Arbitration & Mediation

US Supreme Court: Third Parties and Non-Parties to Arbitration Agreement Can Appeal Under FAA

By Christopher B. Hopkins, Esq.

For SCOTUS watchers, when Scalia and Ginsburg agree on something, its probably rock solid. But then again, when CJ Roberts and Souter both dissent...

We're going to give the nod to the Scalia-authored majority in Arthur Andersen LLP v. Wayne Carlisle et al., the third arbitration-related opinion out of the U.S. Supreme Court this term. Each opinion has been pro-arbitration.

The question was whether non-signatories to an arbitration agreementt could appeal, under the FAA, the denial of a Motion to Compel Arbitration/Motion to Stay Litigation. The federal courts had been split on the issue. Of note, the Eleventh (11th) Circuit had previously ruled in Becker v. Davis and Falcon Financial that non-parties did have standing to appeal. So that remains good law.

So let's take a look at the three provisions of the Federal Arbitration Act: Section 2 holds that written arbitration agreements are valid but for grounds under state law. Section 3 holds that a lawsuit should be stayed pending arbitration "under an agreement in writing." Section 16 says the movant may take an interlocutory appeal from an "order... refusing a stay of action."

The majority focuses on the "under an agreement" language to hold that any party moving for arbitration is entitled to a stay of litigation, regardless of whether the movant is a signatory or not.

Justice Scalia wrote that the jurisdiction over thee appeal must be focused upon the category of the order, not the strength of the grounds for reversal. Moreover, determining whether an appeal can be taken under Section 3 is "immeasurably more simple and less factbound" if any movant, signatory or not, can appeal. He points out that requiring only signatories to appeal would muddy the waters in cases where the agreement isn't signed.

The Souter/Roberts/Stevens dissent suggested that the "longstanding congressional policy limiting interlocutory appeals" should carry the day, finding that intermediate appeals were "extraordinary interruptions to the normal process of litigation." They found that third party beneficiary status to enforce a contract is "a weak premise" to allow an appeal. Procedure over substantive rights. The dissent likewise grasped for the same concept as the majority: they claimed that "signatory? yes-no" was the appropriate bright line rule.

In short, any movant can appeal the loss of a motion to compel arbitration under the FAA, regardless of signatory status.

By the way, in the event you want a list of "traditional" state contract law grounds for non-signatories to appeal, this Opinion offered: assumption, piercing the corporate veil, alter ego, incorporation by reference, third party beneficiary, waiver, and estoppel.

Full post as published by Florida Arbitration Law on May 06, 2009 (boomark / email).