The Federal Arbitration Act (FAA) grants a party the right to file an interlocutory appeal from the 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 jurisdiction. Highlighting a split in the circuit courts, and siding with the U.S. Court of Appeals for the Second Circuit, last year the U.S. Court of Appeals for the Fifth Circuit held that a district court may adjudicate the merits pending appeal.2
In deciding where to commence an action or whether to file a notice of appeal, attorneys should be mindful of this circuit split and the ramifications that appeal may have on the district court’s jurisdiction. This article addresses this split and summarizes the legal justifications and the practical considerations underlying each of the respective viewpoints.
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 the motion to compel arbitration is denied, the FAA permits the movant to file an interlocutory appeal.5
In Griggs v. Provident Consumer Discount, the U.S. 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, courts must determine whether the parties’ agreement to arbitrate the dispute (i.e., the “arbitrability question”) is “involved in” the merits of the underlying claim.
The D.C., Third, Fourth, Seventh, 10th and 11th 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 FAA would strip the district court of the ability to adjudicate the underlying claims. Thus, these courts have held, the district court’s ability to adjudicate the dispute is not merely “involved in” the appeal, it is the very question on appeal.
As the Seventh Circuit stated: “Whether the case should be litigated in the district court is not an issue collateral to the question presented by an appeal under §16(a)(1)(A)…it is the mirror image of the question presented on appeal. Continuation of proceedings in the district court largely defeats the point of the appeal and creates a risk of inconsistent handling of the case by two tribunals.”8 Accordingly, the district court is divested of jurisdiction upon the filing of the notice of appeal.
These courts also considered the practical effect of permitting the district court to retain jurisdiction pending appeal. In doing so, some courts analogized this issue to other instances in which federal courts permit interlocutory appeals, such as questions involving double jeopardy or immunity from suit. The value of these defenses derives from not only avoiding trial, but also in avoiding “the burdens attendant to litigation, including pretrial discovery.”9 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.10
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.”11
While some courts did express concern that divesting the district court of jurisdiction would provide another vehicle for delay, the 10th Circuit specifically developed a framework to “frustrate any litigant’s attempt to exploit the categorical divestiture rule.”12 Pursuant to this framework, upon the filing of the notice of appeal, the district court after a hearing may certify the appeal as “frivolous.”13 Such a certification would prevent automatic divestiture. The 10th Circuit included yet another safeguard by permitting the appellant to move the appellate court for a stay of the district court’s certification of frivolousness.14
Minority of Circuits
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.15 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.16 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.17
These circuit courts also looked to practical considerations to inform their decision. They feared, for example, that a categorical rule mandating divestiture would be exploited as it “would allow a defendant to stall a trial simply by bringing a frivolous motion to compel arbitration.”18 Nor were these courts 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.19 Moreover, “[t]here is no public policy favoring arbitration agreements that is as powerful as that public interest in freeing officials from the fear of unwarranted litigation.”20
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, attorneys should be mindful of this circuit split and the ramifications that an appeal may have on district court jurisdiction.
Jeffrey S. Boxer is a partner and Leonardo Trivigno is an associate in Carter Ledyard & Milburn’s litigation department.
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 v. Cardegna, 546 U.S. 440, 443 (2006); see also, e.g., Mitsubishi Motors v. Soler Chrysler-Plymouth, 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 v. Nat’l R.R. Passenger, No. 02-7125, 2002 WL 31818924, *1 (D.C. Cir. 2002); Ehleiter v. Grapetree Shores, 482 F.3d 207, 215 n.6 (3d Cir. 2007); Levin v. Alms. & Assocs., 634 F.3d 260, 266 (4th Cir. 2011); Bradford-Scott Data v. Physician Computer Network, 128 F.3d 504, 505 (7th Cir. 1997); McCauley v. Halliburton Energy Servs., 413 F.3d 1158, 1161-62 (10th Cir. 2005); Blinco v. Greentree Servicing, 366 F.2d 1249, 1251-52 (11th Cir. 2004).
8. Bradford-Scott, 128 F.3d at 505-06.
9. Blinco, 366 F.2d at 1252.
10. See, e.g., id.; Bradford-Scott, 128 F.3d 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).
11. Levin, 634 F.3d at 265.
12. McCauley, 413 F.3d at 1162.
14. Id. at 1161-62; Bradford-Scott, 128 F.3d at 505-6; Blinco, 366 F.3d at 1252-53. This approach is similar to the one courts have used in the double-jeopardy context. See, e.g., Donges, 915 F.2d at 575-79.
15. Motorola Credit 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).
16. See, e.g., Britton, 916 F.2d at 1412, n.7 (citing Moses H. Cone Memorial Hosp. v. Mercury Constr., 460 U.S. 1, 21 (1983)); Weingarten, 661 F.3d at 908.
17. 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…”).
18. See, e.g., Britton, 916 F.3d at 1412 (stating the trial court should have discretion to stay the proceedings).
19. Weingarten, 661 F.3d at 909-910.