Katz v. Cellco Partnership
794 F.3d 341
| 2d Cir. | 2015Background
- Plaintiff Michael Katz sued Verizon on behalf of a putative class under New York law, alleging Verizon’s monthly administrative charge was a concealed rate increase (breach of contract and consumer fraud).
- Katz’s customer agreement with Verizon contained an arbitration clause invoking the Federal Arbitration Act (FAA) and requiring arbitration of disputes arising from the agreement or services.
- Katz also sought a declaratory judgment that applying the FAA to his state-law claims was unconstitutional (Article III and Klein-related challenges).
- The district court denied Katz’s motion for partial summary judgment, held the FAA’s application constitutional, found the claims arbitrable, granted Verizon’s motion to compel arbitration, and then dismissed the action rather than staying it.
- Katz appealed the denial of his declaratory relief and the grant of arbitration; Verizon cross-appealed the denial of its request to stay proceedings. The Second Circuit affirmed arbitrability and constitutional rulings but addressed whether dismissal was proper.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the FAA violates Article III or imposes an unconstitutional rule of decision | FAA cannot be applied to Katz’s state-law claims because it violates Article III/separation of powers and Klein-based limits | FAA validly governs arbitration agreements and may be applied to state-law claims | Court rejected Katz’s constitutional challenges; FAA application constitutional |
| Whether the district court must stay proceedings under 9 U.S.C. § 3 after compelling arbitration of all claims | Even if arbitration is compelled, Katz argued dismissal (not stay) was appropriate | Verizon requested a statutory stay under § 3; dismissal was improper because § 3 mandates a stay | The FAA requires a stay when all claims are referred to arbitration and a stay is requested; dismissal vacated and case remanded for a stay |
| Whether district courts retain discretion to dismiss arbitrable cases for docket-management reasons | Dismissal is appropriate for efficiency; stay wastes judicial resources | Statutory text and FAA structure require a stay; discretion cannot override statutory "shall" | Court held inherent docket-management power cannot trump § 3’s mandatory stay requirement |
| Effect of dismissal vs. stay on appellate reviewability under the FAA | Dismissal allows immediate appeal of arbitrability decisions favorable to defendant | A stay is interlocutory and generally not immediately appealable under FAA § 16; dismissal improperly converts nonappealable orders into final appealable ones | Court emphasized § 3 and § 16 structure: allowing dismissal would improperly confer appellate rights Congress denied; thus stay required |
Key Cases Cited
- Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79 (2000) (discusses appellate structure and appealability under the FAA)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (articulates FAA policy favoring arbitration and moving disputes out of court)
- Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998) ("shall" creates nondiscretionary obligations)
- Lopez v. Davis, 531 U.S. 230 (2001) (Congress’s use of mandatory language imposes discretionless obligations)
- McMahan Sec. Co. v. Forum Capital Mkts., 35 F.3d 82 (2d Cir. 1994) (interpreted § 3 as requiring a stay)
- Salim Oleochemicals v. M/V Shropshire, 278 F.3d 90 (2d Cir. 2002) (discussed clarity over dismissal vs. stay; assumed dismissal possible without deciding)
- Aggarao v. MOL Ship Mgmt. Co., 675 F.3d 355 (4th Cir. 2012) (noted internal circuit tension on dismissal vs. stay)
- Link v. Wabash R.R. Co., 370 U.S. 626 (1962) (district courts have inherent docket-management authority)