Abstention Can Stay FAA § 4 Petitions When Unsettled State-Law Public-Policy Issues Predominate: The Tenth Circuit’s Guidance in Nu Skin Enterprises v. Raab

Introduction

Nu Skin Enterprises, Inc., and Pharmanex, LLC (collectively, Nu Skin) sell beauty and nutrition products through a large multi-level marketing network. Several lower-level distributors (Respondents) sued Nu Skin and others in Washington state court, alleging deceptive and pyramid-like practices under Washington’s Consumer Protection Act (CPA) and Antipyramid Promotional Scheme Act, plus federal RICO and common-law torts. Nu Skin, pointing to standardized distributor agreements incorporating a Utah law and forum arbitration clause, filed a petition in the District of Utah to compel arbitration in Salt Lake County and to enjoin the Washington case. The district court stayed the federal petition while Washington courts addressed whether the contract’s dispute-resolution terms are enforceable, including unconscionability.

In a nuanced order and judgment, the Tenth Circuit affirmed the stay. The panel clarified two important points: (1) a stay of a petition to compel arbitration can be a final, appealable order under Moses H. Cone Memorial Hospital v. Mercury Construction Corp.; and (2) district courts may rely on the abstention category identified in Colorado River Water Conservation District v. United States—addressing difficult and unsettled state-law questions of substantial public import—to stay a Federal Arbitration Act (FAA) § 4 proceeding, even though Moses H. Cone himself analyzed a similar stay under the separate, efficiency-oriented Colorado River “wise judicial administration” doctrine. The court also rejected the contention that the FAA preempts state-court consideration of generally applicable unconscionability defenses.

Summary of the Opinion

The Tenth Circuit affirmed a Utah district court’s order staying Nu Skin’s FAA § 4 petition to compel arbitration and to enjoin a parallel Washington state action. The court held:

• Appellate jurisdiction existed under 28 U.S.C. § 1291 pursuant to Moses H. Cone, because a stay of a petition to compel arbitration pending resolution of identical arbitrability issues in state court is effectively final as to the federal proceeding.
• The district court did not abuse its discretion in granting a stay on abstention grounds. It appropriately relied on the second abstention category described in Colorado River—cases that present difficult questions of state law bearing on substantial public policy—and did not have to analyze only under Moses H. Cone’s Colorado River factors.
• The court rejected Nu Skin’s arguments that the district court contravened prior Tenth Circuit case-management orders denying abatement; those earlier orders addressed different requests and did not preclude the district court from applying abstention doctrines.
• FAA preemption did not require lifting the stay. Courts may invalidate arbitration agreements based on generally applicable contract defenses like unconscionability; the Washington courts’ ongoing analysis of unconscionability and public policy does not reflect disfavored treatment of arbitration.

Because the abstention rationale sufficed, the Tenth Circuit did not reach Nu Skin’s Colorado River “wise judicial administration” arguments or the district court’s separate FAA § 4 ground (that a court, not an arbitrator, must decide a direct challenge to the arbitration clause’s unconscionability).

Case Background and Procedural Posture

• The contracts: Nu Skin’s standard distributor agreements incorporate written Policies and Procedures. They require arbitration in Salt Lake County, apply Utah law, and include a forum-selection clause.
• The Washington action: In 2021, Respondents sued in Spokane County Superior Court, alleging misrepresentations and pyramid-scheme conduct. Claims included Washington CPA (RCW 19.86), Washington Antipyramid Promotional Scheme Act (RCW 19.275), federal RICO, tortious interference, and negligent misrepresentation.
• Initial Washington ruling (Nu Skin I): The Superior Court denied Nu Skin’s motion to dismiss for improper venue, holding the arbitration agreement did not apply because the case was not a “Dispute” under the contract; it also invoked Washington’s strong policy interest.
• Federal petition and dismissal (Nu Skin II): The Utah district court denied the petition to compel arbitration, relying on issue preclusion based on Nu Skin I’s non-“Dispute” ruling.
• Washington appellate reversal (Nu Skin III): The Washington Court of Appeals held Respondents’ complaint does fall within the contract’s definition of “Disputes,” reversed the Superior Court on that point, and remanded guidance on enforcing the forum-selection clause, including the potential relevance of unconscionability and Washington’s strong public policy. It also held a motion to dismiss for improper venue is not the proper vehicle to enforce a forum-selection clause in Washington.
• Tenth Circuit remand (Nu Skin IV): After Nu Skin III, the Tenth Circuit reversed the Utah district court’s preclusion-based denial and remanded.
• Washington Supreme Court’s limited decision (Nu Skin V): The WSC affirmed that a motion to dismiss for improper venue is not the correct procedural mechanism to enforce a forum-selection clause. It reiterated that the “Disputes” definition covers Respondents’ claims and characterized the Court of Appeals’ additional guidance on unconscionability and public policy as nonbinding dicta, leaving procedural specifics to the parties on remand.
• The stay at issue: On remand from Nu Skin IV, the Utah district court stayed the federal petition pending Washington courts’ final resolution of the enforceability of Nu Skin’s arbitration provisions and the forum-selection clause. It relied on: (1) abstention (Colorado River’s second category), (2) alternatively, Colorado River’s “wise judicial administration,” and (3) FAA § 4’s allocation of who decides a direct challenge to the arbitration clause.

Analysis

Precedents Cited and Their Role

• Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (1983)
  • Finality and appellate jurisdiction: A stay of a federal action seeking to compel arbitration is a final, appealable order under § 1291 when it effectively puts the federal court out of the case. The Tenth Circuit invoked this rule to hear Nu Skin’s appeal.
  • Scope: In Moses H. Cone, the Supreme Court analyzed whether “exceptional” circumstances justified deference to parallel state proceedings under the Colorado River efficiency doctrine. Notably, the Court observed there was no contention that any abstention category applied, leaving room for today’s holding: when abstention categories do apply, courts may rely on them even in FAA § 4 contexts.
• Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976)
  • Two distinct lines: Colorado River both catalogs three abstention categories and, separately, articulates the “wise judicial administration” doctrine for concurrent litigation, distinct from abstention. The Tenth Circuit emphasizes this distinction: abstention is grounded in federalism and comity; Colorado River “wise administration” is a narrow, efficiency-based tool.
  • Second abstention category: The district court’s stay rested primarily on the second category: cases presenting difficult, unsettled state-law issues implicating important state policy. The panel found this category fit where Washington courts are actively addressing how public policy and unconscionability under the CPA and anti-pyramid laws intersect with enforcement of Utah forum/choice-of-law arbitration provisions.
• Quackenbush v. Allstate Insurance Co., 517 U.S. 706 (1996) and Burford v. Sun Oil Co., 319 U.S. 315 (1943)
  • Nu Skin argued the district court erred by invoking “Burford abstention” absent state administrative proceedings. The Tenth Circuit rejected the premise: the second Colorado River abstention category is not confined to Burford-style administrative regimes.
• Louisiana Power & Light Co. v. City of Thibodaux, 360 U.S. 25 (1959) and Kaiser Steel Corp. v. W.S. Ranch Co., 391 U.S. 593 (1968)
  • Both are exemplars of the second abstention category outside the administrative-agency context, supporting the district court’s reliance on that category to stay the case pending state-law development.
• D.A. Osguthorpe Family Partnership v. ASC Utah, Inc., 705 F.3d 1223 (10th Cir. 2013)
  • Cited for the proposition that Colorado River “wise judicial administration” is not truly abstention but an efficiency doctrine distinct from the abstention categories—reinforcing that courts may use abstention where applicable in FAA cases.
• Rienhardt v. Kelly, 164 F.3d 1296 (10th Cir. 1999) (abrogated on other grounds)
  • Read as limiting use of abstention to refuse jurisdiction over suits for non-equitable relief duplicating state litigation. Distinguishable here because Nu Skin sought equitable relief (an injunction and an order compelling arbitration).
• Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2022)
  • Reaffirms that the FAA permits invalidating arbitration agreements on generally applicable contract defenses like unconscionability, but not on rules that single out arbitration. The panel relied on this to reject Nu Skin’s FAA preemption argument against the Washington courts’ unconscionability inquiry.
• Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006)
  • Clarifies who decides what: a challenge directed to the arbitration clause itself is for a court, while a challenge to the contract as a whole is typically for the arbitrator. The district court cited this as a separate stay rationale; the Tenth Circuit noted it but affirmed on abstention grounds.
• Fox v. Maulding, 16 F.3d 1079 (10th Cir. 1994)
  • Lists the factors relevant to the Colorado River “wise judicial administration” analysis; the panel did not need to reach these because abstention sufficed.
• Nken v. Holder, 556 U.S. 418 (2009)
  • Traditional stay factors applied by the Tenth Circuit earlier when considering whether to abate the separate appeal; relevant to explaining why the district court’s abstention stay was not foreclosed by the Tenth Circuit’s prior case-management orders.

Legal Reasoning

The Tenth Circuit’s analysis proceeds in three steps.

1. Jurisdiction under Moses H. Cone. A stay of a federal petition to compel arbitration, entered to await parallel state-court adjudication of the same arbitrability issues, is effectively final for § 1291 purposes. This mirrors Moses H. Cone. The court therefore exercised jurisdiction.
2. No conflict with prior Tenth Circuit orders. Nu Skin argued the district court contravened two prior Tenth Circuit orders denying abatement in an earlier, separate appeal. The panel rejected this: the earlier abatement motions invoked traditional stay factors, not abstention or related doctrines. Those case-management denials did not preclude the district court from applying abstention after remand.
3. Abstention is distinct from, and not displaced by, Moses H. Cone’s Colorado River analysis.
   • The district court relied primarily on the second Colorado River abstention category, which permits abstention where a federal case presents difficult questions of state law bearing on a matter of substantial public concern, and federal court intervention risks disrupting coherent state policy development.
   • That category fit here. The Washington Court of Appeals in Nu Skin III flagged conflicts between Utah-law enforcement of the arbitration/forum provisions and Washington’s fundamental policies, particularly unconscionability standards under the CPA and the anti-pyramid statute. It also identified unsettled questions of Washington law related to enforcing a forum-selection clause when unconscionability and strong public policy are asserted. The Washington Supreme Court in Nu Skin V resolved only the narrow procedural issue (improper mechanism for enforcing a forum-selection clause), left broader guidance as nonbinding dicta, and remanded. These signals confirm that Washington courts are still developing law on questions the state views as of vital public interest.
   • Nu Skin’s attempt to reframe the district court’s reasoning as impermissible “Burford abstention” failed. The panel emphasized that the second abstention category is broader than Burford and extends beyond administrative-agency contexts, citing Thibodaux and Kaiser Steel.
   • Nothing in Moses H. Cone requires courts to eschew abstention in FAA § 4 cases. In fact, Moses H. Cone noted that no party argued an abstention category applied; the Court therefore addressed only the Colorado River efficiency doctrine. The Tenth Circuit confirmed that when abstention does apply, it is an independent and appropriate basis to stay a § 4 petition.
   • FAA preemption does not defeat abstention here. The state courts are applying generally applicable contract defenses (unconscionability), which Viking River recognizes are not preempted, rather than singling out arbitration.

Because the abstention basis supported the district court’s stay, the Tenth Circuit did not need to (and did not) resolve Nu Skin’s arguments targeting the alternative Colorado River “wise judicial administration” analysis or the district court’s separate FAA § 4 ground. It expressly left those issues for another day.

Impact and Implications

Although designated nonprecedential (and thus not binding except for law-of-the-case, res judicata, and collateral estoppel), this order and judgment is citable for persuasive value and carries several practical and doctrinal implications.

• Abstention is available in FAA § 4 cases when state-law policy is unsettled and substantial. Parties seeking to compel arbitration in federal court should now anticipate the possibility of abstention-based stays if parallel state litigation is actively developing core state-law issues—especially unconscionability and public-policy defenses arising under consumer-protection regimes.
• Distinguishing abstention from Colorado River efficiency matters. Litigants often leap straight to Moses H. Cone’s Colorado River factors in § 4 cases. This decision underscores that abstention is conceptually distinct and can control, meaning courts may stay without addressing Moses H. Cone factors when a recognized abstention category applies.
• FAA policy favoring arbitration does not foreclose state-law defenses or abstention. The panel’s discussion of Viking River reminds practitioners that unconscionability remains a robust defense, and state courts’ consideration of it does not offend the FAA. Federal courts may defer while those state issues are sorted, rather than compelling arbitration immediately.
• Forum-selection enforcement and procedure may vary by state. The Washington Supreme Court in Nu Skin V clarified that a motion to dismiss for “improper venue” is the wrong procedural avenue to enforce a forum-selection clause in Washington. Counsel drafting and enforcing arbitration clauses must tailor enforcement strategy to jurisdiction-specific procedure.
• Drafting implications for arbitration agreements.
  • Consider a clear delegation clause assigning arbitrability and enforceability issues (including unconscionability of the arbitration agreement itself) to the arbitrator. The Washington Court of Appeals found no delegation here, keeping those issues with the court.
  • Assess choice-of-law and forum-selection clauses in light of the forum state’s fundamental public policy. When the chosen law treats unconscionability differently than the forum (e.g., requiring both procedural and substantive unconscionability instead of either one), a court may decline to enforce the choice-of-law clause for issues tied to strong local policy.
  • Build severability and public-policy savings clauses that preserve access to statutory remedies and avoid overall invalidation of dispute-resolution terms.
• Strategic planning for parallel proceedings. Plaintiffs invoking state consumer-protection statutes may prefer to litigate in state court and challenge arbitration terms as unconscionable. Defendants seeking federal compulsion of arbitration must be prepared for stays if the state case raises unsettled, policy-laden questions. The path to efficient resolution may run through the state courts.

Complex Concepts Simplified

• FAA § 4 Petition to Compel Arbitration: A request asking a federal court to order the parties to arbitrate according to their contract.
• Arbitrability: Whether a particular dispute must be resolved in arbitration rather than court, often including questions about the validity and scope of the arbitration agreement.
• Delegation Clause: A contractual term clearly assigning to the arbitrator, rather than a court, the authority to decide threshold questions of arbitrability (e.g., whether the arbitration agreement is valid and enforceable).
• Abstention (Colorado River’s second category): A prudential doctrine allowing federal courts to step back from deciding cases that raise difficult, unsettled state-law issues of substantial public importance, to avoid disrupting state policy development.
• Colorado River “Wise Judicial Administration” Doctrine: A separate, efficiency-based tool permitting a federal court to defer to concurrent state litigation in limited, “exceptional” circumstances, assessed by multi-factor balancing (e.g., avoiding piecemeal litigation, order of jurisdiction, adequacy of state forum).
• Burford Abstention: A form of abstention applicable when federal review would disrupt state efforts to establish coherent policy in areas of substantial public concern that are subject to complex state administrative processes. The Tenth Circuit clarified that the second abstention category is not confined to Burford-like administrative contexts.
• Unconscionability: A contract defense that may render a term or contract unenforceable when it is unfairly one-sided (substantive) or obtained through unfair surprise or oppressive bargaining (procedural). States differ in their formulations and thresholds.
• Choice-of-Law and Forum-Selection Clauses: Contract terms specifying which state’s law governs and where disputes must be resolved. They can be unenforceable if they contravene a forum state’s fundamental public policy in a context where the forum has a materially greater interest.
• Issue Preclusion (Collateral Estoppel): A doctrine that bars relitigation of issues already decided between the same parties. Here, an initial preclusion ruling based on a state trial court’s decision was effectively undone after the Washington appellate courts reversed the underlying state decision.
• Appellate Finality under § 1291 in Arbitration Stay Cases: A stay order in a § 4 context can be appealable because it effectively ends the federal court’s involvement while the parties litigate arbitrability in state court, per Moses H. Cone.

Conclusion

The Tenth Circuit’s decision in Nu Skin Enterprises v. Raab delivers an important—if formally nonprecedential—clarification in the federal arbitration landscape: district courts may abstain from deciding a § 4 petition to compel arbitration when the case presents unsettled, policy-laden state-law questions, such as the interplay between unconscionability and strong state consumer-protection regimes. This abstention pathway is doctrinally distinct from the Colorado River “wise judicial administration” analysis applied in Moses H. Cone and is not displaced by it. Nor does the FAA’s pro-arbitration policy preempt state courts’ consideration of generally applicable defenses like unconscionability.

Practically, parties seeking immediate federal compulsion of arbitration should prepare for abstention-based stays when parallel state proceedings are actively developing core state-law policy issues. For drafters, the case underscores the value of clear delegation clauses, thoughtful choice-of-law provisions that account for forum public policy, and severability mechanisms that preserve enforceability. For courts, the decision affirms that comity and respect for state policy-making can justify holding federal fire while state courts shape the substantive rules that will govern whether, and on what terms, arbitration proceeds.