Case: 21-10023 Document: 00516088427 Page: 1 Date Filed: 11/10/2021
`
`United States Court of Appeals
`for the Fifth Circuit
`
`
`No. 21-10023
`
`
`
`United States Court of Appeals
`Fifth Circuit
`
`FILED
`November 10, 2021
`
`Lyle W. Cayce
`Clerk
`
`ADT, L.L.C.,
`
`
`
`
`Plaintiff—Appellant,
`
`versus
`
`
`Kamala Richmond; Darryl Richmond,
`Individually and as next friend of D.R., J.R. and E.R., minors,
`
`
`Defendants—Appellees.
`
`
`
`
`Appeal from the United States District Court
`for the Northern District of Texas
`No. 4:20-CV-759
`
`
`
`Before King, Smith, and Haynes, Circuit Judges.
`Jerry E. Smith, Circuit Judge:
`
`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. The question here is whether we must define the “parties” that
`way, too. Because the statute makes clear that we may not, we vacate the
`dismissal and remand.
`
`

`

`Case: 21-10023 Document: 00516088427 Page: 2 Date Filed: 11/10/2021
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`No. 21-10023
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`I.
`Telesforo Aviles worked for ADT, L.L.C., installing security systems
`in customers’ homes. After a decade of service, Aviles began spying on cus-
`tomers using the cameras he had installed.
`
`ADT discovered Aviles’s misconduct, fired him, and reported him to
`the authorities. But by then, Aviles had spied on more than two hundred
`customers, accessing some accounts hundreds of times.
`
`Kamala Richmond and her family are citizens of Texas. They say they
`were among Aviles’s victims. After Aviles’s conduct became known, the
`Richmonds sued Aviles and ADT in Texas state court on sundry state-law
`claims, seeking more than $1 million in damages. But the Richmonds’ con-
`tract with ADT contained an arbitration clause. To enforce that clause, ADT
`brought this federal suit under § 4 of the Federal Arbitration Act. ADT
`premised jurisdiction on the complete diversity between the Richmonds and
`ADT, which is a citizen of Florida and Delaware.
`
`A federal court can hear a suit to compel arbitration only if it could
`hear “a suit arising out of the controversy between the parties.” 9 U.S.C.
`§ 4. To define that “controversy,” a federal court must “look through” the
`§ 4 petition “to the parties’ underlying substantive controversy.” Vaden,
`556 U.S. at 62. If a federal court could hear a suit arising from that “whole
`controversy,” id. at 67, then that court can hear the § 4 suit, id. at 70.
`
`Applying Vaden, the district court looked through ADT’s federal suit
`to the Richmonds’ state-court complaint, which named Aviles and ADT as
`defendants. From that, the court concluded that the “whole controversy”
`included Aviles, ADT, and the Richmonds. But those parties lacked diver-
`sity of citizenship because Aviles, like the Richmonds, is from Texas. See
`28 U.S.C. § 1332(a)(1). On that ground, the court dismissed ADT’s suit for
`want of diversity jurisdiction.
`
`2
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`No. 21-10023
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`ADT asks us to revive its suit. ADT says that Vaden doesn’t extend
`to diversity of citizenship and that every federal circuit to consider the
`question agrees. The Richmonds acknowledge the weight of opposing
`authority but contend that Vaden requires affirmance. Although neither side
`stresses § 4’s text, it resolves this case.
`
`II.
`Vaden tells us to look to the “whole controversy,” not just the petition
`to compel arbitration, to define the controversy over which the petition
`asserts federal jurisdiction. See Vaden, 556 U.S. at 67. The district court went
`a step further: It applied Vaden’s look-through test to define the “parties”
`to that controversy. That was error, so we vacate the dismissal and remand.
`
`A.
`Section 4 is clear: The only controversy that bears on our jurisdiction
`is “the controversy between the parties.” 9 U.S.C. § 4 (emphasis added).
`Those “parties” are only the parties to the suit to compel arbitration.
`
`Section 4 empowers
`[a] party aggrieved by the alleged failure, neglect, or refusal of
`another to arbitrate under a written agreement for arbitration [to]
`petition any United States district court which, save for such
`agreement, would have jurisdiction under title 28, in a civil
`action or in admiralty of the subject matter of a suit arising out
`of the controversy between the parties, for an order directing that
`such arbitration proceed in the manner provided for in such
`agreement.
`Id. (emphasis added). Beyond the quoted excerpt, the word “party” or
`“parties” appears at six other points in § 4.
`
`At all those points, § 4 refers to one or both of two parties. The first
`are those who “fail[ ], neglect, or refus[e] . . . to arbitrate under a written
`agreement for arbitration.” Id. The second are those whom the first aggrieve
`
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`No. 21-10023
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`by not submitting to arbitration. See id. In other words, § 4 uses “parties”
`to mean only the parties to the § 4 suit: those who refuse to abide their
`agreement to arbitrate and those whom they aggrieve by doing so. Non-
`parties to that suit do not matter.
`
`Reading “parties” more broadly would make no textual sense. To
`take one example, if “the making of the agreement for arbitration . . . is not
`in issue,” a court must “order . . . the parties to proceed to arbitration.” Id.
`That provision applies easily to those who have agreed to arbitrate. But how
`could it apply to nonparties? A court can’t compel a party to arbitrate when
`it never agreed to. See Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,
`460 U.S. 1, 19–20 (1983).
`
`Vaden does not control. There, the Court explained only how we must
`define the § 4 “controversy.” It never defined the “parties” whom § 4
`describes. Vaden’s facts show why.
`
`Vaden was a federal-question case. See Vaden, 556 U.S. at 70. And
`unlike diversity jurisdiction, federal-question jurisdiction turns not on the
`identity of the parties but on the subject matter of the controversy.1
`
`Even if the Vaden Court could have decided who the “parties” are, it
`did not. Vaden spoke only to the word “controversy.” Section 4, the Court
`explained, “does not invite federal courts to dream up counterfactuals when
`actual litigation has defined the parties’ controversy.” Vaden, 556 U.S. at 68
`(emphasis added). “The relevant question,” the majority persisted, “is
`whether the whole controversy between the parties—not just a piece broken off
`
`
`
`1 Compare 28 U.S.C. § 1331 (“The district courts shall have original jurisdiction of
`all civil actions arising under the Constitution, laws, or treaties of the United States.”), with
`28 U.S.C. § 1332(a)(1) (requiring complete diversity among the parties to sustain diversity
`jurisdiction).
`
`4
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`No. 21-10023
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`from that controversy—is one over which the federal courts would have
`jurisdiction.” Id. at 67 (emphasis added). The majority even framed the
`question presented as whether “a district court, if asked to compel arbitration
`pursuant to § 4, [should] ‘look through’ the petition and grant the requested
`relief if the court would have federal-question jurisdiction over the underlying
`controversy.” Id. at 53 (emphasis added).
`
`Although Vaden did not define “parties,” both its language and its
`method support our reading. After looking to § 4’s text, the Court opined
`that it refers only to the two parties we’ve identified: the party “seek[ing]
`arbitration pursuant to a written agreement” and the party who “resists.”
`Id. at 62. And though Vaden drew a partial dissent, every Justice agreed that
`the Court’s task was to interpret § 4’s text.2 We do likewise, drawing the
`meaning of “parties” directly from that section.
`
`Moses H. Cone also favors our view. Moses Cone Hospital, a North
`Carolina citizen, had contracted with Mercury, an Alabama citizen. The con-
`tract contained an arbitration clause. Rather than arbitrate, the hospital sued
`Mercury and a North Carolina architect, who hadn’t signed the agreement
`to arbitrate, in state court. Mercury then moved in federal court to compel
`arbitration on diversity-of-citizenship grounds. Moses H. Cone, 460 U.S. at 7.
`The federal district court stayed Mercury’s suit, citing the state proceedings.
`Id.
`
`The Court in Moses H. Cone considered only the appealability and
`
`
`
`2 Compare Vaden, 556 U.S. at 52–53 (framing the question as whether § 4’s text
`dictates the “look through” approach); id. at 62 (“The text of § 4 drives our conclusion”
`that the look-through test applies), with id. at 72–73 (Roberts, C.J., concurring in part and
`dissenting in part) (“I agree with the Court that a federal court . . . should ‘look through’
`the dispute. . . . But look through to what? The statute provides a clear and sensible answer.
`. . . [But the majority’s] approach is contrary to the language of § 4.”).
`
`5
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`Case: 21-10023 Document: 00516088427 Page: 6 Date Filed: 11/10/2021
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`No. 21-10023
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`propriety of the district court’s stay, not jurisdiction. Id. at 8. But if the
`Richmonds were right that the FAA requires federal courts to determine the
`“parties” from the first-filed state-court complaint, the Court should have
`dismissed3 because the architect’s inclusion in the hospital’s state-court suit
`destroyed complete diversity. See Moses H. Cone, 460 U.S. at 7 n.4. The
`Court instead affirmed the Fourth Circuit’s decision to reverse the stay and
`to remand. Id. at 29. The Court passed over the jurisdictional question, leav-
`ing untouched the Fourth Circuit’s forceful holding that diversity jurisdic-
`tion was proper.4
`
`
`
`3 See Northport Health Servs. of Ark., LLC v. Rutherford, 605 F.3d 483, 490 (8th
`Cir. 2010) (“Even if no party challenged diversity jurisdiction, that the Supreme Court did
`not even discuss the issue [in Moses H. Cone] is telling because in other cases it has noted
`that federal courts are obligated to consider lack of subject matter jurisdiction sua sponte.”).
`4 See In re Mercury Constr. Corp., 656 F.2d 933, 941–42, 944–46 (4th Cir. 1981)
`(en banc). The Fourth Circuit explained, in relevant part,
`[T]his case plainly qualified for relief under Section 4. . . . [T]here was an
`independent basis for federal jurisdiction (i.e., diversity). . . . [T]he right
`of Mercury to a stay of proceedings and an order of arbitration under
`Section 4 is beyond dispute.
`. . .
`[The Hospital] joined as a codefendant its own agent, the Architect, and
`again it seems fair to assume that this was to avoid removal of the action to
`the federal court. But, even assuming there is some controversy between
`the Hospital and the Architect, to which Mercury is not a party, why
`should Mercury be delayed in its right to a prompt resolution by arbi-
`tration, without the expense of long and protracted litigation, as the parties
`had solemnly agreed, because of some controversy between the Hospital
`and its Architect?
`. . .
`[F]ederal procedure under the [FAA], as established in the decisions,
`would not permit the Hospital, by the addition of the Architect as a co-
`defendant, to frustrate and defeat arbitration; the federal court would
`simply sever the arbitrable claim and order the parties to proceed to
`
`6
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`Case: 21-10023 Document: 00516088427 Page: 7 Date Filed: 11/10/2021
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`No. 21-10023
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`Other circuits agree that we must determine diversity of citizenship in
`a § 4 suit from the parties to that suit. In Hermès of Paris, Inc. v. Swain,
`867 F.3d 321 (2d Cir. 2017), the court observed that § 4’s text refers only to
`“the parties to the petition to compel arbitration.” Id. at 326; see also Doctor’s
`Assocs. v. Distajo, 66 F.3d 438, 445 (2d Cir. 1995) (“The ‘parties’ to which
`§ 4 of the FAA refers are the parties to the petition to compel.”). On that
`ground, the court rejected the claim that courts must look through the § 4
`petition to determine who the parties are. Swain, 867 F.3d at 325–26. The
`Eighth Circuit has agreed,5 noting that every circuit precedent before Vaden
`had looked “only to the citizenship of the parties to the [§ 4] action.”
`Rutherford, 605 F.3d at 489.6
`
`
`
`arbitration of that claim.
`Id. at 941–42, 944–46.
`5 See Rutherford, 605 F.3d at 491 (“[W]e conclude that diversity of citizenship [in
`a § 4 case] is determined . . . by the citizenship of the parties named in the [§ 4] proceedings
`. . . , plus any indispensable parties who must be joined pursuant to Rule 19.”).
`6 Swain and Rutherford correctly held that when a federal court assesses diversity
`of citizenship in a § 4 suit, the parties listed in the § 4 petition, plus any indispensable
`parties, are the only ones that count. See Swain, 867 F.3d at 324 & n.4; Rutherford, 605 F.3d
`at 491.
`Yet both cases proclaimed that Vaden applies only in federal-question cases. See
`Swain, 867 F.3d at 325; Rutherford, 605 F.3d at 488 (making that point). Nothing in Vaden
`or § 4 supports that view. True, Vaden addressed federal-question jurisdiction. But it
`advanced no new principles of federal-question jurisdiction. Vaden was a statutory-
`interpretation case. It looked to § 4’s text to define a § 4 “controversy.” And § 4 applies
`regardless of the claimed basis for federal jurisdiction.
`Under § 4, a federal court may hear a petition to compel arbitration only if, “save
`for” the arbitration agreement, it would “have jurisdiction under title 28 . . . of the subject
`matter of a suit” over the parties’ controversy. 9 U.S.C. § 4 (emphasis added). Title 28
`encompasses all the usual bases for federal jurisdiction, from a federal question to diversity.
`See 28 U.S.C. §§ 1330–1389. We conclude from this that we always must look to the
`parties’ whole dispute to define the controversy over which the petition asserts jurisdiction.
`See Vaden, 556 U.S. at 66 (Ҥ 4 . . . confines federal courts to the jurisdiction they would
`
`7
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`No. 21-10023
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`Reading “parties” to mean only the parties to the § 4 petition also
`advances the core policy behind the look-through test. Vaden stressed that
`looking only to a § 4 petition to define the parties’ controversy would invite
`litigants to manipulate federal jurisdiction. See Vaden, 556 U.S. at 66–70.
`The look-through test defeats artful pleading by ensuring that federal
`jurisdiction over a petition to compel arbitration corresponds with federal
`jurisdiction over the parties’ actual dispute.
`
`Likewise, uncritically crediting how the first litigant defines the par-
`ties, as the Richmonds suggest, would invite “[a]rtful dodges” of federal jur-
`isdiction. Id. at 67. After agreeing to arbitrate its claims against a diverse
`defendant, a party could breach that compact, sue in state court, and join a
`
`
`
`have save for the arbitration agreement.” (cleaned up)).
`Our precedents affirm that straightforward reading of § 4. We have explained that
`courts must look through the petition to compel arbitration to ascertain whether the under-
`lying controversy is ripe. See Lower Colo. River Auth. v. Papalote Creek II, L.L.C., 858 F.3d
`916, 923 (5th Cir. 2017). “Vaden’s holding,” we’ve said, “necessarily implies that any of
`the reasons that a federal court may lack subject matter jurisdiction over the underlying
`dispute—e.g., ripeness—would similarly prevent a district court from having jurisdiction
`to compel arbitration.” Id. And in Badgerow v. Walters, 975 F.3d 469 (5th Cir. 2020), cert.
`granted, 141 S. Ct. 2620 (2021), we applied Vaden’s look-through test to find supplemental
`jurisdiction over a petition to vacate an arbitral award. Id. at 471–72, 474. The petitioner
`had sought to vacate only the arbitrators’ dismissal of her state-law claims. Id. at 472. But
`we found, in the underlying dispute, a federal question that shared with the petitioner’s
`state-law claims common facts supporting supplemental jurisdiction. Id. at 474–75.
`We thus have applied the look-through test to assess our jurisdiction over cases
`implicating supplemental jurisdiction, see id. at 474–75, and traditional limits on judicial
`power, see Lower Colo. River Auth., 858 F.3d at 923. Given those precedents and the text of
`§ 4, it would be freakish to exempt diversity jurisdiction, and diversity jurisdiction alone,
`from the look-through inquiry.
`Vaden does not apply here because it defines only the § 4 “controversy,” not the
`“parties” to that controversy. The look-through test defines the “controversy” no matter
`the basis for federal jurisdiction. But it does not determine diversity of citizenship. That
`question concerns the parties’ identity, not their dispute.
`
`8
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`Case: 21-10023 Document: 00516088427 Page: 9 Date Filed: 11/10/2021
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`No. 21-10023
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`nondiverse nonparty to its suit to deprive federal courts of the power to hold
`it to its bargain.
`
`The Richmonds’ rule also would trap those seeking to enforce arbitra-
`tion agreements between a rock and a hard place: If they move early to com-
`pel arbitration, beating a state-court filing, the dispute may be unripe. See,
`e.g., ADT LLC v. Madison, No. 3:20-CV-1417, 2020 WL 7046850, at *4
`(N.D. Tex. Nov. 30, 2020). But if they wait until after the plaintiff has filed
`a state-court complaint, that plaintiff may defeat federal jurisdiction by suing
`a nondiverse nonparty. Allowing that tactic would “fatally undermine the
`FAA,” Swain, 867 F.3d at 324 (cleaned up), and cheapen the power of this
`court.
`
`Section 4 defines “parties” as it does to bar litigants from abusing fed-
`eral jurisdiction. Having agreed to arbitrate its claims against a diverse defen-
`dant, 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.
`
`B.
`We have diversity jurisdiction here. The amount in controversy far
`exceeds $75,000. Complete diversity exists as well. The parties to the § 4
`petition are ADT and the Richmonds. The Richmonds sued Aviles, too. But
`only the Richmonds and ADT are alleged to have agreed to arbitrate,7 and
`only they are the parties to ADT’s suit.
`
`
`
`7 There is no showing that Aviles ever agreed, actually or constructively, to arbi-
`trate the Richmonds’ claims against him. No one has alleged, for example, that Aviles
`authorized ADT to bind him to the arbitration agreement. See Restatement
`(Second) of Agency § 140 (1958).
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`No. 21-10023
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`One wrinkle remains. An indispensable party is one whose joinder is
`vital to avoid serious prejudice to that person or the parties already joined.
`See Fed. R. Civ. P. 19(b) (listing the relevant factors). If Aviles is indis-
`pensable to the dispute between ADT and the Richmonds, diversity juris-
`diction may not be proper. See, e.g., Brown v. Pac. Life Ins. Co., 462 F.3d 384,
`393–94 (5th Cir. 2006); see also Rutherford, 605 F.3d at 491. On remand, the
`district court should decide whether Aviles could be indispensable to an
`arbitral proceeding to which he never agreed.8
`
`C.
`The Richmonds protest that Vaden instructs us to look to the “sub-
`stantive controversy as the parties have framed it.” Volvo Trucks N. Am., Inc.
`v. Crescent Ford Truck Sales, Inc., 666 F.3d 932, 937 (5th Cir. 2012). By listing
`Aviles in their state-court complaint, the Richmonds say, they framed that
`controversy to include him, so there is no diversity jurisdiction here.
`
`We disagree. The statute says otherwise. Section 4 doesn’t tell us to
`look to any controversy. It points us only to the controversy “between the
`parties” to the § 4 suit. The Richmonds’ approach would erase that qualify-
`ing phrase.
`
`Vaden’s look-through test requires us to define the § 4 “controversy”
`by looking to the whole dispute “between the parties.” The Richmonds say
`their framing of who the parties are is part of that controversy. But that can’t
`
`
`
`8 See Brown, 462 F.3d at 394 (“The threat of piecemeal, inconsistent litigation of
`claims and issues . . . is insufficiently prejudicial to render a party indispensable under
`Rule 19 given the oft-stated preference for arbitration under the FAA.” (cleaned up)); see
`also Rutherford, 605 F.3d at 491 (observing that “every circuit to consider the issue has
`concluded that a party joined in a parallel state court contract or tort action who would
`destroy diversity jurisdiction is not an indispensable party . . . in a federal action to compel
`arbitration”).
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`No. 21-10023
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`be right. “Between the parties” qualifies the “controversy”; it cannot be that
`controversy.
`
`Wherever possible, we must read statutes to give effect to their every
`word.9 If the word “parties” were, as the Richmonds suggest, a mere subset
`of the “controversy” that § 4 describes, then the FAA’s drafters would not
`have written “between the parties” at all. We won’t declare that phrase sur-
`plusage; it is neither unclear nor absurd.10
`
`There is no injustice in refusing to credit the Richmonds’ state-court
`complaint as the definitive statement of the parties to the dispute. Suppose
`that we struck the words “between the parties” from § 4. We still would
`have to look to the whole dispute as framed by the parties. And the Rich-
`monds framed that dispute, in no small part, by agreeing to arbitrate with
`ADT and ADT only. When a party agrees to arbitrate a dispute with another,
`it consents to resolving that dispute separately from others, even if piecemeal
`litigation results. See Moses H. Cone, 460 U.S. at 20. The party may not
`defeat federal jurisdiction over that dispute by sparking others that arbitra-
`tion can’t resolve.
`
`* * * * *
`
`
`
`
`
`9 See Corley v. United States, 556 U.S. 303, 314 (2009) (“[A] statute should be
`construed so that effect is given to all its provisions, so that no part will be inoperative or
`superfluous, void or insignificant.” (cleaned up)).
`10 See United States v. Dison, 573 F.3d 204, 207 (5th Cir. 2009) (“When the plain
`language of a statute is unambiguous and does not lead to an absurd result, our inquiry
`begins and ends with the plain meaning of that language.” (cleaned up)); see also Duncan v.
`Walker, 533 U.S. 167, 174 (2001); Antonin Scalia & Brian A. Garner, Read-
`ing Law: The Interpretation of Legal Texts § 26 (2012) (for the surplusage
`canon).
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`Not all is lost for the Richmonds. Perhaps the agreement to arbitrate
`is invalid, as they argued at the district court. We take no view on that issue.
`But a federal court can decide it.
`
`Because there’s diversity jurisdiction over ADT’s suit to compel arbi-
`tration, we VACATE the judgment of dismissal and REMAND. The dis-
`trict court shall decide whether Aviles is indispensable to this federal suit.
`We place no limitations on what matters the district court may address on
`remand in accord with this opinion.
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`No. 21-10023
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`Haynes, Circuit Judge, concurring in the judgment:
`
`I concur in the judgment of this court but would arrive there on a
`shorter road: the “look through” test of Vaden does not apply to diversity
`jurisdiction cases. See, e.g., Northport Health Servs. of Arkansas, LLC v.
`Rutherford, 605 F.3d 483, 491 (8th Cir. 2010); Hermes of Paris, Inc. v. Swain,
`867 F.3d 321, 324-26 (2d Cir. 2017). Thus, we simply “look at” the parties
`to the federal litigation where there is, undoubtedly, complete diversity
`(though I agree with the point about “indispensable parties” being a
`consideration on remand). Accordingly, I concur in the judgment only.
`
`
`
`13
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