Divestiture Of Jurisdiction Of District Court Pending Appeal

The Federal Arbitration Act (FAA) grants a party the right to file an interlocutory appeal from the denial of a motion to compel arbitration.1 The FAA is silent, however, as to whether a district court may continue to adjudicate the merits of the underlying claims while the appeal is pending or whether the filing of a notice of appeal divests the district court of jurisdiction. Highlighting a split in the circuit courts, and siding with the U.S. Court of Appeals for the Second Circuit, last year the U.S. Court of Appeals for the Fifth Circuit held that a district court may adjudicate the merits pending appeal.2

In deciding where to commence an action or whether to file a notice of appeal, attorneys should be mindful of this circuit split and the ramifications that appeal may have on the district court's jurisdiction. This article addresses this split and summarizes the legal justifications and the practical considerations underlying each of the respective viewpoints.

Practical Effects

The FAA provides that a "written provision...in any contract evidencing a transaction involving commerce to settle by arbitration a controversy...shall be valid, irrevocable, and enforceable."3 The FAA "embodies the national policy favoring arbitration."4

The FAA expressly permits a party to move the district court to compel arbitration where the parties have agreed to arbitrate their dispute. Where there is an agreement to arbitrate, the FAA mandates that the district court grant the motion. Where the motion to compel arbitration is denied, the FAA permits the movant to file an interlocutory appeal.5

In Griggs v. Provident Consumer Discount, the U.S. Supreme Court stated that the 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."6 Thus, courts must determine whether the parties' agreement to arbitrate the dispute (i.e., the "arbitrability question") is "involved in" the merits of the underlying claim.

The D.C., Third, Fourth, Seventh, 10th and 11th circuits have held that it is involved in the merits.7 These courts regard the arbitrability question as one that asks whether, in light of the arbitration agreement, the district court must compel arbitration. If so, the FAA would strip the district court of the ability to adjudicate the underlying claims. Thus, these courts have held, the...