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The FAA’s Staying Power: Can a District Court Adjudicate Claims Pending an Appeal from a Denial of a Motion to Arbitrate?

Client Advisory

November 28, 2012

The Federal Arbitration Act (the “FAA”) allows a party to file an immediate appreal from a district court’s denial of a motion to compel arbitration.[1] The FAA is silent, however, as to whether a district court may continue to adjudicate the merits of the underlying claims while the appeal is pending, or whether the filing of a notice of appeal divests the district court of such jurisdiction. Highlighting a split in the circuit courts, and siding with the Second Circuit, last year the Fifth Circuit held that a district court may adjudicate the merits pending appeal.[2]  

The FAA provides that a “written provision . . . in any contract evidencing a transaction involving commerce to settle by arbitration a controversy . . . shall be valid, irrevocable, and enforceable.”[3] The FAA “embodies the national policy favoring arbitration.”[4] 

 The FAA expressly permits a party to move the district court to compel arbitration where the parties have agreed to arbitrate their dispute. Where there is an agreement to arbitrate, the FAA mandates that the district court grant the motion. Where this motion is denied, the FAA permits the filing of an immediate appeal.[5]  

In Griggs v. Provident Consumer Discount Co. the United States Supreme Court stated that the filing of a notice of appeal “is an event of jurisdictional significance—it confers jurisdiction on the court of appeals and divests the district court of its control over those aspects of the case involved in the appeal.”[6] Thus, to determine whether the court may continue to adjudicate the merits of the claims pending the appeal, the question is whether the agreement to arbitrate (i.e., the “arbitrability question”) is “involved in” the merits of the underlying claim.  

The D.C., Third, Fourth, Seventh, Tenth and Eleventh Circuits have held that it is involved in the merits.[7] These courts regard the arbitrability question as one that asks whether, in light of the arbitration agreement, the district court must compel arbitration. If so, the district court lacks the ability to adjudicate the underlying claims. Thus, the district court’s ability to adjudicate the dispute is not merely “involved in” the appeal, it is the very question on appeal.[8] Accordingly, the district court may not adjudicate the merits of a claim upon the filing of a notice of appeal. 

These courts also considered the practical effect of permitting the district court to retain jurisdiction pending appeal. In doing so, they analogized this issue to other instances in which federal courts permit immediate appeals, such as questions involving double jeopardy or immunity from suit. Just as these protections would be rendered a nullity by delaying an appeal until final resolution of trial, so too would a party’s right to avoid litigation in court be negated if it were forced to litigate in district court pending appeal.[9]  

Moreover, these courts believed that allowing the action to continue could significantly alter the nature of the dispute. For example, proceeding with discovery pending appeal could require disclosure of otherwise undiscoverable information. Regardless of the outcome of the appeal, “the parties will not be able to unring any bell rung by discovery, and they will be forced to endure the consequences of [that] litigation discovery in the arbitration process.”[10]  

While some courts did express concern that divesting the district court of jurisdiction would provide another vehicle for delay, the Tenth Circuit specifically developed a framework to “frustrate any litigant’s attempt to exploit the categorical divestiture rule.”[11] Pursuant to this framework, upon the filing of the notice of appeal, the district court could continue to adjudicate the claims by certifying the appeal as “frivolous.”[12]  

In contrast, a minority of circuit courts, the Second, Fifth and Ninth Circuits, have held that a district court may continue to adjudicate the merits of the claims pending appeal.[13] These courts narrowly interpret both the holdings in Griggs and the arbitrability question. They read Griggs as applying only where a district and appellate court are deciding the same issue at the same time.[14] These courts also hold that the arbitrability question merely seeks to determine whether a court or an arbitrator will preside over the dispute, i.e., the identity of the arbiter. This identity-of-arbiter issue is distinct and “easily severable” from the determination of the underlying facts in dispute. Accordingly, Griggs does not support divestiture.[15] 

These circuit courts also looked to practical considerations to inform their decision. These courts were not persuaded by comparisons to appeals involving double jeopardy and immunity. Such rights were conferred either by the Constitution or the courts and were thus “different in character” from rights springing from a private agreement.[16] Moreover, they feared that a categorical rule mandating divestiture would be exploited through meritless appeals.[17] The recent Fifth Circuit decision, the only decision taking the minority position that was issued after the Tenth Circuit’s decision in McCauley, did not address the Tenth Circuit’s certification procedure discussed above. 

Pending a resolution by the Supreme Court, or a clarification of the FAA by Congress, this split in the circuits will continue. In the meantime, parties should be mindful of the ramifications that an appeal may have on the district court’s jurisdiction. To maximize the probability that claims will be litigated in the preferred forum, parties should ensure that the scope of an agreed-upon arbitration provision is clear and unambiguous. 


For more information concerning the matters discussed in this publication, please contact the authors, Jeffrey S. Boxer (212-238-8626, boxer@clm.com) or Leonardo Trivigno (212-238-8724, trivigno@clm.com), or your regular CL&M attorney. 

Endnotes 


[1] 9 U.S.C. § 16(a)(1)(A) (2012).

[2] See Weingarten Realty Investors v. Miller, 661 F.3d 904, 906 (5th Cir. 2011).

[3] 9 U.S.C. § 2 (2012).

[4] Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006); see also, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S. 614, 625-626 (1985) (recognizing that “the preeminent concern of Congress in passing the Act [the FAA] was to enforce private agreements into which parties had entered”).

[5] 9 U.S.C. § 3 (2012); § 16(a)(1)(A).

[6] 459 U.S. 56, 58 (1982) (emphasis added).  

[7] See Bombadier Corp. v. Nat’l R.R. Passenger Corp., No. 02-7125, 2002 WL 31818924, *1 (D.C. Cir. 2002); Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 215 n.6 (3d Cir.2007); Levin v. Alms. & Assocs., Inc., 634 F.3d 260, 266 (4th Cir. 2011); Bradford-Scott Data Corp., Inc. v. Physician Computer Network, Inc., 128 F.3d 504, 505 (7th Cir. 1997); McCauley v. Halliburton Energy Servs., Inc., 413 F.3d 1158, 1161-62 (10th Cir. 2005); Blinco v. Greentree Servicing, LLC, 366 F.2d 1249, 1251-52 (11th Cir. 2004).

[8] Bradford-Scott, 128 F.3d at 505-06.

[9] See, e.g., id. at 506. Some circuit courts mandate the district court stay the proceedings pending an appeal of questions involving double jeopardy and qualified immunity.  See, e.g., Stewart v. Donges, 915 F.2d 572 (10th Cir. 1990) (district court was divested of jurisdiction pending appeal of denial of summary judgment based on qualified immunity).

[10] Levin, 634 F.3d at 265.

[11] McCauley, 413 F.3d at 1162.

[12] Id.

[13] Motorola Credit Corp. v. Uzan, 388 F.3d 39, 54 (2d Cir. 2004); Weingarten Realty Investors v. Miller, 661 F.3d 904, 909-10 (5th Cir. 2011); Britton v. Co-op Banking Group, 916 F.2d 1405, 1412 (9th Cir. 1990).

[14] See, e.g., Britton, 916 F.2d at 1412, n.7 (citing Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 21 (1983)); Weingarten, 661 F.3d at 908.

[15] Weingarten, 661 F.3d at 908-09; see also Motorola, 388 F.3d at 54 (“explicitly adopt[ing] the Ninth Circuit’s position that further district court proceedings in a case are not ‘involved in’ the appeal of an order refusing arbitration . . .”).

[16] Weingarten, 661 F.3d at 909-910.

[17] See, e.g., Britton, 916 F.3d at 1412.



Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2017 Carter Ledyard & Milburn LLP.
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