Federal Judiciary

Court to rule on arbitration case

By Akin Gump Supreme Court Practice Group

The Supreme Court agreed on Friday to clarify who may appeal a federal judge’s refusal to postpone a lawsuit until an arbitration of the underlying dispute goes forward.  The case of Arthur Andersen LLP, et al., v. Carlisle, et al. (08-146) focuses on whether a litigant not a party to an arbitration agreement may file a pre-trial appeal after a judge refuses to stay a court case pending arbitration.  The Circuit Courts are split on the issue.  (The Court’s order is here.  Links to the petition and other documents in the case can be found here; this is the first case on the list.)  The case is expected to be argued in the session that begins Feb. 23 and continues through March 4.

The legal question has been explored by four circuit courts, with the Sixth Circuit Court finding that such an appeal by a non-signatory to the arbitration agreement is not allowed, in agreement with the Tenth and D.C. Circuits, while the Second Circuit allows such appeals.  While the federal statute’s language allows an immediate appeal of an order denying a motion to stay proceedings while arbitration continues, the Sixth and other circuits find such an appeal proper when the case before the court involves a party not committed to arbitration.

Arthur Andersen, the now-defunct accounting firm, and a New York-based international law firm, Curtis, Mallet-Prevost, Colt & Mosle, had been sued by the owners of a construction business over advice about a tax-sheltered investment.  Sued along with them was a financial firm, Bricolage Capital LLC, who had an arbitration agreement with the investors.  Arthur Andersen and Curtis Mallet-Prevost were not parties to that agreement.  The lawsuit came after the Internal Revenue Service ruled that the type of investment vehicle created was an abusive tax shelter.  The lawsuit claimed fraud, negligence, civil conspiracy, and breach of fiduciary duty.

Bricolage sought arbitration of the dispute over the tax advice, and asked the District Court to stay the lawsuit in the meantime.  Bricolage also had filed for bankruptcy, so the lawsuit was stayed automatically as to that firm.  Arthur Andersen and the law firm then sought to stay the court case while arbitration went ahead; they claimed the outcome of the arbitration could be binding on them, too.  The District Court refused to issue the stay, for reasons not relating to the Supreme Court appeal.

 The accounting and law firms went to the Sixth Circuit, challenging the denial of the stay, but the Circuit Court ruled it did not have jurisdiction, since those two entities were not parties to the arbitration.

Full post as published by SCOTUSBLOG on November 07, 2008 (boomark / email).