Supreme Court Rules for Consumer Resisting Compelled Arbitration
The U.S. Supreme Court has ruled that a federal court has no jurisdiction to hear a credit card company’s motion to compel arbitration of a consumer dispute that began in state court.
The justices ruled 5-4 in favor of consumer Betty Vaden, the Associated Press reports.
Discover Bank had filed a suit in Maryland state court against Vaden for a $10,000 unpaid balance, and she filed a counterclaim alleging late fees and finance charges violated state law. The federally insured bank then asked a federal court to compel arbitration, maintaining the court had jurisdiction because Vaden’s state law counterclaims were pre-empted by federal banking law.
The majority opinion by Justice Ruth Bader Ginsburg said federal courts had no jurisdiction to compel arbitration unless the underlying dispute could have been heard in federal court, SCOTUSblog reports. In this case, Ginsburg wrote, the controversy was “was triggered by Discover’s garden-variety, state-law debt-collection claim against Vaden.”
“The relevant question is whether the whole controversy between the parties—not just a piece broken off from that controversy—is one over which the federal courts would have jurisdiction,” Ginsburg wrote. “It makes scant sense to allow one of the parties to enlist a federal court to disturb the state-court proceedings by carving out issues for separate resolution.”
Ginsburg said Discover could still seek to compel arbitration in state courts. Some credit card industry officials believe state courts are hostile to arbitration, according to AP.
The decision (PDF) is Vaden v. Discover Bank.
