Supreme Court rules against Discover on arbitration

The U.S. Supreme Court limited the power of federal judges to send disputes to arbitration, ruling against Discover Financial Services and business groups.

The justices, voting 5-4, said a federal judge lacked authority to order arbitration in a fight between two Discover units and a credit cardholder with an unpaid balance of more than $10,000.

The ruling means Discover can get an order forcing arbitration of cardholder Betty Vaden's claims against the company only from a Maryland state judge. Companies say state courts are often less hospitable to arbitration.

Discover sued Vaden in Maryland state court to collect her unpaid balance. Vaden countersued, claiming Discover's finance charges, interest and late fees violated Maryland law. Discover then asked a federal judge to force arbitration of Vaden's counterclaims.

Writing for the majority, Justice Ruth Bader Ginsburg today said federal judges can order arbitration only if the "entire, actual controversy between the parties" could be litigated in federal court. Because Discover's claims against Vaden belonged in state court, the company couldn't go to federal court to seek arbitration of her claims, Ginsburg said.

Chief Justice John Roberts and Justices John Paul Stevens, Stephen Breyer and Samuel Alito dissented on that point.

Several business trade groups, including the U.S. Chamber of Commerce and the American Bankers Association, backed Discover in the case. Discover, the fourth-largest credit-card network, is based in Riverwoods.

The case is Vaden v. Discover Bank, 07-773.