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Environmental

Supreme Court finds that FAA does not prohibit a noncontractual third-party from seeking a stay of litigation pending an arbitration if such assertion is permitted under State law

As noted in prior posts, leases of property or premises may contain an arbitration clause. Although not an environmental case, the U.S. Supreme Court in Arthur Andersen LLP et al v. Carlisle et al, 2009 U.S. LEXIS 3463 (5/4/09) addressed recently the law pertaining to arbitration clauses when a third party is involved in a multi-way litigation/dispute who is not directly bound by the contractual arbitration agreement.
 
In Arthur Anderson, Carlisle, Bushman, and Strassel used a “shelter” to minimize taxes from the sale of their company. Limited liability corporations created by Carlisle, Bushman, and Strassel entered into investment-management agreements with Bricolage Capital, LLC; the agreements provided for the arbitration of disputes. After the Internal Revenue Service found the tax shelter illegal, Carlisle, Bushman, and Strassel filed a lawsuit against Arthur Anderson in federal court based on diversity jurisdiction. Claiming that equitable estoppel required Carlisle, Bushman, and Strassel to arbitrate their claims per the agreements with Bricolage, Arthur Anderson invoked § 3 of the Federal Arbitration Act (FAA), 9 U.S.C.S. § 3, which entitles litigants to stay an action that is "referable to arbitration under an agreement in writing." Section 16(a)(1)(A) of the FAA allows an appeal from "an order . . . refusing a stay of any action under section 3." The District Court denied petitioners' stay motions, and the Sixth Circuit dismissed their interlocutory appeal for want of jurisdiction.
 
The U.S. Supreme Court reversed the Sixth Circuit on the following grounds:
 
1. The Sixth Circuit had jurisdiction to review the denial of petitioners' requests for a § 3 stay. By its clear and unambiguous terms, § 16(a)(1)(A) entitles any litigant asking for a § 3 stay to an immediate appeal from that motion's denial regardless of whether the litigant is in fact eligible for a stay. Jurisdiction over the appeal "must be determined by focusing upon the category of order appealed from, rather than upon the strength of the grounds for reversing the order," noted the Court, citing Behrens v. Pelletier, 516 U.S. 299, 311 (1996). The statute makes the underlying merits irrelevant, for even a request's utter frivolousness cannot turn a denial into something other than "an order . . . refusing a stay of any action under section 3," § 16(a)(1)(A).
 
2. A litigant who was not a party to the arbitration agreement may invoke § 3 if the relevant state contract law allows him to enforce the agreement. Neither FAA § 2 [which makes written arbitration agreements "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of a contract"] nor § 3 purports to alter state contract law regarding the scope of agreements. Thus, whenever the relevant state law would make a contract to arbitrate a particular dispute enforceable by a non-signatory, that non-signatory is entitled to request and obtain a stay under § 3 because that dispute is "referable to arbitration under an agreement in writing." Because traditional state law principles allow enforcement of contracts by (or against) nonparties through (for example) assumption or third-party beneficiary theories, the Sixth Circuit erred in holding that § 3 relief is categorically not available to non-signatories.
 
The Court then held that since questions as to the nature and scope of the applicable state contract law in the case had not been briefed, they were to be addressed on remand.
 
Once again, as has appeared on occasion in CERCLA, the Court has interpreted a federal statute as being a mix of purely federal questions and state law questions.