American Heritage Life Insurance v. Orr

REVISED JUNE 18, 2002
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
________________________
Nos. 01-60678, 01-60679, 01-60680, 01-60681, 01-60682
________________________
AMERICAN HERITAGE LIFE INSURANCE COMPANY;
FIRST COLONIAL INSURANCE COMPANY OF FLORIDA;
FIDELITY NATIONAL INSURANCE CORPORATION, doing
business as Republic Finance, Inc.
Plaintiffs-Appellees
-vs-
JOHN D. ORR, BETTY E. SANFORD, FRANKIE L. MOORE,
JIMMIE MARTIN and NATHANIEL HENLEY,
Defendants-
Appellants
Appeals from the United States District Court
for the Northern District of Mississippi
June 14, 2002
Before WIENER and DENNIS, Circuit Judges, and LITTLE, District Judge.*
LITTLE, District Judge:
Today we consider a consolidated appeal by Defendants-Appellants from the
district court’s order in favor of Plaintiffs-Appellees, compelling arbitration. Defendants-
Appellants include the following parties: John D. Orr, Betty F. Sanford, Frankie L. Moore,
Jimmie Martin, and Nathaniel Henley (collectively referred to as the “Appellants”).
*
Chief District Judge of the Western District of Louisiana, sitting by designation.
Plaintiffs-Appellees are: Fidelity National Corporation d/b/a Republic Finance, Inc.
(“Republic Finance” or the “Lender”), and American Heritage Life Insurance Company
(“American Heritage”) and First Colonial Insurance Company of Florida (“Colonial
Insurance”) (collectively, the “Insurers”).1 The district court granted Plaintiffs-
Appellees’ petition to compel arbitration under § 4 of the Federal Arbitration Act (the
“FAA”), stayed the pending state court proceedings, and ordered the case closed.
9 U.S.C. § 4.
Although the Appellees are the beneficiaries of the district court’s ruling that
compelled arbitration, they are appellants as to one issue: Whether this court has
jurisdiction to entertain Appellants’ appeal. This issue will be disposed of first, and
consideration of the portions of the district court’s order that the Appellants find
wanting will follow.
We ultimately hold that, as a matter of law, the district court order compelling
arbitration, which also stays the underlying state court proceedings and closes the case
in federal court, is an immediately appealable, final decision under the ambit of 9 U.S.C.
§ 16(a)(3) of the FAA. As such, this court has jurisdiction to entertain the instant appeal.
We also conclude that the district court’s order should be affirmed.
I. FACTS AND PROCEEDINGS
Over the past several years, Appellants obtained consumer loans from Republic
Finance, which included the purchase of credit life and credit disability insurance.
1
Republic Finance, American Heritage, and Colonial Insurance will be referred to collectively as “Appellees.”
2
Specifically, when Appellants entered into loan transactions with Republic Finance,
Republic Finance sold Appellants disability life insurance to insure the credit against
the risks of sickness and death. The Insurers wrote and issued the insurance policies
that Republic Finance sold to Appellants.
At the loan closings, the borrowing Appellant and Republic Finance signed a
document entitled “Arbitration Agreement” (the “Agreement”) to which the Insurers
were not signatories. Appellants do not contend that Republic Finance failed to prepare
the Agreement in clear language and legible print, or that Republic Finance neglected
to place the Agreement on a separate page, that is, apart from the loan transaction
documents. Each Agreement contains the following language:
[A]ny claim, dispute or controversy between undersigned . . . and lender
(or the employees, agents or assigns of lender) arising from or relating to
the loan or any prior extension of credit by lender to any of the
undersigned, insurance written in connection herewith, . . . and whether
in tort, contract, breach of duty (including but not limited to) any alleged
fiduciary, good faith, and fair dealing duties, including but not limited to
the applicability of this arbitration agreement, and the validity of the entire
agreement shall be resolved by binding arbitration before one arbitrator
in accordance with the Federal Arbitration Act, the expedited procedures
of the commercial arbitration rules of the American Arbitration
Association, and this agreement.
....
The parties agree that Lender is engaged in interstate commerce, and the
transaction is governed by the Federal Arbitration Act, 9 U.S.C. Section 1 -
16.
....
In the event either party files a suit of any kind in any court against the
other, or if a counter or cross-claim is filed therein, the defendant or
counter-defendant can have the suit stayed and the other party required
to arbitrate under this agreement.
3
Directly above the date and signature lines, in bold, capital, readily legible letters, is the
following language.
THE PARTIES UNDERSTAND THAT BY SIGNING THIS ARBITRATION
AGREEMENT, THEY ARE LIMITING ANY RIGHT TO PUNITIVE
DAMAGES AND GIVING UP THE RIGHT TO A TRIAL IN COURT, BOTH
WITH AND WITHOUT A JURY.
Despite the clear language of the Agreements’ provisions mandating arbitration
under the FAA and the commercial rules of the American Arbitration Association
(“AAA”), Appellants commenced a civil action against Appellees in the Circuit Court
of Clay County, Mississippi. Appellants sought monetary damages for, among other
alleged transgressions, fraudulent misrepresentation in connection with the loan
transaction, conspiracy to “sell credit life, credit disability, property and/or collateral
protection insurance . . . that was unnecessary and at an exorbitant premium far in
excess of the market rate,” breach of implied covenants of good faith and fair dealing,
breach of fiduciary duties, and allegations that the Insurers conspired with agents of
Republic Finance to sell unnecessary insurance at inflated rates.
Appellees initiated independent actions in the United States District Court,
Northern District of Mississippi, only seeking orders of the court to compel arbitration
under the FAA, 9 U.S.C. § 1 et seq. and to stay the state court proceedings. After an
appropriate analysis of the Appellants’ demands and the Appellees’ oppositions to
them, the district court issued an order compelling arbitration in accordance with the
Agreements, staying all related, state court proceedings, and closing the case. The
district court determined that Appellants’ claims implicated substantially
interdependent and concerted misconduct by both the non-signatory Insurers and the
4
signatory Lender. The district court also concluded that: (1) the McCarran-Ferguson
Insurance Regulation Act, 15 U.S.C. §§ 1011-1015 (1999) (the “McCarran-Ferguson Act”)
did not reverse-preempt the FAA because Appellants failed to identify a Mississippi
state law or statute that the FAA had invalidated, impaired, or superseded; (2)
Appellees’ petition to compel arbitration in the district court did not amount to a
compulsory counterclaim under rule 13(a) of the Federal Rules of Civil Procedure (the
“FRCP”), which would have required Appellees to file the motion to compel arbitration
in state court, and that § 4 of the FAA plainly authorized a party against whom litigation
has been initiated to commence a separate, original action in federal district court to
enforce an arbitration agreement; and (3) Appellants did not proffer sufficient evidence
to support a jury trial demand for resolution of the factual issues surrounding the
adoption of the Agreements. Of particular importance in the instant dispute is the fact
that, in addition to compelling arbitration and staying the pending state court
proceedings, the district court ordered the case closed but did not dismiss the action.
The final, substantive paragraph of the district court’s order provides as follows: “[T]his
case is CLOSED.” Appellants timely filed notices of appeal.
II. JURISDICTION
A District Court Order That Compels Arbitration, Stays the Underlying State
Court Proceedings, and Closes the Case is an Immediately Appealable, Final
Decision Within the Contemplation of § 16(a)(3) of the FAA.
Section 16(a)(3) of the FAA provides as follows: “An appeal may be taken from a
final decision with respect to an arbitration that is subject to this title.” 9 U.S.C.
§ 16(a)(3). That section preserves immediate appeal of any “‘final decision’ with respect
5
to arbitration,” regardless of whether the decision is favorable or hostile to arbitration.
Id. The FAA does not, however, expressly define the term “final decision.” Appellees
argue that this court lacks appellate jurisdiction because the district court did not issue
an immediately appealable “final decision.” Specifically, Appellees maintain that
because the district court’s order compelled arbitration and “closed” the case instead
of compelling arbitration and “dismissing” the case, this court lacks jurisdiction to hear
the appeal of the ruling of the district court. Appellees cite Green Tree Fin. Corp.-Ala.
v. Randolph, 531 U.S. 79, 121 S. Ct. 513, 148 L. Ed. 2d 373 (2000) for the proposition that
“closing” a case neither ends the litigation on the merits nor terminates the district
court’s involvement in the matter, thereby precluding this court’s appellate jurisdiction
over the dispute. 531 U.S. at 85, 121 S.Ct. at 519. Conversely, Appellants also rely on
Green Tree, but for the proposition that, in the instant dispute, “closing” a case is the
functional equivalent of “dismissing” it. Appellants argue that by compelling
arbitration and “closing” the case, the district court issued an immediately appealable,
final decision under § 16(a)(3) because the court’s order ended the entire litigation on the
merits in that court, leaving nothing more for that court to do but execute the judgment.
Id.
In Green Tree, the Supreme Court held that an order dismissing an action is a
“final decision” within the traditional understanding of the term, even when the
dismissal is in favor of arbitration and the parties could later return to court to enter
judgment on an arbitration award. Id. at 85-88, 121 S.Ct. at 519-21. In reaching this
result, the Supreme Court applied the well-established meaning of “final decision” as
6
one that “ends the litigation on the merits and leaves nothing more for the court to do
but execute the judgment.” Id. at 85; 121 S.Ct. at 519 (citing Digital Equip. Corp. v.
Desktop Direct, Inc., 511 U.S. 863, 867, 114 S. Ct. 1992, 128 L. Ed. 2d 842 (1994), and
Coopers & Lybrand v. Livesay, 437 U.S. 463, 467, 98 S. Ct. 2454, 57 L. Ed. 2d 351 (1978)
(both quoting Catlin v. United States, 324 U.S. 229, 233, 65 S. Ct. 631, 89 L. Ed. 911 (1945)).
The Green Tree Court concluded that the reference in 9 U.S.C. § 16(a)(3) to “a final
decision with respect to an arbitration that is subject to this title” authorizes appeals
from final orders that grant or deny arbitration. Green Tree, 531 U.S. at 89; 121 S.Ct. at
521. No longer is it necessary to conduct an analysis of whether a lawsuit is an
“independent” action, brought solely to enforce arbitration rights, or an action in which
the request to arbitrate is “embedded” in a case that also raises substantive legal
claims. Id. at 88; 121 S. Ct. at 520. By distinguishing the terms “dismiss” and “close”
as they apply to disposition of a case, Appellees attempt to thwart the Court’s
instruction in Green Tree to apply the well-established meaning of “final decision.”
Appellees contend that the standards for appeal from a dismissal are different from the
standards for appeal from orders closing the case.
There is no practical distinction between “dismiss” and “close” for purposes of
this appeal. The application of each word results in a termination on the merits, leaving
the judgment-rendering court with nothing more to do but execute the judgment. We
hold that where a district court with nothing before it but whether to compel arbitration
and stay state court proceedings issues an order compelling arbitration, staying the
underlying state court proceedings, and closing the case, thereby effectively ending the
7
entire matter on its merits and leaving nothing more for the district court to do but
execute the judgment, appellate jurisdiction lies, as the decision is “final” within the
contemplation of § 16(a)(3) of the FAA. Thus, we hold that this court has jurisdiction to
entertain the instant appeal.
III. SUBSTANTIVE ISSUES
Appellants assert that the district court erred by: (1) finding that the McCarran-
Ferguson Act did not reverse-preempt the application of the FAA to the instant case;
(2) denying Appellants a trial by jury to decide the factual issues surrounding the
validity of the Agreements; and (3) failing to declare the Agreements unenforceable
because of the putative high cost of arbitration. For the reasons hereafter set forth, we
find no merit in any issue raised by Appellants.
A. Standard of Review
We review a district court’s grant of a motion to compel arbitration de novo,
applying the same standard as the district court. OPE Int’l LP v. Chet Morrison
Contractors, Inc., 258 F.3d 443, 445 (5th Cir. 2001) (citing Local 1351 Int’l Longshoremen’s
Ass’n v. Sea-Land Serv., Inc., 214 F.3d 566, 569 (5th Cir. 2000), cert. denied, 531 U.S. 1076,
121 S. Ct. 771, 148 L. Ed. 2d 670 (2002); Painwebber, Inc. v. Chase Manhattan Private Bank,
260 F.3d 453, 459 (5th Cir. 2001); Pennzoil Exploration & Prod. Co. v. Ramco Energy, Ltd.,
139 F.3d 1061, 1065 (5th Cir. 1998).
8
B. The McCarran-Ferguson Act Did Not Reverse-Preempt the Application of the FAA
to the Agreements.
Appellants’ first argument is that the FAA is inapplicable to the instant
Agreements, because the FAA is precluded or preempted by the McCarran-Ferguson
Act, 15 U.S.C. § 102 (the “Act”). The Act provides the following:
No Act of Congress shall be construed to invalidate, impair, or supersede
any law enacted by any State for the purpose of regulating the business
of insurance, . . .
15 U.S.C.A. § 1012(b). The Act bars application of the FAA to insurance contracts only
in the context of a state statute evincing the same, not mere policy statements of state
officials or administrative rule interpretations of governmental entities. See Miller v.
Nat’l Fidelity Life Ins. Co., 588 F.2d 185, 186-87 (5 th Cir. 1979). The party seeking to
avail itself of the Act must demonstrate that application of the FAA would invalidate,
impair, or supersede a particular state law that regulates the business of insurance. Id.
at 187. “The test under McCarran-Ferguson is not whether a state has enacted statutes
regulating the business of insurance, but whether such state statutes will be
invalidated, impaired, or superseded by the application of federal law.” Id. Appellants
fail to identify any statute that would be impaired, invalidated, or superseded by the
application of the FAA. Instead, Appellants try to perpetrate a judicial end-run by
asserting that an attorney general’s opinion or insurance department’s regulatory,
administrative policy is the functional equivalent of a state law relating to insurance,
thereby triggering the provisions of the Act. Appellants’ arguments are without merit.
First, “[o]pinions of the Mississippi Attorney General do not have the force of law
. . . .” Frazier v. Lowndes County, Mississippi Bd. of Educ., 710 F.2d 1097, 1100 (5th Cir.
9
1983) (citing Local Union No. 845, United Rubber, Cork, Linoleum and Plastic Workers
of Am., Home Assoc. v. Lee County Bd. of Supervisors, 369 So. 2d 497, 498 (Miss. 1979)).
Second, because no Mississippi statute addresses, much less prohibits or restricts,
arbitration of credit insurance-related claims, disputes, or controversies, the
Commissioner of Insurance for the State of Mississippi (the “Commissioner”) is without
regulatory authority to prohibit arbitration clauses relating to insurance. Appellants
espouse a variety of administrative rulings by the Commissioner that disallowed
arbitration of all insurance-related claims as proof that insurance claims are never
subject to arbitration in the State of Mississippi. In their brief, Appellants state the
following: “There is no evidence herein that the Commissioner has ever approved an
insurance policy, certificate, or endorsement or any form containing provisions for
mandatory and binding arbitration. Consequently, the use of a mandatory, binding
arbitration agreement, even though contained in a third-party contract . . . is unlawful
in Mississippi.” Appellees, however, have submitted into the record a press release
issued by the Commissioner on 2 October 2001, which states, in pertinent part, the
following:
[Commissioner] announces first policy filing allowing arbitration.
[The] Commissioner . . . approve[d] a filing by Primerica Life Insurance
Company containing an arbitration provision. This provision would require
certain disputes to be resolved through the process of arbitration rather
than in the court system. In the event of a dispute, instead of a lawsuit
being filed, an independent and neutral arbitrator licensed to practice law
in Mississippi would render a decision after hearing the position of the
parties. . . . The arbitrator’s decision would be final and binding on both
the policyholder and Primerica Life Insurance Company.2
2
See Mississippi Insurance Department website: www.doi.state.ms.us, 2 October 2001.
10
As the record indicates, Appellants’ contention that the Commissioner never permits
insurance disputes to be subject to arbitration is incorrect. The record indicates that the
Commissioner can permit or disallow insurance disputes to be subject to arbitration as
the Commissioner deems fit.
Based upon the clear meaning of 15 U.S.C.A. § 1012(b), we hold that the district
court properly concluded that the Act does not apply, and that under the FAA, the
Agreements are valid, enforceable, and irrevocable. See Hart v. Orion Ins. Co., 453 F.2d
1358, 1360 (10th Cir. 1971); Hamilton Life Ins. Co. of N.Y. v. Republic Life Ins. Co., 408
F.2d 606, 611 (2nd Cir. 1969).
C. Appellants Are Not Entitled to a Jury Trial Regarding the Validity of the
Agreements.
Second, Appellants maintain that under §§ 2 & 4 of the FAA, they are entitled to
a trial by jury on the issue of arbitrability. Section 2 of the FAA states, in pertinent part,
that an arbitration clause involving interstate commerce is “valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. The FAA also provides that “[i]f the making of the arbitration
agreement . . . be in issue, the court shall proceed summarily to the trial thereof.” 9
U.S.C. § 4.
1. Right to a Jury Trial Under § 4 of the FAA.
Appellants contend that they deserve a jury trial on the question of the validity
of the Agreements. Specifically, by alleging that the Agreements are unconscionable,
the products of unequal bargaining power between the parties, lacking mutuality of
obligation between the parties, and failing to result in a meeting of the minds,
11
Appellants argue that they have put the “making”of the Agreements in issue, thereby
complying with § 4 of the FAA. The district court held, however, that the issues raised
by Appellants relate to enforceability of the Agreements, but do not impact the “making
of the arbitration” agreement. We agree with the district court’s holding and rationale.
Although the FAA permits parties to demand a jury trial to resolve factual issues
surrounding the making of an arbitration agreement, or the failure, neglect, or refusal to
perform the agreement, it is well-established that “[a] party to an arbitration agreement
cannot obtain a jury trial merely by demanding one.” Dillard v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 961 F.2d 1148, 1154 (5th Cir. 1992). Further, under the Dillard
analysis, a party contesting the “making” of the arbitration agreement must “make at
least some showing that under prevailing law, he would be relieved of his contractual
obligations to arbitrate if his allegations proved to be true . . . [and] produce some
evidence to substantiate his factual allegations.” Id. at 1154.
In the instant case, Appellants submitted evidence in the form of affidavits that
claim, inter alia, that Appellees did not explain the Agreements to Appellants or that
Appellants did not realize that they were waiving a trial by jury. The affidavits proffered
by Appellants, however, amount to nothing more than hollow, bald assertions that do
not approach fraud in the “making”of the Agreements. See Bhatia v. Johnson, 818 F.2d
418, 421-22 (5 th Cir. 1987) (stating that self-serving affidavits do not amount to the type
of evidence required to call the “making of the arbitration” agreement into question).
Furthermore, Appellants’ affidavits fail to identify any misrepresentation by Appellees
peculiar to the Agreements, which forecloses Appellants’ ability to state a claim of fraud
12
in the inducement. See Burden v. Check INTQ Cash of Kentucky, LLC, 267 F.3d 483, 491
(6th Cir. 2001). Other than their self-serving affidavits, Appellants have not submitted
a whisper of evidence to support the conclusion that a jury trial is warranted under § 4
of the FAA. Raising issues of the Agreements’ procedural or substantive
unconscionability, as Appellants have in the instant case, is not the equivalent of
questioning the “making” of an arbitration agreement. See Burden, 267 F.3d at 492.
Under § 4 of the FAA and Dillard, therefore, Appellants have not met their burden to
show their entitlement to a jury trial.
2. The Seventh Amendment Right to a Trial by Jury.
Next, Appellants claim that by forcing them to submit their claims to an arbitrator,
the district court deprived them of their Seventh Amendment right to a trial by jury.
Appellants suggest that the waiver of a constitutional right should be closely
scrutinized, and that a waiver of jury trial rights must be clearly and unmistakably
expressed.
Appellants’ argument is without foundation. First, we point out that Appellants
agreed to submit to arbitration because they assented to the terms of the Agreements,
which contained the following clause, located just above the signature lines:
THE PARTIES UNDERSTAND THAT BY SIGNING THIS ARBITRATION
AGREEMENT, THEY ARE LIMITING ANY RIGHT TO PUNITIVE
DAMAGES AND GIVING UP THE RIGHT TO A TRIAL IN COURT, BOTH
WITH AND WITHOUT A JURY.
Therefore, by agreeing to arbitration, Appellants have necessarily waived the following:
(1) their right to a judicial forum; and (2) their corresponding right to a jury trial.
13
Nevertheless, Appellants cite Wright v. Universal Maritime Serv. Corp., 525 U.S.
70, 119 S. Ct. 391, 142 L. Ed. 2d 361 (1998), for the proposition that an arbitration provision
that waives jury trial rights must be clearly and unmistakably expressed. Reliance on
Wright, however, is unavailing. Appellants acknowledge that the Supreme Court
limited its holding in Wright to the context of a collective bargaining agreement, not to
an individual’s waiver of his own rights – a situation in which the “clear and
unmistakable” standard is not applicable. Id. at 80-81, 119 S.Ct. at 401-02. Thus, outside
the area of collective bargaining, in which a third party (the union) seeks to waive
contractually the rights of an individual member (the employee), there is no requirement
that an arbitration provision must clearly and unmistakably express the waiver of an
individual’s rights. Williams v. Imhoff, 203 F.3d 758, 763 (10th Cir. 2000).
Appellants further cite the talisman of Miranda v. Arizona, 384 U.S. 436, 86 S. Ct.
1602, 16 L. Ed. 2d 694 (1966) in support of their contention that a waiver of a constitutional
right must be voluntarily, knowingly, and intelligently made. Miranda, however, is
totally inapposite to the instant case, because Miranda is limited to the protection of the
Fifth Amendment rights of criminal defendants after arrest and does not trigger the
application of the Seventh Amendment right to a jury trial in a civil case.
The Seventh Amendment right to a trial by jury is limited by a valid arbitration
provision that waives the right to resolve a dispute through litigation in a judicial forum.
We concur with the following reasoning:
The Seventh Amendment does not confer the right to a trial, but only the
right to have a jury hear the case once it is determined that the litigation
should proceed before a court. If the claims are properly before an arbitral
forum pursuant to an arbitration agreement, the jury trial right vanishes.
14
Cremin v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 957 F. Supp. 1460, 1471 (N.D. Ill.
1997). Here, Appellants agreed to resolve their disputes with Appellees through
arbitration, and they did so in clear and unmistakable, capitalized and boldfaced words
which expressly waived their right to a jury trial as well. Thus, Appellants validly
waived their rights to a judicial forum, including the corollary right to a trial by jury.
D. The Agreements Are Not Unenforceable Because of the Alleged High Cost of
Arbitration.
Third, Appellants contend that the filing and case service fees for arbitration are
oppressive, present a hardship, and are unconscionable, thereby rendering the
Agreements unenforceable. As to the potentially burdensome costs of arbitration, the
party resisting arbitration has the burden of showing the likelihood that “arbitration
would be prohibitively expensive.” Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 81,
121 S. Ct. 513, 148 L. Ed. 2d 373 (2000). Appellants assert that they would not be able to
afford the fees associated with arbitration under the fee schedule and rules of the AAA.
First, this testimony alone is not sufficient to render the Agreements
unconscionable. See Williams v. Cigna Fin. Advisors, 197 F.3d 752, 764-65 (5th Cir.
1999), cert. denied, 529 U.S. 1099, 120 S. Ct. 1833, 146 L. Ed. 2d 777 (2000). In Williams, this
court held that, without more, the mere possibility that a party may have to share in the
payment of the arbitrator’s fees is not a sufficient reason to invalidate an arbitration
agreement. See id. at 764. Furthermore, when a party fails to specify excessive
arbitration costs and instead speculates that a “risk” exists that the party will be
saddled with prohibitive costs of the arbitration proceeding, a court is not required to
invalidate the arbitration agreement. Green Tree, 531 U.S. at 90-91, 121 S.Ct. at 522.
15
Interestingly, to date, Appellees, not Appellants, have assumed the cost of initiating the
arbitration.
Second, the Agreements provide the following: “the party requesting arbitration
shall at that time pay the arbitrator $125.00. Lender shall pay arbitrator all other
arbitration fees and expense costs for up to one day (eight hours) of proceedings. Any
other such costs shall be paid by the non-prevailing party. . . .” According to the record,
to date, only Appellees have paid the appropriate fees; however, if Appellees prevail,
then Appellants must pay all costs and expenses of arbitration. Presently, the question
of which party to the arbitration will ultimately prevail at arbitration is subject to
speculation only and, therefore, is not a basis to hold the Agreements unenforceable.
Appellants’ reliance on Shankle v. B.G. Maint. Mgmt., Inc., 163 F.3d 1230, 1234-35
(10th Cir. 1999) and Cole v. Burns Int’l Sec. Services Co., 105 F.3d 1465, 1483-89 (D.C. Cir.
1997) is misplaced. In each case, the court addressed an arbitration agreement that did
not expressly specify which party would pay the arbitrator’s fees or whether an
arbitrator’s fees could be waived or reduced in cases of hardship. See Cole, 105 F.3d at
1483-89. This case, however, is distinguishable from Coles, because the Agreements
expressly state who shall pay the arbitration fees. Moreover, the rules of the AAA
provide Appellants sufficient avenues to request fee-paying relief, if necessary. See
Rule R-51, Commercial Arbitration Rules.
The mere fact that Appellants face the possibility of being charged arbitration
fees, including paying the arbitrator’s fee if directed to do so by the arbitrator, does not
render the Agreements unenforceable. Accordingly, Appellants have failed to
16
demonstrate that the Agreements’ provision relating to fees is unconscionable simply
because Appellants may eventually have to pay a portion of the arbitrator’s fees.
IV. CONCLUSION
For the foregoing reasons, the district court’s order compelling arbitration, staying
the state court proceedings, and closing the case is AFFIRMED.
17
DENNIS, Circuit Judge, concurring:
I concur fully in Chief Judge Little’s excellent opinion and write separately only to elaborate
on the reasons why we have appellate jurisdiction over this matter.
The Federal Arbitration Act (“FAA”) permits appeal of any “final decision with respect to an
arbitration” that is subject to the Act. 9 U.S.C. § 16(a)(3). On the other hand, “[e]xcept as otherwise
provided in section 1292(b) of title 28, an appeal may not be taken from an interlocutory order . . .
(1) granting a stay of any action under section 3 of this title; [or] (2) directing arbitration to proceed
under section 4 of this title . . . .” 9 U.S.C. § 16(b)(1)–(2).3 Thus, an order compelling arbitration
is appealable only if it is a final order. In other words, the finality of the district court’s order
determines this court’s jurisdiction over the present appeal.
Prior to the Supreme Court’s opinion in Green Tree Financial Corp.—Alabama v. Randolph,
531 U.S. 79 (2000), this circuit established that “[t]he appropriate test of finality is whether the order
involved an independent or embedded proceeding. An order involving an embedded proceeding is
always an interlocutory order; an order involving an independent claim is always final.” Altman
Nursing, Inc. v. Clay Capital Corp., 84 F.3d 769, 771 (5th Cir. 1996). The Altman Nursing court
explained the independent/embedded distinction as follows: “‘Generally, if the only issue before the
court is the dispute’s arbitrability, the action is considered independent and a court’s decision on that
issue constitutes a final decision. If, however, the case includes other claims for relief, an arbitrability
3
Appellate review is permitted under the 28 U.S.C. § 1292(b) exception if the district court certifies an order
for immediate appeal.
-18-
ruling does not end the litigation on the merits, but is considered interlocutory only.’” Id. (quoting
McDermott Int’l, Inc. v. Underwriters at Lloyds, 981 F.2d 744, 747 (5th Cir. 1993)).
In Green Tree, the Court established a different analytical framework for determining whether
an arbitration order is an appealable “final decision” or an unappealable “interlocutory order.” “The
Court held that an order dismissing an entire action with prejudice and ordering arbitration is an
appealable final decision under § 16(a)(3), regardless of whether the action would be deemed
‘independent’ or ‘embedded’ by courts, like ours, that embraced that distinction.” Salim
Oleochemicals v. M/V Shropshire, 278 F.3d 90, 92 (2d Cir. 2002).4 Rather, the Court applied the
“well-developed and longstanding” definition of “final decision”: “It is a decision that ends the
litigation on the merits and leaves nothing more for the court to do but execute the judgment.” Green
Tree, 531 U.S. at 86 (internal quotation and citations omitted). The Court further noted, however,
that, “[h]ad the District Court entered a stay instead of a dismissal in this case, that order would not
be appealable.” Id. at 87 n.2.
Here, the district court entered an order in each action that (1) compelled arbitration under
section 4 of the FAA, (2) stayed the state-court proceedings, and (3) closed the case. Each
component of those orders merits brief discussion.
First, in Green Tree, the Supreme Court returned o ur jurisdictional analysis to the “plain
language of the statutory text” of the FAA. See id. at 88. Section 4 of the FAA permits a party
seeking to compel arbitration to file suit solely for that purpose. See 9 U.S.C. § 4; see also Edith H.
Jones, Appeals of Arbitration Orders—Coming Out of the Serbonian Bog, 31 S. TEX. L. REV. 361,
4
The Green Tree case would have qualified as an “embedded” proceeding under our definition of that term
in Altman Nursing.
-19-
373–76 (1990). When a decision on arbitrability is the sole object of a civil action, the district court’s
determination of that issue amounts to an immediately appealable “final decision” because it “ends
the litigation on the merits and leaves nothing for the court to do but execute the judgment.” In this
case, the Appellees filed independent actions in the district court. By compelling arbitration, the court
resolved the only issue before it in each action. The orders are therefore final decisions, and we have
jurisdiction to hear this appeal under section 16(a)(3) of the FAA.
Second, the stay of the state-court proceedings does not impact our jurisdictional analysis.
Although section 3 of the FAA allows courts to stay litigation brought before them, the statute does
not authorize federal courts to enjoin ongoing state proceedings.5 Consequently, the district court
did not grant “a stay of any action under section 3 of this title . . . .” 9 U.S.C. § 16(b)(1) (emphasis
added). More importantly, because the district court reached final decisions with respect to
arbitration, the stay component of its orders did not transform them into unappealable “interlocutory
order[s]” under section 16(b). See Sphere Drake Ins. PLC v. Marine Towing, Inc., 16 F.3d 666,
5
See Jean R. Sternlight, Forum Shopping for Arbitration Decisions: Federal Courts’ Use of Antisuit
Injunctions Against State Courts, 147 U. PA. L. REV. 91, 114 (1998) (“Nothing in either the language or the legislative
history of the FAA shows that Congress intended to allow federal courts to enjoin state actions to support the
enforcement of arbitration agreements.”). The district court’s authority to issue arbitral antisuit injunctions directed
at state-court proceedings derives, instead, from the All Writs Act, 28 U.S.C. § 1651(a). Id. at 146. Congress,
however, has limited the injunction power conferred by the All Writs Act. The Anti-Injunction Act provides that “[a]
court of the United States may not grant an injunction to stay proceedings in a State court except as expressly
authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.”
28 U.S.C. § 2283. The district court based its stay on the third exception contained in the Anti-Injunction Act, stating
that “a stay is required to protect or effectuate this court’s judgment and order that the controversy between the parties
be submitted to arbitration.” Because an order compelling arbitration entered in an independent proceeding is a final
decision, it also qualifies as a “judgment” under the Anti-Injunction Act. See Sternlight, supra, at 170–77. But cf.
id. at 177 (stating that the third exception “would not seem to apply where an entire case on the merits was filed in
federal court”). Thus, the stay entered by the district court was valid as a matter of law. But this finding does not mean
that the stay was “necessary as a matter of practicality.” Id. “Once the federal court has issued an order compelling
arbitration, parties would risk sanctions such as contempt of court by refusing to follow the order.” Id. In short, federal
courts should examine closely both the legality and the necessity of a stay pending arbitration prior to interfering with
a state-court suit.
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667–68 (5th Cir. 1994). “There is nothing interlocutory about an order compelling arbitration that
does all that the court has to do.” Clarendon Nat’l Ins. Co. v. Kings Reinsurance Co., 241 F.3d 131,
135 (2d Cir. 2001). Accordingly, the stay does not prevent us from exercising appellate jurisdiction.6
Third, in my opinion, the closure component of the orders reveals the district court’s intention
to both retain jurisdiction and administratively close the case. It is not uncommon for district courts
to compel arbitration but also retain jurisdiction pending the arbitration for the purpose of addressing
any subsequent motions to confirm, modify, or vacate the award.7 But the retention of jurisdiction
pending arbitration creates an administrative problem for the district court because the action is likely
to remain dormant for an appreciable period of time, and chief judges (at both the appellate and
district-court levels) have a sixth sense for cases that appear to be languishing. The administrative
closure solves this problem by providing a vehicle for the district court to remove the case from its
active files without making any final adjudication. Lehman v. Revolution Portfolio L.L.C., 166 F.3d
389, 392 (1st Cir. 1999). Thus, the administ rative closure reflects nothing more than the federal
courts’ overarching concern with tidy dockets; it has no jurisdictional significance.8
6
Even if one of the parties to the arbitration agreement had successfully moved to stay the federal-court
proceedings pending arbitration, our jurisprudence indicates that the district court’s orders would still constitute
immediately appealable final decisions. See Sphere Drake, 16 F.3d at 668 (holding, in an independent proceeding,
that an order compelling arbitration that also stayed all federal and state litigation pending between the parties was
final).
7
The federal courts of appeals have consistently found that district courts intend to retain jurisdiction when
they stay proceedings pending arbitration. See, e.g., Corion Corp. v. Chen, 964 F.2d 55, 56–57 (1st Cir. 1992); see
also Jolley v. Paine Webber Jackson & Curtis, Inc., 864 F.2d 402, 405 (5th Cir. 1989) (“While an order granting a
stay postpones active litigation in the district court, it contemplates that the district court will retain jurisdiction to
confirm, modify, or, in some cases, to renew the litigation despite the arbitration award.”). Yet, in an independent
proceeding, a stay would not affect the finality or appealability of an order compelling arbitration. See supra note 4.
8
See Lehman, 166 F.3d at 392 (“Properly understood, an administrative closing has no effect other than to
remove a case from the court’s active docket and permit the transfer of records associated with the case to an
appropriate storage repository. In no event does such an order bar a party from restoring the action to the Court’s
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In an effort to cast their case in the same mold as Green Tree, the Appellants argue that an
order closing a case issued in an independent proceeding is the functional equivalent of a dismissal.9
If we were to accept their argument, however, we would be attributing jurisdictional significance to
a designation not sanctioned by the Federal Rules that is typically made for administrative or
statistical convenience. This we cannot do. Although the Appellants prevail under the plain meaning
of FAA section 16(a)(3), their “functional equivalent” argument lacks merit.
The Appellees, on the other hand, raise their own functional equivalent argument: they
suggest that we treat the closure order as a stay order, which would, in turn, deprive us of appellate
jurisdiction under footnote two of the Green Tree decision.10 This argument likewise fails, for it loses
sight of the final judgment rule. In an independent proceeding, an order that is otherwise final—such
as those entered in the present case—does not lose its finality because the district court retains
jurisdiction to supervise compliance with the order or to enforce an arbitration award. Amgen, Inc.
v. Kidney Ctr. of Delaware County, Ltd., 95 F.3d 562, 566 (7th Cir. 1996) (“[A]n order in an
independent proceeding can still be final even if the district court retains jurisdiction over the case to
supervise compliance with the order.”); North River Ins. Co. v. Philadelphia Reinsurance Corp., 63
active calendar upon an appropriate application.”) (internal quotation and citation omitted). I acknowledge that the
district court here did not specifically direct that the cases be “administratively closed.” But a court’s use of an
imprecise or misleading label cannot alter the character of its action. See id. at 392 n.2 (treating a “procedural order
of dismissal” as an administrative closure of the case).
9
In proceedings where the litigants place more than the issue of arbitrability before the district court, an order
compelling arbitration and closing the case is not equivalent to a final judgment of dismissal. See Filanto, S.P.A. v.
Chilewich Int’l Corp., 984 F.2d 58, 61 (2d Cir. 1993); see also ATAC Corp. v. Arthur Treacher’s, Inc., 280 F.3d 1091
(6th Cir. 2002) (rejecting an argument that a perpetual stay coupled with a closing order does not differ from a final
judgment of dismissal); Corion Corp., 964 F.2d at 56–60 (holding that an order compelling arbitration, staying
proceedings, and administratively closing the case is not final).
10
See Green Tree, 531 U.S. at 87 n.2. (“Had the District Court entered a stay instead of a dismissal in this case,
that order would not be appealable.”).
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F.3d 160, 164 (2d Cir. 1995); University Life Ins. Co. of Am. v. Unimarc Ltd., 699 F.2d 846, 848–50
(7th Cir. 1983). Moreover, even if the district court had stayed these independent proceedings
pending arbitration, the order compelling arbitration would still resolve the only issue before the court
in each action, and therefore an immediate appeal from the order would still be permitted. See supra
note 4. In short, even though the district court probably intended to retain jurisdiction over these
actions, neither the retention of jurisdiction nor the closure of the cases affects appealability.11
Although immediate appeal from an order compelling arbitration may frustrate the oft-cited
federal policy favoring arbitration, policy concerns must yield to the plain language of the statutory
text of the FAA. See Green Tree, 531 U.S. at 85–89. See also Corion Corp., 964 F.2d at 59
(“[I]mmediate appealability of an arbitration order in a lawsuit which seeks no more than an order
directing arbitration is the price or consequence of the final judgment rule, for once the order to
arbitrate enters, the court has disposed of the entire controversy then before it.”). In this case, then,
we have appellate jurisdiction under section 16(a)(3) of the FAA because the district court entered
“final decision[s]” by compelling arbitration in actions brought solely for that purpose.
11
The Appellees bravely complain that this appeal is impeding arbitration. Any delay, however, is of their
own making. They decided to file independent actions in federal court instead of moving to compel arbitration in the
earlier-filed state-court proceedings. This appeal is one of the consequences of that strategic decision.
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