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Federal jurisdiction to enforce arbitration agreement
February 08, 2005 by Ross Runkel at LawMemo

I am grateful to David Nagle, chair of LeClair Ryan's Labor & Employment practice group, for pointing out a 4th Circuit decision dealing with federal court jurisdiction to enforce arbitration agreements.

Discover Bank v. Vaden [full text pdf] (4th Cir 01/24/2005) is a banking case that should have an impact on employment cases. This is another reminder that the law dealing with enforcement of individual employer-employee arbitration agreements (not involving collective bargaining agreements) is often shaped by cases that have nothing at all to do with employment law.

The bank sued its customer in federal court under Federal Arbitration Act Section 4 to compel arbitration of state law claims that the customer had filed in state court.

The issue was whether the presence of a federal question in the underlying dispute is enough to support subject matter jurisdiction. The 4th Circuit held that it was.

Courts of Appeals are split on the question of whether, in a Section 4 suit, a federal district court has subject matter jurisdiction when the underlying dispute between the parties raises a federal question. One line of authority is that the basis for federal jurisdiction must appear on the face of the arbitration petition itself. That would require that there be some basis for jurisdiction other than the underlying dispute - such as diversity of citizenship or admiralty. The other line of authority (adopted by the 4th Circuit) allows the district court to look through the arbitration petition and "assess whether the overall controversy between the parties 'raises a federal question.'"

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