Stop in the Name of Arbitration: Should Trial in District Court Continue While the Court of Appeals Decides Arbitrability?

Summary

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The Federal Arbitration Act allows a party in federal court to take an interlocutory appeal from an order denying its motion to compel arbitration rather than waiting until the litigation is finished to do so. But should the trial court stay proceedings while the appeal is pending? The answer involves the further questions of which court has jurisdiction and how the court system can give appropriate weight to the benefits of arbitration while preventing frivolous appeals. In McCauley v. Halliburton Energy Services, Inc., the Court of Appeals for the Tenth Circuit analyzed a circuit split on this issue and articulated why its solution will achieve the appropriate balance. This Note asserts that the Tenth Circuit overlooked a flaw in the logic of the other circuits' decisions. The resolution of this flaw provides a definitive answer to the question of divestiture pending arbitrability appeals.

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Extract

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Stop in the Name of Arbitration: Should Trial in District Court Continue While the Court of Appeals Decides Arbitrability?

Edward L. Jones III : I dedicate this Note to my father, Edward L. Jones, Jr., without whose encouragement at a critical moment I might not have attended law school. Thanks and love to my mother, Constance A. Jones, and to my siblings: Eddie, Julie, Paul, Bethany, and Valerie. These are the people who taught me that a sense of humor is the best "alternative dispute resolution."

I. Introduction: Meet the Litigants

Linda is a real-estate developer in the process of creating a new subdivision. She contracts with Tom to build and install cabinets in the subdivision's new houses. Linda is aware of the possibility that future conflicts may arise between her and Tom, and she has heard of the benefits of arbitration: that it is "faster and cheaper"1 than traditional litigation. Linda instructs her attorney to include an arbitration provision in the contract. Tom signs the contract and begins work.

Several months later, as Tom is installing a cabinet, a poorly constructed wall collapses and seriously injures him. Tom's medical bills total more than $75,000. Instead of entering into arbitration, as required by the contract, Tom sues Linda in federal district court, alleging that his injury was caused by her negligence. Linda files a motion to compel arbitration based on the arbitration provision in the contract.

In response to Linda's motion, Tom claims that the arbitration provision is unconscionable because of the gross disparity in bargaining power between Linda and himself. He points to the fact that Linda is the only employer of cabinetmakers in the area, and Tom has no other occupational skills. Tom claims that he was forced to accept the terms of the contract despite his protestations. Based on this evidence, the district court denies Linda's motion to compel arbitration. Linda then files an interlocutory appeal with the court of appeals, requesting a ruling in her favor on the issue of arbitrability.

The district court now faces an important issue: should Tom's case against Linda go forward at the district-court level, even as the appellate court is considering Linda's interlocutory appeal? Or should the district court grant a stay of proceedings until the court of appeals has decided the issue of arbitrability? The answer to these questions will implicate policies underlying arbitration and judicial economy.

On the one hand, if the district court allows the litigation to continue and the court of appeals then grants Linda's motion, she will have lost the benefits of speed and economy-the reasons she entered into an arbitration agreement in the first place. On the other hand, if the district court stays proceedings pending the appellate court's decision, this would encourage future litigants to file similar appeals, even frivolous appeals, just to delay the litigation.

The Court of Appeals for the Tenth Circuit recently grappled with just this issue in McCauley v. Halliburton Energy Services, Inc.2 In its analysis, the McCauley court noted a split of opinion among four of its sister circuits.3 The McCauley court examined these four decisions and created a new framework for comparing them.4 This Note presents each of the four previous cases, as well as the McCauley decision, as part of an extended conversation between federal circuit courts as to how they should deal with a situation like Linda and Tom's.5 This Note goes on to critique the McCauley decision and suggest an analysis for future courts that could definitively resolve the circuit split.6

II. Bases for the Conversation

Conversation is possible only if the participants have some common ground, be it language, experience, or purpose. The "conversation" between cir...

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