ADT, L.L.C. v. Richmond, No. 21-10023 (5th Cir. 2021)
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Aviles worked for ADT, installing security systems in customers’ homes; he spied on customers using cameras he had installed. ADT discovered Aviles’s misconduct, fired him, and reported him to the authorities. The Richmonds, citizens of Texas, among Aviles’s victims, sued Aviles and ADT in Texas state court. The Richmonds’ contract with ADT contained an arbitration clause. ADT filed a federal suit under the Federal Arbitration Act, alleging complete diversity between the Richmonds and ADT, which is a citizen of Florida and Delaware.
The Fifth Circuit vacated the dismissal of the suit. 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 FAA petition “to the parties’ underlying substantive controversy.” If a federal court could hear a suit arising from that “whole controversy,” then that court can hear the FAA suit. The district court looked through ADT’s federal suit to the Richmonds’ state-court complaint, which named Aviles and ADT as defendants, and concluded that the “whole controversy” included Aviles, ADT, and the Richmonds. Those parties lacked diversity of citizenship because Aviles is from Texas. The district court erred in extending the “whole controversy” analysis to define the “parties” to that controversy.
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