United States Court of Appeals
For the First Circuit
No. 99-2165
EDWARD PAUL COADY,
Plaintiff, Appellee,
v.
ASHCRAFT & GEREL,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Selya and Lynch, Circuit Judges,
and Schwarzer, Senior District Judge.*
Barry E. Cohen, with whom Tara W. Blanchard, Crowell &
Moring LLP, R. Robert Popeo, Peter A. Biagetti, and Mintz Levin
Cohn Ferris Glovsky & Popeo were on brief, for appellant.
J. Owen Todd, with whom Todd & Weld, Patrick T. Jones, Peter
J. Schneider, and Cooley Manion Jones LLP were on brief, for
appellee.
*
Of the Northern District of California, sitting by
designation.
August 8, 2000
LYNCH, Circuit Judge. The parting of ways of attorneys
in a law firm is often difficult; in this instance it has been
unusually acrimonious. In this dispute between Edward Paul
Coady, an attorney, and Ashcraft & Gerel, his former law firm,
the firm appeals the district court's confirmation of an
arbitration award. The core of this case concerns the award to
Coady of $45,000 in additional bonus compensation, plus fees and
expenses for the arbitration. Ashcraft & Gerel argues that the
arbitrators exceeded their authority under the limited
arbitration clause of Coady's employment agreement. Ashcraft &
Gerel also appeals the district court's earlier refusal to
transfer Coady's application for arbitration to the federal
district court for the District of Columbia, where the law firm
had earlier filed a complaint alleging, inter alia, that Coady
was in breach of his contract. Coady later counterclaimed in
the D.C. court for breach of contract.1
1 Alleging arbitrator misconduct, Ashcraft & Gerel also
argues that the district court erred in not vacating the award
under 9 U.S.C. § 10(a)(3) as being fundamentally unfair.
Because of our resolution of the issue of the scope of the
arbitrators' authority, we need not reach this issue.
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We hold that the initial order of reference to the
arbitrators by the Massachusetts district court referred matters
outside the arbitrators' authority, and that in making
determinations as to the bonus owed to Coady, the arbitrators
exceeded the scope of their authority under the arbitration
clause. The arbitrators did so in at least three ways. First,
once the parties stipulated as to the meaning of certain terms
in Coady's employment contract, there was no longer any
ambiguity or question of interpretation for the arbitrators to
resolve. Next, the panel made factual findings regarding the
law firm's alleged manipulation of its "senior partner draw," a
sum that limited the size of the bonus that Coady could receive.2
Finally, the panel calculated the amount of the additional bonus
owed to Coady. The latter two were issues of the application of
the contract terms to the facts, matters that were not within
the arbitrators' limited authority under the contract. We
vacate the arbitral award and remand with instructions to
transfer any further proceedings related to Coady's bonus to the
U.S. District Court for the District of Columbia. We do not
2 In addition to his salary, Coady was entitled to
receive in 1997 a bonus equal to 25% of the net profits of
Ashcraft & Gerel's Boston office, which he managed. His
employment agreement, however, set a cap on his total earnings:
"[Coady] shall receive in no event any amount in total
compensation for any calendar year in excess of a senior
partner's draw for [the] same calendar year."
-3-
decide whether the Massachusetts district court abused its
discretion by initially refusing to transfer the case, but
conclude that it was in error as to the primary factor on which
it relied.
I.
In 1989, Coady joined the Boston office of Ashcraft &
Gerel, a law firm based in Washington, D.C. He later became the
managing attorney of the Boston office, and held that position
until April 1998. Coady was never an equity partner; he
characterized his status in 1996 as a "contract non-equity
partner."
In early 1997, disputes arose between Coady and the
firm over Coady's compensation and his management of the office.
Coady's employment agreement authorized arbitration of
"ambiguities or questions of interpretation of this contract,"
if the parties could not resolve their differences. Coady
informed Ashcraft & Gerel that he intended to submit the
disputed employment issues to arbitration.
After unsuccessful negotiations (including indications
that Coady planned to resort to arbitration), Ashcraft & Gerel
filed a complaint for damages and a declaratory judgment in the
U.S. District Court for the District of Columbia on August 1,
1997. The firm claimed that Coady had violated his duties and
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obligations to the firm, and sought a declaration that it was
entitled under the employment agreement to terminate Coady for
cause. The firm had an interest in terminating him for cause
because the employment contract called for a payment of $400,000
to the innocent party in case of breach. Coady later filed a
counterclaim for breach of contract.
On August 19, 1997, Coady filed an application for
arbitration in Massachusetts state court; Ashcraft & Gerel
removed that action to the federal district court for the
District of Massachusetts and moved to dismiss, stay, or
transfer venue to the District of Columbia court. Although the
Massachusetts federal district court initially decided to
transfer the case to the D.C. court, it later reconsidered the
transfer. See Coady v. Ashcraft & Gerel, 996 F. Supp. 95, 98
(D. Mass. 1998). It reconsidered because its original transfer
decision had been premised not on the first-filed doctrine, but
on a ground never presented to it by the parties. See id.
After reconsideration, the Massachusetts district court
denied Ashcraft & Gerel's motion to transfer, citing the
existence of what it perceived as a judicial emergency in the
federal district court for the District of Columbia as its
primary reason for refusing to transfer the case. See id. at
100, 106. The court then considered Coady's application for
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arbitration. Coady sought an order compelling arbitration of
"all of the matters in dispute" between himself and Ashcraft &
Gerel. Id. at 106. The court found, however, that the
arbitration clause in his employment contract was an unusually
limited one: it authorized arbitration only of questions of
ambiguity or interpretation of the contract; questions of breach
of contract were not within the scope of the clause. See id. at
106-07. Neither party disputes this holding. The court
identified four major issues that it considered to be contract
interpretation issues and referred them to an arbitration panel
in Massachusetts. See id. at 108-10. The court acknowledged
that the arbitration could not completely resolve the parties'
disagreements: "Unless the parties mutually agree to continue
arbitration for the purpose of complete resolution of a dispute,
the dispute must be resolved through litigation, or private
settlement." Id. at 107.
In May 1998, the D.C. district court denied Coady's
motion for a stay of proceedings pending the arbitration. From
that point on, one federal district court action proceeded in
Massachusetts while another proceeded between the same parties
in the District of Columbia on essentially the same subject
matter. In addition, the arbitration, related to both lawsuits,
proceeded in Massachusetts.
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The arbitration panel held a three-day hearing in
Boston in November 1998, and issued its first Findings, Orders,
and Award on February 16, 1999. Ashcraft & Gerel then filed a
motion in the Massachusetts district court to vacate the panel's
decision. On April 29, 1999, the Massachusetts district court
denied the motion. The court affirmed the arbitrators' order
that there be additional discovery in order to assist the panel
in calculating Coady's bonus. The panel had decided at least
two issues of breach of contract, finding that Coady was not in
breach, but the law firm was. Ashcraft & Gerel protested to the
district court that these findings exceeded the panel's
authority. The court declined to address the breach issues,
saying they should be resolved by the D.C. district court. The
panel had also awarded Coady his expenses and counsel fees on
a finding that he was the winner of the arbitration.3 The court
made no determination on that issue because of its decision to
refer the breach issues to the D.C. court.4
3 The employment agreement provided that "the reasonable
expenses and costs of [the arbitration] will be borne by the
loser."
4 The court also upheld the panel's findings that Coady
had not misused his firm credit card, and that the firm's
partners, not Coady, had the ultimate authority over hiring in
the Boston office.
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In June 1999, the D.C. district court ruled on the
breach issues in the panel's decision that the Massachusetts
district court had declined to address. The D.C. court held
that the law firm had never submitted to a broader scope of
arbitration, as Coady contended, and that the panel had exceeded
its jurisdiction on the breach of contract issues. It vacated
the panel's decision as to those issues. The D.C. court held
that it could not rule on the bonus issue because the
Massachusetts district court had retained control of it.5
Ashcraft & Gerel's request for a ruling that it had
cause to terminate Coady and its breach of fiduciary duty claim
against him were later tried to a jury in the District of
Columbia proceedings. The jury found that Ashcraft & Gerel had
good cause for terminating Coady, which foreclosed Coady's
breach of contract counterclaim. The jury also found that Coady
had not breached his fiduciary duties to the firm. Ashcraft &
Gerel was awarded $400,000 in liquidated damages against Coady
under the employment contract.6
5 The D.C. court also ruled that the portions of the
arbitration award to which Ashcraft & Gerel had not objected
would have preclusive effect in the D.C. litigation, including
the panel's finding that Coady did not misuse his firm credit
card.
6 We were informed by counsel at oral argument that this
decision has been appealed to the D.C. Circuit. See Ashcraft &
Gerel v. Coady, No. 00-7105 (D.C. Cir. filed Apr. 12, 2000).
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Meanwhile, the Massachusetts arbitration panel issued
a Supplemental Order, Finding, and Award on May 7, 1999, in
which it clarified that even if it did not consider the breach
of contract findings that were referred to (and later vacated
by) the D.C. court, it would still find that Coady was the
winner of the arbitration. It thus reaffirmed that Coady was
entitled to an award of fees and expenses, including
reimbursement of $36,000 for his arbitration expenses. It also
rejected objections to its discovery orders, and found that
Ashcraft & Gerel's argument that it misunderstood its discovery
obligations "exceed[ed] the bounds of credulity."
The panel held another hearing on May 25, 1999, and on
June 4 issued its Supplemental Findings, Orders, and Award
addressing Coady's 1997 bonus. As explained above, "senior
partner draw" was a key term in understanding how Coady's bonus
was calculated, because it acted as a cap on his total
compensation. During the November 1998 arbitration hearings,
the firm had stipulated that it agreed with Coady's view of the
method for calculating his bonus:
[T]he calculation of the bonus that Mr.
Coady calculated [based on a stated
percentage of the Boston office's net
profits, with net profits defined as Boston
office revenue minus Boston office expenses]
is accurate for as far as it gets you. But
it doesn't get you very far because his
bonus, total compensation, was subject to a
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cap, and he couldn't earn any more than the
senior partners earned. And we have further
stipulated that the cap should be calculated
in accordance with historic accounting
practices of Ashcraft & Gerel and in
accordance with generally accepted
accounting practices of Ashcraft & Gerel.
The real disagreement between the parties thus centered
not on the method of calculating the bonus, but on Coady's claim
that the firm had deliberately underpaid its senior partners in
1997 in order to lower the cap and thereby reduce his bonus.
Coady claimed that the firm had accomplished this by improperly
deferring 1997 income to 1998, and by not attributing income
from the firm's separate affiliation with the Boston firm of
Hugo & Pollack. In response, the firm repeatedly objected that
these issues were beyond the scope of arbitration, but put on
evidence.
In its June 4 decision, the panel proceeded to apply
the interpretation of the bonus calculation method agreed on by
the parties to the facts, including its finding that Coady had
made a prima facie case that the law firm had manipulated the
size of the senior partners' draw. The panel found that while
it could not calculate Coady's exact 1997 bonus on the evidence
before it, it was able to determine that Coady was entitled to
at least $45,000 more than he had received. The arbitrators
also held that Coady was the winner of the arbitration on the
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issue of his 1997 bonus, and thus entitled to fees and expenses
related to that issue. The panel gave Coady two options: accept
$45,000 as the additional bonus figure, or pursue further
discovery. Coady opted for the $45,000. The panel issued its
final order on June 30, and Coady moved the next day in the
Massachusetts district court for confirmation of the arbitral
award. Ashcraft & Gerel again objected, arguing that the
arbitrators had exceeded their authority, due at least in part
to error in the initial order of reference to the arbitrators by
the Massachusetts court. The district court confirmed the
arbitration award on September 15, 1999.
II.
This case comes to us in an unusual posture, partly as
a result of there being different proceedings involving the same
case in two different federal courts and at least an arguable
inconsistency in the outcomes. While Ashcraft & Gerel makes
several arguments on appeal, at the heart of the case now is the
arbitral decision concerning Coady's bonus. The resolution of
that issue considerably alters the posture of the remaining
claims.
A. Rulings on the Arbitrability of the Bonus Issue
Coady's employment was primarily governed by his 1993
employment agreement with Ashcraft & Gerel, which was amended in
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1994.7 The employment agreement, as amended, covers Coady's
duties, his compensation, and his degree of control over the
Boston office, and also sets liquidated damages for a breach by
either party. The agreement includes the following arbitration
clause:
It is agreed by the parties that any
ambiguities or questions of interpretation
of this contract shall be the subject of
discussions by COADY and a [partners'
committee] . . . . Any decision which [the
committee] may reach in such a matter shall
be binding on the partnership. Either party
may at [its] option elect to submit the
matter to Binding arbitration, the
reasonable expenses and costs of which will
be borne by the loser; however, both parties
agree to use reasonable means and good faith
to attempt to resolve any differences that
may arise prior to resorting to arbitration.
(emphasis added).
In its March 1998 decision, the district court
interpreted this arbitration clause, stating:
This arbitration provision is not a
standard broad arbitration clause applying
to any dispute between Coady and Ashcraft &
7 There was also a so-called 1991 "prenuptial agreement,"
which governed the process for Coady's departure from the firm
-- in particular, the apportionment of fees from Coady's
continued representation of former Ashcraft & Gerel clients.
The prenuptial agreement contains this arbitration clause: "In
the event of any dispute over the construction, interpretation,
or application of this Agreement, the parties agree to binding
arbitration under the rules of the American Arbitration
Association." (emphasis added). The terms of the prenuptial
agreement are not relevant to the issues in this appeal.
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Gerel arising out of or relating to the
Employment Agreement. Instead, this Court
reads this arbitration clause to define a
limited scope of arbitration. Under the
Employment Agreement, the parties have
agreed to arbitrate disputes (1) requiring
clarification of the meaning of a particular
contractual provision because the language
of the contract suggests more than one
reasonable interpretation (ambiguities) and
(2) requiring construction of the
substantive provisions of the contract.
Once the arbitrator determines the meaning
of a contractual provision, the role of the
arbitrator is complete. Unless the parties
mutually agree to continue arbitration for
the purpose of complete resolution of a
dispute, the dispute must be resolved
through litigation, or private settlement.
Coady, 996 F. Supp. at 107 (emphasis added).8
The district court then proceeded to identify which of
the disputed issues were arbitrable. See id. at 108-09. On the
issue of the payment of Coady's bonus for the first half of
1997, the district court wrote:
By the express terms of the Employment
Agreement, Coady is entitled to a bi-annual
bonus equal to twenty-five percent of the
net profits of the Boston office. This
bonus payment is capped; Coady's total
annual compensation cannot exceed a senior
partner's draw for the same calendar year.
Coady asserts that Ashcraft & Gerel has
8 In contrast, the court described the prenuptial
agreement's arbitration clause, see supra note 7, as "slightly
broader . . . as it subjects to arbitration not simply the
process of discovering and ascertaining the meaning of the
contract[,] but also applying the terms of the Agreement to a
specific set of facts." Id.
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failed to make this bonus payment for the
first half of 1997. The calculation of the
bonus is the subject of arbitration as the
determination of net profit requires
interpretation of whether certain expenses
are "related." However, the obligation to
make this payment is not the subject of
arbitration, as there is no ambiguity in the
Employment Agreement regarding Ashcraft &
Gerel's duty[] to make this bonus payment.
Id. at 108 (citations omitted) (emphasis added). In the
conclusion of its opinion, the court identified four issues for
arbitration. Only one was related to the bonus issue: "What are
the related expenses for determining the Boston office's net
profits?" Id. at 109. As described earlier, the "related
expenses" issue was removed from consideration by the law firm's
acceptance, during the arbitration, of Coady's figures.9
In its November 4, 1998 report on the issues subject
to arbitration, and again in its February 1999 Findings, Orders,
and Award, the arbitration panel stated that it believed that
the amount of Coady's bonus -- not simply the nature of "related
expenses for determining the Boston office's net profits" -- was
subject to arbitration. The arbitrators based this conclusion
on the district court's statement that "[t]he calculation of the
bonus is the subject of arbitration," Coady, 996 F. Supp. at
9 As a result, there is no occasion to consider whether
this portion of the order of reference was in error.
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108, and on the district court's later affirmance of the
arbitrators' discovery order. In its February 1999 decision,
the panel also found that Coady had made a prima facie case that
Ashcraft & Gerel had manipulated its 1997 senior partner draw in
order to reduce his bonus, and ordered further discovery that
would allow it to calculate what Coady's bonus should have been.
In its April 1999 Memorandum and Order, the district
court denied Ashcraft & Gerel's motion to vacate in part the
arbitration award. The court held that deference should be
given to the arbitration panel's view of the scope of its
authority, citing Larocque v. R.W.F, Inc., 8 F.3d 95 (1st Cir.
1993). "[A]n arbitrator's view of the scope of the issue . . .
is entitled to the same . . . deference . . . normally accorded
to the arbitrator's interpretation of the collective bargaining
agreement itself." Id. at 97 (quoting El Dorado Tech. Servs.,
Inc. v. Union Gen. de Trabajadores, 961 F.2d 317, 321 (1st Cir.
1992)) (internal quotation marks omitted).
On the bonus issue, the court concluded that the
arbitrators had not exceeded the scope of their authority when
they sought to calculate the amount of Coady's bonus and ordered
discovery on the senior partner draw to facilitate the
calculation of the bonus amount. Quoting its March 1998 order
of reference, the court wrote:
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This Court concluded that the panel
was to identify "the related expenses for
determining the Boston office's net profits"
to help calculate the bonus owed Coady.
Ashcraft sought to limit the panel's scope
to these related expenses only and now
objects to the panel's going beyond this
identification. In its discussion, however,
this Court stated that "[t]he calculation of
the bonus is the subject of arbitration as
the determination of net profits requires
interpretation of whether certain expenses
are 'related.'" Thus, the Court's limited
conclusion should be read in light of its
more expansive discussion of this issue.
(citations omitted).
After another hearing and two supplemental orders, the
arbitration panel issued its final order on June 30, 1999, which
the court confirmed at a hearing on September 15, 1999. The
district court did not issue a written explanation of its
September 15 decision. At the hearing, however, the court
repeated the reasoning from its April 1999 decision: first, the
March 1998 decision did refer the calculation of Coady's bonus
to the arbitrators; and second, the arbitrators' conclusions as
to the scope of the arbitration should be given deference.
In Ashcraft & Gerel's view, the district court's March
1998 decision concerning the scope of arbitration held that the
employment contract limited arbitration to matters of contract
interpretation only. Ashcraft & Gerel argues that the
arbitrators exceeded their authority when they held that
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Ashcraft had manipulated the senior partners' draw and
determined that the firm owed Coady additional bonus
compensation. The firm argues that the district court erred in
its April 1999 decision; when it ruled that the arbitrators had
not exceeded the scope of their authority, the firm says, the
court was misinterpreting its own March 1998 decision.
Coady argues that t he district court's confirmation of
the arbitration award was proper. According to Coady, the
calculation of his bonus required interpretation of an ambiguous
term in the employment contract, a task the arbitrators were
specifically empowered to engage in by both the employment
contract and the district court order. Coady phrases the
question facing the arbitrators this way: was Coady's
compensation capped by the number announced by Ashcraft & Gerel
as the senior partners' draw, or did the firm have an obligation
under the contract to follow its usual accounting practices to
determine the cap on Coady's compensation? Coady says that the
panel concluded in its February 1999 order that the cap number
was not the one announced by Ashcraft in 1997, but that the
actual number was yet unknown, as Coady had submitted prima
facie evidence of "a substantial straddle of income in 1997."
B. Standard of Review and Interpretation of the Arbitration
Clause
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The question of the appropriate standard of review is
multifaceted. The question whether the parties agreed to
arbitrate certain matters was for the court to decide. See
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944
(1995). Indeed, in PaineWebber, Inc. v. Elahi, 87 F.3d 589 (1st
Cir. 1996), we held that "the question whether the subject
matter of the underlying dispute is within the scope of an
expressly limited arbitration agreement is an 'arbitrability'
issue." Id. at 596 (construing AT&T Techs., Inc. v.
Communications Workers of Am., 475 U.S. 643, 651 (1986)). And
"arbitrability depends on contract interpretation, which is a
question of law." Id. at 592 (construing Commercial Union Ins.
Co. v. Gilbane Bldg. Co., 992 F.2d 386, 388 (1st Cir. 1993)).
As stated in First Options, "[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."
First Options, 514 U.S. at 944 (quoting AT&T Techs., 475 U.S. at
649) (second and third alterations in original). The limited
arbitration clause in Coady's employment agreement contains no
such "clear and unmistakable" language; there is in fact no
evidence that the parties agreed to submit the question of
arbitrability to arbitration. Thus, the arbitrators' views
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about what is arbitrable are not given the usual leeway courts
give to arbitrators. See id. at 945-47.
Coady responds by citing the familiar doctrine that
"[a]ny doubts concerning the scope of arbitrable issues should
be resolved in favor of arbitration." Moses H. Cone Mem'l Hosp.
v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Even before
First Options, however, that doctrine was subject to
constraints. "So long as the arbitrator, acting within the
scope of his delegated authority, is arguably construing the
contract, his decision must stand." El Dorado Tech. Servs., 961
F.2d at 319 (emphasis added). The Federal Arbitration Act
expressly provides that an award may be vacated "[w]here the
arbitrators exceeded their powers." 9 U.S.C. § 10(a)(4).
To use the doctrine as Coady posits would be to
undermine First Options. Where the arbitrability of a dispute
is to be determined by a court and the court determines that an
issue is not arbitrable, the arbitrators' contrary conclusion
that an issue is arbitrable carries no weight and is not
entitled to deference. This is true even when the district
court's order of reference is in error, as here. If the rule
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were otherwise, a party who did not agree to arbitrate could be
locked into an arbitral award through a series of errors.10
Here, the district court's initial order of reference
determined that the employment agreement authorized arbitration
only of questions of ambiguity or interpretation of the contract
and that questions of breach of contract were not within the
scope of the clause. See Coady, 996 F. Supp. at 107. The
arbitrators were without power to enlarge upon that ruling.
Some language in the order of reference, however, went beyond
the district court's core holding that only issues of contract
interpretation were arbitrable, and suggested to the arbitrators
that they could decide the ultimate issue of the size of the
bonus owed to Coady. See id. at 108 ("[t]he calculation of the
bonus is the subject of arbitration").
10 The arbitral panel made the argument that Ashcraft &
Gerel waived its objections to the arbitrators' view of the
scope of their authority through its submissions to the panel.
Coady has not made that argument on appeal. Even if Coady had
made that argument, it is one we reject. Parties may supplement
by their submissions the authority granted an arbitration panel
under a contract. See Dorado Beach Hotel Corp. v. Union de
Trabajadores de la Industria Gastronomica Local 610, 959 F.2d 2,
4 (1st Cir. 1992). Having examined Ashcraft & Gerel's
submissions to the arbitrators and the transcripts of the
arbitration hearings, we find that the firm consistently and
vigorously maintained its objection to the scope of
arbitration. (The D.C. district court reached the same
conclusion in its June 19, 1999, ruling on Ashcraft & Gerel's
motion to vacate the arbitration award.)
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Whether the arbitration clause mandates that the actual
calculation of Coady's bonus is subject to arbitration is, in
our view, an issue of interpretation of the contractual language
"ambiguities or questions of interpretation of this contract."
The district court's ruling was one of interpretation, which did
not turn on any factual findings. Thus, we review the point de
novo, see MCI Telecomms. Corp. v. Exalon Indus., Inc., 138 F.3d
426, 428 (1st Cir. 1998); Keystone Shipping Co. v. New England
Power Co., 109 F.3d 46, 50 (1st Cir. 1997), and find that it was
error.
By its plain language, the arbitration clause is
limited to ambiguities and questions of interpretation. When
these parties wanted an arbitration clause that covered the
application of contract terms to specific facts, they were
capable of drafting such a clause. The arbitration clause in
the 1991 "prenuptial agreement," see supra note 7, applies to
"the construction, interpretation or application of this
Agreement." Coady, 996 F. Supp. at 98 (original emphasis
removed and new emphasis added); see also id. at 107
(contrasting the arbitration clause in the prenuptial agreement,
which "subjects to arbitration not simply the process of
discovering and ascertaining the meaning of the contract[,] but
also applying the terms of the Agreement to a specific set of
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facts," to the narrower clause in the employment agreement). At
bottom, arbitration remains "simply a matter of contract between
the parties; it is a way to resolve the disputes -- but only
those disputes -- that the parties have agreed to submit to
arbitration." First Options, 514 U.S. at 943. The employment
agreement plainly manifests the parties' intent to limit
arbitration to the interpretation of ambiguous contract terms.
The stipulations presented by the law firm at the
November 1998 arbitration hearings resolved the ambiguities and
questions of interpretation surrounding Coady's bonus; indeed,
they eliminated any dispute between Coady and the law firm on
these points.11 This left no issue concerning the bonus that was
within the scope of the arbitrators' authority. But, given the
language in the district court's order of reference, it is
understandable that the arbitrators went further.
There was, of course, considerable dispute about the
application of the agreed-upon interpretations -- for example,
whether the law firm had violated accepted accounting practices.
But these issues of breach and calculation of sums were properly
11 In retrospect, it might have been better for the law
firm to have informed the Massachusetts district court at the
time of its consideration of the order of reference that the
firm would so stipulate. That might have framed the matter in
sharper focus for the district court.
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part of the factfinding in the D.C. court litigation, and not
part of the arbitrators' task.
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C. Remedy
The question becomes then one of fashioning an
appropriate remedy, given the status of the bonus dispute and
the parallel litigation that has proceeded in the District of
Columbia. We remand to the Massachusetts district court with
instructions to transfer the action, including the records of
the arbitral hearings that have been filed, to Judge Kollar-
Kotelly of the U.S. District Court for the District of Columbia.
There is nothing left of the Massachusetts action, which was
brought to compel arbitration. If there are to be further
proceedings on the bonus issue, they should take place under the
authority of the D.C. district court, which is completely
familiar with legal and factual determinations made in the
course of the D.C. trial, some of which may bear on the bonus
dispute.
Our remand and transfer order is not based on Ashcraft
& Gerel's argument that the Massachusetts court erred in failing
to transfer the action in April 1998. The district court,
Ashcraft & Gerel says, disregarded the "first-filed rule" and
improperly applied the transfer criteria under 28 U.S.C. §
1404(a), thereby dividing jurisdiction over a single dispute
between federal courts in Boston and Washington, D.C. Ashcraft
& Gerel contends that the district court's ruling ran counter to
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a principal concern behind both the first-filed rule and venue
transfer under 28 U.S.C. § 1404(a): preventing duplication of
effort and incompatible rulings. Coady defends the district
court's decision, arguing that because Ashcraft & Gerel was
guilty of "racing to the courthouse," it was not entitled to
application of the first-filed rule.
We would review the district court's decision on
transfer of venue for an abuse of discretion. See Cianbro Corp.
v. Curran-Lavoie, Inc., 814 F.2d 7, 11 (1st Cir. 1987). Under
§ 1404(a), a district court may transfer any civil action to any
other district where it may have been brought "[f]or the
convenience of parties and witnesses, in the interest of
justice." 28 U.S.C. § 1404(a).
In addition to the convenience of parties and witnesses, the
factors to be considered by the court include the availability
of documents; the possibility of consolidation; and the order in
which the district court obtained jurisdiction. See Cianbro,
814 F.2d at 11. "Where identical actions are proceeding
concurrently in two federal courts . . . the first filed action
is generally preferred in a choice-of-venue decision." Id. The
burden of proof rests with the party seeking transfer; there is
a strong presumption in favor of the plaintiff's choice of
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forum. See Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947).
Here, however, the decision by the district court not
to transfer the action was "primarily due to the existence of a
judicial emergency in the United States District Court for the
District of Columbia." Coady, 996 F. Supp. at 106 (emphasis
added). This was an issue the district court introduced into
the case sua sponte, the parties not having argued it. The
district court apparently thought that the District of
Massachusetts could handle the action better, given that it was
at full strength, whereas the federal district court for the
District of Columbia did not have its full complement of judges.
The court's reliance on this factor (which is
materially different from docket congestion) was error. The
district court did not base its decision on undue delay to
parties, but rather on the mere existence of a judicial
emergency. While expressions of concern that the President and
Congress fill existing judicial vacancies are appropriate in
other contexts,12 it has no place in determining the rights of
litigants under 28 U.S.C. § 1404(a), and is not "in the interest
of justice." 28 U.S.C. § 1404(a). Neither constitutional nor
12 It is a topic covered by the Chief Justice of the
United States in his annual report on the United States Courts.
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statutory rights of parties are suspended when there are
judicial vacancies in a district. We do not know whether absent
this "primary" factor the court would have transferred the
action. Nor do we need to decide whether absent that factor,
the decision to refuse to transfer was an abuse of discretion.
III.
We hold that the arbitrators exceeded the scope of
their authority and vacate the arbitral award. The case is now
in a different posture than it was in April 1998, and the
solution most consistent with the policies behind § 1404(a) is
to have any remaining matters addressed by Judge Kollar-Kotelly
of the U.S. District Court for the District of Columbia.13 We
direct the district court to transfer this case to Judge Kollar-
Kotelly.
So ordered.
13 We recognize that both parties have invested
considerable resources in this dispute already. We urge the
parties to resolve by agreement the remaining issues and to
avoid further proceedings.
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