No Pendent Review of Contract Formation and Merits-First Litigation Defaults Arbitration Rights: Sixth Circuit Clarifies FAA §16(a) Scope and §3 “Default” in Schnatter v. 247 Group

Introduction

In a published decision, the Sixth Circuit resolved a two-pronged dispute arising from John H. Schnatter’s suit against 247 Group, LLC (doing business as Laundry Service), Papa John’s former public-relations firm. After years of hard-fought litigation over alleged leaks to the press and a nondisclosure agreement (NDA) that included an arbitration clause, Laundry Service sought to compel arbitration—only after losing significant merits ground in district court.

The interlocutory appeal presented two central questions: (1) whether the appellate court could, under the Federal Arbitration Act (FAA) §16(a), review the district court’s pro-arbitration ruling that the parties entered a binding NDA; and (2) whether Laundry Service had “defaulted” its right to arbitrate under FAA §3 by litigating the merits for years before moving to compel. The Sixth Circuit dismissed the appeal in part for lack of jurisdiction (as to contract formation) and otherwise affirmed, holding that Laundry Service defaulted its right to arbitrate. The court also declined to impose sanctions for a frivolous appeal.

Summary of the Opinion

• Interlocutory Jurisdiction: FAA §16(a)(1)(B) grants jurisdiction to review the denial of a motion to compel arbitration, but not to review ancillary, pro-arbitration determinations (such as a finding that a valid arbitration agreement exists) when those determinations did not supply the basis for the denial.
• No Pendent Appellate Jurisdiction: The court declined pendent jurisdiction over contract formation because it was not “inextricably intertwined” with the default ruling and could be reviewed after final judgment.
• Default of Arbitration Right (FAA §3): Laundry Service defaulted by pursuing “an immediate and total victory” on the merits in court without timely invoking arbitration, and then moving to compel only after losing on key issues.
• Sanctions: The court denied Schnatter’s request for sanctions, finding Laundry Service’s arguments not frivolous.
• Disposition: Appeal dismissed in part (contract formation) and otherwise affirmed (denial of motion to compel). Sanctions denied.

Background

Papa John’s hired Laundry Service in late 2017 to provide brand strategy and public relations under a Master Services Agreement (MSA) that included confidentiality and arbitration. Schnatter, however, was not a party or third-party beneficiary of the MSA. Anticipating close work with Schnatter, Papa John’s separately requested that Laundry Service execute a standard NDA concerning Schnatter. Due to a mix-up, Papa John’s sent its internal-employee NDA template, which did not name Laundry Service—but a Laundry Service executive signed it and returned it with “Please see our signed agreement attached.”

During a media-preparation call involving Papa John’s and Laundry Service personnel, Schnatter used racially charged language, including the N-word. The call was secretly recorded, and a subsequent Forbes article reported the remarks. Laundry Service and Papa John’s ended their relationship; Schnatter later resigned from Papa John’s board and sued, alleging Laundry Service leaked the call and breached the NDA, among other claims.

Over four years, the case saw extensive discovery (tens of thousands of documents), multiple dispositive motions, and two amended complaints. Laundry Service repeatedly contested the NDA’s enforceability but did not timely move to compel arbitration—even when the district court invited it to do so and suggested combining any arbitration request with summary judgment briefing. After the court denied summary judgment on the NDA claim, Laundry Service finally moved to compel arbitration and simultaneously answered, listing arbitration as an affirmative defense. Following a bench trial under FAA §4, the district court found an enforceable NDA with an arbitration clause, but held Laundry Service had defaulted its arbitration right by litigating on the merits for years before moving to compel.

Analysis

Precedents Cited and Their Influence

• FAA §16(a) one-way ratchet; pro-arbitration asymmetry
  • Preferred Care of Delaware, Inc. v. Estate of Hopkins, 845 F.3d 765 (6th Cir. 2017): Emphasizes §16’s asymmetry—interlocutory appeals are available from orders that thwart arbitration (e.g., denying motions to compel), but not from pro-arbitration interlocutory orders. The panel leans on this asymmetry to explain why it cannot review the district court’s pro-arbitration contract-formation ruling.
  • U.S. ex rel. Dorsa v. Miraca Life Sciences, Inc., 983 F.3d 885 (6th Cir. 2020): Confirms that §16(a)’s interlocutory jurisdiction is “narrow” and confined to what the statute lists—informing the court’s cabined view of reviewable issues here.
  • Coinbase, Inc. v. Bielski, 599 U.S. 736 (2023): Cited for the high court’s recognition of §16(a)’s structure; underscores the FAA’s design to protect the right to arbitrate through interlocutory review of denials.
• Scope of review in §16(a) appeals
  • Turi v. Main Street Adoption Services, 633 F.3d 496 (6th Cir. 2011) (abrogated on other grounds by Henry Schein): The Sixth Circuit allowed review of arbitrability but not personal jurisdiction or venue in an interlocutory posture. The court applies the same compartmentalized approach: review only what supports the denial of arbitration (default), not other issues (contract formation) that do not.
  • O’Hanlon v. Uber Technologies, Inc., 990 F.3d 757 (3d Cir. 2021): Similarly held that §16(a) allows review of denial of arbitration but not Article III standing. Used to reinforce the selective, issue-specific nature of interlocutory review.
  • Boshears v. PeopleConnect, Inc., 76 F.4th 858 (9th Cir. 2023), citing BP p.l.c. v. Mayor & City Council of Baltimore, 141 S. Ct. 1532 (2021): Supports the proposition that appellate review under specialized statutes is limited to the issues Congress specified; no free-ranging authority to review everything that might resolve the case.
• No pendent appellate jurisdiction here
  • Swint v. Chambers County Commission, 514 U.S. 35 (1995): Judicial economy alone does not authorize pendent appellate jurisdiction.
  • Summers v. Leis, 368 F.3d 881 (6th Cir. 2004), and Kerchen v. University of Michigan, 100 F.4th 751 (6th Cir. 2024): Define “inextricably intertwined” and “necessary to ensure meaningful review.” The court applies these standards to reject pendent jurisdiction over formation because deciding default neither necessarily decides formation nor is formation review needed to meaningfully review default.
  • Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985): FAA requires rigorous enforcement of arbitration agreements even if that produces piecemeal litigation. The court cites this to rebut efficiency-based arguments for pendent review.
• Default (formerly called waiver) of arbitration right under FAA §3
  • Kloosterman v. Metropolitan Hospital, --- F.4th ---, 2025 WL 2463138 (6th Cir. Aug. 27, 2025): Clarifies the vocabulary and framework—“default” under §3 (not “waiver”) governs, asking whether a party acted in a manner “completely inconsistent” with an intent to arbitrate. The panel adopts that framing and standard here.
  • Schwebke v. United Wholesale Mortgage LLC, 96 F.4th 971 (6th Cir. 2024): Emphasizes a totality-of-the-circumstances inquiry and flags litigants who seek affirmative merits relief before moving to compel.
  • Solo v. United Parcel Service Co., 947 F.3d 968 (6th Cir. 2020): A litigant that seeks “an immediate and total victory” in court acts inconsistently with an intent to arbitrate, supporting a finding of default.
  • In re Chrysler Pacifica Fire Recall Products Liability Litigation, 143 F.4th 718 (6th Cir. 2025): Reinforces the relevance of a party’s knowledge of its arbitration right and its choice to seek judicial merits relief before moving to compel.
  • Johnson Associates Corp. v. HL Operating Corp., 680 F.3d 713 (6th Cir. 2012); Gunn v. NPC International, Inc., 625 F. App’x 261 (6th Cir. 2015); and Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388 (7th Cir. 1995): Provide the “test the waters” and “heads I win, tails you lose” cautionary line of cases cited to condemn late-stage invocations of arbitration after adverse merits rulings.
• Other references
  • Bonner v. Perry, 564 F.3d 424 (6th Cir. 2009): Final decision rule baseline.
  • Noohi v. Toll Brothers, Inc., 708 F.3d 599 (4th Cir. 2013), and In re Automotive Parts Antitrust Litigation, 951 F.3d 377 (6th Cir. 2020): Examples where contract formation/validity was the basis for denial of arbitration—distinguished because default, not formation, supported the denial here.
  • Dubay v. Wells, 506 F.3d 422 (6th Cir. 2007): FRAP 38 standard for sanctions; used to deny Schnatter’s request.

Legal Reasoning

1) The tight aperture of interlocutory review under FAA §16(a)

Section 16(a)(1)(B) authorizes interlocutory appeals from orders “denying” petitions to compel arbitration. The court underscores that this is not an “all aspects” license: appellate review extends only to the grounds that actually prevented arbitration. Here, the district court denied the motion to compel because Laundry Service defaulted its arbitration right—so the Sixth Circuit can review default. By contrast, the district court’s separate, pro-arbitration finding that a valid contract existed did not supply the basis for denial and thus falls outside §16(a).

Framing the formation decision as pro-arbitration is critical. FAA §16 is deliberately asymmetrical: Congress permits interlocutory appeals from anti-arbitration orders (like denials), not from pro-arbitration ones. That asymmetry forecloses using a §16(a) appeal to secure review of a favorable-to-arbitration formation ruling simply because the same order also denied a motion to compel on other grounds.

2) No pendent appellate jurisdiction to reach contract formation

Pendent appellate jurisdiction is a narrow exception, available only when the non-appealable issue is inextricably intertwined with, or necessary to ensure meaningful review of, the appealable issue. The panel holds neither condition is met. The court could—and did—decide default based on litigation conduct without resolving formation. That the district court in fact tried formation first (via a bench trial under §4) does not make formation a prerequisite to reviewing default. And Laundry Service remains free to challenge formation after final judgment, preserving meaningful review without stretching pendent jurisdiction.

3) “Default” under FAA §3: conduct completely inconsistent with arbitral intent

Applying the now-settled “default” framework, the court evaluates the totality of Laundry Service’s conduct:

• Knowledge of the right to arbitrate: Laundry Service knew the NDA contained an arbitration clause; it flagged arbitration in passing in a motion to dismiss and was expressly invited by the district court to file a motion to compel—alone or combined with summary judgment.
• Seeking merits relief first: Despite that knowledge and invitation, Laundry Service chose to pursue summary judgment on the NDA claim, seeking “an immediate and total victory” on the merits without, even in the alternative, moving to compel arbitration.
• Timing and tactical sequence: Only after the district court denied summary judgment did Laundry Service move to compel. That sequence reflects a “test the waters” strategy condemned by the case law as fundamentally inconsistent with an intent to arbitrate.

The court rejects several counterarguments:

• Section 4 sequencing: Laundry Service argued it need not move to compel until the court resolved contract formation under §4. The panel explains §4 dictates what a district court must do after a party petitions to compel—not a precondition excusing a party from timely filing the petition. And even on its own premise, Laundry Service itself put formation “in issue” earlier via its motion to dismiss.
• Docket-management instructions: Laundry Service claims the district court “ordered” merits litigation first. The record shows the court encouraged a single omnibus filing embracing “summary judgment, motion to dismiss, and anything else that’s on the table,” which plainly included a motion to compel. Laundry Service did not follow that invitation.
• Assurances and non-waiver agreements: Professional courtesies about the timing of an answer (and the court’s openness to combined briefing) did not immunize Laundry Service from default; Schnatter reserved substantive objections, and nothing the court said suggested arbitration could be invoked at any time without consequence.

4) Sanctions

Applying the Dubay standard, the court finds Laundry Service’s interlocutory arguments, though unsuccessful, not frivolous. Sanctions are therefore denied.

Impact and Practical Significance

• Scope of Interlocutory Review under FAA §16(a): Parties cannot bootstrap pro-arbitration determinations (like contract formation) into interlocutory review when denial of a motion to compel rests on other grounds (like default). Appellate issues are cabined to the rationale that actually prevented arbitration.
• Limited Pendent Jurisdiction: Do not expect the court to exercise pendent appellate jurisdiction to reach ancillary issues for the sake of efficiency. Unless inextricably intertwined or necessary for meaningful review, those issues will wait for final judgment.
• Arbitration Strategy and Timing: In the Sixth Circuit, attempting to win outright on the merits in court before moving to compel arbitration is powerful evidence of default. If arbitration is desired, move early—and at minimum, expressly and unequivocally seek arbitration in the alternative within dispositive motions.
• District Court Case Management: Consolidated briefing orders do not suspend a party’s obligation to preserve its arbitration rights. When a court invites “anything else that’s on the table,” that includes requesting arbitration.
• Vocabulary and Framing: The decision adopts the circuit’s clarified use of “default” (FAA §3) rather than “waiver,” with a focus on conduct inconsistent with arbitration. Practitioners should track this terminology and standard in briefing.
• Substantive Contract Questions Deferred: The Sixth Circuit did not review the district court’s bench-trial finding that the NDA formed a binding agreement. That issue remains for potential review after final judgment, reinforcing that merits-adjacent questions may proceed piecemeal when §16(a) is invoked.

Complex Concepts Simplified

• FAA §16(a) Interlocutory Appeals: A special statute allowing immediate appeals of certain arbitration-related orders. You can appeal a denial of a motion to compel arbitration right away, but not every issue discussed in the same order is automatically reviewable.
• Pro-Arbitration vs. Anti-Arbitration Orders: Congress designed §16 to favor arbitration by permitting appeals from decisions that block arbitration (e.g., denying a motion to compel), not from decisions that endorse arbitration (e.g., finding a valid arbitration agreement).
• Pendent Appellate Jurisdiction: A narrow doctrine enabling review of otherwise unappealable issues only when they are tightly bound up with, or necessary to decide, the issue that is properly on appeal. Judicial efficiency alone is not enough.
• Default (FAA §3): When a party behaves in ways “completely inconsistent” with an intent to arbitrate—such as litigating the merits to try for a courtroom win before moving to compel—it “defaults” its contractual right to arbitration.
• “Heads I win, tails you lose” / “Test the Waters”: Shorthand for a tactic in which a litigant pursues a merits judgment in court and, upon encountering adverse rulings, tries to shift to arbitration. Courts treat this as inconsistent with the arbitration right.
• FAA §4 Bench Trial on Formation: If contract formation is genuinely disputed after a motion to compel is filed, the district court conducts a summary trial to decide whether an arbitration agreement exists. It does not excuse delaying a motion to compel.

Conclusion

Schnatter v. 247 Group crystallizes two important constraints in the Sixth Circuit’s arbitration jurisprudence. First, FAA §16(a) interlocutory appeals are tightly limited to the specific grounds that actually led a district court to deny arbitration; they do not open the door to review pro-arbitration determinations like contract formation, nor will pendent jurisdiction ordinarily fill that gap. Second, a party that litigates for an “immediate and total victory” on the merits before seeking to compel arbitration acts inconsistently with the arbitral forum and defaults its contractual right under §3.

The practical message is straightforward: if arbitration is the intended forum, ask for it early and clearly—ideally by motion, and at least in the alternative within any merits briefing. Attempting to first “test the waters” in court risks losing arbitration altogether. This decision offers clear guidance for litigants and trial courts on sequencing, preservation, and the narrow scope of interlocutory review in arbitration disputes.