Levin v. Commerce Energy: One Step Forward, One Step Back

Recently, in Arthur Anderson LLP v. Carlisle, the Supreme Court resolved a split between the circuits dealing with this very issue. The court decided that § 16 of the FAA gives federal appellate courts jurisdiction to review an interlocutory appeal when a litigant appeals from an order denying a stay in litigation in favor of an arbitration, regardless of whether the litigant signed a written arbitration agreement or not. Before the decision, federal circuit courts disagreed whether a nonsignatory had the right to appeal an order by the district court refusing to compel arbitration. One group of circuits held that a nonsignatory could not appeal such a decision because the Federal Arbitration (FAA) required a written arbitration agreement as a prerequisite to the appeal. These courts reasoned that because the nonsignatory did not sign a written arbitration agreement, it was precluded from asserting that such an agreement existed and therefore could not appeal. Holding to the contrary, the Second and Fifth Circuits decided cases that allowed nonsignatories to appeal. These circuits based appellate jurisdiction on the strength of the nonsignatories’ equitable estoppel claim. Justice Scalia, writing for the majority in Arthur Anderson, explained that under the “clear and unambiguous” language of § 16 of the FAA, any litigant who asks the court to compel arbitration and is denied is entitled to an immediate appeal. This Note examines the controversy between the circuits and discuss how the Supreme Court reconciled the competing viewpoints with the plain language of the FAA. Part I discusses the law of equitable estoppel and how it is applied when arbitration is at issue. Part II addresses the cases leading up to the Supreme Court decision. Finally, Part III analyzes the Supreme Court’s decision in Arthur Anderson and recommends that both the policy and the law favor a bright-line rule allowing interlocutory appeals by parties seeking to arbitrate through equitable estoppel