an anticipated state-law defense) are insufficient to bring the petitioner‘s own cause of action within federal jurisdiction. See Rivet v. Regions Bank of La., 522 U.S. 470, 475 (1998) (“A defense is not part of a plaintiff‘s properly pleaded statement of his or her claim.“);
Moreover, even if the well-pleaded complaint rule allowed us to consider defenses that state a federal question, it is doubtful that Section 27 would arise as a valid defense to petitioners’
In short, regardless of whether petitioners’ allegations concerning Section 27 appear in order to (1) allege the existence of a dispute between the parties, (2) allege that the claim to be arbitrated states a federal question, or (3) possibly anticipate Strong‘s response to their claim to arbitrate, these references to Section 27 do not appear necessarily, and thus they cannot confer federal question jurisdiction over this
II. Tamiami III Is in Tension with this Court‘s Case Law on FAA Petitions
Tamiami III‘s rule requiring the district court to “look through” the
A panel of the former Fifth Circuit first rejected any notion that the plaintiff‘s suit to compel arbitration “rest[ed] upon”
The former Fifth Circuit then turned to the question of whether such a complaint resting on the parties’ agreement and seeking to enforce that agreement “is one arising under the laws, treaties or Constitution of the United States.” Id. The Court held that the answer to that question was controlled by the “landmark case” of Gully v. First National Bank, 299 U.S. 109 (1936), which
[d]eclar[ed] the general principle that ““[a] suit to enforce a right which takes its origin in the laws of the United States is not necessarily, or for that reason alone, one arising under those laws, for a suit does not so arise unless it really and substantially involves a dispute or controversy respecting the validity, construction, or effect of such a law, upon the determination of which the result depends,” 299 U.S. at 114, 57 S. Ct. at 98, quoting Shulthis v. McDougal, 225 U.S. 561, 569, 32 S. Ct. 704, 56 L. Ed. 1205 (1912) (citations omitted)....
Id. at 267 (alteration in original). In applying to the case at hand the general principle that a suit does not arise under federal law unless it “involves a [federal] dispute or controversy...upon the determination of which the result depends,” the former Fifth Circuit assumed that the relevant “dispute or controversy” to be analyzed was the
Of course, in Commercial Metals, the dispute to be arbitrated was not federal in nature -- it was clearly an ordinary breach of contract suit. Indeed, no one suggested otherwise, and so the Court had no occasion to address the question we face today: whether the federal nature of the dispute to be arbitrated can be the basis of federal question jurisdiction over a
Nevertheless, Commercial Metals sensibly suggests that the appropriate dispute to which we ought to apply the well-pleaded complaint rule is the dispute to be resolved by the district court, not the dispute which will eventually be resolved by the arbitrator. Thus, the Court analyzed the nature of the “right to compel arbitration,” not the nature of the right to collect damages due to the other party‘s alleged failure to perform according to the specifications of a purchase agreement. Since the nature of the right to compel arbitration does not change depending on whether the underlying dispute to be arbitrated arises under federal law, applying CommercialMetals‘s reasoning to a
In the instant case, at least one “dispute or controversy...upon the determination of which the result” of the arbitration proceeding “depends” is a dispute “respecting the validity, construction, or effect of” federal law. But the “dispute or controversy...upon the determination of which the result” of the
Next, we “turn[ed] to the second potential jurisdictional basis: federal question jurisdiction” under
Turning to the second prong of the Franchise Tax Board test, we determined that the plaintiffs’ “right to relief did not depend on the ‘resolution of a substantial question of federal law.‘” Id. Importantly, in reaching this conclusion, we once again analyzed not the right to relief sought before the arbitrator, but only the right to relief sought before the district court. Thus, while it is true that in Baltin, as in Commercial Metals, the dispute in arbitration was not federal in nature, we held that the plaintiffs’ FAA complaint did not state a federal question because they “moved to vacate, modify, or correct the arbitration award based only on alleged misdeeds of the arbitrators,” an action which “does not require the resolution of any federal issue, let alone a ‘substantial question of federal law.‘” Id.
Commercial Metals and Baltin both sensibly suggest, at least as a general matter, that district courts ought to apply the well-pleaded complaint rule to the FAA cause of action before them, and not to some other underlying dispute that may be presented to the arbitrator, and as to which the district courts have no adjudicatory power.
At all events, applying the Supreme Court‘s Franchise Tax Board test to the instant
III. Section 4 Does Not Require an Exception to the Well-Pleaded Complaint Rule
It seems clear to me that Tamiami III is not easily reconciled with the well-pleaded complaint rule, and that it travels down a path far different than the one taken by this Court‘s precedent which has applied that rule to FAA actions. However, Congress undeniably has the power to direct the district courts to make an exception to the well-pleaded complaint rule. Tamiami III based its holding on an interpretation of the unique language of
In addition to Tamiami III, the district court in this case cited Discover Bank v. Vaden, 396 F.3d 366 (4th Cir. 2005), issued by the Fourth Circuit -- the only other circuit court to hold that federal question jurisdiction over a
Like the Tamiami III panel, the Fourth Circuit based its holding in large part on the unique language of
A. Jurisdiction “under Title 28”
First, the Fourth Circuit noted that if subject matter jurisdiction were based solely on the FAA cause of action before the district court (rather than on the cause of action or other dispute to be arbitrated), then a
I believe the Fourth Circuit has read too much into a benign reference to Title 28. Assuming that Congress intended subject matter jurisdiction to be determined on the basis of the
Finally, when the agreement to arbitrate itself arises under federal law, a
The Fourth Circuit, however, has raised a related concern about the lack of federal question jurisdiction over
This, too, misapprehends both the congressional purpose behind the FAA and the Supreme Court‘s interpretation of that purpose. Moses H. Cone‘s holding regarding the “liberal federal policy favoring arbitration,” under which “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration,” does not refer to the jurisdictional question we address today -- nor, in fact, to any jurisdictional question. Rather, the Court was addressing a scenario in which a court has already taken jurisdiction over a
As for the policy that arbitration agreements be placed “upon the same footing as other contracts,” it is difficult to see how an interpretation of
Finally, thе Fourth Circuit‘s worry that “the real controversy between the parties cannot reach federal court even when the [state action] plaintiff‘s complaint emphatically presents a federal question,” 396 F.3d at 372, seems to me to also be misplaced.13 The party resisting arbitration who sues regarding the parties’ federal
The Fourth Circuit‘s related suggestion that its reading of
Perhaps even more basic, it is important to recognize that the denial of a federal forum in such a case is no tragedy, for in these situations no one has asked a federal court to resolve the “real controversy between the parties.” The party resisting arbitration has either not brought any lawsuit at all, or has chosen to bring a federal claim in state court or to bring only state-law claims. The
Nor are such petitioners left without a remedy. Federal and state courts have concurrent jurisdiction to enforce the FAA, see Baltin, 128 F.3d at 1469 (citing Moses H. Cone, 460 U.S. at 25); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 637 F.2d 391, 395 (5th Cir. Feb. 1981), and “[i]t is clear that the state courts
B. Any court “which, save for [the arbitration] agreement, would” have subject matter jurisdiction over “the controversy between the parties”
The Fourth Circuit‘s second and third arguments deduced from the text of
A party seeking to compel arbitration may petition any district court which, putting aside the arbitration agreement and the motion to compel under it, would have subject matter jurisdiction over the dispute the party seeks to arbitrate if the party had instead brought that dispute before the district court to be adjudicated.
I read both phrases of
This interpretation of
I think that the “saving clause” of
As for the “controversy between the parties,” this is perhaps the most ambiguous phrase in a section of the FAA replete with them.16 The Fourth Circuit‘s reading of the “controversy between the parties” as a reference to the controversy to
In many, perhaps most, cases, a
In other cases, perhaps not contemplated by Congress, a freestanding
A party seeking to compel arbitration may petition any district court which, notwithstanding the prior common law rule that prevented courts from specifically enforcing arbitration agreements, is otherwise vested of subject matter jurisdiction over the suit before the court.
The central reason that I would read
Finally, analogizing the FAA to the Declaratory Judgment Act, the Fourth Circuit insists that its reading of
By contrast, the FAA petitioner who does or could face a federal claim being brought against it does not ask a federal district court to adjudicate that federal claim. See Fitch, 966 F.2d at 988 (“Prudential‘s ‘well pleaded’ complaint seeks one objective: to enforce its rights under its contract...and compel arbitration of the dispute....The petition does not ask the court [to] address any issues of federal law
Yet although no party seeks, and the FAA precludes, adjudication of the underlying dispute on the merits, Tamiami III nevertheless requires federal district
IV.
Because I do not read
In reaching this conclusion, I readily admit that there is room for reasonable minds to disagree over the proper way to interpret
Notes
In order to prevent discrimination against State-chartered insured depository institutions...with respect to interest rates, if the applicable rate prescribed in this subsection exceeds the rate such State bank...would be permitted to charge in the absence of this subsection, such State bank...may, notwithstanding any State constitution or statute which is hereby preemрted for the purposes of this section,...charge on any loan...interest at a rate of not more than 1 per centum in excess of the discount rate on ninety-day commercial paper in effect at the Federal Reserve bank...or at the rate allowed by the laws of the State...where the bank is located, whichever may be greater.
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement....
For the same reason, it is irrelevant that petitioners attach as an exhibit to their petition Strong‘s state court complaint. See Application of Prudential Sec. Inc., 795 F. Supp. 657, 659 n.5 (S.D.N.Y. 1992) (rejecting argument that petition to stay arbitration pleads issues of federal law by incorporating opposing party‘s original RICO complaint, the arbitration of which the petition sought to stop, because “[i]t is clear...that the petition to stay refers to the demand for arbitration, and attaches that document as an exhibit, merely to identify the action. Such reference does not demonstrate that the RICO laws or the federal securities laws are an essential element in [the petition to stay arbitration]“); see also Albert Einstein Med. Ctr. v. Nat‘l Benefit Fund for Hosp. and Health Care Employees, 740 F. Supp. 343, 348 (E.D. Pa. 1989) (mere reference to ERISA in an exhibit to the complaint does not make ERISA an “essential element” of plaintiffs’ claim).A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement....The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to рroceed to arbitration in accordance with the terms of the agreement....If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof....If the jury find that no agreement in writing for arbitration was made or that there is no default in proceeding thereunder, the proceeding shall be dismissed. If the jury find that an agreement for arbitration was made in writing and that there is a default in proceeding thereunder, the court shall make an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.
Application of Prudential Securities Inc., 795 F. Supp. 657, 660 (S.D.N.Y. 1992).The Commercial Metals court applied the principles enunciated in Gully in order to determine whether the plaintiff‘s right arose under the laws of the United States. Finding that the “right to compel arbitration” derived from the private agreement of the parties, not from any federal law, the Commercial Metals court held that federal question jurisdiction was absent. Admittedly, unlike the present case, the dispute to be arbitrated in Commercial Metals did not involve federal law. However, the court there did not rely on the nature of the contract dispute to reject jurisdiction, but instead, following Gully, examined the source of the plaintiff‘s “right” as asserted in the complaint. Following this analysis, a similar result would be reached here because Prudential‘s alleged right to stay arbitration derives from a private contract,...not from federal law.
In Vaden, the servicing affiliate of a bank that issues credit cards brought a collection action against a card holder in state court to recover a debt in excess of $10,000. The card holder responded by filing several state-law class action counterclaims, including some that alleged illegal assessment of finance charges, late fees, and interest rates. The affiliate, together with the bank, then initiated an independentAs a matter of both
§ 1332 ‘s language and common sense, whether another action is removable or not does not affect jurisdiction in this, an independent action....The state-court action has three parties, but only two are parties to this action seeking an order compelling arbitration. It is perfectly consistent, therefore,
Again, this was surely the case in Tamiami itself. As the panel noted in Tamiami II, 63 F.3d at 1048, the Indian Gaming Regulatory Act,(a) In a case of actual controversy within its jurisdiction,...any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.
(a) It is unlawful for any person, through a pattern of racketeering activity or proceeds derived therefrom, to acquire or maintain, directly or indirectly, any interest in or control of any enterprise, real property, or personal property of any nature, including money.
(b) It is unlawful for any person employed by or associated with any enterprise to conduct or participate in, directly or indirectly, such enterprise through a pattern of racketeering activity.
(c) It is unlawful for any person to conspire or endeavor to violate any of the provisions of subsection (a) or (b) of this Code section.
Byrd, 470 U.S. at 219-20 & n.6 (quoting H.R. Rep. No. 96, 68th Cong., 1st Sess., 1-2 (1924)).The need for the law arises from an anachronism of our American law. Some centuries ago, because of the jealousy of the English courts for their own jurisdiction, they refused to enforce specific agreements to arbitrate upon the ground that the courts were thereby ousted from their jurisdiction. This jealousy survived for so long a period that the principle became firmly embedded in the English common law and was adopted with it by the American courts. The courts have felt that the precedent was too strongly fixed to be overturned without legislative enactment, although they have frequently criticised the rule and recognized its illogical nature and the injustice which results from it. This bill declares simply that such agreements for arbitration shall be enforced, and provides a procedure in the Federal courts for thеir enforcement.
Moses H. Cone, 460 U.S. at 25 n.32 (emphasis added). See, e.g., Fitch, 966 F.2d at 987 n.3 (noting that “[t]he entire sentence from Moses Cone is helpful in understanding the Court‘s reference to the ‘underlying dispute,‘” and declining to “read this sentence as establishing a radical new rule for determining federal jurisdiction“); Application of Prudential Securities Inc., 795 F. Supp. 660 (S.D.N.Y. 1992) (finding the Moses H. Cone footnote “capable of two interpretations” -- one requiring federal courts to take subject matter jurisdiction based upon the federal nature of the underlying dispute in arbitration, “and the other indicating that there must be an ongoing suit based on federal question jurisdiction before an order compelling arbitration can issue” -- and adopting the latter interpretation); Klein, 737 F. Supp. at 323-24 (describing Moses H. Cone‘s reference to the “underlying dispute” as “admittedly vague,” but holding that it refers to the “arbitration dispute...before the Court“).The Arbitration Act is something of an anomaly in the field of federal-court jurisdiction. It creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal-question jurisdiction under
§ 1331 or otherwise. Section 4 provides for an order compelling arbitration only when the federal district court would have jurisdiction over a suit on the underlying dispute; hence, there must be diversity of citizenship or some other independent basis for federal jurisdiction before the order can issue. E.g., Commercial Metals at 268-69, and cases cited. Section 3 likewise limits the federal courts to the extent that a federal court cannot stay a suit pending before it unless there is such a suit in existence. Nevertheless, although enforcement of the Act is left in large part to the state courts, it nevertheless represents federal policy to be vindicated by the federal courts where otherwise appropriate.
(a) It shall be unlawful for any person who has received any income derived... through collection of an unlawful debt in which such person has participated as a principal..., to use or invest...any part of such income...in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate...commerce....
(b) It shall be unlawful for any person...through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.
(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise‘s affairs through...collection of an unlawful debt. (d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.
[I]n any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.
Strong cites no case and offers no legal theory for this conclusion. Certainly the law of former adjudication will not help him. In considering whether to give preclusive effect to state court judgments under the doctrines of res judicata (or claim preclusion) or collateral estoppel (or issue preclusion), we apply that state‘s law of preclusion. See Kizzire v. Baptist Health Sys., Inc., 441 F.3d 1306, 1308 (11th Cir. 2006) (res judicata); Agripost, Inc. v. Miami-Dade County, ex rel. Manager, 195 F.3d 1225, 1229 n.7 (11th Cir. 1999) (collateral estoppel). Under Georgia law, for a claim to be barred under the doctrine of res judicata, the following elements must be met: “(1) identity of the cause of action, (2) identity of the parties or their privies, and (3) previous adjudication on the merits by a court of competent jurisdiction.” Karan, Inc. v. Auto Owners Ins. Co., 629 S.E.2d 260, 262 (Ga. 2006). The doctrine of collateral estoppel “precludes the re-adjudication of an issue that has previously been litigated and adjudicated on the merits in another action between the same parties or their privies.” Id. at 262. Even assuming that the state court‘s sanction of striking portions of the payday defendants’ pleading operates as an adjudication on the merits for purposes of preclusion, see, e.g., Brantley v. Sparks, 306 S.E.2d 337, 338 (Ga. App. 1983) (sanction of dismissal after finding of willful violation of discovery order operates as an adjudication on the merits), a further requirement of both res judicata and collateral estoppel under Georgia law is that the prior adjudication be final. “It is the general rule that a judgment sought to be used as a basis for the application of the doctrine of res judicata (or collateral estoppel) must be a final judgment. In Georgia a judgment is suspended when an appeal is entered within the time allowed. And the judgment is not final as long as there is a right to appellate review.” CS-Lakeview At Gwinnett, Inc. v. Retail Dev. Partners, 602 S.E.2d 140, 142 (Ga. App. 2004) (quoting Greene v. Transport Ins. Co., 313 S.E.2d 761, 763 (Ga. App. 1984)); see also
As for the bank, Strong argues for the first time that the bank cannot compel arbitration of Strong‘s state-court claims because the bank is not a party to that suit, nor has Strong brought any other claims against the bank. However, the fact that the bank is not a named party in any particular lawsuit is irrelevant; the bank plainly is a party to the arbitration agreement included in the loan contract. See Commercial Metals Co. v. Balfour, Guthrie, & Co., 577 F.2d 264, 266 (5th Cir. 1978) (the right to compel arbitration derives from the parties’ agreement to arbitrate). As we have explained in Part II.B, supra, under the FAA, all that is required for one party to an arbitration agreement to compel another party to arbitrate a dispute is the “alleged failure, neglect, or refusal” of the latter to arbitrate that dispute.