Arthur Andersen LLP v. Carlisle

PETITIONER: Arthur Andersen LLP et al.
RESPONDENT: Wayne Carlisle et al.
LOCATION: The Arvin Site

DOCKET NO.: 08-146
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: United States Court of Appeals for the Sixth Circuit

CITATION: 556 US 624 (2009)
GRANTED: Nov 07, 2008
ARGUED: Mar 03, 2009
DECIDED: May 04, 2009

ADVOCATES:
M. Miller Baker - argued the cause for the petitioners
Paul M. De Marco - argued the cause for the respondents

Facts of the case

After Wayne Carlisle and his partners (Carlisle) sold their construction equipment business, they hired multiple consultants in order to set up a tax shelter for the proceeds. The IRS later determined the tax shelter was illegal, but offered amnesty under certain conditions. Carlisle was never informed of these developments and was ultimately required to pay taxes and penalties that exceeded $25 million. Carlisle filed suit in a federal district court against nine parties alleging fraud, negligence, civil conspiracy and breach of fiduciary duty.

Before trial, one of the defendants motioned to stay the proceedings pending arbitration with Carlisle per a written agreement with Carlisle. Stay was granted. The remaining defendants motioned seeking their own stay arguing that allowing one party to arbitrate with Carlisle and not allowing the rest would be contradictory. The district court denied the motion. On interlocutory appeal, the United States Court of Appeals for the Sixth Circuit denied it had jurisdiction to review the matter. The parties then appealed the denial of jurisdiction. They argued that Section 3 of the Federal Arbitration Act (FAA) applies and makes available a stay of proceedings in order to arbitrate when there is a written agreement that directs litigated issues into arbitration. Section 16(a)(1) of the FAA then grants appellate jurisdiction over Section 3 motions.

The United States Court of Appeals for the Sixth Circuit held that Section 16(a)(1) did not confer jurisdiction in this case. The court recognized that the appellants were not signatories to the arbitration agreement with Carlisle. Thus, it reasoned there was no written agreement that could direct litigated issues into arbitration. Since the appellants' motion to stay was not rooted in Section 3, Section 16(a)(1) did not grant appellate jurisdiction.

Question

1) Does Section 16(a)(1) of the Federal Arbitration Act confer appellate jurisdiction over an appeal from a motion to stay proceedings under Section 3 of the FAA when appellants are non-signatories to the arbitration agreement?

2) Does Section 3 of the Federal Arbitration Act allow a federal district court to stay proceedings when non-signatories to an arbitration agreement can attempt to enforce the arbitration agreement under contract and agency law?

Media for Arthur Andersen LLP v. Carlisle

Audio Transcription for Oral Argument - March 03, 2009 in Arthur Andersen LLP v. Carlisle

Audio Transcription for Opinion Announcement - May 04, 2009 in Arthur Andersen LLP v. Carlisle

John G. Roberts, Jr.:

Justice Scalia has the opinion of the Court today in 08-146, Arthur Andersen versus Carlisle which will be announced by Justice Kennedy.

Anthony M. Kennedy:

The petitioners are an accounting firm, a law firm and various affiliates.

They advised and assisted respondents who were Wayne Carlisle, James Bushman, and Garry Strassel in implementing a tax shelter.

As part of the arrangement, Carlisle, Bushman, and Strassel created limited liability corporations.

These corporations which are also respondents entered into investment manage agreements -- management agreements with Bricolage Capital, LLC.

Now, the investment management agreements provided for the arbitration of disputes.

After the Internal Revenue Service found the tax shelter illegal, respondents filed a diversity suit against petitioners and Bricolage.

The suit alleged fraud, civil conspiracy malpractice, breach of fiduciary duties, and negligence.

Petitioners in response filed motions to stay proceedings under Section 3 of the Federal Arbitration Act, called FAA.

They argued that principles of equitable estoppel required respondents to arbitrate their claims under the agreements with Bricolage.

The District Court denied petitioners' stay motions and the Court of Appeals for the Sixth Circuit dismissed their interlocutory appeal for want of jurisdiction.

We granted certiorari.

At the outset, the Court of Appeals erred in determining that it lacked jurisdiction to review the District Court's denial of petitioners’ stay request.

Section 3 of the FAA entitles litigants to stay any action that is referable to arbitration under an agreement in writing.

Section 16 (a)(1)(a) in turn allows an appeal from an order refusing a stay of any action under Section 3.

By its clear and unambiguous terms, 16 (a)(1)(a) entitles any litigant asking for a Section 3 stay to an immediate appeal for the motion's denial, regardless of whether the litigant is in fact eligible for a stay.

Jurisdiction over the appeal on other words must be determined by focusing upon the category of order appeal from rather than upon the strength of the grounds for reversing the order.

Even a request utter frivolousness cannot turn a denial of such a request into something other than an order refusing the stay of any action under Section 3.

Determining whether Section 3 was invoked to the denied stay request is immeasurably simpler than the alternative and appellate courts have ample authority to minimize the impact of abusive appeals.

We also hold that the Sixth Circuit erred in finding that federal law bars non-parties to a contract from obtaining a Section 3 stay.

Neither FAA Section 2, which is the substantive mandate making written arbitration agreements enforceable save upon such grounds as existent law or in equity for the revocation on a contract, nor Section 3 purports to alter state contact law regarding the scope of agreements.

Accordingly, whenever the relevant state law would make a contact to arbitrate enforceable in a particular dispute, a litigant is entitled to request and to obtain a stay under Section 3 that is because that dispute is referable to arbitration under an agreement in writing.

Because traditional state law principles allow enforcement of contracts by or against non-parties through various doctrines such as assumption of third party beneficiary theories, the Sixth Circuit erred in holding the petitioners are categorically barred from Section 3 relief because they were not parties to the relevant arbitration agreement.

Questions as to nature, scope, and applicability of the relevant state contract law have not been briefed here and can be addressed on remand.

The judgment of the Court of Appeals is reversed, and the case is remanded for proceedings consistent with our opinion.

Justice Souter has filed a dissenting opinion in which the Chief Justice and Justice Stevens have joined.