June 2009
The Right to Appeal
Use it or lose it: Immediately appealing the denial of a motion to compel arbitration in Washington state courts
by Ryan P. McBride
When a party to a lawsuit makes a motion to compel arbitration and loses, the Rules of Appellate Procedure (RAP) do not expressly provide that party with a right to immediately appeal the trial court’s order. But such a right does exist. The Washington Court of Appeals has repeatedly held that such an order should be deemed a “decision affecting a substantial right . . . that in effect . . . discontinues the action” within the meaning of RAP 2.2(a)(3). Thus, the order denying arbitration is appealable as a matter of right, and is not the subject of discretionary review. But that right comes with a cost. A party who does not immediately appeal such an order, but rather acquiesces to the lawsuit, will likely waive its ability to appeal the issue following a final judgment. In short, Washington litigants have a right to immediately appeal a trial court’s order denying a motion to compel arbitration, and they must use it or lose it.
Motions to Compel Arbitration Generally
The inclusion of mandatory-arbitration clauses is becoming increasingly prevalent in commercial contracts, and in some consumer contracts as well. Such a clause typically requires the parties to submit any and all disputes related to their contractual relationship to binding arbitration, as opposed to resolving those disputes in court. Under the Washington Arbitration Act (WAA), agreements to arbitrate are generally “valid, enforceable, and irrevocable.”[1] Ostensibly, parties prefer arbitration because it offers a faster and cheaper means of dispute resolution than traditional litigation.[2]
When a party to a contract containing an arbitration clause is sued, its usual reaction is to invoke the clause through a motion to compel arbitration, oftentimes prior to or in lieu of answering the complaint. The WAA requires a trial court to grant such a motion if the arbitration clause is enforceable and covers the dispute at issue.[3] In resolving the latter issue, the trial court practically presumes arbitrability. “If any doubts or questions arise with respect to the scope of the arbitration agreement, the agreement is construed in favor of arbitration unless the reviewing court is satisfied the agreement cannot be interpreted to cover a particular dispute.”[4] If the motion is granted, the court generally must stay proceedings during the pendency of arbitration.[5]
Although the deck is stacked in favor of arbitration, not all motions to compel are granted. When arbitration is denied, the party seeking arbitration faces the grim prospect of a lengthy and costly lawsuit, oftentimes before a judge (and/or jury) that may be far less neutral than an arbitration panel. And, of course, if the party waits until after final judgment to appeal the arbitration decision, it will be too late to be effective; the party will have already suffered “the serious, perhaps irreparable, consequence of being forced to resolve the dispute by trial rather than by arbitration, a process that the parties . . . had agreed to use.”[6] For these reasons, a party on the losing end of a motion to compel arbitration should — and, indeed, must — consider seeking immediate appellate review of the trial court’s order.
Orders Denying Arbitration Are Appealable as a Matter of Right
In Washington, there are two methods for seeking appellate review. The first permits a party to “appeal” certain trial-court decisions, such as a final judgment or a ruling that effectively terminates an action.[7] When a decision is subject to appeal, review is a matter of right.[8] The second method, which applies to orders that are not appealable as a matter of right, permits a party to seek “discretionary review.”[9] Discretionary review may be accepted only in limited circumstances, and only after a motion for such is granted by the appellate court.[10] These motions are generally unsuccessful. It has been noted by the Supreme Court that “discretionary review is not favored because it lends itself to piecemeal, multiple appeals.”[11]
Obviously, a party seeking immediate review of a trial court’s order denying a motion to compel arbitration would prefer to characterize that review as an “appeal.” But none of the 13 types of trial-court decisions delineated in RAP 2.2(a) expressly include such an order. Moreover, and in contrast to the Federal Arbitration Act (FAA), the WAA does not provide parties with a clear statutory right to an immediate appeal.[12] On the surface, then, Washington law would seem to rule out an immediate appeal as a matter of right, and limit interlocutory review to those rare cases where the appellate court finds discretionary review warranted. Of course, the law is not always what it seems.
The Washington Court of Appeals has held that an order denying a motion to compel arbitration is, indeed, appealable as a matter of right under RAP 2.2(a).[13] In Herzog v. Foster & Marshall, Inc., the court ruled that such an order constituted a “decision affecting a substantial right . . . that in effect . . . discontinues the action.”[14] To reach its decision, the court first concluded, without much difficulty, that the right to arbitrate is a “substantial right.”[15] Next, on the dispositive issue of whether a denial of that right “discontinues the action,” the court was more creative:
If the words “the action” are applied to the respondents’ [lawsuit], the trial court’s order is clearly not appealable as of right because the order denying the stay in no way . . . “discontinues” that court action. If the words “the action” are applied to the motion for stay, then the court’s order would be appealable as of right as long as the motion for stay [and to compel arbitration] is itself an “action” within the meaning of RAP 2.2(a)(3).
. . .
Motions to compel arbitration of a dispute are governed by RCW 7.04.040, which is located in the “Special Proceedings” title of the revised code. . . . The statute allows a party to move for an order compelling arbitration even if no action on the merits of the dispute has been filed in court. Thus, a proceeding under the statute to determine whether arbitration should be compelled has a status independent from the underlying cause of action or controversy. . . . In our view, the fact that appellants did not file a separate action to compel arbitration, but instead sought arbitration by motion in the pending lawsuit, is not fatal to their appeal. A motion to stay litigation pending arbitration commences a distinct statutory proceeding which has as its objective the initiation of an action in the forum of arbitration.[16]
In other words, to fit it within the language of RAP 2.2(a), the Herzog court likened a denial of a motion to compel arbitration to an “action within an action.”
Whether or not one agrees with the court’s analysis, it is hard to argue with the result. The Herzog court correctly recognized that there can be no effective review of an order denying arbitration if that review must wait until after final judgment.[17] As discussed above, “[i]f a court refuses to stay litigation pending arbitration, the party seeking to enforce arbitration will suffer the serious, irreparable consequence of being forced to resolve the dispute by costly and lengthy litigation rather than by arbitration.”[18] Even if the party could successfully appeal the issue after final judgment (which is doubtful; see below), this damage cannot be undone. The Herzog decision also brought Washington law on this issue in line with federal law, as well as the majority rule among courts in the various states.[19]
Herzog remains good law, and it has been followed over the years in several published Court of Appeals opinions.[20] These opinions — like Herzog itself — are from Division One, but decisions from Division Two and Division Three likewise suggest that these divisions also follow the Herzog rule.[21] Perhaps just as important, it appears that no Washington court has ever taken a contrary position. Therefore, until and unless the Supreme Court overrules Herzog (or the issue is clarified by statute or rule), an order denying a motion to compel arbitration must be considered appealable as a matter of right.
Failure to Immediately Appeal Will Result in Waiver
Since review of an order denying a motion to compel arbitration is permitted as a matter of right under RAP 2.2(a), review is initiated solely by the filing of a notice of appeal with the trial court within 30 days after the order is entered.[22] The appellate court “accepts review” when the notice is filed, and the matter then proceeds according to the ordinary appellate process.[23] Critically, after the notice of appeal is filed, litigation in the trial court generally comes to a halt.[24] As a practical matter, regardless of the likelihood of success, many defendants will undoubtedly consider immediately appealing an order denying arbitration as a means of forestalling burdensome discovery obligations or to gain some strategic advantage from the ensuing delay.
But what if a party loses a motion to compel arbitration and does not immediately appeal? Can that party take its best shot at winning the lawsuit and then, if it loses, appeal the trial court’s decision after final judgment is entered? No Washington court has addressed this issue, but the answer is probably no — for two reasons. First, if an order denying arbitration is appealable as a matter of right, then, as discussed above, the rules require the party to initiate review within 30 days.[25] Failure to comply with that deadline renders any subsequent appeal of the issue untimely.[26] Because Herzog and its progeny leave no doubt that an order denying arbitration is appealable under RAP 2.2(a)(3), a party who fails to seek immediate review of such an order should be deemed to have waived its right to appeal that issue altogether.[27]
Second, even if the rules did not require it, prudential considerations would suggest the same result. As noted above, federal law permits — but does not require — an interlocutory appeal of an order denying arbitration under the FAA. Nevertheless, several circuits of the United States Court of Appeals have held that failure to immediately appeal a denial of arbitration will operate to forfeit a party’s right to raise the issue after final judgment.[28] “The reason [for the rule] is that it is wasteful to have a full trial and then determine by a post-trial appeal that the whole matter should have been arbitrated and so start again.”[29] This reasoning is entirely consistent with Herzog, and also suggests that the right to immediately appeal an order denying arbitration is a “use it or lose it” proposition.[30]
It should be noted, however, that the same is not true with respect to orders compelling arbitration. Washington cases, including Herzog, establish that such rulings are not considered final, appealable orders under RAP 2.2(a).[31] As a consequence, if the party resisting arbitration wants to immediately appeal an order granting arbitration, that party must seek discretionary review pursuant to RAP 2.3.[32] But, by the same token (and unlike the situation discussed above), there is no risk of waiver in failing to do so; the party resisting arbitration can always appeal the arbitrability ruling, if necessary, when the trial court enters final judgment enforcing the arbitration award.[33] Indeed, nothing prevents that party from taking two bites at the apple — seeking discretionary review and, if review is denied, appealing the issue again after judgment.[34]
The Need for an Amendment to RAP 2.2(a)
Although Washington case law may be clear on the issue of appealability, the lack of specificity in the RAPs continues to plague Washington practitioners. It is not uncommon for court administrators to erroneously treat an otherwise proper appeal of an order denying arbitration as a notice for discretionary review, and to refer the matter to court’s motion calendar.[35] Correspondence with the clerk’s office and even formal briefing to a court commissioner are typically necessary to resolve the issue. Not only does this create added and unnecessary legal expense for the appealing party, it also prolongs the length of the appeal.
Court administrators are not to blame. They must process appeals pursuant to the plain language of RAP 2.2(a) without resolving legal issues, and they certainly are not expected to know how the Washington courts interpret the rule in every instance. The Supreme Court should remove the ambiguity regarding orders denying arbitration by promulgating an amendment to RAP 2.2(a) to specifically include these orders in the rule’s extensive list of appealable decisions. Indeed, other states have specifically included reference to orders denying arbitration in their rules of appellate procedure.[36] In the interim, or at the minimum, each division of the Court of Appeals should — for the benefit of litigants, practitioners and court staff — establish a General Order to the same effect.[37]
Conclusion
Washington law is well-settled that a party may appeal an order denying a motion to compel arbitration as a matter of right. This common-sense approach correctly recognizes that appellate review of such an order can be meaningful only if it comes before, rather than after, further trial court proceedings. Washington litigants seeking to enforce arbitration agreements must be aware of this right, because it is of obvious benefit to them, but also because it presents a potential pitfall. An immediate appeal of the order denying arbitration is the only avenue to appellate review; review cannot wait until after final judgment.
Ryan McBride is an attorney at Lane Powell PC in Seattle, where he focuses on civil appeals and complex commercial litigation.
NOTES
1. RCW 7.04A.060(1).
2. See Barnett v. Hicks, 119 Wn.2d 151, 160 (1992) (arbitration “avoid[s] what some feel to be the formalities, the delay, the expense and the vexation of ordinary litigation”).
3. RCW 7.04A.070(1).
4. Mendez v. Palm Harbor Homes, Inc., 111 Wn. App. 452, 456 (2002).
5. RCW 7.04A.070(6).
6. Herzog v. Foster & Marshall, Inc., 56 Wn. App. 437, 444 (1989) (internal quotes and citation omitted).
7. RAP 2.2(a).
8. RAP 2.1(a).
9. RAP 2.3(a).
10. RAP 2.3(b); RAP 6.2.
11. Right-Price Recreation, LLC v. Connells Prairie Cmty. Council, 146 Wn.2d 370, 380 (2002) (citation omitted).
12. See 9 U.S.C. § 16(a)(1)(B) (immediate interlocutory appeal permitted from orders denying petitions to compel arbitration under the FAA). RCW 7.04A.280 states that “[a]n appeal may be taken from . . . [a]n order denying a motion to compel arbitration,” but goes on to state that,
“[a]n appeal under this section must as from an order or judgment in a civil action.” No Washington court has construed this statute, but the latter provision suggests that the RAPs ultimately dictate the appealability of such orders. It should be noted, however, that courts from other states have interpreted this provision — which was taken from the Uniform Arbitration Act — to permit an immediate interlocutory appeal. See, e.g., Sennett v. National Healthcare Corp., 272 S.W.3d 237, 240 (Mo.App. 2008).
13. See Herzog, 56 Wn. App. at 445.
14. RAP 2.2(a)(3).
15. Herzog, 56 Wn. App. at 440.
16. Id. at 440–442 (citations omitted).
17. Id. at 443.
18. Id.
19. See generally Harrison, David B., Annotation, Appealability of State Court’s Order or Decree Compelling or Refusing to Compel Arbitration, 6 A.L.R. 4th 652 (Supp. 2007).
20. See Maple Valley Prof’l Fire Fighters Local 3062, Int’l Assoc. of Fire Fighters, AFL-CIO, CLC v. King County Fire Protection Dist., 135 Wn. App. 749, 752 (2006); Stein v. Geonerco, Inc., 105 Wn. App. 41, 45 (2001).
21. See, e.g., Mutual of Enumclaw Ins. Co. v. Huddleston, 119 Wn. App. 122 (2003) (Div. 2) (“appeal” of order denying motion to compel arbitration); Mendez v. Palm Harbor Homes, Inc., 111 Wn. App. 446 (2002) (Div. 3) (same).
22. RAP 5.1(a); RAP 5.2(a); RAP 5.4(a).
23. RAP 6.1.
24. RAP 7.2(a); but see RAP 7.2(k) (exception allowing trial court to supervise perpetuation discovery under CR 27).
25. RAP 5.1(a); RAP 5.2(a).
26. Cf. Cork Insulation Sales Co., Inc. v. Torgeson, 54 Wn. App. 702, 707 (1989) (review of order vacating default judgment under RAP 2.2(a)(10) untimely if not immediately appealed).
27. That is the rule in other states that similarly hold that orders denying motions to compel arbitration are immediately appealable. See Snider v. Production Chemical Mfg., Inc., 191 P.3d 691, 695-96 (Or.App. 2008); Mitchell v. Owens, 185 S.W.3d 837, 841 (Tenn.App. 2005).
28. See Franceshi v. Hosp. General San Carlos, Inc., 420 F.3d 1, 4 (1st Cir. 2005); John Morell & Co. v. United Food & Commercial Workers Int’l Union, 37 F.3d 1302, 1303 n.3 (8th Cir. 1994); Cotton v. Sloan, 4 F.3d 176, 180 (2d Cir. 1993).
29. Colon v. R.K. Grace & Co., 358 F.3d 1, 4 (1st Cir 2003).
30. It is likely possible, however, for a party to appeal a separate and subsequent interlocutory order denying a motion to compel arbitration. For instance, after an initial motion to compel arbitration is denied, discovery may eliminate ambiguity regarding the applicability of the arbitration clause. At that point, the party favoring arbitration should be able to renew its motion and, if it is denied, the party should be able to take an interlocutory appeal of that separate decision.
31. Herzog, 56 Wn. App. at 444–445; Wooh v. Home Ins. Co., 84 Wn. App. 781, 785 (1997).
32. See, e.g., Adler v. Fred Lind Manor, 153 Wn.2d 331, 340 (2004) (discretionary review of order compelling arbitration); In re Jean F. Gardner Amended Blind Trust, 117 Wn. App. 235, 237 (2003) (same).
33. See ACF Prop. Mgmt., Inc. v. Chaussee, 69 Wn. App. 913, 921–22 (1993); Teufel Const. Co. v. Am. Arbitration Ass’n, 3 Wn. App. 24, 27 (1970).
34. See RAP 2.3(c) (“the denial of discretionary review . . . does not affect the right of a party to obtain later review of the trial court decision or the issues pertaining to that decision”).
35. See RAP 6.2(b) (“If a party files a notice of appeal from a decision which may not be subject to review as a matter of right, the clerk . . . may note for hearing the question whether the decision is reviewable as a matter of right and, if the decision is reviewable by discretion, the question whether review should be accepted.”).
36. See, e.g., Ark. R. App. Pro.-Civ. 2(a)(12); Fla. R. App. Pro. 9.130(a)(3)(C)(iv).
37. See RAP 1.1(i) (permitting Court of Appeals to establish rules called General Orders that may supplement RAPs).
