Originally published November 10, 2008
Keywords: Supreme Court, Federal Arbitration Act, arbitration, appellate jurisdiction, Arthur Adnerson, Carlisle, nonsignatory
The Supreme Court granted certiorari last Friday in one case of interest to the business community.
Under the Federal Arbitration Act ("FAA"), federal courts must grant a motion to stay litigation if it is supported by a written agreement to arbitrate the issues involved in the suit. See 9 U.S.C. § 3. The FAA allows appellate review of an order denying such a motion, at least under certain circumstances. See 9 U.S.C. § 16(a)(1)(i). The lower courts are divided, however, over whether the federal circuits have appellate jurisdiction to review the denial of a motion to stay litigation when the motion was brought by a party that is not a signatory to the underlying arbitration agreement. The Supreme Court granted certiorari in Arthur Anderson, LLP v. Carlisle, No. 08-146, to resolve the lower-court disagreement.
The issue in this case is of vital importance to businesses at risk of litigation from indirect customers. The Court's decision will determine whether such businesses may stay litigation and compel arbitration as non-signatories to an otherwise relevant and controlling arbitration agreement.
The respondents entered into investment-management agreements with a financial boutique firm in connection with tax shelters created for the respondents. After those tax shelters failed, the respondents brought suit against the financial boutique and the petitioners. The financial boutique thereafter filed for bankruptcy, resulting in an automatic stay of the litigation as to it. The petitioners also sought a stay, invoking an arbitration clause in the management agreements. Even though the petitioners were not signatories to the agreement, they claimed a right to stay the litigation under principles of equitable estoppel. The district court denied the petitioners' motion. The Sixth Circuit, relying on Tenth and D.C. Circuit reasoning, affirmed the district court's denial on the narrow basis that federal circuit courts lack interlocutory jurisdiction over denials of motions to stay by non-signatories of the underlying arbitration agreement.
Absent extensions, amicus briefs in support of the petitioners will be due on December 29, 2008, and amicus briefs in support of the respondent will be due on January 28, 2009.
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