A district court ordered arbitration and dismissed—rather than stayed—the underlying action. This allowed an appeal from an order compelling arbitration.
August 11, 2019
In Jaludi v. Citigroup, the Third Circuit heard a plaintiff’s appeal from an order compelling arbitration of all of the plaintiff’s claims. The case is another illustration of a district court dismissing—rather than staying—an action after ordering arbitration to proceed. And it’s one that circumvents the normal limits on arbitration appeals.
Jurisdiction in Jaludi
The plaintiff in Jaludi had sued Citigroup, asserting claims under RICO and Sarbanes-Oxley. The district court eventually granted ordered arbitration for both claims, holding that provisions in two employee handbooks required arbitration. The plaintiff then appealed. On appeal, the Third Circuit held that the second of the two handbooks superseded the first. And under the second handbook Sarbanes-Oxley claims were not arbitrable.
As for jurisdiction, the Third Circuit said only that it had jurisdiction under 28 U.S.C. § 1291. This piqued my interest. The Federal Arbitration Act’s pro-arbitration approach normally allows immediate appeals from orders denying arbitration but bars appeals from orders granting it.
So I pulled the briefs. It turns out the district court dismissed the case after ordering arbitration to proceed.
I’ve questioned this practice of dismissing cases—rather than staying them—when ordering arbitration, as it might improperly circumvent the Federal Arbitration Act. District courts that order arbitration to proceed have a procedural decision to make: should they stay proceedings in that court or dismiss them? The practical result of either decision is largely the same—litigation in the district court stops while arbitration occurs. But there’s one important difference: appellate jurisdiction. The Federal Arbitration Act bars appeals from orders staying district court proceedings. But the Supreme Court has held that an order dismissing an action in favor of arbitration is final and appealable.
It seems that stays should be required, and dismissals not allowed. See this post for more thoughts on this matter.
Jaludi v. Citigroup, 2019 WL 3558978 (3d Cir. 2019), available at the Third Circuit and Westlaw.