Hart Surgical, Inc. v. Ultracision, Inc.

United States Court of Appeals
For the First Circuit

No. 00-1596

HART SURGICAL, INC.,

Plaintiff/Respondent - Appellee,

v.

ULTRACISION, INC., and
ETHICON ENDO-SURGERY, INC.,

Defendants/Petitioners - Appellants.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

[Hon. Ernest C. Torres, U.S. District Judge]

Before

Torruella, Chief Judge,

Boudin and Lipez, Circuit Judges.

Margaret M. Zwisler, with whom Richard A. Ripley, Kathryn R.
Colburn, Howrey Simon Arnold & White, LLP, Raymond A. Marcaccio and
Blish & Cavanagh, LLP, were on brief, for appellants.
Michael J. Tuteur, with whom Epstein Becker & Green, P.C., was
on brief, for appellee.

April 5, 2001
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 TORRUELLA, Chief Judge. The issue presented in this appeal

is whether, in an arbitration case that is bifurcated into liability

and damages phases, the arbitration panel's award with respect to

liability is a final award under the Federal Arbitration Act ("FAA"),

9 U.S.C. § 1 et seq., that is subject to review by the courts. The

district court correctly noted that this question is yet undecided in

this Circuit and, using the Second Circuit's jurisprudence as a guide,

ruled that an arbitration award concerning only liability is not final

for purposes of appeal to the courts. In an unusual circumstance, both

parties urge us to reach the opposite conclusion. We agree with this

ecumenical stance, and for the reasons set forth below, hold that under

the circumstances of this case, an arbitration award on the issue of

liability in a bifurcated proceeding is a final partial award

reviewable by the district court.

BACKGROUND

On September 30, 1993, plaintiff-appellee Hart Surgical, Inc.

("Hart") entered into a contract with defendant-appellant UltraCision,

Inc. ("UltraCision")1 pursuant to which Hart became the exclusive

Canadian distributor for UltraCision's products. In February 1996,

UltraCision terminated Hart's distributorship for non-performance.

1 UltraCision was acquired by co-defendant-appellant Ethicon Endo-
Surgery, Inc. ("Ethicon") in 1995.

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 Pursuant to an arbitration provision in the contract, Hart

commenced arbitration proceedings against UltraCision and Ethicon

challenging the termination. The parties agreed to bifurcate the

arbitration into liability and damages phases, and the arbitration

panel approved the stipulation. Following discovery, a trial on the

issue of liability began in June 1997. On August 19, 1997, the

arbitrators found that appellants wrongfully terminated Hart's

distribution agreement (the "Award").

Appellants moved to vacate the Award in the federal district

court for the District of Rhode Island on October 20, 1997. However,

anticipating either completion of the damages phase or a settlement by

early 1998, appellants filed an unopposed motion to stay consideration

of the vacatur motion. The court granted a six-month stay and, after

this period expired, extended the stay for another six months. When it

became apparent that the damages phase of the arbitration would not be

completed within this time, appellants requested that the court lift

the stay and decide the motion to vacate the Award. On September 26,

1999, the district court issued an order requiring appellants to show

cause why the case should not be dismissed without prejudice on the

ground that the Award was not final under the FAA.

After briefing and a hearing, the district court concluded

that the Award was not appealable under the FAA. Hart Surgical, Inc.

v. UltraCision, Inc., No. 97-594-T (D. Mass. Apr. 25, 2000).

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According to the court, a "final" arbitral award is one that resolves

all of the claims submitted to the panel. Here, the parties asked the

arbiters to determine the issue of liability as well as damages; since

the award at issue in this appeal resolved only one of these issues, it

was akin to an interlocutory decision. Allowing the district court to

review such an award, the court reasoned, would undermine the purpose

of arbitration and waste judicial resources.

Although the district court dismissed appellants' motion

without prejudice, the parties highlight that the one-year statute of

limitations period for vacatur motions runs from the date that an award

is made final. See 9 U.S.C. § 9. Because this Circuit has not yet

addressed the issue decided by the district court, a contrary ruling on

the question after completion of the damages phase could prejudice

appellants' right to appeal the Award in the future. Consequently, we

will confront the question now.

DISCUSSION

This appeal actually raises two distinct, but related,

questions. The first is whether an award concerning a discrete portion

of an arbitration action, or a partial award, is reviewable by the

district court. If so, the second and more specific question is

whether this power to review extends to a partial award on liability in

a bifurcated proceeding. We will address each of these questions in

turn.

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 A.

Appellants moved to vacate the arbitrators' liability award

pursuant to Section 10(a)(4) of the FAA. Under this provision, a

district court may

make an order vacating the award upon the
application of any party to the arbitration[,
w]here the arbitrators exceeded their powers, or
so imperfectly executed them that a mutual,
final, and definite award upon the subject matter
was not made.

9 U.S.C. § 10(a)(4). In applying this statute, we have followed the

principle that "[i]t is essential for the district court's jurisdiction

that the arbitrator's decision was final, not interlocutory." El Mundo

Broad. Corp. v. United Steel Workers of America, AFL-CIO CLC, 116 F.3d

7, 9 (1st Cir. 1997). The prerequisite of finality promotes the role

of arbitration as an expeditious alternative to traditional litigation.

See, e.g., Michaels v. Mariforum Shipping, S.A., 624 F.2d 411, 414 (2d

Cir. 1980) ("[A] district court should not hold itself open as an

appellate tribunal during an ongoing arbitration proceeding, since

applications for interlocutory relief result only in a waste of time,

the interruption of the arbitration proceeding, and . . . delaying

tactics in a proceeding that is supposed to produce a speedy

decision.") (internal quotations omitted). We have noted that

"[n]ormally, an arbitral award is deemed 'final' provided it evidences

the arbitrators' intention to resolve all claims submitted in the

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demand for arbitration." Fradella v. Petricca, 183 F.3d 17, 19 (1st

Cir. 1999) (emphasis added).

Several circuits have, however, recognized exceptions to this

general rule. See, e.g., Publicis Communication v. True N.

Communications, Inc., 206 F.3d 725, 728 (7th Cir. 2000) (emphasizing

that "[t]he content of [an arbitral] decision -- not its nomenclature

-- determines finality," and noting various interim decisions that

courts have considered final). The Second Circuit's holding in

Mettallgesellschaft A.G. v. M/V Capitan Constante, 790 F.2d 280, 283

(2d Cir. 1986), follows in this trend. In Mettallgesellschaft, the

plaintiff sought damages for the alleged short delivery and fuel

contamination of an oil shipment. The defendant requested arbitration

and counterclaimed for unpaid freight charges. The arbitration panel

rendered a partial award on the counterclaim in favor of the defendant,

and the district court confirmed the award. Plaintiff appealed,

claiming that the arbitral award was not final because the arbitration

panel had not yet resolved all of the issues submitted to it. The

Second Circuit upheld the district court's power to review the award on

the counterclaim, concluding that "an award which finally and

definitely disposes of a separate independent claim may be confirmed

although it does not dispose of all the claims that were submitted to

arbitration." Id. at 283.

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 This Court has recently approved the Second Circuit's

approach. In Bull H/N Information Systems, Inc. v. Hutson, 229 F.3d

321 (1st Cir. 2000), we considered the validity of an appeal from a

district court order vacating a partial award. That award, rendered in

the first phase of arbitration, concerned whether plaintiff's claims

for unpaid commissions were time-barred and, if not, how much was due.

Plaintiff's benefits-related claims were to be determined later, in the

second phase of the arbitration proceedings. The district court,

interpreting the finality requirement of § 10(a)(4), cited

Mettallgesellschaft in support of its conclusion that the Phase I award

dealt with "discrete and distinct claims" and was thus final for

purposes of review. Bull H/N Info. Sys., Inc. v. Hutson, 983 F. Supp.

284, 289 (D. Mass. 1997). This was so, the court noted, even though

"the Phase I Award clearly anticipates further proceedings with respect

to the [Phase II] claims." Id. at 290. The issue raised on appeal

concerned appellate, not district court, jurisdiction over partial

awards.2 However, our conclusion that the FAA "contemplates an appeal

when there is [a district court] order vacating . . . partial awards,"

Hutson, 229 F.3d at 328, implicitly affirmed the district court's

power to review such awards under § 10(a)(4). We now hold that the FAA

permits a district court to confirm or vacate a partial award.

B.

2 Consequently, we dealt only with §§ 16(a)(1)(D) and (E) of the FAA.

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 We must next determine whether the district court may review

a partial award when that award determines liability, but does not

include damages. Since this particular issue has not yet been decided

by this Circuit, the parties suggest the Second Circuit's opinion in

Trade & Transport, Inc. v. Natural Petroleum Charterers Inc., 931 F.2d

191 (2d Cir. 1991), as a useful starting point for our analysis. In

Trade & Transport, the parties bifurcated the issues submitted to

arbitration, requesting an "immediate" decision on liability and

reserving the damages question for a later date. Id. at 192-93. In

accordance with this request, the arbitration panel issued a final

partial award with respect to liability. The defendant then moved the

panel to reconsider the award, offering additional evidence on the

liability issue, but the panel denied the motion. After both phases of

the arbitration were completed, the defendant unsuccessfully appealed

the panel's decision on liability to the district court. The Second

Circuit affirmed the court's decision that the award was final,

reasoning that "if the parties have asked the arbitrators to make a

final partial award as to a particular issue and the arbitrators have

done so, the arbitrators have no authority, absent agreements by the

parties, to redetermine that issue." Id. at 195.

The court below concluded that Trade & Transport, because of

its focus on the finality of partial awards vis-à-vis arbitrators, was

inapposite and relied instead on the contemporaneous Second Circuit

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decision in Kerr-McGee Refining Corp. v. M/T Triumph, 924 F.2d 467, 471

(2d Cir. 1991). Kerr-McGee had moved in district court to confirm both

a partial award setting contractual liability for short-delivered cargo

as well as a "final" award of treble damages under RICO, punitive

damages, costs, and attorney's fees for a multi-incident scheme of

conversion of chartered cargo. The Second Circuit affirmed the

district court's review of both awards, concluding that the partial

award was not a "separate independent claim" from the "final" award.

Since a party has one year to confirm an arbitral award under the FAA,

9 U.S.C. § 9, a contrary decision would have barred Kerr-McGee from

confirming the partial award which had been decided more than one year

prior.

What runs through the Second Circuit's decisions is a tension

between the desire to effectuate the parties' intent to divide an

arbitration into distinct phases, and making sure that a losing party

does not thereby forfeit an appeal by failing to object after the

completion of a phase. Compare Kerr-McGee, 924 F.2d at 471, with

Mettallgesellschaft, 790 F.2d at 282. Under these circumstances, the

definiteness with which the parties have expressed an intent to

bifurcate is an important consideration. In Michaels, the case most

restrictive about the finality of partial awards, the Second Circuit

was careful to say that " [g]enerally, in order for a claim to be

completely determined, the arbitrators must have decided not only the

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issue of liability . . . but also the issue of damages." Michaels, 626

F.2d at 413-14 (emphasis added). In that case, however, the

arbitration panel decided on its own to issue an "interim" award --

there was no formal bifurcation.

By contrast, the parties here submitted, in a discrete

proceeding, all of the evidence pertaining to the issue of liability.

The arbitrators, in turn, "conclusively decided every point required by

and included in" this submission as their "authority and

responsibility" demanded. Trade & Trans., 931 F.2d at 195. Both the

parties and the panel, then, understood the determination of liability

to be a final award. See McGregor Van de Moere, Inc. v. Paychex, Inc.,

927 F. Supp. 616, 617 (W.D.N.Y. 1996) (concluding that parties'

decision to bifurcate the issue of liability from damages reflects

their agreement that the award on this issue will be final); Corp.

Printing Co. v. N.Y. Typographical Union No. 6 , 93 CIV 6796, 1994 WL

376093 at *4 (S.D.N.Y. July 18, 1994) (citing Trade & Transport as

"persuasive authority" that a bifurcated liability award is final for

review). We therefore hold that the liability determination is final

and subject to district court review.3

3 The district court compared interim arbitral awards to interlocutory
district court orders. While it is true that in ordinary litigation,
a liability determination that had not yet resolved damages would be
non-appealable, we have emphasized previously that "somewhat different
standards govern the finality of judgments and final awards" in
arbitration proceedings. Fradella, 183 F.3d at 19. We believe our
decision here adequately tempers the need to maintain an expedient

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 CONCLUSION

The specific issue presented is a complicated one that is

sure to recur in different contexts. There is very little case law in

point and the Second Circuit cases that are most relevant are seemingly

at odds. Though we hold that the district court can review the partial

award in this case, we think it best to limit our holding to the

situation in which there is a formal, agreed-to bifurcation at the

arbitration stage. We reserve judgment on what would happen if, for

example, in the absence of bifurcation the arbitrator issued an initial

decision on liability and one party then sought district review. The

outcome in such a scenario might depend on the circumstances, and we

prefer not to prejudge that result.

Another important consideration is the risk that, in moving

away from the concept of final judgments that prevails when review is

sought of district court decisions, we may create situations at the

arbitration level in which the losing side may forfeit an appeal (e.g.,

as to liability) by waiting until all arbitration proceedings are

complete. One could imagine a rule that would allow the loser to seek

alternative dispute resolution mechanism with an understanding of the
primary policy behind the FAA, which is to resolve issues in the manner
intended by the parties. See Dean Witter Reynolds, Inc. v. Byrd, 470
U.S. 213, 221 (1985) ("The preeminent concern of Congress in passing
the Act was to enforce private agreements into which parties had
entered, and that concern requires that we rigorously enforce
agreements to arbitrate, even if the result is 'piecemeal' litigation
. . . .").

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review at once, but also retain the option of waiting until the

completion of all phases at the arbitrator level. These are not

problems that we must resolve now, but ones that we will no doubt

confront in future cases.

We vacate the order of the district court and remand for

further proceedings.

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