Powershare, Inc. v. Syntel, Inc.

United States Court of Appeals
For the First Circuit

No. 09-1625

POWERSHARE, INC.,

Plaintiff, Appellee,

v.

SYNTEL, INC.,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Nancy Gertner, U.S. District Judge]
[Hon. Judith G. Dein, U.S. Magistrate Judge]

Before

Lynch,Chief Judge,
Souter,* Associate Justice,
and Selya, Circuit Judge.

Steven P. Perlmutter, with whom Christopher S. Feudo, Robinson
& Cole LLP, Dennis M. Haffey, Stephen W. King, and Dykema Gossett
PLLC were on brief, for appellant.
Paul Mark Sandler, with whom Robert B. Levin, John J. Lovejoy,
Shapiro Sher Guinot & Sandler, Rory Fitzpatrick, and Cetrulo &
Capone were on brief, for appellee.

March 1, 2010

*
Hon. David H. Souter, Associate Justice (Ret.) of the Supreme
Court of the United States, sitting by designation.
 SELYA, Circuit Judge. Two corporations, one based in

Massachusetts, and the other in Michigan, entered into a business

arrangement (the Agreement). After a falling-out, one of the

contracting parties, PowerShare, Inc., commenced a civil action in

the district court to enforce the Agreement. The defendant, Syntel,

Inc., countered by instituting a parallel arbitration proceeding and

moving to stay litigation pending arbitration. The district court

denied the motion, and Syntel now appeals. We have jurisdiction

pursuant to the Federal Arbitration Act to review the interlocutory

order denying Syntel's motion to stay litigation pending

arbitration. See 9 U.S.C. § 16(a)(1)(A); Combined Energies v. CCI,

Inc., 514 F.3d 168, 170 (1st Cir. 2008).

The question that lies at the heart of the appeal is

whether the Agreement contains a mandatory arbitration provision.

The district court thought not. We hold that the Agreement does so

provide and therefore reverse. Along the way, we address, as a

matter of first impression at the federal appellate level, an issue

concerning the standard of review to be applied by a district judge

when reviewing a magistrate judge's disposition of a motion to stay

litigation pending the completion of a parallel arbitration

proceeding.

I. BACKGROUND

PowerShare and Syntel entered into the Agreement on July

16, 2003. Their evident purpose was to form a joint venture to

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handle the outsourcing needs of third parties. Paragraph 18 of the

Agreement reads in relevant part:1

All disputes, controversies and claims directly
or indirectly arising out of or in relation to
this Agreement or the validity, interpretation,
performance, breach, enforceability of the
Agreement (collectively referred to as
"Dispute") shall be resolved amicably between
Syntel and PowerShare at an operational level in
consultation with the top management of both
companies. If any such Dispute cannot be
resolved, as stated above, the same shall be
settled in accordance with the principles and
procedures of the American Arbitration
Association and per the decision of an
accredited arbitrator acceptable to both
parties. Nothing in this clause shall prejudice
Syntel or PowerShare's right to seek injunctive
relief or any other equitable/legal relief or
remedies available under law.

Some five years after the execution of the Agreement, a

dispute arose. On August 8, 2008, PowerShare invoked diversity

jurisdiction, 28 U.S.C. § 1332(a), and filed suit against Syntel,

claiming breach of the Agreement, in the United States District

Court for the District of Massachusetts. PowerShare accompanied its

complaint with a request for jury trial. See Fed. R. Civ. P. 38(b).

In response, Syntel lodged a demand for arbitration with

the American Arbitration Association (AAA). It simultaneously moved

in the district court to stay PowerShare's action pending resolution

1
The parties agree that other material at the beginning and
end of Paragraph 18 is, for present purposes, uncontroversial. We
thus quote the three relevant sentences of the paragraph and
henceforth refer to them as the "first," "second," and "third"
sentences. This practice emulates what the parties have done.

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of the parallel arbitration proceeding. Not to be outdone,

PowerShare filed a motion to stay the arbitration.

The district court assigned the motions to a magistrate

judge, who denied Syntel's motion to stay the litigation and granted

PowerShare's cross-motion to stay the arbitration. PowerShare, Inc.

v. Syntel, Inc., 607 F. Supp. 2d 240, 244 (D. Mass. 2008). In her

rescript, the magistrate judge concluded that, under the Agreement,

arbitration was optional. Id. at 241. She reasoned that the third

sentence of Paragraph 18, which refers to "any other equitable/legal

relief or remedies available under law," made manifest the parties'

intention to allow litigation because a jury trial is a remedy

"available under law." Id. at 243. In so holding, the magistrate

judge rejected Syntel's argument that the federal policy favoring

arbitration should be given weight. Rather, she declared that this

policy applies only to the resolution of "scope" questions, not to

questions about whether a contract calls for mandatory arbitration

at all. Id. at 244.

Syntel appealed this decision to the district judge, Fed

R. Civ. P. 72(a), who issued an electronic order stating that the

decision was "not clearly erroneous or contrary to law." This

timely appeal followed.

II. ANALYSIS

We divide our analysis into two parts. First, we clarify

the standard of review to be employed by a district judge when

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reviewing a magistrate judge's order on a motion to stay litigation

pending the resolution of a parallel arbitration proceeding. Only

then do we proceed to the merits.

A.

The Federal Magistrates Act confers authority upon

district judges to designate magistrate judges to hear pretrial

motions. 28 U.S.C. § 636(b)(1). Magistrate judges serve as aides

to, and under the supervision of, district judges; but magistrate

judges are not themselves Article III judicial officers. Given

their status as Article I judicial officers, magistrate judges

ordinarily may not decide motions that are dispositive either of a

case or of a claim or defense within a case.2 This is so because

"[t]he Constitution requires that Article III judges exercise final

decisionmaking authority." Ocelot Oil Corp. v. Sparrow Indus., 847

F.2d 1458, 1463 (10th Cir. 1988); see Stauble v. Warrob, Inc., 977

F.2d 690, 693-94 (1st Cir. 1992). Dispositive motions include those

enumerated in 28 U.S.C. § 636(b)(1)(A), but this list is not

exhaustive; rather, it simply "informs the classification of other

motions as dispositive or nondispositive." Phinney v. Wentworth

Douglas Hosp., 199 F.3d 1, 5-6 (1st Cir. 1999).

Consistent with this dichotomy between dispositive and

non-dispositive motions, Federal Rule of Civil Procedure 72 sets out

2
We say "ordinarily" because there is an exception for cases
in which all parties consent. See 28 U.S.C. § 636(c); Fed. R. Civ.
P. 73. The record reveals no such consent here.

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two separate standards of review to be employed by a district judge

in reviewing a magistrate judge's determinations. When a magistrate

judge decides a non-dispositive motion, the district judge may,

given a timely appeal, set aside the order if it "is clearly

erroneous or is contrary to law." Fed. R. Civ. P. 72(a). Absent a

timely appeal, the order stands. Id. When, however, a magistrate

judge passes upon a dispositive motion, he or she may only issue a

recommended decision, and if there is a timely objection, the

district judge must engage in de novo review. Fed. R. Civ. P.

72(b). Absent a timely objection, the recommended decision ripens

into an order. Id.

Here, the district judge employed the "clearly erroneous

or contrary to law" standard applicable to non-dispositive motions

under Rule 72(a). Syntel protests that its motion to stay the

litigation to allow resolution of the parallel arbitration

proceeding was, in effect, dispositive of the court case and, thus,

should have engendered de novo review by the district judge pursuant

to Rule 72(b).

No court of appeals has decided this precise question.

Nevertheless, a number of district courts have held that motions to

stay litigation and compel related arbitration are non-dispositive

motions under Rule 72(a). See, e.g., Gonzalez v. GE Group Adm'rs,

Inc., 321 F. Supp. 2d 165, 166 (D. Mass. 2004); Torrance v. Aames

Funding Corp., 242 F. Supp. 2d 862, 865 (D. Or. 2002); All Saint's

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Brands, Inc. v. Brewery Group Den., A/S, 57 F. Supp. 2d 825, 833 (D.

Minn. 1999); Herko v. Metro. Life Ins. Co., 978 F. Supp. 141, 142

n.1 (W.D.N.Y. 1997). But see Flannery v. Tri-State Div., 402 F.

Supp. 2d 819, 821 (E.D. Mich. 2005) (concluding that such a motion,

if granted, is dispositive because it "has the practical effect of

allowing the case to proceed in a different forum").

Motions to stay litigation pending the resolution of

parallel arbitration proceedings are not among the motions

enumerated in 28 U.S.C. § 636(b)(1)(A). Nor are they of the same

character as the listed motions. A federal court's ruling on a

motion to stay litigation pending arbitration is not dispositive of

either the case or any claim or defense within it. Although

granting or denying a stay may be an important step in the life of

a case (lawyers are keenly aware that there are substantive

consequences to whether or not a stay is granted), in the last

analysis a stay order is merely suspensory. Even if such a motion

is granted, the court still retains authority to dissolve the stay

or, after the arbitration has run its course, to make orders with

respect to the arbitral award. See Federal Arbitration Act, 9

U.S.C. § 9 (permitting parties to apply to the court for an order

confirming the award); id. § 10 (providing district courts with

authority to vacate an arbitral award); id. § 11 (providing district

courts with authority to modify an arbitral award). We acknowledge

that the scope of judicial review of arbitral awards is very narrow,

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but that does not extinguish such review. See Advest, Inc. v.

McCarthy, 914 F.2d 6, 8 (1st Cir. 1990). Thus, there is no final

exercise of Article III power at the time the court acts on the

motion to stay. See Herko, 978 F. Supp. at 142 n.1.

In light of these realities, we conclude that, from a

procedural standpoint, the district judge acted appropriately in

reviewing the magistrate judge's denial of Syntel's motion to stay

under the "clearly erroneous or contrary to law" standard elucidated

in Rule 72(a).

In this case arbitrability depended on interpreting a

contractual term, a question of law for the courts. See Combined

Energies, 514 F.3d at 171. Nothing in the contract expressly

provided that an arbitrator would decide questions of arbitrability

instead. See Coady v. Ashcraft & Gerel, 223 F.3d 1, 8-9 (1st Cir.

2000). When, as in this case, review of a non-dispositive motion by

a district judge turns on a pure question of law, that review is

plenary under the "contrary to law" branch of the Rule 72(a)

standard. See, e.g., Haines v. Liggett Group Inc., 975 F.2d 81, 91

(3d Cir. 1992); EEOC v. Burlington N. & Santa Fe Ry. Co., 621 F.

Supp. 2d 603, 605-06 (W.D. Tenn. 2009); Sprint Commc'ns Co. v.

Vonage Holdings Corp., 500 F. Supp. 2d 1290, 1346-47 (D. Kan. 2007);

14 James Wm. Moore et al., Moore's Federal Practice § 72.11[1][b]

(3d ed. 2009); 12 Charles Alan Wright, Arthur R. Miller & Richard L.

Marcus, Federal Practice and Procedure § 3069, at 350 (2d ed. 1997).

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This means that, for questions of law, there is no practical

difference between review under Rule 72(a)'s "contrary to law"

standard and review under Rule 72(b)'s de novo standard.

To complete the picture, we limn the standard of review at

this level. Here, too, the purely legal nature of the question

controls: we, like the district court, must afford de novo review to

the purely legal question of whether the Agreement provides for

mandatory arbitration of the parties' dispute. See Osband v.

Woodford, 290 F.3d 1036, 1041 (9th Cir. 2002).

B.

Arbitration is a matter of contract. First Options of

Chi., Inc. v. Kaplan, 514 U.S. 938, 943 (1995). In this case, the

Agreement contains a choice-of-law provision in favor of the laws of

the United States. The parties agree that this provision brings

into play the federal common and statutory law.

In construing a contract governed by federal common law,

courts must be guided by common-sense rules of contract

interpretation. Smart v. Gillette Co. Long-Term Disab. Plan, 70

F.3d 173, 178 (1st Cir. 1995); Burnham v. Guardian Life Ins. Co.,

873 F.2d 486, 489 (1st Cir. 1989). And although more a product of

the Federal Arbitration Act than of federal common law, per se,

federal law undeniably includes a policy favoring arbitration. See

Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ.,

489 U.S. 468, 475-76 (1989). At a minimum, this policy requires

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that "ambiguities as to the scope of the arbitration clause itself

[must be] resolved in favor of arbitration." Id.

Syntel contends that this policy creates a presumption of

arbitrability here. PowerShare demurs, relying principally on our

decision in Paul Revere Variable Annuity Insurance Co. v.

Kirschhofer, 226 F.3d 15, 25 (1st Cir. 2000), which it characterizes

as limiting the presumption of arbitrability to questions about the

scope of an arbitration agreement (as contrasted with questions

about the existence of such an agreement). Because the issue in

this case is whether a mandatory arbitration agreement exists,

PowerShare contends that the presumption does not attach.

Despite the parties' importunings, we need not decide

whether the federal policy favoring arbitration applies here. Even

if we assume that the presumption does not affect the decisional

calculus, the plain language of the Agreement mandates arbitration.

Thus, the applicability vel non of the presumption makes no ultimate

difference.

With this question set to one side, we go directly to the

language of the Agreement itself. Paragraph 18, quoted above, sets

out the mechanisms for resolving disputes between the parties. The

first sentence provides that all disputes "shall be resolved

amicably between Syntel and PowerShare." The second sentence

provides that if a dispute cannot be resolved amicably, it "shall be

settled in accordance with the principles and procedures of the

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American Arbitration Association and per the decision of an

accredited arbitrator." The third sentence states that "[n]othing

in this clause shall prejudice Syntel or PowerShare's right to seek

injunctive relief or any other equitable/legal relief or remedies

available under law."

In deciding whether this language mandates arbitration, we

are mindful that "an interpretation which gives effect to all the

terms of a contract is preferable to one that harps on isolated

provisions, heedless of context." Blackie v. Maine, 75 F.3d 716,

722 (1st Cir. 1996); see Fashion House, Inc. v. K mart Corp., 892

F.2d 1076, 1084 (1st Cir. 1989). In line with this wise counsel, we

strive for a reasonable interpretation of the Agreement as a whole,

while avoiding constructions that would render any term within it

meaningless. Summit Packaging Sys., Inc. v. Kenyon & Kenyon, 273

F.3d 9, 12 (1st Cir. 2001); Jimenez v. Penin. & Oriental Steam

Navig. Co., 974 F.2d 221, 223 (1st Cir. 1992).

PowerShare urges us to focus on the third sentence of

Paragraph 18 and to read that sentence as reserving to the parties

the right to pursue remedies at law (that is, the right to litigate

in court). In order to square this interpretation with the second

sentence of Paragraph 18, PowerShare suggests that the parties

intended arbitration to be an optional mechanism for dispute

resolution.

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 Although PowerShare's interpretation of the third sentence

may be plausible when read in isolation, that interpretation cannot

be reconciled with the unvarnished language of Paragraph 18's

second sentence. That sentence states explicitly that disputes

between the parties "shall" be settled through arbitration. The

word "shall" denotes obligation, not choice; therefore, accepting

PowerShare's interpretation of the third sentence would drain the

second sentence of its essential meaning. Put bluntly, the word

"shall" in the second sentence would be rendered nugatory were we to

read the arbitration provision as creating nothing more than an

option. That PowerShare's interpretation of Paragraph 18 would

negate the obvious meaning of the second sentence is a powerful

argument against accepting that interpretation. See Mastrobuono v.

Shearson Lehman Hutton, Inc., 514 U.S. 52, 64 (1995) (rejecting

reading of two clauses in an arbitration agreement as "untenable"

when that reading "sets up the two clauses in conflict with one

another"); Blackie, 75 F.3d at 722 (rejecting reading of one section

of a contract when that reading would "flatly contradict[]" other

sections); see also Smart, 70 F.3d at 179 ("Accepted canons of

construction forbid the balkanization of contracts for

interpretative purposes.").

We conclude that the only sensible reading of Paragraph 18

is that the second sentence mandates arbitration and the third

sentence furnishes the arbitrator with broad legal and equitable

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powers should either party seek special kinds of relief (say, an

injunction). This is the only plausible interpretation of the third

sentence that fits with, and gives effect to, the plain meaning of

the second sentence.3

In an endeavor to deflect the force of this reasoning,

PowerShare argues that a jury trial is a "remedy" preserved in the

third sentence. It says that because only a court can implement

such a remedy, the interpretation that we propose must be incorrect.

This argument is unconvincing. Unlike the second

sentence, which plainly mandates arbitration, the reference in the

third sentence to "any other equitable/legal relief or remedies

available under law" never mentions jury trials (or, for that

matter, recourse to the courts). Moreover, there is no textual

support for a belief that this reference necessarily includes jury

trials.

PowerShare tries to counter-punch by citing a pair of

decisions holding that "remedies" include "jury trials." But some

words mean different things in different contexts, see United States

3
Other courts have reached similar conclusions. See, e.g.,
Laughton v. CGI Techs. & Sol'ns, Inc., 602 F. Supp. 2d 262, 265 (D.
Mass. 2009) (holding, in similar circumstances, that "[t]he correct
reading of the Arbitration and Cumulative Remedies provisions is
that arbitration is mandatory, but the arbitrator is not limited to
awarding certain remedies" (citation and internal quotation mark
omitted)); Kingstown Corp. v. Black Cat Cranberry Corp., 839 N.E.2d
333, 338 (Mass. App. Ct. 2005) (holding, in similar circumstances,
that the agreement "provides an aggrieved party with the right to
mandatory arbitration while also empowering an arbitrator to grant
injunctive or other equitable relief").

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v. Romain, 393 F.3d 63, 74 (1st Cir. 2004) (explaining that "words

are like chameleons; they frequently have different shades of

meaning depending upon the circumstances"); and when context is

taken into account, the decisions on which PowerShare relies are

off-point. Each of them interprets a savings clause in a maritime

statute. See Lewis v. Lewis & Clark Marine, Inc., 531 U.S. 438,

454-55 (2001) (holding that "[t]rial by jury is an obvious . . .

example of the remedies available" under the savings to suitors

clause of 28 U.S.C. § 1333(1)); Curcuru v. Rose's Oil Serv., Inc.,

802 N.E.2d 1032, 1037 (Mass. 2004) (holding that savings clause of

the Death on the High Seas Act preserves jury trial right in state

court). These decisions, immersed in the historical context of

admiralty law, offer little guidance for the issue of contract

interpretation with which we must grapple. See, e.g., Laughton v.

CGI Techs. & Sol'ns, Inc., 602 F. Supp. 2d 262, 265 (D. Mass. 2009)

(rejecting argument that reference to "remedies" in an agreement

containing a mandatory arbitration clause preserves a party's right

to litigate and, thus, renders the arbitration provision elective);

Beaver Constr. Co. v. Lakehouse, L.L.C., 742 So. 2d 159, 164 (Ala.

1999) (similar).

In the end, we come full circle. Reading the "remedies"

language in the third sentence to allow access to a jury trial would

place this provision at cross purposes with the mandatory

arbitration provision spelled out in the second sentence. That

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would violate one of the cardinal rules of contract interpretation:

"that a document should be read to give effect to all its provisions

and to render them consistent with each other." Mastrobuono, 514

U.S. at 63. Confronted with two competing interpretations of the

"remedies" language, we must give preference to the one that makes

sense of the Agreement as a whole. See Blackie, 75 F.3d at 722.

PowerShare tries to turn this principle to its advantage.

It asserts that our reading of the third sentence — to afford the

arbitrator broad power to dispense legal and equitable remedies —

renders that sentence superfluous because, under the AAA's rules, an

arbitrator already has those powers. As support for this assertion,

PowerShare identifies Rule 34(a) of the AAA's Commercial Arbitration

Rules, which allows an arbitrator to "take whatever interim measures

he or she deems necessary."

Here, however, the parties went beyond Rule 34(a); they

agreed to vest in the arbitrator broad powers extending to the

arbitrator's final decisionmaking, not just powers in connection

with interim relief. The "remedies" provision, read in this way, is

not superfluous but, rather, makes perfect sense. In commercial

arbitration cases, the scope of a final award is governed by Rule

43(a), which provides that the arbitrator "may grant any remedy or

relief that the arbitrator deems just and equitable and within the

scope of the agreement of the parties" (emphasis supplied). Because

an arbitrator's power to award relief can be shaped by the parties'

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agreement, it is reasonable — and certainly not redundant — for the

parties to clarify that the person arbitrating their disputes will

be free to choose from the widest possible array of remedies.

Consequently, PowerShare's superfluity argument fails.

The short of it is that the Agreement as a whole admits of

only one reasonable interpretation: the parties are obliged to

submit their disputes to arbitration. See Fashion House, 892 F.2d

at 1084 ("Black letter law teaches that 'a construction which

comports with the Agreement as a whole is to be preferred even if it

be thought that certain language, viewed only by itself, more

readily suggests something else.'" (quoting Spartans Indus., Inc.

v. John Pilling Shoe Co., 385 F.2d 495, 499 (1st Cir. 1967))).

III. CONCLUSION

We need go no further. For the reasons elucidated above,

we reverse the decision appealed from and remand the case to the

district court for the entry of an order staying the litigation

pending the resolution of the parallel arbitration proceeding,

dissolving the existing stay of arbitration, and making such other

provisions consistent with this opinion, as the district court may

deem meet.

Reversed and remanded.

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