Commercial Litigation and Arbitration

Appeal under FAA of Denial of Motion to Compel Arbitration Stays All Proceedings in District Court — No Reason to Order Preservation Already Required by Law (Good Quote)

From Lawson v. Life of the South Ins. Co., 738 F. Supp. 2d 1376 (M.D. Ga. 2010):

Citing Blinco v. Green Tree Servicing, LLC, 366 F.3d 1249, 1251 (11th Cir. 2004), and Chudasama v. Mazda Motor Corp., 123 F.3d 1353, 1366-69 (11th Cir. 1997), Defendant opposes Plaintiffs' Motion to Preserve..., moving this Court on two independent grounds to enter an order to stay the consideration of Plaintiffs' Motion to Preserve pending the Eleventh Circuit's decision on Defendant's Motion to Stay All Proceeding in the District Court and Defendant's appeal of this Court's denial of Defendant's Motion to Compel Arbitration.... Defendant first asserts that under Blinco, the Court lost jurisdiction to consider Plaintiffs' preservation order, which Defendant construes as a discovery order, once Defendant filed its Notice of Appeal ... in April 2010. Defendant notes that Blinco mandates that all proceedings in a district court must be stayed during the pendency of the appeal involving a motion to compel arbitration, for the nature of the appeal concerning arbitration is the fundamental issue that divests this Court of jurisdiction. According to Defendant, the Court's decision to proceed with this matter by granting Plaintiffs' Motion to Preserve would be inconsistent with the cost and time saving principles of the immediately appealable nature of an order denying arbitration under the Federal Arbitration Act (FAA). ***

The controlling issue before the Court raised by the parties' arguments concerns the interplay between the district court and appellate court upon the filing of a notice of an appeal — specifically, the level of deference that the former must give to the jurisdictional authority of the latter. Supreme Court and Eleventh Circuit precedent reveal that "[t]he filing of a notice of appeal is an event of jurisdictional significance" in that the appeal transfers jurisdiction over the aspects of the appeal from the district court to the court of appeals. Blinco, 366 F.3d at 1251 (quoting Griggs v. Provident Consumer Discount, 459 U.S. 56, 58, 103 S. Ct. 400, 74 L. Ed. 2d 225 (1982))). The exclusive jurisdiction over a case that is granted to an appellate court upon the filing of an appeal "avoids the confusion that would result from the simultaneous jurisdiction of two courts over the same matter." *** In this v[e]in, "a federal district court and a federal court of appeals [cannot] . . . assert jurisdiction over a case simultaneously," particularly when the only issue on appeal is whether the case should be litigated at all. ***

This issue was discussed at length, in a case of first impression, by the Eleventh Circuit in Blinco v. Green Tree Servicing. LLC, whose procedural posture is strikingly similar to that of the present case. In Blinco, the defendant appealed the district court's denial of its motion to compel arbitration under 9 U.S.C. § 16(a) and its motion to stay pending appeal. *** The Eleventh Circuit held that the district court should have stayed proceedings in the case pending resolution of the appeal because the issue of continued litigation in the district court, raised by the motion to compel arbitration, was the "mirror image" of the question presented on appeal. Blinco, 366 F.3d at 1251 ("[T]he filing of a non-frivolous appeal under 9 U.S.C§ 16(a) . . . [should direct] the district court... [to refrain from] exercis[ing] control over the aspects of the case involved in appeal. . . . [The appeal] divests the district court of its control over those aspects . . . ."). Thus, if the precise issue that the appeals court must decide is "whether litigation may go forward in the district court," then the district court should stay the proceedings. Blinco, 366 F.3d at 1252 (quoting Bradford-Scott Data Corp. v. Physician Computer Network. Inc., 128 F.3d 504, 506 (7th Cir. 1997)). On this reasoning, and finding non-frivolous the defendant's appeal of the denial of its motion to compel arbitration, the court granted defendant's motion to stay proceedings in the district court pending the appeal of the denial of the motion to compel arbitration. ***

***Defendant's appeal has divested this Court of the power to hear the current matter, so it is only proper for the Court to stay consideration of Plaintiffs' Order to Preserve***.

Moreover, the Court does not find any justification--such as the preservation of the status quo-to grant Plaintiffs' Motion to Preserve and therefore finds Plaintiffs' reference to NRDC inapposite. In NRDC, the only reason the Ninth Circuit affirmed the district court's post-judgment modifications to an injunction entered against the defendant while the case was on appeal was due to the fact that the modifications were minor adjustments that enforced the underlying purposes of the original requirements of the injunction. In this light, as the Ninth Circuit noted, the modifications to the injunction during the pendency of the appeal did not materially alter the status of the case on appeal and only clarified the provisions of the injunction. See NRDC, 242 F.3d at 1166.

Here, however, any order by the district court directing Defendant to preserve the requested information may materially alter the status quo of the case given the dispositive nature of the arbitration issue on appeal before the Circuit. If the Court orders Defendant to exercise efforts to preserve the requested termination dates, which Defendant alleges are outside of its control, custody, and possession, Defendant must engage in costly and time consuming methods to advance a case in this judicial forum that may ultimately be dismissed. Any effort to preserve the status quo through the preservation order may thereby be illogical and work against the principles and policies proposed in Chudasama, Blinco, and Shewchun, pending the outcome of the arbitration matter on appeal. In sum, unlike the district court's modification of the injunction in NRDC, this Court's entry of a protective order would shift focus from the core question that is ultimately at issue before the Eleventh Circuit?whether the district court should have ordered the parties to arbitrate the case. Only when the arbitration issue is resolved and only if the case is remanded to this Court should this Court re-shift its focus in the case to consider Plaintiffs' Motion to Preserve.

Lastly, this Court finds it unwarranted to order Defendant to fulfill a duty it is already obligated to perform under the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 26 (ordering required disclosures of information, documents, and contacts that producing party may use at trial in support of claims and/or defenses). And Plaintiffs' supposition that the requested documents face a risk of loss or destruction — an assumption insubstantially based on affidavits from similar credit insurance cases — does not demonstrate the Court's need to remind Defendant to take steps to preserve documents or information that the Federal Rules already mandate Defendant preserve. Indeed, such a "reminder" would serve no purpose.

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