(CN) – A federal district court can entertain a petition to compel arbitration when it would have jurisdiction if not for the arbitration agreement, the U.S. Supreme Court ruled in a 5-4 decision against Discover Bank.
Discover sued Maryland customer Betty Vaden to collect past-due charges. She filed a counterclaim, alleging that Discover’s finance charges, interest and late fees violated state law.
Discover then sought a motion to compel arbitration, which was granted by the federal district court. After the court and the 4th Circuit confirmed that the district court had jurisdiction, the Circuit ruled that the fact that Vaden’s state-law counterclaim was completely pre-empted by federal law, which overrides the fact Vaden has a well-pleaded complaint.
Justice Ginsburg confirmed the decision, ruling that a district court can “look through” the petition and grant relief in case when it would have jurisdiction.
“However,” Ginsburg noted, “a federal court may not entertain a petition based on a counterclaim when the whole controversy between the parties does not qualify for federal-court adjudication.
“Under the well-pleaded complaint rule,” Ginsburg added, “a completely pre-empted counterclaim remains a counterclaim, and thus does not provide a key opening a federal court’s door.”