Shafer v. Morgan Stanley: No “Constructive Denial” Appeals from Orders Compelling Arbitration & The Narrow Path to Mandamus in ERISA Disputes

1. Introduction

Shafer v. Morgan Stanley, Nos. 24-3141(L), 24-3271(XAP) (2d Cir. July 9, 2025), arose from a long-running dispute between former Morgan Stanley financial advisors (Plaintiffs) and their ex-employer (Morgan Stanley). Plaintiffs contend that the cancellation of deferred-compensation plans following their voluntary departure violated the anti-forfeiture protections of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq.

In the district court, Morgan Stanley successfully compelled arbitration. Both sides nevertheless sought immediate review in the Second Circuit:

Morgan Stanley appealed, arguing the district judge’s merits discussion amounted to an effective denial of its motion and was therefore appealable under § 16(a)(1)(B) of the Federal Arbitration Act (FAA).
Plaintiffs cross-appealed, maintaining the court should have refused arbitration altogether.
In the alternative, Morgan Stanley petitioned for a writ of mandamus asking the Second Circuit to strike the district court’s statement that the plans were covered by ERISA.

The Second Circuit dismissed both appeals for lack of jurisdiction and denied mandamus, leaving the parties to arbitrate without further court interference.

2. Summary of the Judgment

Appeal & Cross-Appeal Dismissed. An order granting a motion to compel arbitration is not appealable under 9 U.S.C. § 16(b)(2). Merits commentary in the district court’s opinion does not convert a grant into a constructive denial.
Pendent jurisdiction rejected. Because the employer’s appeal was dismissed, the employee-plaintiffs’ cross-appeal necessarily fell with it.
Mandamus denied. Morgan Stanley failed to satisfy the stringent Cheney test. The alleged error (finding ERISA coverage) can be argued to the arbitrator and, if necessary, reviewed after final judgment.

3. Detailed Analysis

3.1 Precedents Cited and Their Influence

Federal Arbitration Act § 16. The governing statute sharply distinguishes between denials and grants of arbitration. Only the former are immediately appealable (9 U.S.C. § 16(a)(1)(B)); the latter are not (§ 16(b)(2)).
Henry on behalf of BSC Ventures ESOP v. Wilmington Trust N.A., 72 F.4th 499 (3d Cir. 2023); Turi v. Main St. Adoption Servs., 633 F.3d 496 (6th Cir. 2011); Fit Tech v. Bally Total Fitness, 374 F.3d 1 (1st Cir. 2004). • Morgan Stanley cited these decisions for the idea that dismissal orders premised on arbitration may be appealable. • The Second Circuit distinguished them: those cases involved denials of motions to compel (or equivalents), not grants.
Perry Educ. Ass’n v. Perry Local Educators’ Ass’n, 460 U.S. 37 (1983). • Reaffirmed the rule that statutes authorising appeals are strictly construed.
AT&T Techs., Inc. v. CWA, 475 U.S. 643 (1986). • Cited for cautioning courts to avoid entanglement with merits when deciding arbitrability.
Cedeno v. Sasson, 100 F.4th 386 (2d Cir. 2024). • Confirmed that ERISA can render certain arbitration clauses unenforceable, which justified the district court’s threshold ERISA analysis.
Cheney v. U.S. Dist. Ct., 542 U.S. 367 (2004). • Laid down the modern three-part test for mandamus: (1) no adequate alternative; (2) clear-and-indisputable right; (3) appropriateness.
Blumenthal v. Merrill Lynch, 910 F.2d 1049 (2d Cir. 1990).
In re United States, 945 F.3d 616 (2d Cir. 2019).
Linde v. Arab Bank, 706 F.3d 92 (2d Cir. 2013).

3.2 The Court’s Legal Reasoning

Statutory Text is Controlling. Section 16 is unambiguous: appeals lie only from denials of arbitration. The Court declined Morgan Stanley’s invitation to re-label a grant as an effective denial simply because the district judge opined on ERISA merits.
Merits Commentary Does Not Alter Jurisdiction. Even if dicta might influence an arbitrator, it does not alter the character of the order for jurisdictional purposes. A rigid line maintains statutory clarity and prevents piecemeal appeals.
No Pendent Jurisdiction Without a Hook. Because the employer’s appeal was dismissed, the employee’s cross-appeal also fell—illustrating the doctrine of pendent appellate jurisdiction.
Mandamus: The Extraordinary Remedy. a) No Adequate Alternative? The arbitrator can consider the ERISA issue; later judicial review is available. b) Clear and Indisputable Right? Second Circuit precedent (e.g., Cedeno) leaves room for courts to examine ERISA before compelling arbitration; therefore Morgan Stanley’s right to relief is not clear. c) Appropriateness/Discretion. Granting mandamus would further entangle the court in arbitrable merits, contrary to AT&T Techs.

3.3 Likely Impact on Future Litigation

Reinforces Non-Appealability of Grants to Compel Arbitration. Parties should expect no immediate appellate review even when a trial judge’s order contains sweeping merits dicta.
Closes the “Constructive Denial” Loophole. The Second Circuit’s refusal to create an effective denial doctrine preserves § 16’s bright-line rule and discourages creative labeling to obtain interlocutory review.
Mandamus Remains “Herculean.” Advocates must recognise that mandamus will not issue merely to erase unfavourable dicta or strategic disadvantages in arbitration. The decision tightens the already narrow path.
ERISA Arbitration Strategy. Employers and plan sponsors cannot bank on immediate appellate relief to correct adverse ERISA classifications; arguments must be preserved for arbitrators and final-judgment review.

4. Complex Concepts Simplified

Federal Arbitration Act § 16: (a) lets you appeal right away if arbitration is denied. (b) forbids appeal when arbitration is granted. Congress wanted to encourage arbitration, not delay it with interlocutory appeals.
Mandamus: A rare judicial command from a higher court telling a lower court (or official) to do or undo something. Think of it as judicial “emergency surgery”—performed only when (1) there’s no other remedy, (2) the right to relief is crystal-clear, and (3) issuing it makes sense practically.
ERISA Anti-Forfeiture Rule: Participants in qualified plans generally cannot lose (forfeit) accrued benefits once vested. Plaintiffs claim Morgan Stanley violated this rule by cancelling deferred compensation after resignation.
Pendent Appellate Jurisdiction: The appellate court may (but need not) decide otherwise unappealable issues that are inextricably intertwined with an appealable issue. If the anchor issue disappears, so does the pendent claim.

5. Conclusion

Shafer v. Morgan Stanley delivers a concise yet potent affirmation of two jurisdictional principles:

The FAA’s text controls; a district court order granting arbitration, no matter how verbose on the merits, is not immediately appealable.
Mandamus is not a tool for tactical clean-up of potentially troublesome dicta; it remains reserved for truly extraordinary situations.

Practitioners litigating arbitration clauses—especially in the ERISA context—must therefore focus on the arbitral forum and preserve objections for post-award review, rather than expecting the Second Circuit (or any circuit) to intervene mid-stream. Shafer underscores the judiciary’s deference to arbitration and the rigidity of statutory appeal routes, ensuring that arbitration proceeds without unnecessary judicial detours.