United States Court of Appeals,
Fifth Circuit.
Nos. 96-11088, 96-11463.
SUTTER CORPORATION, a California corporation, Plaintiff-Appellee,
v.
P & P INDUSTRIES, INC., an Oklahoma corporation; James Patton,
an individual; and Paul Patredis, an individual, Defendants-
Appellants.
Oct. 27, 1997.
Appeals from the United States District Court for the Northern
District of Texas.
Before POLITZ, Chief Judge, and BENAVIDES and PARKER, Circuit
Judges.
ROBERT M. PARKER, Circuit Judge:
I.
Facts & Procedural History
This case presents an opportunity to resolve several questions
regarding the appropriate district court to confirm or vacate an
arbitration award under the Federal Arbitration Act ("FAA"), 9
U.S.C. §§ 9 and 10. The appellee Sutter Corporation ("Sutter")
manufactures post-operative rehabilitation devices. On March 1,
1993, P & P Industries, Inc. ("P & P"), formed by Paul Patredis and
James Patton, entered into an exclusive Agency Agreement with
Sutter, whereby P & P would represent (sell and rent) Sutter's
products for a period of five years with the option to renew for
two more five year periods. On August 14, 1995, Sutter
unilaterally terminated its agreement with P & P and allegedly
hired away all of P & P's sales staff. On that date Sutter
1
delivered to P & P a demand for arbitration, filed with the
American Arbitration Association ("AAA") in Dallas, Texas, on
August 10, and a complaint to compel arbitration, filed in the
Federal District Court for the Southern District of California on
August 11, 1995.1
On August 17, 1995, P & P filed an action against Sutter in
the Federal District Court for the Western District of Oklahoma,
alleging that Sutter had materially breached the Agency Agreement
("contract claims") and had committed various tortious acts at the
time of the breach ("tortious interference claims"). Sutter moved
to stay the action in Oklahoma pending arbitration under § 3 of the
Federal Arbitration Act ("FAA").2 The contract between Sutter and
P & P contained an arbitration clause which provided that:
[a]ny controversy, claim, or breach arising out of or relating
to this Agreement which the parties are unable to resolve to
their mutual satisfaction shall be resolved by arbitration
before the American Arbitration Association, in the office of
the Association nearest the principal place of business of
AGENT ...
P & P admitted that its contract claims were arbitrable but argued
that the tortious interference claims were not. The Oklahoma
1
The record does not indicate what happened to Sutter's suit
in California, but P & P in its initial brief states that the
federal district court in California declined to compel arbitration
citing a lack of jurisdiction.
2
FAA § 3 provides that: "[i]f any suit ... be brought in any
of the courts of the United States upon any issue referable to
arbitration under an agreement in writing for such arbitration, the
court in which such suit is pending, upon being satisfied that the
issue involved in such suit ... is referable to arbitration under
such an agreement, shall on application of one of the parties stay
the trial of the action until such arbitration has been had in
accordance with the terms of the agreement ..." 9 U.S.C. § 3.
2
district court disagreed, stayed P & P's action and submitted the
entire matter to arbitration. The Oklahoma district court's order
staying P & P's action pending arbitration was interlocutory and
was not immediately appealable under the FAA. 9 U.S.C. § 16. Left
with no other choice, P & P agreed to arbitration under a
reservation of the right to appeal the Oklahoma district court's
determination of the arbitrable issues. Further, P & P refused to
concede that the arbitration would be binding.3
Nevertheless, P & P did participate fully in the arbitration
in defense of the claims against it and in prosecution of its own
counter-claims against Sutter. The arbitration was held in Dallas,
Texas, and the arbitrator found against P & P on Sutter's claims
against it and on its counter-claims against Sutter.4 On April 4,
1996, Sutter informed the Oklahoma district court that the
arbitration was complete. On that same day, P & P filed a motion
to vacate the arbitration award, under FAA § 10 which states that:
the United States court in and for the district wherein the
award was made may make an order vacating the award upon the
application of any party to the arbitration ... [w]here the
arbitrators exceeded their powers ...
9 U.S.C. § 10. The alleged excess of the arbitrator was in ruling
on matters which were not arbitrable under the parties' agreement,
3
Specifically, P & P refused to accept the application of
American Arbitration Association Rule 47(c) which provides that
"[p]arties to these rules shall be deemed to have consented that
judgment upon the arbitration award may be entered in any federal
or state court having jurisdiction thereof."
4
The principal place of business of the AGENT, P & P, is
Oklahoma, but the nearest AAA office is Dallas, Texas, therefore
the arbitration was properly held in Dallas.
3
i.e., P & P's tortious interference claims. Essentially, this
motion revived P & P's earlier motion before the Oklahoma district
court to limit the scope of the arbitration. Sutter responded on
the merits but also raised the possibility that the Oklahoma court
might not be the proper court to decide the motion to vacate under
§ 10, because the Oklahoma district court was not the "United
States court in and for the district wherein the award was made".
9 U.S.C. § 10.
On August 11, 1996, Sutter filed an action in the Federal
District Court for the Northern District of Texas, Dallas Division,
seeking confirmation of the arbitration award pursuant to FAA § 9,
which states that, "[i]f no court is specified in the agreement of
the parties, then such application [for confirmation] may be made
to the United States court in and for the district within which
such award was made." 9 U.S.C. § 9 (emphasis added). On May 6,
1996, P & P filed a motion in the Texas district court to dismiss
the Texas action, transfer the action to Oklahoma or stay the Texas
confirmation proceeding pending resolution by the Oklahoma district
court of P & P's motion to vacate the arbitration award, based on
the "first to file rule". Finally, on July 17, 1996, P & P filed
an alternative motion under § 10 in the Texas district court to
vacate the arbitration award, raising the same issues as its motion
to vacate previously filed in Oklahoma.
On August 14, 1996, the Texas district court denied P & P's
motion to dismiss, transfer or stay the confirmation proceeding,
finding that under the language of § 9 and the cases in this
4
Circuit construing that provision, the Northern District of Texas
was the only court which could decide Sutter's motion to confirm.
The Texas district court also denied P & P's motion to vacate the
arbitration award, holding that P & P's non-arbitrability argument
had already been addressed by the Oklahoma district court, and
therefore, there was no need to revisit the issue. Finally,
relying on this Court's decision in McKee v. Home Buyers Warranty
Corp. II, 45 F.3d 981, 983 (5th Cir.1995), the Texas district court
held that an agreement to submit to AAA arbitration implies
concensus that the award will be deemed binding and subject to
entry of judgment, unless the parties expressly agree otherwise.
Therefore, the arbitration in this case was deemed binding.
P & P appeals raising the following issues:
1. Whether the Texas district court should have dismissed,
transferred or stayed Sutter's confirmation action, pending
resolution by the Oklahoma district court of the P & P motion
to vacate the arbitration award, under the "first to file
rule";
2. Whether the Texas district court should have refused to confirm
the arbitration award, because the arbitration agreement did
not provide for finality of any such award;
3. Whether the Texas district court, in the alternative, should
have vacated the arbitration award under FAA § 10, because the
tortious interference claims were not arbitrable.
II.
P & P's Motion to Dismiss, Transfer or Stay
A.
Standard of Review
A district court's decision whether to grant a stay is
ordinarily reviewed for abuse of discretion.Save Power Limited v.
5
Syntek Finance Corp., 121 F.3d 947, 948 (5th Cir.1997). However,
to the extent the district court's decision in this case rests on
an interpretation of the law, the decision is reviewed de novo.
Goldman v. Bosco, 120 F.3d 53, 54 (5th Cir.1997).
B.
Law
The so-called "first to file rule" is a by-product of the
well-established axiom that:
[t]he federal courts long have recognized that the principle
of comity requires federal district courts—courts of
coordinate jurisdiction and equal rank—to exercise care to
avoid interference with each other's affairs. [citations
omitted] ... The concern manifestly is to avoid the waste of
duplication, to avoid rulings which may trench upon the
authority of sister courts, and to avoid piecemeal resolution
of issues that call for a uniform result. [citations omitted]
... To avoid these ills, a district court may dismiss an
action where the issues presented can be resolved in an
earlier-filed action pending in another district court.
West Gulf Maritime Ass'n v. ILA Deep Sea Local 24, 751 F.2d 721,
728-29 (5th Cir.1985). Therefore, typically if the Oklahoma and
Texas cases "overlap on the substantive issues, the cases [should]
be ... consolidated in ... the jurisdiction first seized of the
issues." Mann Mfg. Inc. v. Hortex, Inc., 439 F.2d 403, 408 n. 6
(5th Cir.1971).
However, concerns about comity notwithstanding, whether both
the Oklahoma and Texas district courts could decide Sutter's motion
to confirm, or just the Texas district court, is controlled by
statute. 9 U.S.C. § 9. Hence, the "first to file rule" must yield,
if § 9 establishes that the Texas district court is exclusively the
appropriate court to decide Sutter's motion to confirm, even though
6
the same issues were first raised in the Oklahoma district court.
The question of which district court is the appropriate court
to decide post-arbitration motions under §§ 9, 10 and 11, is one of
permissive or mandatory venue. These statutory provisions are akin
to venue provisions in the sense that they identify which of the
several district courts having jurisdiction is the appropriate one
to decide these post-arbitration motions. If these so-called venue
provisions are mandatory (appropriately brought only in "the United
States court in and for the district within which such award was
made"), then they may be seen as jurisdictional, in that they would
deprive all other district courts of the power to decide these
motions.5 However, since we view these provisions as permissive,
they are more closely akin to venue provisions, because they do not
take the power to decide these post-arbitration motions away from
any federal district court otherwise having jurisdiction.
i.
§ 9 Venue
We are convinced that the district court's conclusion that
venue is mandatory under § 9 is based on a misunderstanding of the
law in this Circuit.
a.
5
In the Ninth Circuit, where these provisions are viewed as
mandatory, the Court has found that an Arizona district court
properly refused to vacate a California arbitration award under §
10 citing a lack of subject matter jurisdiction. United States v.
Ets-Hokin Corp., 397 F.2d 935, 938-39 (9th Cir.1968). See also,
Feliciano v. Wirth, 911 F.2d 737 (9th Cir.1990)(vacatur of
California arbitration award under § 10 by Nevada district court
invalid for lack of subject matter jurisdiction).
7
Purdy
In Purdy v. Monex Intern. Ltd., 867 F.2d 1521, 1523 (5th
Cir.1989), this Court held that § 9 "does not establish an
exclusive forum for suits upon arbitral awards." In Purdy the
defendant removed a Texas state court action to federal court in
Texas and made a motion under § 3 for a stay pending arbitration in
California in accordance with the forum selection clause in their
contract, and a motion to compel arbitration under § 4. The Texas
district court granted the stay, ordered the parties to arbitrate
in California, and plaintiff immediately appealed. Plaintiff
argued that since venue under § 9 was mandatory in the California
district court, the Texas district court could not entertain a
post-arbitration application to confirm the award, and therefore,
its order to arbitrate in California was tantamount to a final
order.
This Court noted that § 9 "says only that a party may apply to
the federal court in the district where the award was entered to
seek its enforcement." Purdy, 867 F.2d at 1523 (emphasis in
original). Therefore, we concluded that "[t]his language does not
prevent the court in the Southern District of Texas, which stayed
the appellant's action pending California arbitration, from
re-opening that action after arbitration is concluded." Id. Since
venue under § 9 was permissive, the Texas district court could
retain venue and its stay was an interlocutory rather than final
order favoring arbitration, which was not immediately appealable.
9 U.S.C. § 16.
8
In the instant case, the Texas district court's holding that
§ 9 venue was mandatory in that court is clearly inconsistent with
the holding in Purdy. Such holding prevented the Oklahoma district
court from doing the very thing that the Court in Purdy seemed to
anticipate, i.e., staying P & P's action pending arbitration and
"re-opening that action after arbitration is concluded." The
district court relied in part on our pre-Purdy decision in City of
Naples v. Prepakt Concrete Company, 490 F.2d 182 (5th Cir.1974),
and the outcome in this case must necessarily turn on the
precedential value of that case. See, Oncale v. Sundowner Offshore
Services, Inc., 83 F.3d 118, 120 (5th Cir.1996)(discussing the
doctrine of stare decisis and how to identify obiter dictum ).
b.
Prepakt Concrete
In Prepakt Concrete the City of Naples, Florida, sued Prepakt,
an Ohio corporation, in Florida state court, Prepakt removed to
federal district court in Florida and moved for a stay pending
arbitration under § 3 and to compel arbitration under § 4. The
Florida district court granted the stay and ordered arbitration in
accordance with the agreement, which provided, by incorporation of
the AAA rules, that the AAA would fix the arbitration locale in
case of a dispute. A dispute arose, and the AAA decided that the
arbitration should be held in Ohio. The Ohio arbitrators awarded
Prepakt $90,000.00.
Prepakt filed a motion in the Northern District of Ohio under
§ 9 to confirm the award, as it was "the United States court in and
9
for the district within which such award was made." 9 U.S.C. § 9.
Back in Florida the City asked the district court to enjoin the
Ohio proceedings arguing that § 4 of the FAA required the
arbitration to be held in Florida, which would make the Florida
district court the proper court to determine post-arbitration
motions.6 In response, Prepakt argued that the City had waived its
right to oppose arbitration in Ohio by waiting too long to bring §
4 to the attention of the Florida district court, and that venue
under § 9 was mandatory, making the Ohio district court the
exclusively appropriate court to determine its motion to confirm.
The Florida district court agreed with the City and issued an
injunction against any further proceedings in the matter in any
other court.
On appeal this Court held that the City had waived its right
to oppose Ohio arbitration under § 4 by "agreeing in an arm's
length commercial contract to abide by the AAA's decision as to
arbitration locale in cases of dispute ..." Prepakt Concrete, 490
F.2d at 185. This Court then stated that:
"[t]he City may be technically correct in urging that the
federal court in Florida retained jurisdiction over the stayed
lawsuit. Nevertheless, in view of § 9's command, and for
reasons of judicial restraint and comity, the District Judge
should have declined to enjoin the confirmation proceeding in
the Ohio District Court."
Prepakt Concrete, 490 F.2d at 184 (emphasis added), citing Reed &
Martin, Inc. v. Westinghouse Elec. Corp., 439 F.2d 1268, 1272-73
6
§ 4 states that "[t]he hearings and proceedings ... shall be
within the district in which the petition for an order directing
such arbitration is filed." 9 U.S.C. § 4.
10
(2nd Cir.1971). The Court in Prepakt did not explain what it meant
by " § 9's command" or why that command compelled or even supported
the result reached.
The conclusion that the Florida district court retained
jurisdiction after the stay, but that the Ohio district court had
exclusive jurisdiction to decide all post-arbitration motions is
inconsistent. We have to ask, over what did the Florida district
court retain jurisdiction? The answer is nothing. If § 9 is
mandatory, then whenever a district court stays its proceedings in
favor of arbitration in another district, the stay is the
equivalent of a dismissal, because the district court thereby
deprives itself of venue over any further action in the matter.
This Court specifically recognized this absurd result created by
treating § 9 as mandatory. Purdy, 867 F.2d at 1523, citing NII
Metals Services, Inc. v. ICM Steel Corp., 514 F.Supp. 164
(N.D.Ill.1981). See also, In re VMS Securities Litigation, 21 F.3d
139, 145 (7th Cir.1994)(noting this and several other problems
caused by mandatory venue under § 9, 10 and 11). Since Prepakt
Concrete does not directly answer the question whether venue under
§ 9 is mandatory, we will not assume that it does, especially when
doing so would lead to a litany of absurd results. Purdy on the
other hand directly poses and answers the question of venue under
§ 9 in a context where its resolution is necessary to the Court's
ultimate conclusion. Therefore, we find that Purdy correctly
states the law in this Circuit. Venue under § 9 is not mandatory
and does not prevent the Texas district court in the instant case
11
from staying, dismissing or transferring Sutter's motion to
confirm, pending resolution of P & P's motion to vacate by the
Oklahoma district court.
ii.
§ 10 Venue
However, if venue under § 10 is mandatory, then the Texas
district court would be the exclusive forum to decide P & P's
motion to vacate the arbitration award, which would make a
dismissal, transfer or stay impossible. Those circuits which have
dealt with the question, uniformly agree that §§ 9 and 10 must be
construed the same, regardless of whether they are found to be
permissive or mandatory. In re VMS Securities Litigation, 21 F.3d
at 142, citing Sunshine Beauty Supplies, Inc. v. Unites States
District Court for Central Dist. of Cal., 872 F.2d 310, 312 n. 4
(9th Cir.1989), and Motion Picture Lab. Technicians Local 780 v.
McGregor & Werner, Inc., 804 F.2d 16, 19 (2d Cir.1986). In any
event, a mandatory reading of § 10 would create the same absurd
result decried in Purdy. We agree with the Seventh Circuit's
reasoning in In re VMS Securities Litigation, 21 F.3d at 142-45,
and hold that venue under § 10 is also permissive. Thus, § 10 did
not prevent the Texas district court from dismissing, staying or
transferring P & P's motion to vacate under the "first to file
rule".
C.
Analysis
Having concluded that the venue provisions of §§ 9 and 10 are
12
permissive, it does not necessarily follow that the Texas district
court had to grant P & P's motion to dismiss, transfer or stay the
Texas proceedings. However, "[t]he Fifth Circuit adheres to the
general rule, that the court in which an action is first filed is
the appropriate court to determine whether subsequently filed cases
involving substantially similar issues should proceed." Save Power
Limited, 121 F.3d 947, 948, citing West Gulf Maritime Association
v. ILA Deep Sea Local 24, 751 F.2d 721, 728 (5th Cir.1985); Mann
Mfg., 439 F.2d at 408 (5th Cir.1971). Therefore, the "first to
file rule" not only determines which court may decide the merits of
substantially similar cases, but also establishes which court may
decide whether the second suit filed must be dismissed, stayed or
transferred and consolidated. This Court stated in Mann Mfg., 439
F.2d at 408, that:
once the likelihood of substantial overlap [of issues] between
the two suits had been demonstrated, it was no longer up to
the court in Texas to resolve the question of whether both
should proceed. By virtue of its prior jurisdiction over the
common subject matter ... the determination of whether there
actually was substantial overlap requiring consolidation of
the two suits in [Oklahoma] belonged to the United States
District Court in [Oklahoma].
There is no doubt that substantial overlap exists between the
Texas and Oklahoma actions in the instant case. P & P's motion to
vacate in Oklahoma, Sutter's motion to confirm in Texas and P & P's
motion to vacate in Texas all present identical issues. Under
these circumstances, the Texas district court abused its
discretion. Therefore, we reverse and remand this matter to the
United States District Court for the Northern District of Texas, so
that it may transfer the matter to the United States District Court
13
for the Western District of Oklahoma for resolution of whether the
Texas action should be allowed to proceed independently or should
be consolidated in Oklahoma.7
REVERSE AND REMAND.
7
We do not reach the question of whether the arbitration in
this case was binding, or whether the Texas district court should
have vacated the arbitration award under § 10. The determination
of these questions will depend on the Oklahoma district court's
conclusion as to which court should decide them.
14