Font Size: 
Supreme Court Argument Report: Pre-emption, Arbitration and Litigation
Law.com
October 07, 2008
The Supreme Court had a busy opening day on Monday, kicking off its October 2008 term with three cases instead of two -- a schedule that will continue on most argument days through November. After hearing argument in one of this term's highly anticipated pre-emption cases, Altria Group v. Good, the justices considered a First Amendment case involving union fees for litigation expenses. The third case concerned federal jurisdiction over petitions to compel arbitration.
In Locke v. Karass, nonmembers of a state employees union in Maine sued over service fees paid to the national union to support litigation that did not involve or benefit the local union. The nonmembers, who are represented by the union in collective bargaining negotiations, argued that the fees for extra-unit litigation amounted to compelled speech in violation of their First Amendment rights.
The 1st U.S. Circuit Court of Appeals, affirming the district court, held that the fees were "germane" to the collective bargaining process and did not violate the employees' First Amendment rights.
During the high court argument, several of the justices questioned counsel about the distinction between the service fees for litigation expenses being challenged by the petitioners and fees that go toward collective bargaining negotiations, which are pooled and then allocated on a national level.
"I mean, we're not talking about litigation unrelated to collective bargaining," Justice Ruth Bader Ginsburg said to W. James Young of the National Right to Work Legal Defense Fund, who argued for the nonmember employees. "What's the difference between negotiating an agreement and litigation to enforce it?"
Respondents' counsel, Bredhoff & Kaiser's Jeremiah A. Collins, argued that the alternative to allowing unions to allocate nonmember service fees toward extra-unit litigation is a system in which a local union "has to rely solely on its own resources, solely on its own expertise."
"Well, it doesn't have to do that," Justice Antonin Scalia said. "It can use the money of its union members any way it wants. It can contribute to the national [union] all of their money if it wishes. We are only talking about that portion of the union income which comes from people who don't want to join the union."
Both arguing attorneys faced tough questioning from the justices, and at one point Scalia took up a question Chief Justice John Roberts Jr. had asked of Young, which Young said he misunderstood.
"He was trying to help you," Scalia told Young. "You should have said, 'yes, Chief Justice.'"
Justice John Paul Stevens then took up the attack, and Roberts advised Young: "He is not trying to help you."
"I'm not sure he was, either," Stevens said, indicating Roberts.
"Well, one looks for [help] where one can find it, Justice Stevens and Mr. Chief Justice," Young told them.
'LOOKING THROUGH' FOR JURISDICTION
At issue in the third case argued Monday, Vaden v. Discover Bank, is whether a federal court's subject matter jurisdiction over a petition to compel arbitration must be supported by the petition itself, or whether the court can "look through" the motion to determine the presence of a federal question in the underlying dispute between the parties.
Discover Financial Services, on behalf of Discover Bank, sued Betty Vaden for nonpayment of a $10,000 credit card balance, and Vaden filed counterclaims under Maryland law relating to fees, finance charges and interest on the account. Discover filed a petition in federal court to compel arbitration of the counterclaims. The 4th U.S. Circuit Court of Appeals held that Vaden's counterclaims were pre-empted by the Federal Deposit Insurance Act and that the presence of a federal question in the underlying dispute was sufficient for jurisdiction.
Justices and counsel spent much of the argument hour parsing the language of Section 4 of the Federal Arbitration Act, which governs whether a party may petition a federal district court to compel arbitration.
University of Virginia School of Law Professor Daniel R. Ortiz, arguing for Vaden, told the justices that the "look-through approach to federal subject matter jurisdiction violates the core purposes of the Federal Arbitration Act."
"The Federal Arbitration Act was meant to get things to arbitration quickly and to have arbitrators, not judges, decide them. These ... sometimes often complex jurisdictional inquiries undermine both those aims," Ortiz said.
Sidley Austin's Carter G. Phillips, counsel for Discover, ran into some difficult questions from the justices regarding the scope of the underlying dispute between the parties for the purpose of determining jurisdiction.
"It seems to me that your look-through argument is look-through only halfway," Ginsburg told Phillips. "That is ... if you consider the controversy, the suit that was brought in the state court, the controversy is here we have a customer who hasn't paid the amount charged. So we have a suit on a debt. Why isn't that the controversy? You have to make the counterclaim the controversy, which comes up only defensively."
Scalia took up that point as well, saying that under the respondent's interpretation of the FAA, a court could simply imagine a counterclaim that might become part of an underlying dispute. "It's very strange to decide federal jurisdiction on the basis ... of imagined complaints," he said.
"It's close to inconceivable to me that Congress wanted us ... to construct litigation that is not yet in existence," Scalia said.
Justice David Souter questioned why Discover was pushing to enforce the arbitration agreement in federal court at all.
"Why don't you do it in the state court instead of going through these gymnastics?" Souter asked Phillips.
When Ginsburg asked a similar question, Phillips told her, "The problem is that there is some lack of confidence in the state courts that we will get the same treatment under [FAA] Section 4 that we would get in federal court."
"Then bring that up here on appeal from the state court," Souter told him.
"Well, I wish it were that easy to get this Court to grant review of everything that I bring up here in the first place," said Phillips.
Stevens then jumped in with a compliment: "You don't have any trouble."
"I appreciate that," the veteran Supreme Court advocate said. Phillips has made a career total of 59 appearances before the high court, according to Sidley Austin's Web site.
Laurel Newby is a senior editor with Law.com.
