Appealability of Denial of Motion to Stay Litigation Pending Arbitration Brought by Non-Party to the Arbitration Agreement — Circuit Split

The appellants in Carlisle v. Curtix, Mallet-Prevost, Colt & Mosle, LLP, 2008 U.S. App. LEXIS 7511 (6th Cir. April 9, 2008), were co-defendants with a party who had signed an arbitration agreement with the plaintiff. They unsuccessfully moved in the district court to compel arbitration on equitable estoppel grounds. The issue on appeal was whether non-parties to an agreement to arbitrate could appeal the district court’s denial of their motion to stay the federal litigation pending arbitration, or whether that was an unappealable order. In deciding that there was no appellate jurisdiction (an issue of first impression in the Sixth Circuit), the Sixth Circuit noted that there is a Circuit split on this issue:

A district court's denial of the motion to stay proceedings pending arbitration is — obviously — not a final decision, making 28 U.S.C. § 1291 inapplicable. Furthermore, denials of motions to stay proceedings are not appealable as interlocutory orders denying injunctions under 28 U.S.C. § 1292(a)(1). See Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 287 (1988). However, Section 16(a)(1) of the Federal Arbitration Act confers jurisdiction over interlocutory appeals from the denial of a motion to stay (Section 3) or to compel arbitration (Section 4) under the Act.

Section 3, purportedly at issue here, makes available a stay of proceedings based upon "any issue referable to arbitration under an agreement in writing for such arbitration." 9 U.S.C. § 3 (emphasis added). The denial of a stay under Section 3 is then subject to interlocutory review under Section 16. The defendants in this case have invoked Section 16 as the basis for appeal, contending that the arbitration provisions in the investment management agreements between the plaintiffs and Bricolage Capital permit them to seek a stay under Section 3 because the action brought by the plaintiffs involves an issue that is referable to arbitration under "an agreement in writing" — even though the defendants are not signatories to the written agreement in question and are instead seeking to compel arbitration with the signatories to a contract with a third party that is no longer involved in these proceedings. In advancing their equitable-estoppel argument, the defendants rely on a Second Circuit case, Ross v. American Express Co., 478 F.3d 96, 99 (2d Cir. 2007). However, we find the analysis in Ross to be less persuasive than that of two other circuit decisions, DSMC Inc. v. Convera Corp., 349 F.3d 679 (D.C. Cir. 2003), and In re Universal Service Fund Telephone Billing Practice Litigation v. Sprint Communications Co., L.P., 428 F.3d 940, 944-45 (10th Cir. 2005). In the absence of a controlling decision in this circuit, we opt to follow the reasoning and result in the latter two opinions.

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