Bush v. Paragon Property, Inc.

• Decision Date: 01 March 2000
• Citation: 165 Or. App. 700,997 P.2d 882
• Parties: David P. BUSH and Susanne Bush, Respondents, v. PARAGON PROPERTY, INC., an Oregon corporation, Garth C. Everhart and Tad Everhart, Appellants.
• Court: Oregon Court of Appeals

997 P.2d 882

165 Or. App. 700

David P. BUSH and Susanne Bush, Respondents, v. PARAGON PROPERTY, INC., an Oregon corporation, Garth C. Everhart and Tad Everhart, Appellants.

(98-11-07834; CA A107143)

Court of Appeals of Oregon, En Banc.

On Motion for Summary Determination of Appealability July 26, 1999.

Resubmitted January 13, 2000.

Decided March 1, 2000.

Paul Eberhardt and Lawrence Schuck of Smith, Freed, Heald & Chock, P.C., Portland, filed a motion on behalf of appellants to stay the trial court proceedings pending appeal. R. Daniel Lindahl, Paul S. Bierly and Bullivant Houser Bailey filed a supplement memorandum on behalf of appellants.

Patricia Ferrell-French, West Linn, filed motions on behalf of respondents for summary determination of appealability, to dimiss, and for attorney fees and costs and filed a supplemental memorandum.

Before DEITS, Chief Judge, and EDMONDS, De MUNIZ, LANDAU, HASELTON, ARMSTRONG, LINDER, WOLLHEIM, KISTLER, and BREWER, Judges.

Resubmitted En Banc January 13, 2000.

ARMSTRONG, J.

This case involves a dispute between plaintiffs, the buyers of a new home, and defendants, the builders and sellers, concerning the condition of the home. Plaintiffs seek damages for defects in the home on various theories; in the alternative, they seek to rescind the purchase. In the trial court, defendants moved to compel arbitration under provisions of the parties' earnest money agreement and to abate the judicial proceedings pending that arbitration. Defendants appeal from the trial court's order denying those motions. Plaintiffs have moved in this court for a summary determination of the appealability of that order, ORS 19.235(3), and to dismiss the appeal. We grant the motions and dismiss the appeal.¹

The state statutes that govern our jurisdiction do not give us jurisdiction of an appeal from an interlocutory order denying a motion to compel arbitration. ORS 19.205; Berger Farms v. First Interstate Bank, 148 Or.App. 33, 38, 939 P.2d 64 (1997), rev. allowed 327 Or. 192, 961 P.2d 217 (1998). However, we held in Berger Farms that section 16 of the Federal Arbitration Act (the FAA), 9 U.S.C. § 16, requires a state to provide an interlocutory appeal under the FAA from an order denying a motion to compel arbitration.² The foundation for that holding was our conclusion that denying an interlocutory appeal would undermine the goals and policies of the FAA. The denial would permit the party opposing arbitration to avoid the effect of an otherwise valid arbitration clause and would force the party seeking arbitration into potentially lengthy and costly litigation. That, we noted, would undermine the basic objective of the FAA, which is to ensure that valid arbitration clauses are enforced according to their terms. Citing Felder v. Casey, 487 U.S. 131, 153, 108 S.Ct. 2302, 101 L.Ed.2d 123 (1988), we held that, when a state procedural law is inconsistent with the objectives of a federal law, the state law must give way to the vindication of a federal right when that right is asserted in state court. Berger, 148 Or.App. at 37-39, 939 P.2d 64.

In Felder, a state statute required the plaintiff to notify the public body of his tort claim within 120 days of the injury and to bring a lawsuit within a limited time after the defendant rejected the claim. A failure to comply with the statute provided the public body and its employees with a complete defense. The United States Supreme Court held that that statute unconstitutionally burdened the plaintiff's right to bring an action under 42 U.S.C. § 1983 in state court. The goals of the state statute were incompatible with the purposes of the federal act, and the application of the notice requirement would lead to a different outcome in the case in state court from that in federal court. Felder, 487 U.S. at 143-45, 151, 108 S.Ct. 2302. The Court noted that, although federal law takes state court procedures as it finds them, it does so only insofar as the state courts employ rules that do not impose unnecessary burdens on federal rights. Id. at 150, 108 S.Ct. 2302. The essential point of Felder is that states may not create additional defenses, whether substantive or procedural, to a claim based on a federal right.

In Berger Farms, we relied on Felder as holding that, when a state procedural law is inconsistent in purpose and effect with the objectives of federal law, both principles of federalism and the Supremacy Clause itself require that the state law give way to vindication of the federal right when that right is asserted in state court. 148 Or.App. at 39, 939 P.2d 64 (citing Felder, 487 U.S. at 153, 108 S.Ct. 2302). We believed that Felder showed that the United States Supreme Court would treat a denial of an interlocutory appeal of an order denying a motion to compel arbitration under the FAA as denying the basic objective of the FAA in the same way that the notice of claim statute denied the plaintiff in Felder the basic rights that Congress had granted in 42 U.S.C. § 1983.

Since our decision in Berger Farms, the United States Supreme Court has decided several cases involving the authority of Congress to impose obligations on states. As a result, we now question whether our analysis in Berger Farms was correct.

One month after we decided Berger Farms, the Supreme Court refused to require a state to provide an interlocutory appeal in a situation where such an appeal would have been available under federal law. Johnson v. Fankell, 520 U.S. 911, 117 S.Ct. 1800, 138 L.Ed.2d 108 (1997). The issue in Johnson was whether Idaho state officials who were defendants in an action brought in state court under 42 U.S.C. § 1983 had a right to appeal a trial court order denying their motion that sought summary judgment on the ground of qualified immunity. The Idaho Supreme Court, applying its normal appellate rules, held that there was no state right to an interlocutory appeal, and it rejected the officials' claim that they had a federal right to such an appeal.

On certiorari, the United States Supreme Court unanimously held that federal law did not supersede a state's neutrally applied procedural rules. It recognized that the officials would have had a right to an interlocutory appeal under federal procedural rules if the plaintiff had filed the case in federal court, but it held that that did not require state courts to provide the same procedural opportunities. It noted that a requirement that a state court treat federal law as the law of the land does not necessarily require the state to create a court competent to hear the case in which the federal claim is presented. It also noted that the interest that an interlocutory appeal would protect is the interest of state officials to have the issue of qualified immunity decided at an early stage of the case. Whether to provide appellate review of that issue at an early stage rather than at the conclusion of the case, the court held, is a judgment about how best to balance competing state interests rather than an interference with federal interests. Johnson, 520 U.S. at 918-21, 117 S.Ct. 1800.

There was no suggestion in Johnson that the application of the Idaho procedural rule would produce a different outcome in the case; if the qualified immunity defense were meritorious, the final result of the case would be the same whether or not the officials were successful on summary judgment. That fact, the Court stated, distinguished Johnson from Felder, in which the application of the state notice of claim statute could lead to a different ultimate result in state court from that in federal court. The Court held that the state officials did not have a federal right to prevail in advance of trial if their qualified immunity defense were meritorious. What mattered was that they would be able to prevail on that defense before the case concluded. The Court noted that the federal right to an interlocutory appeal did not come from section 1983 itself but from 28 U.S.C. § 1291, a general appellate procedural statute. Finally, the court held that, when preemption of state law is the issue, fundamental principles of federalism play an important role. Respect for those principles is at its apex when the claim is "that federal law requires a State to undertake something as fundamental as restructuring the operation of its courts." In a footnote, the court emphasized that it has "made it quite clear that it is a matter for each State to decide how to structure its judicial system." 520 U.S. at 921-23 and n. 13, 117 S.Ct. 1800.

Johnson shows that the United States Supreme Court does not see the federal interests on which we relied in Berger Farms to be as significant as we believed. There are, of course, some obvious distinctions between an action under section 1983 and a motion to compel arbitration under the FAA. First, there is no particular reason that it is necessary to decide the issue of qualified immunity before trial in order to achieve the purpose of section 1983. The primary purpose of section 1983 is to vindicate federally guaranteed rights; whether the defendant prevails on a defense before or after trial does not affect that purpose. In contrast, the very purpose of the FAA is to avoid a trial when the parties have agreed to arbitration. To require the party seeking arbitration to go through an entire trial before being able to have an appellate determination of its right to arbitrate may well defeat that purpose, whatever the outcome of the appeal. Second, the federal right to an interlocutory appeal in a section 1983 action arises from a separate discretionary statute that applies to litigation in federal court. Again, in contrast, the federal right to an interlocutory appeal of an order denying a motion to compel arbitration is in the FAA itself and is absolute. By giving that special status to the right to an interlocutory appeal, Congress indicated that such an appeal is an important part of its overall...