Caudle v. American Arbitration Association

Robert Caudle (plaintiff) had a contract with Sears to distribute certain Sears products. The contract provided that any disputes arising from the distributorship contract would have to be arbitrated. After Sears terminated its contract with Caudle, Caudle tried to circumvent the arbitration provision by commencing a series of lawsuits. Caudle initially sued Sears in state court, alleging that Sears had made oral promises apart from the written contract. That case was dismissed. Caudle filed a second action against Sears in the court, seeking a judicial declaration that the arbitration clause was unenforceable. That case was also unsuccessful. Caudle then initiated arbitration but decided not to pursue it further because Caudle did not want to pay the fees charged by the American Arbitration Association (AAA) (defendant), a nonprofit provider of arbitration services. Caudle then filed suit against AAA in federal district court for breach of contract, claiming that AAA charged an unreasonable fee for arbitration services. The suit effectively sought to compel AAA to arbitrate Caudle’s dispute with Sears at a reasonable price. There was diversity of citizenship between Caudle and AAA in that Caudle was an Illinois citizen and AAA was incorporated in New York, but the fee at issue in Caudle’s suit against AAA was well short of the $75,000 amount-in-controversy requirement for the federal court to have jurisdiction over the case. Caudle asserted that the amount-in-controversy requirement was satisfied because the dispute with both AAA and Sears, in total, exceeded the $75,000 threshold for diversity jurisdiction. The district court dismissed the case on the ground that AAA was immune from suit but did not consider whether federal jurisdiction existed over the dispute between Caudle and AAA in the first place. Caudle appealed.