## Facts

- Robert L. Caudle entered a Sears distributorship agreement that required arbitration of disputes under the auspices of the American Arbitration Association (AAA).
- After Sears restructured its distribution system and eliminated certain independent operations, Caudle pursued multiple state-court suits against Sears seeking relief outside arbitration, including attempts tied to class litigation and a declaration that the arbitration clause was unenforceable; he lost, and certiorari was denied.
- Caudle eventually initiated an AAA arbitration against Sears but refused to proceed after AAA required prepayment of additional fees for a three-arbitrator panel.
- AAA required each side to prepay additional fees (beyond the amount for a one-arbitrator proceeding); Sears paid and Caudle did not, and AAA closed the proceeding when the deadline passed.
- Caudle then sued AAA in federal court, alleging that tendering the initial fee formed a contract requiring AAA to provide arbitration services at a reasonable price and effectively seeking to compel arbitration administration at a lower fee.
- The district court dismissed the case on the ground that AAA was immune from suit; it did not address the amount-in-controversy requirement for diversity jurisdiction.

## Issues

1. Whether the amount in controversy for diversity jurisdiction was measured by the fee dispute between Caudle and AAA (well below the statutory threshold) or could include the value of Caudle’s underlying dispute with Sears.
2. Whether a plaintiff may aggregate or “bootstrap” the value of a separate controversy with a nonparty (Sears) to satisfy the diversity jurisdictional minimum in a suit against AAA.
3. If jurisdiction existed, whether AAA was immune from suit for actions taken in administering arbitration (an issue the district court reached, but the court of appeals treated as unnecessary absent jurisdiction).

## Decision

- The Seventh Circuit concluded the federal courts lacked subject-matter jurisdiction because the amount in controversy between Caudle and AAA was limited to the additional arbitration fees at issue and did not meet the diversity threshold.
- The court rejected Caudle’s attempt to rely on the value of his underlying claims against Sears to satisfy the jurisdictional minimum in a case where Sears was not a party.
- Because jurisdiction was lacking, the case had to be dismissed for want of jurisdiction, making it improper to resolve merits defenses such as arbitral immunity.

## Legal Principles

- In a diversity case, the amount in controversy is determined by the value of the object of the litigation between the parties actually before the court.
- A plaintiff may not aggregate separate controversies involving a nonparty to reach the jurisdictional minimum against a different defendant.
- Federal courts must confirm subject-matter jurisdiction before addressing merits defenses; absent jurisdiction, merits rulings are not a proper basis for judgment.

## Conclusion

The Seventh Circuit held that the only relevant amount in controversy was the small fee dispute between Caudle and AAA, not the value of Caudle’s underlying dispute with Sears, and ordered dismissal for lack of diversity jurisdiction without reaching AAA’s claimed immunity.


Caudle v. Am. Arbitration Ass’n, 230 F.3d 920 (7th Cir. 2000)