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Although the Federal Arbitration Act (FAA) expressly authorizes the filing of petitions to compel arbitration in federal district courts, the FAA treats arbitration simply as one means of resolving disputes that lie within the jurisdiction of the federal courts and does not itself grant the federal courts subject matter jurisdiction; therefore, an action brought in federal court to compel arbitration requires an independent basis for federal jurisdiction, such as federal question or diversity jurisdiction.
In March 2001, Obie Payton, herein defendant, filed suit in the circuit court of Kemper County, Mississippi against Beneficial National Bank U.S.A and Household Bank, herein plaintiffs, alleging claims arising from defendant’s purchase and financing of a home satellite system. In the state court action, defendant, who financed the satellite system with a revolving credit card plan with plaintiff, asserted that the latter’s representatives made false or misleading representations and/or failed to disclose certain terms of the financing agreement. Plaintiff later assigned the account to its co-plaintiff Household Bank. In April 2001, prior to filing the instant action, plaintiffs filed in the state court proceeding a motion to dismiss or stay pending binding arbitration pursuant to § 3 of the Federal Arbitration Act, 9 U.S.C. § 3. Soon thereafter, plaintiffs filed their complaint in this court seeking an order compelling arbitration under § 4 of the FAA and also seeking, as they did in the state court, an order that the state court litigation be stayed pending arbitration. Defendant has not yet filed a response to the motion to compel and for stay, but instead filed his motion to dismiss or, alternatively, for a stay pending the resolution of the state court proceedings. By his motions, defendant contested this court's subject matter jurisdiction and seeks a stay pursuant to the factors set out in the case of Colorado River Water Conservation District v. United States.
Should the defendant’s motions to dismiss for lack of subject matter jurisdiction or for a stay of proceedings be granted?
The court held that defendant’s motions to dismiss or, in the alternative, for a stay of motion to compel arbitration pending resolution of proceedings were not well taken, hence, should be denied. The court also denied as moot the borrower's motion for a stay of the court's consideration of the plaintiffs' motion to compel arbitration, and ordered defendant to respond to the same motion. The court rejected the defendant’s argument; the absent party was not a necessary party to the instant action, in which the sole issue was whether the defendant was to be compelled to arbitrate his claims against the plaintiff banks. Regarding the defendant’s abstention argument, the court held that the plaintiff banks had not moved, in the state court action, to compel arbitration. Rather, they had moved for a stay of proceedings pursuant to FAA § 3, 9 U.S.C.S. § 3. Thus, in such a case, the Colorado River abstention factors weighed against abstention.