|UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2001
(Submitted: August 20, 2001 Decided:
January 18, 2002 )
Docket No. 01-7624
M/V Shropshire, et al.,
Before: SACK, SOTOMAYOR, and KATZMANN, Circuit
Plaintiff-appellant brought an action against
defendants-appellees for monetary damages. The United States District Court
for the Southern District of New York (Buchwald, J.) ordered the matter
to arbitration, dismissing the case without prejudice. The question before
this Court is whether plaintiff may appeal the district court's order under
the Federal Arbitration Act, 9 U.S.C. § 16. We hold that a dismissal
without prejudice in favor of arbitration is an appealable final decision
under the FAA.
Motion to dismiss denied.
SOTOMAYOR, Circuit Judge:
Plaintiff Salim Oleochemicals, Inc. ("SOI")
purchased a cargo of glycerine in 1996 and contracted to ship the cargo
from Indonesia to New Jersey. SOI was the consignee on the shipment's bill
of lading. The bill explicitly incorporated a contract of affreightment
between defendant Botany Bay Parcel Tankers International ("BBPTI") and
Salim Oleochemicals Pte. Ltd., providing that any arbitration was to be
conducted in London.
After the cargo arrived damaged by contamination,
SOI sold it for salvage and brought an action for monetary damages against
all of the defendants - M/V Shropshire, Bibby International Services (IOM)
Ltd., Langston Shipping Ltd., BBPTI, and Botany Bay Management Services
Pty. Ltd. (collectively, "defendants"). Thereafter, defendants requested
that the action be stayed pending arbitration in London, as provided for
in the contract of affreightment. SOI agreed to the arbitration, but sought
to arbitrate the dispute only under the terms of the contract of affreightment,
not the bill of lading in which the contract was incorporated. Defendants
contended that the arbitrator lacked subject matter jurisdiction because
SOI was not a signatory to the contract. When SOI refused to bring the
arbitration claims under the terms of the bill of lading, the arbitrator
granted defendants' motion to dismiss for lack of subject matter jurisdiction.
Following the arbitrator's ruling, SOI reopened
its action in the district court and moved for summary judgment. The defendants
opposed the motion and moved to compel SOI to bring the action, under the
contract as incorporated in the bill of lading, in a London arbitration.
SOI then moved for sanctions against the defendants for moving to compel
The United States District Court for the Southern
District of New York (Buchwald, J.) granted defendants' motion and denied
SOI's motion. The district court also denied SOI's subsequent motion for
reconsideration and request for certification of the court's prior order
pursuant to 28 U.S.C. § 1292(b). The district court dismissed the
case without prejudice to SOI's right to reopen it at the conclusion of
the arbitration proceedings. SOI appeals from the district court's order,
and defendants now move to dismiss the appeal on the grounds that this
is an "embedded" action and thus not appealable under the law of this circuit.
Pursuant to the Supreme Court's decision in Green Tree Financial Corp.-Alabama
v. Randolph, 531 U.S. 79 (2000), we hold that a dismissal without prejudice
in favor of arbitration is an appealable "final decision" under 9 U.S.C.
§ 16(a)(3) and that Green Tree has overruled our precedents
that distinguish between "independent" and "embedded" actions for purposes
of appealability. We therefore deny defendants' motion to dismiss the appeal.
Section 16 of the Federal Arbitration Act
("FAA") governs the appealability of arbitration orders. 9 U.S.C. §
16. It provides that an immediate appeal may be taken from "a final decision
with respect to an arbitration that is subject to this title." Id.
§ 16(a)(3). However, an immediate appeal does not lie, absent certification
pursuant to 28 U.S.C. § 1292(b), from an "interlocutory order . .
. granting a stay of any action under section 3 of this title; . . . directing
arbitration to proceed under section 4 of this title; . . . [or] compelling
arbitration under section 206 of this title."1
Id. § 16(b).
We have previously held that the issue of
whether an arbitration order is immediately appealable depends upon whether
the underlying action is "independent" or "embedded." CPR (USA) Inc.
v. Spray, 187 F.3d 245, 252 (2d Cir. 1999); Ermenegildo Zegna Corp.
v. Zegna, 133 F.3d 177, 181 (2d Cir. 1998); Filanto, 984 F.2d
at 60-61. We considered an action "independent" where "the plaintiff seeks
an order compelling or prohibiting arbitration or a declaration that a
dispute is arbitrable or not arbitrable, and no party seeks any other relief."
Filanto, 984 F.2d at 60. In contrast, an action was deemed "embedded"
where the plaintiff seeks some relief in addition to an order addressing
the arbitrability issue. Id. Our rule was that an order compelling
arbitration in an "independent" action was a final, appealable judgment
under the FAA but that such an order in an "embedded" action could not
be appealed. Id.
In Green Tree Financial Corp. v. Randolph,
however, the Supreme Court established a different analytical approach
for determining whether an arbitration order is an appealable "final decision"
under 9 U.S.C. § 16(a)(3) or an unappealable "interlocutory order"
under § 16(b). 531 U.S. at 86-89. The Court held that an order dismissing
an entire action with prejudice and ordering arbitration is an appealable
final decision under § 16(a)(3), regardless of whether the action
would be deemed "independent" or "embedded" by courts, like ours, that
embraced that distinction. 531 U.S. at 88-89. Rather, the Court applied
the "well-developed and longstanding" definition of "final decision": "It
is a decision that ends the litigation on the merits and leaves nothing
more for the court to do but execute the judgment." Id. at 86 (internal
quotations marks omitted). The Court explained,
Certainly the plain language of the statutory
text does not suggest that Congress intended to incorporate the rather
complex independent/embedded distinction, and its consequences for finality,
into § 16(a)(3). We therefore conclude that where, as here, the District
Court has ordered the parties to proceed to arbitration, and dismissed
all the claims before it, that decision is "final" within the meaning of
§ 16(a)(3), and therefore appealable.
Id. at 88-89. The Court further noted
that, had the district court simply entered a stay rather than a dismissal,
the order would not have been appealable. Id. at 87 n.2 (citing
Thus, the analysis prescribed in Green
Tree displaces our approach which turned on the independent/embedded
Cf. Seacoast Motors of Salisbury, Inc. v. DaimlerChrysler Motors Corp.,
271 F.3d 6, 8 (1st Cir. 2001) (noting that Green Tree rejected the
First Circuit's independent/embedded distinction); Interactive Flight
Techs., Inc. v. Swissair Swiss Air Transp. Co., 249 F.3d 1177, 1179
(9th Cir. 2001) (finding that the Ninth Circuit's precedents embracing
the distinction between "independent" and "embedded" actions for appealability
purposes are "no longer good law" in light of Green Tree); Employers
Ins. of Wausau v. Bright Metal Specialties, Inc., 251 F.3d 1316, 1321-22
(11th Cir. 2001) (finding appellee's arguments based on the Eleventh Circuit's
independent/embedded distinction to be "foreclosed by the Supreme Court's
recent opinion in Green Tree").
Unlike the action in Green Tree, the
dismissal in the instant case was without prejudice to reopening upon issuance
of the arbitrator's decision. In this circuit, however, "dismissals with
and without prejudice are equally appealable as final orders." Allied
Air Freight, Inc. v. Pan Am. World Airways, Inc., 393 F.2d 441, 444
(2d Cir. 1968); see also Elfenbein v. Gulf & Western Indus., Inc.,
590 F.2d 445, 449 (2d Cir. 1978); Rinieri v. News Syndicate Co.,
385 F.2d 818, 821 (2d Cir. 1967). There is thus no reason to think that
a dismissal without prejudice is any less a "final decision" under Green
Tree than is a dismissal with prejudice. See Interactive Flight
Techs., 249 F.3d at 1179 (a dismissal is an appealable final order
pursuant to Green Tree even if it is "without prejudice"); see
also Employers Ins. of Wausau, 251 F.3d at 1322 n.6 ("Although the
district court did not specify whether the dismissal was with or without
prejudice, the arbitration order clearly disposed of the entire case on
the merits and left no part of it pending before the court. Moreover, the
district court could have, but did not, stay the case pending arbitration.")
(citing Green Tree, 531 U.S. at 87 n.2). Thus Green Tree,
read in light of this Court's precedents, compels the conclusion that a
dismissal without prejudice in favor of arbitration is an appealable decision
under the FAA.
We urge district courts in these circumstances
to be as clear as possible about whether they truly intend to dismiss an
action or mean to grant a stay pursuant to 9 U.S.C. § 3, which supplies
that power, or whether they mean to do something else entirely. Courts
should be aware that a dismissal renders an order appealable under §
16(a)(3), while the granting of a stay is an unappealable interlocutory
order under § 16(b). Our recognition of the "pro-arbitration tilt
of the statute," Filanto, 984 F.2d at 61, drove our previous use
of the independent/embedded distinction and remains an important policy
consideration. Unnecessary delay of the arbitral process through appellate
review is disfavored. Cf. Ermenegildo Zegna, 133 F.3d at 180. District
courts should continue to be mindful of this "liberal federal policy favoring
arbitration agreements," id. at 180 (quotation marks omitted), when
deciding whether to dismiss an action or instead to grant a stay.
For the reasons stated, defendants' motion
to dismiss plaintiff's appeal is denied. The clerk's office is directed
to issue an order scheduling briefing on this appeal.
Where there has been no certification pursuant to § 1292(b), the collateral
order doctrine cannot be used to circumvent the appealability provisions
of the FAA, regardless of whether the order mandates arbitration or refuses
to stay an action pending arbitration. See Filanto, S.P.A. v.
Chilewich Int'l Corp., 984 F.2d 58, 60 n.2 (2d Cir. 1993).
We note that, given the flexibility with which we applied the independent/embedded
distinction, the differences between the Green Tree approach and
our precedents may not be dramatic. For example, in CPR (USA) Inc.,
we found an action seeking a stay of arbitration to be independent, and
thus appealable, where the other portions of the claim were dismissed on
jurisdictional grounds. 187 F.3d at 253-54. We reasoned that "if the district
court, having ordered the parties to arbitrate, has no independent substantive
issue left before it - only issues relating to the validity of the arbitrator's
award - then the order compelling arbitration is, effectively, a final
order and an immediate appeal will be proper." Id. at 253. While
we note the similarity between this analysis and the new Green Tree
approach, we need not decide whether the two approaches would yield the
same result in the instant case.