ARTHUR ANDERSEN LLP et al. v. CARLISLE et al.

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624 OCTOBER TERM, 2008
Syllabus
ARTHUR ANDERSEN LLP et al. v. CARLISLE et al.
certiorari to the united states court of appeals for
the sixth circuit
No. 08–146. Argued March 3, 2009—Decided May 4, 2009
After consulting with petitioners, respondents Wayne Carlisle, James
Bushman, and Gary Strassel used a shelter to minimize taxes from the
sale of their company. Limited liability companies created by Carlisle,
Bushman, and Strassel (also respondents) entered into investment
management agreements with Bricolage Capital, LLC, that provided for
arbitration of disputes. After the Internal Revenue Service found the
tax shelter illegal, respondents filed a diversity suit against petitioners.
Claiming that equitable estoppel required respondents to arbitrate their
claims per the agreements with Bricolage, petitioners invoked § 3 of the
Federal Arbitration Act (FAA), 9 U. S. C. § 3, which entitles litigants to
stay an action that is “referable to arbitration under an agreement in
writing.” Section 16(a)(1)(A) of the FAA allows an appeal from “an
order . . . refusing a stay of any action under section 3.” The District
Court denied petitioners’ stay motions, and the Sixth Circuit dismissed
their interlocutory appeal for want of jurisdiction.
Held:
1. The Sixth Circuit had jurisdiction to review the denial of petition
ers’ requests for a § 3 stay. By its clear and unambiguous terms,
§ 16(a)(1)(A) entitles any litigant asking for a § 3 stay to an immediate
appeal from that motion’s denial—regardless of whether the litigant is
in fact eligible for a stay. Jurisdiction over the appeal “must be deter
mined by focusing upon the category of order appealed from, rather
than upon the strength of the grounds for reversing the order,” Behrens
v. Pelletier, 516 U. S. 299, 311. The statute unambiguously makes the
underlying merits irrelevant, for even a request’s utter frivolousness
cannot turn a denial into something other than “an order . . . refusing a
stay of any action under section 3,” § 16(a)(1)(A). Pp. 627–629.
2. A litigant who was not a party to the arbitration agreement may
invoke § 3 if the relevant state contract law allows him to enforce the
agreement. Neither FAA § 2—the substantive mandate making writ
ten arbitration agreements “valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation of a
contract”—nor § 3 purports to alter state contract law regarding the
scope of agreements. Accordingly, whenever the relevant state law
would make a contract to arbitrate a particular dispute enforceable by

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Cite as: 556 U. S. 624 (2009) 625
Opinion of the Court
a nonsignatory, that signatory is entitled to request and obtain a stay
under § 3 because that dispute is “referable to arbitration under an
agreement in writing.” Because traditional state-law principles allow
enforcement of contracts by (or against) nonparties through, e. g., as
sumption or third-party beneficiary theories, the Sixth Circuit erred in
holding that § 3 relief is categorically not available to nonsignatories.
Questions as to the nature and scope of the applicable state contract law
in the present case have not been briefed here and can be addressed on
remand. Pp. 629–632.
521 F. 3d 597, reversed and remanded.
Scalia, J., delivered the opinion of the Court, in which Kennedy,
Thomas, Ginsburg, Breyer, and Alito, JJ., joined. Souter, J., filed
a dissenting opinion, in which Roberts, C. J., and Stevens, J., joined,
post, p. 633.
M. Miller Baker argued the cause for petitioners. With
him on the briefs were Paul M. Thompson, Jeffrey W. Mi
koni, Jeffrey E. Stone, Douglas E. Whitney, Jocelyn D.
Francoeur, Rory K. Little, Robert B. Craig, and Donald L.
Stepner.
Paul M. De Marco argued the cause for respondents.
With him on the brief were Stanley M. Chesley, James R.
Cummins, and Jean M. Geoppinger.*
Justice Scalia delivered the opinion of the Court.
Section 3 of the Federal Arbitration Act (FAA) entitles
litigants in federal court to a stay of any action that is “refer
able to arbitration under an agreement in writing.” 9
U. S. C. § 3. Section 16(a)(1)(A), in turn, allows an appeal
from “an order . . . refusing a stay of any action under section
3.” We address in this case whether appellate courts have
jurisdiction under § 16(a) to review denials of stays requested
*Briefs of amici curiae urging reversal were filed for the Chamber of
Commerce of the United States of America by Virginia W. Hoptman,
Robin S. Conrad, and Amar D. Sarwal; and for the Washington Legal
Foundation by Thomas S. Jones, Leon F. DeJulius, Jr., Daniel J. Popeo,
and Richard A. Samp.

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626 ARTHUR ANDERSEN LLP v. CARLISLE
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by litigants who were not parties to the relevant arbitration
agreement, and whether § 3 can ever mandate a stay in
such circumstances.
I
Respondents Wayne Carlisle, James Bushman, and Gary
Strassel set out to minimize their taxes from the 1999 sale
of their construction-equipment company. Arthur Andersen
LLP, a firm that had long served as their company’s account
ant, auditor, and tax adviser, introduced them to Bricolage
Capital, LLC, which in turn referred them for legal advice
to Curtis, Mallet-Prevost, Colt & Mosle, LLP. According to
respondents, these advisers recommended a “leveraged op
tion strategy” tax shelter designed to create illusory losses
through foreign-currency-exchange options. As a part of
the scheme, respondents invested in various stock warrants
through newly created limited liability companies (LLCs),
which are also respondents in this case. The respondent
LLCs entered into investment-management agreements
with Bricolage, specifying that “[a]ny controversy arising out
of or relating to this Agreement or the br[ea]ch thereof, shall
be settled by arbitration conducted in New York, New York
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association.” App. 80–81, 99–100,
118–119.
As with all that seems too good to be true, a controversy
did indeed arise. The warrants respondents purchased
turned out to be almost entirely worthless, and the Internal
Revenue Service (IRS) determined in August 2000 that the
“leveraged option strategy” scheme was an illegal tax shel
ter. The IRS initially offered conditional amnesty to tax
payers who had used such arrangements, but petitioners
failed to inform respondents of that option. Respondents
ultimately entered into a settlement program in which they
paid the IRS all taxes, penalties, and interest owed.
Respondents filed this diversity suit in the Eastern Dis
trict of Kentucky against Bricolage, Arthur Andersen, and

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others 1 (all except Bricolage and its employees hereinafter
referred to as petitioners), alleging fraud, civil conspiracy,
malpractice, breach of fiduciary duty, and negligence. Peti
tioners moved to stay the action, invoking § 3 of the FAA
and arguing that the principles of equitable estoppel de
manded that respondents arbitrate their claims under their
investment agreements with Bricolage.2 The District Court
denied the motions.
Petitioners filed an interlocutory appeal, which the Court
of Appeals for the Sixth Circuit dismissed for want of juris
diction. Carlisle v. Curtis, Mallet-Prevost, Colt & Mosle,
LLP, 521 F. 3d 597, 602 (2008). We granted certiorari, 555
U. S. 1010 (2008).
II
Ordinarily, courts of appeals have jurisdiction only over
“final decisions” of district courts. 28 U. S. C. § 1291. The
FAA, however, makes an exception to that finality require
ment, providing that “[a]n appeal may be taken from . . . an
order . . . refusing a stay of any action under section 3 of this
title.” 9 U. S. C. § 16(a)(1)(A). By that provision’s clear and
unambiguous terms, any litigant who asks for a stay under
§ 3 is entitled to an immediate appeal from denial of that
motion—regardless of whether the litigant is in fact eligible
for a stay. Because each petitioner in this case explicitly
asked for a stay pursuant to § 3, App. 52, 54, 63, 65, the Sixth
Circuit had jurisdiction to review the District Court’s denial.
1 Also named in the suit were two employees of Bricolage (Andrew Beer
and Samyak Veera); Curtis, Mallet-Prevost, Colt & Mosle, LLP; William
Bricker (the lawyer respondents worked with at the law firm); Prism Con
nectivity Ventures, LLC (the entity from whom the worthless warrants
were purchased); Integrated Capital Associates, Inc. (a prior owner of the
worthless warrants who had also been a client of the law firm); and Inter
continental Pacific Group, Inc. (a firm with the same principals as Inte
grated Capital Associates).
2 Bricolage also moved for a stay under § 3, but it filed for bankruptcy
while its motion was pending, and the District Court denied the motion
as moot.

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The courts that have declined jurisdiction over § 3 appeals
of the sort at issue here have done so by conflating the ju
risdictional question with the merits of the appeal. They
reason that because stay motions premised on equitable es
toppel seek to expand (rather than simply vindicate)
agreements, they are not cognizable under §§ 3 and 4, and
therefore the relevant motions are not actually “under” those
provisions. See, in addition to the opinion below, 521 F. 3d,
at 602, DSMC Inc. v. Convera Corp., 349 F. 3d 679, 682–685
(CADC 2003); In re Universal Serv. Fund Tel. Billing Prac
tice Litigation v. Sprint Communications Co., 428 F. 3d 940,
944–945 (CA10 2005). The dissent makes this step explicit,
by reading the appellate jurisdictional provision of § 16 as
“calling for a look-through” to the substantive provisions of
§ 3. Post, at 634. Jurisdiction over the appeal, however,
“must be determined by focusing upon the category of order
appealed from, rather than upon the strength of the grounds
for reversing the order.” Behrens v. Pelletier, 516 U. S. 299,
311 (1996).3 The jurisdictional statute here unambiguously
makes the underlying merits irrelevant, for even utter frivo
lousness of the underlying request for a § 3 stay cannot turn
3 Federal courts lack subject-matter jurisdiction when an asserted fed
eral claim is “ ‘so insubstantial, implausible, foreclosed by prior decisions
of this Court, or otherwise completely devoid of merit as not to involve a
federal controversy.’ ” Steel Co. v. Citizens for Better Environment, 523
U. S. 83, 89 (1998) (quoting Oneida Indian Nation of N. Y. v. County of
Oneida, 414 U. S. 661, 666 (1974)). Respondents have not relied upon this
line of cases as an alternative rationale for rejection of jurisdiction, and
there are good reasons for treating subject-matter jurisdiction differently,
in that respect, from the appellate jurisdiction here conferred. A frivo
lous federal claim, if sufficient to confer jurisdiction, would give the court
power to hear related state-law claims, see 28 U. S. C. § 1367; no such col
lateral consequences are at issue here. And while an insubstantial federal
claim can be said not to “aris[e] under the Constitution, laws, or treaties
of the United States,” § 1331, insubstantiality of the merits can hardly
convert a judge’s “order . . . refusing a stay” into an “order . . . refusing”
something else. But we need not resolve this question today.

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a denial into something other than “[a]n order . . . refusing a
stay of any action under section 3.” 9 U. S. C. § 16(a).
Respondents argue that this reading of § 16(a) will produce
a long parade of horribles, enmeshing courts in fact-intensive
jurisdictional inquiries and permitting frivolous interlocu
tory appeals. Even if these objections could surmount the
plain language of the statute, we would not be persuaded.
Determination of whether § 3 was invoked in a denied stay
request is immeasurably more simple and less factbound
than the threshold determination respondents would replace
it with: whether the litigant was a party to the contract (an
especially difficult question when the written agreement is
not signed). It is more appropriate to grapple with that
merits question after the court has accepted jurisdiction
over the case. Second, there are ways of minimizing the
impact of abusive appeals. Appellate courts can streamline
the disposition of meritless claims and even authorize the
district court’s retention of jurisdiction when an appeal is
certified as frivolous. See Behrens, supra, at 310–311.
And, of course, those inclined to file dilatory appeals must be
given pause by courts’ authority to “award just damages and
single or double costs to the appellee” whenever an appeal
is “frivolous.” Fed. Rule App. Proc. 38.
III
Even if the Court of Appeals were correct that it had no
jurisdiction over meritless appeals, its ground for finding this
appeal meritless was in error. We take the trouble to ad
dress that alternative ground, since if the Court of Appeals
is correct on the merits point we will have awarded petition
ers a remarkably hollow victory. We consider, therefore,
the Sixth Circuit’s underlying determination that those who
are not parties to a written arbitration agreement are cate
gorically ineligible for relief.
Section 2—the FAA’s substantive mandate—makes writ
ten arbitration agreements “valid, irrevocable, and enforce

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able, save upon such grounds as exist at law or in equity for
the revocation of a contract.” That provision creates sub
stantive federal law regarding the enforceability of arbitra
tion agreements, requiring courts “to place such agreements
upon the same footing as other contracts.” Volt Informa
tion Sciences, Inc. v. Board of Trustees of Leland Stanford
Junior Univ., 489 U. S. 468, 478 (1989) (internal quotation
marks omitted). Section 3, in turn, allows litigants already
in federal court to invoke agreements made enforceable by
§ 2. That provision requires the court, “on application of one
of the parties,” 4 to stay the action if it involves an “issue
referable to arbitration under an agreement in writing.” 9
U. S. C. § 3.
Neither provision purports to alter background principles
of state contract law regarding the scope of agreements (in
cluding the question of who is bound by them). Indeed § 2
explicitly retains an external body of law governing revoca
tion (such grounds “as exist at law or in equity”).5 And we
think § 3 adds no substantive restriction to § 2’s enforceabil
ity mandate. “[S]tate law,” therefore, is applicable to deter
4 Respondents do not contest that the term “parties” in § 3 refers to
parties to the litigation rather than parties to the contract. The adjacent
provision, which explicitly refers to the “subject matter of a suit arising
out of the controversy between the parties,” 9 U. S. C. § 4, unambiguously
refers to adversaries in the action, and “identical words and phrases
within the same statute should normally be given the same meaning,”
Powerex Corp. v. Reliant Energy Services, Inc., 551 U. S. 224, 232 (2007).
Even without benefit of that canon, we would not be disposed to believe
that the statute allows a party to the contract who is not a party to the
litigation to apply for a stay of the proceeding.
5 We have said many times that federal law requires that “questions of
arbitrability . . . be addressed with a healthy regard for the federal policy
favoring arbitration.” Moses H. Cone Memorial Hospital v. Mercury
Constr. Corp., 460 U. S. 1, 24–25 (1983). Whatever the meaning of this
vague prescription, it cannot possibly require the disregard of state law
permitting arbitration by or against nonparties to the written arbitra
tion agreement.

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mine which contracts are binding under § 2 and enforceable
under § 3 “if that law arose to govern issues concerning the
validity, revocability, and enforceability of contracts gener
ally.” Perry v. Thomas, 482 U. S. 483, 493, n. 9 (1987). See
also First Options of Chicago, Inc. v. Kaplan, 514 U. S. 938,
944 (1995). Because “traditional principles” of state law
allow a contract to be enforced by or against nonparties to
the contract through “assumption, piercing the corporate
veil, alter ego, incorporation by reference, third-party bene
ficiary theories, waiver and estoppel,” 21 R. Lord, Williston
on Contracts § 57:19, p. 183 (4th ed. 2001), the Sixth Circuit’s
holding that nonparties to a contract are categorically barred
from § 3 relief was error.
Respondents argue that, as a matter of federal law, claims
to arbitration by nonparties are not “referable to arbitration
under an agreement in writing,” 9 U. S. C. § 3 (emphasis
added), because they “seek to bind a signatory to an arbitral
obligation beyond that signatory’s strictly contractual obliga
tion to arbitrate,” Brief for Respondents 26. Perhaps that
would be true if § 3 mandated stays only for disputes be
tween parties to a written arbitration agreement. But that
is not what the statute says. It says that stays are required
if the claims are “referable to arbitration under an agree
ment in writing.” If a written arbitration provision is made
enforceable against (or for the benefit of) a third party under
state contract law, the statute’s terms are fulfilled.6
Respondents’ final fallback consists of reliance upon dicta
in our opinions, such as the statement that “arbitration . . .
6 We thus reject the dissent’s contention that contract law’s longstanding
endorsement of third-party enforcement is “a weak premise for inferring
an intent to allow third parties to obtain a § 3 stay,” post, at 634. It seems
to us not weak at all, in light of the terms of the statute. There is no
doubt that, where state law permits it, a third-party claim is “referable to
arbitration under an agreement in writing.” It is not our role to conform
an unambiguous statute to what we think “Congress probably intended,”
ibid.

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is a way to resolve those disputes—but only those disputes—
that the parties have agreed to submit to arbitration,” First
Options, supra, at 943, and the statement that “[i]t goes
without saying that a contract cannot bind a nonparty,”
EEOC v. Waffle House, Inc., 534 U. S. 279, 294 (2002). The
former statement pertained to issues parties agreed to arbi
trate, and the latter referred to an entity (the Equal Employ
ment Opportunity Commission) which obviously had no
third-party obligations under the contract in question. Nei
ther these nor any of our other cases have presented for
decision the question whether arbitration agreements that
are otherwise enforceable by (or against) third parties trig
ger protection under the FAA.
Respondents may be correct in saying that courts’ applica
tion of equitable estoppel to impose an arbitration agreement
upon strangers to the contract has been “somewhat loose.”
Brief for Respondents 27, n. 15. But we need not decide
here whether the relevant state contract law recognizes eq
uitable estoppel as a ground for enforcing contracts against
third parties, what standard it would apply, and whether
petitioners would be entitled to relief under it. These ques
tions have not been briefed before us and can be addressed
on remand. It suffices to say that no federal law bars the
State from allowing petitioners to enforce the arbitration
agreement against respondents and that § 3 would require a
stay in this case if it did.
* * *
We hold that the Sixth Circuit had jurisdiction to review
the denial of petitioners’ requests for a § 3 stay and that a
litigant who was not a party to the relevant arbitration
agreement may invoke § 3 if the relevant state contract law
allows him to enforce the agreement. The judgment of the
Court of Appeals for the Sixth Circuit is reversed, and the
case is remanded for further proceedings consistent with
this opinion.
It is so ordered.

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Souter, J., dissenting
Justice Souter, with whom The Chief Justice and
Justice Stevens join, dissenting.
Section 16 of the Federal Arbitration Act (FAA) author
izes an interlocutory appeal from the denial of a motion
under § 3 to stay a district-court action pending arbitration.
The question is whether it opens the door to such an appeal
at the behest of one who has not signed a written arbitration
agreement. Based on the longstanding congressional policy
limiting interlocutory appeals, I think the better reading of
the statutory provisions disallows such an appeal, and I
therefore respectfully dissent.
Section 16(a) of the FAA provides that “[a]n appeal may
be taken from . . . an order . . . refusing a stay of any action
under section 3 of this title.” 9 U. S. C. § 16(a). The Court
says that any litigant who asks for and is denied a § 3 stay is
entitled to an immediate appeal. Ante, at 627. The majori
ty’s assumption is that “under section 3” is merely a labeling
requirement, without substantive import, but this fails to
read § 16 in light of the “firm congressional policy against
interlocutory or ‘piecemeal’ appeals.” Abney v. United
States, 431 U. S. 651, 656 (1977).
The right of appeal is “a creature of statute,” ibid., and
Congress has granted the federal courts of appeals jurisdic
tion to review “final decisions,” 28 U. S. C. § 1291. “This in
sistence on finality and prohibition of piecemeal review dis
courage undue litigiousness and leaden-footed administration
of justice.” DiBella v. United States, 369 U. S. 121, 124
(1962). Congress has, however, “recognized the need of ex
ceptions for interlocutory orders in certain types of proceed
ings where the damage of error unreviewed before the judg
ment is definitive and complete . . . has been deemed greater
than the disruption caused by intermediate appeal.” Ibid.
Section 16 functions as one such exception, but departures
from “the dominant rule in federal appellate practice,” 9 J.
Moore, J. Lucas, & B. Ward, Moore’s Federal Practice
¶ 110.06 (2d ed. 1996), are extraordinary interruptions to the
normal process of litigation and ought to be limited carefully.

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Souter, J., dissenting
An obvious way to limit the scope of such an extraordinary
interruption would be to read the § 16 requirement that the
stay have been denied “under section 3” as calling for a look
through to the provisions of § 3, and to read § 3 itself as offer
ing a stay only to signatories of an arbitration agreement.
It is perfectly true that in general a third-party beneficiary
can enforce a contract, but this is a weak premise for infer
ring an intent to allow third parties to obtain a § 3 stay and
take a § 16 appeal. While it is hornbook contract law that
third parties may enforce contracts for their benefit as a mat
ter of course, interlocutory appeals are a matter of limited
grace. Because it would therefore seem strange to assume
that Congress meant to grant the right to appeal a § 3 stay
denial to anyone as peripheral to the core agreement as a
nonsignatory, it follows that Congress probably intended to
limit those able to seek a § 3 stay.
Asking whether a § 3 movant is a signatory provides a
bright-line rule with predictable results to aid courts in de
termining jurisdiction over § 16 interlocutory appeals. And
that rule has the further virtue of mitigating the risk of in
tentional delay by savvy parties who seek to frustrate litiga
tion by gaming the system. Why not move for a § 3 stay?
If granted, arbitration will be mandated, and if denied, a
lengthy appeal may wear down the opponent. The majority
contends, ante, at 629, that “there are ways of minimizing
the impact of abusive appeals.” Yes, but the sanctions sug
gested apply to the frivolous, not to the farfetched; and as
the majority’s opinion concludes, such an attenuated claim of
equitable estoppel as petitioners raise here falls well short
of the sanctionable.
Because petitioners were not parties to the written arbi
tration agreement, I would hold they could not move to stay
the District Court proceedings under § 3, with the conse
quence that the Court of Appeals would have no jurisdiction
under § 16 to entertain their appeal. I would accordingly
affirm the judgment of the Sixth Circuit.