Court Opinion

ID: 2755033
Source: CourtListenerOpinion
Date Created: 2014-11-25 18:00:31.004659+00
Date Added: 2024-06-11T11:26:47.493559
License: Public Domain

NOT PRECEDENTIAL

                        UNITED STATES COURT OF APPEALS
                             FOR THE THIRD CIRCUIT
                                  ___________

                                     C.A. No. 14-1415
                                       ___________

                               SARA ANN EDMONDSON,

                                                     Appellant

                                              v.

LILLISTON FORD, INC.; JANE AND JOHN DOES 1-10, INDIVIDUALLY AND AS
    OWNERS, OFFICERS, DIRECTORS, FOUNDERS, MANAGERS, AGENTS,
   SERVANTS, EMPLOYEES, REPRESENTATIVES, AND/OR INDEPENDENT
    CONTRACTORS OF LILLISTON FORD, INC.; XYZ CORPORATIONS 1-10
                ____________________________________

                     On Appeal from the United States District Court
                              for the District of New Jersey
                         (D.C. Civil Action No. 1-13-cv-07704)
                       District Judge: Honorable Renée M. Bumb
                      ____________________________________

                    Submitted Pursuant to Third Circuit LAR 34.1(a)
                                  November 4, 2014
              Before: CHAGARES, JORDAN and GARTH, Circuit Judges

                           (Opinion filed: November 25, 2014)
                                       ___________

                                         OPINION
                                        ___________

PER CURIAM

       Appellant Sara Edmondson brought this lawsuit against appellee, Lilliston Ford,

Inc. (“Lilliston”), alleging that it engaged in fraudulent business practices that violated
several federal and state laws. She appeals the District Court’s denial of her motion to

compel arbitration under the Federal Arbitration Act. For the reasons stated below, we

will vacate and remand with instructions that the District Court decide the motion to

compel before it reaches the motion to dismiss presented by the appellee. We emphasize,

however, that the District Court should first ensure that it has subject matter jurisdiction

over Edmondson’s suit.

                                               I.

       Edmondson purchased a used Ford Focus from Lilliston on February 15, 2012.

She alleged that she chose to purchase from Lilliston after receiving its advertisement for

a tax refund event in which a $1,000 down payment voucher was offered. According to

Edmondson, Lilliston did not apply the $1,000 down payment credit, in spite of her

presentation of the voucher to the sales representative, who told her he was applying the

credit to the purchase price. Nor did Lilliston’s agents apply a special friends and family

“X Plan” discount that she had acquired from a friend. Edmondson also alleged that the

Ford Focus she received was unsafe to drive, despite its designation as a “Certified Pre-

Owned” vehicle and the express statements by Lilliston’s agent that the car was in

“excellent condition.”

       Shortly after the purchase, Edmondson experienced mechanical difficulties with

the car. After multiple attempts to repair the vehicle, she tried to return it, but Lilliston

would not accept it. When Edmondson subsequently refused to provide Lilliston with the

title to a vehicle that she had traded in as part of the deal for the Ford Focus, the

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dealership initiated a lawsuit in state court, to which Edmondson responded with a

counterclaim. The record shows that, in January 2013, the state court dismissed the

complaint and counterclaim without prejudice. According to Lilliston, the parties

reached a settlement whereby the dealership withdrew its claims without prejudice on the

condition that Edmondson execute a form stating that the title to the trade-in vehicle was

lost. After Edmondson refused to provide that form, the dealership moved for sanctions

to enforce the alleged settlement. Edmondson contests the existence of that alleged

settlement agreement. Rather, according to Edmondson, the parties mutually agreed to

withdraw their claims in order to engage in arbitration, pursuant to an arbitration clause

in the sales agreement that governed the purchase. No written documentation of a

settlement agreement was presented by Lilliston, and the record reflects that the state

court denied Lilliston’s motion to enforce the alleged settlement agreement.

       Edmondson filed a demand for arbitration with the American Arbitration

Association (“AAA”) in October 2013. According to a November 19, 2013 letter from

the AAA administrator, however, Lilliston did not pay the required arbitration fees. As a

result, the AAA declined to arbitrate the case and requested that Lilliston remove all

reference to the AAA from the arbitration agreement clause that appeared on Lilliston’s

lease and sales forms.

       Edmondson then filed a complaint in the District Court. She brought several state-

law claims of fraud and misrepresentation, as well as claims under the federal Odometer

                                             3
Act1 and the Magnuson-Moss Act. Lilliston filed an answer and a counterclaim. Shortly

thereafter, Lilliston filed a motion to dismiss under Rule 12(b)(6), on the sole ground that

the action was barred by the principles of res judicata.2 Prior to a hearing on Lilliston’s

motion to dismiss, Edmondson filed a motion to compel arbitration under the Federal

Arbitration Act (“FAA”). The District Court dismissed Edmondson’s motion to compel

without prejudice, pending a determination on Lilliston’s motion to dismiss. Edmondson

appealed.

                                             II.

       Our appellate jurisdiction over the District Court’s dismissal of Edmondson’s

motion to compel arbitration is conferred by section 16 of the Federal Arbitration Act

(the “FAA”). Section 16 mandates that an appeal may be taken from an order refusing a

stay of any action under § 3 of the FAA or denying a petition to compel arbitration under

§ 4 of the FAA. 9 U.S.C. 16 (a)(1)(A) – 16(a)(1)(B).3 In addition to the plain language

1
  According to Edmondson, the car was never actually inspected to determine whether it
qualified for the pre-owned warranty certification program. She alleged that such an
inspection would require road tests and, according to recorded odometer readings, no
mileage was added to the car between the time it was transferred from the prior owner to
Lilliston and the time Lilliston transferred it to Edmondson.
2
  Because Lilliston filed its motion to dismiss after its responsive pleading, the motion is
more properly construed as a request for judgment on the pleadings under Federal Rule of
Civil Procedure 12(c). See Turbe v. Gov’t of Virgin Islands, 938 F.2d 427, 428 (3d Cir.
1991).
3
  Edmondson, who had previously received the assistance of an attorney but filed her
“Motion to Compel Arbitration” pro se, cited to § 3 of the FAA in her motion. Section 3
permits federal courts to stay proceedings pending arbitration. It is evident, however, that
the primary relief that Edmondson sought was an order compelling arbitration, which

                                              4
of §16, other parts of the FAA “evince clear Congressional intent that challenges to

refusals to compel arbitration be promptly reviewed by appellate courts.” Sandvik AB v.

Advent Int’l Corp., 220 F.3d 99, 102-103 (3d Cir. 2000). Our jurisdictional authority is

unaffected by the fact that the motion was denied without prejudice. See Quilloin v.

Tenet HealthSystem Phila., Inc., 673 F.3d 221, 227-28 (3d Cir. 2012) (“[T]here can be no

doubt that we have the authority to review an appeal from the District Court’s order

denying a motion to compel arbitration, irrespective of the fact that the order was denied

without prejudice.”) (internal quotations and citation omitted).4 Our review of the

District Court’s denial of Edmondson’s motion to compel arbitration is plenary.

Hoxworth v. Blinder, Robinson & Co., Inc., 980 F.2d 912, 925 (3d Cir. 1992).

                                             III.

       The limited question before us is whether the District Court erred in dismissing

Edmondson’s motion to compel arbitration and stay proceedings as premature pending a

determination of Lilliston’s motion to dismiss. “By its terms, the [Federal Arbitration]

would arise under § 4 of the FAA. We thus construe her motion as a motion to compel
arbitration under § 4 and, after a determination of such arbitrability, to stay the current
federal action under § 3.
4
  The District Court’s express denial of the motion to compel arbitration distinguishes
this case from the situation considered by the Seventh Circuit in Cont’l Cas. Co. v.
Staffing Concepts, Inc., 538 F.3d 577, 580 (7th Cir. 2008). There, the District Court
struck a motion to compel arbitration without expressly denying it, thereby creating
ambiguity with regard the nature of the order. Here, the District Court expressly denied
the motion to compel, leaving no such room for ambiguity. See, e.g., Sharif v. Wellness
Int’l Network, Ltd., 376 F.3d 720, 726 (7th Cir. 2004) (asserting jurisdiction under § 16
where the District Court dismissed the motion to compel arbitration without prejudice
pending resolution of a 12(b)(6) motion challenging venue).

                                              5
Act leaves no place for the exercise of discretion by a district court, but instead mandates

that district courts shall direct the parties to proceed to arbitration on issues as to which

an arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S.
213, 218 (1985). Thus, if the parties have a valid, enforceable arbitration agreement and

any of the asserted claims are within its scope, the motion to compel arbitration cannot be

denied. See 9 U.S.C. § 4. This is so even if the denial is without prejudice for the

purpose of permitting the District Court to make a determination on a pending motion to

dismiss. See, e.g., Sharif v. Wellness Int’l Network, Ltd., 376 F.3d 720, 726 (7th Cir.

2004) (holding that the District Court erred in dismissing a motion to compel without

prejudice as superfluous to a pending 12(b)(6) motion alleging improper venue).

Similarly, a motion to stay under § 3 may not be denied if any issue is arbitrable under a

valid, enforceable arbitration agreement. See 9 U.S.C. § 3; see also Lloyd v. HOVENSA,

LLC., 369 F.3d 263, 269 (3d Cir. 2004) (“[T]he plain language of § 3 affords a district

court no discretion to dismiss a case where one of the parties applies for a stay pending

arbitration.”).

       There is at least a reasonable possibility that some of the issues presented are

arbitrable. Exhibit A to Edmondson’s notice of appeal is a document that contains what

appears to be a signed arbitration agreement that states, among other things, that “[t]he

parties to this agreement agree to arbitrate any claim, dispute, or controversy, including

all statutory claims and any state or federal claims, that may arise out of or relating to the

sale or lease identified in this agreement.” The sale identified in that document is that of

                                               6
the 2012 Ford Focus that is the subject of Edmondson’s complaint. The District Court

has yet to determine, however, whether the alleged agreement is valid and enforceable.

See 9 U.S.C. § 2 (providing that agreements in writing to submit controversies to

arbitration shall be “valid, irrevocable, and enforceable, save upon such grounds as exist

at law or in equity for the revocation of any contract.”).

       The FAA instructs that when a party petitions a district court for an order directing

arbitration, “[t]he court shall hear the parties, and upon being satisfied that the making of

the agreement for arbitration or the failure to comply therewith is not in issue, the court

shall make an order directing the parties to proceed to arbitration in accordance with the

terms of the agreement.” 9 U.S.C. § 4 (emphasis added). Edmondson petitioned the

District Court for an order directing arbitration. That petition was denied without

prejudice so that the District Court could consider Lilliston’s motion to dismiss. A

premature determination on the motion to dismiss in favor of Lilliston, however, would

effectively preclude the District Court from hearing the parties to consider the alleged

arbitration agreement, offending the clear mandate of the FAA. See id.; see also Sharif,
376 F.3d at 726. The District Court must first determine the scope of arbitrable issues, if

any, and then determine in the first instance what portion of the claims and defenses are

properly before the arbitrator. Id.; see also Medtronic AVE, Inc. v. Adv. Cardiovascular

Sys., Inc., 247 F.3d 44, 54-55 (3d Cir. 2001).

       Although we are mindful of the District Court’s authority to manage its own

docket, that authority is, in this instance, secondary to the clear Congressional intent

                                              7
behind the FAA “to move the parties to an arbitrable dispute out of court and into

arbitration as quickly and easily as possible.” Moses H. Cone Mem. Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 22 (1982). The District Court thus erred in refusing to

consider the merits of the motion to compel on the basis that it was premature pending

the resolution of Lilliston’s motion to dismiss and stay. See Sharif , 376 F.3d at 726; see

also HOVENSA, LLC., 369 F.3d at 269.

                                             IV.

       After this matter was taken on appeal, Edmondson filed a motion for recusal.

Although the disposition of that motion is not currently on appeal, we note that the

District Court’s corresponding order to that motion raises, among other things, the

question of subject matter jurisdiction. The District Court is not precluded from making

a threshold determination of subject matter jurisdiction prior to proceeding with an

analysis of the motion to compel. To the contrary, a determination as to subject matter

jurisdiction is a necessary component of that analysis. This is because the FAA does not

independently confer federal subject matter jurisdiction. See 9 U.S.C. § 4 (instructing

that a petition to compel arbitration under the FAA may only be brought in a District

Court “which, save for such agreement, would have jurisdiction under Title 28, in a civil

action or in admiralty of the subject matter of a suit arising out of the controversy

between the parties . . .”); see also Moses H. Cone Mem’l Hosp., 460 U.S. at 26 n.32.5

5
  Diversity jurisdiction appears to be precluded here because the parties are both citizens
of New Jersey. The District Court should thus look through to the complaint to
determine if the complaint sufficiently alleges facts upon which subject matter

                                              8
We leave it to the District Court to consider in the first instance its subject matter

jurisdiction. If the District Court determines it has subject matter jurisdiction, it should

then proceed with a determination on the motion to compel arbitration.

                                              V.

       In light of the foregoing, we will vacate the District Court’s order dismissing

Edmondson’s motion to compel arbitration and remand this case to the District Court for

further proceedings consistent with this opinion.

jurisdiction may be based. See Vaden v. Discover Bank et al., 556 U.S. 49, 50-51 (2009).
That analysis is, of course, different from that conducted when considering the merits of
the claim. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 89 (1998)
(“Dismissal for lack of subject-matter jurisdiction because of the inadequacy of the
federal claim is proper only when the claim is ‘so insubstantial, implausible, foreclosed
by prior decisions of this Court, or otherwise completely devoid of merit as not to involve
a federal controversy.’”) (quoting Oneida Indian Nation of N .Y. v. County of Oneida,
414 U.S. 661, 666 (1974)). Although Edmondson’s complaint contains two federal
claims under the Odometer Act and the Magnuson-Moss Act, the District Court has
raised concern as to the sufficiency of those pleadings for the purpose of establishing
federal subject matter jurisdiction.

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