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Is there a shift in the circuit court split on interlocutory appeals under the Federal Arbitration Act?

November 27, 2023
By: Kristen E. Mueller

Published by Law360.com on November 28, 2023 under the title "An Overview of Circuit Courts' Interlocutory Motion Standards".

The short answer to the title-question is yes — well, yes as to when jurisdiction exists for interlocutory appeals under the FAA. Section 16(a) of the FAA allows litigants to file an immediate appeal from an order declining to enforce an arbitration agreement.[1] Typically, Section 16 comes into play when a defendant responds to a complaint by moving to enforce the terms of an arbitration agreement, which the district court denies. For decades, the circuit courts of appeal have been split on whether the motion filed below met the jurisdictional threshold of Section 16(a).

The strictest of the circuit courts — the U.S. Court of Appeals for the Tenth Circuit and the U.S. Court of Appeals for the D.C. Circuit — have historically declined to exercise jurisdiction unless the request to enforce an arbitration agreement was raised in a standalone motion that was styled as a motion to compel under the FAA, and that only sought relief under the FAA. Conversely, other circuits have allowed interlocutory appeals when the request to enforce an arbitration agreement was coupled with other requests for relief in a joint motion to compel arbitration and motion to dismiss, or motion for summary judgment — namely, the U.S. Courts of Appeals for the First, Third, Fourth, Sixth through Ninth, and Eleventh Circuits.

Further still, the U.S. Courts of Appeals for the Second, Third, Sixth and Seventh Circuits will construe a motion to dismiss as a motion to compel arbitration as long as the substance of the motion, implicitly or explicitly, seeks an order compelling arbitration or staying the case pending arbitration. As if those differences are not enough, the circuit courts also disagree on whether the test for jurisdiction under Section 16 should be made by examining the motion alone, the order on appeal, or both.

Given these varying jurisdictional tests, it is little surprise that the circuit courts of appeal have even differed in their categorization of each other’s jurisdictional tests as broad or narrow — except that they tend to agree that the Tenth Circuit and D.C. Circuit are the strictest, followed closely by the Fourth Circuit.[2] Based on a review of recent decisions in each circuit, with a focus on 2023 decisions, the Tenth and D.C. Circuits still take the strictest construction of Section 16(a) with their exceptionally narrow tests for jurisdiction, while the Seventh and First Circuits top the other end of the spectrum as the least strict of the circuits, taking a broad construction of Section 16(a) and applying the most pragmatic of jurisdictional tests.

The last several years have seen notable shifts toward pragmatism from almost every circuit, except for the D.C. Circuit.[3] As discussed herein, it seems that even the Tenth Circuit is pondering a step closer to the pragmatic end of the jurisdictional spectrum.

Circuit Court Review

Seventh Circuit

Starting off with the most pragmatic — and least litigator anxiety-inducing — circuit, the U.S. Court of Appeals for the Seventh Circuit reaffirmed in January in United Natural Foods Inc. v. Teamsters Local 414 that all orders declining to compel arbitration are immediately reviewable under Section 16(a)(1)(A) and (B).[4]

The Seventh Circuit regularly construes motions to dismiss brought under Federal Rules of Civil Procedure 12(b)(1), (3) and (6) as motions to compel arbitration.[5] In analyzing whether jurisdiction is proper under Section 16, the court focuses on the substance of the motion at issue on interlocutory appeal and not the motion’s label, and if relevant, the court will also consider whether the opposing party’s response showed it understood the defendant had invoked the FAA in its motion to dismiss.

Like several other circuits, the Seventh Circuit also regularly treats motions to dismiss for improper venue under Rule 12(b)(3) as motions to compel arbitration, because the venue argument is rooted in enforcing an arbitration contract.[6]

First Circuit

In March, the U.S. Court of Appeals for the First Circuit followed its precedent when exercising jurisdiction in an interlocutory appeal from the denial of the defendant’s joint motion to compel arbitration and dismiss the complaint.[7] The court in Fraga v. Premium Retail Services acknowledged that the defendants had appealed the district court’s order that purportedly denied only the motion to dismiss while reserving ruling on the motion to compel arbitration.

However, the First Circuit took a pragmatic approach under Section 16(a) and treated a “request to dismiss” based on an arbitration clause as a request for an order to compel arbitration — which clearly falls within the scope of Section 16(a).[8]

Third Circuit

Some litigators may be surprised to find the U.S. Court of Appeals for the Third Circuit next on the spectrum in terms of pragmatism, because the Third Circuit’s seminal 2015 decision construing Section 16 — Devon Robotics LLC v. DeViedma — spoke of joining the Fourth and Tenth Circuits in focusing its jurisdictional test on the movant’s requested relief.[9]

However, the Devon court went on to decide that the Third Circuit’s jurisdictional test also examined the order’s label and operative terms and, more importantly, it held that Section 16 does not bar jurisdiction where a joint motion was filed because the FAA does not expressly preclude requests for multiple forms of relief.[10] The Third Circuit’s decisions in 2023 make its distinction from the Fourth and Tenth circuits even more clear.

In Henry v. Wilmington Trust, decided in June, the Third Circuit exercised jurisdiction under Section 16(a) when the arbitration issue before the court was raised in a motion to dismiss and not a motion to compel.[11] There, the defendants framed their argument to dismiss under FRCP 12(b)(6), because an arbitration provision in the parties’ contract barred bringing claims in federal court. The defendants claimed that they filed a motion to dismiss instead of a motion to compel because the Delaware-based district court could not compel arbitration in Virginia as required by the arbitration provision.

The U.S. District Court for the District of Delaware denied the motion, and the defendants filed an interlocutory appeal under Section 16(a)(1)(B). In asserting jurisdiction, the Third Circuit rejected the argument that appellate jurisdiction only exists from denials of motions “styled as” petitions to compel arbitration under the FAA.[12] The court of appeals relied on its precedent under Section 16(a), which consistently held that all orders that have the effect of declining to compel arbitration are reviewable, as determined based on the substance of the motion and the order, and not the motion’s form.[13]

In an August decision, Sarah Car Care Inc. v. Logisticare Solutions LLC, the Third Circuit again exercised jurisdiction under Section 16(a)(1) despite the appeal being taken from a discovery motion.[14] The defendants filed a motion to compel arbitration that was left pending while the district court elected, instead, to move forward with discovery and pretrial conferencing. After the defendants unsuccessfully moved to adjourn discovery and the pretrial conference, they moved for a protective order staying all discovery pending resolution of the motion to compel arbitration. The U.S. District Court for the Eastern District of Pennsylvania declined to enter a protective order, held the initial pretrial conference, and set discovery completion deadlines. The Third Circuit again held that jurisdiction existed under the FAA, because Section 16(a)(1) covers orders that have the effect of declining to compel arbitration.[15] The court recognized that the defendants had appealed from the denial of a motion for a protective order brought pursuant to a discovery rule Federal Rule of Civil Procedure 26(c), but the Third Circuit pragmatically held that the combined effect of denying the motion to stay discovery while indefinitely deferring the motion to compel arbitration resulted in the latter being effectively denied.[16]

Ninth Circuit

The U.S. Court of Appeals for the Ninth Circuit also took a pragmatic approach to interlocutory appeals under the FAA this year. In Boshears v. PeopleConnect Inc., the defendants moved to compel arbitration and to dismiss the complaint under Rule 12(b)(6) on immunity grounds.[17] The U.S. District Court for the Western District of Washington issued a single order denying both requests, and the court of appeals exercised jurisdiction only over the arbitration issue pursuant to Section 16(a) of the FAA.

In its August decision self-described as “commonsensical,” the Ninth Circuit explained that courts frequently issue multiple orders in the same document, “particularly when a party request[s] multiple forms of relief at the same time,” but the courts may “look behind the district court’s characterization’ of its order to determine” if appellate jurisdiction existed.[18]

Second Circuit

The U.S. Court of Appeals for the Second Circuit made a similar shift toward pragmatism in its recent decisions on interlocutory jurisdiction under Section 16. In 2022, the Second Circuit construed a motion to dismiss as a motion to compel arbitration in a footnote. Treating the jurisdictional issue as a foregone conclusion, the court in Zachman v. Hudson Valley Federal Credit Union simply cited its earlier decisions for support and held that jurisdiction over an interlocutory appeal was proper under Section 16 as long as the motion to dismiss asked, explicitly or implicitly, for the district court to enforce the arbitration agreement.[19]

Then, in 2023, the Second Circuit in NATS Inc. v. Radiation Shield Technologies Inc. considered the U.S. District Court for the District of Connecticut’s denial of a motion to compel arbitration “without prejudice to renew pending trial on the narrow question” of whether an arbitration agreement existed.[20] In March, the court of appeals found it had jurisdiction over the interlocutory appeal under the FAA, because Section 16(a) does not state if orders denying a motion to compel must be final orders. The appellate panel agreed with the district court that a material issue of fact existed on whether an actual meeting of the minds occurred on the arbitration agreement, but the court suggested that it would cause less “uncertainty as to appellate jurisdiction” if the district court held the motion to compel in abeyance as opposed to issuing an order denying without prejudice.[21]

Eleventh Circuit

The U.S. Court of Appeals for the Eleventh Circuit did not issue any decisions directly on point in 2023. However, the court considered a defendant’s argument that Section 16(a)-(b) should provide an interlocutory appeal from an order granting the plaintiff’s motion to compel an appraisal and stay the case.[22] In Positano Place v. Empire Indemnity Insurance Co., the defendants argued that a compelled appraisal in the real estate context was equivalent to the definition of arbitration under the FAA. The Eleventh Circuit held that even if a compelled real estate appraisal qualified as arbitration under the FAA, the court would still lack jurisdiction because Section 16 does not allow interlocutory appeals from orders granting motions to compel.

Regardless of the argument in Positano, the Eleventh Circuit still falls in the middle of the jurisdictional spectrum because it historically has allowed interlocutory appeals from joint motions to compel arbitration and to dismiss under Federal Rule of Civil Procedure 12(b)(6).[23]

Eighth Circuit

Similarly, the U.S. Court of Appeals for the Eighth Circuit falls in the middle of the spectrum of appellate jurisdictional tests. In 2021, the court exercised jurisdiction under Section 16 from an order denying a joint motion to strike class action allegations and to compel arbitration. In doing so, the Eighth Circuit held that it could hear both issues on interlocutory appeal because it is an order that is appealed, not a motion, and review of an order allows review of any issue fairly included with the certified order.[24]

Sixth Circuit

Next in order of pragmatism is the U.S. Court of Appeals for the Sixth Circuit — that is assuming its 2020 decision in Dorsa v. Miraca Life Sciences Inc. was an oddity, as the dissenting justice suggested in a more direct fashion.[25] In Dorsa, the defendant filed a joint motion to dismiss under Rule 12(b)(1), (3), (6) and “Section 1 et seq.” of the FAA. A majority of the panel found no jurisdiction under Section 16(a) because the motion only sought relief in the form of dismissal and did not implicitly or explicitly seek to stay the case and compel arbitration. In so holding, the majority described the Sixth Circuit as less strict than the Tenth Circuit, because the Sixth Circuit does not require that the only relief sought in the motion is enforcing an arbitration agreement under the FAA. The Sixth Circuit aligned itself with the Third Circuit and held that Section 16 does not bar jurisdiction where the motion sought alternative relief, such as dismissal or summary judgment.[26]

Notably, the dissent in Dorsa believed the court had interlocutory jurisdiction under Section 16 and challenged the majority’s reliance on Sixth Circuit precedent that actually involved motions to dismiss based on an arbitration clause without also seeking to stay or compel arbitration in the alternative.[27] In that regard, the majority decision seems to be a shift backward for the Sixth Circuit, which has otherwise held — consistent with the majority of the circuits — that joint motions to compel and dismiss are immediately appealable under Section 16 of the FAA.

Fourth Circuit

Another interesting shift in 2023 came out of the U.S. Court of Appeals for the Fourth Circuit. In its July decision in Amos v. Amazon Logistics Inc., the Fourth Circuit exercised jurisdiction under Section 16(a)(3) after the district court granted the defendant’s motion to dismiss and to compel arbitration.[28] In a footnote, the Fourth Circuit simply found that arbitration clauses are enforced in court by way of FRCP 12(b)(3) motions to dismiss for improper venue.[29] And notably, in exercising jurisdiction under Section 16(a)(3), the Fourth Circuit implicitly found that the interlocutory decision below was a final decision on the arbitration issue, thereby greatly expanding the number of possible interlocutory appeals under the FAA.

Tenth Circuit

Perhaps the most interesting decisions in 2023 came from the U.S. Court of Appeals for the Tenth Circuit. The Tenth Circuit took up two appeals under Section 16(a) without discussing — much less citing — its strict two-step jurisdictional test promulgated in 2009 in Conrad v. Phone Directories Co.[30]; and in a third appeal before it, the Tenth Circuit actually questioned whether its heretofore oft-cited decision in Conrad was wrongly decided.

The Conrad test asks first whether the defendant’s motion in the district court moved to compel arbitration and stay litigation explicitly under the FAA. If the answer is no, the Tenth Circuit proceeds to the second step, which asks whether the defendant’s motion made it plainly apparent that he seeks only the remedies provided for by the FAA in his prayer for relief.[31] The Tenth Circuit faithfully applied Conrad until 2023.

In Brayman v. KeyPoint Government Solutions Inc., decided in October, and DiTucci v. First American Title Insurance, decided in January, the appellate court heard interlocutory appeals from orders denying motions to reconsider, not explicit motions to compel arbitration.[32] And in Brayman, the order addressed not only compelling arbitration but also class certification under Federal Rule of Civil Procedure 23.

In the third appeal, Gramercy Distressed Opportunity Fund II LP v. Piazza, the court of appeals recognized that Conrad arguably “improperly mixed the waiver issue with the jurisdictional issue” but ultimately applied the Conrad two-step test because it “remains binding precedent in this circuit”.[33] As a result, the Tenth Circuit declined to exercise jurisdiction under Section 16(a)(1) because the defendants’ request to compel arbitration was “not styled as a motion under the FAA”, and it was raised in a motion to dismiss pursuant to Rule 12(b) with other requests for relief.[34]

Thus, it cannot be definitively said if the Tenth Circuit has actually shifted to a more pragmatic and less strict jurisdictional test when a district court declines to enforce an arbitration agreement, but there may still be hope for the parties before it in 2024.

D.C. Circuit

Arguably last on the spectrum is the seemingly unwaveringly strict test of the D.C. Circuit. Although to be fair, the court has not addressed this issue since its 2003 decision in Bombardier Corp. v. Amtrak. There, the court rejected the argument that Section 16 of the FAA permits the immediate appeal of any orders hostile to arbitration, finding that Congress carefully enumerated appealable orders in Section 16 and motions to dismiss were not included. Because the defendant’s motion on appeal was filed under Rule 12(b)(6) and sought to dismiss the complaint — albeit for failure to exhaust the contract’s dispute resolution procedures, the D.C. Circuit declined to exercise jurisdiction under Section 16. Notably, it was not clear if the dispute resolution procedures were even arbitration clauses or mediation clauses.

After considering the substance of the motion and the order denying it, the D.C. Circuit declined to treat the motion to dismiss as a motion to compel arbitration or stay proceedings pending arbitration, because those motions presuppose the party’s intent to arbitrate its disputes and rely on the FAA’s requirement that arbitration agreements be strictly enforced, and the defendant’s motion did neither in this case.[35] It remains to be seen if the D.C. Circuit would adhere to this seemingly strict construction of Section 16 if faced with a case that actually involved a motion to dismiss based on an indisputable arbitration agreement.

However, the D.C. Circuit’s 2020 decision in Process and Industrial Developments Ltd. v. Federal Republic of Nigeria may give litigators hope of more pragmatism.[36] In a case involving a motion to dismiss for lack of subject-matter jurisdiction based on a foreign sovereign’s immunity from suit, the D.C. Circuit held that a foreign sovereign may take an interlocutory appeal from decisions ordering it to participate in pretrial litigation, because the purpose of foreign sovereign immunity would be defeated if the sovereign were required to wait until the final decision after trial before challenging a decision denying it immunity.

Notably, the purpose of sovereign immunity is to provide not only a defense from liability but a shield from trial and the burdens of litigation, and thus the immunity must be decided at the threshold of every action upon its assertion.

Conclusion

As any commercial litigator knows, clients expect — and trial judges want — lawyers to make their time in court efficient and cost-effective. A frugal and efficient lawyer may want to file the initial motion attacking the complaint on several grounds, including a mandatory arbitration agreement. However, given the current state of federal circuit courts’ jurisprudence, a savvy lawyer must be cautious about how the argument is raised depending upon which circuit court of appeal would govern an interlocutory appeal.

Endnotes

[1] 9 U.S.C.S. § 16(a).

[2] Cf. United States ex rel. Dorsa v. Miraca Sci., Inc., 983 F.3d 885 (6th Cir. 2020) (asserting that the 1st, 2d, 3d, 4th, 9th, 10th, and D.C. circuits all apply a strict test under §16); with, Devon Robotics, LLC v. DeViedma, 798 F.3d 136 (3d Cir. 2015) (asserting that the D.C. and 2d circuits apply strict, narrow tests under §16(a); the 1st and 6th circuits apply broad tests; and the 4th and 10th circuits apply a “functional” test).

[3] There are no relevant Fifth Circuit decisions to discuss, which is par for the course in appellate decisions compiling sister circuit’s decisions under Section 16. See Dorsa and Devin in footnote 1 supra.)

[4] United Nat. Foods, Inc. v. Teamsters Local 414, 58 F.4th 927, 932-33 (7th Cir. 2023) (citing Boomer v. AT&T Corp., 309 F.3d 404, 412-13 (7th Cir. 2002)).

[5] Smith v. Bd. of Dirs. of Triad Mfg., 13 F.4th 613, 618 (7th Cir. 2021); Brickstructures, Inc. v. Coaster Dynamix, Inc., 952 F.3d 887, 890 (7th Cir. 2020).

[6] Brickstructures, 952 F.3d at 890; see also, e.g., Amos v. Amazon Logistics, Inc., 74 F.4th 591, n.2 (4th Cir. 2023).

[7] Fraga v. Premium Retail Servs., 61 F.4th 228, 232 (1st Cir. 2023).

[8] Id. at 232-233 (citing IOM Corp. v. Brown Forman Corp., 627 F.3d 440, 449 n.10 (1st Cir. 2010); Soto v. State Indus. Prods., Inc., 642 F.3d 67, 70 n.1 (1st Cir. 2011); Sourcing Unlimited, Inc. v. Asimco Int’l, Inc., 526 F.3d 38, 46 (1st Cir. 2008)).

[9] Devon Robotics, LLC v. DeViedma, 798 F.3d 136, 145-47 (3d Cir. 2015).

[10] Id.

[11] Henry v. Wilmington Tr., NA. Brian Sass, 72 F.4th 499 (3d Cir. 2023).

[12] Id. at 505.

[13] Id.

[14] Sarah Car Care, Inc. v. Logisticare Sols., LLC, No. 21-3108 unpub. (3d Cir. Aug. 22, 2023).

[15] Id. at *3 (quoting Henry v. Wilmington Tr., 72 F.4th 499, 505 (3d Cir. 2023)).

[16] Id. at *5.

[17] Boshears v. PeopleConnect, Inc., 76 F.4th 858 (9th Cir. 2023).

[18] Id. at 861.

[19] Zachman v. Hudson Valley Fed. Cr. Union, 49 F.4th 95, n.3 (2d Cir. 2022) (citing Nicosia v. Amazon, Inc., 834 F.3d 220, 230 (2d Cir. 2016); Wabtec Corp. v. Faiveley Transp. Malmo AB, 525 F.3d 135, 139-40 (2d Cir. 2008)).

[20] NATS, Inc. v. Radiation Shield Techs., Inc., No. 22-369 unpub., *1 (2d Cir. Mar. 9, 2023) (avail. at 2023 U.S. App. LEXIS 5622; 2023 WL 2416160).

[21] Id. at *3-*4.

[22] Positano Place at Naples I Condo. Ass’n, Inc. v. Empire Indem. Ins. Co., ___ F. 4th ___, 2023 U.S. App. LEXIS 27961 (11th Cir. Oct. 20, 2023).

[23] See Cappuccitti v. DirecTV, Inc., 623 F.3d 1118 (11th Cir. 2010) (allowing an interlocutory appeal under §16(a)(1)(B from a joint motion to compel arbitration under the FAA and to dismiss under FRCP 12(b)(6), where the district court dismissed two of the three counts of the complaint and denied the request to compel arbitration on all three counts).

[24] Benchmark Ins. Co. v. SUNZ Ins. Co., 36 F.4th 766, 770 (8th Cir. 2022) (citing Donelson v. Ameriprise Fin. Servs., 999 F.3d 1080 (8th Cir. 2021), and outright asserting it had jurisdiction under §16(a)(1)(B)).

[25] United States ex rel. Dorsa v. Miraca Sci., Inc., 983 F.3d 885 (6th Cir. 2020).

[26] Id. at 888-89 (citing Simon v. Pfizer, Inc., 398 F.3d 765, 771-72 (6th Cir. 2005); Turi v. Main Street Adoption Servs., LLP, 633 F.3d 496, 500 (6th Cir. 2011); Taylor v. Pilot Corp., 955 F.3d 572, 578 (6th Cir. 2020)).

[27] Id. at 888-91 (also discussing Simon, 398 F.3d 765, Turi, 633 F.3d 496, Taylor, 955 F.3d 572).

[28] Amos v. Amazon Logistics, Inc., 74 F.4th 591, 594 (4th Cir. 2023).

[29] Id. at n. 2 (citing Aggarao v. MOL Ship Mgmt. Co., 675 F.3d 355, 365 (4th Cir. 2012)).

[30] Conrad v. Phone Directories Co., 585 F.3d 1376 (10th Cir. 2009).

[31] Conrad, 585 F.3d at 1385-86.

[32] Brayman v. KeyPoint Gov’t Sols., Inc., __ F.4th __, Nos. 22-1118, 22-1168, (10th Cir. Oct. 3, 2023), and DiTucci v. First Am. Title Ins., No. 21-4120 unpub. op. (10th Cir. Jan. 25, 2023).

[33] Gramercy Distressed Opportunity Fund II, L.P. v. Piazza, No. 22-8063, unpub. (10th Cir. May 10, 2023) (rehearing pet. pending).

[34] Id. at *5-6.

[35] Bombadier Corp. v. AMTRAK, 333 F.3d 250, 252-54 (D.C. Cir. 2003).

[36] Process & Indus. Devs. v. Fed. Republic of Nig., 962 F.3d 576, 583-85 (D.C. Cir. 2020).