In this week’s installment of Arbitration Nation, we’re going to look at when a “decision with respect to an arbitration” may be appealed. 9 U.S.C. § 16 provides part, but only part, of the answer. The rule essentially establishes the right of a party losing a motion to compel arbitration in a federal court to appeal that decision immediately. In contrast, a party who has been compelled to arbitration cannot appeal that decision immediately unless she first secures permission from both the district court and the court of appeals under 28 U.S.C. § 1292(b). See 9 U.S.C. § 16(b).
That seems pretty easy, right? Well, maybe it should be, but some wicked complications come up in at least four situations.
Three of those situations involve a court dismissing a pending lawsuit rather than staying it. It’s worth noting that Several Circuits reason that dismissal is the wrong procedural complement to an order compelling arbitration. See, e.g., Aqua-Chem, Inc. v. Bariven, S.A., No. 3:16-CV-553, 2018 WL 4870603, at *2 (E.D. Tenn. Mar. 16, 2018) (discussing the Circuit split in detail). The Supreme Court has, to date, punted on this issue. See Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 87 n.2, 121 S. Ct. 513, 520, 148 L. Ed. 2d 373 (2000) (“The question whether the District Court should have [dismissed the underlying lawsuit instead of granting a stay] is not before us, and we do not address it.”). Basically, courts that find dismissal problematic read FAA § 3 literally: “the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action. . . .”
More courts, however, reason that the FAA’s mandatory stay does not impose an immutable limitation on a court’s discretion to dismiss claims requiring arbitration, and that dismissal may be proper if “all of the issues raised in the [suit] must be submitted to arbitration.” See, e.g., Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992).
So, back to three of the four complications.
The first isn’t really a complication, I suppose, as there’s a very clear-cut answer: what happens if the district court dismisses an underlying lawsuit with prejudice instead of staying the case pending arbitration? The answer: dismissal with prejudice constitutes an immediately appealable decision. Such an “order plainly dispose[s] of the entire case on the merits and [leaves] no part of it pending before the court.”Green Tree, 531 U.S. at 86.
The second complication, however, deserves the label: what happens if the district court dismisses an underlying lawsuit without prejudice instead of staying the case pending arbitration? The Sixth Circuit recently confirmed that a dismissal without prejudice paired with an order compelling arbitration constitutes an immediately appealable final decision. See Hilton v. Midland Funding, LLC, 687 F. App’x 515, 518 (6th Cir. 2017).
But, as the case notes, SCOTUS has never addressed this particular issue. Moreover, I think that there are some decent policy arguments that the Sixth Circuit has gotten it wrong. Basically, allowing a district court to dismiss a case without prejudice and treating such a dismissal as appealable does an end run around FAA §§ 3 and 16. Combined, these provisions bolster the parties’ recourse to arbitration and push any doubts about the arbitrability of a dispute to arbitration. But I digress.
The third complication comes up when a district court stays a pending case, compels arbitration and then the party sent to arbitration voluntarily dismissesher federal court case without prejudice. The Ninth Circuit just addressed this situation and said, “[i]t makes no difference that [the plaintiff] then secured a voluntary dismissal without prejudice. A plaintiff’s ‘voluntary dismissal without prejudice is ordinarily not a final judgment from which the plaintiff may appeal.’” Gonzalez v. Coverall N. Am., Inc., No. 17-55787, 2019 WL 911884, at *2 (9th Cir. Feb. 22, 2019) (citations omitted).
The fourth complication arises when a district court just isn’t very clear about whether it’s staying the pending lawsuit or dismissing it. That was at stake in a very recent Second Circuit case, MELINA BERNARDINO, individually & on behalf of other similarly situated persons, Plaintiff-Appellant, v. BARNES & NOBLE BOOKSELLERS, INC., Defendant-Appellee., No. 18-607, 2019 WL 1076834 (2d Cir. Mar. 7, 2019). There, the plaintiff argued that a district court “entered judgment dismissing, rather than staying, the action,” because the end of the order directed that “[t]he Clerk shall close the case.” Id. at *1. The court explained that there is “no jurisdictional significance to [a] docket entry marking [a] case as ‘closed,’ which we will assume was made for administrative or statistical convenience.” Id. (citations omitted).