Interlocutory Review of Litigation - Avoidance Claims: Insights from Appeals Under the Federal Arbitration Act
50 Pages Posted: 21 Jul 2012 Last revised: 12 Aug 2012
Date Written: 2011
When a district court rejects a defendant’s claim that they enjoy some right to avoid being subject to litigation, and the defendant takes an interlocutory appeal of that determination, an interesting question arises for the district court: may it proceed with the litigation (to which it believes the defendant is properly subject), or must it stay the litigation pending the appeal? This article examines that question in the context of claims by a defendant that they are not subject to litigation because the dispute is covered by an arbitration agreement. After outlining and critiquing current law, this article proposes that district courts should engage in a simple analysis of expected error costs to determine whether to stay such litigation pending interlocutory appeal. Such an analysis looks to three variables: (1) potential harm to plaintiffs of erroneously staying litigation pending appeal, (2) potential harm to defendants of erroneously refusing to stay litigation pending appeal, and (3) the probability that the district court’s rejection of the defendant’s claim to avoid litigation will be affirmed. While determining potential harm to plaintiffs and defendants from erroneous stay decisions can be made by district courts on a case-by-case basis, likelihood of affirmance is best determined on an aggregate level. Examining nine years of interlocutory appeals under the Federal Arbitration Act, this article determines that the probability that a district court’s refusal to enforce a purported arbitration agreement will be affirmed is about 50/50. This result suggests that district courts should engage in a simple balancing of potential harms to both sides in deciding whether to stay litigation pending interlocutory appeal, and stands in stark contrast to the position of the majority of appellate courts to address this issue, which holds that litigation must be stayed and seems to be based on the assumption (shown here to be false) that district courts’ determinations are likely to be reversed.
Keywords: Federal Arbitration Act, Arbitration, Interlocutory Review
Suggested Citation: Suggested Citation