Volvo Trucks North America, Inc. v. Crescent Ford Truck Sales, Inc.

• Decision Date: 05 January 2012
• Docket Number: No. 09–30782.,09–30782.
• Citation: 666 F.3d 932
• Parties: VOLVO TRUCKS NORTH AMERICA, INC., Plaintiff–Appellee, v. CRESCENT FORD TRUCK SALES, INC., Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

666 F.3d 932

VOLVO TRUCKS NORTH AMERICA, INC., Plaintiff–Appellee,

v.CRESCENT FORD TRUCK SALES, INC., Defendant–Appellant.

No. 09–30782.

United States Court of Appeals, Fifth Circuit.

Jan. 5, 2012.

Sidney L. Shushan (argued), Sidney L. Shushan, A.P.L.C., New Orleans, LA, for Plaintiff–Appellee.

Leonard L. Levenson (argued), Colleen Boyle Gannon, Weigand & Levenson, New Orleans, LA, for Defendant–Appellant.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before REAVLEY, PRADO and OWEN, Circuit Judges.

OWEN, Circuit Judge:

Crescent Ford Truck Sales, Inc. (Crescent) appeals the district court's grant of summary judgment in favor of Volvo Trucks North America, Inc. (Volvo). The district court held that the contract between Crescent and Volvo compelled the parties to arbitrate their dispute. Because we conclude that the district court lacked subject matter jurisdiction, we vacate and remand to the district court with instructions to dismiss.

I

Crescent operated a Volvo dealership in Louisiana pursuant to a Dealer Sales and Services Agreement (Dealer Agreement) with Volvo. The Dealer Agreement provided the following regarding dispute resolution procedures: “The parties shall promptly seek, in good faith and in a spirit of cooperation, a rapid and equitable solution to any dispute, controversy, or claim between them arising out of, relating to, or concerning this Agreement.” Additionally, the Dealer Agreement provided: “If the dispute has not been resolved by Negotiation ... the matter shall be submitted to the American Arbitration Association ... for mediation....” Finally: “If Negotiation followed by mediation ... fails to reach an equitable solution to the dispute ..., then such dispute, controversy, or claim may be settled by final and binding arbitration administered by the AAA.... Once initiated, all parties shall cooperate with [the] AAA and each other to reach the final decision.”

Near the end of the five-year term of the Dealer Agreement, Volvo issued a notice of non-renewal to Crescent. In response, Crescent filed a verified emergency petition with the Louisiana Motor Vehicle Commission (LMVC) in an attempt to prevent Volvo from terminating the Dealer Agreement. The basis for the petition was that Volvo had failed to properly allege just cause for termination as required under Louisiana state law governing the distribution and sale of motor vehicles.¹ The LMVC issued an interlocutory cease and desist order against Volvo, “maintaining the status quo between [Crescent] and [Volvo] and preventing the non-renewal or expiration of the ... Dealer Sales and Service Agreement ... pending further proceedings before the [commission].” The order also prohibited Volvo from “canceling, non-renewing or permitting the expiration of” the Dealer Agreement pending further orders of the commission. Finally, the order set a hearing date for the determination of whether a permanent cease and desist order should be issued against Volvo and whether the Dealer Agreement should be renewed for an additional full franchise term of five years.

The parties proceeded to mediation as provided in the Dealer Agreement. Volvo subsequently filed a motion before the LMVC to compel binding arbitration, and the LMVC denied the motion. Volvo then filed a petition for review of the LMVC's decision denying arbitration with the 24th Judicial District Court for the Parish of Jefferson, and the LMVC stayed the Dealer Agreement termination proceeding pending the outcome of Volvo's petition for review.

Volvo subsequently filed a complaint in the United States District Court for the Eastern District of Louisiana seeking an order compelling binding arbitration between the parties and an order enjoining Crescent and the LMVC from setting the state case for trial on the merits prior to a final decision in the district court regarding the right to arbitration. Volvo's petition to compel arbitration was based on § 4 of the Federal Arbitration Act (FAA). ² Volvo also sought a declaratory judgment that various provisions of the Automobile Dealer's Day in Court Act (ADDCA)³ were applicable to the rights of the parties with respect to the contract.

Crescent filed a motion to dismiss, which was granted in part and denied in part. In ruling on Crescent's motion to dismiss, the district court addressed Volvo's alleged bases for subject matter jurisdiction. The court correctly concluded that it lacked diversity jurisdiction because both Crescent and Volvo are Delaware corporations. Relying on this court's holding in Prudential–Bache Securities, Inc. v. Fitch,⁴ the court rejected Volvo's claim that there was federal jurisdiction stemming from the FAA itself. The FAA provides:

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.⁵

The court noted that Prudential–Bache held “that jurisdiction for a petition to compel arbitration must be determined from the face of the petition to compel arbitration itself and not the underlying dispute between the parties,” and the court read that holding to require the court to “look to the remaining claims in [the] complaint to determine if there is an independent basis for federal jurisdiction.” In this case, the remaining claims were the declaratory relief sought under the ADDCA.⁶

The court found no independent basis for federal jurisdiction of Volvo's claims for declaratory relief under 15 U.S.C. §§ 1221, 1222, and 1225, reasoning that Volvo was requesting the court to rule on the merits of its contention that it had acted in “good faith” within the meaning of the ADDCA and had a legitimate right to terminate the Dealer Agreement. The district court held that these issues were a matter for the arbitrator to decide and did not concern the question of whether the arbitration agreement was enforceable. The court did, however, find an independent basis for federal jurisdiction based upon the relief sought under 15 U.S.C. § 1226, which states that arbitration may be used to resolve a controversy arising out of a motor vehicle franchise contract “only if after such controversy arises all parties to such controversy consent in writing to use arbitration to settle such controversy.” ⁷ Because § 1226 is only applicable “to contracts entered into, amended, altered, modified, renewed, or extended” after November 2, 2002, ⁸ the court determined that Volvo was “essentially seeking a declaration that § 1226 was not applicable to the Dealer Agreement because the Dealer Agreement was not modified after 2002.” Unlike the dismissed claims, the court determined that this concerned the enforceability of the arbitration provision, not the underlying merits, and was thus properly before the court. The district court reasoned that this claim permitted the exercise of jurisdiction over the petition to compel arbitration based on Prudential–Bache because “the face of [the complaint] to compel arbitration [sought] relief which requires an interpretation of federal law.”

Subsequently, both Crescent and Volvo filed motions for summary judgment on the arbitration issue. The district court held that the plain language of the Dealership Agreement compelled the parties to arbitrate their dispute once either party initiated arbitration and granted summary judgment in favor of Volvo. The district court denied Crescent's motion for a new trial, and Crescent now appeals.

II

Crescent asserts that the district court lacked subject matter jurisdiction because the underlying dispute arises solely under state law. “Issues of subject matter jurisdiction are questions of law and are reviewed de novo.”⁹ A lack of subject matter jurisdiction may be raised at any time and may be examined for the first time on appeal.¹⁰ The burden of establishing subject matter jurisdiction rests upon the party asserting jurisdiction.¹¹

In Vaden v. Discover Bank,¹² which was decided after the district court's ruling on Crescent's motion to dismiss, the Supreme Court explained the nature of the FAA:

Congress enacted the FAA “[t]o overcome judicial resistance to arbitration,” and to declare “ ‘a national policy favoring arbitration’ of claims that parties contract to settle in that manner.” To that end, § 2 provides that arbitration agreements in contracts “involving commerce” are “valid, irrevocable, and enforceable.” Section 4 ... provides for United States district court enforcement of arbitration agreements. Petitions to compel arbitration, § 4 states, may be brought before “any United States district court which, save for such agreement, would have jurisdiction under title 28 ... of the subject matter of a suit arising out of the controversy between the parties.” ... “As for jurisdiction over controversies touching arbitration,” however, the Act is “something of an anomaly” in the realm of federal legislation: It “bestow[s] no federal jurisdiction but rather requir [es] [for access to a federal forum] an independent jurisdictional basis” over the parties' dispute.¹³

In Vaden, the Supreme Court addressed the manner in which a district court is to determine if it has subject matter jurisdiction over a petition to compel arbitration in accordance with § 4 of the FAA. With regard to the determination of whether a § 4 petition is predicated on an action arising under federal law, the Court approved of a “look through” approach,¹⁴ which differed from the approach adopted in Prudential–Bache.¹⁵ “A federal court may ‘look through’ a § 4 petition and order arbitration if, ‘save for [the arbitration] agreement,’ the court would have...