Case Summary: Ross v. Am. Express Co., 478 F.3d 96 (2d Cir. 2007))

Issue: The Second Circuit was faced with the question of whether a non-signatory to a written arbitration agreement could, under Section 16 of the Federal Arbitration Act, lodge an interlocutory appeal from the District Court's denial of a motion to compel arbitration against a signatory to the agreement.

Rule: When a district court finds that a signatory to a written arbitration agreement is required to arbitrate with a non-signatory under principles of equitable estoppel, the writing requirement of Section 16 of the Federal Arbitration Act is satisfied.

Facts: This case stems from a group of class action complaints filed against Visa, MasterCard, and their member banks (referred to as the "MDL defendants"), alleging a conspiracy to fix fees for conversion of foreign currency in violation of the Sherman Act. Those cases were consolidated in the Southern District of New York. [1] The district court granted in part defendants' motion to compel arbitration and held that (1) claims of cardholders whose cardholder agreements included arbitration clauses on the date they became putative class members were subject to arbitration; (2) equitable estoppel principles required such cardholders to arbitrate claims against non-signatory banks; and (3) the cardholders' claim that the arbitration agreement was unenforceable as part of an illegal conspiracy could not overcome a motion to compel arbitration where the complaint did not allege an antirust claim on those grounds.

The class action plaintiffs subsequently filed a class action complaint against American Express, making the same claims as against the MDL defendants regarding fixed currency conversion fees, and also alleging that American Express conspired with the other defendants to impose compulsory arbitration clauses on cardholders. American Express moved under 9 U.S.C. §§ 3, 4 to dismiss the complaint and compel arbitration, or to stay the proceedings pending arbitration. Although American Express was not a signatory to the written arbitration agreements with the class action plaintiffs, it argued that the arbitration clauses in the cardholder agreements concluded with the MDL defendants bound the plaintiffs to resolve their dispute with American Express in conformity with the arbitration clauses under equitable estoppel principles. The district court held that because plaintiffs' antitrust claims stemmed from the same agreements as the arbitration clauses, equitable estoppel allowed defendants to invoke the arbitration clauses if they were applicable. However, the district court did not compel arbitration or stay proceedings believing that, as plaintiffs had made an antitrust claim questioning the validity of the arbitration clauses, a jury would have to determine the validity of the arbitration clauses before they could be enforced. Relying on Section 16 of the Sherman Act [2] which grants the courts of appeal jurisdiction over interlocutory appeals from refusals to stay proceedings under 9 U.S.C. § 3 and denials of petitions to compel arbitration under 9 U.S.C. § 4, American Express appealed to the Second Circuit. In response, plaintiffs filed a motion to dismiss arguing that there was no Section 16 jurisdiction in the case because the obligation to arbitrate was the result of principles of equitable estoppel and because 9 U.S.C. §§ 3, 4 are only applicable when there is a written agreement to arbitrate.

Discussion: To resolve this jurisdictional issue on appeal, the panel was required to determine whether the appellants were entitled to the benefit of a written arbitration agreement. The district court found the claims against the American Express defendants to be "'inextricably intertwined' with the cardholder agreements," [3] such that the written arbitration agreements should be held to cover them. In examining the district court's holding that principles of equitable estoppel allowed American Express to take advantage of the written arbitration agreements, the panel noted that "'[a]rbitration is strictly a matter of contract'" [4] and that ordinary principles of contract law are consequently applicable. The panel also recognized that equitable estoppel is one of the common law principles that can permit a non-signatory to enforce an arbitration agreement. Based on the district court's holding that "it would be inequitable for parties who have signed a written arbitration agreement — appellees — not to abide by that agreement with regard to a non-signatory to the agreement — appellants," [5] the panel found that the Federal Arbitration Act's writing requirement was satisfied such that it had jurisdiction under Section 16 to hear the appeal.

After finding that it had Section 16 jurisdiction, the panel stated that "[t]o hold otherwise would depart from the language and policies of the FAA and quite possibly lead to perverse and unnecessary complexities in cases involving arbitration agreements." [6] In the panel's opinion, the language of the FAA requiring a written agreement to arbitrate, and the supporting policy reasons, were satisfied in this case. If the court had accepted the arguments advanced by the appellees, then a precedent would have been set denying the courts of appeal interlocutory jurisdiction over equitable estoppel cases. In addition, if the panel found in favor of the appellees, then district courts in the future would not have the authority to stay proceedings or compel arbitration, under Sections 3 and 4 of the FAA respectively, when parties are bound by principles of equitable estoppel to arbitrate pursuant to a written arbitration agreement. The panel also called attention to complications that could arise from adopting the appellees' reasoning when signatories to a written agreement are bound to arbitrate with some parties as a result of the agreement and with other parties due to equitable estoppel principles and suggested that "parties seeking to delay arbitration or to introduce mischievous complexities that would be grounds for judicial appeals, would have ample opportunity to do so[.]" [7] A further important consideration for the panel was that "to hold the writing requirement unfulfilled would be contrary to the case law in this and several other circuits where courts have frequently stayed proceedings and compelled arbitration under the FAA on equitable estoppel grounds." [8] In spite of the panel's assertion that its holding was in conformity with the law of several other circuits, Ross has created a circuit split on whether equitable estoppel can satisfy the FAA's writing requirement, a necessary condition for bringing an interlocutory appeal. [9]

[1] See In re Currency Conversion Fee Antitrust Litig., 265 F. Supp.2d 385 (S.D.N.Y. 2003).

[2] Section 16 of the Federal Arbitration Act provides in relevant part that "(a) An appeal may be taken from —
(1) an order —
(A) refusing a stay of any action under section 3 of this title,
(B) denying a petition under section 4 of this title to order arbitration to proceed[.]"

[3] Ross v. Am. Express Co., 478 F.3d 96, 99 (2007) (internal citation omitted).

[4] Id.(quoting Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 779 (2d Cir. 1995)).

[5] Ross, 478 F.3d at 99.

[6] Id.

[7] Id. at 99-100.

[8] Id. at 100.

[9] See Justin Kelly, Ruling Creates Circuit Split Over FAA Appellate Jurisdiction, ADRWorld.com (last visited Feb. 20, 2007).