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A Missouri federal court has adopted the majority rule that an interlocutory appeal from an order denying a motion to compel arbitration divests the district court of jurisdiction to proceed with the case pending appeal. In adopting this rule, the Court reasoned that the benefits of arbitration could be lost if the district court exercised jurisdiction during the pendency of the appeal.
In Express Scripts, Inc. v. Aegon Direct Marketing Services, Inc., No. 4:06-CV-1410, 2007 WL 1040938 (E.D. Mo. Apr. 3, 2007), the Court denied Aegon's motion to compel arbitration. Aegon appealed that ruling pursuant to section 16 of the Federal Arbitration Act (FAA).
Express Scripts, Inc. (ESI) subsequently filed a motion to stay further proceeding pending the outcome of Aegon's appeal. In opposing the motion, Aegon argued that the Court should allow limited discovery because such discovery would ultimately occur either in court or arbitration.
The issue raised by ESI's motion was whether a district court retains jurisdiction pending an interlocutory appeal from an order denying a motion to compel arbitration. Since the Eighth Circuit has not definitively ruled on this issue, the Court looked to outside circuits for guidance.
As the Court explained, under the majority rule, a notice of appeal under section 16 of the FAA divests the district court of jurisdiction to proceed with the case pending appeal. The majority rule is premised on the basic principle, articulated by the Supreme Court, that "a federal district court and a federal court of appeals should not attempt to assert jurisdiction over a case simultaneously."
In holding that a notice of appeal divests the district court of jurisdiction, the Seventh Circuit "reasoned that the benefits of arbitration are put at risk and may be lost by the exercise of concurrent district and appellate jurisdiction when an appeal is taken from an order denying a motion to compel arbitration." See Bradford-Scott Data Corp. v. Physician Computer Network, Inc., 128 F.3d 504, 506 (7th Cir. 1997).
Persuaded by the reasoning of the Seventh Circuit, the Court held that a notice of appeal under section 16 of the FAA divest the district court of jurisdiction to proceed with the case pending appeal. Accordingly, the Court granted ESI's motion for a stay.
Even in those jurisdictions that do not follow the majority rule, the district court still has discretion to stay further proceedings pending the outcome of the appeal. For example, in Stern v. Cingular Wireless Corp., No. CV 05 8842 CAS, 2006 WL 2790243 (C.D. Cal. Sep. 11, 2006), the court stayed further proceedings because losing the benefits of arbitration would cause irreparable harm to the appellant.
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