The Ninth Circuit held that an order granting class-wide arbitration—and rejecting a request for individual arbitration—was not appealable.
July 27, 2020
In Hermosillo v. Davey Tree Surgery Co., a divided Ninth Circuit held that it lacked jurisdiction to review a decision ordering class-wide arbitration over a request for individual arbitration. Under the Federal Arbitration Act, district court decisions ordering arbitration generally are not appealable. Decisions denying requests for arbitration generally are. Hermosillo addressed appellate jurisdiction when a district court orders arbitration on terms other than those requested by the party seeking arbitration. Some courts have held that these sorts of orders are not appealable; arbitration is not effectively denied just because a party did not get exactly what it wanted. But the Supreme Court’s recent decision in Lamps Plus, Inc. v. Varela created new grounds to argue that arbitration is effectively denied when the district court orders class-wide (rather than individual) arbitration. Hermosillo rejected this argument, albeit in an unpublished opinion. We’ll likely see more cases raising this issue soon.
The Hermosillo Litigation
Simplifying a bit, the plaintiffs in Hermosillo were former employees of Davey Tree Surgery. They brought a class action against Davey Tree for alleged wage and hour violations. After removing the case to federal court, Davey Tree sought to compel arbitration on most of the plaintiffs’ claims under an arbitration clause in its employment applications.
The district court granted that motion. But it ordered that arbitration proceed on a class-wide, not individual, basis. The district court then stayed the one non-arbitrable claim. The court did not, however, dismiss any of the claims on which it ordered arbitration.
Davey Tree then appealed. On appeal, Davey Tree challenged the district court’s decision only insofar as it ordered class-wide arbitration rather than individual arbitration.
Granting Arbitration?
The Ninth Circuit held that it lacked jurisdiction over the appeal. Under 9 U.S.C. § 16, parties can appeal an order denying a petition to compel arbitration. But parties generally cannot appeal an order directing arbitration to proceed. (Under Green Tree Financial Corp.-Alabama v. Randolph, an exception to this general bar on appeals exists when the district court orders arbitration and dismisses the underlying action.) The question for the Ninth Circuit was how to best characterize the district court’s decision.
The Hermosillo majority concluded that the district court’s decision was one directing arbitration to proceed. The order was not also one denying arbitration. The court rejected the argument that “an order compelling arbitration constitutes an order denying arbitration when the movant does not obtain arbitration according to the terms it agreed to.” As the Ninth Circuit saw things, this argument required delving into the merits of the appeal:
[W]hether the parties here agreed to individual or class arbitration is exactly the question presented by Davey Tree’s appeal on the merits. In other words, whether Davey Tree got the type of arbitration that it bargained for requires our interpretation of the agreements. Davey Tree’s view . . . would therefore require this court to consider the merits of Davey Tree’s appeal—a tempting but unsupported invitation that would render the Act’s limitations on appellate jurisdiction meaningless.
Denying Arbitration?
Judge Feinerman (of the Northern District of Illinois, sitting by designation) dissented. According to Judge Feinerman, the district court’s decision effectively denied Davey Tree’s request for arbitration. Granted, arbitration is not effectively denied whenever a party does not get everything it seeks. But Judge Feinerman read the Supreme Court’s cases in this area to mean that class-wide arbitration was fundamentally different from individual arbitration. This difference warranted different treatment. So a party that seeks individual arbitration but obtains class-wide arbitration was effectively denied arbitration and can appeal. And in responding to the majority’s point about mixing the merits and arbitrability, Judge Feinerman noted that appellate jurisdiction was proper because the district court denied what the employer sought, not what the employer was entitled to:
The jurisdictional question turns not on whether Davey Tree is entitled to individual arbitration, but on whether it sought individual arbitration and instead received something fundamentally different. In my view, the answer to that question is yes, which means that Davey Tree’s request for arbitration was denied, which in turn gives us appellate jurisdiction . . . .
What Lamps Plus Has Wrought
We’ll likely see more cases addressing this issue in light of the Supreme Court’s 2019 decision in Lamps Plus, Inc. v. Varela. That case addressed an issue tangential to the one in Hermosillo. The district court in Lamps Plus had ordered class-wide arbitration, and the defendant appealed. But unlike Hermosillo, there was no issue whether the district court’s decision was appealable under the Federal Arbitration Act. The district court in Lamps Plus had dismissed—not stayed—the underlying claims after ordering class-wide arbitration. As noted above, that dismissal created a final decision that was immediately appealable under Green Tree Financial Corp.-Alabama v. Randolph.
The plaintiffs in Lamps Plus argued, however, that the defendant lacked appellate standing. After all, the defendant sought an order directing arbitration to proceed. The district court granted that request. The defendant just didn’t get the exact kind of arbitration it wanted: individual arbitration instead of class-wide.
The Supreme Court rejected this argument. It held that individual and class-wide arbitration were sufficiently different to create appellate standing.
Hermosillo presents the issue that Lamps Plus hinted at: may parties appeal an order directing class-wide arbitration over a request for individual arbitration? And Hermosillo might not have resolved that question in the Ninth Circuit; the decision is unpublished. So the Ninth Circuit might have to address this issue again. Other courts will likely have to do so, too.
Skepticism on Effective Denials
I’ll end by noting that I’m skeptical of the argument that orders directing class-wide arbitration effectively deny a request for arbitration.
I think Judge Feinerman was correct in noting that the issue in Hermosillo was whether the defendant was denied what it sought, not what the defendant was actually entitled to. And one can reasonably distinguish between individual and class-wide arbitration.
But when a party seeks arbitration and gets it—albeit not on the terms it wanted—that seems like enough to make the decision not appealable. Drawing distinctions between orders directing arbitration and those effectively denying it seems slippery to me. Allowing for these distinctions invites future appeals: it gives parties who seek arbitration, but who do not get the exact arbitration they sought, the grist to argue that they were effectively denied arbitration and can therefore appeal. To be sure, the courts will reject some (if not many) of these appeals. But the courts of appeals will have to deal with the attempts. If an order compelling arbitration can be treated as one effectively denying arbitration, Congress or rulemakers might be better at defining the circumstances for doing so.
Hermosillo v. Davey Tree Surgery Co., 2020 WL 4253215 (9th Cir. July 24, 2020), available at the Ninth Circuit and Westlaw.