United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 09-2433
___________
Northport Health Services of Arkansas, *
LLC, et al., *
*
Plaintiffs - Appellants, *
*
v. *
*
Wayne Rutherford, *
*
Defendant - Appellee. *
___________ Appeals from the United States
District Court for the
No. 09-2435 Western District of Arkansas.
___________
Northport Health Services of Arkansas, *
LLC, et al., *
*
Plaintiffs - Appellants, *
*
v. *
*
Tresa Robinson, *
*
Defendant - Appellee. *
___________
Submitted: January 12, 2010
Filed: May 14, 2010
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Before LOKEN, Chief Judge,* JOHN R. GIBSON and WOLLMAN, Circuit Judges.
___________
LOKEN, Chief Judge.
These are separate actions to compel arbitration of state law tort claims asserted
by Wayne Rutherford and Tresa Robinson, representatives of the estates of Isaac
Rutherford and Donna Faye Snow. The claims arise out of incidents that occurred
after Isaac Rutherford and Snow were admitted to nursing home facilities in
Fayetteville and Springdale, Arkansas, operated by Northport Health Services of
Arkansas, LLC, and two of its affiliates (collectively, “Northport”). Prior to being
admitted to the nursing homes, Isaac Rutherford and Snow signed Admission
Agreements providing that all disputes (broadly defined to include the pending tort
claims) “shall be resolved by binding arbitration,” and that the agreement to arbitrate
“shall be governed by” the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. (the FAA).
The representatives filed actions asserting their tort claims in state court against
Northport plus the administrators of the two nursing homes.1 Northport (but not the
administrators) filed these federal actions to compel arbitration under § 4 of the FAA,
basing federal jurisdiction on diversity of citizenship between the Northport entities,
alleged to be Alabama citizens, and the state court plaintiffs, alleged to be Arkansas
citizens. The representatives did not contest the citizenship allegations, and the
district court granted petitions to compel arbitration. The Supreme Court then held
*
The Honorable James B. Loken stepped down as Chief Judge of the United
States Court of Appeals for the Eighth Circuit at the close of business on March 31,
2010. He has been succeeded by the Honorable William Jay Riley.
1
The first-filed Rutherford action initially named only the Northport entities.
They removed the case to federal court, plaintiff filed an amended complaint adding
the administrator as defendant, which destroyed diversity jurisdiction, and the case
was remanded to state court. The later-filed Robinson action initially joined a non-
diverse administrator and the Northport entities as co-defendants, precluding removal.
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that a federal court entertaining a petition to compel arbitration based upon federal
question jurisdiction “should determine its jurisdiction by ‘looking through’ a § 4
petition to the parties’ underlying substantive controversy.” Vaden v. Discover Bank,
129 S. Ct. 1262, 1273 (2009). Relying on Vaden, the representatives moved to vacate
the orders compelling arbitration, arguing that a federal court does not have diversity
jurisdiction over a § 4 petition to compel arbitration of claims that are part of a
pending state court action that includes one or more non-diverse parties not named in
the § 4 petition.
The district court granted the motions to vacate, concluding that, while Vaden
addressed only federal question jurisdiction, its “look through” analysis implicitly
overruled prior federal cases compelling arbitration based upon diversity of
citizenship. Northport appealed both rulings; we later consolidated the appeals for
submission. Though some of the reasoning in Vaden supports the district court’s
rulings, we are not persuaded that Vaden implicitly overruled the otherwise on-point
decisions in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460
U.S. 1 (1983), and Advance America Servicing of Arkansas v. McGinnis, 526 F.3d
1170 (8th Cir. 2008). Accordingly, we reverse.
I. The Law Pre-Vaden.
First enacted in 1925, the core provision of the FAA provides that a written
agreement requiring arbitration of controversies arising out of “a contract evidencing
a transaction involving commerce . . . shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for the revocation of any contract.”
9 U.S.C. § 2. Section 2 creates “a substantive rule applicable in state as well as
federal courts.” Southland Corp. v. Keating, 465 U.S. 1, 16 (1984). However, section
4 contains only a limited grant of federal court jurisdiction, permitting a party to seek
an order compelling arbitration in “any United States district court which, save for
[the arbitration] agreement, would have jurisdiction under Title 28 . . . of the subject
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matter of a suit arising out of the controversy between the parties.” 9 U.S.C. § 4.
Thus, the FAA “bestow[s] no federal jurisdiction but rather requir[es] an independent
jurisdictional basis.” Hall St. Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396, 1402
(2008), citing Moses H. Cone, 460 U.S. at 25 n.32. In nearly all cases, a party filing
a § 4 petition to compel arbitration will allege as an independent basis of federal
jurisdiction either a federal question under 28 U.S.C. § 1331, or diversity of
citizenship under 28 U.S.C. § 1332(a).
A. Diversity Cases. Diversity jurisdiction turns on two issues, is there
complete diversity of citizenship between the parties, and does the amount in
controversy exceed $75,000. See, e.g., Advance America, 526 F.3d at 1172. Prior to
Vaden, all courts of appeals adopted the same approach in resolving § 4 diversity
jurisdiction disputes. They determined the first issue, whether there is diversity of
citizenship, by looking only to the parties in the federal action to compel arbitration,
whether or not the claim(s) to be arbitrated were part of a parallel state court action
that included other, non-diverse parties, unless a non-diverse party would be necessary
and indispensable to the federal action under Rule 19 of the Federal Rules of Civil
Procedure.1 As the leading case addressing this issue explained, “As with any federal
action, diversity of citizenship is determined by reference to the parties named in the
proceeding before the district court, as well as any indispensable parties who must be
joined pursuant to Rule 19.” Distajo, 66 F.3d at 445.
1
See Am. Gen. Life & Acc. Ins. Co. v. Wood, 429 F.3d 83, 92-93 (4th Cir.
2005); Circuit City Stores, Inc. v. Najd, 294 F.3d 1104, 1106 (9th Cir. 2002); We Care
Hair Dev., Inc. v. Engen, 180 F.3d 838, 842 (7th Cir. 1999); MS Dealer Serv. Corp.
v. Franklin, 177 F.3d 942, 945-46 (11th Cir. 1999); Doctor’s Assocs., Inc. v.
Hamilton, 150 F.3d 157, 161 (2d Cir. 1998), cert. denied, 525 U.S. 1103 (1999); First
Franklin Fin. Corp. v. McCollum, 144 F.3d 1362, 1364 (11th Cir. 1998); Doctor’s
Assocs., Inc. v. Distajo, 66 F.3d 438, 445-46 (2d Cir. 1995), cert. denied, 517 U.S.
1120 (1996).
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To resolve the second issue, amount in controversy, courts uniformly applied
a limited “look through” approach, determining whether “the value at stake in the
arbitration” being sought in the federal action could exceed $75,000, regardless
whether the claim(s) to be arbitrated were part of a broader parallel state court action
in which the total amount in controversy might be greater. Advance America, 526
F.3d at 1174-75; accord Geographic Expeditions, Inc. v. Lhotka, 599 F.3d 1102,
1106-08 (9th Cir. 2010), a post-Vaden case; We Care Hair, 180 F.3d at 841; Hamilton,
150 F.3d at 160-61.
B. Federal Question Cases. Unlike the uniform approach to § 4 diversity
jurisdiction issues prior to Vaden, a circuit split developed in deciding whether § 4
petitions to compel arbitration were supported by an independent basis of federal
question jurisdiction. The majority of circuits to address the issue held that § 4
“should not be interpreted to mean that a federal court has subject matter jurisdiction
over an action to compel or stay arbitration merely because the underlying claim raises
a federal question.” Westmoreland Capital Corp. v. Findlay, 100 F.3d 263, 268 (2d
Cir. 1996). Thus, in these circuits, unless the federal action to compel arbitration
included an additional claim arising under federal law, § 4 petitioners could not
establish an independent basis of federal question jurisdiction. Two circuits
disagreed, concluding that “§ 4 directs a district court . . . to ‘look through’ the § 4
arbitration petition at the underlying dispute in order to determine whether there was
a federal question.” Cmty. State Bank v. Strong, 485 F.3d 597, 606 (11th Cir. 2007);
accord Discover Bank v. Vaden, 396 F.3d 366, 368-70 (4th Cir. 2005). The Supreme
Court granted certiorari from the Fourth Circuit’s second decision in Vaden to resolve
this circuit conflict.
II. The Decision in Vaden.
Vaden arose when a Discover Bank affiliate sued in state court to recover past-
due charges, the credit card holder asserted state law counterclaims, and Discover
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Bank filed a § 4 petition in federal court to compel arbitration of the counterclaims.
The district court entered an order compelling arbitration, and a divided Fourth Circuit
panel affirmed, adopting the “look through” approach to federal question jurisdiction
and concluding that at least some of the state law counterclaims were completely
preempted by federal law and therefore established a federal question basis for § 4
jurisdiction. Discover Bank v. Vaden, 489 F.3d 594, 597-98 (4th Cir. 2007).
The Supreme Court granted certiorari “in view of the conflict among lower
federal courts on whether district courts . . . may ‘look through’ the petition and
examine the parties’ underlying dispute to determine whether federal question
jurisdiction exists over the § 4 petition.” 129 S. Ct. at 1270. The Court addressed that
issue and an additional question presented by the procedural posture of the case: if
look through is the proper approach to federal question jurisdiction, “may a district
court exercise jurisdiction over a § 4 petition when the petitioner’s complaint [in the
underlying state court action] rests on state law but an actual or potential counterclaim
rests on federal law?” Id. at 1268.
Turning to the first question, the Court concluded that “[t]he text of § 4 drives
our conclusion that a federal court should determine its jurisdiction by ‘looking
through’ a § 4 petition to the parties’ underlying substantive controversy.” Id. at
1273. The phrase “save for [the arbitration] agreement” in § 4 directs the federal
court to “assume the absence of the arbitration agreement and determine whether it
‘would have jurisdiction under title 28’” without it. Id. The reference in § 4 to “the
controversy between the parties” logically means “the substantive conflict between
the parties.” Id., citing Moses H. Cone, 460 U.S. at 25 n.32 (“Section 4 provides for
an order compelling arbitration only when the federal district court would have
jurisdiction over a suit on the underlying dispute; hence, there must be diversity of
citizenship or some other independent basis for federal jurisdiction.”). The Court
noted that the no-look-through approach adopted by most circuits -
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has curious practical consequences. It would permit a federal court to
entertain a § 4 petition only when a federal-question suit is already
before the court, when the parties satisfy the requirements for diversity-
of-citizenship jurisdiction, or when the dispute over arbitrability involves
a maritime contract.
Id. at 1275. The Court was unanimous in adopting the “look through” approach to
federal question jurisdiction. See id. at 1279 (Roberts, C.J., dissenting).
Turning to the second question, the Vaden majority held that a district court has
federal question jurisdiction under § 4 “only if, ‘save for’ the [arbitration] agreement,
the entire, actual ‘controversy between the parties,’ as they have framed it, could be
litigated in federal court.” Id. at 1275. Because the controversy between Discover
Bank and Vaden was “precipitated” by Discover’s state-court claim for the balance
due on Vaden’s account, which did not arise under federal law, and because “a federal
counterclaim, even when compulsory, does not establish [28 U.S.C. § 1331] ‘arising
under’ jurisdiction,”2 the Court held that the district court lacked jurisdiction to
entertain Discover’s § 4 petition to compel arbitration. Four dissenting justices argued
that the “controversy” to which district courts should look under § 4 is “the specific
dispute asserted to be subject to arbitration,” not a broader underlying controversy that
may contain state law claims not subject to arbitration. Vaden, 129 S. Ct. at 1280
(Roberts, C.J., dissenting).
III. Vaden’s Impact on These Cases.
As the district court and the parties acknowledge, Vaden does not directly
control these cases because the Supreme Court carefully defined the issues and limited
its holding to § 4 petitions based upon federal question jurisdiction:
2
Id. at 1272, citing Holmes Group, Inc. v. Vornado Air Circulation Sys., Inc.,
535 U.S. 826 (2002).
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we approve the “look through” approach to this extent: A federal court
may “look through” a § 4 petition to determine whether it is predicated
on an action that “arises under”federal law; in keeping with the well-
pleaded complaint rule . . . however, a federal court may not entertain a
§ 4 petition based on the contents, actual or hypothetical, of a
counterclaim.
129 S. Ct. at 1273. Here, Northport bases its claim of independent federal jurisdiction
on undisputed allegations of diversity of citizenship between the parties to the federal
actions, Northport and the representatives, and the requisite amounts in controversy.
In their motions to vacate the orders compelling arbitration, the representatives
distorted the Supreme Court’s decision in Vaden. First, ignoring the nature of the
circuit conflict at issue, and the Court’s careful statement of its limited holding, the
representatives argued that the Court resolved a broad conflict in the circuits by
adopting the “look through” approach for all § 4 jurisdictional issues, diversity
jurisdiction as well as federal question jurisdiction. Second, they argued that the
Court’s discussion of the second issue in Vaden -- the nature of the “look through” to
be conducted in federal question cases -- must be applied in deciding diversity of
citizenship (and presumably amount in controversy) § 4 jurisdictional disputes.3 The
district court adopted these arguments. Because the “entire actual controversy” in
each case involved the non-diverse nursing home administrators, the court vacated the
orders compelling arbitration, explaining: “Diversity jurisdiction in this Court was
found only because [Northport] broke off a piece of the underlying dispute and sought
3
In rejecting the dissenters’ approach to the federal question look-through the
Court unanimously adopted, the Vaden majority explained: “Artful dodges by a § 4
petitioner should not divert us from recognizing the actual dimensions of [the
controversy between the parties]. The text of § 4 . . . does not give § 4 petitioners
license to recharacterize an existing controversy, or manufacture a new controversy,
in an effort to obtain a federal court’s aid in compelling arbitration.” 129 S. Ct. at
1276. The representatives describe Northport’s failure to join the non-diverse
administrators, who are Northport employees, as this type of “artful dodge.”
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to arbitrate it. While this was within the mainstream of case law before Vaden, it
clearly cannot be done now.”
On appeal, Northport argues that Vaden did not mandate a new analysis for § 4
diversity jurisdiction disputes and therefore our prior decision in Advance America
is controlling. The representatives counter by arguing that, after Vaden, courts must
“look through” to “the whole controversy as framed by the parties” in deciding § 4
diversity jurisdiction disputes. They further argue that this is not contrary to Advance
America, because that case involved only an amount-in-controversy diversity dispute,
and we applied a “look through” approach in resolving that issue. This contention is
without merit. In Advance America we looked through only to “the value at stake in
the arbitration” sought to be compelled, 526 F.3d at 1174, not to “the whole
controversy as framed by the parties” in a parallel state court action. If the nature of
the “look through” is the issue -- and without question some type of look through is
needed to determine the amount in controversy for diversity jurisdiction purposes --
the look through we conducted in Advance America is comparable to the look through
unsuccessfully urged by the dissenting Justices in Vaden.
This case involves diversity of citizenship, not amount in controversy, and on
that issue the pre-Vaden circuit decisions were unanimous in looking only to the
citizenship of the parties to the federal action. Of course, the Supreme Court’s
resolution of a different circuit split in Vaden could implicitly overrule this line of
diversity jurisdiction circuit precedents, even though the Court carefully limited its
decision to federal question jurisdiction issues. Were we to conclude that Vaden has
that impact, then Advance America would not be controlling precedent. “[I]t is well
settled that a panel may depart from circuit precedent based on an intervening opinion
of the Supreme Court that undermines the prior precedent.” Ark. Blue Cross & Blue
Shield v. Little Rock Cardiology Clinic, P.A., 551 F.3d 812, 821 (8th Cir. 2009).
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The fundamental flaw in the representatives’ contention that Vaden implicitly
overruled prior circuit court diversity jurisdiction decisions (favorably cited in
Advance America) is that it ignores the underlying facts and the Supreme Court’s
decision in Moses H. Cone.4 In that case, the Supreme Court stated that the
independent basis of federal jurisdiction was diversity of citizenship. But it did not
discuss that threshold issue, despite noting the presence of a non-diverse party who
made the parallel state court action non-removable. 460 U.S. at 7 & n.4. In deciding
that abstention principles did not require a stay of the federal action, and affirming the
order compelling arbitration, the Court explained, “Although the Hospital will have
to litigate the arbitrability issue in federal rather than state court, that dispute is easily
severable from the merits of the underlying disputes.” Id. at 20-21.
Moses H. Cone is factually on all fours with these cases. Even if no party
challenged diversity jurisdiction, that the Supreme Court did not even discuss the
issue is telling because in other cases it has noted that federal courts are obligated to
consider lack of subject matter jurisdiction sua sponte. Steel Co. v. Citizens for a
Better Environment, 523 U.S. 83, 93-95 (1998), citing Great So. Fire Proof Hotel Co.
v. Jones, 177 U.S. 449, 453 (1900). Thus, the representatives’ contention requires us
to assume both that the Court overlooked a serious diversity jurisdiction issue in
Moses H. Cone and then implicitly overruled Cone’s jurisdictional underpinnings in
Vaden. This is contrary to well-established principles. The Supreme Court “does not
normally overturn, or so dramatically limit, earlier authority sub silentio.” Shalala v.
Ill. Council on Long Term Care, Inc., 529 U.S. 1, 18 (2000).
In addition to a strong reluctance to assume that the Court implicitly overruled
an earlier precedent, we find many clues in the majority opinion in Vaden that it did
not intend to overrule Moses H. Cone sub silentio. The Court cited Moses H. Cone
4
We note that the Second Circuit in Distajo, the leading pre-Vaden diversity
case, cited the Supreme Court’s earlier decision in Moses H. Cone. 66 F.3d at 446.
See also First Franklin, 144 F.3d at 1364.
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approvingly. It carefully limited its statement of the issues and holding to federal
question jurisdiction. It cited the circuit court cases creating the federal question
conflict but did not cite any of the circuit court § 4 diversity cases. This was not likely
inadvertent because the circuit court opinions adopting the look through approach to
federal question issues cited their earlier no-look-through diversity decisions
approvingly.
Moreover, in describing the “curious practical consequences” of the no-look-
through approach to federal question issues, the Court explained that it limited federal
courts to entertaining § 4 petitions “only when a federal-question suit is already before
the court, when the parties satisfy the requirements for diversity-of-citizenship
jurisdiction, or when the dispute over arbitrability involves a maritime contract.” 129
S. Ct. at 1275 (emphasis added). In other words, while the Court adopted the look-
through approach to expand the universe of § 4 cases in which there will be an
independent basis of federal question jurisdiction to be more compatible with diversity
jurisdiction cases (i.e., Moses H. Cone), the representatives urge us to read Vaden as
severely contracting pre-existing § 4 diversity jurisdiction. Finally, we think it
significant that Vaden relied on traditional principles of federal question jurisdiction,
such as the well-pleaded complaint rule, in fashioning its look-through approach. A
traditional principle of diversity jurisdiction is that it cannot be defeated by a non-
diverse joint tortfeasor who is not a party to the federal action, unless that party is
indispensable under Rule 19. Temple v. Synthes Corp., 498 U.S. 5, 7 (1990).
For all these reasons, we decline to conclude that Moses H. Cone was implicitly
overruled sub silentio in Vaden. Therefore, Moses H. Cone continues to be precedent
that resolves these appeals. As the Supreme Court has frequently instructed, “If a
precedent of this Court has direct application in a case, yet appears to rest on reasons
rejected in some other line of decisions, the Court of Appeals should follow the case
which directly controls, leaving to this Court the prerogative of overruling its own
decisions.” Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 484
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(1989), quoted in Agostini v. Felton, 521 U.S. 203, 237 (1997). Likewise, Vaden did
not implicitly overrule our decision in Advance America and the pre-Vaden § 4
diversity jurisdiction decisions from other circuits. Accord L.A. Fitness Int’l LLC v.
Harding, 2009 WL 3676272, at *2-3 (W.D. Wash., Nov. 2, 2009). Therefore, we
conclude that diversity of citizenship is determined in these cases by the citizenship
of the parties named in the proceedings before the district court, plus any
indispensable parties who must be joined pursuant to Rule 19.5
IV. An Indispensable Party Issue.
Alternatively, the representatives argue that the district court’s orders should
be affirmed applying pre-Vaden § 4 diversity case law because the non-diverse
nursing home administrators are necessary parties under Rule 19(a)(1) who cannot be
joined without destroying diversity jurisdiction, requiring dismissal of the actions
under Rule 19(b). The district court rejected this argument in denying Rutherford’s
motion to dismiss at an early stage of that lawsuit. The argument is inconsistent with
the Supreme Court’s decision that Rule 19 did not change the long-standing rule “that
it is not necessary for all joint tortfeasors to be named as defendants in a single
lawsuit.” Temple, 498 U.S. at 7. In the arbitration context, to our knowledge every
circuit to consider the issue has concluded that a party joined in a parallel state court
contract or tort action who would destroy diversity jurisdiction is not an indispensable
party under Rule 19 in a federal action to compel arbitration. See Brown v. Pac. Life
5
Because we decide the appeals on this basis, we need not consider Northport’s
alternative argument that Robinson’s motion to dismiss for lack of subject-matter
jurisdiction was untimely because the district court order compelling arbitration was
final and appealable. See generally 9 U.S.C. § 16(b)(2) (appeals may not be taken
from interlocutory orders “directing arbitration to proceed under section 4”); Smart
v. Sunshine Potato Flakes, L.L.C., 307 F.3d 684, 685 (8th Cir. 2002); Grupo Dataflux
v. Atlas Global Group, L.P., 541 U.S. 567, 571 (2004) (challenges to subject-matter
jurisdiction may be raised any time prior to final judgment).
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Ins. Co., 462 F.3d 384, 393-94 (5th Cir. 2006); Am. Gen. Life, 429 F.3d at 92-93;
Painewebber, Inc. v. Cohen, 276 F.3d 197, 202-06 (6th Cir. 2001); MS Dealer Serv.
Corp., 177 F.3d at 946; Distajo, 66 F.3d at 446; Bio-Analytical Servs., Inc. v.
Edgewater Hosp., Inc. 565 F.2d 450, 453 & n.3 (7th Cir. 1977). We agree with these
decisions. We find the contrary ruling in Cytec Industries, Inc. v. Powell, 630 F.
Supp. 2d 680, 686-87 & n.2 (N.D.W. Va. 2009), unpersuasive.
The orders of the district court dismissing these cases for lack of subject matter
jurisdiction are reversed, and the cases are remanded with directions to re-enter the
prior orders compelling arbitration.
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