Fifth Circuit Rules on Jurisdiction for a Petition to Compel Arbitration

The United States Court of Appeals for the Fifth Circuit held that a district court lacked subject matter jurisdiction to hear a petition to compel arbitration pursuant to Section 4 of the Federal Arbitration Act (“FAA”).

In Volvo Trucks N. America, Inc. v. Crescent Ford Truck Sales, Inc. No. 09-30782, (5th Cir. Jan. 5, 2012) Crescent Ford Truck Sales, Inc. (“Crescent”) operated a Volvo dealership pursuant to a Dealer Sales and Services Agreement (“Dealer Agreement”) with Volvo Trucks North America, Inc. (“Volvo”).

When Volvo decided not to renew its Dealer Agreement with Crescent, Crescent initiated a state agency petition to prevent non-renewal under state law. Volvo sought to compel arbitration according to the terms of the Dealer Agreement and Crescent argued that the federal district court lacked jurisdiction over the state-law dispute. The district court found an independent basis for federal jurisdiction on one of Volvo’s claim that questioned whether the arbitration agreement was enforceable. Crescent appealed.

The Fifth Circuit stated that Vaden required a “look through” approach to determine whether a Section 4 petition is predicated on an action arising under federal law. See Vaden v. Discover Bank, 556 U.S. 49, 129 S. Ct. 1262 (2009). Applying Vaden, the Fifth Circuit assumed the absence of the arbitration agreement and then determined whether jurisdiction exists under Title 28. The Fifth Circuit concluded that the district court lacked subject matter jurisdiction to hear Volvo’s petition to compel arbitration pursuant to Section 4 of the FAA.

Accordingly, the Fifth Circuit vacated and remanded with instructions to dismiss the case based on a lack of subject matter jurisdiction.

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