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Green Tree Servicing, L.L.C. v. House

United States Court of Appeals, Fifth Circuit

May 14, 2018

HENRY HOUSE; LINDA MURRELL, Defendants-Appellants.

          Appeal from the United States District Court for the Southern District of Mississippi

          Before OWEN, SOUTHWICK, and WILLETT, Circuit Judges.


         Henry House, Linda Murrell (the House Parties), and other plaintiffs sued Green Tree Servicing and various other entities (the Green Tree Parties) in a related action.[1] The Green Tree Parties initiated the present suit in federal district court seeking to compel arbitration of claims asserted by the House Parties. The district court granted the motion to compel, holding that (1) all of the Green Tree Parties had standing to compel arbitration even though some were not signatories to the arbitration agreement; and (2) the parties had agreed to delegate questions regarding arbitrability to the arbitrator. We affirm.


         Henry House purchased a house and surrounding real property from Jim Walter Homes, Inc. and Mid-State Trust IV in 1998. To obtain financing from the sellers, House pledged the real property as collateral. The parties memorialized the transaction by executing a sales contract, promissory note, and deed of trust. The sales contract expressly incorporated four exhibits, including an Arbitration Agreement. The Arbitration Agreement provided:

The parties agree that, at the election of either party, any controversy or claim arising out of or relating to this contract, or the breach thereof, whether asserted as in tort or contract, or as a federal or state statutory claim, arising before, during or after performance of this contract, shall be settled by binding arbitration in accordance with the Comprehensive Arbitration Rules and Procedures administered by J•A•M•S/Endispute, and judgment upon the award rendered by the arbitrator may be entered in any Court having jurisdiction thereof. The parties agree and understand that they choose arbitration instead of litigation to resolve disputes.

         In 2016, the House Parties and other plaintiffs commenced a lawsuit- Green Tree Servicing, L.L.C. v. Billy Brown-in Mississippi state court (Brown). The suit alleged that Jim Walter Homes and some of the Green Tree Parties induced House to sign the sales contract by promising to construct a house in accordance with manufacturer specifications, house plans, and building codes, but that those defendants actually delivered a dwelling that was "substandard, incomplete, defective, and dangerous." Based on these allegations, House and the other plaintiffs brought claims that included civil conspiracy, breach of contract, negligence, false statements/fraud, and deceit.

         The complaint in Brown alleged that Jim Walter Homes "sold, assigned, or conveyed" the sales contract and related documents "to Walter Mortgage Company, LLC, then to Walter Investment Management Corp. or one of the Mid State Trust Entities, and ultimately to Wilmington Trust Co., Green Tree [Servicing], and their predecessors, who in turn attempted to sell, assign, or convey said instruments" to the other defendants. This "lending engine, " the Brown complaint alleged, facilitated the "home built on your lot" scheme in which the Green Tree Parties and Jim Walter Homes acted as conspirators and joint venturers to originate, pool, and securitize mortgages like House's. According to the complaint, "[w]ithout a willingness of [these parties] to purchase such ill-gotten paper, there would be no market or incentive to perpetuate this wrongful scheme." The complaint in Brown asserted that each of the Green Tree Parties "aided and abetted each other in each and every act . . . that is the subject of this action" and that each was "liable jointly and severally for the unlawful, deceptive, deceitful and misleading acts and/or omissions of each and every one" of its co-parties. The Green Tree Parties removed Brown to federal district court.

         While the Brown case was pending, the Green Tree Parties filed the present suit and sought to compel arbitration of the House Parties' claims against the Green Tree Parties. The district court granted the motion to compel arbitration, ruling that even though Green Tree Servicing (Green Tree) and the Walter Investment Management Corporation (WIMC) were not signatories to the arbitration agreement, they had standing to enforce it under Mississippi law's intertwined claims test. The court held that, by incorporating the JAMS rules, the parties agreed to delegate questions as to arbitrability to the arbitrator. The district court referenced the version of the JAMS Comprehensive Arbitration Rules and Procedures, effective as of 2014, which provide:

Jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought, and who are proper Parties to the Arbitration, shall be submitted to and ruled on by the Arbitrator. The Arbitrator has the authority to determine jurisdiction and arbitrability issues as a preliminary matter.[2]

         Based on this clause, the district court also held that the House Parties' claims that the sales contract was procedurally and substantively unconscionable must be decided by the arbitrator. The district court remanded the Brown case to state court due to lack of diversity jurisdiction.

         On appeal, the House Parties contend that (1) under Mississippi law, the intertwined claims test does not apply to Green Tree and WIMC, which did not exist at the time the arbitration agreement was signed; (2) they did not assent to delegate arbitrability and that, in any event, the district court relied on the wrong version of the JAMS rules; and (3) the district court failed to address claims in their pleadings regarding fraud in the inducement.


         We first address our jurisdiction. There are three issues: (1) did the district court's "Final Judgment" administratively close the case, (2) in light of this court's precedent, [3] how does the fact that the district court had another case pending before it that involved many of the parties in the present case and similar issues affect the finality of the "Final Judgment" compelling arbitration, and (3) was the notice of appeal premature, and if so, was it nevertheless effective.

         This court has jurisdiction over "a final decision with respect to an arbitration that is subject to this title."[4] A decision is final if it "ends the litigation on the merits and leaves nothing more for the court to do but execute the judgment."[5] An order compelling arbitration is typically appealable because "once the court compel[s] arbitration, there [is] nothing more for it to do but execute the judgment."[6] However, when a district court stays or administratively closes a case pending arbitration, the order is not appealable because the "substantive claims have not been dismissed by any district court."[7]

         The district court entered upon the record a document captioned "Final Judgment, " which provides in its entirety:

In accordance with the Opinion and Order of the Court by which Plaintiffs' Motion to Compel Arbitration was granted, this case is hereby dismissed with prejudice. Any party may move to re-open this case if further judicial intervention is necessary to enforce the rulings of this Court, or to enforce the rulings of the arbitrators.
SO ORDERED this the 6th day of February, 2017.

         The Green Tree Parties argue that because the district court permitted any party to move to re-open the case, the judgment was not final for purposes of appeal.

         The district court labeled its decision "Final Judgment" and dismissed the case with prejudice. Although the order recited that either party may move to re-open the case after or during arbitration, this is simply a recognition of rights that the parties may have upon the conclusion of arbitration. As the Supreme Court has recognized, "[t]he FAA does permit parties to arbitration agreements to bring a separate proceeding in a district court to enter judgment on an arbitration award once it is made (or to vacate or modify it), but the existence of that remedy does not vitiate the finality of the District Court's resolution of the claims in the instant proceeding."[8] The federal district court's order in the present case does nothing more than state the law, and its recognition that post-arbitration proceedings may be initiated is not tantamount to a statement that the court retains jurisdiction of the suit or that it has only administratively closed the case. Our court concluded in Green Tree Servicing, L.L.C. v. Charles that an order virtually identical to the "Final Judgment" in the present case would be a final, appealable order if the court were only examining that order.[9] Accordingly, the statement in the "Final Judgment" that the parties may return to federal court during or after the arbitration does not affect the finality of the order compelling arbitration.

         An unpublished order in Green Tree Servicing, L.L.C. v. Keyes does not purport to reach a contrary conclusion.[10] It considered a district court's order granting arbitration that also stated that the parties could return to district court during or after arbitration.[11] This court's order in Keyes concluded that appellate jurisdiction was lacking.[12] However, our order reflects that the quorum was under the impression that the district court, after ordering arbitration, had "stayed the remainder of the case, and directed the clerk to administratively close the case."[13] The order held that the judgment was not final because "[b]y entering a stay and allowing for reactivation of the case, the district court demonstrated that it was postponing, not terminating, the proceedings."[14] Regardless of how the district court's order in Keyes is properly interpreted, the district court in this case did not stay or administratively close the Green Tree Parties' case.

         Other issues regarding our jurisdiction remain, however. We must consider other aspects of this court's decision in Charles.[15] In Charles, as in the present case, another case "involving the same parties and essentially the same dispute" remained pending before the same federal district court when the order compelling arbitration was entered.[16] But unlike the present case, the district court in Charles had stayed further proceedings in the related case, and the related case remained pending in the federal district court when we considered the appeal of the order compelling arbitration.[17] We held in Charles that the order compelling arbitration was not a final, appealable order and that we therefore lacked jurisdiction.[18] We cited and followed CitiFinancial Corp. v. Harrison, in which our court held that when two proceedings with common parties and issues were pending in the same United States District Court, although before two different federal district court judges, and the two judges had respected one another's orders regarding arbitration and a stay, we were obliged to look at the orders from both courts to resolve whether a final, appealable order had been entered.[19] We concluded in Harrison that there was no final order.[20] This court reasoned, "[f]unctionally, this case sits in a posture no different than had both orders been issued by a single district court judge."[21] Because, in one of the courts, the matter had been "administratively dismissed, " which we deemed to be the same as "administratively close[d]" pending arbitration, and the substantive claims of the plaintiffs had not been dismissed, there was no final judgment.[22]

         The Brown suit, involving some of the same parties and arbitration issue as the present case, remained pending before Judge Barbour when the "Final Judgment" at issue here was entered. Judge Barbour had stayed further proceedings in the Brown suit. Although the Brown suit was a separate action that had not been consolidated with the present suit, our decisions in Charles and Harrison compel the conclusion that the "Final Judgment" was not a final, appealable order when it was entered. However, Judge Barbour subsequently remanded the Brown case to state court.

         The remand of the Brown suit places this case in a materially different procedural posture than Charles and Harrison. The remand of the Brown suit left nothing pending before Judge Barbour in either Brown or the present case, so the "Final Judgment" became final and appealable.[23] The remand to state court disposed of all remaining issues and parties in the two related actions. The federal district court had ordered arbitration, "the federal action did not contain any substantive claims, " and "there was nothing more for it to do."[24]

         The fact that Judge Barbour also stayed the state-court litigation pending arbitration when he remanded the Brown case to state court does not render the "Final Judgment" non-appealable. The stay of the state-court action was to protect the effectiveness of the federal district court's judgment compelling arbitration.[25] A stay by a federal district court of parallel state-court proceedings pending arbitration does not render the federal court's order compelling arbitration non-final or non-appealable.[26] In the present case, when the remand occurred, nothing remained pending in the federal district court, and the "Final Judgment" became final.

         The third jurisdictional issue is whether the notice of appeal in this case is effective. The House Parties filed a notice of appeal on March 8, 2017, after entry of the "Final Judgment, " which occurred on February 6, 2017. The "Final Judgment" did not become a final, appealable order until the federal district court remanded the Brown suit on March 15, 2017. Accordingly, the notice of appeal was prematurely filed. We must determine whether that notice is effective, and we conclude that it was.

         Our court confronted a similar situation in Boudreaux v. Swift Transportation Co., Inc.[27] The district court granted one party's motion for summary judgment, but another party's summary judgment motion remained pending when the notice of appeal was filed.[28] The district court granted the pending motion one day after the notice of appeal was filed.[29] We discussed the Supreme Court's decision in FirsTier Mortgage Co. v. Investors Mortgage Ins. Co., [30] and held that the prematurely filed notice of appeal was effective because the order from which the appeal was taken "would have been appealable if immediately followed by the entry of judgment pursuant to Federal Rule of Civil Procedure 54(b)."[31] The district court's February 6 "Final Judgment" would have been appealable had it been followed immediately by certification under FRCP 54(b).

         An opinion of the District of Columbia Circuit Court of Appeals, authored by then-Judge John Roberts, also analyzes when a prematurely filed notice of appeal is effective, [32] and we commend that opinion to those who wish to plumb the issue more deeply. It similarly concluded that because the district court's order would have ...

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