Lamps Plus should have been decided on jurisdictional grounds: the district court should have stayed (not dismissed) the action, and a stay isn’t appealable.
May 23, 2019
In Lamps Plus, Inc. v. Varela, the Supreme Court held that a defendant seeking arbitration could appeal a district court decision that dismissed an action after ordering classwide arbitration (instead of the individual arbitration the defendant wanted). In doing so, the Court elided an issue that has split the courts of appeals for years: whether a district court must stay an action—not dismiss it—after ordering arbitration. Resolution of that issue affects appellate jurisdiction. And had the Court resolved it and held that stays are required, it would have had to dismiss Lamps Plus for lack of jurisdiction.
Stays, Dismissals, and Appellate Jurisdiction in Arbitration
Given the appellate-jurisdiction implications of this issue, I think the “must-stay” side of the split has to be right. (For a much more thorough discussion of the split, see this note by Alessandra Rose Johnson .) The issue arises when a plaintiff sues, but the district court orders that the plaintiff’s claims be arbitrated. The district court must then decide what to do with the plaintiff’s suit while arbitration proceeds—stay the action or dismiss it.
If the district court stays the action, an appeal must generally wait until after arbitration. Congress enacted a pro-arbitration appellate scheme in the Federal Arbitration Act. Decisions adverse to arbitration, such as an order refusing to direct arbitration, can be immediately appealed.1 But decisions favorable to arbitration—including orders staying an action while arbitration proceeds—are not immediately appealable and must await resolution of arbitration before they can be appealed.2
If the district court dismisses the action, however, the parties can immediately appeal. That’s because a dismissal is a “final decision,” and final decisions regarding arbitration can be immediately appealed.3 The Supreme Court held as much in Green Tree Financial Corp.-Alabama v. Randolph. But the Randolph Court also left open the issue of whether a stay is required; it assumed that a dismissal is permissible.
In the context of arbitration, a stay and dismissal seem functionally the same: the dispute goes to arbitration and proceeds no further in the district court until arbitration is concluded. If the case was stayed, a district court can lift the stay after arbitration to address any remaining issues. If the case was dismissed, the plaintiff can file a new suit in the same district court.
The only real difference is whether the district court’s decision can be immediately appealed. It can’t with a stay. But it can with a dismissal. Dismissals thus allow parties to avoid the Federal Arbitration Act’s pro-arbitration appellate scheme. So it would seem that stays are required.
The Court Avoids the Issue in Lamps Plus
Justice Breyer essentially argued as much in his Lamps Plus dissent. He regarded the district court’s decision as an interlocutory order directing arbitration to proceed. He also contended that the district court should not have dismissed—in fact, lacked the discretion to dismiss—the action.
The Lamps Plus majority nevertheless avoided the issue. Neither party had asked the district court to stay the plaintiff’s action (and thus the district court had not denied a stay). So the Court thought that the stay v. dismissal issue was not before it.
That’s a bit odd. It’s not as though the district court could have neither stayed nor dismissed the plaintiff’s claims; it had to do something with them. So even if the parties had not asked for a stay, so long as a dismissal is improper, the stay was required. And since the issue went to jurisdiction, I think the Court could have addressed it.
The New Problem: Effective Denials of Arbitration
And in avoiding the stay v. dismissal issue, the Court has created a new problem. It had to go on to address the plaintiff’s argument that the defendant lacked appellate standing. After all, the defendant in Lamps Plus had sought, and was granted, an order directing arbitration to proceed. It just didn’t get the exact kind of arbitration it wanted—individual arbitration instead of classwide.
The plaintiff in Lamps Plus accordingly argued that the defendant lacked standing to appeal. The Court disagreed. According to the Court, there was enough of a difference between what the defendant wanted and what it got to warrant appellate standing.
One can reasonably distinguish between individual and classwide arbitration. But it’s a distinction that 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. This argument holds even if the district court stays (rather than dismisses) the underlying action; the party seeking arbitration has been denied the arbitration it wanted and thus can argue it has been effectively denied.
As Justice Breyer’s dissent points out, the courts of appeals have generally held that they lack jurisdiction to review orders compelling arbitration even if that arbitration is not precisely what the party seeking arbitration wanted. So long as some arbitration is ordered, the courts have declined to entertain claims that a party was effectively denied arbitration.
Lamps Plus now invites parties who seek and obtain arbitration orders to immediately appeal if they don’t get precisely what they wanted. To be sure, not all of these appeals will necessarily be allowed. But the courts of appeals will nevertheless have to deal with these attempts.
All of this could have been avoided—and a long-standing split resolved—had the Supreme Court tackled the jurisdictional issue lurking in Lamps Plus.
Links
- Lamps Plus, Inc. v. Varela, ___ U.S. ____, 139 S. Ct. 1407 (2019), available at the Supreme Court (PDF, 270KB), Google Scholar, and Westlaw.
- Amicus brief of the American Association of Justice (PDF, 279KB) in Lamps Plus, Inc. v. Varela, discussing the stay v. dismissal split.
- Scholarship on the split:
- Richard A. Bales & Melanie A. Goff, An Analysis of an Order to Compel Arbitration: To Dismiss or Stay?, 115 Penn State Law Reveview 539 (2011).
- Alessandra Rose Johnson, Oh, Won’t You Stay with Me?: Determining Whether § 3 of the FAA Requires A Stay in Light of Katz v. Cellco Partnership, 84 Fordham Law Review 2261 (2016).
- Other Coverage:
- See 9 U.S.C. § 16(a)(1) (“An appeal may be taken from an order (A) refusing a stay of any action under Section 3 of this title [or] (B) denying a petition under section 4 of this title to order arbitration to proceed . . . .”) ↩︎
- See 9 U.S.C. § 16(b) (“Except 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 . . . .”). ↩︎
- See 9 U.S.C. § 16(a)(3) (“An appeal may be taken from . . . a final decision with respect to an arbitration that is subject to this title.”). ↩︎