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Northpoint Health Services of Arkansas, LLC v. Wayne Rutherford & Tresa Robinson, Nos. 09-2433 & 09-2435.

Wayne Rutherford and Tresa Robinson, as representatives of Isaac Rutherford and Donna Faye Snow, respectively, brought separate state actions against nursing home facilities in Fayetteville and Springdale, Arkansas, that were operated by Northpoint Health Services of Arkansas, LLC (“Northpoint”) and the nursing home administrators. Prior to being admitted to the Northpoint nursing homes, Rutherford and Snow signed Admission Agreements that provided that (1) all disputes must be resolved by binding arbitration and (2) the agreement to arbitrate was governed by the Federal Arbitration Act (“FAA”).

Northpoint then filed federal actions to compel arbitration under §4 of the FAA and alleged that the parties had diversity jurisdiction. Northpoint did not include the nursing home administrators in their petitions. Rutherford and Robinson did not contest the allegations regarding diversity jurisdiction, and the trial court granted Northpoint’s petitions to compel arbitration. Later, the Supreme Court of the United States held in Vaden v. Discover Bank that, in determining federal question jurisdiction, courts must look at the “underlying substantive controversy.” Relying on Vaden, Rutherford and Robinson moved for the trial court to vacate the orders compelling arbitration because inclusion of the administrators destroyed complete diversity of citizenship of the parties. The trial court granted the motions, concluding that Vaden implicitly overruled prior cases compelling arbitration based on diversity jurisdiction. Northpoint appealed the rulings, and the cases were consolidated on appeal.

The Eighth Circuit Court of Appeals explained that, except to compel arbitration, the FAA grants no court federal jurisdiction. Because of this, most parties seeking to compel arbitration to through a §4 petition, allege an independent basis for federal court jurisdiction—diversity jurisdiction or federal question jurisdiction. Prior to Vaden, all courts adopted the same approach in resolving whether diversity jurisdiction applied. The courts reviewed only the §4 petition to determine if there was complete diversity of citizenship between the parties.

As to federal question jurisdiction, a split in the circuits had developed over whether to “look through” the §4 petition to the underlying case to determine jurisdiction. Vaden adopted the “look through” approach, but limited its holding to federal question jurisdiction cases only.

Because the Vaden court carefully limited its holding to federal question jurisdiction cases, the Northpoint court refused to extend the “look through” approach to diversity jurisdiction cases. Accordingly, the court reversed the orders to vacate the orders compelling arbitration.