United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
June 11, 2004
FOR THE FIFTH CIRCUIT
_____________________ Charles R. Fulbruge III
Clerk
No. 03-21119
_____________________
WASTE MANAGEMENT, INC.,
Plaintiff - Appellee,
versus
RESIDUOS INDUSTRIALES MULTIQUIM, S.A. de C.V.,
Defendant - Appellant.
__________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
_________________________________________________________________
Before JOLLY, DUHÉ, and STEWART, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
Waste Management, Inc. (“WM”) sued Residuos Industriales
Multiquim, S.A. de C.V. (“RIMSA”) on various equitable claims in
Texas state court. RIMSA removed the case and filed a motion to
stay litigation in the light of an ongoing arbitration between WM
and RIMSA’s parent company, CGEA Onyx, S.A. (“Onyx”). The district
court denied the motion, and RIMSA appealed. WM, contending that
because RIMSA had no right to a mandatory stay under 9 U.S.C. § 3,
filed a motion to dismiss this interlocutory appeal for lack of
appellate jurisdiction. We hold that even though RIMSA is not a
party to the arbitration agreement, we have appellate jurisdiction
and RIMSA is entitled to a mandatory stay because WM’s claims
against RIMSA are based on the same operative facts, are inherently
inseparable from those against Onyx, and the present suit could
have a critical impact on the pending arbitration. Consequently,
we reverse the denial of the motion to stay litigation, and remand
to the district court for entry of such an order.
I
In January 2000, RIMSA agreed to lease some heavy equipment
from The Bethlehem Corporation (“Bethlehem”) for use in its
hazardous waste disposal operations. Bethlehem required a
performance guarantee from WM, which was RIMSA’s parent company at
the time. WM provided this guarantee and secured it with a
$795,000 Letter of Credit (the “Letter”). Under the Letter,
Bethlehem was entitled to draw on the security if an authorized
Bethlehem officer certified that RIMSA was in default on the lease.
In August 2000, WM sold its shares in RIMSA to Onyx, in a
Stock Purchase Agreement (the “SPA”) that closed in November of
that year. The SPA contained a broad agreement to arbitrate under
the auspices of the International Chamber of Commerce (“ICC”), as
well as a general release (the “Release”) between WM and RIMSA.
In late November, RIMSA made a partial late payment on its
lease, alleging that such action was justified by Bethlehem’s
failure to properly maintain the equipment under the contract.
RIMSA then failed to make its December payment. Bethlehem
responded to the now-$60,000 shortfall by collecting on the entire
2
$795,000 Letter. WM reimbursed the bank for these funds, plus fees
and expenses.
In May 2002, Onyx initiated an ICC arbitration against WM on
claims arising out of the SPA. WM filed a counterclaim, alleging
a breach of contract and seeking reimbursement for the funds WM
paid relating to the Letter. Onyx initially objected to the ICC’s
jurisdiction over the counterclaim, contending that the
counterclaim dispute was not subject to the arbitration agreement
between it and WM because it involved the Letter that was solely
between RIMSA and WM.
On August 8, 2002, at the same time it was asserting its
breach of contract counterclaim before the ICC, WM sued RIMSA in
Texas state court to collect against the monies it had paid on the
Letter. The case was removed to federal court, where RIMSA then
filed a derivative third-party complaint against Bethlehem,
alleging that Bethlehem was the entity that caused the damages
sought by WM. On August 22, 2003, WM moved for summary judgment.
(RIMSA also has a summary judgment motion pending.)
Meanwhile, in the ICC proceeding, Onyx withdrew its
jurisdictional objections to WM’s counterclaim and, in December
2002, the parties agreed to arbitrate WM’s counterclaim.
Soon thereafter, RIMSA filed an emergency motion in the
district court to stay litigation (the “Motion to Stay”) based on
the ongoing arbitration between WM and Onyx -- which, as a result
of the agreement between WM and Onyx, was now to include the
3
dispute over the Letter, the subject of the instant case. On
October 22, 2002, the district court summarily denied the Motion to
Stay. RIMSA filed a timely notice of interlocutory appeal, but the
district court denied a stay pending appeal. WM then filed a
motion in this Court to dismiss for lack of appellate jurisdiction,
arguing that RIMSA is not a party to the arbitration agreement and
thus cannot take an interlocutory appeal. On December 24, this
Court granted a stay pending appeal, carried WM’s jurisdictional
1 motion, and accelerated this appeal.
II
This Court reviews a district court’s denial of a motion to
stay litigation pending arbitration de novo, using the same
standard as the district court. Texaco Exploration & Prod. v.
AmClyde Engineered Prods., 243 F.3d 906, 909 (5th Cir. 2001);
Harvey v. Joyce, 199 F.3d 790, 793 (5th Cir. 2000). We must first
consider, however, whether we have jurisdiction to hear this
appeal.
A
RIMSA urges that we have appellate jurisdiction under §
16(a)(1) of the Federal Arbitration Act (“FAA”), which provides
that an interlocutory appeal may be taken from “an order refusing
a stay of any action under section 3 [of the FAA].” 9 U.S.C. §
16(a)(1); Adams v. Ga. Gulf Corp., 237 F.3d 538, 541 (5th Cir.
2001) (“Through Section 16, Congress intended to promote
4
arbitration by ‘permitting interlocutory appeals of orders favoring
litigation and precluding review of interlocutory orders that favor
arbitration.’”) (citation omitted). Given the language of §
16(a)(1), this Court will have jurisdiction to review the district
court’s order if § 3 applies to RIMSA’s motion for a stay.1
Although § 3 usually applies only to the parties to an
arbitration agreement, Adams, 237 F.3d at 540, RIMSA argues that
this appeal presents the case when a non-signatory has the right
under § 3 to request a mandatory stay pending arbitration, Hill v.
Gen. Elec. Power Sys., Inc., 282 F.3d 343, 348 (5th Cir. 2002). WM
disputes RIMSA’s assertion on the ground that its claims against
RIMSA are wholly separate from the claims being arbitrated with
Onyx, and consequently any right that RIMSA may have does not arise
under § 3; this being so, this Court has no appellate jurisdiction
over this interlocutory appeal.
1
Section 3 reads:
If any suit or proceeding 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 or proceeding 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, providing the applicant for the stay is
not in default in proceeding with such
arbitration.
9 U.S.C. § 3 (emphasis added).
5
Thus, the first issue we must resolve is whether § 3 gives
RIMSA standing to invoke the arbitral rights of the signatories to
an arbitration agreement. A parsing of the language of § 3
demonstrates that, in certain limited circumstances, non-
signatories do have the right to ask the court for a mandatory stay
of litigation, in favor of pending arbitration to which they are
not a party. That is, in any suit brought in federal court “upon
any issue referable to arbitration” under a written arbitration
agreement, “the court . . . shall on application of one of the
parties” stay the suit. 9 U.S.C. § 3 (emphasis added). The
grammatical structure of this sentence would seem to make clear
that any of the parties to the suit can apply to the court for a
mandatory stay, and the court must grant the stay if the claim at
issue is indeed covered by the arbitration agreement. Although the
final phrase of the statute -- “providing the applicant for the
stay is not in default in proceeding with such arbitration” --
suggests that Congress contemplated that the litigant applying for
the stay would also be a party to the arbitration, the preceding
language allows for the anomalous situation where a non-signatory
requests a stay of litigation on an issue covered by an arbitration
agreement.
To that end, we have ordered stays on the application of non-
signatories in three recent cases. In Subway Equipment Leasing
Corp. v. Forte, we applied § 3 to non-signatory affiliates of a
6
signatory corporation, where the claims against them were based
entirely on rights arising from the contract containing the
arbitration clause.2 Similarly, in Harvey, we invoked § 3 on
behalf of a non-signatory corporation whose potential liability
arose and was inseparable from the claims against its signatory
owner.3 Most recently, in Hill, we applied § 3 where a non-
signatory lender’s potential liability was inherently inseparable
from claims against the second party to an arbitration agreement.4
To clarify, were it not for § 3's broad grant of statutory
authority to enforce arbitration agreements, non-signatories would
be hard-pressed to assert rights to mandatory stays of litigation:
They would not have rights arising from contract or statute or
perhaps even Article III. As was implicit in Subway, Harvey, and
Hill, however, § 3 gives a non-signatory litigant standing to apply
for a stay when the litigation involves “any issue referable to
arbitration.” Thus, if WM’s claims against RIMSA are “referable to
arbitration,” RIMSA has standing to move for a stay and we have
jurisdiction to review its denial.
2
169 F.3d 324, 329 (5th Cir. 1999) (litigation would have
adversely affected the signatory’s right to arbitration) (citing
Sam Reisfeld & Son Import Co. v. S.A. Eteco, 530 F.2d 679, 681 (5th
Cir. 1976), which was a case decided before the enactment of § 3).
3
199 F.3d at 795 (if lawsuit against non-signatory were
allowed to proceed, it would have a critical impact upon the
arbitration).
4
282 F.3d at 348 (permitting suit to go forward would
undermine the arbitration proceeding and thus thwart federal
policy).
7
The key issue in evaluating our jurisdiction over this appeal
-- whether WM’s claims against RIMSA are “referable to arbitration”
such that a stay of litigation under § 3 would be mandated -- is
therefore identical to the substance of this interlocutory appeal;
that is, we must determine whether WM’s claims against RIMSA are
covered by the arbitration agreement that covers its claims against
Onyx.5
B
We thus turn to the issue of whether WM’s claims against
RIMSA, a non-signatory, are “referable to arbitration” under the
agreement with Onyx. Synthesizing this Court’s precedent, several
factors emerge for invoking § 3 on the application of a non-
signatory: 1) the arbitrated and litigated disputes must involve
the same operative facts; 2) the claims asserted in the arbitration
and litigation must be “inherently inseparable”; and 3) the
litigation must have a “critical impact” on the arbitration. See,
e.g., Hill, 282 F.3d at 347; Harvey, 199 F.3d at 795-96.6 The
5
As WM points out, this is somewhat of a Catch-22: we could
not reject jurisdiction after finding that RIMSA is entitled to a
stay, or find that no stay is warranted while maintaining
jurisdiction. We must thus either reverse the district court or
dismiss for want of jurisdiction after having reached the substance
of the appeal.
6
RIMSA refers to these three factors as a “three-part test”
for evaluating the application of the FAA to a non-signatory. WM
instead suggests that this Court has adopted the position that a
stay should be granted to a non-signatory only in “exceptional” or
“rare” circumstances. Adams, 237 F.3d at 540-41 (“[in Subway and
Harvey] we were confronted with exceptional circumstances.”). It
is apparent from reading the cases in question that neither party
8
question is not ultimately one of weighing potential harm to the
interests of the non-signatory, but of determining whether
proceeding with litigation will destroy the signatories’ right to
a meaningful arbitration. Adams, 237 F.3d at 241.
1
WM argues that its claims against RIMSA and Onyx are based on
different legal theories, different elements, and different factual
underpinnings. First, the operative facts are different because
those relevant to an equitable claim (to prove whether RIMSA did
anything that obligates it to repay the Letter) diverge from those
relevant to a contract claim (to help interpret the SPA and its
obligations). And none of Onyx’s defenses -- that it was not a
party to the Letter, that it did not improperly operate RIMSA after
acquiring it -- are at play in the litigation. Thus, while there
is a veneer of similarity, the operative facts do not mesh.
Second, WM argues that the arbitration and litigation are not
“inherently inseparable” because they focus on fundamentally
different theories of law and elements of the causes of action.
Given the different elements that must be proved to establish
unjust enrichment on one hand and breach of contract on the other,
the parallel proceedings could result in a finding of liability
against neither, one, or both of RIMSA and Onyx (with possible
is precisely correct; there is neither an explicit balancing test
nor a bright line rule. The factors formulated above recur in the
relevant precedential language but they are neither required (in
that articulation) nor exhaustive.
9
rights of contribution). Equitable and legal theories cannot be
“inseparably intertwined.” In contrast, WM asserts, the Harvey
non-signatory’s liability was completely derivative of the
signatory’s, so the result of one dispute necessarily determined
the result of the other. Harvey, 199 F.3d at 795.
Third, although WM acknowledges that the litigation may affect
the arbitration in some way, perhaps in a substantial way, WM
contends that it will not have a “critical” impact rendering the
arbitration “both redundant and meaningless.” Harvey, 199 F.3d at
795-96. Even if the arbitrator would feel bound by the district
court, the cases are sufficiently different that the arbitrator’s
fact-finding and legal rulings would not be obviated. And if no
stay is granted, the arbitration and litigation would still
progress on parallel tracks -- potentially arriving at different
results in terms of whether the particular defendant bears
liability but not repeating each other.
On the other hand, RIMSA points to the well-established
federal policy favoring arbitration (particularly in international
commerce), and argues that the district court disregarded the
significance and scope of the WM-Onyx arbitration. As WM does not
contest the validity of the SPA’s arbitration provision, Onyx’s
agreement to arbitrate WM’s counterclaim (seeking reimbursement for
the Letter) should foreclose the instant litigation.
10
RIMSA suggests that a dispute falls into the scope of the
arbitration clause if a reasonable relationship can be found
between the subject matter of the dispute and the general subject
matter of the contract. See, e.g., Smith/Enron Cogeneration Ltd.
P’ship v. Smith Cogeneration Int’l, 198 F.3d 88, 99 (2d Cir. 1999).
Courts determining whether a particular claim falls within the
scope of the arbitration agreement “focus on factual allegations in
the complaint rather than the legal causes of action asserted. If
the allegations underlying those claims ‘touch matters’ covered by
the parties’ . . . agreements, then those claims must be
arbitrated, whatever the legal labels attached to them.” Id.
(citations omitted). Thus, because the factual allegations
underlying WM’s claims against RIMSA are identical to those
underlying its claims against Onyx -- and given that the
arbitration agreement encompasses “any dispute . . . relating to
[the SPA]” -- the subject of this litigation is subsumed by the
ongoing arbitration (to which WM has consented).
WM replies that “[a]rbitration does not require parties to
arbitrate when they have not agreed to do so.” Will-Drill Res.,
Inc. v. Samson Res. Co., 352 F.3d 211, 217 (5th Cir. 2003). There
is no contractual agreement to arbitrate between WM and RIMSA, so
RIMSA has no right to stay litigation or to appeal the
interlocutory order denying the stay. Cerveceria Cuauhetmoc
Moctezuma S.A. de C.V. v. Montana Beverage Co., 330 F.3d 284, 287
11
(5th Cir. 2003). WM argues that RIMSA is attempting to circumvent
the lack of arbitration agreement between them by “insinuating
itself into” the (separate) WM-Onyx arbitration. It asserts that
its equitable claims against RIMSA have nothing to do with an
interpretation of the SPA -- and consequently with the pending
arbitration with Onyx. Thus its claims against RIMSA would be
identical even if the SPA never existed.
2
In the light of the parties’ arguments, we will now consider
the factors for invoking a § 3 stay on the application of a non-
signatory: the similarity of operative facts, the inseparability
of claims, and the effect of the litigation on the arbitration.
First, it is clear that the same major operative facts -- the
details of the Letter and its negotiation -- largely control the
resolution of both the equitable claims being litigated and the
contractual claims being arbitrated. Other operative facts, such
as the circumstances surrounding the draw on the Letter, the
propriety of Bethlehem’s actions, and the scope of the Release, are
also at issue in both disputes. And Onyx’s defenses do not
influence a determination of whether WM’s claims against RIMSA and
Onyx are based on the same operative facts. Indeed, the facts of
this case are similar to Harvey, which also involved claims against
both a signatory and a non-signatory arising from an agreement
between the plaintiff and the signatory regarding liability based
on ownership interest in the non-signatory company.
12
Further, WM’s claims in the litigation and arbitration are,
with respect to the Letter, at least as “inseparable” as the claims
in Harvey, which were, after all based on separate contracts. Much
as in Harvey, where the non-identical legal theories involved
breach of fiduciary duty against the signatory and unjust
enrichment against the non-signatory, here WM asserts only breach
of contract against Onyx but several equitable claims (unjust
enrichment, restitution, breach of subrogated contract) against
RIMSA. The Harvey court concluded that the non-identical claims
were nevertheless inseparable because the plaintiff was merely
seeking different remedies for the same violation. 199 F.3d at
795. Similarly, when WM claims RIMSA was unjustly enriched when WM
paid Bethlehem’s draw on the Letter, while also claiming that Onyx
breached the SPA in not reimbursing WM, it is trying to recover the
same payment, for which both RIMSA and Onyx have refused to pay and
for which both are allegedly liable.
Finally, there is a valid concern here about the integrity of
the arbitration and the preservation of Onyx’s and WM’s rights to
that contractual agreement. Allowing the instant litigation to
proceed would risk inconsistent results, and “substantially impact”
the arbitration. Given the binding effect of a federal judgment,
as well as the factual similarities in WM’s asserted claims, the
ICC arbitrator would necessarily be strongly influenced to follow
the court’s determination. See, e.g., Subway, 169 F.3d at 329.
13
That is, Onyx’s liability will incontrovertibly be seriously
affected by the court’s determination of RIMSA’s liability.
Fundamentally, we have one dispute: Who, if anyone, should
reimburse WM for the $795,000 it paid to Bethlehem (through the
Letter) as a result of RIMSA’s default? WM’s argument based on the
differences in its legal and equitable theories is not a plausible
defense to this arbitration; it is the violated right that matters,
not the purported remedy. WM only suffered one alleged harm, so
the resulting litigation and the arbitration are “inherently
inseparable” from the instant litigation, at least to the extent
Harvey, Hill, Subway and Sam Reisfeld were.
In sum, we have jurisdiction to consider this appeal because
the district court denied a motion to stay litigation brought by
one of the parties despite the issues herein being “referable to
arbitration” under a written agreement to arbitrate. It follows
that RIMSA was entitled to a mandatory stay under § 3. In denying
a mandatory stay under § 3, the district court erred in its
application of the FAA and this Court’s precedent to the facts of
this case.
III
For the foregoing reasons, we DENY the motion to dismiss this
appeal for lack of jurisdiction, REVERSE and VACATE the denial of
the motion to stay litigation, and REMAND to the district court
with instructions to enter such a stay.
14
MOTION DENIED; REVERSED, VACATED, AND REMANDED WITH INSTRUCTIONS
TO ENTER STAY OF LITIGATION.
15