Law School Case Brief
Vaden v. Discover Bank - 556 U.S. 49, 129 S. Ct. 1262 (2009)
28 U.S.C.S. § 1331 vests in federal district courts jurisdiction over all civil actions arising under the Constitution, laws, or treaties of the United States. Under the longstanding well-pleaded complaint rule, however, a suit "arises under" federal law only when the plaintiff's statement of his own cause of action shows that it is based upon federal law. Federal jurisdiction cannot be predicated on an actual or anticipated defense: It is not enough that the plaintiff alleges some anticipated defense to his cause of action and asserts that the defense is invalidated by some provision of federal law. Nor can federal jurisdiction rest upon an actual or anticipated counterclaim. The United States Supreme Court so ruled, emphatically, in Holmes Group. Without dissent, the Court held in Holmes Group that a federal counterclaim, even when compulsory, does not establish "arising under" jurisdiction. Adhering assiduously to the well-pleaded complaint rule, the Court observed, inter alia, that it would undermine the clarity and simplicity of that rule if federal courts were obliged to consider the contents not only of the complaint but also of responsive pleadings in determining whether a case "arises under" federal law.
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, 9 U.S.C.S. § 4, which provides for United States district court enforcement of arbitration agreements. in the district court. Because Vadenconceded that her state-law counterclaims were preempted by federal law, the district court concluded that it had federal question jurisdiction over the bank's § 4 petition pursuant to 28 U.S.C.S. § 1331. The Court of Appeals for the Fourth Circuit concluded that the complete preemption doctrine overrode the well-pleaded complaint rule. Vaden sought certiorari review.
Could a federal court entertain a § 4 petition based on the contents of a counterclaim when the whole controversy between the parties did not qualify for federal-court adjudication?
Although the United States Supreme Court agreed with the Fourth Circuit that a federal court could "look through" a § 4 petition to determine whether it was predicated on a controversy that "arose under" federal law, the Court held that, in keeping with the well-pleaded complaint rule, a federal court could not entertain a petition under 9 U.S.C.S. § 4 based on the contents of a counterclaim when the whole controversy between the parties did not qualify for federal-court adjudication. The Fourth Circuit erred by focusing only on the cardholder's counterclaims.
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