En banc/cert issue alert

On Friday, the Eleventh Circuit issued a lengthy opinion about federal courts' jurisdiction to decide a petition for arbitration under the Federal Arbitration Act ("FAA"), and an even longer special concurrence by Judge Marcus discussing why the issue should be reviewed by the Eleventh Circuit en banc, or by the Supreme Court. The description that follows is lengthy, but the case contains some interesting and important issues.

The case, Community State Bank v. Strong, arises out of a Georgia payday loan class action against Georgia Cash America and affiliates.

Georgia sets interest rates above which loans are considered usurious. Payday loan companies get around this by partnering with banks based in states (such as South Dakota) that do not cap interest rates, pursuant to federal banking law that allows banks to charge the rate of interest in their home states, regardless of usury laws in the state in which the loan is made. Here, the partner was South Dakota-based Community State Bank, and the effective rate of interest was 252.692%. The loan agreement disclosed the amount of interest, the fact that Community State Bank was the lender but was not "affiliated" with Cash America, and it contained an arbitration clause that specifically referenced the FAA (based on interstate commerce).

Plaintiff Strong took out a loan from Georgia Cash America, signed the agreement, and then brought a class action (including Georgia RICO claims based on usury) against Cash America -- but not Community State Bank -- alleging that listing Community State Bank as the "lender" was a sham, and Georgia Cash America (a Georgia corporation) was the real lender. He specifically disclaimed any basis for federal jurisdiction, including any federal question, and disclaimed seeking any recovery in excess of $75,000. Nevertheless, Cash America both removed to federal court (on the ground that the federal banking laws completely preempted the action, and also filed (along with Community State Bank) a separate federal-court petition to compel arbitration under the FAA both based on preemption and on the ground that in light of the Georgia RICO claims, Cash America also could potentially be subject to a federal RICO claim. The district court remanded both actions on the ground that the banking law did not preempt the action, and Strong had expressly disclaimed federal claims.

Under Tamiami Partners Ltd ex rel. Tamiami Development Corp. v. Miccosukee Tribe of Indians [Tamiami III], 177 F.3d 1212 (11th Cir. 1999), the district court is required to "look through" the petition to compel arbitration to determine whether the underlying dispute contains a federal question.  The Eleventh Circuit thus agreed with the district court's analyzing the underlying dispute to see whether it contained federal questions, but it disagreed with the district court's conclusion.  Rather, because the Eleventh Circuit stated that Georgia RICO is "essentially the same" as federal RICO (editors' note: it is actually broader than federal RICO, but it may not make a difference for the purposes of this case), it found that Strong could add a federal RICO claim. Even though Strong disclaimed any federal causes of action, he did so as a matter of strategy, and it was still true that he could add a federal RICO claim. Thus, even though there was not jurisdiction over Strong's complaint, there was jurisdiction over the declaratory judgment action underlying the petition to compel arbitration.

Judge Marcus specially concurred because he believed that the Tamiami III case, as prior panel precedent, required the panel to follow the "look through" approach. However, he added that this issue should be decided by the Court en banc or by the Supreme Court. He noted that only one other circuit took the same approach, while four others require that the petition to compel arbitration itself demonstrate the basis for federal jurisdiction (e.g., diversity, admiralty, or otherwise -- the FAA does not itself provide the basis for federal jurisdiction). Judge Marcus further observed that this is consistent with arbitration policy generally (to avoid having federal courts analyze the merits of the case when it is subject to arbitration), as well as other jurisdictional doctrines such as the well-pleaded complaint rule.

Visiting Judge Jordan, from S.D. Fla. joined Judge Marcus's concurrence; Judge Carnes did not.