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In deciding whether to apply the abstention doctrine, the Fifth Circuit Court of Appeals held that the federal policy favoring arbitration outweighs the interest in avoiding piecemeal litigation.
In Brown v. Pacific Life Insurance Co., No. 05-30090, 2006 WL 2424749 (5th Cir. Aug. 23, 2006), the Browns sued Pacific Life for fraud and negligence. Pacific Life removed the case to federal court, but the federal district court later remanded the entire case except for Pacific Life’s motion to compel arbitration. The district court granted that motion.
On appeal, the Browns argued that the district court should have abstained from exercising jurisdiction over Pacific Life’s motion to compel in order to avoid piecemeal litigation. There was potential for piecemeal litigation because one of the parties to the state court proceeding, who was also party to the arbitration agreement, was not a party to the federal court proceeding. This created the possibility of conflicting rulings on the arbitrability issue.
One of the factors courts consider in applying the abstention doctrine is the possibility of piecemeal litigation. The Court acknowledged this factor but determined that the district court did not err in choosing not to abstain because “some piecemeal litigation” is “the inevitable result of a congressional policy strongly favoring arbitration.”
The Browns further argued that the arbitration agreement was unenforceable because their consent to the contract was vitiated by fraud. However, the alleged fraud related to the entire client agreement rather than just the arbitration agreement. The Court thus applied the rule set forth in Buckeye Check Cashing v. Cardegna, 126 S.Ct. 1204 (2006) that a general attack on a contract containing an arbitration clause is properly decided by the arbitrator rather than the court. Accordingly, the Court affirmed the order compelling arbitration.
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