United States Court of Appeals
For the First Circuit
No. 06-1112
JOAN BERENSON, DAVID BERENSON
Plaintiffs, Appellees
v.
NATIONAL FINANCIAL SERVICES LLC, FIDELITY BROKERAGE SERVICES LLC
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Lipez, Circuit Judge,
Cyr, Senior Circuit Judge,
and Singal,* District Judge.
David C. Frederick, with whom F. Andrew Hessick, Kellogg,
Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Nicholas C.
Theodorou, John A. Shope, William W. Fick, David E. Cole, and Foley
Hoag LLP were on brief, for appellants.
Douglas A. Rubel, with whom Johanson Berenson LLP were on
brief, for appellees.
April 27, 2007
* Of the District of Maine, sitting by designation.
LIPEZ, Circuit Judge. This case concerns the proper
boundary between the courts and arbitrators in some novel
circumstances. We must determine whether the district court
effectively denied the right of appellants National Financial
Services and Fidelity Brokerage Services (collectively "Fidelity")1
to arbitrate a dispute with their customers, Joan and David
Berenson, when it opined on the merits of the Berensons' claims
after granting appellants' motion to compel arbitration.
The arbitration agreement in this case requires the
arbitration of individual claims between Fidelity and its customers
but exempts class actions from the arbitration requirement. The
Berensons brought a putative class action against Fidelity. For
reasons described below, the district court determined that it
would adjudicate the merits of the Berensons' claims before
addressing the issues of class certification. All parties agreed
to this arrangement.
Fidelity filed several motions for summary judgment,
whittling away the Berensons' claims while class certification was
pending. In response to the final such motion, the district court
granted the motion in part and denied it in part, dismissing the
class claims and declaring that an opinion would follow. With the
class claims dismissed, Fidelity moved to compel arbitration on the
1
National Financial Services and Fidelity Brokerage Services
are both subsidiaries of FMR Corp., which is better known as
Fidelity Investments.
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Berensons' remaining claims, and the district court granted the
motion. Shortly thereafter, the district court issued its summary
judgment memorandum and order, explaining its earlier ruling.
Fidelity now claims that the district court effectively
rescinded its arbitration order when it addressed the merits of the
Berensons' remaining claims in its summary judgment memorandum,
justifying an interlocutory appeal from the denial of an
application to compel arbitration. Fidelity urges us to either
vacate the ruling, on the basis that the district court had no
authority to issue it, or to reverse the ruling on its merits.
Because we do not agree with Fidelity's claim that the district
court effectively denied its motion to compel arbitration, we
conclude that we have no jurisdiction to entertain Fidelity's
appeal.
I.
A. Factual Background
Joan and David Berenson opened a brokerage account at
Fidelity in the early 1980s. Since at least the mid-1980s, they
have used the company's electronic bill payment service, BillPay,
to make payments from an interest-earning account comprised of
mutual funds. At first, Fidelity operated the service itself; over
time, it contracted with different companies to provide the
service.
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In June 2000, Fidelity contracted with CheckFree, whose
electronic bill payment service used the "good funds" method. In
that system, the customer's request for payment triggers a debit
against the payor's account at 10 p.m. on the day the request is
made; the money is then held in a Fidelity account until 1 p.m. the
next day, when it is wired to CheckFree. If CheckFree has an
agreement with the designated payee, it then wires the money
directly to the payee; if there is no such agreement, CheckFree
issues and mails a CheckFree corporate check to the payee. This
method is known as the "good funds" model because debiting the
payor's account immediately assures that a payment is not made
unless the customer has sufficient funds, eliminating the
possibility that the payment will "bounce." This benefit comes at
a cost: the payor loses the opportunity to earn interest on the
funds it has scheduled for payment during the period between 10
p.m. on the day payment is initiated and when it is received by the
payee, i.e. the "float."
In August 2000, the Berensons began using Fidelity's
electronic bill payment service to transfer money from their
primary account into another Fidelity account held by Berenson &
Company International, which was owned by David Berenson. Because
there was no agreement between Fidelity and CheckFree to directly
transfer money, CheckFree issued corporate checks to effect those
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transfers, resulting in a delay between when the primary account
was debited and the corporate account was credited.2
In early 2002, Mr. Berenson called Fidelity to complain
about this delay, arguing that he believed the interest earned on
his money during the period of delay belonged to him and not to
Fidelity. He reiterated his complaint in a letter dated September
17, 2002. A Fidelity representative called Mr. Berenson in
response to his letter to explain the "good funds" system, but was
unsuccessful in his attempt to resolve the Berensons' complaint.
B. Early Procedural Background
On September 26, 2003, the Berensons filed a putative
class action in the United States District Court for the District
of Columbia.3 Significantly, a customer agreement they signed when
they opened their Fidelity account contained a provision requiring
2
In concrete terms, when the Berensons initiated a payment
from their primary account, those funds were debited against that
account that same day. The next day, the money was wired to
CheckFree; CheckFree then issued and mailed a check to the Fidelity
account of Berenson & Company International. When Fidelity
received the check, it deposited it into the Berenson & Company
International account. From the time the Berensons' primary
account was debited until the time that the Berenson & Company
International account was credited, the Berensons earned no
interest on transferred funds.
3
That court later transferred the case to the District Court
of Massachusetts because the claims arose in Massachusetts,
Massachusetts law governed, and Massachusetts had a greater
interest in deciding the suit since the majority of the potential
class members reside in Massachusetts.
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arbitration of "all controversies that may arise between us."
However, a limiting clause stated:
No person shall bring a putative or certified
class action to arbitration, nor seek to
enforce any pre-dispute arbitration agreement
against any person who has initiated in court
a putative class action . . . until: (a) the
class certification is denied; (b) the class
is decertified; or (c) the customer is
excluded from the class by the court.
The Berensons alleged multiple grounds for Fidelity's
liability: (1) Fidelity violated the Electronic Funds Transfer Act,
15 U.S.C. § 1693 ("EFTA") both (a) because the interest it gained
on the "float" constituted a "fee" that the EFTA requires be
disclosed, and (b) because Fidelity failed to respond to the
Berensons' complaint in writing within ten days, as required by the
EFTA's error resolution provision; (2) Fidelity's failure to
disclose this "fee" amounted to either intentional or negligent
misrepresentation; (3) Fidelity's collection of this "fee" breached
its contract with the Berensons; (4) collection of the "fee"
breached Fidelity's fiduciary duty to the Berensons; (5) Fidelity
violated the Massachusetts Truth in Savings Law ("MTiSL"), Mass.
Gen. Laws ch. 140E, which requires "financial institutions" to
disclose certain information to customers when they open an
account; and (6) Fidelity's failure to disclose that the Berensons
would not receive interest on the "float" of their funds
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constituted a violation of the Massachusetts Consumer Protection
Act, Mass. Gen. Laws ch. 93A ("chapter 93A").4
On November 7, 2003, Fidelity responded by filing a
motion to dismiss and for summary judgment on all claims; that
motion reserved the right to compel arbitration if class
certification was denied. After a hearing in October 2004, the
district court granted summary judgment in an oral ruling for
Fidelity on the contract and MTiSL claims. It found no contract
language promising that the payor would continue to earn interest
on its funds up to the point when the payee received them and
concluded that the MTiSL provides no private right of action. It
denied the motion as to all other claims, without prejudice.
Fidelity filed its second motion for summary judgment on February
8, 2005, alleging that the Berensons' EFTA claims were barred by
the statute of limitations.
C. Class Certification
While the renewed motion for summary judgment was
pending, the court held a hearing on the Berensons' motion for
class certification. Under the Federal Rules of Civil Procedure,
individuals who wish to represent a class of litigants must meet
several qualifications. The prerequisites include:
4
The initial claim filed in the District of Columbia also
included an allegation that Fidelity had violated the District of
Columbia Consumer Procedures Protection Act. That claim was
dropped after the case was transferred to Massachusetts.
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(1) the class is so numerous that joinder of
all members is impracticable ["numerosity"],
(2) there are questions of law or fact common
to the class ["commonality"], (3) the claims
or defenses of the representative parties are
typical of the claims or defenses of the class
["typicality"], and (4) the representative
parties will fairly and adequately protect the
interests of the class ["adequacy"].
Fed. R. Civ. P. 23(a).
During the hearing, Fidelity argued that the Berensons
could not fairly and adequately protect the interests of the class.
Specifically, Fidelity asserted a potential conflict of interest
because Mr. Berenson's son was a partner in the law firm
representing the Berensons. While the Berensons had a fiduciary
duty to the class to ensure a maximum return, they would also have
an interest in the law firm maximizing its fees. Consequently,
Fidelity argued, they might be unable to represent the true
interests of the class.
To deal with this issue, the district court suggested
that it try the Berensons' claims on the merits before certifying
the class: "Why don't we try the case without it being a class
action, win, lose or draw. If [the Berensons] lose, well, you know
that. But if [the Berensons] win, then [Fidelity is] collaterally
estopped, res judicata, and then we'll see if any class wants to
come out of the woodwork and pile on that." Turning to counsel for
Fidelity, the court asked: "You're not hurt by that. If I simply
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. . . try this case as an exemplar case. They lose it, then it's
lost and we'll see where we are. Then surely their interests won't
be typical. But if they win it, then we'll see where we are, too.
Doesn't that make sense?" Fidelity replied: "I think that there
would be a definite advantage to deferring the class certification
because we believe that there are these other dispositive motions
that can be addressed to the Berensons in particular. So from the
point of view of judicial efficiency we do understand deferral in
that respect." If Fidelity saw any incompatibility between the
court's exemplar proposal and subsequent arbitration of any of the
Berensons' claims, it never disclosed those views at this critical
hearing.
D. Later Procedural Background
Fidelity's second motion for summary judgment urged the
court to declare the Berensons' EFTA claims barred by the EFTA's
one-year statute of limitations. In a ruling from the bench on
March 3, 2005, the court granted the motion as to the claim of
inadequate disclosure (the "disclosure claim") because Mr.
Berenson's letter of September 17, 2002 indicated knowledge of
Fidelity's alleged failure to disclose, but the Berensons did not
file suit until September 26, 2003. The court denied the motion,
however, as to the Berensons' claim that Fidelity had violated the
EFTA by failing to respond in writing within ten days of Mr.
Berenson's complaint (the "error resolution claim"). The ten-day
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period following the complaint letter expired on September 27,
2002; the lawsuit was therefore just within the statute of
limitations on that claim. The court noted that "this partial loss
by the Berensons makes them less representative of any class. I
don't think perhaps I should say anymore."
On May 26, 2005, Fidelity moved for summary judgment on
all remaining claims (the error resolution claim, the
misrepresentation claims, breach of fiduciary duty, and the chapter
93A claim). It made some arguments that were particular to the
Berensons (i.e., that their claims were time barred) and so might
have been relevant to class certification; however, other arguments
extended beyond the Berensons' particular claims (i.e., that their
misrepresentation claims, error resolution claim, breach of
fiduciary duty claim and chapter 93A claim failed as a matter of
law). On July 13, the court issued an order granting summary
judgment for Fidelity on the misrepresentation and fiduciary duty
claims. It again denied summary judgment on the Berensons' error
resolution claim,5 but, because the Berensons did not file their
EFTA disclosure claim within the statute of limitations, the court
found that "they are not representative of the proposed class and
5
The court's previous ruling denying Fidelity's motion for
summary judgment on this claim had addressed only the effect of the
statute of limitations.
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thus the class claims are dismissed."6 Finally, the court denied
Fidelity's motion for summary judgment on the chapter 93A claim.
The order also stated that "[a]n opinion will follow shortly."
With the class claims dismissed, Fidelity moved to compel
arbitration on the Berensons' remaining individual claims. In
doing so, it raised no objection to the court's intention,
disclosed in its July 13 order, to issue an opinion explaining its
decision to grant summary judgment on some of Fidelity's claims and
to deny it on others. The district court granted the motion to
compel arbitration on August 22. Two months later, on October 31,
the district court issued a written opinion explaining its summary
judgment ruling. The court stated that it allowed the motion as to
misrepresentation and fiduciary duty because Fidelity made no
misrepresentation and owed no fiduciary duty to the Berensons. It
denied the motion as to the error resolution claim, rejecting
Fidelity's arguments that: (1) its conduct could not be deemed
"error" under the EFTA; (2) the Berensons never properly notified
Fidelity of an "error"; and (3) any error resolution claim is
untimely.
Addressing the Berensons' chapter 93A claim, the court
concluded that the Berensons' allegations were sufficient to state
a claim under the statute for an unfair trade practice. The court
6
The court did not specify its reasons for denying class
certification as to the Berensons' other claims.
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noted that Massachusetts courts have adopted the following test to
determine an unfair trade practice:
(1) whether the practice . . . offends public
policy as it has been established by statutes,
the common law, or otherwise whether . . . it
is within at least the penumbra of some
common-law, statutory, or other established
concept of unfairness; (2) whether it is
immoral, unethical, oppressive, or
unscrupulous; (3) whether it causes
substantial injury to consumers (or
competitors or other businessmen).
Berenson v. Nat'l Fin. Servs., LLC, 403 F. Supp. 2d 133, 149 (D.
Mass. 2005) (citing Purity Supreme, Inc. v. Attorney Gen., 407
N.E.2d 307 (Mass. 1980)). With that framework in mind, the court
opined that the Berensons had alleged a potentially viable chapter
93A claim based on their allegations under the EFTA and MTiSL. It
accepted their argument that lost interest could be a "fee" under
the EFTA and that Fidelity could be a "financial institution" as
defined by the MTiSL. A chapter 93A claim also was timely because
the statute has a four-year limitations period.7 The court
therefore concluded that Fidelity was not entitled to judgment as
a matter of law.
7
The district court therefore held that, although the EFTA's
one-year statute of limitations bars the Berensons' direct EFTA
"disclosure" claim, the four-year statute of limitations governing
chapter 93A allows the Berensons to go forward with a chapter 93A
claim based on Fidelity's lack of disclosure under the EFTA.
Similarly, while the MTiSL did not create a private right of
action, it provided a sufficient basis on which to establish a
claim under chapter 93A.
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Shortly thereafter, Fidelity filed a motion asking the
court to take one of three alternative steps: to reconsider its
summary judgment ruling, to certify it for interlocutory appeal, or
to vacate it in part. Arguing for reconsideration, Fidelity
claimed that the court made three critical errors of law in finding
that: (1) the subject of the Berensons' complaints constituted an
"error," triggering the EFTA's error resolution provisions, even
though the claimed impropriety did not fall within any of the
narrowly defined categories of "error" enumerated in the statute;8
(2) the lost opportunity to earn interest was a "fee" subject to
disclosure under EFTA; and (3) Fidelity is a "bank" under MTiSL.
Alternatively, Fidelity argued that the court should
certify its rulings for interlocutory appeal under 28 U.S.C. §
1292(b), which provides that:
8
Under the applicable statutory provision, an error consists
of:
(1) an unauthorized electronic fund transfer; (2) an
incorrect electronic fund transfer from or to the
consumer's account; (3) the omission from a periodic
statement of an electronic fund transfer affecting the
consumer's account which should have been included; (4)
a computational error by the financial institution; (5)
the consumer's receipt of an incorrect amount of money
from an electronic terminal; (6) a consumer's request for
additional information or clarification concerning an
electronic fund transfer or any documentation required by
this subchapter; or (7) any other error described in
regulations of the Board.
15 U.S.C. § 1693f(f).
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When a district judge, in making in a civil
action an order not otherwise appealable . . .
shall be of the opinion that such order
involves a controlling question of law as to
which there is substantial ground for
difference of opinion and that an immediate
appeal from the order may materially advance
the ultimate termination of the litigation, he
shall so state in writing in such order.
Fidelity argued that the issues in the case involve open questions
of controlling law, are important because of the impact they are
likely to have throughout the financial industry, and that
resolution of these issues was likely to materially advance the
ultimate termination of litigation. Finally, Fidelity argued that
the court should withdraw its order to the extent that it concerned
substantive matters that should properly be decided by arbitrators,
i.e., the legal points on which it sought reconsideration.
The court denied Fidelity's motion without explanation on
November 28, 2005. Fidelity filed this interlocutory appeal under
the Federal Arbitration Act, 9 U.S.C. § 16(a)(1)(B) ("FAA"),9 which
provides, in pertinent part, that "[a]n appeal may be taken from an
order denying a petition . . . to order arbitration to proceed."
Fidelity argues that, once the district court entered its order to
9
At times, Fidelity describes its appeal as falling under
§ 16(a)(1)(C), which allows an appeal to be taken from an order
"denying an application under section 206 of this title to compel
arbitration." Because Fidelity more consistently invokes
§ 16(a)(1)(B) and because these provisions are effectively the same
here, this opinion will refer to that section as the sole basis for
the appeal.
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compel arbitration, it no longer had the authority to address the
merits of any remaining claims. By discussing the EFTA and chapter
93A claims on the merits in its October 31 opinion, Fidelity
asserts that the district court effectively denied its request for
arbitration as to those claims. Similarly, Fidelity argues that
the court's refusal to reconsider or vacate its October 31 opinion
and order constituted a second denial of its request for
arbitration of the Berensons' claims. At the heart of Fidelity's
appeal lie two concerns: (1) that the arbitrator who will now
resolve the parties' dispute will rely on the court's substantive
determinations, which Fidelity views as erroneous; and (2) that an
unwelcome district court decision will remain on the books.
II.
The Berensons insist that we do not have jurisdiction to
hear this appeal. We begin by examining that proposition.
Ordinarily, appeal is available only from a final judgment of the
district court. Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 6
(1st Cir. 2005). However, there are a few exceptions to this
general rule, including when a party seeks interlocutory review of
a district court's order "denying a petition . . . to order
arbitration to proceed," 9 U.S.C. § 16(a)(1)(B). Although the
dispute between Fidelity and the Berensons is now before an
arbitrator, Fidelity argues that the district court's October 31
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and November 28 orders effectively denied Fidelity's motion to
compel arbitration, permitting this court's interlocutory review.
We disagree with Fidelity's characterization of the
district court's actions. First, Fidelity posits that the district
court improperly entered a judgment on the merits of the arbitrable
claims after it denied certification and ordered arbitration. In
fact, the judgment denying Fidelity's motion for summary judgment
on the EFTA and Chapter 93A claims officially entered on July 13,
2005, not on October 31, 2005. If it had not, the court could not
have granted Fidelity's motion to compel arbitration of those
claims on August 22, 2005 because the class claims would have still
been pending. The court's October 31 memorandum was merely a nunc
pro tunc explanation of the reasons for the July 13 ore tenus
judgment on the merits, and not a separate judgment.
Second, the July 13 judgment and October 31 opinion were
a direct result of two decisions made by Fidelity in the course of
defending itself against the Berensons' complaint: (1) its decision
to allow the court to try the Berensons' case as an "exemplar case"
before it decided whether to certify a class; and (2) its
subsequent request for summary judgment, in which it urged the
court to make a broad array of merits judgments extending beyond
the particular facts of the Berensons' claims.10 Fidelity itself
10
Fidelity urged the court to find that the misrepresentation
claims were barred as a matter of law because "the available
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had invited the court to consider broadly the merits of the full
panoply of the Berensons' claims before certifying a class.
Resisting the implications of this conclusion, Fidelity
argues that, in passing the FAA, 9 U.S.C. §§ 1-16, Congress sought
to "overcome courts' refusals to enforce agreements to arbitrate."
Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 270 (1995); see
also Volt Info. Scis. v. Bd. of Trs., 489 U.S. 468, 479 (1989)
(stating that the "primary purpose" of the FAA is to ensure "that
private agreements to arbitrate are enforced according to their
terms"). The Supreme Court has announced some principles that
further this purpose:
The first principle . . . is that arbitration
is a matter of contract and a party cannot be
required to submit to arbitration any dispute
which he has not agreed to submit . . . . The
second rule, which follows inexorably from the
first, is that the question of
arbitrability . . . is undeniably an issue for
judicial determination. . . . The third
principle derived from our prior cases is
that, in deciding whether the parties have
agreed to submit a particular grievance to
agreements provided to Fidelity customers, including the Berensons,
clearly disclose the material facts that the Berensons allege were
omitted." It contested the error resolution claim, urging the
court to find that "Fidelity's actions pursuant to the contract are
not an 'error' triggering the EFTA's notice and response
provisions." It argued that the court should find no breach of
fiduciary duty as a matter of law because Fidelity does not act as
a fiduciary in its provision of the BillPay service and that the
claim that "supposed failures to disclose together violate the
Massachusetts Consumer Protection Act . . . fails as a matter of
law because . . . the underlying common law and statutory causes of
action upon which it is based also fail."
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arbitration, a court is not to rule on the
potential merits of the underlying claims.
AT&T Tech., Inc. v. Communic'ns Workers of Am., 475 U.S. 643, 648-
49 (1986). Fidelity relies heavily on the third "principle" of
this analysis, noting that § 3 of the FAA requires that, once a
party moves for arbitration of an issue referable to arbitration,
the district court "shall . . . stay the trial of the action until
such arbitration has been had in accordance with the terms of the
agreement," 9 U.S.C. § 3.
Fidelity cites an array of cases for the principle that
courts should avoid ruling on any underlying claims that may
ultimately be subject to arbitration. It also emphasizes our
statement that "'any doubts concerning the scope of arbitrable
issues should be resolved in favor of arbitration,' given the pro-
arbitration policy of the [FAA]," Marie, 402 F.3d at 9 (quoting
Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-
25 (1983)); see AT&T Techs., 475 U.S. at 649 ("[I]n deciding
whether the parties have agreed to submit a particular grievance to
arbitration, a court is not to rule on the potential merits of the
underlying claims."); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S.
213, 218 (1985) ("[D]istrict courts shall direct the parties to
proceed to arbitration on issues as to which an arbitration
agreement has been signed."); MedCam, Inc. v. MCNC, 414 F.3d 972,
975 (8th Cir. 2005) (describing the proper scope of the court's
inquiry as "ask[ing] only whether the parties have agreed to
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arbitrate a particular claim and . . . not reach[ing] the potential
merits of the claim"); Painewebber Inc. v. Elahi, 87 F.3d 589, 595
(1st Cir. 1996) (stating that "issues other than 'arbitrability'
are presumptively for the arbitrator").
As generalities, these principles are sound. But the
particulars of this case are equally important. Here the parties
carved out class action claims from their agreement to arbitrate.
The Berensons brought a putative class action, placing their claims
against Fidelity appropriately before the courts. When the court
suggested to the parties that it try the Berensons' case as an
"exemplar case," Fidelity agreed to this arrangement. Even if
Fidelity harbored some notion that the trial of the Berensons' case
could be limited to issues peculiar to the Berensons, and hence
relevant to their suitability as class representatives, they did
not proceed on that basis. Instead, Fidelity invited the court to
make sweeping merits determinations in its motion for summary
judgment.
Consistent with the view that arbitration is a matter of
private agreement, courts have recognized that parties may waive
their right to arbitration and consent to proceed on the merits
through the courts. See, e.g., In re Citigroup, Inc., 376 F.3d 23,
26 (1st Cir. 2004) ("A party may waive arbitration expressly or
implicitly."); Restoration Pres. Masonry, Inc. v. Grove Eur. Ltd.,
325 F.3d 54, 60 (1st Cir. 2003) ("Parties are free to waive their
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rights to arbitration by contract. Waiver can either be express or
implied.") (citations omitted); Navieros Inter-Americanos, S.A. v.
M/V Vasilia Express, 120 F.3d 304, 316 (1st Cir. 1997) ("[W]e have
repeatedly held that a party may, by engaging in litigation,
implicitly waive its contractual right to arbitrate.").
The Berensons do not claim that Fidelity's agreement to
allow the court to address the merits of their claim before
addressing the issue of class certification constituted a full
waiver of its right to arbitrate. The Berensons argue, however,
that Fidelity's agreement does bar Fidelity from now objecting to
substantive rulings that it invited the court to make. Arguing for
a narrower construction of its agreement, Fidelity invokes its
reservation of its right to arbitrate in its November 2003 motion
for summary judgment.11 Relatedly, Fidelity attempts to distinguish
substantive issues the court necessarily addressed in order to
determine whether the Berensons could adequately represent the
class from substantive rulings that were unnecessary to the
resolution of class certification (i.e., those that did not bear on
11
Fidelity's memorandum in support of its November 2003 motion
to dismiss and for summary judgment notes in a footnote on the
second page:
Fidelity's current Customer Agreement with the plaintiffs
provides that disputes must be arbitrated but that
Fidelity cannot compel arbitration of putative class
actions before certification is denied. Fidelity
reserves the right to compel arbitration if this Court
denies class certification, as it should if the case will
proceed.
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the adequacy or typicality of the Berensons as class
representatives). While Fidelity does not contest the propriety of
the court's rulings on the former, it argues that the latter –
particularly the court's rulings regarding the EFTA and MTiSL
claims – were improperly issued.12
This argument fails for two reasons: (1) the agreement to
proceed to the merits occurred after the November 2003 reservation
and modified it; and (2) Fidelity never sought to establish a line
between permissible and impermissible merits determinations.
Fidelity agreed that the court should proceed to the merits of the
Berensons' case without it being a class action; indeed, it
expressed its confidence that deferring class certification would
be advantageous because it believed "that there are these other
dispositive motions that can be addressed to the Berensons in
particular." To the extent that Fidelity only contemplated
dispositive motions that raised issues comparable to the statute of
limitations issue on the Berensons' disclosure claim under the
EFTA, it moved aggressively beyond such contemplation when it
12
The Berensons emphasize that even these rulings were deeply
entwined with class certification. For example, if the district
court had decided that lost interest on "float" could not be
considered a "fee" requiring disclosure under the EFTA, then the
late filing of the Berensons' claim on that issue would not have
disqualified them as class representatives and the issue of class
certification might still be before the district court. We need
not resolve the debate between the parties on this point because we
find that, entwined or not, Fidelity agreed that the court should
address these issues.
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sought summary judgment rulings on the merits of all of the
Berensons' claims, gambling that it could defeat those claims and
therefore preempt the class action before a decision on class
certification became necessary. Having lost its gamble, Fidelity
now asks us to invalidate the unwelcome summary judgment ruling of
the district court. That we cannot do.13
Fidelity laments that the court's summary judgment ruling
may prejudice the arbitration of its claims. We make no judgment
here about the relationship between the decision of the district
court and the arbitration proceedings. In the first instance, it
is up to the arbitrator to decide how that decision should be
handled in the arbitral forum. If there is to be an appeal from
the arbitration decision, Fidelity can raise in that appeal any of
its concerns about the arbitrator's treatment of the district
court's summary judgment ruling.
13
Fidelity also argues by analogy that a decision granting a
motion to compel arbitration divests the trial court of its
authority to address the merits of a case. It points out that a
trial court cannot amend an opinion after a notice of appeal has
been filed, see Inland Bulk Transfer Co. v. Cummins Engine Co., 332
F.3d 1007, 1013-14 (6th Cir. 2003), and that an appeals court
cannot issue a panel opinion after a case settles but before
mandate is issued, see Key Enters. v. Venice Hosp., 9 F.3d 893, 900
(11th Cir. 1993). We find these analogies strained and inapt. The
parties have not settled this case, nor has the district court
issued an opinion after an appeal was taken. Instead, the court
issued its decision in accordance with a procedure accepted by
Fidelity to try the Berensons' claims as an exemplar case and in
response to its own request for summary judgment.
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Fidelity is also unhappy that a district court decision
it thinks is wrong remains on the books while arbitration
proceeds.14 However, with its successful motion to seek arbitration
after the district court issued its July 13 order, Fidelity
deprived itself of the opportunity to challenge the merits
determinations of the district court through a traditional direct
appeal from a final judgment of the district court after completion
of the pre-trial and trial proceedings in the exemplar case.
Fidelity only has itself to blame for this self-inflicted wound.
We agree with Fidelity that, in the typical arbitration
case, it is important to heed the Supreme Court's admonition "not
to rule on the potential merits of the underlying claims," AT&T
Techs., 475 U.S. at 650. However, this maxim was intended as a
shield, protecting the parties to an arbitration agreement from an
overzealous court that did not understand its limited role in
deciding a motion to compel arbitration. Here Fidelity wields this
principle as a sword, seeking not only to undermine the court's
legitimate – indeed necessary – role in explaining the summary
judgment ruling Fidelity requested, but also to undo the series of
14
We note that the denial of a motion for summary judgment
(viz., on the EFTA and Chapter 93A claims), although a provisional
decision on the merits, is not a "final judgment" on the merits.
See e.g., Bethlehem Steel Export Corp. v. Redondo Constr. Corp.,
140 F.3d 319, 321 (1st Cir. 1998).
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tactical decisions Fidelity made in defending itself against the
Berensons' claims.15
The court's October 31 summary judgment opinion was a
direct consequence of Fidelity's agreement to allow the court to
try the Berensons' claims in an exemplar case before certifying a
putative class action and its request for summary judgment on all
remaining claims in the case. It was not an effective denial of
Fidelity's petition to compel arbitration on the Berensons'
individual claims; indeed, that arbitration is now proceeding.
Lacking jurisdiction over Fidelity's interlocutory appeal, we must
dismiss it.
So ordered.
15
Fidelity also construes the November 28 order denying
Fidelity's motion to reconsider or vacate its October 31 order as
a denial of Fidelity's request for arbitration in violation of
§ 16(a)(1)(B). This claim depends crucially upon the premise that
the district court lacked the authority to pass on the merits of
the Berensons' claims once it granted Fidelity's petition to compel
arbitration. For the reasons already stated, we reject this
premise and therefore find that we have no jurisdiction to hear
Fidelity's appeal of the November 28 order under § 16(a)(1)(B).
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