On November 30, 2006, the Georgia Court of Appeals held that parties asserting arbitration rights in Georgia courts do not have a right to an immediate interlocutory appeal from a trial court’s denial of a motion to compel arbitration – even if that arbitration falls under the Federal Arbitration Act (“FAA”). American Gen. Fin. Servs. v. Vereen, 2006 WL 3437812 (Ga. Ct. App. 2006) (Blackburn, J.). Under the FAA, the denial of a motion to compel arbitration is immediately appealable, at least in federal court. 9 U.S.C. § 16(a)(1)(B). The court rejected an argument that the FAA preempted Georgia’s prohibition of such interlocutory appeals, reasoning that it did not undermine the purposes of the FAA.

The court’s decision puts Georgia among the ranks of states holding that state rules on interlocutory appeals are not preempted by contradictory rules in the FAA.1 Not all states agree. And many states allow for interlocutory appeals when a motion to compel arbitration is denied, avoiding any FAA conflict.

The court’s decision is anomalous in another respect, since the court held in Simmons Co. v. Deutsche Fin. Servs. Corp., 243 Ga. App. 85, 532 S.E.2d 436 (2000) that interlocutory appeals of right were permissible from orders compelling arbitration. The Simmons court held that the FAA, which does not permit such appeals, did not preempt state procedural law allowing them. The court observed that “Georgia’s procedure allowing a preliminary appeal from an order compelling arbitration recognizes that, if the trial court erred in determining there was an enforceable arbitration agreement, a party may be forced to participate in an unwarranted arbitration proceeding,” a result the court did not perceive as undermining the FAA. Id. at 89. Its new decision in Vereen, of course, could subject a party to an unwarranted civil trial, with all the trappings, which would appear to seriously undermine the FAA’s purposes and objectives.

The Vereen court pointed out that discretionary interlocutory review of a denial of a motion to compel arbitration was still available. Discretionary review under O.C.G.A. § 5-6-34(b), however, requires that the trial judge grant a certificate of immediate review (not likely where that judge has just denied a motion to compel arbitration), and that the appellate court accept an application for such review – two significant hurdles. The trial court in Vereen, for example, refused to give the required certificate.

The practical consequences of Vereen will likely include diminished arbitration rights in Georgia. Because the FAA does not confer federal subject matter jurisdiction, many arbitration agreements will be tested in Georgia state courts. Arbitration delayed often will mean arbitration denied. An appeal of the arbitration question after trial and final judgment will still be available, but the expense and burden of civil discovery and jury trial will pressure many defendants to settle to avoid such risks. These risks will be even more acute in single-state class actions not removable under the Class Action Fairness Act. Vereen appears to be another indication of judicial resistance to enforcement of consumer arbitration agreements.