Opinion ID: 709071
Heading Depth: 2
Heading Rank: 2

Heading: The Order Enjoining Arbitration.

Text: 28 Many cases have enforced agreements to arbitrate by staying contemporaneous litigation, a type of stay expressly authorized by Sec. 3 of the FAA, 9 U.S.C. Sec. 3. See, e.g., Morgan v. Smith Barney, Harris Upham & Co., 729 F.2d 1163 (8th Cir.1984). On the other hand, the FAA does not authorize a district court to enjoin arbitration; instead, Sec. 16(a)(2) makes immediately appealable an interlocutory order granting ... an injunction against an arbitration that is subject to this title. Consistent with the national policy favoring arbitration, there are very few reported cases in which a federal court has enjoined arbitration. 29 Piper and the class plaintiffs rely on In re Y & A Group Sec. Litig., 38 F.3d 380, 383 (8th Cir.1994), in which we affirmed an injunction barring arbitration of a dispute settled in a prior class action. The injunction in Y & A protected the res judicata effect of that prior judgment. Because the claimant sought an arbitration award precluded by the judgment, the injunction was like an order refusing to compel arbitration because a dispute is not arbitrable. Here, on the other hand, the district court agreed that Park Nicollet has a right to arbitrate but enjoined it from pursuing that remedy. Neither the district court nor appellees cite any case granting an injunction of this type. 30 The district court gave one reason for issuing its injunction--because an arbitrator's ruling on an issue such as whether or not Piper made fraudulent representations could jeopardize the carefully negotiated class action settlement. For a number of reasons, we conclude that this is an insufficient basis upon which to limit Park Nicollet's rights under the FAA. 31 First, McMahon confirmed that Park Nicollet has a contractual right to immediate submission of its securities law claims to arbitration. Park Nicollet submitted its claim under class action provisions of the NASD Code that have been approved by the SEC under the federal securities laws. The district court's injunction significantly frustrated Park Nicollet's contractual rights, as protected by the FAA. Belated enforcement of the arbitration clause, though a less substantial interference than a refusal to enforce it at all, nonetheless significantly disappoints the expectations of the parties and frustrates the clear purpose of their agreement. Dean Witter, 470 U.S. at 225, 105 S.Ct. at 1245 (1985) (White, J., concurring). See also Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, 87 S.Ct. 1801, 1806, 18 L.Ed.2d 1270 (1967) (arbitration procedure, when selected by the parties to a contract, [must] be speedy and not subject to delay and obstruction in the courts). 32 Second, prior cases make clear that Park Nicollet's contractual and statutory right to arbitrate may not be sacrificed on the altar of efficient class action management. As the Supreme Court said in Dean Witter, 470 U.S. at 220, 105 S.Ct. at 1242, [the FAA] was motivated, first and foremost, by a congressional desire to enforce agreements into which parties had entered, and we must not ... allow the fortuitous impact of the Act on efficient dispute resolution to overshadow the underlying motivation. See also C. Itoh & Co. v. Jordan Int'l Co., 552 F.2d 1228, 1231 (7th Cir.1977). 33 Third, we do not accept the class action parties' conclusory assertion that immediate arbitration by Park Nicollet (and perhaps others) will frustrate their class action settlement. For example, in In re First Commodity Corp. Customer Accounts Litig., 119 F.R.D. 301, 305-06 (D.Mass.1987), cited by the district court as the only reported decision acknowledging the power to stay arbitration by objecting class members pending approval of a settlement, the court declined to stay arbitration, and the defendants promptly waived that condition of the settlement. Moreover, even when the settling parties contemplate that class members with a substantial dollar volume of claims may opt out in favor of arbitration, their settlement agreement can conditionally take that into account; indeed, it may even assist the settlement process to have arbitration opt outs identified before the final hearing on settlement approval. Finally, the class action court should not be concerned if the settlement fund is ultimately reduced because many claimants elect to arbitrate; plaintiffs' class attorneys should not share in amounts paid to settle the claims of class members who choose arbitration. 34 For the foregoing reasons, we conclude that the district court violated the FAA and abused its discretion when it enjoined Park Nicollet from arbitrating its claim. 35