Civil Practice – Federal Arbitration Act – Multi-District Litigation

A district court cannot condition a party’s ability to assert its Federal Arbitration Act (FAA) right to a stay on the consent of multi-district litigation (MDL) lead counsel.

We vacated the district court’s denial of leave and remanded for the district court to consider the merits of Illinois Union Insurance Company’s stay motion.

This appeal involved tension between the discretion afforded a district court to manage a MDL and the commands of the FAA.

Illinois Union is a Defendant in two cases in multi-district litigation regarding alleged injuries caused by aqueous film-forming foam products designed and manufactured by its insured. Plaintiffs filed these cases in Wisconsin state court, alleging Illinois Union issued excess liability policies to BASF Corporation and that BASF in turn “designed, manufactured, marketed, distributed, and/or sold” components of aqueous film-forming foam products. Plaintiffs alleged Illinois Union was directly liable for BASF’s tortious conduct under Wisconsin Statutes Section 632.24.

After Defendants removed the cases to federal court, they were consolidated in the District of South Carolina under the MDL statute. Illinois Union moved for leave to file a motion to stay Bouvet and City of Wausau against it pending arbitration. It argued its policies with BASF contained “valid arbitration agreements” and that the plaintiffs were “improperly prosecuting claims . . . under the Illinois Union policies . . . without initiating arbitration.” The district court denied Illinois Union’s motion for leave. Among other things, the district court noted that there were several thousand member cases in this MDL. In each of those cases, the parties are engaging in litigation through the auspices of court-appointed lead counsel and subject to the protocols agreed to by lead counsel and ordered by the court.

Plaintiffs argued the district court denied Illinois Union’s leave motion because it failed to confer with lead counsel, as the CMOs required, and that a district court can permissibly deny leave on that basis. The last two paragraphs of the district court’s order recognized that Illinois Union eventually conferred with lead counsel; the district court nonetheless denied leave because lead counsel didn’t provide its “authority.” In that part of the order, the district court made clear it wasn’t denying Illinois Union’s motion based on the CMO’s requirement that Illinois Union confer with lead counsel; instead, it was requiring that Illinois Union obtain lead counsel’s consent, which lead counsel had already denied. The effect of this order was that Illinois Union couldn’t file its stay motion. The district court did more than enforce a procedural rule as a prerequisite to filing a motion; it barred a party from making a motion. That was a step too far. Perhaps the district court did not intend for its order to go that far. But as written, conditioning Illinois Union’s ability to a file a §3 motion on the consent of lead counsel, that order neutered the mandatory provisions of the FAA.

Vacated and remanded.

In re Aqueous Film-Forming Foams Products Liability Litigation (Lawyers Weekly No. 001-079-26, 14 pp.) (A. Marvin Quattlebaum Jr., J.) Appealed from the U.S. District Court for the District of South Carolina, at Charleston (Richard Mark Gergel, J.) ARGUED: Anton Metlitsky, O’MELVENY & MYERS LLP, New York, New York, for Appellant. Andrew William Croner, NAPOLI SHKOLNIK PLLC, New York, New York, for Appellees. ON BRIEF: Robert F. Walsh, Lyndon K. Groff, WHITE & WILLIAMS, LLP, Philadelphia, Pennsylvania; Kevin K. Bell, ROBINSON GRAY STEPP & LAFFITTE, LLC, Columbia, South Carolina; Jonathan D. Hacker, Joshua Revesz, O’MELVENY & MYERS LLP, Washington, District of Columbia; Jason M. Zarrow, O’MELVENY & MYERS LLP, Los Angeles, California, for Appellant. U.S. Court of Appeals for the Fourth Circuit