Non-signatories may not seek an interlocutory appeal of an order denying a motion to stay proceedings because non-signatories are not parties to a "written agreement," according to the Sixth Circuit Court of Appeals.

In Carlisle v. Curtis, Mallet-Prevost, Colt & Mosle, LLP, No. 06-5290, 2008 WL 942035 (6th Cir. Apr. 9, 2008), Carlisle sought advice from accounting firm Arthur Andersen, financial advisor Bricolage, and law firm Curtis regarding investments designed to minimize tax liability. Allegedly upon their advice, Carlisle invested in a type of tax shelter. In connection with the investment, Carlisle entered into a management contract with Bricolage; the contract contained an arbitration agreement. Arthur Andersen and Curtis were not parties to the management contract.

The Internal Revenue Service later ruled that this type of tax shelter was abusive, but afforded investors amnesty from liability under certain conditions. Arthur Andersen, Bricolage, and Curtis allegedly did not inform Carlisle of the ruling or amnesty offer, and Carlisle eventually had to pay 25 million dollars in taxes, penalties, and interest under a settlement agreement for use of this type of tax shelter.

Carlisle sued Arthur Andersen, Bricolage, and Curtis, alleging fraud, negligence, breach of fiduciary duty, civil conspiracy, and other claims. Bricolage moved to compel arbitration and stay proceedings pursuant to its prior agreement with Carlisle. While the motion was pending, Bricolage filed a petition for bankruptcy, and the motion to compel and stay proceedings was automatically granted.

Subsequently, Arthur Andersen and Curtis also moved to stay the proceedings on equitable estoppel grounds, but the district court denied the motions. Both then attempted to appeal the district court's order, claiming it was immediately appealable under the Federal Arbitration Act (FAA).

The Court acknowledged that a non-signatory's right to an interlocutory appeal was a issue of first impression in the Sixth Circuit, but one that had been addressed by other circuits, resulting in a circuit split. Compare Ross v. American Express Co., 478 F.3d 96 (2d Cir. 2007) (interlocutory appeals by a non-signatory are permitted), with DSMC Inc. v. Convera Corp., 349 F.3d 679 (D.C. Cir. 2003) (interlocutory appeals by a non-signatory are not permitted), and In re Universal Service Fund Telephone Billing Practice Litigation v. Sprint Commc'ns Co., 428 F.3d 940 (10th Cir. 2005) (same).

The Court adopted the rationale of DSMC and Sprint as its own, holding that the right to interlocutory appeals under the FAA only applies to parties with "an agreement in writing." According to the Court, a non-signatory seeking to stay proceedings under the doctrine of equitable estoppel does not have a right to an interlocutory appeal under the FAA because there is no "agreement in writing" to which the non-signatory iss a party. See 9 U.S.C. § 3 (making a stay available based on "any issue referable to arbitration under an agreement in writing").

Without the "agreement in writing" described in 9 U.S.C. § 3, the Court found no jurisdiction to hear the non-signatory's appeal of the denial of an order sought under section 3. See 9 U.S.C. § 16 (giving federal appellate courts jurisdiction over interlocutory appeals from the denial of motions to stay or compel under sections 3 and 4 of the FAA).

This restrictive view of non-signatory interlocutory appeals is not shared by the Second Circuit Court of Appeals. See Ross, 478 F.3d at 96. The Ross court found the writing requirement was satisfied once principles of estoppel invoked an obligation to arbitrate under any written agreement, even if the party seeking arbitration is not a signatory to the agreement. This interpretation not only preserves the federal courts' authority to order parties to arbitration under principles of estoppel, but minimizes the potential danger of inconsistent outcomes and the almost certain burden of increased delays and costs inherent in parallel proceedings.