Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_04-cv-05357/USCOURTS-cand-5_04-cv-05357-27/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1962 Racketeering (RICO) Act

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

Reese M. Jones,

Plaintiff,

 v.

Deutsche Bank AG, et al.,

Defendants. /

NO. C 04-05357 JW 

ORDER GRANTING DEUTSCHE BANK’S

MOTION TO STAY PROCEEDINGS

PENDING APPEAL TO THE NINTH

CIRCUIT

I. INTRODUCTION

Reese M. Jones (“Plaintiff”) brings this action against, inter alia, Deutsche Bank AG and

Deutsche Bank Securities, Inc. (collectively, “Deutsche Bank”) for violation of the Racketeer

Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962. Plaintiff’s suit is based on a

tax shelter, the “CARDS facility,” that has become a disallowed tax transaction. Presently before

the Court is Deutsche Bank’s Motion to Stay Proceedings Pending Appeal to the Ninth Circuit. 

Deutsche Bank is appealing the Court’s April 2007 Order denying its motion to compel arbitration. 

The background of this case, and the facts underlying Deutsche Bank’s motion to compel arbitration

are summarized in the Court’s April 2007. (hereafter, “Order,” Docket Item No. 329.) 

The Court found the motion appropriate for submission without oral argument. See Civ. L.

R. 7-1(b). Based on the papers submitted to date, the Court GRANTS Deutsche Bank’s Motion to

Stay Proceedings Pending Appeal to the Ninth Circuit.

Case 5:04-cv-05357-JW Document 358 Filed 05/17/07 Page 1 of 5
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II. DISCUSSION

Deutsche Bank moves to stay this action pending its appeal of the Court’s Order on the

grounds that (1) its appeal presents a “substantial question”; and (2) it will suffer irreparable harm if

proceedings are not stayed. (Deutsche Bank AG’s and Deutsche Bank Securities Inc.’s Motion to

Stay Proceedings Pending Appeal to the Ninth Circuit at 2-3, Docket Item No. 338.)

The Federal Arbitration Act (“FAA”) permits a party to appeal a district court order denying

a petition to compel arbitration made pursuant to Section 4 of the FAA. 9 U.S.C. § 16; see also

Bushley v. Credit Suisse First Boston, 360 F.3d 1149, 1153 (9th Cir. 2004). The Ninth Circuit has

found that in the arbitrability context, an appeal of an interlocutory order does not deprive the

district court of jurisdiction except with respect to the subject matter of the appeal. Rather, the court

held, “The system created by the Federal Arbitration Act allows the district court to evaluate the

merits of the movant’s claim, and if, for instance, the court finds that the motion presents a

substantial question, to stay the proceedings pending an appeal from its refusal to compel

arbitration.” Britton v. Co-op Banking Group, 916 F.2d 1405, 1412 (9th Cir. 1990). In other words,

a district court has discretion whether to stay the action pending appeal. Id.

A. Substantial Question

Deutsche Bank contends that the Court adopted a minority view of equitable estoppel in

denying Deutsche Bank’s motion to compel arbitration, and there is a substantial question whether

the Ninth Circuit will affirm. (Motion at 4.) Specifically, Deutsche Bank contends that courts have

split on the question of whether the doctrine of equitable estoppel allows a non-signatory to an

arbitration agreement to compel arbitration where a signatory alleges that all of the promoters of a

tax shelter, including the non-signatory promoter, acted in concert to defraud the signatory. Id.

The Court previously summarized the law of equitable estoppel as follows:

Equitable estoppel precludes a party from claiming the benefits of a contract while

simultaneously avoiding the burdens that the contract imposes. Courts, including

those in the Northern District of California, have identified two strands of the

equitable estoppel doctrine that support a non-signatory’s right to compel arbitration. 

First, equitable estoppel applies where the “signatory to a written agreement

containing an arbitration clause must rely on the terms of the written agreement in

asserting its claims against the nonsignatory.” Second, equitable estoppel is

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1

 Since the Court finds that Deutsche Bank’s appeal presents a substantial question as to

equitable estoppel, the Court need not additionally consider whether it presents a substantial

question as to agency. (See Motion at 9-11.)

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appropriate where “the issues the nonsignatory is seeking to resolve in arbitration are

intertwined with the agreement that the estopped party has signed.

(Order at 3-4) (internal citations omitted). As one nonbinding authority cited by Deutsche Bank

held, “The degree of interrelatedness necessary to allow a non-signatory to compel arbitration [based

on equitable estoppel] is extremely fact dependent.” See Carroll v. Leboeuf, Lamb, Greene &

MacRae, L.L.P., 374 F. Supp. 2d 375, 378 (S.D.N.Y. 2005). Specifically, several district courts

have taken an expansive view of equitable estoppel in the arbitration context; they have found that a

plaintiff alleging that several tax shelter promoters acted in concert to defraud the plaintiff, was

equitably estopped from resisting the non-signatory promoters’ attempts to enforce the arbitration

clause. See, e.g. Carroll, 374 F. Supp. 2d at 378; Hansen v. KPMG, SA, No. CV 04-10525-GLT,

2005 U.S. Dist. LEXIS 38137 at *11 (C.D. Cal. Mar. 29, 2005); Camferdam v. Ernst & Young Int’l,

Inc., No. 02-CV-10100, 2004 WL 307292 at *7 (S.D.N.Y. Feb. 13, 2004). In contrast, as described

in the Court’s previous Order, several courts have found that equitable estoppel is inapplicable on

similar facts. (Order at 3-6.) The Ninth Circuit has not yet ruled on this issue.

The Court finds that Deutsche Bank’s appeal raises substantial questions concerning the law

of arbitrability and the doctrine of equitable estoppel in the Ninth Circuit. Accordingly, this factor

weighs in favor of granting a stay.1

B. Irreparable Harm

Deutsche Bank contends that courts in this circuit have routinely recognized that a party

seeking to enforce an arbitration agreement will suffer irreparable harm if the proceedings are not

stayed pending appeal. (Motion at 3.) 

The Ninth Circuit has found that a denial of a motion to compel arbitration has “serious

consequences that can only be challenged by immediate appeal.” Specifically, arbitration provides

the parties with an “inexpensive and expeditious means of resolving the dispute”—if a litigant must

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endure the “expense and delay of a trial” before being able to appeal the district court’s denial, it

forever loses the speed and economy advantages of arbitration. Int’l Ass’n of Machinists &

Aerospace Workers v. Aloha Airlines, 776 F.2d 812, 815 (9th Cir. 1985). Several district courts in

this circuit have relied on these findings to find that a party appealing a denial of a motion to compel

arbitration will likely suffer irreparable harm absent a stay. See, e.g. Winig v. Cingular Wireless,

LLC, No. CV 06-4297 MMC, 2006 WL 3201047 at *2 (N.D. Cal. Nov. 6, 2006); Stern v. Cingular

Wireless Corp., No. CV 05-8842 CAS, 2006 WL 2790243 at *2 (C.D. Cal. Sept. 11, 2006); Ford v.

Verisign, Inc., No. 05 CV 0819 JM (RBB), 2006 U.S. Dist. LEXIS 88856 at *7 (S.D. Cal. Mar. 8,

2006). In this case, if the Ninth Circuit finds that arbitration is the proper forum for this dispute, the

Court’s and the parties’ resources will have been needlessly expended on continuing preparations

for trial. Accordingly, the Court finds that the “irreparable harm” factor weighs in favor of granting

a stay.

Since both the “substantial question” and “irreparable harm” factors weigh in favor of

granting a stay, the Court finds it proper to stay this action pending the resolution of Deutsche

Bank’s appeal. 

III. CONCLUSION

The Court GRANTS Deutsche Bank’s Motion to Stay Proceedings Pending Appeal to the

Ninth Circuit. The Court STAYS all proceedings in this case pending appeal.

Dated: May 17, 2007 

JAMES WARE

United States District Judge

Case 5:04-cv-05357-JW Document 358 Filed 05/17/07 Page 4 of 5
United States District Court

For the Northern District of California

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THIS IS TO CERTIFY THAT COPIES OF THIS ORDER HAVE BEEN DELIVERED TO:

Adam J Kaiser akaiser@dbllp.com

Amy Lynn Rice Amy@wccfamilylaw.com

Christine Chi cchi@dbllp.com

Cynthia Lewis Stier cynthia.stier@usdoj.gov

Daniel T. Bernhard bernhard@freelandlaw.com

David Eldon Crowe dcrowe@dbllp.com

David S. McLeod dmcleod@dbllp.com

Jeffrey R. Witham jwitham@dbllp.com

Jennifer Lee Jonak jenny@jonak.com

Joseph A Sergi joseph.a.sergi@usdoj.gov

Lawrence M. Hill lhill@dbllp.com

Matthew S. Weiler mweiler@morganlewis.com

Megan Christine Roth mroth@zimkalaw.com

Robin L. Moore rlmoore@deweyballantine.com

Seth C. Farber sfarber@dbllp.com

Stephen Allen Watson swatson@watsonlawgroup.com

Stewart H. Foreman foreman@freelandlaw.com

William M. Lukens wlukens@lukenslaw.com

Dated: May 17, 2007 Richard W. Wieking, Clerk

By: /s/ JW Chambers 

Elizabeth Garcia

Courtroom Deputy

Case 5:04-cv-05357-JW Document 358 Filed 05/17/07 Page 5 of 5