Stop in the Name of Arbitration: Should Trial in District Court Continue While the Court of Appeals Decides Arbitrability?
| Author | Edward L. Jones III |
| Position | J.D. Candidate, The University of Iowa College of Law, 2007; B.A., University of Utah, 2001. |
| Pages | 1109-1131 |
Page 1109
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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."
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 Page 1110 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
Conversation is possible only if the participants have some common ground, be it language, experience, or purpose. The "conversation" between circuit courts discussed in this Note happens against the backdrop of the Federal Arbitration Act7 and the Supreme Court case Griggs v. Provident Consumer Discount Co.8
When faced with a legal difficulty, a court might first turn to statutory law for a solution. In 1988, Congress passed 16 of the Federal Arbitration Act ("FAA") in an effort to remove arbitrable cases from the court system quickly.9 Section 16 allows a party in federal court to take an interlocutory appeal from an order denying that party's motion to compel arbitration rather than waiting until the litigation is finished to do so.10 But the FAA does not specify whether the district court or the court of appeals has jurisdiction while the appeal is pending.11 So the plain language of the FAA would not solve Tom and Linda's dilemma for the court. But it was an important baseline that each court of appeals considered in its analysis of the problem. Page 1111
A court attempting to resolve the issue of whether Tom's case should go forward while Linda's appeal is pending might look to the Supreme Court for guidance. In fact, each of the circuit-court decisions considered by the McCauley court began with the rule in Griggs v. Provident Consumer Discount Co.12 when addressing whether a district court should stay proceedings pending an interlocutory appeal on the issue of arbitrability.13
In Griggs, the plaintiff sued for damages for the defendant's violation of the Truth in Lending Act.14 The district court granted the plaintiff's motion for summary judgment.15 After the district court entered final judgment, the defendant filed a motion with the district court to alter or amend the judgment.16 Shortly thereafter, the defendant also filed a notice of appeal.17After the notice of appeal had been filed, the district court denied the defendant's motion to alter or amend.18 The Court of Appeals for the Third Circuit accepted jurisdiction despite the fact that the notice of appeal had been filed while the district court was still ruling on the post-judgment motion.19 This was in spite of Federal Rule of Appellate Procedure 4(a)(4), which states that "[a] notice of appeal filed before the disposition of any of the above motions shall have no effect."20 The Third Circuit justified its acceptance of jurisdiction by stating that "we have generally allowed appellant to proceed unless the appellee can show prejudice resulting from the premature filing of the notice."21 The Supreme Court reversed, clarifying that "[t]he 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."22 The Page 1112 Supreme Court held that the defendant's notice of appeal "was not merely defective; it was a nullity."23
The Griggs decision made clear that a district court and a court of appeals could not exercise simultaneous jurisdiction over a case. But, as the McCauley court noted, "the Court has never explicitly extended this holding to interlocutory 16(a) appeals."24 Like the FAA, the Griggs case does not solve the court's dilemma in Tom and Linda's case, but it does provide an important jumping-off point for discussion and analysis. Page 1113
This Note presents the cases leading up to McCauley, and the McCauley case itself, as part of a discussion between federal circuits on the specific problem posed by Tom and Linda's situation. Admittedly, this is not a lengthy or voluminous conversation; only four circuit courts had considered this issue before McCauley. But each court added a unique element to the analysis and enriched the conversation. This Section of the Note reviews the four cases that came before McCauley, each of which the McCauley court considers in its own decision.
The first federal court of appeals case to consider the issue of whether litigation should continue pending an arbitrability appeal was Britton v. Co- Op Banking Group.25 In Britton, the plaintiffs alleged that the defendants had engaged in securities fraud.26 One of the defendants, Liebling, requested arbitration based on the parties' contract, but the plaintiffs denied this request.27 Liebling filed a motion to compel arbitration, but the district court denied the motion.28 Liebling appealed the district court's denial.29
The Ninth Circuit Court of Appeals began its analysis by stating the Griggs rule30 that "the filing of a notice of appeal divests the district court of jurisdiction and transfers jurisdiction to the appellate court."31 The court then noted that the rule is limited to appeals that determine the outcome of the action.32
The appellant in Britton relied on McClatchy Newspapers v. Central Valley Typographical Union No. 46,33 a Ninth Circuit decision that withheld jurisdiction from a district court to amend a judgment while the appellate court was still considering the original judgment.34 The Britton court distinguished that precedent because, in McClatchy, the district court's ruling would have changed the result of the very issue before the appeals court.35 Page 1114
The Britton court observed...
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