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Jurisdiction over non-signatory's appeal from an order denying a stay pending arbitration
March 03, 2009 by Ross Runkel at LawMemo
Arthur Anderson v. Carlisle, argued today at the US Supreme Court, is both factually complex and legally complex.
The gut issue is simple: Whether a federal court of appeals has jurisdiction over an appeal from an order denying a stay, when the application is made by a party who not a signatory to an arbitration agreement.
SCOTUSblog wiki provides the briefs, but does not attempt to explain the case.
The Legal Information Institute at Cornell has an extensive discussion, including this summary of the case:
Section 3 of the Federal Arbitration Act ("FAA") allows parties who have agreed to arbitrate to move for a stay of trial proceedings until they have had a chance to attempt arbitration. In addition, Section 16 of the FAA allows an immediate appeal of judgments denying stay under such circumstances. At issue in this case is whether these sections of the FAA extend to non-signing parties affected by an arbitration agreement. Petitioner Arthur Andersen advised Respondent Wayne Carlisle on a business transaction. As a result of this transaction, Carlisle eventually signed a contract, to which Andersen was a not party, that contained an arbitration agreement. After a dispute developed, Andersen sought a stay in the litigation proceedings in order to arbitrate with Carlisle, despite the fact that Andersen had not signed the arbitration agreement. After Andersen appealed the initial denial of its request for a stay, the United States Court of Appeals for the Sixth Circuit held that it did not have jurisdiction to hear Andersen's appeal because Sections 3 and 16 of the FAA only apply to signatories of arbitration agreements. The Supreme Court's decision in this case may clarify the scope of the FAA's application to non-signatories, including the availability of appellate review of denials of stays.
The formal question presented is:
Section 3 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 3, provides that "on application of one of the parties," a district court shall stay proceedings pending arbitration if the district court concludes that the "issue involved in such suit or proceeding is referable to arbitration" under "an agreement in writing for such arbitration." Section 16(a)(1)(A) of the FAA, 9 U.S.C. § 16(a)(1)(A), provides that "an appeal may be taken from an order" of a district court denying a stay application made under Section 3. The questions presented are:(1) Whether Section 16(a)(l)(A) of the FAA provides appellate jurisdiction over an appeal from an order denying an application made under Section 3 to stay claims involving non-signatories to the arbitration agreement.
(2) Whether Section 3 of the FAA allows a district court to stay claims against nonsignatories to an arbitration agreement when the nonsignatories can otherwise enforce the arbitration agreement under principles of contract and agency law, including equitable estoppel.
The transcript of oral argument (61 pages, pdf) is available [here].
I'd rather not predict the outcome of this one.
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Appeal order denying arbitration within 30 days
August 14, 2008 by Ross Runkel at LawMemo
Garland Snider sued the employer, asserting claims for breach of contract and violation of state wage and hour laws.
The employer petitioned to compel arbitration, but the petition was denied by the trial court. The matter proceeded to a jury trial, where Snider prevailed. Judgment was entered in Snider's favor, and the employer appealed.
The appeal was timely filed with respect to the final judgment, but not with respect to the order denying the petition to compel arbitration.
The court held - Snider v. Production Chemical (Oregon Ct App 08/13/2008) - that pursuant to ORS 36.730
"an appeal from an order denying a petition to compel arbitration ... must be commenced within 30 days after the order is entered in the trial court register."
Since the employer's appeal was untimely as to the trial court's order denying the petition to compel arbitration, the court concluded it lacked jurisdiction to consider that issue. The court rejected other issues as unpreserved.
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Hall Street Associates v. Mattel: more briefs to be filed
November 16, 2007 by Ross Runkel at LawMemo
The US Supreme Court on November 16 ordered supplemental briefing in Hall Street Associates v. Mattel
Oral arguments were held November 7. The issue in this case is whether a federal court must (or may) enforce the parties' agreement that expands the scope of judicial review of an arbitration award beyond what is provided by the Federal Arbitration Act.
The Court's order identified three issues for the parties to brief:
(1) Does authority exist outside the Federal Arbitration Act (FAA) under which a party to litigation begun without reliance on the FAA may enforce a provision for judicial review of an arbitration award?(2) If such authority does exist, did the parties, in agreeing to arbitrate, rely in whole or part on that authority?
(3) Has petitioner in the course of this litigation waived any reliance on authority outside the FAA for enforcing the judicial review provision of the parties’ arbitration agreement?
Briefs are due November 27. Replies are due December 3.
My view: I thought this case would be easy, and that the Court would not allow private parties to expand the role of the federal courts beyond what is laid out in the Federal Arbitration Act.
Now it appears that the Court is looking for some other way (outside of the FAA) to enforce the parties' agreement. As far as I can tell, this legal argument was never brought up previously in this litigation, and I think it should be too late to bring it up now.
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Justice Breyer: "The case of the century"
November 07, 2007 by Ross Runkel at LawMemo
"The case of the century" - That's what Justice Breyer said about Hall Street Associates v. Mattel during today's oral argument.
Click here for full transcript.
At issue is whether a federal court must (or may) enforce an arbitration agreement that gives the court authority to review the arbitrator's award to see whether "the arbitrator's conclusions of law are erroneous."
Justice Breyer referred to this case as the "case of the century" "because it's going to take a hundred years to finish."
Arbitration awards typically are enforced by courts without inquiring into the correctness of the arbitrator's legal conclusions. The Federal Arbitration Act provides this framework. Justice Breyer seems to think that allowing the parties to expand the review power of the federal court will result in additional delay and lack of finality. Me too.
It's pretty hard to tell - from reading the transcript - which way the Supreme Court is leaning in this case. I'm still betting [here's my prediction] that the Court will not allow private parties to expand the role of federal courts -- simply because that's Congress's job.
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Statute of limitations for vacating an award (ouch)
November 02, 2007 by Ross Runkel at LawMemo
The Federal Arbitration Act has a three months statute of limitations for moving to vacate an award.
This invites two questions, both of which were answered today in Webster v. A. T. Kearney, Inc (7th Cir 11/02/2007):
- When does the period begin?
- When does the period end?
Webster took his age discrimination and breach of contract case to arbitration, and lost. So he wanted to get a court to vacate the arbitrator's award.
The three months begins:
On January 4 the award was placed in the mail and emailed.
On January 4 the email reached Webster's attorney's computer.
On January 5 Webster's attorney opened the email.
On January 9 Webster's attorney received the award in the mail.
The FAA says the three months begins when the award is "filed or delivered."
The court noted that Webster agreed to use the AAA Rules, including this one: "The parties shall accept as legal delivery of the award the placing of the award or a true copy thereof in the mail."
Aha! The court held that the statutory word "delivered" meant putting the award in the mail, because that's what Webster agreed to.
This way, the court ducked the issue of whether "delivered" normally means when the mail arrives, and the issue of whether "delivered" means when an email comes into one's computer.
The three months ends:
On April 3 Webster filed his motion to vacate.
On April 5 the employer was served.
(Oops, one day after the end of three months.)
The court had to pick between the filing date and the service date.
This was easy. The Federal Arbitration Act says "service of notice." Never mind what the Rules of Civil Procedure say, because the FAA trumps the rules.
In the end, Webster lost because he didn't serve the defendant within three months of when the award was delivered.
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Supreme Court takes FAA case
May 30, 2007 by Ross Runkel at LawMemo
The Federal Arbitration Act allows only very narrow judicial review of arbitrator awards. What if the parties agree to expand the scope of judicial review?
Hall Street Associates v. Mattel (certiorari granted May 29, 2007) brings this issue to the US Supreme Court.
After a lawsuit got going in federal court, the two parties agreed to arbitrate the case rather than litigate. The agreement provided that the federal district court shall vacate, modify, or correct the arbitrator's award "where the arbitrator's conclusions of law are erroneous."
The 9th Circuit refused to enforce this provision because the Federal Arbitration Act specifies that arbitration awards can be vacated only in limited cases involving such things as fraud, corruption, partiality, or when the arbitrators exceed their powers. Therefore, the arbitrator's award was upheld even though it contained possible errors of law.
The issue, then, is whether the parties to an arbitration agreement can agree to expand the grounds for vacating an award beyond the grounds listed in the Federal Arbitration Act.
The basic arguments are simple: (1) The FAA specifies the grounds for vacating an award, and courts cannot go beyond the statute. (2) Parties have freedom to decide, via contract, the procedural aspects of their arbitration.
We expect this case to briefed and argued in the Fall of 2007, with a decision some time in 2008.
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Order compelling arbitration not reviewable
July 05, 2006 by Ross Runkel at LawMemo
"We recognize there is some one-sidedness in reviewing only orders that deny arbitration, but not orders that compel it. Yet both the Federal and Texas acts leave little uncertainty that this is precisely what the respective legislatures intended."
So says the Supreme Court of Texas in In Re Palacios (Texas 06/30/2006).
The decision is short and sweet, and the Texas court indicates that it will try to read the Federal Arbitration Act and the Texas Arbitration Act in a harmonious manner.
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Cert petition: Goodrich v. Machinists
September 07, 2005 by Ross Runkel at LawMemo
A petition for certiorari was filed last week, raising two fascinating questions about (1) appealing court orders that enforce an arbitration clause in a collective bargaining agreement and (2) a union's ability to sue on behalf of non-employee retirees.
The petition states two "Questions Presented"
1. In Goodall-Sanford, Inc. v. United Textile Workers, 353 U.S. 550, 551 (1957), this Court held that, “A decree under § 301(a) ordering enforcement of an arbitration provision in a collective bargaining agreement is . . . a ‘final decision’ within the meaning of 28 U.S.C. § 1291.”The first question presented is:
In light of this Court’s decision in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), is appellate jurisdiction for the review of an order compelling arbitration in a § 301 action now dependent upon the existence of a “final decision” as that term has been interpreted with respect to the Federal Arbitration Act?2. Section 301(b) of the Labor Management Relations Act provides that, “Any labor organization which represents employees . . . may sue . . . as an entity [on] behalf of the employees whom it represents.”
The second question presented is:
Does a union have standing to sue a company in a § 301 action on behalf of a group made up entirely of non-employees?
The petition was filed September 2 by David Nagle of LeClair Ryan, the same lawyer that won one of the most important arbitration cases in the US Supreme Court - Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001).
My view:
These are important issues, worthy of the Supreme Court's attention.
- Historically, courts have treated collective bargaining arbitrations differently from individual contract arbitrations when deciding whether a court order compelling arbitration is a "final order." That's because collective bargaining arbitrations fall under Section 301 of the Labor Management Relations Act and individual contract arbitrations fall under the Federal Arbitration Act. The petition in Goodrich claims that the 5th Circuit has blurred that distinction. I think so too. The question, then, is whether the historical distinction should be maintained or eliminated.
- Section 301 allows unions to sue in federal court on behalf of "employees it represents." The union in the Goodrich case sued on behalf of retirees. By definition, they are not employees that the union represents for purposes of collective bargaining. However, these retirees all signed documents consenting to have the union represent them in the litigation. The 5th Circuit allowed the union to sue. The question, then, is whether to follow the text of Section 301 or to allow the documents signed by non-employees to override Section 301.
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Interlocutory appeal will stop lower court litigation
July 01, 2005 by Ross Runkel at LawMemo
If a court denies an employer's motion to compel arbitration, and the employer appeals, is the employer entitled to a stay of the trial court litigation proceedings? Circuits are split, and the 10th Circuit now says "yes." McCauley v. Halliburton Energy Services (10th Cir 06/28/2005)
When McCauley sued his former employer, the trial court granted the employer's motion to arbitrate certain claims, but denied the motion as to other claims and ordered the parties to proceed to trial. The employer appealed the partial denial of its motion to compel arbitration, as permitted by the Federal Arbitration Act (FAA), 9 USC Section 16(a)(1)(C). The trial court denied the employer's motion to stay further litigation pending resolution of the appeal, but the 10th Circuit granted the motion.
The legal issue, a matter of first impression in the 10th Circuit: "Whether an interlocutory appeal from the denial of a motion to compel arbitration divests a district court of jurisdiction to proceed on the merits of the underlying claim while the appeal is pending."
There is a split among the circuits on this issue.
- Refusing a stay: Motorola Credit Corp. v. Uzan, 388 F.3d 39 (2nd Cir 2004); Britton v. Co-Op Banking Group, 916 F.2d 1405 (9th Cir 1990).
- Allowing a stay: Blinco v. Green Tree Servicing, LLC, 366 F.3d 1249 (11th Cir 2004); Bradford-Scott Data Corp. v. Physician Computer Network, Inc., 128 F.3d 504 (7th Cir 1997).
The 10th Circuit allowed a stay, assuming the appeal is non-frivolous.
The 9th Circuit has expressed concern over potential exploitation of a categorical rule that an appeal divests the trial court of jurisdiction, which "would allow a defendant to stall a trial simply by bringing a frivolous motion to compel arbitration." Addressing that concern, the 10th Circuit noted that "upon the filing of a motion to stay litigation pending an appeal from the denial of a motion to compel arbitration, the district court may frustrate any litigant's attempt to exploit the categorical divestiture rule by taking the affirmative step, after a hearing, of certifying the Section 16(a) appeal as frivolous or forfeited."
My view: There's no good answer for this dilemma, but I tend to favor disallowing a stay. Interlocutory appeals are already an exception to the general rule. These appeals should not keep the lower courts from doing their business. The 10th Circuit's technique of distinguishing frivolous from non-frivolous appeals will do little to help because it will be quite difficult to get a trial court to say an appeal is frivolous. As a result, interlocutory appeals will generally bring everything else to a halt. One more way to delay.
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