Opinion ID: 3012429
Heading Depth: 1
Heading Rank: 2

Heading: jurisdiction

Text: Scott argues, as a threshold matter, that this court does not have jurisdiction on the ground that the District Court's modified order was not final or appealable because it dismissed Blair's claims without prejudice and ordered the parties to arbitrate. Scott argues that the court's order effectively acted as a stay of the proceedings pending the outcome of the arbitration. Under the FAA, a stay is considered an interlocutory order that may not be appealed. 9 U.S.C. S 16(b)(1). Scott relies on Smith v. The Equitable, 209 F.3d 268 (3d Cir. 2000), where we held, on facts similar to the present case, that the dismissal of an employment discrimination case without prejudice with an order to compel arbitration 5 was not a final appealable order. Smith, an African American, brought suit in federal court alleging that the defendant company's decision not to hire him was based on his race in violation of Title VII and the PHRA. Because he had signed a pre-employment contract that included an agreement to arbitrate any employment-related disputes, the district court dismissed Smith's action without prejudice and compelled arbitration. Id. at 270. On appeal, we noted that under section 16(b) of the FAA, federal courts are expressly barred from taking an appeal of a district court's interlocutory order compelling arbitration. Id. at 271. Section 16 provides: (a) An appeal may be taken from-- (1) an order-- (A) refusing a stay of any action under section 3 of this title, (B) denying a petition under section 4 of this title to order arbitration to proceed, (C) denying an application under section 206 of this title to compel arbitration, (D) confirming or denying confirmation of an award or partial award, or (E) modifying, correcting, or vacating an award; (2) an interlocutory order granting, continuing, or modifying an injunction against an arbitration that is subject to this title; or (3) a final decision with respect to an arbitration that is subject to this title. (b) Except as otherwise provided in section 1292(b) of title 28, an appeal may not be taken from an interlocutory order-- (1) granting a stay of any action under section 3 of this title; (2) directing arbitration to proceed under section 4 of this title; 6 (3) compelling arbitration under section 206 of this title; or (4) refusing to enjoin an arbitration that is subject to this title. 9 U.S.C. S 16. We dismissed Smith's appeal on the ground that it was an interlocutory order directing arbitration to proceed under section 4, and therefore not appealable under 9 U.S.C. S 16(b). We stated that a district court's order in an independent proceeding, one brought by the plaintiff in order to compel arbitration, is considered final and immediately appealable because it addresses the exact relief sought. Smith, 209 F.3d at 271. We contrasted such an order from an order in an embedded proceeding, one where the defendant, rather than the plaintiff, moves to compel enforcement of the arbitration agreement as a defense to claims brought before the court. We noted that the latter traditionally had been considered interlocutory and not immediately appealable. Id. In Smith, we recognized the apparent anomaly of treating these types of proceedings differently but pointed to the rationale we had previously applied  `that an order directing arbitration is interlocutory and, therefore, not appealable if it is made in a lawsuit, such as a suit for damages, in which in the normal course of judicial procedure there will be a later final order or judgment from which an appeal can be taken by a person aggrieved by the prior order to arbitrate.'  Id. at 271 (quoting Zosky v. Boyer, 856 F.2d 554, 558 (3d Cir. 1988) (quoting Rogers v. Schering Corp., 262 F.2d 180, 182 (3d Cir. 1959))). We stated that the district court's decision to dismiss the proceedings rather than stay the proceedings under 9 U.S.C. S 3, was appropriate for reasons of judicial efficiency when  `all the claims involved in an action are arbitrable.'  Smith, 209 F.3d at 272 (quoting Seus v. John Nuveen & Co., Inc., 146 F.3d 175, 179 (3d Cir. 1998)). We also noted that the dismissal was the functional equivalent of a stay since the plaintiff could test the validity of the arbitration agreement before the arbitrator and then, if necessary, challenge the arbitration award in the district court. Id. 7 The continued viability of the holding and rationale in Smith and earlier cases must be examined in light of the Supreme Court's recent decision in Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), which Blair contends is inconsistent with Smith and establishes our jurisdiction over this appeal. In Green Tree, the plaintiff sued the companies that had financed her purchase of her mobile home alleging that they violated the Truth in Lending Act, 15 U.S.C. S 1601 et seq. and the Equal Credit Opportunity Act, 15 U.S.C. SS 1691-1691f. Green Tree, 531 U.S. at 82-83. The district court granted the defendants' motion to compel arbitration and dismissed the plaintiff's claims with prejudice. The court of appeals rejected the defendants' challenge to its jurisdiction on the ground that the order was not appealable. Randolph v. Green Tree Fin. Corp.-Alabama, 178 F.3d 1149, 1156-57 (11th Cir. 1999). The Supreme Court pointed to the well-established definition of a final decision as a decision that ends the litigation on the merits and leaves nothing more for the court to do but execute the judgment. Green Tree, 531 U.S. at 86 (quotations omitted). The Court then held that the district court's order directing the parties to arbitrate and dismissing the plaintiff's claims with prejudiceplainly disposed of the entire case on the merits and left no part of it pending before the court. Id. The ability of a party to an arbitration to bring a later proceeding in a district court to enter judgment on an arbitration award or vacate or modify that award does not vitiate the finality of the District Court's resolution of the claims in the instant proceeding. Id. On this basis, the Court held that the district court's order was final and appealable. Of particular significance to the issue before us, the Supreme Court rejected the distinction between embedded and independent proceedings that we and many other courts of appeals had adopted. The Court noted that the embedded/independent distinction was not firmly established at the time of the enactment of FAAS 16(a)(3) with respect to cases where the District Court both ordered arbitration and dismissed the remaining claims. Id. at 88. By contrast, the Court continued, the definition offinal decision was firmly established at the time. Id. at 88. On 8 this basis, the Court concluded that where . . . the District Court has ordered the parties to proceed to arbitration, and dismissed all the claims before it, that decision is`final' within the meaning of S 16(a)(3), and therefore appealable. Id. at 89. The question presented in this case is whether the jurisdictional holding in Green Tree, where the action had been dismissed with prejudice, applies equally to a case such as this one that was dismissed without prejudice. Scott argues that a dismissal without prejudice is the functional equivalent of a stay, as the Smith court noted, and as such does not dispose of the claims on the merits. Scott directs our attention to a footnote in Green Tree which stated that [h]ad the District Court entered a stay instead of a dismissal in this case, that order would not be appealable. Green Tree, 531 U.S. at 87 (citing 9 U.S.C. S 16(b)(1)). The Supreme Court did not comment on whether a dismissal without prejudice should be treated as a stay or as a final order, nor did it address whether the district court should have entered a stay instead of a dismissal. The Court's opinion speaks generally of dismissals and does not indicate whether it hinges on the fact that the dismissal was with prejudice. Nor does the statute provide guidance, as it does not differentiate between appeals of district court orders dismissing cases with or without prejudice. Blair argues that there is no valid distinction between a dismissal with prejudice and one without prejudice with regard to these proceedings. In both instances, there is nothing left for her to do but submit to arbitration, and nothing left for the District Court to do other than execute, modify, or vacate the ultimate arbitration award. No justiciable claims remain for the District Court to address outside of the arbitrable claims. Blair also argues that the case relied upon in Smith to find that a dismissal without prejudice is functionally equivalent to a stay, Communication Workers v. AT&T Co., 932 F.2d 199 (3d Cir. 1991), is inapplicable. In Communication Workers , the district court dismissed one set of claims with leave to amend due to pleading irregularities and dismissed another 9 set of claims because they were arbitrable. Id. at 204. We stated in that case that the district court's order dismissing the action because it was arbitrable was functionally analogous to the grant of a stay in an ongoing proceeding pending the outcome of arbitration. . . . [t]hus, our result advances the laudable policy favoring arbitration over litigation. Id. at 207 (citing Zosky , 856 F.2d at 561-62). Because there were additional claims in that case not subject to arbitration that the district court gave leave to amend, that decision is distinguishable from the instant case where the District Court dismissed all of Blair's claims in favor of arbitration. After the decision in Green Tree, at least three courts of appeals have had the opportunity to address whether a dismissal without prejudice is a final, appealable order, or should be treated as a non-appealable stay. In Interactive Flight Technologies, Inc. v. Swissair Swiss Air Transport Co., 249 F.3d 1177 (9th Cir. 2001), the district court had dismissed the complaint without prejudice and directed the parties to arbitrate in accordance with their agreement, and the court of appeals had previously dismissed the appeal for lack of jurisdiction. The Supreme Court remanded and directed the Ninth Circuit to reconsider the issue in light of Green Tree. On remand, the Ninth Circuit held that the district court's decision to dismiss the action without prejudice and order the parties to arbitrate was a final, appealable decision in accordance with Green Tree. The court noted that Green Tree overruled the Ninth Circuit's earlier decisions that had based their holdings on the distinction between embedded and independent proceedings and it instead used the traditional definition of a final order. Id. at 1179. The court then proceeded to address precisely the issue presented here and rejected the distinction between dismissals with or without prejudice. [A]ppellees . . . suggest that the district court's dismissal in this case was not final simply because it was made without prejudice. We reject this argument because the district court's order and judgment sufficiently show that the court intended to close this case without precluding the parties from bringing a new action after completing arbitration. It is only in 10 this sense that the dismissal was without prejudice, and that is not enough to show that the dismissal was interlocutory rather than an appealable final decision. Id. (citing Green Tree, 121 S.Ct at 520). In a recent decision, the Court of Appeals for the Second Circuit reached the same conclusion, holding that a dismissal without prejudice in favor of arbitration is an appealable `final decision' under 9 U.S.C. S 16(a)(3) and that Green Tree has overruled our precedents that distinguish between `independent' and `embedded' actions for purposes of appealability. Salim Oleochemicals v. M/V Shropshire, No. 01-7624, 2002 U.S. App. LEXIS 878, at  (2d Cir. Jan. 18, 2002). The court noted that Green Tree involved a dismissal with prejudice, unlike the dismissal without prejudice before it, but stated that dismissals with and without prejudice are equally appealable as final orders. . . . There is thus no reason to think that a dismissal without prejudice is any less a `final decision' under Green Tree than is a dismissal with prejudice. Id. at  The Eleventh Circuit held similarly. In Employers Insurance of Wausau v. Bright Metal Specialties, Inc., 251 F.3d 1316 (11th Cir. 2001), the district court had dismissed each of the underlying actions in a construction contract case and granted the defendant's motion to compel arbitration. The Eleventh Circuit characterized Green Tree as holding that a district court order compelling arbitration and dismissing all other claims is `final' within the meaning of S 16(a)(3), and therefore appealable, even when that order occurs in an `embedded' proceeding involving both a request for arbitration and other claims for relief. Id. at 1321-22 (citing Green Tree, 121 S.Ct. at 520-21). The court noted that the dismissal and direction to arbitrate left the district court with nothing to do but execute the judgment. The court observed that although the district court did not specify whether the dismissal was with or without prejudice, the arbitration order clearly disposed of the entire case on the merits and left no part of it pending before the court. Moreover, the district court could have, but did not, stay the case pending arbitration. Id. at 1322 n.6. (citing Green Tree, 121 S.Ct. at 520 n.2). 11 We agree with the reasoning in these cases. The Green Tree decision draws a distinction between dismissals and stays, but does not draw any distinctions within the universe of dismissals. The focus in Green Tree is on the traditional definition of a final order. Here, the District Court did not retain jurisdiction over any of Blair's claims as every claim was held to be arbitrable. Because there is nothing more for the court to do but execute the judgment, the District Court's order falls within the Supreme Court's definition of an appealable final order. Although there remains the possible anomaly of different jurisdictional results depending on whether a district court dismisses or stays a case, the line between the two types of dispositions follows from the Supreme Court's language.1 We conclude that even though the District Court's order dismissed this case without prejudice and directed the parties to proceed with arbitration, the order was final and appealable.2 We turn to Blair's challenge to the validity of the arbitration agreement.