Fifth Circuit Holds Court Lacks Appellate Jurisdiction Over Arbitration Order

The Fifth Circuit Court of Appeals has dismissed an appeal that was filed over a lower court’s order compelling arbitration due to lack of appellate jurisdiction.  In Green Tree Servicing, L.L.C. v. Charles, No. 17-60165 (5th Cir., September 29, 2017), a Texas man, Charles, entered into a contract with a company, Jim Walters Homes, Inc. (“JWH”), to build and finance a house in Mississippi.  Although the agreement contained an arbitration provision, Charles later filed a fraud and civil conspiracy lawsuit in Mississippi against JWH, JWH’s parent corporation, Walter Energy, Inc., his mortgage servicing company, Green Tree, and Green Tree’s parent company, Walter Investment.  The case, Charles I, was administratively closed after both JWH and Walter Energy sought bankruptcy protection.

Next, the mortgage servicer and its parent company filed an action seeking to compel Charles to arbitration under Section 4 of the Federal Arbitration Act (“FAA”).  In addition, the two companies sought to stay the proceedings against them in Charles I.  As a result, the Southern District of Mississippi reopened Charles I, granted the companies’ motion to compel arbitration, and dismissed the second action, Charles II.  In response, Charles filed an appeal with the United States Court of Appeals for the Fifth Circuit.

On appeal, the court first examined “the basis of its jurisdiction.”  According to the Fifth Circuit:

If we were only examining the district court’s order in Charles II, there would be jurisdiction to consider this appeal. This order would be “final because there is nothing left to be done in the district court.” Sphere Drake Ins. PLC v. Marine Towing, Inc., 16 F.3d 666, 668 (5th Cir. 1994) (quotation marks omitted). The only issue before the district court in Charles II was Green Tree and Walter Investment’s motion to compel arbitration. The district court granted the motion to compel arbitration, entered a judgment compelling the arbitration, and dismissed the case with prejudice.

However, the claims in Charles I against Green Tree and Walter Investment are still pending in the district court. If both Charles I and Charles II are considered together, there is an order compelling arbitration and a stay of the underlying proceedings. Two different proceedings from the same district court can be considered collectively because it “is most consistent with the strong federal interest—expressed by both the Congress and the Supreme Court—in favor of arbitration.” Harrison, 453 F.3d at 251. “Examining both pushes this case to arbitration quickly, foregoing delay while the merits are considered on appeal.” Id. The substantive claims of Charles I have not been dismissed by the district court because its order stayed all proceedings in that case pending arbitration. See id. at 251–52. Consistent with section 16 of the FAA, “[a]n arbitration order entering a stay, as opposed to a dismissal, is not an appealable order.” 9 U.S.C. § 16(a)(3); see also Green Tree, 531 U.S. at 87 n.2; Harrison, 453 F.3d at 250; Apache Bohai Corp., LDC v. Texaco China, B.V., 330 F.3d 307, 309 (5th Cir. 2003). Thus, the order in Charles II compelling arbitration is not a “final appealable order” over which this court has jurisdiction because of the pending substantive claims from Charles I that were stayed pending arbitration. Green Tree, 531 U.S. at 87 n.2; Harrison, 453 F.3d at 251–52; South La. Cement, Inc. v. Van Aalst Bulk Handling, B.V., 383 F.3d 297, 300 (5th Cir. 2004). Accordingly, we lack jurisdiction over this appeal. Harrison, 453 F.3d at 251–52.

Because “the district court’s order compelling arbitration was not a ‘final decision with respect to arbitration’,” the Fifth Circuit Court of Appeals dismissed the appeal for lack of jurisdiction.

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