September 24, 2012 Articles

Jurisdictional Divestiture: Staying a Case Pending Interlocutory Appeal

The availability of an interlocutory appeal is not always enough to maintain the potential benefits of arbitration.

By R. Aaron Chastain

Litigants who believe that they have an enforceable arbitration agreement often move the court early in the litigation to compel arbitration under section 2 of the Federal Arbitration Act (FAA), 9 U.S.C. § 2, seeking to take advantage of the prevailing wisdom that arbitration “is usually cheaper and faster than litigation.” Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 280 (1995) (quoting H.R. Rep. No. 97-542, at 13 (1982)). See David B. Lipsky & Ronald L. Seeber, The Appropriate Resolution of Corporate Disputes: A Report on the Growing Use of ADR by U.S. Corporations (1998) (reporting that two-thirds of respondents to a survey of Fortune 1000 companies cited savings of money and time as the reason for choosing arbitration over litigation). But when a motion to compel arbitration is denied and litigation proceeds in the district court, the cost- and time-saving benefits of arbitration are irretrievably lost and cannot be regained by an appeal following final judgment, after the parties have participated in time-consuming and expensive motion practice, discovery, and trial. Recognizing the issue, Congress amended the FAA in 1988 to allow for interlocutory appellate review of a district court’s order denying a motion to compel arbitration. 9 U.S.C. § 16(a)(1)(c).

But the availability of an interlocutory appeal is not always enough to maintain the potential benefits of arbitration. Although the FAA allows a party to appeal immediately from an order denying a motion to compel arbitration, it does not provide an automatic stay of the litigation pending the outcome of that appeal. Without such a stay, district courts can push the litigation forward, requiring the parties to incur costs—costs that may prove to be not just burdensome but also unnecessary if the order denying arbitration is ultimately reversed.

This article highlights a mechanism through which parties can secure a stay of district court proceedings pending an interlocutory appeal from an order denying a motion to compel arbitration: jurisdictional divestiture. Relying on the basic principle that “[t]he filing of a notice of appeal is an event of jurisdictional significance—it confers jurisdiction on the court of appeals and divests the district court of its control over those aspects of the case involved in the appeal,” Griggs v. Provident Consumer Disc. Co., 459 U.S. 56, 58–59 (1982), parties can argue that an appeal from a district court’s order denying a motion to compel arbitration divests the district court of jurisdiction to continue to consider the merits of the underlying case. The federal courts of appeals are divided, however, over whether filing a notice of appeal of an order denying a motion to compel arbitration divests the district court of jurisdiction and thus effectively stays the underlying case.

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