Arthur Andersen LLP v. Carlisle

• Decision Date: 04 May 2009
• Docket Number: No. 08–146.,08–146.
• Parties: ARTHUR ANDERSEN LLP, et al., Petitioners, v. Wayne CARLISLE et al.
• Court: U.S. Supreme Court

556 U.S. 624

129 S.Ct. 1896

173 L.Ed.2d 832

77 USLW 4374

ARTHUR ANDERSEN LLP, et al., Petitioners,

v.Wayne CARLISLE et al.

No. 08–146.

Supreme Court of the United States

Argued March 3, 2009.

Decided May 4, 2009.

Syllabus^*

After consulting with petitioners, respondents Wayne Carlisle, James Bushman, and Gary Strassel used a shelter to minimize taxes from the sale of their company. Limited liability companies created by Carlisle, Bushman, and Strassel (also respondents) entered into investment-management agreements with Bricolage Capital, LLC, that provided for arbitration of disputes. After the Internal Revenue Service found the tax shelter illegal, respondents filed a diversity suit against petitioners. Claiming that equitable estoppel required respondents to arbitrate their claims per the agreements with Bricolage, petitioners invoked § 3 of the Federal Arbitration Act (FAA), 9 U.S.C. § 3, which entitles litigants to stay an action that is “referable to arbitration under an agreement in writing.” Section 16(a)(1)(A) of the FAA allows an appeal from “an order ... refusing a stay of any action under section 3.” The District Court denied petitioners' stay motions, and the Sixth Circuit dismissed their interlocutory appeal for want of jurisdiction.

Held:

1. The Sixth Circuit had jurisdiction to review the denial of petitioners' requests for a § 3 stay. By its clear and unambiguous terms, § 16(a)(1)(A) entitles any litigant asking for a § 3 stay to an immediate appeal from that motion's denial—regardless of whether the litigant is in fact eligible for a stay. Jurisdiction over the appeal “must be determined by focusing upon the category of order appealed from, rather than upon the strength of the grounds for reversing the order,” Behrens v. Pelletier, 516 U.S. 299, 311, 116 S.Ct. 834, 133 L.Ed.2d 773. The statute unambiguously makes the underlying merits irrelevant, for even a request's utter frivolousness cannot turn a denial into something other than “an order ... refusing a stay of any action under section 3,” § 16(a)(1)(A). Pp. 1900 – 1901.

2. A litigant who was not a party to the arbitration agreement may invoke § 3 if the relevant state contract law allows him to enforce the agreement. Neither FAA § 2—the substantive mandate making written arbitration agreements “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of a contract”—nor § 3 purports to alter state contract law regarding the scope of agreements. Accordingly, whenever the relevant state law would make a contract to arbitrate a particular dispute enforceable by a nonsignatory, that signatory is entitled to request and obtain a stay under § 3 because that dispute is “ referable to arbitration under an agreement in writing.” Because traditional state-law principles allow enforcement of contracts by (or against) nonparties through, e.g., assumption or third-party beneficiary theories, the Sixth Circuit erred in holding that § 3 relief is categorically not available to nonsignatories. Questions as to the nature and scope of the applicable state contract law in the present case have not been briefed here and can be addressed on remand. Pp. 1901 – 1903.

521 F.3d 597, reversed and remanded.

SCALIA, J., delivered the opinion of the Court, in which KENNEDY, THOMAS, GINSBURG, BREYER, and ALITO, JJ., joined. SOUTER, J., filed a dissenting opinion, in which ROBERTS, C.J., and STEVENS, J., joined.

M. Miller Baker, Washington, DC, for petitioners.

Paul M. De Marco, Cincinnati, Ohio, for respondents.

Jeffrey E. Stone, Douglas E. Whitney, Jocelyn D. Francoeur, Jeffrey M. Hammer, McDermott Will & Emery LLP, Chicago, IL, M. Miller Baker, Counsel of Record, Paul M. Thompson, Jeffrey W. Mikoni, Kelly M. Falls, McDermott Will & Emery LLP, Washington, DC, for Petitioner Arthur Andersen, LLP, Rory K. Little, Hastings College of Law (U.C.), San Francisco, CA, Earle Jay Maiman, Thompson Hine LLP, Cincinnati, OH, for Petitioner Arthur Andersen, LLP, Russell S. Sayre, Taft, Stettinius & Hollister, LLP, Cincinnati, OH, Robert B. Craig, Taft, Stettinius & Hollister, LLP, Covington, KY, for Petitioners Curtis, Mallet–Prevost, Colt & Mosle, LLP, and William L. Bricker, Jr., Richard J. Idell, Idell & Seitel LLP, San Francisco, CA, Donald L. Stepner, Adams, Stepner, Woltermann & Dusing, PLLC, Covington, KY, for Petitioners Integrated Capital Associates, Inc., Intercontinental Pacific Group, Inc., and Prism Connectivity Ventures, LLC.

Stanley M. Chesley, James R. Cummins, Paul M. De Marco, Counsel of Record, Jean M. Geoppinger, Waite, Schneider, Bayless & Chesley Co., L.P.A., Cincinnati, Ohio, for Respondents.

Justice SCALIA delivered the opinion of the Court.

Section 3 of the Federal Arbitration Act (FAA) entitles litigants in federal court to a stay of any action that is “referable to arbitration under an agreement in writing.” 9 U.S.C. § 3. Section 16(a)(1)(A), in turn, allows an appeal from “an order ... refusing a stay of any action under section 3.” We address in this case whether appellate courts have jurisdiction under § 16(a) to review denials of stays requested by litigants who were not parties to the relevant arbitration agreement, and whether § 3 can ever mandate a stay in such circumstances.

I

Respondents Wayne Carlisle, James Bushman, and Gary Strassel set out to minimize their taxes from the 1999 sale of their construction-equipment company. Arthur Andersen LLP, a firm that had long served as their company's accountant, auditor, and tax adviser, introduced them to Bricolage Capital, LLC, which in turn referred them for legal advice to Curtis, Mallet–Prevost, Colt & Mosle, LLP. According to respondents, these advisers recommended a “leveraged option strategy” tax shelter designed to create illusory losses through foreign-currency-exchange options. As a part of the scheme, respondents invested in various stock warrants through newly created limited liability companies (LLCs), which are also respondents in this case. The respondent LLCs entered into investment-management agreements with Bricolage, specifying that “[a]ny controversy arising out of or relating to this Agreement or the br[ea]ch thereof, shall be settled by arbitration conducted in New York, New York, in accordance with the Commercial Arbitration Rules of the American Arbitration Association.” App. 80–81, 99–100, 118–119.

As with all that seems too good to be true, a controversy did indeed arise. The warrants respondents purchased turned out to be almost entirely worthless, and the Internal Revenue Service (IRS) determined in August 2000 that the “leveraged option strategy” scheme was an illegal tax shelter. The IRS initially offered conditional amnesty to taxpayers who had used such arrangements, but petitioners failed to inform respondents of that option. Respondents ultimately entered into a settlement program in which they paid the IRS all taxes, penalties, and interest owed.

Respondents filed this diversity suit in the Eastern District of Kentucky against Bricolage, Arthur Andersen and others ¹ (all except Bricolage and its employees hereinafter referred to as petitioners), alleging fraud, civil conspiracy, malpractice, breach of fiduciary duty, and negligence. Petitioners moved to stay the action, invoking § 3 of the FAA and arguing that the principles of equitable estoppel demanded that respondents arbitrate their claims under their investment agreements with Bricolage. ² The District Court denied the motions.

Petitioners filed an interlocutory appeal, which the Court of Appeals for the Sixth Circuit dismissed for want of jurisdiction. Carlisle v. Curtis, Mallet–Prevost, Colt & Mosle, LLP, 521 F.3d 597, 602 (2008). We granted certiorari, 555 U.S. 1010, 129 S.Ct. 529, 172 L.Ed.2d 387 (2008).

II

Ordinarily, courts of appeals have jurisdiction only over “final decisions” of district courts. 28 U.S.C. § 1291. The FAA, however, makes an exception to that finality requirement, providing that “an appeal may be taken from ... an order ... refusing a stay of any action under section 3 of this title.” 9 U.S.C. § 16(a)(1)(A). By that provision's clear and unambiguous terms, any litigant who asks for a stay under § 3 is entitled to an immediate appeal from denial of that motion—regardless of whether the litigant is in fact eligible for a stay. Because each petitioner in this case explicitly asked for a stay pursuant to § 3, App. 52, 54, 63, 65, the Sixth Circuit had jurisdiction to review the District Court's denial.

The courts that have declined jurisdiction over § 3 appeals of the sort at issue here have done so by conflating the jurisdictional question with the merits of the appeal. They reason that because stay motions premised on equitable estoppel seek to expand (rather than simply vindicate) agreements, they are not cognizable under §§ 3 and 4, and therefore the relevant motions are not actually “under” those provisions. See, in addition to the opinion below, 521 F.3d, at 602,DSMC Inc. v. Convera Corp., 349 F.3d 679, 682–685 (C.A.D.C.2003); In re Universal Serv. Fund Tel. Billing Practice Litigation v. Sprint Communications Co., 428 F.3d 940, 944–945 (C.A.10 2005). The dissent makes this step explicit, by reading the appellate jurisdictional provision of § 16 as “calling for a look-through” to the substantive provisions of § 3. Post, at 1904. Jurisdiction over the appeal, however, “must be determined by focusing upon the category of order appealed from, rather than upon the strength of the grounds for reversing the order.” Behrens v. Pelletier, 516 U.S. 299, 311, 116 S.Ct. 834, 133 L.Ed.2d 773 (1996).³ The jurisdictional statute here unambiguously makes the underlying merits irrelevant, for even utter frivolousness of the underlying request for a § 3 stay cannot turn a denial into something other than “an order ... refusing a stay of any action under section 3.” 9 U.S.C. § 16(a).

Respondents argue that this reading of § 16(a) will...