United States Court of Appeals
For the Eighth Circuit
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No. 12-3381
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CMH Homes, Inc.; Vanderbilt Mortgage & Finance, Inc.,
lllllllllllllllllllll Plaintiffs - Appellants,
v.
Thomas R. Goodner; Linda Goodner,
lllllllllllllllllllll Defendants - Appellees.
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Appeal from United States District Court
for the Western District of Arkansas - Hot Springs
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Submitted: April 10, 2013
Filed: September 5, 2013
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Before COLLOTON and SHEPHERD, Circuit Judges, and ROSE,1 District Judge.
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COLLOTON, Circuit Judge.
Thomas and Linda Goodner sued Vanderbilt Mortgage & Finance, Inc., CMH
Homes, Inc., and Clayton Homes, Inc., which owns Vanderbilt and CMH Homes, in
state court in Arkansas. Vanderbilt and CMH Homes (together, “the companies”)
1
The Honorable Stephanie M. Rose, United States District Judge for the
Southern District of Iowa, sitting by designation.
filed a petition in the United States District Court for the Western District of
Arkansas, alleging that the Goodners’ claims are subject to mandatory arbitration.
The Goodners moved to dismiss the petition, arguing that the federal court lacked
subject matter jurisdiction. The district court dismissed the petition. We vacate the
district court’s judgment and remand for further proceedings.
I.
In September 2007, the Goodners purchased a manufactured home from CMH
Homes at a total cost of $101,867.92. Vanderbilt provided financing for the
purchase. Some time after the purchase, the Goodners joined a class action lawsuit
filed against Clayton Homes and CMH Homes in the Circuit Court of Miller County,
Arkansas, on behalf of approximately 120,000 nationwide buyers of manufactured
homes (the “Meredith suit”). See Compl., Meredith v. Clayton Homes, Inc., No. CV-
2005-72-2 (Ark. Cir. Ct. Feb. 17, 2005). The plaintiffs in the Meredith suit alleged
that the purchase price of their manufactured homes included the cost of the wheels
and axles used to transport the structures, but that the defendant companies
improperly kept the wheels and axles after delivery and resold them to recycling
facilities.
On May 29, 2009, the state court approved a settlement in the Meredith suit.
Final Order and Judgment Approving Settlement, Meredith v. Clayton Homes, Inc.,
No. CV-2005-72-2 (Ark. Cir. Ct. May 29, 2009). The state court plaintiffs valued the
benefits made available to the class in the Meredith settlement between $77.4 million
and $92.5 million. As part of the settlement, the class members agreed not to bring
any future legal action against the released parties “based on, arising out of, or in any
way relating or pertaining to,” inter alia, claims that “could have been asserted” in
the Meredith class action.
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On November 10, 2011, the Goodners filed a putative class action suit in
Arkansas state court, claiming violations of the Arkansas Deceptive Trade Practices
Act, Ark. Code Ann. § 4-88-101 et seq., and the Arkansas Unfair Practices Act, Ark.
Code Ann. § 4-75-201 et seq., as well as unjust enrichment and constructive fraud.
They alleged that CMH Homes referred buyers of its manufactured housing to
Vanderbilt for financing without disclosing that CMH Homes received a “kickback”
or “commission” from Vanderbilt totaling 4% of CMH Homes’s gross profits on each
home sale. The complaint disclaimed punitive damages, and the Goodners each
signed sworn affidavits stipulating that they did not seek more than $75,000 in
damages individually or on behalf of any class member, and not more than
$4,999,999 for the class, including attorney’s fees, costs, and treble damages, as
provided by statute. See Ark. Code Ann. §§ 4-75-211(b)(3), 4-88-113(f).
Clayton Homes, CMH Homes, and Vanderbilt removed the Goodners’ suit to
federal court pursuant to the Class Action Fairness Act, 28 U.S.C. § 1332(d), and
federal question jurisdiction. 28 U.S.C. § 1331. Vanderbilt and CMH Homes also
petitioned the district court to compel arbitration, pointing to an arbitration clause in
the parties’ home-purchase contract. The Goodners moved to remand the state court
suit and to dismiss the arbitration petition for lack of subject matter jurisdiction. The
district court granted the Goodners’ motion to remand and dismissed the petition to
compel arbitration, concluding that federal question jurisdiction did not exist and that
the amount in controversy was capped short of the required minimum amount in
controversy for diversity jurisdiction over the underlying action. See 9 U.S.C. § 4;
28 U.S.C. §§ 1331, 1332. This appeal concerns only the district court’s ruling on the
arbitration petition.
The district court determined the amount in controversy by applying the
analysis set forth in Vaden v. Discover Bank, 556 U.S. 49 (2009), where the Supreme
Court directed federal courts to “look through” an arbitration petition “to the parties’
underlying substantive controversy” to determine whether federal jurisdiction is
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present. Id. at 62. The district court acknowledged that Vaden had addressed federal
question jurisdiction, not diversity jurisdiction, but decided that the Vaden approach
was nonetheless “the right one to use” to evaluate the amount in controversy. CMH
Homes, Inc. v. Goodner, No. 6:12-cv-06007, 2012 WL 3961718, at *3 (W.D. Ark.
Sept. 10, 2012). Examining “the whole controversy as framed by the parties” in the
state court action, Vaden, 556 U.S. at 67, the district court concluded that it lacked
jurisdiction, incorporating its decision in the Goodner removal case. There, the court
had decided that the Goodners’ stipulations limited their recovery in the state court
action to not more than $75,000 on behalf of any class member and not more than $5
million for the whole class. See 28 U.S.C. § 1332(a), (d). The court also determined
that the case did not present a federal question, because the companies raised federal
law only in defense against the Goodners’ state law claims. CMH Homes, 2012 WL
3961718, at *2; see also Goodner v. Clayton Homes, Inc., No. 4:12-cv-04001, 2012
WL 3961306, at *7-8 (W.D. Ark. Sept. 10, 2012). The court therefore dismissed the
petition for lack of subject matter jurisdiction. CMH Homes, 2012 WL 3961718, at
*5.
On appeal, Vanderbilt and CMH Homes argue that the district court erred by
concluding that it lacked diversity jurisdiction. Rather than apply Vaden, the
companies urge, the district court should have followed this court’s pre-Vaden
decision in Advance America Servicing of Arkansas, Inc. v. McGinnis, 526 F.3d 1170
(8th Cir. 2008), a diversity case, and determined the amount in controversy by
evaluating “the value at stake in the arbitration.” Id. at 1174. The companies contend
that it is legally possible that the value at stake in the arbitration will exceed $75,000.
The Goodners respond that the district court correctly concluded that Vaden required
it to determine the amount in controversy by looking through to the underlying state
court action. 556 U.S. at 66.
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II.
The Federal Arbitration Act provides that a party aggrieved by the failure of
another party to arbitrate under a written agreement may petition for an order
compelling arbitration. 9 U.S.C. § 4. A district court may consider the petition if,
“save for” the arbitration agreement, it would have jurisdiction under Title 28 in a
civil action “of the subject matter of a suit arising out of the controversy between the
parties.” Id. The Act itself confers no federal jurisdiction, but instead requires “an
independent jurisdictional basis.” Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576,
581-82 (2008). Federal diversity jurisdiction, the source of jurisdiction that the
companies assert here, requires diversity of citizenship and an adequate sum or value
in controversy. 28 U.S.C. § 1332(a).
In Advance America, this court considered whether a § 4 petitioner seeking to
compel arbitration of claims asserted in a putative state court class action had
demonstrated an adequate amount in controversy. 526 F.3d at 1172. To determine
the amount in controversy, the court reasoned that “the object of the action before the
court” was to compel arbitration of an underlying dispute between the parties, and
that the object of the federal litigation was thus “the value at stake in the arbitration.”
Id. at 1173-74. We agreed with the district court that it lacked jurisdiction, because
the value of the disputed transactions at issue in arbitration was less than $1,000. Id.
at 1176.
In Vaden, the Supreme Court considered whether a district court has
jurisdiction over a § 4 arbitration petition when the state court plaintiff’s complaint
raises only issues of state law, but an “actual or potential counterclaim” in the state
court suit presents a federal question. 556 U.S. at 53. The Court acknowledged the
view of most courts of appeals that the “controversy between the parties,” for
purposes of § 4, was “only the parties’ discrete dispute over the arbitrability of their
claims.” Id. at 63. But the Court thought this position was “difficult to square with
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the statutory language,” id., which directs the district court to determine whether it
would have jurisdiction “save for [the arbitration] agreement,” 9 U.S.C. § 4 (emphasis
added), not on account of the arbitration agreement. Instead, the Court held, § 4
provides for federal jurisdiction “only if, ‘save for’ the agreement, the entire, actual
‘controversy between the parties,’ as they have framed it, could be litigated in federal
court.” 556 U.S. at 66. Therefore, a district court must “look through” the petition
to the parties’ “underlying substantive controversy” to determine whether federal
jurisdiction is present. Id. at 62. Because the substantive controversy in Vaden, in
light of the well-pleaded complaint rule, did not present a federal question, the district
court there lacked jurisdiction.
We think it follows from Vaden that the district court in this case properly
“looked through” to the underlying controversy between the parties to determine the
amount in controversy. Although Vaden considered federal question jurisdiction, its
reasoning applies when a court evaluates whether the minimum amount in
controversy is present for purposes of diversity jurisdiction. Accord Am. Gen. Fin.
Servs. of Ala., Inc. v. Witherspoon, 426 F. App’x 781, 782-83 (11th Cir. 2011) (per
curiam). Section 4 directs a district court to assess whether, absent an arbitration
agreement, it would have jurisdiction under Title 28 over “the controversy” presented
in “a civil action.” This direction does not depend on which section of Title 28 might
be the basis for jurisdiction. If, as the companies contend, federal jurisdiction
depended on the value at stake in the arbitration, then a § 4 petitioner could
“recharacterize an existing controversy, or manufacture a new controversy” to invoke
federal jurisdiction. Vaden, 556 U.S. at 68. Vaden precludes that approach, and
requires us to depart from the reasoning of Advance America. See Young v. Hayes,
218 F.3d 850, 853 (8th Cir. 2000).
The companies maintain that Northport Health Services of Arkansas, LLC v.
Rutherford, 605 F.3d 483 (8th Cir. 2010), already determined that Vaden did not
undermine Advance America. Rutherford, however, involved diversity of citizenship,
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not amount in controversy: the parties to the federal arbitration action were
completely diverse, but the state court action raising the claims allegedly subject to
arbitration included non-diverse parties. Id. at 485-86. Rutherford observed that
Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1
(1983), was “factually on all fours” with pre-Vaden circuit decisions that “were
unanimous in looking only to the citizenship of the parties to the federal action.” 605
F.3d at 489-90. While Moses H. Cone did not discuss jurisdiction, this court treated
Cone as authoritative on the diversity-of-citizenship question and concluded that
Vaden had not implicitly overruled it. Id. at 490-91. At the same time, however,
Rutherford acknowledged that “some type of look through is needed to determine the
amount in controversy for diversity jurisdiction purposes,” and “the look through we
conducted in Advance America is comparable to the look through unsuccessfully
urged by the dissenting Justices in Vaden.” Id. at 489.
There are sound reasons for limiting Rutherford and distinguishing between
diversity of citizenship and amount in controversy when applying § 4. For one thing,
there is no Supreme Court decision like Moses H. Cone that suggests, even implicitly,
that the Court would look only to the amount in controversy in a federal arbitration
action to determine jurisdiction. Moses H. Cone was central to the analysis in
Rutherford; it is inapposite here.
As the Supreme Court has observed, moreover, there is “no inherent logical
connection” between the requirement that parties be diverse and the requirement that
the matter in controversy be valued above the jurisdictional minimum. Exxon Mobile
Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 562 (2005). The diversity-of-
citizenship requirement has a “special nature and purpose,” id. at 566, to provide a
federal forum “for important disputes where state courts might favor, or be perceived
as favoring, home-state litigants.” Id. at 553-54. Rutherford emphasized the
“traditional principle of diversity jurisdiction” that “it cannot be defeated by a non-
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diverse joint tortfeasor who is not a party to the federal action, unless that party is
indispensable under Rule 19.” 605 F.3d at 490-91.
The amount-in-controversy requirement, on the other hand, is designed “to
ensure that a dispute is sufficiently important to warrant federal-court attention.”
Exxon Mobile Corp., 545 U.S. at 562. In that respect, it is comparable to federal
question jurisdiction, 28 U.S.C. § 1331, which exists because the protection of federal
rights and interpretation of federal law are matters that Congress deemed sufficiently
important to warrant federal-court attention. See Boys Mkts, Inc. v. Retail Clerks
Union, Local 770, 398 U.S. 235, 246 n.13 (1970). The federal question statute,
moreover, formerly included an amount-in-controversy requirement that was designed
to reduce congestion and ensure that disputes in federal court were sufficiently
important. See Horton v. Liberty Mut. Ins. Co., 367 U.S. 348, 350-51 (1961). If
Congress were to reinstate that rule in federal question cases, then Vaden dictates that
a federal court considering a § 4 petition would look through to the underlying action
to determine whether it could be litigated in federal court. Nothing in the text of § 4
or the rationale of Vaden suggests that a court should look through differently to
determine whether a case meets the amount threshold for federal jurisdiction under
§ 1332.
Vaden itself suggests this is what the Court had in mind. After explaining that
a district court considering its jurisdiction should “look through” a § 4 petition to the
underlying state-court action, the Court resolved the case by concluding that the
plaintiff’s “complaint in Maryland state court plainly did not ‘arise under’ federal
law, nor did it qualify under any other head of federal-court jurisdiction. See supra,
at [54], and n. 1.” 556 U.S. at 66 (emphasis added). The cross-referenced text and
footnote explained that the plaintiff sought to recover $10,610.74, plus interest and
counsel fees, and thus “apparently had no access to a federal forum for its suit against
Vaden on the basis of diversity-of-citizenship jurisdiction,” because “[u]nder that
head of federal-court jurisdiction, the amount in controversy must ‘excee[d] . . .
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$75,000.’ 28 U.S.C. § 1332(a).” Id. at 54 & n.1. There would have been little reason
for the Court to cite the insufficient amount in controversy from the state-court action
unless that amount—rather than the amount at issue in the § 4 arbitration
action—were the proper focus of a federal court determining its jurisdiction.
For these reasons, we believe the district court correctly reasoned that Vaden
undermines Advance America and requires our departure from that precedent. To
resolve the jurisdictional question in this case, therefore, we consider whether the
amount in controversy between the Goodners and the companies satisfies the
jurisdictional minimum by looking through to “the entire, actual controversy between
the parties, as they have framed it.” Vaden, 556 U.S. at 66 (internal quotation
omitted).
III.
Following the Vaden approach, the district court looked through the arbitration
petition to the state court complaint to determine the amount in controversy. The
court cited its order granting the Goodners’ motion to remand the removed class
action suit to state court, and ruled that for the same reasons, the court lacked
jurisdiction over the § 4 petition. In the remand order, the district court had
concluded that the Goodners’ stipulations that they sought no more than $75,000
individually and no more than $4,999,999 for the entire class were “sufficiently
binding to keep this case out of federal court.” Goodner, 2012 WL 3961306, at *7.
On that basis, the court determined that it would not, “save for” the arbitration
agreement, have jurisdiction over “a suit arising out of the controversy between the
parties,” 9 U.S.C. § 4, and it dismissed the petition.
In this appeal, the Goodners presume without explanation that a court applying
Vaden would look through only to their individual claims in the state court complaint.
The companies seek to arbitrate only the individual claims, but the point of
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Vaden—which the Goodners urge us to apply—is that the court should not focus
merely on the claims at issue in arbitration, but rather on the “full-bodied
controversy,” 556 U.S. at 68 n.16, even if the claims at issue in arbitration by
themselves might otherwise be adjudicated in state court. Id. at 69 n.18. The entire,
actual controversy between the Goodners and the companies, as they have framed it,
is the Goodners’ putative class action lawsuit in Arkansas state court. Although the
unnamed members of the uncertified class are not parties to the state court action, see
Smith v. Bayer Corp., 131 S. Ct. 2368, 2379 (2011), the putative class action is a
controversy, and the parties to that controversy are the Goodners and the state-court
defendants. See 28 U.S.C. § 1332(d). The district court correctly looked through to
the class action.
The case nonetheless must be remanded for the district court to calculate an
amount in controversy and to determine on that basis whether it has jurisdiction over
the putative class action under 28 U.S.C. § 1332(d)(2). The district court, applying
this court’s decision in Rolwing v. Nestle Holdings, Inc., 666 F.3d 1069, 1073-74 (8th
Cir. 2012), thought the stipulation of the plaintiffs was sufficient to establish that the
amount in controversy did not exceed $5,000,000. But the Supreme Court later made
clear that Rolwing was wrong, because “a plaintiff who files a proposed class action
cannot legally bind members of the proposed class before the class is certified.”
Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345, 1349 (2013). The Goodners’
stipulations, therefore, could not “reduce[] the value of the putative class members’
claims.” Id. Whether the amount in controversy in the putative class action exceeds
the jurisdictional minimum is a fact-intensive question that the district court is better
equipped to address in the first instance. See Bell v. Hershey Co., 557 F.3d 953, 959
(8th Cir. 2009).
The district court also determined that the Goodners’ stipulations established
that the amount in controversy on their individual claims did not exceed the
jurisdictional minimum. The companies argue, among other things, that the
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Goodners’ separate individual stipulations not to seek more than $75,000 must be
aggregated, because they seek together “to enforce a single title or right, in which
they have a common and undivided interest,” and do not assert individual claims
based on “separate and distinct” contracts. The Goodners contend that reliance on
the stipulations is unnecessary in any event, because the amount in controversy on
their individual claims is at most $3,000 plus a reasonable attorney’s fee. We leave
to the district court in the first instance whether to calculate the amount in
controversy on the individual claims, aside from the stipulations, along with the
amount in controversy for the putative class action.
* * *
The judgment of the district court is vacated, and the case is remanded for
further proceedings.
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