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Maryland Court of Appeals holds that Order Denying Motion to Compel Arbitration in ongoing proceeding was not appealable

Am. Bank Holdings, Inc. v. Kavanaugh
No. 21 (Md. Dec. 30, 2013)
by Wayne C. Heavener, Associate
Semmes, Bowen & Semmes (www.semmes.com)

In American Bank Holding, Inc v. Kavanagh, the Maryland Court of Appeals held that an order denying a defendant’s motion to compel arbitration in an extant case was not a “final order,” and was therefore not appealable. While recognizing that an order denying a motion to compel arbitration in an independent action is immediately appealable, the Court held that a similar order in an ongoing case is not appealable because it does not take the parties “out of the court;” therefore, it is not a “final order.” Writing for the Court, Judge Lynne Battaglia affirmed the intermediate appellate court’s decision to dismiss the defendant’s appeal, because the defendant’s petition to compel arbitration was filed in an ongoing proceeding. Judge Robert McDonald wrote in dissent, and found that all order denying motions to compel arbitration should be appealable interlocutory orders.

American Bank Holdings, Inc. (“Defendant”) sold residential mortgages. Brian Kavanaugh and Jeffrey Weber (collectively, “Plaintiffs”) worked for Defendant as co-branch managers in Baltimore City. Plaintiffs’ employment contracts with Defendant provided that one-tenth of one percent on all loan transactions were to be put into a “loss reserve,” which would be used by Defendant to pay any losses incurred by the Plaintiffs’ branch office. Plaintiffs would receive certain percentages of what remained in the fund as a bonus at the termination of their contracts. Plaintiffs’ employment contracts also contained arbitration clauses, which required “[a]ny controversy or claims . . . arising out of or relating to this Agreement, or breach hereof (including arbitrability of any controversy or claim), shall be settled by arbitration. . . .” Am. Bank Holdings, Inc. v. Kavanaugh, No. 21, slip op. at 1–2 (Md. Dec. 30, 2013).

Plaintiffs terminated their contracts, and expected approximately $250,000 to be paid to them from the loss reserve fund. After Defendant failed to pay the anticipated amount, Plaintiffs filed a Complaint for Accounting in the Circuit Court for Baltimore County against Defendant. Defendant filed an Answer, in which it asserted accord and satisfaction and payment. Additionally, Defendant pled that “this Court lacks jurisdiction to hear the case because [Plaintiffs’] claims are subject to mandatory arbitration agreements . . . .” Id. at 2–3. Shortly thereafter, Defendants filed a Petition to Compel Arbitration and Stay All Proceedings. The Circuit Court denied Defendant’s Petition. Defendant filed a Notice of Appeal. The Court of Special Appeals dismissed Defendant’s appeal. The Court of Appeals granted certiorari.

The Court of Appeals affirmed the intermediate appellate court’s decision, and found that the Circuit Court’s Order was not a final judgment ripe for appeal. In reaching its decision the Court looked to MD. CODE ANN., CTS & JUD. PROC. § 12-302 (“§ 12-302”), which provides, in part, that “[t]he right of appeal exists from a final judgment entered by a court . . . unless in a particular case the right of appeal is expressly denied by law.” Id. The Court noted that, while certain interlocutory orders have been made appealable by legislative fiat, the “final order” rule has long been recognized under Maryland law. The Court found that its interpretation of § 12-302 was consistent with the Maryland Uniform Arbitration Act, and supported the Court’s holding that only those petitions denied in an independent action are immediately appealed. The Court stated:

As we have reiterated, an appealable “final judgment” under Section 12-301 of the Courts and Judicial Proceedings Article decides and concludes the rights of the parties involved or denies a party the means of further prosecuting or defending rights in the subject matter of the proceeding. An order denying a request to compel arbitration, styled as a motion or petition, filed in an existing action does neither and cannot be viewed as a final judgment, unlike that situation when a Petition to Compel Arbitration filed on its own is denied, which terminates the action.

American Bank Holdings, Inc., slip op. at 25. Hence, the Court found that the Circuit Court’s Order denying Defendant’s Petition to Compel Arbitration was not a “final order;” therefore, it was not appealable.

Judge McDonald filed a dissenting opinion, finding that an order denying a motion to compel arbitration should be immediately appealable, regardless of whether it is filed in a pending proceeding or an independent action. Judge McDonald found that, when read together, the Maryland Uniform Arbitration Act and § 12-302 confer “final order” status upon orders denying a party’s motion to compel arbitration. In reaching his conclusion, Judge McDonald noted: “If the underlying concern of the Majority opinion is that arbitration has been extended and imposed on parties not within the original contemplation of the Legislature, I share that concern . . . . But that it not the case or the question before us.” Am. Bank Holdings, Inc., Dissent slip op. at 19. Therefore, Judge McDonald would have held that all orders denying motions to compel arbitration are appealable interlocutory orders, regardless of whether the motion was filed in an independent action.