UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

RA INVESTMENTS I, LLC, ET AL.,

Plaintiffs,

VS.

DEUTSCHE BANK AG, ET AL.,

Defendants.

)

)

)

) CIVIL ACTION NO.

)

) 3:04-CV-1565-G

)

)

)

MEMORANDUM OPINION AND ORDER

Before the court is the motion of the defendants Deutsche Bank AG, Deutsche

Bank Securities Inc., d/b/a Deutsche Bank Alex.Brown, David Parse, Todd

Clendening, and Craig Brubaker (collectively, the “Deutsche Bank defendants” or

“Deutsche Bank”) to stay this case pending an appeal of this court’s memorandum

order dated January 10, 2005 to the United States Court of Appeals for the Fifth

Circuit. For the reasons discussed below, the Deutsche Bank defendants’ motion for

a stay is denied.

I. BACKGROUND

This case arises out of tax and consulting services provided by several law firms,

accounting firms, and financial services firms, through which the plaintiffs were

 

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persuaded to engage in a tax strategy known as Currency Options Bring Reward

Alternatives (“COBRA”). Plaintiffs’ First Amended Complaint (“Complaint”) ¶¶ 52-

53. According to the plaintiffs, the Deutsche Bank defendants not only designed and

sold the COBRA strategy, but also directly marketed and promoted it to the

plaintiffs. Id. ¶ 52. The plaintiffs signed account agreements (the “DB Agreements”),

binding on all the plaintiffs and the Deutsche Bank defendants, containing the

following arbitration clause:

I agree to arbitrate with you any controversies which may

arise, whether or not based on events occurring prior to the

date of this agreement, including any controversy arising

out of or relating to any account with you, to the

construction, performance or breach of any agreement with

you, or to transactions with or through you, only before

the New York Stock Exchange or the National Association

of Securities Dealers Regulation, Inc., at my election. . . . 

* * *

Neither you nor I waive any right to seek equitable relief

pending arbitration. No person shall bring a putative or

certified class action to arbitration, nor seek to enforce any

pre-dispute arbitration agreement against any person who

has initiated in court a putative class action; or who is a

member of a putative class who has not opted out of the

class with respect to any claims encompassed by the

punitive [sic] class action . . . .

 

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1 The same account agreement was also signed individually by each of the

named plaintiffs in this case. See generally Account Agreements, attached to Dinnin

Affidavit at 8-187. 

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Account Agreement between DB Alex. Brown and RD Toreador Investments LLC,

executed by Richard Dusansky on December 12, 2000, attached to Affidavit of

Michael L. Dinnin (“Dinnin Affidavit”) at 8-11.1

On January 10, 2005, this court issued an order denying a motion to stay the

instant case. See generally Memorandum Order (Jan. 10, 2005) (hereafter

“Memorandum Order”). The Deutsche Bank defendants have appealed that ruling

pursuant to § 16(a) of the Federal Arbitration Act (“FAA”) and have moved for a stay

of the proceedings in this court pending appeal. See generally Memorandum of Law in

Support of Defendants Deutsche Bank AG, Deutsche Bank Securities Inc., d/b/a

Deutsche Bank Alex.Brown, David Parse, Todd Clendening and Criag Brubaker’s

Motion for a Stay of Proceedings Pending Appeal (“Motion to Stay Pending

Appeal”).

II. ANALYSIS

The Deutsche Bank defendants argue that this action should be stayed pending

appeal for two reasons: (1) the pendency of the appeal divests this court of

jurisdiction, and (2) a discretionary stay is warranted under FED. R. CIV. P. 62(c) and

FED. R. APP. P. 8(a). Motion to Stay Pending Appeal at 3. The court will address

each of these arguments in turn. 

 

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A. Does the Pendency of the Appeal Divest this Court of Jurisdiction?

The Deutsche Bank defendants assert that a stay is warranted because this

court was divested of jurisdiction at the time the Deutsche Bank defendants filed

their notice of appeal on January 17, 2005. See Motion to Stay Pending Appeal at 3. 

The Supreme Court has held that “[t]he filing of a notice of appeal is an event of

jurisdictional significance -- it confers jurisdiction on the court of appeals and divests

the district court of its control over those aspects of the case involved in the appeal.” 

Griggs v. Provident Consumer Discount Company, 459 U.S. 56, 58 (1982) (citations

omitted). Thus, the question in this case is whether continuing with the merits of the

case implicates the same subject as that “involved in the appeal” of an order denying

a stay. Farmhand, Inc. v. Anel Engineering Industries, Inc., 693 F.2d 1140, 1145 (5th

Cir. 1982) (“Generally, when an appeal is noticed the district court is divested of

jurisdiction; the matter is immediately transferred to the appellate court. The rule,

however, is not absolute. The district court maintains jurisdiction as to matters not

involved in the appeal, such as the merits of an action when appeal from a

preliminary injunction is taken . . . .”). The Fifth Circuit has not yet ruled on

whether the pendency of an appeal under § 16(a) of the FAA divests the district court

of jurisdiction. In fact, there is a split of authority among the circuits concerning the

specific issue of a stay pending denial of a motion to compel arbitration. 

 

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The Deutsche Bank defendants argue that, following the general rule set forth

in Griggs, a district court must stay all proceedings pending an interlocutory appeal

concerning a district court’s denial of a motion to compel arbitration. Motion to Stay

Pending Appeal at 4-5. Specifically, the Deutsche Bank defendants rely on BradfordScott Data Corporation v. Physician Computer Network, Inc., 128 F.3d 504, 505-06 (7th

Cir. 1997), to support this position. In Bradford-Scott, the court held that a case

cannot proceed in a district court when an appeal regarding arbitration is pending. 

Id. at 506; see also Blinco v. Green Tree Servicing, LLC, 366 F.3d 1249, 1251 (11th Cir.

2004) (“Upon motion, proceedings in the district court . . . should be stayed pending

resolution of a non-frivolous appeal from the denial of a motion to compel

arbitration.”). According to the court, an appeal of a district court’s order denying

arbitration is an appeal regarding the question of whether any aspect of the litigation

“may go forward in the district court.” See Bradford-Scott, 128 F.3d at 506.

By contrast, in Britton v. Co-op Banking Group, 916 F.2d 1405 (9th Cir. 1990),

the Ninth Circuit held that “[s]ince the issue of arbitrability was the only substantive

issue presented in [the] appeal, the district court was not divested of jurisdiction to

proceed with the case on the merits.” Id. at 1412 (citing Moses H. Cone Memorial

Hospital v. Mercury Construction Corporation, 460 U.S. 1, 21 (1983)). The court noted

that “an appeal of an interlocutory order does not ordinarily deprive the district court

of jurisdiction except with regard to the matters that are the subject of the appeal.” 

 

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Id. at 1412 (citation omitted). “[W]here an appeal is taken from a judgment which

does not finally determine the entire action, the appeal does not prevent the district

court from proceeding with matters not involved in the appeal.” Britton, 916 F.2d at

1411 (quoting 9 J. MOORE, MOORE’S FEDERAL PRACTICE ¶ 203.11, 3-54); see also

Motorola Credit Corporation v. Uzan, 388 F.3d 39, 54 (2d Cir. 2004) (“[F]urther

district court proceedings in a case are not ‘involved in’ the appeal of an order

refusing arbitration, and . . . a district court therefore has jurisdiction to proceed with

a case absent a stay from this Court.”), petition for cert. filed, 73 U.S.L.W. 3570

(Mar. 16, 2005) (No. 04-1255). 

In the absence of controlling authority in this circuit, this court is persuaded by

the reasoning of the Ninth Circuit and concludes that a complete stay of all

proceedings should not be ordered here. The Deutsche Bank defendants seek to

compel arbitration under the FAA based on agreements they signed with the plaintiffs

providing for arbitration. Nevertheless, as this court has recognized once before,

since the plaintiffs are members of the settlement class in Denney, the Deutsche Bank

defendants cannot compel arbitration on the basis of the DB Agreement. See

Memorandum Order at 8. It is clear that the parties contractually agreed that they

could only compel arbitration under NASD Rules once the class had been certified. 

See id. at 6-8. Consequently, the merits of this case have nothing to do with

Deutsche Bank’s appeal. Since the issue of arbitrability is the only substantive issue

 

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2 Cf. Moses H. Cone Memorial Hospital, 460 U.S. at 21 (permitting

concurrent litigation on issue of arbitrability and explaining that dispute over

arbitrability is easily severable from the merits of the underlying disputes). 

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presented in the appeal,2

 this court is not divested of jurisdiction to proceed with the

merits of the case.

Although this court will not issue a stay of all proceedings, it is mindful of the

undesirable consequences of a ruling on the merits prior to a decision regarding

arbitration by the higher court. See Bradford-Scott, 128 F.3d at 506 (“The worst

possible outcome would be to litigate the dispute, to have the court of appeals reverse

and order the dispute arbitrated, to arbitrate the dispute, and finally return to court

to have the award enforced.”). Therefore, this court will not permit the proceedings

to reach the stage of a trial. The court will, however, permit other aspects of the case

to move forward. 

B. Is a Discretionary Appeal Warranted Under

 FED. R. CIV. P. 62(c) and FED. R. APP. P. 8(a)?

To determine whether a stay should be granted pending an appeal, a court

must consider: (1) whether the movant has made a showing of likelihood of success

on the merits; (2) whether the movant has made a showing of irreparable injury if the

stay is not granted; (3) whether the granting of the stay would substantially harm the

other parties; and (4) whether the granting of the stay would serve the public interest. 

In re First South Savings Association, 820 F.2d 700, 704 (5th Cir. 1987). The Fifth

Circuit has cautioned that in the usual case “[l]ikelihood of success remains a

 

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3 Section 3 provides:

(continued...)

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prerequisite . . .[and] [o]nly ‘if . . . []consideration of the other three factors[] is . . .

heavily tilted in the movant’s factor’ will we issue a stay in its absence, and even then,

the issue must be one with patent substantial merit.” Id. at 709 n.10 (quoting Ruiz v.

Estelle, 650 F.2d 555, 565-66 (5th Cir. 1981)) (emphasis in original). 

1. Likelihood of Success on Appeal

The Deutsche Bank defendants must first demonstrate a likelihood of success

on the merits. Further, the Deutsche Bank defendants must be prepared to argue the

merits of the appeal in establishing a likelihood of success. See id. at 709-14. At this

time, the Deutsche Bank defendants have filed a notice of appeal and have indicated

that they are appealing as of right under 9 U.S.C. § 16. See Motion to Stay Pending

Appeal at 3. Section 16(a) of the FAA provides that “an appeal may be taken from

. . . an order . . . refusing a stay of any action under section 3 of the [FAA].” 9 U.S.C.

§ 16(a)(1)(A); Adams v. Georgia Gulf Corporation, 237 F.3d 538, 540 (5th Cir. 2001)

(“Through Section 16, Congress intended to promote arbitration by ‘permitting

interlocutory appeals of orders favoring litigation over arbitration and precluding

review of interlocutory orders that favor arbitration.’”) (citing Forsythe International,

S.A. v. Gibbs Oil Company, 915 F.2d 1017, 1020 (5th Cir. 1990)). Given the

language of § 16(a), the appellate court will have jurisdiction to review the district

court’s order if § 3 applies to the Deutsche Bank defendants’ motion for a stay.3

 

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3

(...continued)

If any suit or proceeding be brought in any of

the courts of the United States upon any

issue referable to arbitration under an

agreement in writing for such arbitration, the

court in which such suit is pending, upon

being satisfied that the issue involved in such

suit or proceeding is referable to arbitration

under such an agreement, shall on application

of one of the parties stay the trial of the action

until such arbitration has been had in

accordance with the terms of the agreement,

providing the applicant for the stay is not in

default in proceeding with such arbitration.

9 U.S.C. § 3 (emphasis added). 

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The plaintiffs concede that the FAA favors arbitration and that, pursuant to

the FAA, a court must compel arbitration if it is satisfied that the claim at issue is

within the scope of a valid, enforceable agreement to arbitrate. Plaintiffs’ Response to

the Deutsche Defendants’ Motion for a Stay of Proceedings Pending Appeal

(“Response to Motion to Stay”) at 7; see also Moses H. Cone Memorial Hospital, 460

U.S. at 24-25; 9 U.S.C. § 3. Furthermore, in deciding whether to compel arbitration

of a claim, the court must first consider whether the parties have executed a valid

arbitration agreement and whether the claim is within the scope of the agreement. 

Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir. 1996) (citing Mitsubishi Motors

Corporation v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)). Although

arbitration is favored as a general matter, the scope of arbitration is determined by

the general rules governing contracts and, as a result, a party cannot be required to

 

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submit to arbitration any dispute that the party has not agreed to submit. Howsam v.

Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (quoting Steelworkers v. Warrior &

Gulf Navigation Company, 363 U.S. 574, 582 (1960)). 

In this case, the Deutsche Bank defendants did not move for a stay based upon

the DB Agreement with the plaintiffs because, as the Deutsche Bank defendants have 

already conceded, both the DB Agreement and the NASD rules governing the DB

Agreement prohibit enforcing arbitration when the plaintiffs are members of a

putative class. See Deutsche Bank Defendants’ Memorandum of Law in Support of

Their Motion to Stay Proceedings (October 8, 2004) (“Motion to Stay”) at 17 (“In

light of the Class Action Provision and Plaintiffs’ contention that they are members

of a putative class in Denney, Deutsche Bank does not seek to enforce the arbitration

agreement at this time.”) (emphasis in original); Memorandum Order at 6-8. Rather,

the Deutsche Bank defendants brought their original motion to stay the proceedings

based on the resolution of the class issues in Denney. See Motion to Stay at 2

(“Accordingly, this Court should stay the proceedings against Deutsche Bank pending

resolution of the class issues in Denney.”). As discussed above, § 3 applies only if the

Deutsche Bank defendants were denied a stay based upon an arbitration agreement. 

See 9 U.S.C. § 3. The Deutsche Bank defendants’ motion to stay was not based on

any right to arbitrate under the DB Agreements, but was instead a request for this

court to invoke its equitable powers under Landis v. North American Co., 299 U.S. 248,

 

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4 Other courts that have considered this exact issue and found that

Deutsche Bank failed to demonstrate a justification for a stay pending the outcome of

issues in the Denney case. See, e.g., Blythe v. Deutsche Bank AG, No. 04-Civ.-5867

(SAS), 2005 WL 53281, at *7 (S.D. N.Y. Jan. 7, 2005); Tice, et al. v. BDO Seidman,

LLP, et al., No. SA-CV04-0599-AHS (C.D. Cal. Dec. 31, 2004), attached to Plaintiffs’

Response as Exhibit B; Barron, et al. v. Deutsche Bank AG, et al., No. SA-CV04-0401-

AHS (C.D. Cal. Dec. 31, 2004), attached to Plaintiffs’ Response as Exhibit C. 

Furthermore, the Ninth Circuit has denied two emergency motions to stay the

proceedings pending appeal in the Tice and Barron cases. See Tice, et al. v. BDO

Seidman, LLP, et al., No. 05-55089 (9th Cir. Feb. 4, 2005), attached to Plaintiffs’

Response as Exhibit D; Barron, et al. v. Deutsche Bank AG, et al., No. 05-5584 (9th

Cir. Feb. 4, 2005), attached to Plaintiffs’ Response as Exhibit E.

5 Moreover, in applying the first prong of the test to the present case, “it

is unlikely that a district court would ever be able to find that defendants will be

likely to succeed on the merits of their appeal.” C.B.S. Employees Federal Credit Union

v. Donaldson, Lufkin, & Jenrette Securities Corporation, 716 F. Supp. 307, 309 (W.D.

Tenn. 1989). In order to make such a finding, this court would be admitting that it

erred in denying defendant’s original motion to stay the proceedings, and that the

court appeals is likely to reverse its decision. Id. Deutsche Bank has not persuaded

the court that denying a stay was error.

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254 (1936). See Memorandum Order at 5-6.4

 Therefore, it does not appear that the

order denying the Deutsche Bank defendants’ request for a stay is appealable under §

16 of the FAA.5 As a result, the court concludes that the Deutsche Bank defendants

have not demonstrated a strong likelihood of success on the merits. 

 

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2. Irreparable Injury to the Deutsche Bank Defendants

The Deutsche Bank defendants must also establish that irreparable injury will

result unless a stay is granted. See In re First South Savings, 820 F.2d at 704. In its

first motion to stay, the Deutsche Bank defendants failed to demonstrate any

hardship to this court. See Memorandum Order at 9. Undeterred, the Deutsche

Bank defendants now attempt to argue that in the absence of a stay pending appeal,

they will suffer irreparable harm, an even more stringent standard. The Deutsche

Bank defendants argue that if a stay is not granted, they will be forced to shoulder the

burdens of litigation. See Motion to Stay Pending Appeal at 6-9. While the court is

cognizant of the burdens such litigation can cause, the Deutsche Bank defendants

have not shown that these burdens constitute irreparable injury.

Additionally, the Deutsche Bank defendants maintain that a stay is necessary

to preserve their rights under the law because a failure to issue a stay will force them

into prolonged litigation. Id. at 7-9. However, because of the court’s previous

determination that the Deutsche Bank defendants have no basis for compelling

arbitration at this time, the Deutsche Bank defendants have no cognizable right to

avoid litigation in this court.

3. Substantial Injury to the Plaintiffs

Based on the facts of this case, the court finds that the plaintiffs will suffer a

substantial injury if a stay is issued. The plaintiffs are currently facing the possibility

 

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of paying the IRS millions of dollars in back-taxes, penalties, and interested in the

upcoming months. As a result, a stay of these proceedings would prevent the

plaintiffs from receiving compensation from the individuals and entities responsible

for their damages. Not only could this potentially result in economic hardship to the

plaintiffs, but imposing a stay will force the plaintiffs to wait even longer for their

rights and injuries to be addressed. Although the Deutsche Bank defendants assert

the plaintiffs will not suffer substantial injury since the proceedings are at an early

stage, see Motion to Stay Pending Appeal at 9, this argument further fails as an

attempt to show the absence of harm to the opposing party because it ignores the

plaintiffs’ entitlement to litigate and resolve their claims without further delay. See

Leyva v. Certified Grocers of California, Ltd., 593 F.2d 857, 864 (9th Cir.) (“A stay

should not be granted unless it appears likely the other proceedings will be concluded

within a reasonable time in relation to the urgency of the claims presented to the

court.”), cert. denied, 444 U.S. 827 (1979). 

4. Public Interest

The Deutsche Bank defendants contend that burdening them with unnecessary

litigation while their appeal is pending directly undermines § 16’s pro-arbitration

purpose. Motion to Stay Pending Appeal at 12. It is well established that the public

interest supports a stay pending appeal. See Moses H. Cone Memorial Hospital, 460

U.S. at 24-25. Section 16 of the FAA allows interlocutory appeals from orders

 

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favoring litigation over arbitration because of the strong federal preference of

disputes. See 9 U.S.C. § 16. The purpose of the statute was “to streamline the

appellate aspect of the litigation process so that parties may realize their arbitration

rights at the earliest possible moment.” Cotton v. Slone, 4 F.3d 176, 180 (2d Cir.

1993). 

While it is true that the FAA favors arbitration, arbitration is still a matter of

contract between two parties. This court, as well as courts in other jurisdictions, has

already determined that the DB Agreement as drafted gives the Deutsche Bank

defendants no arbitration rights at the present time. See Memorandum Order at 6-8. 

As a result, because the Deutsche Bank defendants moved for a stay based on

proceedings in the Denney case and not on an arbitration agreement, the Deutsche

Bank defendants’ reliance on the policy underlying the FAA is entirely misplaced. If

this court were to grant a stay pending appeal, the Deutsche Bank defendants would

have effectively managed to obtain -- contrary to Landis, 299 U.S. at 255 -- a stay “of

indefinite duration.” Such a result hardly favors the prompt resolution of disputes. 

In sum, the Deutsche Bank defendants have made no showing that a stay is in

the public interest. “Public policy dictates the timely conclusion of legal disputes.” 

Evans v. Board of County Commissioners of County of Boulder, Colorado, 772 F. Supp.

1178, 1181 (D. Colo. 1991). Proceeding promptly with litigation of the plaintiffs’

claims is in accord with such policy. 

 

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III. CONCLUSION

For the reasons stated above, the Deutsche Bank defendants’ motion for a stay

pending appeal is DENIED. 

SO ORDERED.

May 20, 2005.

 

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