Commercial Litigation and Arbitration

Arbitration — Court May Proceed to Merits While Appeal of Denied Motion to Compel Is Pending, But Cannot Rule on Second Motion to Compel — Affidavit on Personal Knowledge Stating that Contract with Arbitration Clause Was Assigned Proves Assignment

From Grant v. Houser, 2012 U.S. App. LEXIS 6060 (5th Cir. Mar. 23, 2012):

Before us are two interlocutory appeals from denials of motions to compel arbitration in this action. Primarily at issue is: whether the district court had jurisdiction to rule on the second motion after the appeal of the first denial; and whether sufficient evidence supports the assignment of a contract containing an arbitration clause. ***

In October 2010, Appellants moved to compel arbitration, based on: the arbitration agreement signed by Berger, claiming the rights under it were assigned to Securities America; and, in the alternative, equitable estoppel because Berger relies on an agreement with Securities America for his claims. In support, they provided a declaration by Kevin Miller (Miller Declaration), Vice President, Chief Compliance Officer, and Deputy General Counsel at Securities America, which stated, inter alia: based on his personal knowledge, in acquiring BYA, Securities America inherited all contractual rights and obligations associated with BYA's accounts, including Berger's and the rights bestowed by the arbitration agreement contained in his account's contract. Berger's motion to strike the Miller Declaration was denied in November 2010. The declaration is uncontroverted.

In January 2011, through an order and reasons, the district court denied the motion to compel arbitration because: Appellants did not provide sufficient evidence that BYA assigned the New Account Form, with its arbitration clause, to Securities America; and, in the alternative, equitable estoppel did not apply. Charles Grant, et al v. Kevin Houser, et al, No. 2:10-CV-805 (E.D. La. 10 Jan. 2011) (First Order). The first of the two interlocutory appeals at issue was filed in February 2011. The district court did not stay this action pending that appeal.

Between the motion to compel's being filed and denied, Berger had been permitted to file a second amended complaint, adding claims for negligent training and supervision and "selling away" (an investment professional inappropriately selling securities not offered by the brokerage firm with which he is associated). In December 2010, prior to denial of the first motion to compel arbitration, Appellants filed a similar second motion, regarding these new claims. The first order (January 2011) did not address this second motion. Instead, after the notice of appeal from the first order was filed, this second motion was denied on 9 March 2011, based on the reasoning of the first order, and also because the court ruled no evidence had been offered showing the two claims added by the second amended complaint fell within the arbitration agreement. Grant, No. 2:10-CV-805 (E.D. La. 9 Mar. 2011) (Second Order). Accordingly, the second of the two interlocutory appeals at issue was filed that month, concerning the second order and reasons. ***

We first address district-court jurisdiction vel non to rule on the second motion to compel arbitration. After the briefs were filed, our court held that an interlocutory appeal from denial of a motion to compel arbitration does not divest the district court of jurisdiction to proceed to the merits. Weingarten Realty Investors v. Miller, 661 F.3d 904, 908-09 (5th Cir. 2011). Relying on the Supreme Court's holding in Griggs v. Provident Consumer Discount Co., 459 U.S. 56 (1982), our court explained that "[a]lthough appeals transfer jurisdiction from the district court to the appellate court concerning 'those aspects of the case involved in the appeal,' the district court is nonetheless free to adjudicate matters that are not involved in that appeal." Weingarten, 661 F.3d at 908 (quoting Griggs, 459 U.S. at 58). Weingarten further explained that "[a]n issue is generally an aspect of the case on appeal if it results in the district court's deciding an issue that the appellate court is deciding at the same time." Id. at 909. The court concluded 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." Id. at 908.

Here, unlike in Weingarten, the first interlocutory appeal divested the district court of jurisdiction to decide the second motion to compel. That motion raised arbitrability issues that are "an aspect of the case on appeal," id. at 909, because it required the district court to address the same arbitrability issues involved in the first interlocutory appeal for the same purpose, i.e., deciding whether to compel arbitration of Berger's claims. In other words, by deciding the second motion to compel, the district court decided arbitrability issues that this court was deciding at the same time, such as whether the Miller Declaration constitutes sufficient evidence of an assignment of contractual rights for purposes of a motion to compel arbitration. Because the district court lacked jurisdiction to decide the second motion to compel, the Second Order is vacated and our review is limited to the arbitrability of the claims covered by the First Order. ***

B. Therefore, primarily at issue is whether the right to arbitrate, provided by that agreement, was assigned to Securities America. It is undisputed that, if it was, Securities America can enforce it under California law (the law controlling the agreement), despite Securities America's not being a signatory to the agreement. Prograph Int'l Inc. v. Barhydt, 928 F. Supp. 983, 991 (N.D. Cal. 1996). ***

Review of the district court's rejection of the Miller Declaration is not for abuse of discretion, because that rejection was not a ruling on the admissibility vel non of that evidence; instead, it was a ruling on the merits — the sufficiency vel non of that evidence. The ruling at issue is that the Miller Declaration was insufficient to show BYA assigned its rights to Securities America. The district court erred in so ruling.

In Doddy v. Oxy USA, Inc., 101 F.3d 448 (5th Cir. 1996), our court held an affidavit in which a corporate officer attested to the fact that the corporation acquired its predecessor's assets but not its liabilities, without attaching the contract of sale evidencing the acquisition, was sufficient summary-judgment evidence when the statements in the affidavit were based on personal knowledge and did not reference the contract of sale. Id. at 463. Likewise, the Miller Declaration was based on personal knowledge and did not reference the contract of sale. ***

Given this strong presumption favoring arbitration, the summary nature of a motion to compel arbitration, and our precedent in Doddy, the Miller Declaration is sufficient evidence — in this motion-to-compel setting — to establish the assignment of BYA's rights to Securities America by a preponderance of the evidence. See id. (uncontroverted affidavit sufficient to show existence of agreement by preponderance). ***

Because of the strong presumption in favor of arbitration, the burden shifts to the party opposing arbitration to demonstrate either that the agreement is invalid or, at a minimum, to allege the dispute is outside of the agreement's scope. Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 297 (5th Cir. 2004); see also Banks, 156 F. App'x at 712 (claims within scope because nonmoving party did not allege claims were outside it). In this regard, the Miller Declaration is uncontroverted; no other bases in opposition to arbitration are raised.

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