MCCAULEY v. HALLIBURTON ENERGY
FILED
United States Court of Appeals
Tenth Circuit
June 28, 2005
PATRICK FISHER
Clerk PUBLISH
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
RODNEY McCAULEY, JERI McCAULEY, No. 05-6011
GARRISON McCAULEY, MADISON McCAULEY,
and WHITNEY McCAULEY,
Plaintiffs-Appellees,
v.
HALLIBURTON ENERGY SERVICES,
INC., a Delaware corporation,
Defendant-Appellant.
Appeal from the United States District Court
for the Western District of Oklahoma
(D.C. No. 04-CV-807-F)
W. Carl Jordan, Vinson & Elkins, L.L.P., Houston, Texas (Vanessa Griffith,
Vinson & Elkins, Dallas, Texas, with him on the motion to stay appeal), for
Defendant-Appellant.
Derrick T. DeWitt, Whitten, Nelson, McGuire, Terry & Roselius, Oklahoma City,
Oklahoma (Kent R. McGuire, Whitten, Nelson, McGuire, Terry & Roselius,
Oklahoma City, Oklahoma with him on the response to the motion to stay appeal),
for Plaintiffs-Appellees.
Before SEYMOUR, McCONNELL and TYMKOVICH, Circuit Judges.
SEYMOUR, Circuit Judge.
Rodney McCauley and his former employer, Halliburton Energy Services,
Inc., are parties to an agreement to arbitrate all claims that fall within the scope of
Halliburton's Dispute Resolution Program (DRP). In December 2002, Mr.
McCauley was injured while applying foam insulation to the exterior of a bulk
tank owned by Halliburton. Based on the injuries he sustained as a result of the
accident as well as Halliburton's actions in its decision to terminate him, Mr.
McCauley filed claims for negligence, fraud and deceit, intentional infliction of
emotional distress, and wrongful termination. Various members of Mr.
McCauley's family also brought actions for loss of consortium. The district court
granted Halliburton's motion to arbitrate all claims except those related to the
negligence and consortium causes of action, which the court held were not subject
to arbitration because those claims allegedly arose out of work Mr. McCauley was
performing as an independent contractor. Halliburton appealed the partial denial
of its motion to compel arbitration, as permitted by the Federal Arbitration Act, 9
U.S.C. 16(a)(1)(C). Mr. McCauley also filed a motion to stay the litigation in
the district court pending appeal of the arbitrability issue, which the district court
denied. Halliburton has now moved this court for a stay pending appeal. For the
reasons set out below, we grant the motion.
I.
The parties agree that Mr. McCauley's claims alleging fraud and deceit,
intentional infliction of emotional distress, and wrongful termination are
arbitrable under Halliburton's DRP because they all relate to Mr. McCauley's
employment with Halliburton as a Senior Electronics Technician. The parties
disagree, however, about whether Mr. McCauley's negligence claim and the
derivative consortium claims of his family are subject to arbitration. According
to Mr. McCauley, those claims are not within the scope of the DRP agreement
because they arose out of services Mr. McCauley was performing for Halliburton
after his normal work hours and as an independent contractor in the foam
insulation business. The district court sided with Mr. McCauley on this issue.
The court also summarily denied Halliburton's motion to stay after it filed its
appeal, and ordered the parties to proceed to litigate the non-arbitrable claims.
Halliburton asks this court for a stay of further litigation pending its appeal.
It advances two theories to support its contention that litigation should not
proceed in the district court until we resolve the underlying arbitration dispute on
the merits. The company's primary contention is that its notice of appeal from the
denial of the motion to compel arbitration automatically divested the district court
of jurisdiction. In the event we conclude the district court has not been divested
of jurisdiction, it alternatively contends that a stay of proceedings is warranted
under the traditional four-factor stay analysis. See, e.g., F.T.C. v. Mainstream
Marketing Servs., Inc., 345 F.3d 850, 852 (10th Cir. 2003).
II.
The Federal Arbitration Act grants a party the right to file an interlocutory
appeal from the denial of a motion to compel arbitration. 9 U.S.C. 16(a)(1)(C).
But the statute does not specify whether a motion to stay proceedings during an
appeal should be granted. Moreover, although the Supreme Court has explained
that "a federal district court and a federal court of appeals should not attempt to
assert jurisdiction over a case simultaneously," Griggs v. Provident Consumer
Discount Co., 459 U.S. 56, 58 (1982), the Court has never explicitly extended this
holding to interlocutory 16(a) appeals.
Whether an interlocutory appeal from the denial of a motion to compel
arbitration divests a district court of jurisdiction to proceed on the merits of the
underlying claim while the appeal is pending is a question of first impression in
this circuit. Mr. McCauley contends this court permits a district court to proceed
with a case when an appeal is taken from an interlocutory ruling, as opposed to a
final order, citing Howard v. Mail-Well Envelope Co., 150 F.3d 1227, 1229 (10th
Cir. 1998), and Colorado v. Idarado Mining Co., 916 F.2d 1486 (10th Cir. 1990).
Halliburton, on the other hand, submits that an appeal from the denial of
arbitration inherently involves the merits of the underlying claims, implicating the
general rule that filing an appeal "divests the district court of its control over
those aspects of the case involved in the appeal." Griggs, 459 U.S. at 58; see also
Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 379 (1985).
Our sister circuits that have addressed whether a 16(a) appeal divests the
district court of jurisdiction are split. The Second and Ninth Circuits have
refused to stay proceedings in the district court while an arbitrability issue is
pending on appeal. See Motorola Credit Corp. v. Uzan, 388 F.3d 39, 53-54 (2d
Cir. 2004); Britton v. Co-Op Banking Group, 916 F.2d 1405, 1412 (9th Cir.
1990). Conversely, the Eleventh and Seventh Circuits have held that the appeal
triggers the general divestiture principle and, so long as the appeal is not
frivolous, warrants issuance of a stay. See Blinco v. Green Tree Servicing, LLC,
366 F.3d 1249, 1251-52 (11th Cir. 2004); Bradford-Scott Data Corp. v. Physician
Computer Network, Inc., 128 F.3d 504, 506 (7th Cir. 1997). As explained infra,
we are persuaded by the reasoning of the latter circuits that upon the filing of a
non-frivolous 16(a) appeal, the district court is divested of jurisdiction until the
appeal is resolved on the merits. Blinco, 366 F.3d at 1253; Bradford-Scott Data
Corp., 128 F.3d at 505-06.
In explaining why the terms of the divestiture principle do or do not apply
to arbitrability appeals, the courts on each side of the divide have provided legal
justifications as well as supporting prudential rationales related to the competing
interests and concerns about potential abuse of litigation and appeals. For
instance, in declining to apply the divestiture rule, the Ninth Circuit concluded
that an appeal from the denial of a motion to compel arbitration does not involve
the same subject matter as the claim that remains pending in the district court,
"[s]ince the issue of arbitrability [i]s the only substantive issue presented in th[e]
appeal" and a "dispute over arbitrability is easily severable from [the] merits of
[the] underlying dispute." Britton, 916 F.2d at 1412 & n.7 (citing Moses H. Cone
Mem'l Hosp. v. Mercury Constr., 460 U.S. 1, 21 (1983)). In addition to this legal
rationale, the court expressed concern over potential exploitation of a categorical
divestiture rule, which "would allow a defendant to stall a trial simply by bringing
a frivolous motion to compel arbitration." Id. at 1412. Addressing the
countervailing concern that a defendant not lose the benefit of a meritorious
appeal of the denial of a motion to arbitrate by continuation of the case in the
district court, the Ninth Circuit emphasized that the inherent flexibility of the
traditional stay analysis would enable the trial court to determine on a case-by-
case basis when the arbitrability issue warranted a stay in the proceedings. Id.
The Seventh Circuit disagreed with this analysis when it confronted the
same issue. As a first point of contention, the court rejected the Ninth Circuit's
determination that an arbitrability appeal is legally severable and distinct from the
merits of the underlying case. See Bradford-Scott Data Corp., 128 F.3d at 505
("Whether a case should be litigated in the district court is not an issue collateral
to the question presented by an appeal [of arbitrability] however; it is the mirror
image of the question presented on [such an] appeal."). While the Seventh
Circuit acknowledged that potential exploitation of the divestiture rule through
dilatory 16(a) appeals was a "serious concern," it was persuaded this concern
was "met by the response that the appellee may ask the court of appeals to dismiss
the appeal as frivolous or to affirm summarily." Id. at 506. The court was more
solicitous regarding its duty to protect the benefits of arbitration from erosion by
the demands of litigation in district court during the pendency of a defendant's
non-frivolous appeal from the denial of arbitration. Id. ("The worst possible
outcome would be to litigate the [underlying] dispute, to have the court of appeals
reverse [the denial of arbitration], to arbitrate the dispute, and finally to return to
court to have the award enforced."). It is evident from this case law that the
opposing circuit positions have each presented a reasoned response to the other's
prudential rationales. The critical question we must answer is which approach
provides us with a more persuasive analysis of the jurisdictional divestiture rule.
Our precedent addressing divestiture in the context of an appeal of the
denial of qualified immunity is instructive. In Stewart v. Donges, 915 F.2d 572
(10th Cir. 1990), we held that a district court was automatically divested of
jurisdiction by an interlocutory appeal from the denial of summary judgment
based on qualified immunity where the court did not certify the appeal as
frivolous or forfeited. Id. at 575-76. We said in Stewart that
[t]he divestiture of jurisdiction occasioned by the filing of a notice of
appeal is especially significant when the appeal is an interlocutory one . . . .
The interruption of the trial proceedings is the central reason and
justification for authorizing such an interlocutory appeal in the first place.
When an interlocutory appeal is taken, the district court only retains
jurisdiction to proceed with matters not involved in that appeal.
Id. (internal citations omitted). Recognizing that this rule runs "the risk that such
interlocutory appeals will be subject to abuse," id. at 576, we excepted frivolous
appeals from the general divestiture principle. Thus, after a hearing, "a finding of
frivolousness enable[s] the district court to retain jurisdiction and to proceed to
trial absent intervention by the court of appeals." Id. In other words, so long as
the district court takes the affirmative step of certifying an appeal as frivolous or
forfeited, it retains jurisdiction.(1) Id. at 577-78.
The reasoning of Stewart is persuasive here for two reasons. First,
(1) We note that we are not talking about constitutional or statutory
jurisdiction, but rather "a judge-made doctrine, designed to promote judicial
economy and avoid ... confusion and inefficiency." 20 Moore's Federal
Practice 303.32[1] (3d ed. 2004).
interlocutory appeals on the basis of the denial of qualified immunity are similar
to 16(a) appeals in the following respect: the failure to grant a stay pending
either type of appeal results in a denial or impairment of the appellant's ability to
obtain its legal entitlement to avoidance of litigation, either the constitutional
entitlement to qualified immunity or the contractual entitlement to arbitration.
See Stewart, 915 F.2d at 576 ("If the defense is valid, then no part of the action
should proceed against the defendant."). Second, Stewart addresses the concern
about potential misuse of interlocutory review by foreclosing frivolous appeals,
subject to the certification process. Id. at 577.
"Arbitration clauses reflect the parties' preference for non-judicial dispute
resolution, which may be faster and cheaper," and, as a result, cases involving
16(a) appeals are "poor candidates for exceptions to the principle that a notice of
appeal divests the district court of power to proceed with the aspects of the case
that have been transferred to the court of appeals." Bradford-Scott Data Corp.,
128 F.3d at 506. Indeed, "[c]ontinuation of proceedings in the district court
largely defeats the point of the appeal and creates a risk of inconsistent handling
of the case by two tribunals." Id. at 505. Given these considerations, our analysis
in Stewart, and our "expressed preference for bright-line jurisdictional rules," see
Dalton v. First Ins. Bank of Denver, 863 F.2d 702, 704 (10th Cir. 1988), we hold
that the district court is divested of jurisdiction while a non-frivolous 16(a)
motion is pending.
While we recognize the Ninth Circuit's legitimate concerns regarding
potential exploitation of the divestiture rule through dilatory appeals, we are
confident such risks can be appropriately stymied by employing the process
articulated by us in Stewart, which relied on our opinion in United States v.
Hines, 689 F.3d 934 (10th cir. 1982) (involving interlocutory double jeopardy
appeal). That is, upon the filing of a motion to stay litigation pending an appeal
from the denial of a motion to compel arbitration, the district court may frustrate
any litigant's attempt to exploit the categorical divestiture rule by taking the
affirmative step, after a hearing, of certifying the 16(a) appeal as frivolous or
forfeited. Stewart, 915 F.2d at 576-77. That certification will prevent the
divestiture of district court jurisdiction. Id. at 576. Appellant may then move this
court for a stay pending appeal, asserting that the district court's finding of
frivolousness is not supported by the record. Hines, 689 F.2d at 937. If this court
determines that the appeal is not frivolous, we will stay the litigation in the
district court pending the appeal of the denial of the motion to compel arbitration.
Id.
Mr. McCauley failed to argue before the district court that Halliburton's
16(a) appeal was either frivolous or forfeited.(2) Consequently, the district court
was divested of jurisdiction by Halliburton's filing of its notice of appeal. We
therefore GRANT Halliburton's motion to stay proceedings in the district court
pending the appeal of the denial of its motion to compel arbitration.
(2) As we made clear in Stewart v. Donges, 915 F.2d 572, 577 (10th Cir.
1990), we will not consider for the first time on appeal an argument that
divestiture should be precluded because the appeal is frivolous. In any event, Mr.
McCauley did not make such an argument to us.