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Arthur Andersen LLP v. Carlisle

Supreme Court of the United States

March 3, 2009, Argued; May 4, 2009, Decided

No. 08-146

Opinion

 [**1899] Justice Scalia delivered the opinion of the Court.

Section 3 of the Federal Arbitration Act (FAA) entitles litigants in federal court to a stay of any action that is "referable to arbitration under an agreement in writing." 9 U.S.C. § 3. Section 16(a)(1)(A), in turn, allows an appeal  [****4] from "an order . . . refusing a stay of any action under section 3." We address in this case whether appellate courts have jurisdiction under § 16(a) to review denials of stays requested [*626]  by litigants who were not parties to the relevant arbitration agreement, and whether § 3 can ever mandate a stay in such circumstances.

 [***837] I

Respondents Wayne Carlisle, James Bushman, and Gary Strassel set out to minimize their taxes from the 1999 sale of their construction-equipment company. Arthur Andersen LLP, a firm that had long served as their company's accountant, auditor, and tax adviser, introduced them to Bricolage Capital, LLC, which in turn referred them for legal advice to Curtis, Mallet-Prevost, Colt & Mosle, LLP. According to respondents, these advisers recommended a "leveraged option strategy" tax shelter designed to create illusory losses through foreign-currency-exchange options. As a part of the scheme, respondents invested in various stock warrants through newly created limited liability companies (LLCs), which are also respondents in this case. The respondent LLCs entered into investment-management agreements with Bricolage, specifying that "[a]ny controversy arising out of or relating  [****5] to this Agreement or the br[ea]ch thereof, shall be settled by arbitration conducted in New York, New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association." App. 80-81, 99-100, 118-119.

As with all that seems too good to be true, a controversy did indeed arise. The warrants respondents purchased turned out to be almost entirely worthless, and the Internal Revenue Service (IRS) determined in August 2000 that the "leveraged option strategy" scheme was an illegal tax shelter. The IRS initially offered conditional amnesty to taxpayers who had used such arrangements, but petitioners failed to inform respondents of that option. Respondents ultimately entered into a settlement program in which they paid the IRS all taxes, penalties, and interest owed.

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556 U.S. 624 *; 129 S. Ct. 1896 **; 173 L. Ed. 2d 832 ***; 2009 U.S. LEXIS 3463 ****; 77 U.S.L.W. 4374; 21 Fla. L. Weekly Fed. S 834

ARTHUR ANDERSEN LLP, et al., Petitioners v. WAYNE CARLISLE et al.

Subsequent History: Claim dismissed by, Without prejudice Carlisle v. Beer, 2013 U.S. Dist. LEXIS 178637 (E.D. Ky., Dec. 20, 2013)

Prior History:  [****1] ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT.

Carlisle v. Curtis, Mallet-Prevost, Colt & Mosle, LLP, 521 F.3d 597, 2008 U.S. App. LEXIS 7511 (6th Cir.), 2008 FED App. 148P (6th Cir.) (6th Cir. Ky., 2008)

Disposition: Reversed and remanded.

CORE TERMS

arbitration, arbitration agreement, parties, appeals, courts, interlocutory appeal, third party, contracts, frivolous, equitable estoppel, court of appeals, district court, contract law, third-party, nonparties, merits

Business & Corporate Compliance, Arbitration, Federal Arbitration Act, Stay Pending Arbitration, Civil Procedure, Appeals, Appellate Jurisdiction, Interlocutory Orders, Final Judgment Rule, General Overview, Arbitration Agreements, Scope, Parties, Governments, Legislation, Interpretation, Preliminary Considerations, Federal & State Interrelationships, Contracts Law, Third Parties, Beneficiaries, Claims & Enforcement, Alternative Dispute Resolution, Arbitrability