United States Court of Appeals
For the First Circuit
No. 09-2540
BRAINTREE LABORATORIES, INC., BRAINTREE HOLDINGS, and
BRAINTREE REAL ESTATE MANAGEMENT COMPANY, LLC.,
Plaintiffs, Appellants,
v.
CITIGROUP GLOBAL MARKETS INC. and CITI SMITH BARNEY,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Boudin, Circuit Judge,
Souter,* Associate Justice,
and Howard, Circuit Judge.
Barry S. Pollack, with whom Joshua L. Solomon, Phillip
Rakhunov and Sullivan & Worcester LLP, were on brief, for
appellants.
Charles E. Davidow, with whom Brad S. Karp, Susanna M.
Buergel, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Robert A.
Buhlman, Brandon L. Bigelow and Bingham McCutchen LLP, were on
brief, for appellees.
October 12, 2010
*
The Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
HOWARD, Circuit Judge. In February of 2008, the market
for auction-rate securities ("ARS") froze, creating a well-
publicized liquidity crisis. During the following summer,
plaintiffs Braintree Laboratories, Inc., Braintree Holdings, and
Braintree Real Estate Management Company (collectively,
"Braintree") made $41 million worth of investments in ARS -- by
that point already illiquid and significantly depreciated -- at par
value. Braintree later insisted that it had been deceived.
Claiming that its broker-dealer, defendant Citigroup Global
Markets, Inc. ("CGMI"),1 had misrepresented the purchased
securities as entirely liquid money market investments, Braintree
brought this action in federal district court seeking rescission of
the transactions, restitution of the consideration paid, and
damages.
The district court ordered the dispute transferred to
arbitration pursuant to Braintree's brokerage agreement. It also
denied Braintree's request for a mandatory preliminary injunction
to rescind the contract and refund the purchase price, pending
arbitration. Braintree Labs, Inc. v. Citigroup Global Markets,
Inc., 671 F. Supp. 2d 202 (D. Mass. 2009). Braintree now appeals
both of those decisions.
1
The other named defendant, Citi Smith Barney, is a division
and service mark of CGMI.
-2-
I.
ARS are debt instruments, such as municipal or corporate
bonds, with long-term maturities. Their interest rates or dividend
yields are reset periodically through so-called Dutch auctions
managed by the issuing bank or another financial institution.
Potential purchasers, including the existing holders of the
securities, bid the lowest interest rate or dividend yield that
they are willing to accept. A designated auctioneer then sets the
interest rate for the period until the next auction by determining
the lowest bid rate at which all securities at auction could be
sold to buyers.
So long as auctions continue to clear, meaning that a
willing bidder exists for every security up for auction, then any
holder can turn around and sell the security as soon as the next
auction arrives -- typically either a week or a month distant. If,
however, the number of bids submitted is less than the number of
ARS up for auction, then the auction fails. When such a failure
occurs, ARS holders wishing to sell are unable to do so. As a
result, the securities' liquidity depends on there being a critical
mass of bidders.
For years, investors in ARS generally did not need to
fear auction failures, as the broker-dealers who facilitated the
auction would voluntarily place "cover bids" to purchase the number
of ARS necessary to ensure the auction cleared, effectively serving
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as bidders of last resort. Failures remained the exception rather
than the rule, and broker-dealers were able to promote ARS as cash
equivalents with the advantage of higher interest rates than a
short-term loan. By early 2008, the market for ARS had grown to
$330 billion.
In February 2008, the system collapsed. With the
worldwide credit markets in crisis, broker-dealers that had
previously intervened to ensure successful auctions ceased to do
so. Auctions began to fail widely, and many owners of now-illiquid
ARS were left holding their investments indefinitely.
The freeze in the ARS market sparked a number of class
action lawsuits and regulatory enforcement measures against the
firms that had marketed ARS to investors as liquid money market
alternatives. One of these firms was CGMI. In August 2008, CGMI
entered into a settlement agreement with the Securities and
Exchange Commission ("SEC"), as well as with various state
agencies. That agreement provided some relief to certain classes
of investors, but those not covered by it were left to pursue
private litigation for redress of their losses.
Braintree Laboratories, a pharmaceutical company, is one
of the many institutional investors that purchased ARS from CGMI.2
It opened brokerage accounts with CGMI between 2001 and 2003, and
2
The other two named plaintiffs are affiliates of Braintree
Laboratories.
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had bought ARS from CGMI well before the market froze in 2008.
Braintree has not challenged any of these pre-2008 sales. Rather,
Braintree alleges that CGMI continued to sell it ARS in a series of
transactions between June and August 2008 -- well after the freeze
and during the pendency of regulatory investigations -- while
incorrectly informing Braintree that the securities were liquid
government bonds. Seeking to rescind these sales, which were not
affected by CGMI's settlements, Braintree brought suit in federal
district court under Section 10(b) of the Securities Exchange Act
of 1934, the Massachusetts Uniform Securities Act, and other state
statutory and common law doctrines not at issue in this appeal.3
Braintree's primary piece of evidence supporting its
allegations is the sworn testimony of Peter Renaghan, Braintree's
broker at CGMI and the employee who sold the disputed securities on
CGMI's behalf. During a deposition for a related state action,
Renaghan stated that he had never used the term ARS in connection
with the sale, instead referring to the securities as money market
alternatives that could be sold within seven days. Renaghan
recounted how Braintree had emphasized from the start that its top
investment priority was liquidity. Renaghan then explained that he
had mistakenly believed these securities to satisfy that objective,
3
The district court had supplemental jurisdiction over the
non-federal claims pursuant to 28 U.S.C. § 1367.
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and that Braintree had in turn believed the inaccurate information
that he gave.
CGMI responded to the complaint by moving to transfer the
dispute to arbitration, pursuant to a clause in Braintree's
brokerage agreement. While that motion was pending, Braintree
moved for a preliminary injunction requiring CGMI to refund the
purchase price pendente lite. Finding the arbitration clause to be
binding and provisional relief to be inappropriate, the district
court granted CGMI's motion and denied Braintree's. Braintree now
appeals both rulings.
II.
Braintree first appeals from the denial of its motion for
a preliminary injunction pending arbitration. District courts have
the authority to issue injunctive relief even where resolution of
the case on the merits is bound for arbitration. P.R. Hosp.
Supply, Inc. v. Boston Scientific Corp., 426 F.3d 503, 505 (1st
Cir. 2005).4 Accordingly, courts assessing the propriety of
4
A preliminary injunction pending arbitration is ordinarily
temporary emergency relief that extends only until the arbitrator
itself can decide whether to award relief, Next Step Med. Co. v.
Johnson & Johnson Int'l, No. 09-2077, 2010 WL 3386569, at *3 (1st
Cir. Aug. 30, 2010); see Merrill Lynch, Pierce, Fenner & Smith,
Inc. v. Salvano, 999 F.2d 211, 215 (7th Cir. 1993); and if in this
case the arbitration panel could give temporary relief, then any
court relief would last until the arbitrator could act on such a
request. Salvano, 999 F.2d at 215. Because we agree that
Braintree is not entitled to a preliminary injunction at all, its
possible duration need not be determined.
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injunctive relief pending arbitration proceed according to the
familiar set of four factors: "(i) the likelihood that the movant
will succeed on the merits; (ii) the possibility that, without an
injunction, the movant will suffer irreparable harm; (iii) the
balance of relevant hardships as between the parties; and (iv) the
effect of the court's ruling on the public interest." Waldron v.
George Weston Bakeries, Inc., 570 F.3d 5, 9 (1st Cir. 2009).
Braintree does not seek a traditional, prohibitory
preliminary injunction, but instead asks for a mandatory
preliminary injunction, which requires affirmative action by the
non-moving party in advance of trial (in this case, rescission of
the contract and a refund of the purchase price pendente lite).
Because a mandatory preliminary injunction alters rather than
preserves the status quo, it "normally should be granted only in
those circumstances when the exigencies of the situation demand
such relief." Mass. Coal. of Citizens with Disabilities v. Civil
Def. Agency, 649 F.2d 71, 76 n.7 (1st Cir. 1981). Nevertheless,
those exigencies should still be measured according to the same
four-factor test, as "[t]he focus always must be on prevention of
injury by a proper order, not merely on preservation of the status
quo." Crowley v. Local No. 82, 679 F.2d 978, 996 (1st Cir. 1982),
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rev'd on other grounds by 467 U.S. 526 (1984), (quoting Canal Auth.
v. Callaway, 489 F.2d 567, 576 (5th Cir. 1974)).5
The district court denied Braintree's motion after
considering the first two of these factors, which weigh heaviest in
the analysis, Gonzalez-Droz v. Gonzalez-Colon, 573 F.3d 75, 79 (1st
Cir. 2009), and concluding that the motion failed on each of them.
On appeal, we review the district court's decision using the same
four-factor test. We will reverse a denial of a preliminary
injunction only if "the district court mistook the law, clearly
erred in its factual assessments, or otherwise abused its
discretion in [denying] the preliminary injunction." ANSYS, Inc.
v. Computational Dynamics N. Am., Ltd. 595 F.3d 75, 77 (1st Cir.
2010). "Within that framework, however, findings of fact are
reviewed for clear error and issues of law are reviewed de novo."
5
We have previously explained that the status quo may be
determined by looking at "the last uncontested status which
preceded the pending controversy." Crowley, 679 F.2d at 995–96.
At oral argument, Braintree suggested that such status was in fact
the period before it purchased the ARS, rather than the time at
which relief was sought. The theory is not entirely devoid of
support. United Steelworkers of Am., AFL-CIO v. Textron, Inc., 836
F.2d 6, 10 (1st Cir. 1987) (Breyer, J.) (concluding that an
injunction requiring the payment of benefits was properly viewed
"not as mandatory, but as prohibitory" where the last uncontested
status that preceded the pending controversy was a status in which
the defendant paid the necessary premiums). Nevertheless, because
Braintree had not disputed the "mandatory injunction"
classification prior to oral argument, leaving CGMI with no
opportunity to prepare a counterargument, we do not rely on that
theory here. See The Shell Co. (Puerto Rico) Ltd. v. Los Frailes
Serv. Station, 605 F.3d 10, 19 (1st Cir. 2010).
-8-
United States v. Weikert, 504 F.3d 1, 6 (1st Cir. 2007) (internal
quotation mark omitted).
In this case, we need to focus our attention on only one
of the four factors -- irreparable harm, "the essential
prerequisite for equitable relief," Gonzalez-Droz, 573 F.3d at 81
-- as Braintree's insufficient showing on it disposes of the claim.
Rejecting Braintree's claim that illiquidity was forcing it to
forego certain unspecified investment opportunities, the district
court concluded that "a need for liquidity is not irreparable harm
because plaintiffs offer no evidence that [CGMI] cannot pay damages
and thus provide an adequate remedy at law. Prejudgment interest,
moreover, compensates for any loss of use of money." Braintree
Labs., Inc., 671 F. Supp. 2d at 208.
On appeal, Braintree urges that its ongoing inability to
liquidate its investments is generating incalculable losses from
missed opportunities, including new product acquisitions, in-
licensing activities, and research and development programs. The
ostensibly irreparable harm is to be found not in the amount of
funds to which Braintree has effectively been denied access, but to
the damage that would flow from that denial. If successful on the
merits, Braintree would be unable to rely on the normal time-value
of money because, the argument goes, the foregone opportunities
might have yielded a higher return than the available pre-judgment
interest rate. And, further, Braintree could not rely on a
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historical rate of return for such investments; it insisted on
liquidity from the outset precisely because these entrepreneurial
activities are high-risk, high-reward ventures, the want of which
is not easily measured in monetary terms after the fact. Because
it might be difficult to determine retrospectively how much these
missed opportunities were actually worth, Braintree insists that
liquidity in the present moment, and not monetary damages at a
point in the future, is the only way to make it whole.
The district court did not abuse its discretion in
rejecting this argument. An investor could always claim that she
could put money to better use than simply letting it accrue
interest at the prevailing rate. An asserted injury so ubiquitous
cannot serve as the basis for the issuance of a preliminary
injunction. See Charlesbank Equity Funds II v. Blinds to Go, Inc.,
370 F.3d 151, 162–63 (1st Cir. 2004). Rather, if a claim of
irreparable injury tied to outperforming the market could ever be
recognized, it could only be on the basis of a substantial
evidentiary showing. In the absence of such a showing a plaintiff
like Braintree, if successful on the merits, would be entitled only
to monetary damages, perhaps calculated with reference to a
historical rate of return. And although Braintree stressed at oral
argument that its case is exceptional because its year-to-year
performances would be too volatile to provide such a reference
point, there is no record evidence to support that contention.
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Braintree's mere say-so is insufficient to convert its desire for
prejudgment cash into a justification for a prejudgment injunction.
In arguing against the district court's conclusion,
Braintree principally relies on RoDa Drilling Co. v. Siegal, 552
F.3d 1203 (10th Cir. 2009), in which the Tenth Circuit affirmed a
lower court's issuance of a preliminary injunction forcing the
transfer of record title for various oil and gas investments. The
appeals court concluded that the plaintiff suffered irreparable
harm by being denied ownership of real property, "resulting in
delays, missed opportunities, and most importantly, unquantifiable
damages." Id. at 1211. Because "realizing [the properties']
income potential depends upon active management," the court
reasoned that potential damages would be "most difficult to prove,
if not practically unquantifiable." Id. That was sufficient to
establish irreparable harm, even for a mandatory injunction.
Yet Braintree's reliance on RoDa Drilling is misplaced.
The plaintiff in that case had provided expert testimony on the
issue of irreparable harm and the unpredictability of damages
absent a preliminary injunction. Id. Here, the record contains no
such evidence. On that issue, Braintree proffered neither expert
testimony nor any data that would tend to show its investment
practices and historical rates of return. All it has put in the
record is a conclusory affidavit from its Chief Financial Officer.
It might be that market conditions, business practices, and
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investment opportunities would vary so wildly over time that past
performance would be too imprecise an instrument to measure
compensatory damages in a non-speculative manner. Applied to a
business engaged in the research and development of pharmaceutical
products, that theory is at least plausible. But plausibility
alone is no basis for assailing the district court's finding.
It is true that we measure irreparable harm on "a sliding
scale, working in conjunction with a moving party's likelihood of
success on the merits," Vaqueria tres Monjitas, Inc. v. Irizarry,
587 F.3d 464, 485 (1st Cir. 2009), such that "[t]he strength of
the showing necessary on irreparable harm depends in part on the
degree of likelihood of success shown." Mass. Coal. of Citizens
with Disabilities, 649 F.2d at 75. Based on this principle,
Braintree would rest on the laurels of its case on the merits and
ask us to excuse whatever shortcomings might exist in the harm that
it alleges. Yet at least some positive showing of irreparable harm
must still be made. See Gately v. Commonwealth of Mass., 2 F.3d
1221, 1232 (1st Cir. 1993) ("[A] federal court cannot dispense with
the irreparable harm requirement in affording injunctive relief.").
Accordingly, we find no abuse of discretion in the
district court's decision to withhold preliminary injunctive
relief.
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III.
Braintree also appeals from the district court's order
compelling arbitration. Congress enacted the Federal Arbitration
Act ("FAA"), codified as amended at 9 U.S.C. § 1 et seq., in order
to "overcome judicial resistance to arbitration and to declare a
national policy favoring arbitration of claims that parties
contract to settle in that manner." Vaden v. Discover Bank, 129 S.
Ct. 1262, 1271 (2009) (internal quotations and citations omitted).
To further that policy, Section 16(b) of the FAA prohibits the
immediate appeal of various interlocutory orders that favor
arbitration, including orders compelling arbitration.6 See 9
U.S.C. § 16(b)(3). Unfazed by this limitation on our appellate
jurisdiction, Braintree advances two arguments for why we should
nonetheless consider whether this case is arbitrable. First,
Braintree claims that the order may have been final, rather than
interlocutory. Second, it contends that we could review the matter
by exercising pendent appellate jurisdiction. We take up each
argument in turn.
While Section 16 limits the immediate appealability of
most pro-arbitration interlocutory orders, it still permits appeals
to be taken from a "final decision with respect to an arbitration."
9 U.S.C. § 16(a)(3). Whether an order compelling arbitration is
6
The statute provides an exception for orders that the
district court certifies for appeal under 28 U.S.C. § 1292(b), but
that exception is not at issue here.
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interlocutory or final depends on whether the district court
chooses to stay litigation pending arbitration or instead to
dismiss the case entirely. If the district court stays litigation,
parties wishing to challenge the case's arbitrability must normally
wait until the arbitrator resolves the matter on the merits and the
district court enters a final judgment. Green Tree Fin. Corp. v.
Randolph, 531 U.S. 79, 87 n.2 (2000). If, on the other hand, the
district court couples its order compelling arbitration not with a
stay but with an outright dismissal, leaving nothing more for
itself to do but execute the eventual judgment, then an appeal may
be taken. Id. at 86–87.
Seizing on the fact that the district court here did not
specify in its order whether it was staying or dismissing the case,
Braintree asks us to remand the case to the district court, which
could then clarify which outcome it intended. We see no need to do
so. To begin with, Braintree did not request this remand until its
reply brief, and its opening brief did not even mention the alleged
ambiguity except in a cursory footnote appended to its discussion
of pendent appellate jurisdiction. We have on numerous occasions
warned litigants that "issues adverted to in a perfunctory manner,
unaccompanied by some effort at developed argumentation, are deemed
waived." United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).
The slight development in the reply brief does nothing to help
matters, as arguments raised there for the first time come too late
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to be preserved on appeal. Evans Cabinet Corp. v. Kitchen Intern.,
Inc., 593 F.3d 135, 148 n.20 (1st Cir. 2010).
Moreover, even had the issue been properly preserved, we
would still read the district court's order as a stay. CGMI's
motion to compel arbitration specifically requested a stay pending
arbitration. See Defendant's Motion to Stay Proceedings Pending
Determination of the MDL Panel or to Compel Arbitration at 1,
Braintree Labs., 671 F. Supp. 2d 202 (D. Mass. 2009) (No. 09-
10601). It is true that the court granted the motion without
reference to either a stay or a dismissal in so many words. But we
think that if it had meant to provide relief other than that sought
in the motion it was granting, it would have said so. The most
plausible reading of the order is that the court was granting the
motion to compel arbitration in its entirety, including the
requested stay pending arbitration.7
Braintree next posits that even if the district court's
order is otherwise non-appealable under Section 16, we may still
review it through the exercise of pendent appellate jurisdiction.
"Instances in which the exercise of pendent appellate jurisdiction
7
We note that district courts can easily avoid this sort of
confusion in the future. The Second Circuit offered sound advice
when it urged "district courts in these circumstances to be as
clear as possible about whether they truly intend to dismiss an
action or mean to grant a stay pursuant to 9 U.S.C. § 3, which
supplies that power, or whether they mean to do something else
entirely." Salim Oleochemicals v. M/V Shropshire, 278 F.3d 90, 93
(2d Cir. 2002) (Sotomayor, J.).
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is appropriate are hen's-teeth rare," arising only when "(i) a
non-appealable issue is inextricably intertwined with one or more
appealable issues or (ii) review of a non-appealable issue is
essential to ensure meaningful review of an appealable issue."
P.R. Ports Auth. v. Barge Katy-B, 427 F.3d 93, 107 (1st Cir. 2005).
Other circuits have disagreed over whether this seldom-used
doctrine could ever permit the review of interlocutory orders that
§ 16 brands as non-appealable. Compare IDS Life Ins. Co. v.
SunAmerica, Inc., 103 F.3d 524, 528 (7th Cir. 1996) (holding that
Section 16 creates a bright-line rule against the exercise of
pendent appellate jurisdiction over refusals to stay arbitration),
with Nat'l R.R. Passenger Corp. v. ExpressTrak LLC, 330 F.3d 523,
528 (D.C. Cir. 2003) (rejecting the Seventh Circuit's approach in
favor of a rule that would allow the exercise of pendent appellate
jurisdiction under limited circumstances); Freeman v. Complex
Computing Co., Inc., 119 F.3d 1044, 1050 (2d Cir. 1997) (same).
Ultimately, however, this case does not require us to
choose sides. Even assuming arguendo that pendent appellate
jurisdiction could in some instances be exercised over orders
compelling arbitration, this would not be one of those instances.
Far from being inextricably intertwined, the district court's
refusal to grant a preliminary injunction and its decision to
compel arbitration have little to do with each other. The former
concerns the underlying claim for relief; the latter concerns the
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forum in which that claim is to be adjudicated. Braintree relies
on National Railroad Passenger Corp., in which the D.C. Circuit
found an order compelling arbitration and an order granting a
preliminary injunction to be inextricably intertwined, but that
case is distinguishable. There, the district court had enjoined
the parties, not based on any irreparable harm or likelihood of
success of the claim to be arbitrated, but based on its conclusion
that the arbitration clause itself "clearly contemplated"
injunctive relief pending arbitration. 330 F.3d at 528 (quoting
Nat'l R.R. Passenger Corp. v. Expresstrak, L.L.C., 233 F. Supp. 2d
39, 50 (D.D.C. 2002)). Because that injunction was only as valid
as the arbitration clause that dictated it, the D.C. Circuit found
that the injunction was entirely dependent on -- and therefore
conferred pendent appellate jurisdiction over -- the case's
arbitrability. Id. It was only this "unique factual context" that
removed any concern that the movant was "'parlay[ing] . . .
collateral orders into multi-issue interlocutory appeal tickets.'"
Id. (quoting Swint v. Chambers County Comm'n, 514 U.S. 35, 49
(1995)) (alterations in original).
Here, by contrast, the preliminary injunction rises or
falls with the traditional four-step analysis, and none of these
steps logically depends on the answer to the question of
arbitrability. Whether we might conclude that the case belongs in
arbitration would not change whether Braintree's claim on the
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merits is likely to succeed or whether Braintree is likely to
suffer irreparable harm while the arbitration is pending, nor would
it alter the balance of hardships or the extent of the public
interest in the outcome.8 Braintree points to the fact that its
claims to both a non-arbitral forum and to a provisional remedy
depend on Section 410(a)(2). This may be true so far as it goes,
but it doesn't go nearly far enough. That the two claims require
us to construe two different aspects of the same statute does not
in and of itself make those claims inextricably intertwined. We
may meaningfully review whether Braintree's state law action merits
provisional relief under Section 410(a)(2) without any need to
determine whether that statute limits the arbitrability of the
action. Braintree also makes the conclusory assertion that both
claims require consideration of its brokerage agreements and CGMI's
8
Braintree contends that insofar as it has alleged that CGMI's
invocation of arbitration rights violates the SEC consent
agreement, the public interest prong would be affected. Again,
this conflates the primary dispute over ultimate relief with the
secondary dispute over the appropriate forum. The public interest
that is referred to in the test for a preliminary injunction means
the public's interest in the issuance of the injunction itself. It
does not, by contrast, mean the public's interest in other claims
that happen to touch upon the factual circumstances giving rise to
the request for the injunction. Just because the public may have
a stake in a non-appealable decision does not permit the appellant
to handcuff that decision to a request for a preliminary injunction
and thereby attain immediate review. Here, even if there were some
public interest in Braintree litigating its claims in a court
rather than before an arbitrator, that would have no bearing on our
consideration of whether the public has an additional but separate
interest in the preliminary rescission of Braintree's contract
pending the final outcome of the dispute.
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consent agreement with the SEC. Even if this assertion were true
(and, unaided by any explanation from Braintree, we are not
convinced that it is), it is similarly insufficient to establish
pendent appellate jurisdiction. Whatever common issues of fact
these documents might create, we still need not reach the non-
appealable claim in order to resolve the appealable one.
In short, even assuming that pendent appellate
jurisdiction could ever be exercised in the arbitrability context,
we find no basis for exercising it in this case. We therefore
conclude that we have no jurisdiction to review the district
court's interlocutory order compelling arbitration.
IV.
For the foregoing reasons, we affirm the district court's
order denying Braintree's motion for a preliminary injunction and
dismiss for lack of jurisdiction Braintree's appeal from the
district court's order compelling arbitration.
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