When District Court Finds Signatory to a Written Arbitration Agreement is Equitably Estopped from Avoiding Arbitration with a Nonsignatory, the Writing Requirement of Section 16 of the FAA (Federal Arbitration Act) is Satisfied Thereby Permitting Court of Appeals to Consider Interlocutory Appeal Second Circuit Holds
After more than twenty class action lawsuits were filed against VISA, MasterCard and their member banks alleging a conspiracy to fix fees for conversion of foreign currencies in violation of the Sherman Act, the Judicial Panel on Multidistrict Litigation consolidated the actions in the Southern District of New York for pretrial purposes (“the MDL Litigation”), see In re Currency Conversion Fee Antitrust Litig., 265 F.Supp.2d 385 (S.D.N.Y. 2003). Defense attorneys moved to compel arbitration; the district court granted the motion in part, holding (1) cardholders with cardholder agreements containing arbitration clauses were bound to arbitrate their disputes, and (2) the equitable estoppel doctrine also required those cardholders to arbitrate their disputes “against non-signatory banks”; the district court rejected a claim that the illegal conspiracy allegation rendered the arbitration clauses unenforceable, see In re Currency Conversion Fee Antitrust Litig., 361 F.Supp.2d 237 (S.D.N.Y. 2005). Thereafter, a class action was filed against American Express Company, American Express Travel Related Services Company and American Express Centurion Bank (collectively “Amex”) asserting the same claims as those raised in the MDL Litigation and alleging that Amex conspired with the defendants in the MDL Litigation “to ‘impose compulsory arbitration clauses on [their] cardholders and the cardholders of [their] co-conspirators’ in order ‘to suppress competition and deprive their cardholders of a meaningful choice concerning the arbitration of disputes.’” Ross v. American Express Co., 478 F.3d 96, 98 (2d Cir. 2007). Though not a signatory to an arbitration agreement, Amex defense attorneys moved to dismiss the class action and compel arbitration under the equitable estoppel doctrine, and to stay the class action: “[Amex] argued that the arbitration clauses contained in the cardholder agreements with the MDL Defendants bound [the class action plaintiffs] to arbitrate their dispute with [Amex].” Id. The district court agreed that the doctrine of equitable estoppel applied because the claims in the class action complaint against Amex were “inextricably intertwined” with the claims in the MDL Litigation, but it refused to compel arbitration or stay the class action against Amex pending the arbitration of the MDL Litigation; the court believed that the antitrust allegations necessitated a jury trial on the issue of enforceability of the arbitration clauses in the cardholder agreements. Id. American Express appealed, asserting appellate jurisdiction under section 16 of the Federal Arbitration Act (FAA). Plaintiffs moved to dismiss the appeal for lack of jurisdiction, and the Second Circuit denied the motion. Id., at 98-99.
Amex argued that an interlocutory appeal was proper under FAA § 16, which permits such appeals from refusals to stay an action under 9 U.S.C. § 3 and from denials of petitions to compel arbitration under 9 U.S.C. § 4. Ross, at 98. Plaintiffs argued such review was not available because the case involves a matter referable to arbitration based on principles of estoppel while 9 U.S.C. § 3 applies only to “any issue referable to arbitration under an agreement in writing for such arbitration,” id., at 98-99. The Second Circuit disagreed, explaining that the district court believed “it would be inequitable for parties who have signed a written arbitration agreement,” such as the class action plaintiffs, “not to abide by that agreement with regard to a non-signatory to the agreement,” such as Amex. Id., at 99. In the Court’s view, “In every relevant sense . . . [Amex is] appealing from the refusal to compel arbitration under a written arbitration agreement”; accordingly, the Circuit Court held that the case satisfied the writing requirement of FAA § 16 and that the Court of Appeals therefore had jurisdiction to consider the appeal. Id.
The Second Circuit concluded also that “appellees’ reasoning would not only deprive appellate courts of interlocutory jurisdiction over equitable estoppel cases but would drastically alter the application of the FAA to arbitration proceedings based on equitable estoppel,” Ross, at 99. The Court of Appeals also refused to follow decisions out of the District of Columbia Circuit and Tenth Circuit that reached a contrary conclusion. Id., at 100 n.2.
NOTE: The Second Circuit noted: “In ruling on this motion, we make no determination as to whether the district court was correct in holding that appellants are entitled to arbitration via equitable estoppel – a determination that will only be made following full briefing and argument on appeal. This ruling touches only upon our jurisdiction under the FAA to hear such an appeal.” Ross, at 99 n.1.