Case: 09-30782 Document: 00511716246 Page: 1 Date Filed: 01/05/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 5, 2012
No. 09-30782 Lyle W. Cayce
Clerk
VOLVO TRUCKS NORTH AMERICA, INC.,
Plaintiff–Appellee,
v.
CRESCENT FORD TRUCK SALES, INC.,
Defendant–Appellant.
Appeal from the United States District Court
for the Eastern District of Louisiana
Before REAVLEY, PRADO, and OWEN, Circuit Judges.
PRISCILLA R. OWEN, Circuit Judge:
Crescent Ford Truck Sales, Inc. (Crescent) appeals the district court’s
grant of summary judgment in favor of Volvo Trucks North America, Inc.
(Volvo). The district court held that the contract between Crescent and Volvo
compelled the parties to arbitrate their dispute. Because we conclude that the
district court lacked subject matter jurisdiction, we vacate and remand to the
district court with instructions to dismiss.
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I
Crescent operated a Volvo dealership in Louisiana pursuant to a Dealer
Sales and Services Agreement (Dealer Agreement) with Volvo. The Dealer
Agreement provided the following regarding dispute resolution procedures: “The
parties shall promptly seek, in good faith and in a spirit of cooperation, a rapid
and equitable solution to any dispute, controversy, or claim between them
arising out of, relating to, or concerning this Agreement.” Additionally, the
Dealer Agreement provided: “If the dispute has not been resolved by
Negotiation . . . the matter shall be submitted to the American Arbitration
Association . . . for mediation . . . .” Finally: “If Negotiation followed by
mediation . . . fails to reach an equitable solution to the dispute . . . , then such
dispute, controversy, or claim may be settled by final and binding arbitration
administered by the AAA . . . . Once initiated, all parties shall cooperate with
[the] AAA and each other to reach the final decision.”
Near the end of the five-year term of the Dealer Agreement, Volvo issued
a notice of non-renewal to Crescent. In response, Crescent filed a verified
emergency petition with the Louisiana Motor Vehicle Commission (LMVC) in an
attempt to prevent Volvo from terminating the Dealer Agreement. The basis for
the petition was that Volvo had failed to properly allege just cause for
termination as required under Louisiana state law governing the distribution
and sale of motor vehicles.1 The LMVC issued an interlocutory cease and
desist order against Volvo, “maintaining the status quo between [Crescent] and
[Volvo] and preventing the non-renewal or expiration of the . . . Dealer Sales and
Service Agreement . . . pending further proceedings before the [commission].”
The order also prohibited Volvo from “canceling, non-renewing or permitting the
expiration of” the Dealer Agreement pending further orders of the commission.
1
See LA. REV. STAT. ANN. §§ 32:125-:1269.
2
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Finally, the order set a hearing date for the determination of whether a
permanent cease and desist order should be issued against Volvo and whether
the Dealer Agreement should be renewed for an additional full franchise term
of five years.
The parties proceeded to mediation as provided in the Dealer Agreement.
Volvo subsequently filed a motion before the LMVC to compel binding
arbitration, and the LMVC denied the motion. Volvo then filed a petition for
review of the LMVC’s decision denying arbitration with the 24th Judicial
District Court for the Parish of Jefferson, and the LMVC stayed the Dealer
Agreement termination proceeding pending the outcome of Volvo’s petition for
review.
Volvo subsequently filed a complaint in the United States District Court
for the Eastern District of Louisiana seeking an order compelling binding
arbitration between the parties and an order enjoining Crescent and the LMVC
from setting the state case for trial on the merits prior to a final decision in the
district court regarding the right to arbitration. Volvo’s petition to compel
arbitration was based on § 4 of the Federal Arbitration Act (FAA).2 Volvo also
sought a declaratory judgment that various provisions of the Automobile
Dealer’s Day in Court Act (ADDCA)3 were applicable to the rights of the parties
with respect to the contract.
Crescent filed a motion to dismiss, which was granted in part and denied
in part. In ruling on Crescent’s motion to dismiss, the district court addressed
Volvo’s alleged bases for subject matter jurisdiction. The court correctly
concluded that it lacked diversity jurisdiction because both Crescent and Volvo
are Delaware corporations. Relying on this court’s holding in Prudential-Bache
2
9 U.S.C. § 4.
3
15 U.S.C. §§ 1221 et seq.
3
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Securities, Inc. v. Fitch,4 the court rejected Volvo’s claim that there was federal
jurisdiction stemming from the FAA itself. The FAA provides:
A party aggrieved by the alleged failure, neglect, or refusal of
another to arbitrate under a written agreement for arbitration may
petition any United States district court which, save for such
agreement, would have jurisdiction under Title 28, in a civil action
or in admiralty of the subject matter of a suit arising out of the
controversy between the parties, for an order directing that such
arbitration proceed in the manner provided for in such agreement.5
The court noted that Prudential-Bache held “that jurisdiction for a petition to
compel arbitration must be determined from the face of the petition to compel
arbitration itself and not the underlying dispute between the parties,” and the
court read that holding to require the court to “look to the remaining claims in
[the] complaint to determine if there is an independent basis for federal
jurisdiction.” In this case, the remaining claims were the declaratory relief
sought under the ADDCA.6
The court found no independent basis for federal jurisdiction of Volvo’s
claims for declaratory relief under 15 U.S.C. §§ 1221, 1222, and 1225, reasoning
that Volvo was requesting the court to rule on the merits of its contention that
it had acted in “good faith” within the meaning of the ADDCA and had a
legitimate right to terminate the Dealer Agreement. The district court held that
these issues were a matter for the arbitrator to decide and did not concern the
question of whether the arbitration agreement was enforceable. The court did,
however, find an independent basis for federal jurisdiction based upon the relief
sought under 15 U.S.C. § 1226, which states that arbitration may be used to
resolve a controversy arising out of a motor vehicle franchise contract “only if
4
966 F.2d 981 (5th Cir. 1992).
5
9 U.S.C. § 4.
6
15 U.S.C. §§ 1221-1226.
4
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after such controversy arises all parties to such controversy consent in writing
to use arbitration to settle such controversy.”7 Because § 1226 is only applicable
“to contracts entered into, amended, altered, modified, renewed, or extended”
after November 2, 2002,8 the court determined that Volvo was “essentially
seeking a declaration that § 1226 was not applicable to the Dealer Agreement
because the Dealer Agreement was not modified after 2002.” Unlike the
dismissed claims, the court determined that this concerned the enforceability of
the arbitration provision, not the underlying merits, and was thus properly
before the court. The district court reasoned that this claim permitted the
exercise of jurisdiction over the petition to compel arbitration based on
Prudential-Bache because “the face of [the complaint] to compel arbitration
[sought] relief which requires an interpretation of federal law.”
Subsequently, both Crescent and Volvo filed motions for summary
judgment on the arbitration issue. The district court held that the plain
language of the Dealership Agreement compelled the parties to arbitrate their
dispute once either party initiated arbitration and granted summary judgment
in favor of Volvo. The district court denied Crescent’s motion for a new trial, and
Crescent now appeals.
II
Crescent asserts that the district court lacked subject matter jurisdiction
because the underlying dispute arises solely under state law. “Issues of subject
matter jurisdiction are questions of law and are reviewed de novo.”9 A lack of
subject matter jurisdiction may be raised at any time and may be examined for
7
15 U.S.C. § 1226(a)(2).
8
Id. § 1226(b).
9
SmallBizPros, Inc. v. MacDonald, 618 F.3d 458, 461 (5th Cir. 2010).
5
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the first time on appeal.10 The burden of establishing subject matter jurisdiction
rests upon the party asserting jurisdiction.11
In Vaden v. Discover Bank,12 which was decided after the district court’s
ruling on Crescent’s motion to dismiss, the Supreme Court explained the nature
of the FAA:
Congress enacted the FAA “[t]o overcome judicial resistance to
arbitration,” and to declare “‘a national policy favoring arbitration’
of claims that parties contract to settle in that manner.” To that
end, § 2 provides that arbitration agreements in contracts “involving
commerce” are “valid, irrevocable, and enforceable.” Section
4 . . . provides for United States district court enforcement of
arbitration agreements. Petitions to compel arbitration, § 4 states,
may be brought before “any United States district court which, save
for such agreement, would have jurisdiction under title 28 . . . of the
subject matter of a suit arising out of the controversy between the
parties.” . . . “As for jurisdiction over controversies touching
arbitration,” however, the Act is “something of an anomaly” in the
realm of federal legislation: It “bestow[s] no federal jurisdiction but
rather requir[es] [for access to a federal forum] an independent
jurisdictional basis” over the parties’ dispute.13
In Vaden, the Supreme Court addressed the manner in which a district
court is to determine if it has subject matter jurisdiction over a petition to
compel arbitration in accordance with § 4 of the FAA. With regard to the
determination of whether a § 4 petition is predicated on an action arising under
federal law, the Court approved of a “look through” approach,14 which differed
10
McCloy v. Silverthorne (In re McCloy), 296 F.3d 370, 373 (5th Cir. 2002).
11
SmallBizPros, 618 F.3d at 461.
12
556 U.S. 49, 129 S. Ct. 1262 (2009).
13
Id. at 1271 (internal citations omitted) (alterations in original).
14
Id. at 1273.
6
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from the approach adopted in Prudential-Bache.15 “A federal court may ‘look
through’ a § 4 petition and order arbitration if, ‘save for [the arbitration]
agreement,’ the court would have jurisdiction over ‘the [substantive] controversy
between the parties.’”16 “[T]he district court should assume the absence of the
arbitration agreement and determine whether it ‘would have jurisdiction under
title 28’ without it.”17 In doing so, the district court must look to the “actual
‘controversy between the parties,’ as they have framed it.”18 “Whether one might
imagine a federal-question suit involving the parties’ disagreement . . . is beside
the point. 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.”19
The Court emphasized that § 4 must be read “in light of the well-pleaded
complaint rule and the corollary rule that federal jurisdiction cannot be invoked
on the basis of a defense or counterclaim.”20 “Under the longstanding well-
pleaded complaint rule, . . . a suit ‘arises under’ federal law ‘only when the
plaintiff’s statement of his own cause of action shows that it is based upon
[federal law].’”21
Based on the facts in Vaden, the Court held that “the whole ‘controversy
15
See Prudential-Bache Sec., Inc. v. Fitch, 966 F.2d 981, 988 (5th Cir. 1992) (holding
that jurisdiction for a petition to compel arbitration must be determined from the face of the
petition).
16
Vaden, 129 S. Ct. at 1268 (alterations in original).
17
Id. at 1273.
18
Id. at 1275 (emphasis added).
19
Id. at 1276.
20
Id. at 1278.
21
Id. at 1272 (alteration in original) (quoting Louisville & Nashville R.R. Co. v. Mottley,
211 U.S. 149, 152 (1908)).
7
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between the parties’ [did] not qualify for federal-court adjudication.”22 The case
involved a complaint filed in state court, presenting a claim arising solely under
state law, which sought the recovery of past-due charges from a credit card
holder.23 The cardholder answered and counterclaimed, alleging that the bank’s
finance charges, interest, and late fees violated state law.24 The bank, in turn,
filed a petition to compel arbitration under § 4 of the FAA, maintaining that the
district court had subject matter jurisdiction on the grounds that the state-law
counterclaims were preempted by federal banking law.25 The Supreme Court
held “that the Court of Appeals misidentified the dimensions of ‘the controversy
between the parties’” by “seiz[ing] on . . . [the] counterclaims, [holding] them
completely preempted, and on that basis affirm[ing] the District Court’s order
compelling arbitration.”26 According to the Court, “[g]iven [the] entirely state-
based plea and the established rule that federal-court jurisdiction cannot be
invoked on the basis of a defense or counterclaim, the whole ‘controversy
between the parties’ [did] not qualify for federal-court adjudication.”27
Applying the “look through” approach required by Vaden, we hold that the
district court lacked subject matter jurisdiction to hear Volvo’s petition to compel
arbitration pursuant to § 4 of the FAA. In determining whether subject matter
jurisdiction exists to hear a § 4 petition to compel arbitration, we must first
“assume the absence of the arbitration agreement” and then determine if
22
Id. at 1268.
23
Id.
24
Id.
25
Id.
26
Id.
27
Id.
8
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jurisdiction exists under Title 28 without it.28 Removing the arbitration
agreement from the equation, the substantive controversy in this case—as the
parties have framed it—concerns Volvo’s right not to renew Crescent’s Volvo
franchise. Crescent initiated the legal action in this case; following the receipt
of Volvo’s notice of non-renewal, Crescent filed a petition with the LMVC seeking
to prevent the non-renewal based solely on provisions of Louisiana state law. It
was only in response that Volvo sought to compel arbitration by filing a motion
before the LMVC, by seeking review in Louisiana state court of the LMVC’s
denial of that motion, and by seeking to compel arbitration pursuant to § 4 of the
FAA by filing, in federal court, the complaint that underlies this appeal.
The initial petition filed by Crescent with the LMVC is a claim arising
solely under state law. Crescent’s claim was that Volvo violated Louisiana state
law by failing to allege properly just cause for termination of Crescent’s
franchise. No authority exists under Title 28 for a federal court to assert
jurisdiction over this state-law dispute between these non-diverse parties.
Because there is no basis for jurisdiction under Title 28 once we assume the
absence of the arbitration agreement and “look through” to the substantive
controversy as the parties have framed it, there is correspondingly no basis for
a federal court to assert subject matter jurisdiction over the § 4 petition to
compel arbitration.
III
Our holding that the district court lacked subject matter jurisdiction to
hear Volvo’s petition to compel arbitration pursuant to § 4 of the FAA is
unaffected by the fact that Volvo’s complaint before the district court also sought
declaratory relief concerning 15 U.S.C. §§ 1221-1226 because subject matter
jurisdiction was also lacking as to that portion of the complaint. Declaratory
28
See id. at 1273.
9
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relief is available in federal courts pursuant to the Declaratory Judgment Act.29
However, as the Supreme Court explained in Skelly Oil Co. v. Phillips Petroleum
Co.:30
The operation of the Declaratory Judgment Act is procedural only.
Congress enlarged the range of remedies available in the federal
courts but did not extend their jurisdiction. . . . The Declaratory
Judgment Act allowed relief to be given by way of recognizing the
plaintiff’s right even though no immediate enforcement of it was
asked. But the requirements of jurisdiction—the limited subject
matters which alone Congress had authorized the District Courts to
adjudicate—were not impliedly repealed or modified.31
In a declaratory judgment action, the court must determine if there would be
grounds for federal jurisdiction over a hypothetical suit that would have been
brought absent the availability of declaratory relief.32 If the only ground for
federal jurisdiction over such a suit is that the determination of the suit depends
upon some question of a federal nature, “[t]he plaintiff’s claim itself must
present a federal question ‘unaided by anything alleged in anticipation of
avoidance of defenses.’”33 “To sanction suits for declaratory relief as within the
jurisdiction of the District Courts merely because . . . artful pleading anticipates
a defense based on federal law would contravene the whole trend of
jurisdictional legislation by Congress, disregard the effective functioning of the
federal judicial system and distort the limited procedural purpose of the
Declaratory Judgment Act.”34 As the Supreme Court explained thirty-three
29
28 U.S.C. § 2201.
30
339 U.S. 667 (1950).
31
Id. at 671-72 (internal quotation and citation omitted).
32
See id. at 672-74.
33
Id. at 672 (quoting Taylor v. Anderson, 234 U.S. 74, 75-76 (1914)).
34
Id. at 673-74.
10
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years after this decision, “Skelly Oil has come to stand for the proposition that
if, but for the availability of the declaratory judgment procedure, the federal
claim would arise only as a defense to a state created action, jurisdiction is
lacking.”35
In count three of Volvo’s complaint before the district court, Volvo asserted
that it was entitled to a declaratory judgment that the ADDCA applied to the
substantive issues of the case, identifying §§ 1221, 1222, 1225, and 1226. The
district court dismissed the claims invoking §§ 1221, 1222, and 1225 as not being
properly before the court because they pertained to the merits of the underlying
dispute. The district court’s determination that it did not have independent
jurisdiction under §§ 1221, 1222, and 1225 was correct for another reason,
however. Volvo never claimed that it had a cause of action against Crescent
based on the ADDCA. Volvo alleged only that the “good faith” standard in the
ADDCA should be imported into the state law controversy. Indeed, Volvo could
not have brought suit against Crescent directly under the ADDCA regarding the
dispute surrounding the Dealer Agreement. Section 1222 provides that “[a]n
automobile dealer may bring suit against any automobile manufacturer” for “the
failure of said automobile manufacturer . . . to act in good faith in performing or
complying with any of the terms or provisions of the franchise, or in terminating,
canceling, or not renewing the franchise with said dealer.”36 Volvo is not an
automobile dealer within the meaning of the ADDCA. The ADDCA does not
authorize Volvo to initiate an action against Crescent in a situation such as the
one before us. The ADDCA would permit Volvo, as a manufacturer, to “assert[]
in defense of any such action [by an automobile dealer] the failure of the dealer
35
Franchise Tax Bd. of St. of Cal. v. Constr. Laborers Vacation Trust for S. Cal., 463
U.S. 1, 16 (1983) (internal quotation omitted).
36
15 U.S.C. § 1222.
11
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to act in good faith.”37 But Crescent has not brought suit under the ADDCA.
Volvo could not invoke a district court’s jurisdiction under § 1222 by bringing
suit against Crescent.
The district court held that the relief Volvo sought under § 1226 was
properly before it. Section 1226 is a provision regarding the use of arbitration
to resolve motor-vehicle-franchise-contract controversies, which is applicable
only to contracts entered into, amended, modified, renewed, or extended after
November 2, 2002.38 The district court held that, in seeking a declaration that
§ 1226 was not applicable to the Dealer Agreement, Volvo had raised an issue
concerning the enforceability of the arbitration provision, making it a question
of federal law properly before the court.
We disagree with the district court’s determination that Volvo’s request
for a declaratory judgment concerning the applicability of 15 U.S.C. § 1226 was
properly before the court. Here, the applicability of § 1226 arises only as a
defense or in anticipation of a defense. Section 1226 provides that “arbitration
may be used to settle [a controversy arising out of or relating to a motor vehicle
franchise contract] only if after such controversy arises all parties . . . consent
in writing to use arbitration.”39 Volvo sought a declaration from the district
court that § 1226 did not foreclose Volvo’s right to enforce the arbitration
provision of the Dealer Agreement. Crescent had at some point in the various
proceedings asserted that the Dealer Agreement had been amended after
November 2, 2002, and that it had not agreed to arbitrate any dispute after that
date. It therefore argued that § 1226 foreclosed arbitration of disputes under the
Dealer Agreement. Section 1226, itself, is not the actual controversy between
37
Id.
38
15 U.S.C. § 1226.
39
15 U.S.C. § 1226.
12
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the parties. The controversy began when Crescent commenced proceedings
before the LMVC asserting state law claims. The federal court action filed by
Volvo for declaratory relief raised the applicability of the ADDCA as a defense
to state law claims asserted in state administrative proceedings initiated by
Crescent. Volvo then asserted § 1226 in anticipation of Crescent’s argument
that the Dealer Agreement had been amended after November 2, 2002, and that
therefore, Volvo was not entitled to compel arbitration. This is insufficient to
support federal-question jurisdiction, and the district court erred in holding that
Volvo’s request for a declaratory judgment as to the applicability of § 1226 was
properly before the court. Because the district court lacked jurisdiction to
entertain Volvo’s declaratory judgment action, the presence of this action in
Volvo’s complaint before the district court cannot alter our holding above that
there was no subject matter jurisdiction to hear Volvo’s petition to compel
arbitration.
* * *
For the foregoing reasons, the district court’s grant of summary judgment
is VACATED, and we REMAND with instructions to DISMISS the case without
prejudice.
13