When parties seek to enforce an arbitration agreement in federal court, I have noticed that parties use a variety of different procedures, such as a Rule 12b1 motion to dismiss for lack of subject matter jurisdiction, a Rule 12b6 motion to dismiss for failure to state a claim, a Rule 56 motion for summary judgment, a petition pursuant to section 4 of the FAA, and/or a motion for stay pursuant to section 3 of the FAA.
Earlier this week, the Tenth Circuit issued an important decision showing that the procedure used in district court to compel arbitration can impact whether a court of appeals can review a district court’s order. See Grosvenor v. Qwest Corp., No. 12–1095 (10th Cir. Aug. 14, 2013) (click here to see a copy of the decision).
A consumer filed a class action against defendant Qwest for deceptive practices in connection with the sale of internet services, and Qwest responded with a motion to compel arbitration and stay the litigation pursuant to sections 3 and 4 of the FAA. The district court denied Qwest’s motion, finding that there were material questions regarding contract formation. The district court then scheduled a trial to determine whether an agreement was made. During this trial phase of the proceeding, after discovery had taken place regarding contract formation, the plaintiff consumer and defendant Qwest filed competing motions for partial summary judgment. In its motion, Qwest asked the district court to “enter summary judgment that Qwest and [the consumer] entered into an arbitration agreement, as set forth in the Subscriber Agreement.” The plaintiff consumer’s summary judgment motion asked the court to find that the agreement was illusory since Qwest could modify the agreement at any time. The district court issued an order granting both summary judgment motions, finding that although the consumer had manifested assent to the arbitration agreement, the right to modify the agreement at any time made the agreement unenforceable. Qwest then tried to appeal the district court’s order regarding the motions for partial summary judgment.
Section 16 of the FAA provides, in pertinent part, that an appeal may be taken from a district court’s order:
(A) refusing a stay of any action under section 3 of this title,
(B) denying a petition under section 4 of this title to order arbitration to proceed,
(C) denying an application under section 206 of this title to compel arbitration,
(D) confirming or denying confirmation of an award or partial award, or
(E) modifying, correcting, or vacating an award.
The Tenth Circuit explained that to obtain appellate jurisdiction in a case like the one at hand, a defendant in district court must either move to compel arbitration under section 4 of the FAA or move to stay litigation under section 3 of the FAA, or the defendant “must make it plainly apparent that he seeks only the remedies provided for by the FAA.”
The Tenth Circuit found that the order being appealed addressed the parties’ competing motions for partial summary judgment, and Qwest failed to ask the district court to enter an order compelling arbitration in its motion for partial summary judgment. Moreover, Qwest’s motion was granted, and the Tenth Circuit noted that a party cannot appeal from its own motion when it is granted. Consequently, the Tenth Circuit found it lacked jurisdiction to hear Qwest’s appeal.
The Tenth Circuit noted that appellate jurisdiction could have easily existed in this case. For example, Qwest’s lawyers could have appealed the initial denial of Qwest’s motion to compel arbitration under section 4 of the FAA. Also, at the summary judgment phase of the trial regarding the formation of the agreement, Qwest could have simply sought an order compelling arbitration instead of filing a motion for partial summary judgment.
This case demonstrates procedural traps when trying to compel or avoid arbitration. For parties seeking to avoid arbitration, the plaintiff consumer’s very focused motion for partial summary judgment presents an interesting strategical choice. The plaintiff’s motion focused on a narrow issue that could preclude arbitration (whether the agreement was illusory). If the court grants such a motion on the narrow issue, and if the opposing party fails to respond with a request for an order compelling arbitration, an appellate court may find that it lacks appellate jurisdiction to review the district court’s order. As this case demonstrates, parties need to keep in mind the narrow bases for appellate review set forth in section 16 of the FAA.