Labor & Employment Law Daily Wrap Up, ARBITRATION—5th Cir.: Order compelling Clay County to arbitrate former nurse’s claims reversed, (Jan 13, 2025)

By Todd Harrison, J.D.

The district court had declined to address the county’s arguments concerning governmental immunity, an issue that should have been resolved prior to ruling on the motion to compel arbitration.

Reversing a district court’s order compelling arbitration insofar as it declined to address Clay County’s motion to dismiss on the basis of governmental immunity under Texas law, the Fifth Circuit acknowledged the tension between the Federal Arbitration Act and the collateral order doctrine premised on governmental immunity, a tension that arises when a district court grants a motion to compel arbitration without first addressing the issue of immunity. Because the district court in this instance refused to adjudicate the county’s motion to dismiss, denied that motion as moot, and deferred the issue to arbitration, its order was an appealable final decision. However, the question of whether the county was entitled to immunity remained a matter for the district court to decide in the first place (Ashley v. Clay County, No. 24-10005 (5th Cir. Jan. 10, 2025)).

Clay County Memorial Hospital (CCMH) operates under the oversight of the Clay County Commissioner’s Court, which is responsible for appointing a board of managers. To support CCMH financially, the county established a nonprofit corporation, the Clay County Memorial Hospital Foundation.

Chief nursing officer. In October 2021, CCMH hired the plaintiff as its Chief Nursing Officer (CNO). During her tenure, the CNO had raised concerns about patient safety issues, publicly addressing her concerns at a CCMH board meeting.

Further, the CNO had internally advocated for CCMH to terminate its contract with Concord Medical Group and to partner instead with ACPHealth. Following this advocacy, the CNO alleged that the county, CCMH, and the foundation retaliated against her by terminating her employment, violating her First Amendment rights to free speech and association.

Governmental immunity. On January 17, 2023, the CNO filed suit against the county and Concord, alleging retaliation. The county moved to dismiss, asserting that it was not the CNO’s employer and had taken no adverse actions against her. In response, the CNO amended her complaint to add CCMH as a defendant, narrowing her claims against the county to First Amendment retaliation and conspiracy under Section 1983. She later filed another amended complaint, reasserting her state-law claims against both CCMH and, alternatively, the county, citing the ongoing uncertainty surrounding CCMH’s legal status. The county maintained that it was not the CNO’s employer and moved to dismiss on governmental immunity grounds.

Arbitration clause. Meanwhile, CCMH invoked an arbitration clause in the CNO’s employment agreement and moved to compel arbitration. The county, a purported nonsignatory to the agreement, neither moved to compel arbitration nor sought to participate in arbitration. Nevertheless, the district court sua sponte compelled the county to arbitration alongside CCMH, denying the county’s motion to dismiss as moot.

Asserting governmental immunity and its purported lack of employer status, the county moved for reconsideration. The district court denied that motion, deferring the adjudication of the county’s employer status to the arbitrator. This appeal followed.

Jurisdiction. At the outset, the appellate court addressed the threshold question of whether the district court lacked jurisdiction to compel the county to arbitrate in light of its assertion of governmental immunity. Resolving this issue required the appellate court to determine, first, whether it had appellate jurisdiction to review the matter and, second, whether the district court erred by failing to address the immunity defense as a threshold issue.

Collateral order doctrine. Both the county and the CNO asserted that the court had appellate jurisdiction under the collateral order doctrine, though they disagreed on its scope. However, neither party addressed the underlying jurisdictional tension: can the collateral order doctrine, invoked to assert immunity, override the statutory bar on interlocutory appeals in 9 U.S.C. § 16(b)(2)?

As a rule, federal courts generally extend their jurisdiction only to final decisions of the district courts. The collateral order doctrine, however, allows federal appellate jurisdiction over cases, that while not ending the litigation, effectively function as final decisions.

To fall within this exception, an order must: (1) conclusively determine the disputed question; (2) resolve an issue that is completely separate from the merits; and (3) be effectively unreviewable on appeal from a final judgment. Orders denying governmental immunity typically satisfy these criteria, explained the court. In this instance, the county explicitly premised its collateral order on the district court’s refusal to consider its immunity defense.

Jurisdictional tension. 9 U.S.C. § 16(b)(2) bars interlocutory appeals of orders issued under Section 4, explained the court. While this prohibition reflects Congress’s strong preference for arbitration, it stands in tension with the general principle of immunity, said the court, a tension that arises when a district court grants a motion to compel arbitration without first addressing the issue of immunity.

Helton. Fifth Circuit precedent established in Helton v. Clement helps to provide a framework for resolving this type of jurisdictional impasse. Helton stands for the proposition that the Fifth Circuit has appellate jurisdiction when a district court declines or refuses to address a motion to dismiss an action involving an immunity defense.

Here, as in Helton, the district court had bypassed its obligation to decide the threshold immunity question. It refused to adjudicate the county’s motion to dismiss, denied that motion as moot, deferred the issue to arbitration, and stayed the proceedings. The refusal to engage with the immunity question constituted a final decision under 28 U.S.C. § 1291, said the court. Accordingly, the Fifth Circuit held that the district court’s order denying the county’s motion to dismiss as moot was appealable. However, the court opted to not reach the question of whether the county was entitled to immunity, finding that this was a matter for the district court to decide in the first instance.

District court jurisdiction. Having confirmed its appellate jurisdiction, the court turned its attention to the district court’s jurisdiction, assessing the nature of the county’s immunity defense and whether the district court was obligated to address that issue before ruling on the motion to compel arbitration.

In this case, the county’s governmental immunity defense raised a jurisdictional inquiry because it potentially shields the county from suit altogether, explained the court. As a jurisdictional bar, the county’s immunity defense would, if successful, strip the district court of subject matter jurisdiction. Nonetheless, the district court compelled arbitration without first addressing the county’s immunity defense, and in bypassing this threshold jurisdictional issue, the district court failed to adhere to Fifth Circuit precedent.

As such, the district court erred by not resolving challenges to its jurisdiction before deciding arbitrability, concluded the court, reversing the order compelling arbitration insofar as it declined to address the county’s motion to dismiss on the basis of governmental immunity under Texas law, and remanding the matter for the district court to resolve the issue of governmental immunity as it pertained to the county’s motion to dismiss before ruling on the motion to compel arbitration.

The case is No. 24-10005.

Judge: Stewart, C.

Attorneys: Michael Patrick Doyle (Doyle Dennis) for Karen Ashley. Thomas Phillip Brandt (Fanning Harper Martinson Brandt & Kutchin) for Clay County.

Companies: Clay County

Cases: Arbitration CoverageLiability Discharge EmployeeStatus IndividualRights Procedure PublicEmployees Retaliation StateLawClaims LouisianaNews MississippiNews TexasNews