Webb v. Investacorp, Inc.

United States Court of Appeals,

Fifth Circuit.

No. 95-21052

Summary Calendar.

Earl WEBB; Barbara Webb, Plaintiffs-Appellants,

v.

INVESTACORP, INC., Defendant-Appellee.

July 26, 1996.

Appeal from the United States District Court for the Southern
District of Texas.

Before KING, DAVIS and BENAVIDES, Circuit Judges.

PER CURIAM:

Earl and Barbara Webb appeal the district court's order

denying their motion to remand this action to state court and

granting Investacorp's motion to compel arbitration. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

Investacorp, Inc., a Florida corporation, is a securities

broker-dealer. On September 10, 1991, Earl Webb, then a citizen of

Texas, executed a "Manager's Agreement" with Investacorp whereby he

became a contract representative for Investacorp in Houston, Texas.

This agreement was later superseded by a "Principal Agreement,"

which Earl Webb executed on October 28, 1992. Barbara Webb became

a contract representative for Investacorp by executing a similar

"Principal Agreement" with Investacorp on October 1, 1993.

Each of the Principal Agreements contained an indemnification

clause that required the contractor to indemnify Investacorp for

any debit in an account of his clients. Each agreement also

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contained a "Governing Law and Venue" clause, which stated:

In all respects this Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
It is hereby agreed by the parties that all proceedings will
be subject to arbitration before the NASD and will be
instituted and take place in the county in which Company
maintains its executive offices or as close thereof as is
possible. Further, Contractor shall be responsible to Company
for the costs of collection, including attorney's fees, forum
fees and other costs arising out of the enforcement and/or
defense of this Agreement.

In December 1994, a dispute arose between the Webbs and

Investacorp regarding an account of one of the Webbs' customers.

As a result of this dispute, the Webbs resigned from Investacorp.

Later, the customer failed to meet a margin call, resulting in a

debit balance of approximately $75,000 in the customer's account.

Investacorp then filed a claim with the National Association of

Securities Dealer's, Inc. ("NASD"), seeking arbitration of its

claim that the Webbs are contractually obligated to indemnify it

for the loss on the customer's account.

The Webbs filed the present action in state district court in

Harris County, Texas. Specifically, the Webbs sought a declaratory

judgment that the contracts between themselves and Investacorp did

not require them to arbitrate disputes with Investacorp and an

injunction prohibiting Investacorp from pursuing claims in

arbitration proceedings. Investacorp removed this case to federal

district court based on diversity of citizenship.

The Webbs filed a motion to remand the case to state court,

asserting that the amount in controversy did not exceed $50,000, as

required by 28 U.S.C. § 1332(a), because a declaratory judgment

would not result in any direct pecuniary gain or loss to

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Investacorp. In addition, Investacorp filed a motion to dismiss

for lack of subject matter jurisdiction, or in the alternative, to

stay the proceedings and compel arbitration. Specifically,

Investacorp argued that NASD had exclusive jurisdiction of its

dispute with the Webbs. Investacorp alternatively claimed that §

4 of the Federal Arbitration Act, 9 U.S.C. § 4, required the

district court to stay the instant case and to enter an order

compelling arbitration.

The district court denied the Webbs' motion to remand, looking

to Investacorp's $75,000 claim in the underlying arbitration to

determine the amount in controversy. The court also denied

Investacorp's motion to dismiss and to stay proceedings, but

granted Investacorp's motion to compel arbitration. The court

reasoned that the "Governing Law and Venue" clauses in the

agreements between Investacorp and the Webbs were valid and

enforceable, and therefore entered an order compelling arbitration

of Investacorp's claim. The court noted that the order compelling

arbitration "effectively disposes of the case." The Webbs timely

appealed.

II. DISCUSSION

On appeal, the Webbs argue that the district court erred in

denying their motion to remand, asserting that Investacorp failed

to establish that the amount in controversy in this action meets

the requirement for diversity jurisdiction. The Webbs also contend

that the court erred in determining that the agreements between

themselves and Investacorp require them to arbitrate Investacorp's

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claim. We address each of these arguments in turn.

A. Amount in Controversy

Because removal is an issue of statutory construction, we

review a district court's determination of the propriety of removal

de novo. Garrett v. Commonwealth Mortgage Corp. of Am., 938 F.2d

591, 593 (5th Cir.1991).

The Webbs argue that the district court erred in looking to

the amount of Investacorp's claim in arbitration to determine the

amount in controversy in this case. First, they assert that the

amount in controversy in a declaratory judgment action is the value

of the right that the plaintiffs seek to protect, and that a court

must determine this value from the plaintiffs' perspective. They

then contend that the right at issue in this case is their right to

have their dispute with Investacorp adjudicated in a court rather

than an arbitration proceeding—a right that they claim cannot be

valued in monetary terms. By contrast, they argue that

Investacorp's right to indemnity is not an issue in this case.

Finally, they attempt to distinguish the cases relied upon by the

district court on the ground that, in those cases, the plaintiffs

sought to compel arbitration under the Federal Arbitration Act or

to control the conduct of a pending arbitration, whereas they are

only requesting a declaration under state law of their obligation

to arbitrate prior to arbitrating or while arbitrating under

protest.

"[T]he amount in controversy, in an action for declaratory or

injunctive relief, is the value of the right to be protected or the

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extent of the injury to be prevented." Leininger v. Leininger, 705

F.2d 727 (5th Cir.1983). This court has not addressed the issue of

the value of the right not to submit a dispute to arbitration;

however, as the district court noted, the Second and Third Circuits

have addressed an analogous issue. In Davenport v. Procter &

Gamble Mfg. Co., 241 F.2d 511 (2d Cir.1957), the plaintiff brought

a state court action to compel arbitration according to the terms

of a collective bargaining agreement. The defendant removed the

case to federal court based on diversity jurisdiction, whereupon

the plaintiff moved for remand on the ground that the

jurisdictional amount was not satisfied because a demand to compel

arbitration "has no ascertainable money value." Id. at 512-13.

The court denied the motion and the plaintiff appealed. Id. at

512. On appeal, the Second Circuit held that:

In considering the jurisdictional amount requirement the court
should look through to the possible award resulting from the
desired arbitration, since the petition to compel arbitration
is only the initial step in a litigation which seeks as its
goal a judgment affirming the award.

Id. at 514. Because the petition for removal indicated that the

amount of the arbitration award sought exceeded the statutory

requirement for diversity jurisdiction, the court affirmed the

denial of the motion to remand. Id. The Third Circuit has

subsequently followed Davenport in determining the amount in

controversy in actions to compel arbitration. Jumara v. State Farm

Ins. Co., 55 F.3d 873, 877 (3d Cir.1995); Manze v. State Farm Ins.

Co., 817 F.2d 1062, 1068 (3d Cir.1987).

At least one court has found that the logic of Davenport and

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its progeny applies to a suit seeking to enjoin an arbitration

provision. Hambell v. Alphagraphics Franchising Inc., 779 F.Supp.

910, 912 (E.D.Mich.1991). In Hambell, a dispute arose between a

franchisor and two of its franchisees, prompting the franchisor to

file a demand for arbitration in Arizona, as required by the

franchise agreement. Id. at 911. The franchisees responded by

filing a suit in Michigan state court in which they sought to

enjoin enforcement of the arbitration location provision in the

franchise agreement. Id. The franchisor removed the case to

federal district court and the franchisees moved for remand on the

ground that "the purely equitable nature of the relief sought by

their state court complaint renders the action inherently incapable

of meeting the amount in controversy requirement." Id. at 911-12.

The district court disagreed, reasoning that an action to enjoin an

arbitration provision was analogous to a motion to compel

arbitration, and therefore, Davenport and its progeny suggested

that the court should look to the amount of the claim in the

underlying arbitration to determine the amount in controversy. Id.

at 912. Because the amount of the underlying claim exceeded

$50,000, the court denied the motion to remand. Id.

We are persuaded that Davenport and its progeny state the

correct rule in holding that the amount in controversy in a motion

to compel arbitration is the amount of the potential award in the

underlying arbitration proceeding. Moreover, we find that the

Hambell court's extension of this rule by analogy is well-reasoned

and instructive. Similar to the plaintiffs in Hambell, the Webbs

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sought to "enjoin[ ] pending or future arbitration" in their

original state court petition. The Webbs also sought a judgment

"declaring that the written documents in question do not require

the Webbs to submit to arbitration." These claims are sufficiently

analogous to a motion to compel arbitration to justify application

of the Davenport rule in this case. Therefore, the district court

properly looked to the amount of Investacorp's claim in the

underlying arbitration to determine the amount in controversy in

this action for declaratory relief. Because Investacorp's claim is

for more than $50,000, removal on the basis of diversity

jurisdiction was allowed and the district court correctly denied

the Webbs' motion to remand.1

1
Looking to the value of Investacorp's claim in the
underlying arbitration does not violate the rule cited by the
Webbs that "[t]he value to the plaintiff of the right to be
enforced or protected determines the amount in controversy."
Alfonso v. Hillsborough County Aviation Auth., 308 F.2d 724, 727
(5th Cir.1962) (emphasis added). In this regard, we find
analogous support in two of our decisions.

First, in Stonewall Ins. Co. v. Lopez, 544 F.2d 198
(5th Cir.1976), an insurer brought a declaratory judgment
action against its insured, asserting that there was no
coverage for a particular occurrence. The amount of the
disputed coverage and the cost of defending the insured
exceeded the requisite jurisdictional amount. Id. at 199.
The insured argued on appeal that the amount in controversy
was not satisfied because the court was bound to determine
this amount "solely from the viewpoint of the plaintiff
[insurer], ignoring the lawsuit's pecuniary impact on the
defendant [insured]." Id. at 199 n. 2. We held that we did
not have to consider this rule because "[t]he difference
between winning and losing this lawsuit," to either party,
was an amount that exceeded the required jurisdictional
amount. Id. Similarly, the difference to the Webbs between
winning and losing the underlying arbitration will be
$75,000, which satisfies the requirement for diversity
jurisdiction.

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B. Order Compelling Arbitration

We review the grant or denial of a motion to compel

arbitration de novo. See Snap-On Tools Corp. v. Mason, 18 F.3d

1261 (5th Cir.1994); see also Armijo v. Prudential Ins. Co. of

Am., 72 F.3d 793, 797 (10th Cir.1995).

The Webbs argue that the district court's granting of

Investacorp's motion to compel arbitration was erroneous for

several reasons. First, the Webbs contend that the district court

erroneously applied Florida law to determine the arbitrability of

Investacorp's claim because the Florida choice-of-law clauses

relied on by the court were not valid and enforceable under Texas

law; rather, the Webbs argue that Texas law governs the question

of arbitrability. Applying Texas law, the Webbs contend that the

arbitration clauses in their agreements with Investacorp are not

valid and enforceable because: (1) the clauses are non-negotiated,

material terms that Investacorp added to writings that merely

formalized the Webbs' earlier oral agreements to work for

Investacorp, under which they had already commenced performance;

(2) the clauses are unconscionable; and (3) the clauses do not by

clear language show the Webbs' clear intent to submit their dispute

Second, in Leininger v. Leininger, 705 F.2d 727 (5th
Cir.1983), an individual brought a state court action
against his ex-wife to enjoin her from enforcing an alimony
judgment from another forum. The ex-wife removed the action
to federal court. Id. at 728. Although the ex-wife was the
defendant in that action, we looked to the amount of the
underlying alimony judgment that she sought to enforce
against the plaintiff in determining the amount in
controversy. Id. at 729. Similarly, we look to the amount
of Investacorp's claim in the underlying arbitration
proceeding to ascertain the amount in controversy.

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with Investacorp to arbitration. Finally, the Webbs argue that the

district court erred in summarily disposing of their declaratory

judgment action on the pleadings.2

Before addressing the Webbs' arguments, we briefly outline

the legal framework involved in this appeal. In adjudicating a

motion to compel arbitration under the Federal Arbitration Act,

courts generally conduct a two-step inquiry. The first step is to

determine whether the parties agreed to arbitrate the dispute in

question. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 3353-54, 87 L.Ed.2d 444

(1985); Folse v. Richard Wolf Medical Instruments Corp., 56 F.3d

603, 605 (5th Cir.1995); R.M. Perez & Assocs., Inc. v. Welch, 960

F.2d 534, 538 (5th Cir.1992). This determination involves two

considerations: (1) whether there is a valid agreement to

arbitrate between the parties; and (2) whether the dispute in

question falls within the scope of that arbitration agreement.

Daisy Mfg. Co. v. NCR Corp., 29 F.3d 389, 392 (8th Cir.1994);

2
The Webbs also contend that Investacorp is not entitled to
bring a motion to compel arbitration under the Federal
Arbitration Act because it has not been "aggrieved" by the Webbs'
"failure, neglect, or refusal" to arbitrate under 9 U.S.C. § 4.
The Webbs did not make this argument to the district court in its
response to Investacorp's motion. Further, they did not make
this argument in their initial appellate brief, but only raised
the issue in their reply brief. Typically, we will not consider
on appeal matters not presented to the trial court. Quenzer v.
United States (In re Quenzer), 19 F.3d 163, 165 (5th Cir.1993).
Also, "[a]n appellant abandons all issues not raised and argued
in its initial brief on appeal." Cinel v. Connick, 15 F.3d 1338,
1345 (5th Cir.) (declining to address argument discussed only in
appellant's reply brief), cert. denied, --- U.S. ----, 115 S.Ct.
189, 130 L.Ed.2d 122 (1994). Accordingly, we do not address the
Webbs' arguments in this regard.

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PaineWebber Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir.1990).

When deciding whether the parties agreed to arbitrate the dispute

in question, "courts generally ... should apply ordinary state-law

principles that govern the formation of contracts." First Options

of Chicago, Inc. v. Kaplan, --- U.S. ----, ----, 115 S.Ct. 1920,

1924, 131 L.Ed.2d 985 (1995); see also Perry v. Thomas, 482 U.S.

483, 492-93 n. 9, 107 S.Ct. 2520, 2526-28 n. 9, 96 L.Ed.2d 426

(1987). In applying state law, however, "due regard must be given

to the federal policy favoring arbitration, and ambiguities as to

the scope of the arbitration clause itself must be resolved in

favor of arbitration." Volt Info. Sciences, Inc. v. Board of

Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 475-76, 109

S.Ct. 1248, 1253-54, 103 L.Ed.2d 488 (1989). The second step is to

determine "whether legal constraints external to the parties'

agreement foreclosed the arbitration of those claims." Mitsubishi

Motors, 473 U.S. at 628, 105 S.Ct. at 3355; see also Folse, 56

F.3d at 605; R.M. Perez & Assocs., 960 F.2d at 538.3

3
In some cases, an additional, threshold inquiry will be
whether the parties agreed to arbitrate the issue of
arbitrability itself or whether the parties intended for
arbitrability to be decided by a court, as in a motion to compel
arbitration. See First Options, --- U.S. at ---- - ----, 115
S.Ct. at 1923-26 (1995) (discussing question of "who has the
primary power to decide arbitrability" in the context of
reviewing an arbitration award). While contracting parties may
agree to submit the question of arbitrability to an arbitrator,
"[c]ourts should not assume that the parties agreed to arbitrate
arbitrability unless there is "clea[r] and unmistakabl[e]'
evidence that they did so." Id. at ----, 115 S.Ct. at 1924
(citation omitted). Here, the district court found no such
"clear and unmistakable" evidence and the parties do not dispute
this finding on appeal. Accordingly, we conclude that the
parties agree, for purposes of this appeal, that the issue of
arbitrability was properly before the district court.

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 The Webbs' first argument relates to the application of state

law to determine whether the parties agreed to arbitrate

Investacorp's claim. Specifically, the Webbs urge that Texas law,

rather than Florida law, governs the arbitrability of their dispute

with Investacorp. We need not resolve this question, however,

because even assuming arguendo that Texas law governs the

arbitrability question here, we find that the Webbs' contentions on

that issue are without merit. Cf. Phillips v. Goodyear Tire &

Rubber Co, 651 F.2d 1051, 1054 (5th Cir. Unit A 1981) (declining to

decide choice-of-law issue where appellee urged application of

Texas law, but argued that he would prevail under either Texas or

Georgia law, and court concluded that appellee's arguments failed

under the laws of both fora).4

The Webbs' contentions with respect to the substantive

question of whether they agreed to arbitrate Investacorp's claim

against them all relate to the validity of the agreements to

arbitrate. First, the Webbs cite TEX.BUS. & COM.CODE ANN. § 2.207

(the U.C.C.'s "battle of the forms" provision) as prohibiting a

party from adding non-negotiated, material terms to writings that

merely formalize an earlier oral agreement with respect to the sale

of goods. The Webbs then note that Texas courts will apply

standards for sales contracts to service contracts where there is

4
Unlike the appellee in Phillips, the Webbs have not argued
on appeal that they would prevail regardless of the law applied;
they have only argued that they would prevail under Texas law.
Accordingly, we need only assume arguendo that Texas law governs
the arbitrability question, as the Webbs contend, and do not
consider the issues under Florida law.

11
no reason to apply a different standard. Even if we assume that

Texas courts would apply § 2.207 to the contracts at issue here,

however, that statute offers the Webbs no relief. Section 2.207

provides that additional terms are construed as proposals for

addition to the contract. TEX.BUS. & COM.CODE ANN. § 2.207(b). The

Webbs apparently accepted the proposed arbitration clauses because

they signed the Principal Agreements, they maintained a working

relationship with Investacorp under those Agreements, and they

never objected to the arbitration clauses. Furthermore, the

Principal Agreements on their face operate as more than "mere

confirmations" that add terms to any prior oral agreements between

the Webbs and Investacorp—specifically, they provided that "[a]ll

prior agreements, whether oral or written, are hereby revoked and

superseded." Therefore, even if the prior oral agreements between

the Webbs and Investacorp did not contemplate the arbitration of

disputes, those oral agreements were subsequently revoked.

The Webbs also contend that the arbitration clauses are

unconscionable under Texas law. In this regard, the Webbs argue

that Investacorp unilaterally added the arbitration clauses to

their prior oral agreements, that the clauses are in fine-print in

the Principal Agreements, and that the arbitration clauses are

one-sided, forcing the Webbs to relinquish their right of access to

the courts, to litigate in a foreign venue, and to pay

Investacorp's litigation costs. We find these arguments to be

without merit. We have already dismissed the Webbs' contention

that Investacorp unilaterally added the arbitration clauses to

12
prior oral agreements. Further, the size of the print in the

Principal Agreements is uniform—the arbitration clauses are in

print no smaller than any other provision. Finally, the

arbitration clauses themselves are not one-sided in the sense that

they cause the Webbs to relinquish their access to the courts

because, by the same provisions, Investacorp has relinquished the

same right. While the venue and cost provisions may be

disfavorable to the Webbs, "the fact that a bargain is a hard one

does not entitle a party to be relieved therefrom if he assumed it

fairly and voluntarily." Wade v. Austin, 524 S.W.2d 79, 86

(Tex.App.—Texarkana 1975, no writ). Nothing in the record suggests

that the Webbs did not understand the import of the arbitration

clauses or that the Webbs signed the Principal Agreements under

circumstances of duress or fraud. Accordingly, the district court

correctly concluded that the arbitration clauses were not

unconscionable.

The Webbs' final argument with respect to the validity of the

arbitration clauses is that the clauses fail the requirement under

Texas law that an agreement to arbitrate must be clear:

[N]o party is under a duty to arbitrate unless by clear
language he has previously agreed to do so; and it must
clearly appear that the intention of the parties was to submit
their disputes to an arbitration panel and to be bound by the
panel's decision.

Massey v. Galvan, 822 S.W.2d 309, 316 (Tex.App.—Houston [14th

Dist.] 1992, writ denied). Specifically, the Webbs contend that

the language of the arbitration clause—"[i]t is hereby agreed by

the parties that all proceedings will be subject to arbitration

13
before the NASD"—is unclear for three reasons: (1) the phrase

"subject to" does not create an obligation; (2) the clauses fail

to indicate that "disputes, claims or controversies" will be

arbitrated; (3) the clauses do not state that disputes "will be

decided" by arbitration. We disagree. While the language of the

arbitration clauses could have been drafted with more precision, we

think that the breadth of the clauses makes it sufficiently clear

that the parties intended to submit their disputes to the NASD

arbitration process. In this regard, we note that ambiguities in

an arbitration clause are to be resolved in favor of arbitration.

Volt Info. Sciences, 489 U.S. at 476, 109 S.Ct. at 1254. Further,

the presumption of arbitrability is "particularly applicable where

the clause is ... broad." AT & T Technologies, Inc. v.

Communications Workers of Am., 475 U.S. 643, 650, 106 S.Ct. 1415,

1419, 89 L.Ed.2d 648 (1986). Therefore, the district court

correctly determined that the arbitration clause was unambiguous.

The Webbs have not argued that Investacorp's specific claim is

outside the scope of this arbitration clause. Also, the Webbs have

not asserted that there is any external legal constraint that

renders Investacorp's specific claim unarbitrable. Accordingly,

for the foregoing reasons, we affirm the district court's order

granting Investacorp's motion to compel arbitration.

Finally, the Webbs contend that the district court improperly

dismissed their declaratory judgment action on the pleadings. In

this regard, the Webbs argue that the court was bound to accept the

facts pleaded by the Webbs as true and that the court disregarded

14
fact issues raised by the pleadings. These arguments, however,

misconstrue the effect of the court's order. The court granted

Investacorp's motion to compel arbitration and then noted that this

order "effectively dispose[d] of" the Webbs' case. "While the

availability of another remedy does not deprive the court of

jurisdiction to grant declaratory relief, the court has sole

discretion to determine whether to grant such relief." Uvalde

County v. Barrier, 710 S.W.2d 740, 745 (Tex.App.—San Antonio 1986,

no writ). Further, "[c]ourts will not grant a futile or useless

declaratory judgment." Armentrout v. Texas Dep't of Water

Resources, 675 S.W.2d 243, 245 (Tex.App.—Austin 1984, no writ).

The order granting Investacorp's motion to compel arbitration

disposed of the same issues that the Webbs raised in their

declaratory judgment action. Therefore, the district court did not

abuse its discretion in refusing to grant the Webbs' requested

declaratory relief.

III. CONCLUSION

For the foregoing reasons, we AFFIRM the judgment of the

district court.

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