If You Don’t Ask the Court to Compel Arbitration or Stay the Case Pending Arbitration, You May Lose Any Right to an Interlocutory Appeal Under the FAA

The Sixth Circuit closed out 2020 with a decision that contains a warning for litigators to make sure they’re asking for an enumerated remedy under the Federal Arbitration Action (“FAA”)[1] to preserve the option of an interlocutory appeal.[2]

Case Background

Paul Dorsa initially filed a qui tam action under the False Claims Act (“FCA”) against his employer, Miraca Life Sciences. Dorsa later amended his complaint to include a claim for retaliation under the FCA after he was fired. The United States eventually intervened as a party in 2018, but the qui tam claims were dismissed in 2019.

This left only Dorsa’s retaliation claim. Miraca then filed a motion to dismiss the retaliation claim based in relevant part on the FAA, based on a provision of Dorsa’s employment agreement requiring all disputes “arising out of or in connection with this Agreement” to be arbitrated. The court disagreed and denied the motion, ruling the retaliation claim did not arise out of the employment agreement, even though it did arguably arise out of the employment relationship.

Miraca appealed the denial of the motion to dismiss, claiming that appellate jurisdiction was proper under 9 U.S.C. § 16, a provision of the FAA that allows for interlocutory appeals from an order refusing to compel arbitration or to stay an action pending arbitration. The Sixth Circuit dismissed the appeal because Miraca never expressly sought to compel arbitration or stay the action pending arbitration.

Sixth Circuit’s Reasoning

In an attempt to circumvent the fact it failed to ask the court to either compel arbitration or stay the action pending arbitration, Miraca argued that the practical impact of the court’s denial of the motion to dismiss with respect to the FAA was to allow the case to proceed through the court system. The denial was therefore functionally equivalent to an appealable denial of a request to direct the parties to arbitrate. The Sixth Circuit rejected this argument: even assuming the functional equivalency of the order appealed from and an order refusing to compel arbitration, it had never “adopted a test for appealability that hinges on the practical effect of a district court’s order.”[3]

Instead, appealability, in this case, rested on the formal question of whether the order appealed from refused to stay the action or to direct that arbitration proceed within the meaning of 9 U.S.C. § 16. The Sixth Circuit reasoned that where Miraca had “never sought a stay or an order compelling arbitration,”[4] but had rather sought dismissal of the case, the order denying the motion could not constitute an appealable order under 9 U.S.C. § 16. There was therefore no appellate jurisdiction.

The majority (but not the dissent) considered this result to be consistent with Sixth Circuit precedent finding jurisdiction where, according to the majority, in addition to requesting dismissal, the defendants also requested an order compelling arbitration.[5] Furthermore, this rule is less strict than that of the Third, Fourth, Ninth and Tenth Circuits, in which appellate jurisdiction may not exist unless the defendant seeks  “only the relief provided for in the FAA.”[6]

Practical Takeaways

Defendants who wish to have the option of an interlocutory appeal need to be sure that they satisfy the formal conditions of appealability. Here, if Miraca wanted to be able to appeal a decision denying its motion, the motion should have requested the court to compel arbitration and/or to stay the case pending arbitration instead of simply requesting dismissal of the retaliation claim.

If you have any questions, please contact:

• David Honig at (317) 977-1447 or dhonig@wp.hallrender.com;
• Brian Sabey at (720) 282-2025 or briansabey@wp.hallrender.com;
• Jake Kolisek at (317) 977-1428 or jkolisek@wp.hallrender.com; or
• Your regular Hall Render attorney.

Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.