No Appellate Jurisdiction for Motion to Compel Arbitration Filed Under State Law: Ninth Circuit

In Kum Tat Ltd. v. Linden Ox Pasture, LLC, the US Court of Appeals for the Ninth Circuit dismissed an interlocutory appeal for lack of jurisdiction because the underlying motion to compel arbitration was brought under state law, not the Federal Arbitration Act (FAA).

Practical Law Litigation

On January 13, 2017, in Kum Tat Ltd. v. Linden Ox Pasture, LLC, the US Court of Appeals for the Ninth Circuit dismissed an interlocutory appeal for lack of jurisdiction because the underlying motion to compel arbitration was brought under state law, not the Federal Arbitration Act (FAA) (2017 WL 127562 (9th Cir. Jan. 13, 2017)).

Kum Tat attempted to buy a residential property from Linden Ox for $38 million. The offer contained an arbitration clause that specified California law. Linden Ox initialed the arbitration clause but, after several counteroffers, Linden Ox ultimately terminated negotiations and sold the property to a third party.

Kum Tat sued Linden Ox in California state court for breach of contract. Linden Ox removed the case to the US District Court for the Northern District of California based on diversity jurisdiction. Kum Tat then moved for an order compelling arbitration and staying the action under the California Code of Civil Procedure. The district court denied the motion, finding that the parties had not entered into a binding agreement to arbitration. Kum Tat appealed, citing the FAA as the source of appellate jurisdiction.

The Ninth Circuit dismissed the appeal for lack of jurisdiction. The court analyzed 9 U.S.C. § 16(a)(1), which lists the orders under which the FAA authorizes interlocutory appeals. Since Kum Tat's motion to compel arbitration emphasized that it was not made under the FAA and did not cite to any of the potentially relevant subsections of § 16(a)(1), the court therefore held that the order denying the motion was not an order from which § 16(a)(1) permitted an interlocutory appeal. It also rejected Kum Tat's argument that its state-law motion was appealable under § 16(a)(1) because the essence of the motion was a request for arbitration. The court refused to invoke the FAA to expand the scope of appellate jurisdiction.

The Ninth Circuit also noted that the US Courts of Appeals for the Third, Seventh, and Tenth Circuits reached similar conclusions.

Further, the court found that the district court did not err in deciding Linden Ox's challenge to the existence of a contract, which the court had the authority to decide, rather than a challenge to the validity of a contract with an arbitration clause, which would have to be decided by an arbitrator.

 
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