Arthur Andersen LLP v. Carlisle

Wayne Carlisle, James Bushman, and Gary Strassel (owners) (plaintiffs) owned a construction-equipment company. Arthur Andersen LLP (Andersen) (defendant) served as the company’s accountant and tax adviser. The owners prepared to sell the company and wanted to minimize their tax obligation for the sale. Andersen and two other firms, Bricolage Capital LLC (Bricolage) and Curtis, Mallet-Prevost, Colt & Mosle LLP (Curtis) (firms) (defendants), consulted with the owners and made recommendations to lower the owners’ taxes. As part of the tax-shelter scheme, the owners created limited-liability companies (LLCs) and entered into investment-management agreements with Bricolage. Curtis and Andersen were not parties to these agreements. The agreements provided for arbitration of all disputes. The Internal Revenue Service investigated and found the tax-shelter scheme illegal. The owners filed suit in federal district court against Bricolage, Andersen, and Curtis. The firms invoked the Federal Arbitration Act (FAA) to seek a stay of proceedings pending arbitration, citing the investment-management agreements. The district court refused the stay, and Curtis and Andersen filed an interlocutory appeal to the Sixth Circuit. The Sixth Circuit dismissed the appeal for lack of jurisdiction. The appellate court found that nonsignatories to an arbitration agreement did not have the right to appeal the district court’s denial of a stay and that nonsignatories were categorically barred from receiving a stay of proceedings under the FAA. The case was appealed to the United States Supreme Court.