Arthur Andersen LLP v. Carlisle

(Slip Opinion) OCTOBER TERM, 2008 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
ARTHUR ANDERSEN LLP ET AL. v. CARLISLE ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE SIXTH CIRCUIT
No. 08–146. Argued March 3, 2009—Decided May 4, 2009
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 corporations created by
Carlisle, Bushman, and Strassel (also respondents) entered into in
vestment-management agreements with Bricolage Capital, LLC, that
provided for arbitration of disputes. After the Internal Revenue Ser
vice found the tax shelter illegal, respondents filed a diversity suit
against petitioners. Claiming that equitable estoppel required re
spondents to arbitrate their claims per the agreements with Brico
lage, 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 peti
tioners’ 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 de
termined 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. The statute unambiguously
makes the underlying merits irrelevant, for even a request’s utter
frivolousness cannot turn a denial into something other than “an or
der . . . refusing a stay of any action under section 3,” §16(a)(1)(A).
2 ARTHUR ANDERSEN LLP v. CARLISLE
Syllabus
Pp. 3–5.
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 writ
ten 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 nonsig
natories. 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. 5–8
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.
Cite as: 556 U. S. ____ (2009) 1
Opinion of the Court
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SUPREME COURT OF THE UNITED STATES
_________________
No. 08–146
_________________
ARTHUR ANDERSEN LLP, ET AL., PETITIONERS
v. WAYNE CARLISLE ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE SIXTH CIRCUIT
[May 4, 2009]
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 ap
peal 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. Ar
thur Andersen LLP, a firm that had long served as their
company’s accountant, auditor, and tax adviser, intro
duced them to Bricolage Capital, LLC, which in turn
referred them for legal advice to Curtis, Mallet-Prevost,
Colt & Mosle, LLP. According to respondents, these ad
visers recommended a “leveraged option strategy” tax
2 ARTHUR ANDERSEN LLP v. CARLISLE
Opinion of the Court
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 corporations (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 Inter
nal 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 petition
ers failed to inform respondents of that option. Respon
dents 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 others1 (all except Bricolage and its employees here
inafter referred to as petitioners), alleging fraud, civil
conspiracy, malpractice, breach of fiduciary duty, and
——————
1 Also
named in the suit were two employees of Bricolage (Andrew
Beer and Samyak Veera); Curtis, Mallet-Prevost, Colt & Mosle, LLP;
William Bricker (the lawyer respondents worked with at the law firm);
Prism Connectivity Ventures, LLC (the entity from whom the worthless
warrants were purchased); Integrated Capital Associates, Inc. (a prior
owner of the worthless warrants who had also been a client of the law
firm); and Intercontinental Pacific Group, Inc. (a firm with the same
principals as Integrated Capital Associates).
Cite as: 556 U. S. ____ (2009) 3
Opinion of the Court
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 certio
rari, 555 U. S. ___ (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 re
quirement, 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 ap
peals 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 equi
table estoppel seek to expand (rather than simply vindi
cate) agreements, they are not cognizable under §§3 and 4,
and therefore the relevant motions are not actually “un
der” those provisions. See, in addition to the opinion
——————
2 Bricolage also moved for a stay under §3, but it filed for bankruptcy
while its motion was pending, and the District Court denied the motion
as moot.
4 ARTHUR ANDERSEN LLP v. CARLISLE
Opinion of the Court
below, 521 F. 3d, at 602, DSMC Inc. v. Convera Corp., 349
F. 3d 679, 682–685 (CADC 2003); In re Universal Serv.
Fund Tel. Billing Practice Litigation v. Sprint Communi
cations Co., 428 F. 3d 940, 944–945 (CA10 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 2.
Jurisdiction over the appeal, however, “must be deter
mined 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 (1996).3 The jurisdictional statute here unambigu
ously 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 pro
duce a long parade of horribles, enmeshing courts in fact
intensive jurisdictional inquiries and permitting frivolous
interlocutory appeals. Even if these objections could
——————
3 Federal courts lack subject-matter jurisdiction when an asserted
federal claim is “ ‘so insubstantial, implausible, foreclosed by prior
decisions of this Court, or otherwise completely devoid of merit as not to
involve a federal controversy.’ ” Steel Co. v. Citizens for Better Envi
ronment, 523 U. S. 83, 89 (1998) (quoting Oneida Indian Nation of N. Y.
v. County of Oneida, 414 U. S. 661, 666 (1974)). Respondents have not
relied upon this line of cases as an alternative rationale for rejection of
jurisdiction, and there are good reasons for treating subject-matter
jurisdiction differently, in that respect, from the appellate jurisdiction
here conferred. A frivolous federal claim, if sufficient to confer jurisdic
tion, would give the court power to hear related state-law claims, see 28
U. S. C. §1367; no such collateral consequences are at issue here. And
while an insubstantial federal claim can be said not to “aris[e] under
the Constitution, laws, or treaties of the United States,” §1331, insub
stantiality of the merits can hardly convert a judge’s “order . . . refusing
a stay” into an “order . . . refusing” something else. But we need not
resolve this question today.
Cite as: 556 U. S. ____ (2009) 5
Opinion of the Court
surmount the plain language of the statute, we would not
be persuaded. Determination of whether §3 was invoked
in a denied stay request is immeasurably more simple and
less factbound than the threshold determination respon
dents would replace it with: whether the litigant was a
party to the contract (an especially difficult question when
the written agreement is not signed). It is more appropri
ate to grapple with that merits question after the court
has accepted jurisdiction over the case. Second, there are
ways of minimizing the impact of abusive appeals. Appel
late courts can streamline the disposition of meritless
claims and even authorize the district court’s retention of
jurisdiction when an appeal is certified as frivolous. See
Behrens, supra, at 310–311. And, of course, those inclined
to file dilatory appeals must be given pause by courts’
authority to “award just damages and single or double
costs to the appellee” whenever an appeal is “frivolous.”
Fed. Rule App. Proc. 38.
III
Even if the Court of Appeals were correct that it had no
jurisdiction over meritless appeals, its ground for finding
this appeal meritless was in error. We take the trouble to
address that alternative ground, since if the Court of
Appeals is correct on the merits point we will have
awarded petitioners a remarkably hollow victory. We
consider, therefore, the Sixth Circuit’s underlying deter
mination that those who are not parties to a written arbi
tration agreement are categorically ineligible for relief.
Section 2—the FAA’s substantive mandate—makes
written arbitration agreements “valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in
equity for the revocation of a contract.” That provision
creates substantive federal law regarding the enforceabil
ity of arbitration agreements, requiring courts “to place
such agreements upon the same footing as other con
6 ARTHUR ANDERSEN LLP v. CARLISLE
Opinion of the Court
tracts.” Volt Information Sciences, Inc. v. Board of Trus
tees of Leland Stanford Junior Univ., 489 U. S. 468, 478
(1989) (internal quotation marks omitted). Section 3, in
turn, allows litigants already in federal court to invoke
agreements made enforceable by §2. That provision re
quires the court, “on application of one of the parties,”4 to
stay the action if it involves an “issue referable to arbitra
tion under an agreement in writing.” 9 U. S. C. §3.
Neither provision purports to alter background princi
ples of state contract law regarding the scope of agree
ments (including the question of who is bound by them).
Indeed §2 explicitly retains an external body of law gov
erning revocation (such grounds “as exist at law or in
equity”).5 And we think §3 adds no substantive restriction
to §2’s enforceability mandate. “[S]tate law,” therefore, is
applicable to determine which contracts are binding under
§2 and enforceable under §3 “if that law arose to govern
issues concerning the validity, revocability, and enforce
ability of contracts generally.” Perry v. Thomas, 482 U. S.
483, 493, n. 9 (1987). See also First Options of Chicago,
Inc. v. Kaplan, 514 U. S. 938, 944 (1995). Because “tradi
——————
4 Respondents do not contest that the term “parties” in §3 refers to
parties to the litigation rather than parties to the contract. The adja
cent provision, which explicitly refers to the “subject matter of a suit
arising out of the controversy between the parties,” 9 U. S. C. §4,
unambiguously refers to adversaries in the action, and “identical words
and phrases within the same statute should normally be given the
same meaning,” Powerex Corp. v. Reliant Energy Services, Inc., 551
U. S. 224, 232 (2007). Even without benefit of that canon, we would not
be disposed to believe that the statute allows a party to the contract
who is not a party to the litigation to apply for a stay of the proceeding.
5 We have said many times that federal law requires that “questions
of arbitrability . . . be addressed with a healthy regard for the federal
policy favoring arbitration.” Moses H. Cone Memorial Hospital v.
Mercury Constr. Corp., 460 U. S. 1, 24–25 (1983). Whatever the mean
ing of this vague prescription, it cannot possibly require the disregard
of state law permitting arbitration by or against nonparties to the
written arbitration agreement.
Cite as: 556 U. S. ____ (2009) 7
Opinion of the Court
tional principles” of state law allow a contract to be en
forced by or against nonparties to the contract through
“assumption, piercing the corporate veil, alter ego, incor
poration by reference, third-party beneficiary theories,
waiver and estoppel,” 21 R. Lord, Williston on Contracts
§57:19, p. 183 (4th ed. 2001), the Sixth Circuit’s holding
that nonparties to a contract are categorically barred from
§3 relief was error.
Respondents argue that, as a matter of federal law,
claims to arbitration by nonparties are not “referable to
arbitration under an agreement in writing,” 9 U. S. C. §3(emphasis added), because they “seek to bind a signatory
to an arbitral obligation beyond that signatory’s strictly
contractual obligation to arbitrate,” Brief for Respondents
26. Perhaps that would be true if §3 mandated stays only
for disputes between parties to a written arbitration
agreement. But that is not what the statute says. It says
that stays are required if the claims are “referable to
arbitration under an agreement in writing.” If a written
arbitration provision is made enforceable against (or for
the benefit of) a third party under state contract law, the
statute’s terms are fulfilled.6
Respondents’ final fallback consists of reliance upon
dicta in our opinions, such as the statement that “arbitra
tion . . . is a way to resolve those disputes—but only those
disputes—that the parties have agreed to submit to arbi
tration,” First Options, supra, at 943, and the statement
that “[i]t goes without saying that a contract cannot bind a
——————
6 We thus reject the dissent’s contention that contract law’s long
standing endorsement of third-party enforcement is “a weak premise
for inferring an intent to allow third parties to obtain a §3 stay,” post,
at 2. It seems to us not weak at all, in light of the terms of the statute.
There is no doubt that, where state law permits it, a third-party claim
is “referable to arbitration under an agreement in writing.” It is not
our role to conform an unambiguous statute to what we think “Con
gress probably intended,” post, at 2.
8 ARTHUR ANDERSEN LLP v. CARLISLE
Opinion of the Court
nonparty,” EEOC v. Waffle House, Inc., 534 U. S. 279, 294
(2002). The former statement pertained to issues parties
agreed to arbitrate, and the latter referred to an entity
(the Equal Employment Opportunity Commission) which
obviously had no third-party obligations under the con
tract in question. Neither these nor any of our other cases
have presented for decision the question whether arbitra
tion agreements that are otherwise enforceable by (or
against) third parties trigger protection under the FAA.
Respondents may be correct in saying that courts’ appli
cation of equitable estoppel to impose an arbitration
agreement upon strangers to the contract has been
“somewhat loose.” Brief for Respondents 27, n. 15. But
we need not decide here whether the relevant state con
tract law recognizes equitable estoppel as a ground for
enforcing contracts against third parties, what standard it
would apply, and whether petitioners would be entitled to
relief under it. These questions have not been briefed
before us and can be addressed on remand. It suffices to
say that no federal law bars the State from allowing peti
tioners to enforce the arbitration agreement against re
spondents and that §3 would require a stay in this case if
it did.
* * *
We hold that the Sixth Circuit had jurisdiction to review
the denial of petitioners’ request for a §3 stay and that a
litigant who was not a party to the relevant arbitration
agreement may invoke §3 if the relevant state contract
law allows him to enforce the agreement. The judgment of
the Court of Appeals for the Sixth Circuit is reversed, and
the case is remanded for further proceedings consistent
with this opinion.
It is so ordered.
Cite as: 556 U. S. ____ (2009) 1
SOUTER, J., dissenting
SUPREME COURT OF THE UNITED STATES
_________________
No. 08–146
_________________
ARTHUR ANDERSEN LLP, ET AL., PETITIONERS
v. WAYNE CARLISLE ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE SIXTH CIRCUIT
[May 4, 2009]
JUSTICE SOUTER, with whom THE CHIEF JUSTICE and
JUSTICE STEVENS join, dissenting.
Section 16 of the Federal Arbitration Act (FAA) author­
izes an interlocutory appeal from the denial of a motion
under §3 to stay a district court action pending arbitra­
tion. The question is whether it opens the door to such an
appeal at the behest of one who has not signed a written
arbitration agreement. Based on the longstanding con­
gressional policy limiting interlocutory appeals, I think
the better reading of the statutory provisions disallows
such an appeal, and I therefore respectfully dissent.
Section 16(a) of the FAA provides that “[a]n appeal may
be taken from . . . an order . . . refusing a stay of any ac­
tion under section 3 of this title.” 9 U. S. C. §16(a). The
Court says that any litigant who asks for and is denied a
§3 stay is entitled to an immediate appeal. Ante, at 3.
The majority’s assumption is that “under section 3” is
merely a labeling requirement, without substantive im­
port, but this fails to read §16 in light of the “firm congres­
sional policy against interlocutory or ‘piecemeal’ appeals.”
Abney v. United States, 431 U. S. 651, 656 (1977).
The right of appeal is “a creature of statute,” ibid., and
Congress has granted the Federal Courts of Appeals juris­
diction to review “final decisions,” 28 U. S. C. §1291. “This
insistence on finality and prohibition of piecemeal review
2 ARTHUR ANDERSEN LLP v. CARLISLE
SOUTER, J., dissenting
discourage undue litigiousness and leaden-footed admini­
stration of justice.” DiBella v. United States, 369 U. S.
121, 124 (1962). Congress has, however, “recognized the
need of exceptions for interlocutory orders in certain types
of proceedings where the damage of error unreviewed
before the judgment is definitive and complete . . . has
been deemed greater than the disruption caused by inter­
mediate appeal.” Ibid. Section 16 functions as one such
exception, but departures from “the dominant rule in
federal appellate practice,” 9 J. Moore, B. Ward, & J.
Lucas, Moore’s Federal Practice ¶110.06 (2d ed. 1996), are
extraordinary interruptions to the normal process of liti­
gation and ought to be limited carefully.
An obvious way to limit the scope of such an extraordi­
nary interruption would be to read the §16 requirement
that the stay have been denied “under section 3” as calling
for a look-through to the provisions of §3, and to read §3
itself as offering a stay only to signatories of an arbitration
agreement. It is perfectly true that in general a third­
party beneficiary can enforce a contract, but this is a weak
premise for inferring an intent to allow third parties to
obtain a §3 stay and take a §16 appeal. While it is horn­
book contract law that third parties may enforce contracts
for their benefit as a matter of course, interlocutory ap­
peals are a matter of limited grace. Because it would
therefore seem strange to assume that Congress meant to
grant the right to appeal a §3 stay denial to anyone as
peripheral to the core agreement as a nonsignatory, it
follows that Congress probably intended to limit those able
to seek a §3 stay.
Asking whether a §3 movant is a signatory provides a
bright-line rule with predictable results to aid courts in
determining jurisdiction over §16 interlocutory appeals.
And that rule has the further virtue of mitigating the risk
of intentional delay by savvy parties who seek to frustrate
litigation by gaming the system. Why not move for a §3
Cite as: 556 U. S. ____ (2009) 3
SOUTER, J., dissenting
stay? If granted, arbitration will be mandated, and if
denied, a lengthy appeal may wear down the opponent.
The majority contends, ante, at 5, that “there are ways of
minimizing the impact of abusive appeals.” Yes, but the
sanctions suggested apply to the frivolous, not to the far­
fetched; and as the majority’s opinion concludes, such an
attenuated claim of equitable estoppel as petitioners raise
here falls well short of the sanctionable.
Because petitioners were not parties to the written
arbitration agreement, I would hold they could not move
to stay the District Court proceedings under §3, with the
consequence that the Court of Appeals would have no
jurisdiction under §16 to entertain their appeal. I would
accordingly affirm the judgment of the Sixth Circuit.