{"id":3096,"date":"2015-07-31T15:21:39","date_gmt":"2015-07-31T19:21:39","guid":{"rendered":"https:\/\/nyiac.org\/?p=3096"},"modified":"2015-08-25T11:00:40","modified_gmt":"2015-08-25T15:00:40","slug":"case-law-chronicle-to-stay-or-not-to-stay-second-circuit-clarifies-procedure-following-successful-motion-to-compel-arbitration","status":"publish","type":"post","link":"https:\/\/nyiac.org\/legal-developments\/case-law-chronicle-to-stay-or-not-to-stay-second-circuit-clarifies-procedure-following-successful-motion-to-compel-arbitration\/","title":{"rendered":"Case Law Chronicle: \u201cTo Stay or Not To Stay\u201d: Second Circuit Clarifies Procedure Following Successful Motion to Compel Arbitration"},"content":{"rendered":"

by Mark Stadnyk<\/a>, Norton Rose Fulbright US LLP (New York)<\/p>\n

In\u00a0Michael A. Katz v. Cellco Partnership dba Verizon Wireless, Docket Nos. 14\u2010138 and 14\u2010291 (July 28, 2015)<\/a>, the U.S. Court of Appeals for the Second Circuit (the \u201cCourt\u201d) addressed an important procedural matter under the Federal Arbitration Act (the \u201cFAA\u201d). Namely, does the FAA require a stay of proceedings when all claims are referred to arbitration and a stay has been requested, or do federal district courts enjoy the discretion to dismiss the case outright after granting such a motion to compel arbitration?<\/p>\n

Read Full Entry<\/a><\/p>\n

The Court provided a clear answer to this question: a stay of proceedings is required following a successful motion to compel arbitration of all claims pending before the district court. The alternative\u2014a final order from the district court dismissing the case\u2014would open an avenue for further litigation in the form of an immediate appeal. In Katz<\/em>, the Court clarified that the FAA and its policy in favor of arbitration leave no room for immediate appeal of a district court decision to compel arbitration<\/p>\n

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Background<\/strong><\/div>\n
Katz sued Cellco Partnership d\/b\/a Verizon Wireless (\u201cVerizon\u201d), alleging breach of contract and consumer fraud under New York state law. Katz\u2019s agreement with Verizon incorporated an arbitration clause that invoked the FAA. While he conceded the prima facie<\/em> arbitrability of his claims, Katz contended that \u201capplication of the FAA to those claims was, on various grounds, unconstitutional.\u201d Verizon moved to compel arbitration and to stay the court proceedings.<\/div>\n
The District Court for the Southern District of New York (Briccetti, J.) dismissed the constitutional objections to the application of the FAA and granted Verizon\u2019s motion to compel arbitration of all of Katz\u2019s claims. However, it then dismissed the action, albeit recognizing that \u201cwhether district courts have such dismissal discretion remains an open question in this Circuit.\u201d[i]<\/div>\n
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State of Play Before Katz<\/em><\/strong><\/div>\n
On appeal, the Second Circuit affirmed the District Court\u2019s grant of Verizon\u2019s motion to compel arbitration. It then acknowledged that \u201c[t]he question whether district courts retain the discretion to dismiss an action after all claims have been referred to arbitration, or whether instead they must stay proceedings, remains unsettled.\u201d The U.S. Supreme Court has not yet decided the matter,[ii] and the \u201cCourts of Appeals [of the various Circuits] are about evenly divided.\u201d[iii] Moreover, even earlier Second Circuit authority on the matter, while not \u201cdirectly address[ing] the question posed here,\u201d nevertheless \u201csuggested different conclusions.\u201d[iv]<\/div>\n
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The Court\u2019s Decision \u2013 \u201cTo Stay or Not To Stay\u201d<\/strong><\/div>\n
The Court held that \u201ca stay of proceedings [is] necessary after all claims have been referred to arbitration and a stay requested.\u201d In other words, under the FAA, district courts in the Second Circuit lack the discretion to dismiss an action after all claims have been referred to arbitration.<\/div>\n
First, the Court emphasized the language of the FAA, 9 U.S.C. \u00a7 3, which provides that when issues are referable to arbitration, a court \u201cshall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the [arbitration] agreement\u201d (emphasis added).[v] Second, the Court acknowledged that a \u201cmandatory stay comports with the FAA\u2019s statutory scheme and pro\u2010arbitration policy.\u201d[vi] The FAA, it observed, \u201cauthorizes immediate interlocutory review of an order refusing to compel arbitration or denying a stay of proceedings,\u201d but \u201cexplicitly denies the right to an immediate appeal from an interlocutory order that compels arbitration or stays proceedings.\u201d[vii] Yet, the effect of the district court\u2019s dismissal was to \u201ceffectively convert[] an otherwise\u2010unappealable interlocutory stay order into an appealable final dismissal order,\u201d potentially leading to further litigation in contravention of the policy at the heart of the FAA.<\/div>\n
While the Court acknowledged the validity of the judicial concern with \u201cefficient docket management,\u201d it held that such interests \u201ccannot trump a statutory mandate, like Section 3 of the FAA, that clearly removes such discretion\u201d from the district courts.<\/div>\n
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Ramifications of Katz<\/strong><\/div>\n
While Katz<\/em> was a domestic arbitration, the Court\u2019s interpretation of the FAA\u2019s Section 3 also clarifies the appropriate procedure in international cases within the Second Circuit. When a motion to compel arbitration has been granted with respect to all claims, and a stay has been requested, the district court has no discretion and must grant a stay of the proceedings. As observed by the Court, a stay is in accordance with the pro-arbitration policy of the FAA, as it curtails further litigation while the arbitration proceeds.<\/div>\n
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United States Court of Appeals for the Second Circuit<\/em>: Judges Wesley, Livingston, and Carney.<\/div>\n
Counsel to Michael A. Katz:<\/em> William Robert Weinstein (Law Offices of William R. Weinstein).<\/div>\n
Counsel to Cellco Partnership, dba Verizon Wireless:<\/em> Andrew G. McBride and J. Michael Connolly (Wiley Rein LLP).<\/div>\n
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<\/a>*The views expressed in this case note do not necessarily reflect the views of Norton Rose Fulbright US LLP or its clients.<\/div>\n
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[i] Katz<\/em> at 5. All citations are to the Court of Appeals\u2019 opinion in Katz, unless otherwise noted.<\/div>\n
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[ii] See Green Tree Fin. Corp.\u2010Ala. v. Randolph<\/em>, 531 U.S. 79, 87 n.2 (2000).<\/div>\n
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[iii] Katz<\/em> at 7-8, contrasting the Circuit Courts of Appeals \u201ch[o]ld[ing] or impl[ying] that a stay must be entered\u201d (Seventh, Third, Tenth and Eleventh Circuits) with those \u201csuggest[ing] that district courts enjoy the discretion to dismiss the action\u201d (First, Fifth and Ninth Circuits).<\/div>\n
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[iv] Katz<\/em> at 6-7 and n. 5.<\/div>\n
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[v] FAA 9 U.S.C. \u00a7 3 provides as follows: \u201cIf any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.\u201d (Emphasis added.)<\/div>\n
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[vi] Katz<\/em> at 9.<\/div>\n
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[vii] Katz<\/em> at 10.<\/div>\n
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by Mark Stadnyk, Norton Rose Fulbright US LLP (New York) In\u00a0Michael A. Katz v. Cellco Partnership dba Verizon Wireless, Docket Nos. 14\u2010138 and 14\u2010291 (July 28, 2015), the U.S. Court of Appeals for the Second Circuit (the \u201cCourt\u201d) addressed an important procedural matter under the Federal Arbitration Act (the \u201cFAA\u201d). Namely, does the FAA require […]<\/p>\n","protected":false},"author":42,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":"","_jetpack_memberships_contains_paid_content":false},"categories":[4],"tags":[],"acf":[],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/nyiac.org\/wp-json\/wp\/v2\/posts\/3096"}],"collection":[{"href":"https:\/\/nyiac.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nyiac.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nyiac.org\/wp-json\/wp\/v2\/users\/42"}],"replies":[{"embeddable":true,"href":"https:\/\/nyiac.org\/wp-json\/wp\/v2\/comments?post=3096"}],"version-history":[{"count":0,"href":"https:\/\/nyiac.org\/wp-json\/wp\/v2\/posts\/3096\/revisions"}],"wp:attachment":[{"href":"https:\/\/nyiac.org\/wp-json\/wp\/v2\/media?parent=3096"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nyiac.org\/wp-json\/wp\/v2\/categories?post=3096"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nyiac.org\/wp-json\/wp\/v2\/tags?post=3096"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}