United States Court of Appeals
For the First Circuit
No. 04-1124
RICHARD C. YOUNG & CO., LTD.,
Plaintiff, Appellant,
v.
MORRIS LEVENTHAL, D.D.S., M.S.,
Individually and as Trustee of the
Leventhal Family Revocable Trust;
JUDITH LEVENTHAL, as Trustee of the
Leventhal Family Revocable Trust,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Robert E. Keeton, U.S. District Judge]
Before
Boudin, Chief Judge,
Lynch, Circuit Judge,
and Schwarzer,* Senior District Judge.
Vincent L. DiCianni, with whom Michael Unger and Nur-ul-
Haq and Rubin and Rudman LLP were on brief, for appellant.
Angela H. Magary, with whom John E. Sutherland and
Brickley, Sears & Sorett, P.A. were on brief, for appellee.
October 28, 2004
*
Of the Northern District of California, sitting by
designation.
SCHWARZER, Senior District Judge. Plaintiff Richard C.
Young & Co., Ltd., brought this action against Dr. Morris Leventhal
and Judith Leventhal for a declaration that the parties’ investment
and trust management agreements required arbitration under them to
be held in Boston. Young also sought an injunction against the
arbitration initiated by the Leventhals against Young in
California. The District Court enjoined the California arbitration
but declined the requested declaration and, instead, ordered the
Leventhals to submit the dispute to the American Arbitration
Association (AAA) in Boston. Young appeals the District Court’s
judgment.
FACTUAL AND PROCEDURAL BACKGROUND
Young is a Rhode Island corporation registered as an
investment advisor with the United States Securities and Exchange
Commission with its principal office in Newport, Rhode Island.
Dr. Morris Leventhal and his wife, Judith Leventhal, are clients of
Young residing in Ventura, California. Both Leventhals serve as
trustees of the Leventhal Family Revocable Trust.
Dr. Leventhal has employed Young’s services for over ten
years. In March of 2002, he executed an investment management
agreement with Young. In May of 2002, the Leventhals executed a
trust management agreement. Both agreements contained the
following arbitration clause:
Arbitration. In the event of any disagreement
between us in connection with this Agreement
we will meet in good faith to attempt to
resolve such disagreement. If we are unable to
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resolve the disagreement within 30 days after
receipt of written notice by either party from
the other that such a disagreement exists, the
disagreement will be submitted for arbitration
to the American Arbitration Association in
Boston, Massachusetts, in accordance with the
Rules of Commercial Arbitration of the
Association. There is no obligation to
arbitrate changes in or additions to the terms
of this Agreement, and no arbitrator will have
the power to add to or subtract from the terms
of this Agreement. Each of us will bear his
own costs. Judgment may be entered in any
court within the State of Rhode Island.
(Emphasis added.)
At some point after executing the agreements,
Dr. Leventhal took exception to Young’s handling of his trust
management account. He wrote a notice of claim letter to Young in
an attempt to resolve his dispute in accordance with the
arbitration clause, followed by a second letter. On February 3,
2003, he instituted an arbitration proceeding against Young with
the AAA in California.
Upon receipt of notice of the arbitration claim, Young
objected to the arbitration being held in California. AAA in
California requested and received submissions regarding
determination of the locale and concluded that the arbitration
should go forward in California. Because of the pendency of this
action, commencement of the arbitration was deferred.
Young then brought this action in the District Court,
contending that the language of the arbitration clause emphasized
above was a forum selection clause requiring any arbitration to be
held in Boston. The District Court rejected this interpretation,
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holding that the clause did not require the Leventhals to arbitrate
in Boston, but did require them to submit the request for
arbitration to the Boston office of the AAA. It enjoined further
proceedings in California and compelled the Leventhals to submit
the arbitration request to the AAA in Boston. Young then appealed
to this court.
At oral argument counsel advised the court that while the
appeal had been pending the Leventhals submitted their dispute to
the AAA in Boston as required by the agreement. The AAA requested
the parties to provide information and their reasons with respect
to the location of the arbitration and then determined that the
arbitration should be heard in California.
DISCUSSION
I. SUBJECT MATTER JURISDICTION
The Leventhals challenge the court’s subject matter
jurisdiction. Young invoked diversity jurisdiction. 28 U.S.C.
§ 1332(a). The Leventhals dispute that the amount in controversy
exceeds $75,000, arguing that the statute prohibits including
interest and costs in the calculation. The District Court rejected
the argument. It found the amount in controversy in the
arbitration to be $59,703.56, plus interest. In addition, the
court included the costs that Young would incur as a result of
arbitrating in California, i.e., the incremental costs it would
incur if relief were denied in this action, amounting to $30,000.
Courts have repeatedly held that the value of the matter in
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controversy is measured not by the monetary judgment which the
plaintiff may recover but by the judgment’s pecuniary consequences
to those involved in the litigation. Duderwicz v. Sweetwater
Savings Assoc., 595 F.2d 1008, 1014 (5th Cir. 1979); Beacon Constr.
Co. v. Matco Elec. Co., 521 F.2d 392, 399 (2d Cir. 1975); Mass.
State Pharmaceutical Ass’n v. Fed. Prescription Serv., 431 F.2d
130, 132 (8th Cir. 1970). Here, the object of the litigation was
to avoid the additional costs Young would incur if the arbitration
were held in California instead of Boston. Those costs are
properly included in the calculation of the amount in controversy.
See Hunt v. Wash. Apple Adver. Comm’n, 432 U.S. 333, 347 (1977)
(stating that “[i]n actions seeking declaratory or injunctive
relief it is well established that the amount in controversy is
measured by the value of the object of the litigation”). We
conclude that the District Court had subject matter jurisdiction.
II. THE MERITS
Because this appeal presents a question of law, appellate
review is plenary. Shaw’s Supermarkets v. United Food & Commercial
Workers Union, Local 791, 321 F.3d 251, 253 (1st Cir. 2003).
The central issue raised by Young’s appeal is whether the
language of the arbitration clause emphasized above is a forum
selection clause, requiring the arbitration to be held in Boston.
The District Court rejected Young’s contention, interpreting the
clause as merely requiring the Leventhals to submit their dispute
to the AAA in Boston. The court reasoned that the clause was
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ambiguous and that the agreement, as a contract of adhesion, should
be construed against Young.
At the threshold the court addressed the question of its
power to interpret the forum selection clause. The court
acknowledged that the recent Supreme Court decisions in Howsam v.
Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), and Green Tree
Financial Corp. v. Bazzle, 539 U.S. 444 (2003), arguably left it
without authority to interpret the forum selection clause. It
found more persuasive, however, earlier decisions by courts of
appeals holding that the interpretation of forum selection clauses
was for the court, not the arbitrator, citing Bear, Stearns & Co.
Inc. v. Bennett, 938 F.2d 31 (2d Cir. 1991); Snyder v. Smith,
736 F.2d 409 (7th Cir. 1984), overruled on other grounds by Felzen
v. Andreas, 134 F.3d 873 (7th Cir. 1998); McCullough v. Dean Witter
Reynolds, Inc., 177 F.3d 1307 (11th Cir. 1999); see also KKW Enter.
Inc. v. Gloria Jean’s Gourmet Coffees Franchising Corp., 184 F.3d
42 (1st Cir. 1999).1
In Howsam, the Court held that the time limit rule
governing arbitrations under the rules of the National Association
of Securities Dealers was the kind of dispute that did not present
a question of arbitrability and was therefore presumptively for the
arbitrator. 537 U.S. at 85. The Court explained that under its
1
KKW Enterprises involved an appeal from orders staying
arbitration. It did not involve a question of interpretation of a
forum selection clause or of the respective powers of the
arbitrator and the court.
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precedents, “a gateway dispute about whether the parties are bound
by a given arbitration clause raises a question of arbitrability
for a court to decide.” Id. at 84. On the other hand, “the phrase
‘question of arbitrability’ [is] not applicable . . . [to]
‘procedural questions which grow out of the dispute and bear on its
final disposition’ [and which] are presumptively not for the judge,
but for an arbitrator, to decide.” Id. (citing John Wiley & Sons,
Inc. v. Livingston, 376 U.S. 543, 557 (1964)). The dispute between
the parties in this case over the location of the arbitration
raises not a question of arbitrability but a procedural question
and is therefore for the arbitrator, not the court.
In Green Tree, a plurality held that the question whether
the parties’ arbitration agreement forbade the use of class
arbitration was for an arbitrator, not a court. 539 U.S. at 447.
It reasoned that because the dispute fell within the terms of the
arbitration agreement as one “relating to this [arbitration]
contract . . . the parties seem to have agreed that an arbitrator,
not a judge, would [decide it].” Id. at 445. Similarly, in this
case the arbitration agreement states that
[i]n the event of any disagreement between us
in connection with this Agreement, we will
meet in good faith to attempt to resolve the
disagreement. If we are unable to resolve the
disagreement . . . the disagreement will be
submitted to arbitration. (Emphasis added.)
Under the reasoning of Green Tree, the disagreement over the
interpretation of the so-called forum selection clause is one “in
connection with this Agreement” and hence one the parties agreed to
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submit to arbitration. As the Court put it, “if there is any doubt
about the matter—about “the ‘scope of arbitrable issues’—we should
resolve that doubt in favor of arbitration.” 539 U.S. at 445
(quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 626 (1985)).
In Shaw’s Supermarkets, this court considered Howsam in
the context of a dispute over the consolidation for arbitration of
three grievances filed under a collective bargaining agreement.
The court said:
The issue before us is who should make
the determination as to whether to consolidate
the three grievances into a single
arbitration: the arbitrator or a federal
court. Since each of the three grievances is
itself concededly arbitrable, we think the
answer is clear. Under Howsam, this is a
procedural matter for the arbitrator.
321 F.3d at 254 (citations omitted). So here. Since the dispute
between the parties is concededly arbitrable, determining the place
of the arbitration is simply a procedural matter and hence for the
arbitrator.
We conclude that the District Court lacked power to
interpret the forum selection clause and that the judgment must
therefore be vacated. We should stress that the present case
concerns only the question whether, after the matter was properly
refiled with the Boston Office of the AAA, the AAA could then
transfer the matter to California. It is this subsidiary issue
which we regard as a matter for the arbitrator. Whether the
District Court had authority to intervene to address the
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Leventhals' original filing in California is a different issue
which has been mooted by the refiling and which we reserve for
consideration in a case where it matters. The arbitration can
proceed forthwith, and Young can present its arguments concerning
the forum selection clause to the arbitrator.
CONCLUSION
For the reasons stated, we VACATE the judgment of the
District Court and REMAND with directions to DISMISS the action.
VACATED AND REMANDED.
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