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The Eleventh Circuit Court of Appeals held that a federal district court had subject matter jurisdiction over a petition to compel arbitration because even though the claimant deliberately excluded federal claims from his state court lawsuit, the underlying allegations could have served as the basis for a federal RICO action.
In Community State Bank v. Strong, No. 04-02608-CV-WSD-1, 2007 WL 1225343 (11th Cir. Apr. 27, 2007), Strong sued Georgia Cash America and its affiliates (collectively, Cash America) in state court, alleging that Cash America had extended him a "payday" loan at terms that were usurious under Georgia law.
Cash America subsequently filed a declaratory judgment action in federal court, seeking a declaration that the dispute was subject to arbitration in accordance with the loan agreement. The district court dismissed the declaratory judgment action for lack of subject matter jurisdiction.
The Federal Arbitration Act (FAA) is not an independent source of federal jurisdiction, so on appeal, the question presented was whether the declaratory judgment action gave rise to a federal question, thus conferring subject matter jurisdiction on the federal courts.
The Court resolved this question by reference to Tamiami Partners Ltd. ex. rel. Ramiami Development Corp. v. Miccosukee Tribe of Indians of Florida, 177 F.3d 1212 (11th Cir. 1999), in which the Eleventh Circuit established its test for determining federal question jurisdiction over a petition to compel arbitration. Under Tamiami Partners, a federal district court has subject matter jurisdiction over a petition to compel arbitration if the underlying dispute presents a federal question.
In applying this test, the Court looked to the declaratory judgment action rather than the state court proceeding that prompted it. The Court concluded that the declaratory judgment action presented a federal question because Strong, who alleged a violation of Georgia's RICO statute in the state court proceeding, could have relied on the same allegations as the basis for a claim under the federal RICO statute.
The Court was unpersuaded by Strong's argument that he disavowed any claim under the federal RICO statute by excluding it from his lawsuit against Cash America. In rejecting that argument, the Court explained: "That Strong chose not to bring a federal RICO action, however, does not mean that he 'could' not have done so."
Having determined that there was federal jurisdiction, the Court remanded the case for further proceedings.
Though the Court's decision was unanimous, one of the judges wrote a concurring opinion arguing that Tamiami Partners was ripe for en banc review by the Eleventh Circuit or certiorari review by the Supreme Court. As this judge noted, Tamiami Partners puts the Eleventh Circuit "squarely at odds with a least four of [its] sister circuits, and aligns [it] with just one other circuit."
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