The FAA's Staying Power: Can A District Court Adjudicate Claims Pending An Appeal From A Denial Of A Motion To Arbitrate?

The Federal Arbitration Act (the "FAA") allows a party to file an immediate appreal from a district court's 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 such jurisdiction. Highlighting a split in the circuit courts, and siding with the Second Circuit, last year the Fifth Circuit held that a district court may adjudicate the merits pending appeal.2

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 this motion is denied, the FAA permits the filing of an immediate appeal.5

In Griggs v. Provident Consumer Discount Co. the United States 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, to determine whether the court may continue to adjudicate the merits of the claims pending the appeal, the question is whether the agreement to arbitrate (i.e., the "arbitrability question") is "involved in" the merits of the underlying claim.

The D.C., Third, Fourth, Seventh, Tenth and Eleventh 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 district court lacks the ability to adjudicate the underlying claims. Thus, the district court's ability to adjudicate the dispute is not merely "involved in" the appeal, it is the very question on appeal.8 Accordingly, the district court may not adjudicate the merits of a claim upon the filing of a notice of appeal.

These courts also considered the practical effect of permitting the district court to retain jurisdiction pending appeal. In doing so, they analogized this...