Brian French v. Wachovia Bank, N.A. ( 2009 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 08-2197
B RIAN F RENCH, D AVID F RENCH, JEANNA
F RENCH and P AULA F RENCH V AN A KKEREN,
Plaintiffs-Appellees,
v.
W ACHOVIA B ANK,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 2:06-cv-00869-RTR—Rudolph T. Randa, Chief Judge.
A RGUED M AY 14, 2009—D ECIDED JULY 31, 2009
Before R IPPLE, M ANION and T INDER, Circuit Judges.
R IPPLE, Circuit Judge. Brian French, David French,
Jeanna French and Paula French Van Akkeren (“the
French beneficiaries”) are beneficiaries of the French
family trust (“Trust”), which their father set up in 1991.
In 2006, the French beneficiaries filed a two-count com-
plaint against the trustee, Wachovia Bank (“the Bank”).
Upon motion of the Bank, the district court concluded
2 No. 08-2197
that Count I of the complaint was not arbitrable, but that
Count II was arbitrable; it therefore stayed litigation of
Count I and ordered the parties to arbitrate Count II. The
French beneficiaries then filed a motion to amend their
complaint to eliminate Count II. The court granted the
motion and then lifted the stay of litigation on Count I.
The Bank received a communication from the French
beneficiaries that led it to believe that the beneficiaries
had not abandoned definitively future litigation on
Count II; the Bank therefore renewed its motion to
compel arbitration. The district court denied that motion.
The Bank now appeals that denial.
We conclude that we have jurisdiction over the
appeal and hold that the district court correctly denied
the motion to compel arbitration because there was no
arbitrable claim in the operative complaint. Accordingly,
we affirm the decision of the district court.
I
BACKGROUND
The French beneficiaries originally filed a two-count
complaint against the Bank in a Wisconsin state court.
In Count I, they alleged that the Bank had breached
its duties as trustee; in Count II, they alleged that the
Bank, or its affiliates, had provided false or misleading
information about the replacement of several life
insurance policies. The Bank removed the case to the
United States District Court for the Eastern District of
Wisconsin, on the basis of diversity jurisdiction. It then
No. 08-2197 3
filed a motion to stay further proceedings under section 3
of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 3,1 and
to compel arbitration of the claim under section 4 of the
FAA, 9 U.S.C. § 4.2 On March 21, 2007, the district court
determined that Count I was not covered by the operative
arbitration agreement between the Bank and its
affiliates; Count II, ruled the court, was subject to the
1
Section 3 of the FAA states:
If 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 refer-
able 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 arbitra-
tion.
9 U.S.C. § 3.
2
Section 4 of the FAA states, in part:
A party aggrieved by the alleged failure, neglect, or refusal
of another to arbitrate under a written agreement for
arbitration may petition any United States district court
which, save for such agreement, would have jurisdiction
under Title 28, in a civil action or in admiralty of the
subject matter of a suit arising out of the controversy
between the parties, for an order directing that such arbitra-
tion proceed in the manner provided for in such agreement.
9 U.S.C. § 4.
4 No. 08-2197
arbitration agreement. The court therefore stayed the
proceedings under Count I and ordered the parties to
arbitrate Count II. Neither party initiated arbitration
proceedings on Count II.
The French beneficiaries then sought leave to amend
their complaint to eliminate Count II;3 they also asked
that the court lift the stay of proceedings under Count I,
the only count remaining in the amended complaint. The
court permitted the amendment and, on October 23,
2007, lifted the stay, thus permitting litigation of Count I
to proceed.
On December 4, the Bank sent an e-mail to the French
beneficiaries. The e-mail stated that the Bank understood
that the French beneficiaries had abandoned and waived
the claim previously asserted in Count II of the original
complaint when they filed an amended complaint ex-
cluding that claim and proceeded with litigation on the
amended complaint without first arbitrating Count II.
The French beneficiaries replied that it was “unclear”
how the Bank could have concluded that the French
beneficiaries had waived or abandoned any claims.
R.38, Ex. B.
As a result of this exchange, on December 21, the Bank
renewed its motion to compel arbitration of Count II and
to stay the litigation of Count I until the completion
of arbitration. The Bank claimed that the French benefi-
ciaries previously had represented to the Court that
3
See Fed. R. Civ. P. § 15(a)(2).
No. 08-2197 5
their claims under Count II had been abandoned, and it
argued that the December 4 e-mail undermined this
position. R.38 at 4.
On April 23, 2007, the district court denied the Bank’s
motion. The court held that the only claim before it was
Count I of the amended complaint. It reasoned that the
mere assertion in an e-mail that a party has not
abandoned a claim and therefore might attempt to
assert that claim at some future time does not place
that claim before the court. The district court held that
the Bank had the burden of establishing that the French
beneficiaries planned to reassert the claim in Count II
of the original complaint, a burden that it failed to
carry simply by producing the e-mail.
II
DISCUSSION
A.
We first must determine whether we have jurisdiction
over this appeal. “Ordinarily, courts of appeals have
jurisdiction only over ‘final decisions’ of district courts.”
Arthur Andersen, LLP v. Carlisle, 129 S. Ct. 1896, 1900 (2009)
(quoting 28 U.S.C. § 1291). Our jurisdiction over inter-
locutory appeals involving arbitration is provided by
an explicit statutory exception to that general rule. Id.Section 16(a)(1) of the FAA provides, among other
things, that an appeal may be taken from an order “refus-
ing a stay of any action under section 3 of this title” or
“denying a petition under section 4 of this title to order
arbitration to proceed.” 9 U.S.C. §§ 16(a)(1)(A) & (B).
6 No. 08-2197
The French beneficiaries submit that we do not have
appellate jurisdiction because the Bank failed to appeal,
within thirty days, the district court’s October 23, 2007
order lifting the stay of litigation of Count I. They observe
that, in Erb v. Alliance Capital Management, LP, 423 F.3d
647, 650 (7th Cir. 2005), we held that, under Federal Rule
of Appellate Procedure 4(a)(1)(A),4 a party appealing
an interlocutory order may not file a new motion and
appeal from the order denying the second motion
“[u]nless the circumstances have changed significantly
since the entry of the original order.” Id. The French
beneficiaries contend that the exchange of e-mails in
December 2007 did not constitute such a change in cir-
cumstances. Therefore, in their view, the Bank’s appeal
from the court’s April 23, 2008 order denying the
Bank’s renewed motion is time-barred.
We do not believe that this case is controlled by Erb. In
that case, the defendant removed an action to federal
court. The district court issued a clear order remanding
the case back to state court. The defendant once more
removed the case to federal court. The district court again
remanded the case to the state court. Then, the defendant
sought to appeal the second remand order. Erb, 423 F.3d at
649-50. We viewed the defendant’s second removal and
its subsequent appeal of the district court’s predictable
4
This rule states that, except as provided in subsections not
applicable in this case, “the notice of appeal required by Rule 3
must be filed with the district clerk within 30 days after
the judgment or order appealed from is entered.” Fed. R.
App. 4(a)(1)(A).
No. 08-2197 7
remand order to be nothing more than an attempt to
circumvent the Rule 4(a)(1)(A) time restriction applicable
to the appeal of the first removal order. We therefore
held that, in the absence of significant changes in the
interim, we would consider such a second appeal to be
an attempt to appeal the original order. Id. at 652-53. We
refused to allow a subterfuge designed to avoid a time
restriction mandated by Rule 4(a)(1)(A).
By contrast, here there was, at least arguably, some
ambiguity in the litigation situation at the time of the
district court’s October 23 order. Earlier, the court
had stayed litigation of Count I pending arbitration
of Count II and had ordered the parties to engage in
arbitration of Count II. On October 23, the court granted
the French beneficiaries’ motion to file an amended
complaint that contained only Count I and to lift the
stay on Count I. No action was specifically requested
or taken with respect to the earlier order compelling
arbitration of Count II. Consequently, although it was
evident that the parties could now litigate Count I, the
status of Count II was unclear. Cf. Volkswagen of Am. v.
Sud’s of Peoria, 474 F.3d 966, 971 (7th Cir. 2007) (noting
that the FAA contemplates that a court might permit a
nonarbitrable claim to proceed while an arbitrable claim
is stayed pending arbitration).
The Bank apparently feared that the French bene-
ficiaries would later seek to litigate the arbitrable claim
in Count II. The Bank’s e-mail to the French beneficiaries,
in effect, asked for clarification of their intentions with
respect to Count II. The French beneficiaries answered
8 No. 08-2197
in a manner that caused the Bank to suspect that they
planned to reassert Count II in the future. The district
court’s order of April 23, 2008 substantially clarified
the situation. The court confirmed that the allegations of
Count II were no longer in the case by reaffirming its
decision to lift the stay of proceedings under Count I and
explicitly denying the Bank’s motion to compel arbitra-
tion on Count II.
Our colleague in the district court saw no manipulative
design in the Bank’s renewal of its motion. Nor, on the
cold record before us, can we come to such a conclusion.
Under these circumstances, we must assume the good
faith of the Bank and its counsel. Therefore, because the
April 23 order denied—definitively—the benefit of arbitra-
tion on Count II, an interlocutory appeal from this order
was appropriate under section 16(a)(1) of the FAA. See
Oblix, Inc. v. Winiecki, 374 F.3d 488, 489 (7th Cir. 2004)
(noting that “9 U.S.C. § 16(a)(1) allows an interlocutory
appeal from a decision denying a party the benefit of
arbitration”). We therefore have jurisdiction over the
Bank’s appeal.5
5
The Supreme Court recently has made clear that, in deter-
mining our jurisdiction to hear an appeal under section 16 of
the FAA, we must be careful not to conflate our estimation of
the merits of the appeal with the jurisdictional analysis. See
Arthur Andersen, LLP v. Carlisle, 129 S. Ct. 1896, 1900-01 (2009)
(rejecting explicitly a “look-through” to the substantive provi-
sions of section 3 when determining jurisdiction over the
appeal). Consequently, in our analysis of our appellate juris-
(continued...)
No. 08-2197 9
B.
We now consider whether the district court erred in
declining to stay litigation of Count I and refusing to
compel arbitration of Count II. We review a district court’s
denial of a motion to stay litigation of nonarbitrable claims
pending resolution of arbitrable claims for abuse of
discretion, Volkswagen of Am., 474 F.3d at 972, and we
review de novo a district court’s denial of a motion to
compel arbitration, Sharif v. Wellness Int’l Network, Ltd.,
376 F.3d 720, 726 (7th Cir. 2004).
The FAA provides “that a written provision in any
contract evidencing an intent to settle by arbitration any
future controversy arising out of such contract ‘shall be
valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation
of any contract.’ ” Livingston v. Assocs. Fin., Inc., 339 F.3d
553, 556 (7th Cir. 2003) (quoting 9 U.S.C. § 2). The
Supreme Court has noted that the FAA’s purpose is “ ‘to
reverse the longstanding judicial hostility to arbitration
agreements . . . and to place arbitration agreements upon
the same footing as other contracts.’ ” Green Tree Fin.
Corp.-Alabama v. Randolph, 531 U.S. 79, 89 (2000) (alteration
in original) (quoting Gilmer v. Interstate/Johnson Lane
5
(...continued)
diction in this case, we have been careful not to rely on our
estimation of the merits of the Bank’s position. For purposes
of appellate jurisdiction, it suffices to say that the Bank’s
action was not manipulative. We shall address the merits of
that position in the next section of the opinion.
10 No. 08-2197
Corp., 500 U.S. 20, 24 (1991)). See also Volkswagen of Am.,
474 F.3d at 970 (noting that the FAA was enacted to
reverse the common law trend of judicial hostility to
arbitration).
The parties do not dispute that Count II in the French
beneficiaries’ original complaint was arbitrable under the
FAA. The Bank submits, however, that after the
French beneficiaries amended their complaint to exclude
Count II, the claim contained in that count remained
viable and arbitrable. It therefore contends that the
district court was required to stay arbitration of Count I
and to compel arbitration of Count II. In the Bank’s view,
the district court’s acceptance of the second amended
complaint amounted to a dismissal without prejudice of
the original Count II. Consequently, the French beneficia-
ries could have refiled Count II after litigating Count I.
Although the French beneficiaries would be required to
arbitrate Count II in the event that they reasserted it,
the Bank maintains that the arbitrator could be precluded
by the district court’s factual findings for Count I or that
the result from the arbitration could be inconsistent
with the federal court’s disposition.6
6
See Volkswagen of Am. v. Sud’s of Peoria, 474 F.3d 966, 972 (7th
Cir. 2007) (holding that, when a district court determines
whether to stay arbitrable issues while allowing litigation of
nonarbitrable issues to proceed, the court should consider
“the risk of inconsistent rulings, the extent to which parties
will be bound by the arbitrators’ decision, and the prejudice
that may result from delays” (citation and quotation marks
omitted)).
No. 08-2197 11
Our colleague, Judge Ann Claire Williams, had occasion
to address an analogous situation during her tenure as a
district judge. In Prudential Securities, Inc. v. Vitek, No. 92 C
3137, 1993 WL 34699, at *1 (N.D. Ill. Feb. 8, 1993), the
Viteks had joined ongoing litigation against Prudential,
but later withdrew from the lawsuit after Prudential filed
a motion to compel arbitration of the sole claim in the
case. Judge Williams denied Prudential’s motion to
compel arbitration of the Viteks’ claim; she held that,
because the Viteks voluntarily had dismissed their suit,
there was no live controversy for the parties to arbitrate.
She further noted that the Viteks were not required to
abandon completely the issues raised in the action to
avoid arbitration. Judge Williams also concluded that
Prudential had not established a reasonable basis for its
belief that the Viteks would litigate the issues in the
future. Id. at *3.
The reasoning of Prudential Securities points the way
for us today. As the district court observed, after it ruled
on the French beneficiaries’ request to amend its com-
plaint, there was only one operative complaint before
the court. See Massey v. Helman, 196 F.3d 727, 735 (7th
Cir. 1999) (“[W]hen a plaintiff files an amended com-
plaint, the new complaint supersedes all previous com-
plaints and controls the case from that point forward.”);
see also 6 Charles Alan Wright, Arthur R. Miller &
Mary Kay Kane, Federal Practice and Procedure § 1476
at 556 et seq. (3d ed. 1990). That complaint did not
contain an arbitrable claim. There was, therefore, no claim
12 No. 08-2197
to send to arbitration.7
As Judge Williams pointed out in Vitek, the matter of the
consequences for dismissing an arbitrable claim and
proceeding with the nonarbitrable claims is a matter best
resolved when—and if—the dismissing party ever at-
tempts at a later date to bring those claims again. In
that posture, a court will be able to best determine
whether the doctrines of waiver or estoppel ought to
prevent such an attempt.
Because the district court correctly determined that the
operative complaint contained no arbitrable claim, it
correctly denied the motion to compel arbitration and
correctly lifted the stay of Count I, a nonarbitrable claim.
7
We cannot agree with the Bank’s assertion that the French
beneficiaries’ statement that they had not waived or abandoned
any claims indicated that they planned to refile Count II after
litigation in the district court concluded. As the court noted in
Prudential Securities Inc. v. Vitek, No. 92 C 3137, 1993 WL 34699,
at *3 (N.D. Ill. Feb. 8, 1993), the plaintiffs “should not be
required to represent that they have completely abandoned
the issues” embodied in Count II “in order to not be required
to submit to arbitration.” Id.No. 08-2197 13
Conclusion
For the foregoing reasons, we affirm the judgment of
the district court.
A FFIRMED
7-31-09