Western Security Bank brought an action in the United States District Court for the District of Montana against certain doctors seeking to enforce commercial loan guaranties. The doctors asserted that a non-party, Meridian Surgical Partners, fraudulently induced them to guarantee the loan, and moved to stay the lawsuit pending the outcome of their separate arbitration with Meridian. The doctors based their motion, in part, on Section 3 of the Federal Arbitration Act, which provides that a court may stay an action where an issue involved is referable to arbitration pursuant to a written agreement. Significantly, however, the doctors did not actually seek to compel Western Security to arbitrate its claims against them.
After the district court denied the motion to stay, the doctors filed an interlocutory appeal under Section 16 of the Act, which permits an appeal “from…an order…refusing a stay of any action under section 3.” Relying on precedent from other federal circuit courts, the U.S. Court of Appeals for the Ninth Circuit dismissed the appeal for lack of jurisdiction. Specifically, the circuit court found that in order to invoke appellate jurisdiction under § 16(a), a party must “either move to compel arbitration and stay litigation explicitly under the FAA, or must make it plainly apparent that he seeks only the remedies provided for by the FAA—namely, arbitration rather than any judicial determination.” The court held that while the doctors styled their motion as one brought under Section 3, the motion plainly did not seek relief under the Act, as the doctors made clear they did not seek to compel Western Security to arbitrate any of the claims brought against them in the district court. Western Security Bank v. Winzenreid, No. 15-cv-35617 (9th Cir. Mar. 14, 2016).
This post written by Rob DiUbaldo.
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