Discover Bank v. Vaden

• Decision Date: 13 June 2007
• Docket Number: No. 06-1221.,06-1221.
• Citation: 489 F.3d 594
• Parties: DISCOVER BANK; Discover Financial Services, Incorporated, Plaintiffs-Appellees, v. Betty E. VADEN, Defendant-Appellant, v. Federal Deposit Insurance Corporation, Amicus Curiae. John R. Kucan, Jr.; Terry Coates, Amici Curiae.
• Court: U.S. Court of Appeals — Fourth Circuit

489 F.3d 594

DISCOVER BANK; Discover Financial Services, Incorporated, Plaintiffs-Appellees, v. Betty E. VADEN, Defendant-Appellant, v. Federal Deposit Insurance Corporation, Amicus Curiae.

John R. Kucan, Jr.; Terry Coates, Amici Curiae.

No. 06-1221.

United States Court of Appeals, Fourth Circuit.

Argued: November 29, 2006.

Decided: June 13, 2007.

ARGUED: John Andrew Mattingly, Jr., Baldwin, Briscoe & Mattingly, Chtd., Lexington Park, Maryland, for Appellant. Martin C. Bryce, Jr., Ballard, Spahr, Andrews & Ingersoll, Philadelphia, Pennsylvania, for Appellees.

ON BRIEF: Joseph W. Hovermill, Matthew T. Wagman, John C. Celeste, Miles & Stockbridge, P.C., Baltimore, Maryland; Alan S. Kaplinsky, Ballard, Spahr, Andrews & Ingersoll, Philadelphia, Pennsylvania, for Appellees. Sara A. Kelsey, General Counsel, Richard J. Osterman, Jr., Assistant General Counsel, Colleen J. Boles, Senior Counsel, Kathleen V. Gunning, Counsel, Federal Deposit Insurance Corporation, Arlington, Virginia, for Amicus Curiae Federal Deposit Insurance Corporation. F. Paul Bland, Jr., Trial Lawyers for Public Justice, Washington, D.C.; J. Jerome Hartzell, Hartzell & Whiteman, L.L.P., Raleigh, North Carolina; Carlene McNulty, North Carolina Justice Center, Raleigh, North Carolina, for Amici Curiae John R. Kucan, Jr., and Terry Coates.

Before WILKINSON and DUNCAN, Circuit Judges, and JOSEPH R. GOODWIN, United States District Judge for the Southern District of West Virginia, sitting by designation.

Affirmed by published opinion. Judge DUNCAN wrote the majority opinion, in which Judge WILKINSON concurred. Judge GOODWIN wrote a dissenting opinion.

OPINION

DUNCAN, Circuit Judge.

For the second time, we hear an appeal in a dispute between Appellees Discover Bank and Discover Financial Services, Inc., a servicing affiliate of Discover Bank ("DFS," and, together with Discover Bank, "Discover"), and Appellant Betty E. Vaden ("Vaden"). This case arises from Vaden's failure to pay a credit card balance and DFS's resulting suit against her in state court. Vaden responded with several class-action counterclaims against DFS. Discover Bank then filed suit in federal district court under § 4 of the Federal Arbitration Act ("FAA"), seeking to compel arbitration of Vaden's counterclaims.

In the first appeal, we decided as a threshold matter that the federal courts possess subject matter jurisdiction under § 4 of the FAA if the underlying dispute presents a federal question. On remand, we directed the district court to decide whether such a federal question exists here. More specifically, we asked the district court to determine whether Discover Bank or DFS was the real party in interest with respect to Vaden's state court counterclaims. If Discover Bank were found to be the real party in interest, then the Federal Deposit Insurance Act ("FDIA"), 12 U.S.C. § 1811 et seq., would be implicated because Discover Bank is a state-chartered, federally insured bank. In that event, we asked the district court to determine whether the FDIA completely preempted Vaden's state law usury claims. If the district court found that the claims were completely preempted and therefore a federal question existed, it then had to determine whether there was a genuine issue of material fact regarding the existence of an arbitration agreement between Vaden and Discover Bank.

The district court found that this case presented a federal question and accordingly denied Vaden's motion to dismiss for lack of subject-matter jurisdiction and stayed her state-court counterclaims pending arbitration. We agree that a federal question exists here and that the district court properly compelled arbitration. Therefore, we affirm.

I.

In 1990, Vaden obtained a Discover credit card. The card was issued by Discover Bank, a Delaware-chartered, federally insured bank. DFS is a servicing affiliate of Discover Bank. According to the servicing agreement between DFS and Discover Bank, DFS performs such functions as marketing and servicing Discover Bank loan products and collecting on accounts pursuant to instructions from Discover Bank. J.A. 531-38. In June 1999, Discover mailed Vaden a new Platinum Discover Card. Discover claims that Vaden's account was automatically converted to Platinum status at this time. Vaden's "Cardmember" statements, however, identified her as a regular Cardmember until September 1999. In July 1999, Discover mailed Vaden a "Notice of Amendment to Discover Platinum Cardmember Agreement" (the "Notice of Amendment"). J.A. 33. This notice, which applied only to Platinum Cardmembers, included a provision requiring arbitration of disputes.

In July 2003, on behalf of Discover Bank, DFS sued Vaden in Maryland state court for nonpayment of a card balance in excess of $10,000. Vaden then filed class-action counterclaims based solely on Maryland law against DFS. These counterclaims include a breach-of-contract claim and claims that certain fees and interest rates were charged in violation of applicable Maryland statutes that regulate finance charges, late fees, and compounding of interest on consumer credit accounts. In that proceeding, DFS was identified as "Discover Financial Services, Inc. (Discover), SVC Affiliate of Discover Bank, F/K/A Greenwood Trust Co., a DE chartered state bank and issuer of the Discover Card."

Shortly after Vaden filed these counterclaims, Discover filed a petition in federal court seeking to compel arbitration of Vaden's state-court counterclaims based on the arbitration provision in the Notice of Amendment. Discover had made no previous requests to Vaden for arbitration. The district court granted Discover's motion to compel arbitration.

Vaden timely appealed and this court heard argument on that appeal in December 2004. In January 2005, we considered the issue of whether subject-matter jurisdiction existed. See Discover Bank v. Vaden, 396 F.3d 366, 367 (4th Cir.2005) ("Vaden I"). We held in Vaden I that "when a party comes to federal court seeking to compel arbitration, the presence of a federal question in the underlying dispute is sufficient to support subject-matter jurisdiction." Id. at 367. We declined to decide whether such an underlying federal question existed in this case. Id. On remand, we directed the district court to determine whether a federal question existed and guided it to examine whether Discover Bank was the real party in interest with respect to Vaden's state-court claims and whether these claims were completely preempted by the FDIA.¹

Answering these questions, the district court found that Discover Bank was the real party in interest and that Vaden's state court usury claims were completely preempted. Also, the district court found that there was no issue of material fact regarding the existence of an arbitration agreement between Vaden and Discover Bank, and accordingly granted Discover's request for arbitration.

Vaden again timely appealed the district court's ruling, which appeal is before us now. Vaden argues that DFS is the real party of interest, and thus the FDIA is not implicated and the federal court is without subject-matter jurisdiction over the dispute. Vaden also contends that compelling arbitration was improper for two reasons: (1) Discover lacks standing because it failed to satisfy the relevant statutory requirements for compelling arbitration, and (2) there was not a valid arbitration agreement between Vaden and Discover Bank.

II.

We turn first to the question of whether the federal courts have subject-matter jurisdiction over Discover Bank's § 4 petition for arbitration under the FAA.

Under § 4 of the FAA, a district court may issue an order compelling arbitration if the court would otherwise "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 (2000) (emphasis added). Section 4 does not require a party to actually file suit regarding the underlying controversy; the FAA requires only that a party be aggrieved by another party's failure to arbitrate a controversy, "the subject matter of which would fall within the jurisdiction of this Court, were an actual suit to arise out of the controversy." Reynolds & Reynolds Co. v. Image Software, Inc., 254 F.Supp.2d 761, 765 (S.D.Ohio 2003); see Vaden I, 396 F.3d at 369 ("We thus hold that a federal court possesses subject-matter jurisdiction over a case when the controversy underlying the arbitration agreement presents a federal question."); id. at 370 ("The text of § 4 requires us to consider jurisdiction as it arises out of the whole controversy between the parties."); Tamiami Partners, Ltd. v. Miccosukee Tribe, 177 F.3d 1212, 1223 n. 11 (11th Cir.1999) (suggesting that "it is appropriate to look through" the arbitration request to assess whether the underlying dispute between the parties is grounded in federal law). Thus, a § 4 petition to compel arbitration is properly in federal court if the underlying dispute presents a federal question.² Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); Vaden I, 396 F.3d at 367. A court must therefore look through the arbitration claim and examine the underlying state-court action.

The Supreme Court has explained that even when a complaint alleges only violations of state law, the case may nevertheless center on a federal question, and therefore be removable,³ if federal law completely preempts the state law claims. Caterpillar Inc. v. Williams, 482 U.S. 386, 393, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987). This is the "complete pre-emption doctrine." Id. Caterpillar explains that "[o]nce an area of state law has been completely pre-empted, any claim purportedly based on that pre-empted state law is considered, from its inception, a federal claim, and therefore arises under federal law." Id.

Complete preemption is an exception to the well-pleaded complaint rule....