Commercial Litigation and Arbitration

Appeal from Denial of Motion to Compel Arbitration Does Not Divest District Court of Jurisdiction to Proceed to Merits — Circuit Split

Weingarten Realty Inv. v. Miller, 2011 U.S. App. LEXIS 23649 (5th Cir. Nov. 1, 2011):

Whether an appeal from a denial of a motion to compel arbitration divests the district court of jurisdiction to proceed to the merits is the subject of a circuit split. The Second and Ninth Circuits have held that a stay is not automatic.

Footnote 1 Motorola Credit Corp. v. Uzan, 388 F.3d 39, 53-54 (2d Cir. 2004); Britton v. Co-Op Banking Group, 916 F.2d 1405, 1411-12 (9th Cir. 1990).

In Britton, the court pointed out that normally, appellate review of a collateral order does not deprive the district court of jurisdiction to proceed to the merits. The court cited the determination in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 21 (1983), that because arbitrability is an issue easily separable from the merits of the underlying dispute, the district court could address the merits while the appellate court reviewed arbitrability. Additionally, the Britton court noted that an automatic stay would allow litigants to delay resolution of the matter by filing frivolous appeals. In the absence of an automatic stay, the district court nonetheless retains the power to determine, on a case-by-case basis, whether proceedings should be stayed until the appeal regarding arbitrability has been resolved.

The Seventh Circuit, later joined by the Third, Fourth, Tenth, and Eleventh, has held that a notice of appeal automatically stays proceedings in the district court.

Footnote 2 Levin v. Alms & Assocs., Ltd., 634 F.3d 260, 264-66 (4th Cir. 2011); Ehleiter v. Grape-tree Shores, Inc., 482 F.3d 207, 215 n.6 (3d Cir. 2007); McCauley v. Halliburton Energy Servs., Inc., 413 F.3d 1158, 1160-62 (10th Cir. 2005); Blinco v. Green Tree Servicing, LLC, 366 F.3d 1249, 1251-52 (11th Cir. 2004).

The Seventh Circuit reasoned in Bradford-Scott Data Corp. v. Physician Computer Network, 128 F.3d 504 (7th Cir. 1997), that the underlying claims before the district court are not collateral to the issue presented by an appeal, because the appeal is to determine whether the matter should be litigated in the district court at all. The court was worried about inconsistent handling of the case by the two courts and was concerned that allowing simultaneous proceedings would defeat the speed and cost benefits parties seek from arbitration. Id. at 505. These courts analogize arbitrability appeals to appeals regarding double jeopardy, sovereign immunity, and qualified immunity, see id. at 506, reasoning that because a district court cannot proceed past these issues when there are interlocutory appeals, it similarly cannot proceed when arbitrability is appealed.

The legal debate turns on Griggs v. Provident Consumer Discount Co., 459 U.S. 56 (1982). Although appeals transfer jurisdiction from the district court to the appellate court concerning "those aspects of the case involved in the appeal," id. at 58, the district court is nonetheless free to adjudicate matters that are not involved in that appeal, see Alice L. v. Dusek, 492 F.3d 562 (5th Cir. 2007). At issue here is whether the merits of an arbitration claim are an aspect of a denial of an order to compel arbitration.

The Ninth Circuit interpreted Griggs narrowly, holding that because answering the question of arbitrability does not determine the merits of the case, the merits are not an aspect of the case that is involved in the appeal on arbitrability. To the contrary, the Seventh Circuit interpreted Griggs broadly, holding that because an appeal on arbitrability concerns whether the case will be heard in the district court at all, the merits in district court are an aspect of the case that is involved in the appeal.

The narrower interpretation better comports with our precedents and the nature of arbitration. "How broadly a court defines the aspects of the case on appeal depends on the nature of the appeal." Alice L. v. Dusek, 492 F.3d 563, 565 (5th Cir. 2007) (per curiam). The facts of Griggs suggest a narrow interpretation is normally appropriate. ***

Even given, as we have decided, that there is no automatic stay, the district court had the discretion to grant one. Those who take the minority position can find solace in C.B.S. Employees Federal Credit Union v. Donaldson, 716 F. Supp. 307 (W.D. Tenn. 1989), for the premise that, to determine whether a discretionary stay should be granted, a district court should use the four-factor test in Hilton v. Braunskill, 481 U.S. 770 (1986): "'(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure other parties interested in the proceedings; and (4) [whether] public interest [favors a stay].'"8

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