Virginia Lawyers Weekly VA Lawyers Weekly
Defendants who asked the court to dismiss the case against them for lack of subject-matter jurisdiction had no basis to appeal the court’s denial without prejudice. The court had denied the motion on procedural grounds and ordered jurisdictional discovery to determine whether it had authority to consider substantive issues.
Background
This matter is before the court on the Defendants’ notices of appeal. The Defendants operate internet lending websites offering short-term loans to consumers. The Plaintiffs allege that the Defendants offered them loans with interest rates ranging from 118 percent to 448 percent, in violation of state and federal lending laws. The Plaintiffs also allege that the Defendants structured their businesses to benefit from the protections of tribal sovereign immunity even though they don’t constitute tribal entities.
The Defendants moved to dismiss based on their sovereign immunity or, in the alternative, to compel arbitration. The court dismissed the Defendants’ motion to dismiss without prejudice, concluding it could not establish jurisdiction on the existing record, and granted the Plaintiffs’ motion to permit jurisdictional discovery as to the Defendants’ sovereign immunity. The Defendants noticed interlocutory appeals of the court’s denial of their motions.
Frivolous appeals
Until the court resolves whether it has jurisdiction, the Defendants cannot invoke 9 U.S.C. § 16 to appeal the court’s denial of their motions to compel arbitration. Their arguments to the contrary are wholly without merit.
The plain language of § 16 and § 4 precludes the appeals. A district court cannot compel arbitration if, absent the parties’ agreement, the court would lack subject-matter jurisdiction over the underlying controversy. This court cannot take action on the merits of any pending motions if it lacks subject-matter jurisdiction. It can only deny a motion to compel arbitration based on lack of jurisdiction.
Because the court’s previous order allowing jurisdictional discovery did not invoke its subject-matter jurisdiction by analyzing any issue on the merits, it could not have denied a petition under § 4 to bring this appeal within the scope of § 16. The court did not and could not reach the merits of the motions to compel arbitration without evaluating the Defendants’ sovereign-immunity arguments.
Defendant Plain Green relies on Vaden v. Discover Bank, 556 U.S. 49 (2009), for an inapposite proposition: that a defense or counterclaim cannot strip a district court of jurisdiction. Vaden instructs that § 4 “does not invite federal courts to dream up counterfactuals when actual litigation has defined the parties’ controversy.”
But Plain Green asks the court to do just that. It invites the court to consider the complaint and procedural posture of the case only at the time of filing, disregarding case developments since. Plain Green attempts to have it both ways, arguing that the court lacks subject-matter jurisdiction over the controversy as a whole but somehow retains subject-matter jurisdiction for the limited purpose of compelling arbitration under § 4. This position runs contrary to Vaden and to common sense.
After appropriate discovery, the parties will brief whether the court has subject-matter jurisdiction. The court has not determined whether it does, which renders § 16 inapplicable.
Appeals certified as frivolous. The parties are ordered to proceed with jurisdictional discovery.
Gibbs v. Plain Green LLC, Case No. 3:17cv495, Aug. 31, 2018. EDVA at Richmond (Lauck). VLW No. 018-3-365, 12 pp.
