What is the “controversy between the parties”?

“Federal courts can enforce an arbitration agreement only if they could hear the underlying ‘controversy between the parties.’ 9 U.S.C. § 4. In Vaden v. Discover Bank, 556 U.S. 49 (2009), the court told us to define that ‘controversy’ by looking to the whole dispute, including any state-court pleadings.” ADT, LLC v. Richmond, No. 21-10023 (Nov. 10, 2021).

ADT presented the question whether that technique for definition also applies to the parties in the case–a material issue in that case, because federal diversity jurisdiction over the arbitration suit depended on how the court treated nondiverse parties in the underlying state-court lawsuit.

The Fifth Circuit concluded that Vaden did not apply,, based on the plain language of section 4: “Having agreed to arbitrate its claims against a diverse defendant, a plaintiff may not escape our power by joining to its state-court suit nondiverse persons whom it could not hale into arbitration. ‘Parties,’ in § 4, means the parties to the § 4 suit–not everyone against whom one party claims relief.” (emphasis added).

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