United States Court of Appeals
For the First Circuit
No. 03-1206
TOMÁS E. COLÓN;
R.K. GRACE & COMPANY OF PUERTO RICO, INC.,
Plaintiffs, Appellees,
v.
R.K. GRACE & COMPANY;
JOHN KAWESKE,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Héctor M. Laffitte, U.S. District Judge]
Before
Boudin, Chief Judge,
Lynch and Howard, Circuit Judges.
Francisco M. López-Romo for appellants.
Robert Márquez-Sánchez for appellees.
Jorge M. Izquierdo-San Miguel on brief for appellees.
December 22, 2003
BOUDIN, Chief Judge. This appeal arises out of a
modestly complex commercial dispute resulting in a jury verdict for
the plaintiffs. The plaintiffs in the district court were Tómas
Colón and R.K. Grace & Company of Puerto Rico ("Grace Puerto
Rico"); the defendants were R.K. Grace & Company ("Grace U.S.A.")
and John Kaweske. What follows is a bare-bones summary of the
background events and trial.
Grace U.S.A. was a Florida company operating as an
investment advisor and a broker-dealer in securities and Kaweske
was its president and chief executive. In January 1995, Grace
U.S.A. entered into a written agreement with Colón, who had
previously been a customer representative for other companies
(e.g., Morgan Stanley). The agreement provided that Colón, acting
as an independent contractor, would handle securities purchases and
sales from his customers through Grace U.S.A. and receive a portion
of the commission on such transactions.
The January 1995 agreement contained an arbitration
clause in which Colón and Grace U.S.A. agreed to arbitrate any
dispute between them "under" the agreement. In June 1995 Colón
also signed a so-called "U-4" form of the National Association of
Securities Dealers ("NASD") agreeing to arbitrate any dispute
between him and his firm (Grace U.S.A.), a customer, "or any other
person" for which arbitration is required under NASD rules. The
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main question briefed on this appeal is whether either or both
arbitration agreements embrace the claims that later arose.
Colón was quite successful and, in January 1997, Kaweske
and Colón formed a new Puerto Rico company--Grace Puerto Rico--in
which each partner owned 50% of the shares. Colón claimed that
there was an oral understanding between him and Kaweske that this
new company would provide administrative services for Colón and a
number of new Grace U.S.A. representatives in Puerto Rico; that
100% of the commissions would be returned by Grace U.S.A.; and that
a small portion of the commissions would be divided between Colón
and Kaweske.
The new arrangement did not work as allegedly planned.
According to Colón, by 1998 Grace U.S.A. was seriously in arrears
in its promised payments because Kaweske was withholding amounts
due to cover imprudent investments he had made. Further, Colón
said that Grace Puerto Rico was being harmed by this retention
because it could not pay its own bills and Colón was being forced
to advance money himself for this purpose.
In February 2001, Colón and Grace Puerto Rico brought
suit against Kaweske and Grace U.S.A. in federal district court in
Puerto Rico. Among the claims, and the only ones ultimately to go
to the jury, were a breach of contract claim by Grace Puerto Rico
against Grace U.S.A. and a breach of fiduciary duty claim by Colón
against Kaweske. The defendants asserted that the claims against
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them were covered by the two arbitration agreements noted above and
by an alleged third agreement dated January 1997 between Grace
U.S.A. and Colón containing an arbitration clause akin to the one
in the January 1995 agreement.
Colón responded that neither the January 1995 agreement
nor the 1995 U-4 could bind Grace Puerto Rico, which did not exist
until 1997. As to the January 1997 agreement, Colón denied that he
had signed it. When a version purportedly bearing his signature
was produced by defendants, Colón said (backed by a document
examiner) that the signature was not his and asked the district
court to exclude it from consideration. The district judge who had
initially denied the arbitration request based on the 1995
agreements now ruled that he wanted the jury's determination on the
signature issue before finally deciding whether arbitration was
required.
A jury trial began in November 2002. Colón testified
that he thought that the January 1995 agreement had been superceded
by the new arrangements made in 1997 but, in any event, denied
making any claims under the January 1995 agreement. The district
judge then began to curtail defense counsel's efforts to pursue the
January 1995 agreement, saying "that does away with the claims from
that first contract. There is nothing to arbitrate." As for the
arbitration clause in the January 1997 agreement, the defense never
sought to offer it as an authenticated contract signed by Colón.
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At the close of evidence the district court rejected the
arbitration defense.
On the merits, Colón presented testimony on his own
behalf from an employee of Grace U.S.A., from a margin clerk of
Grace Puerto Rico, and from a public accountant who testified that
Grace U.S.A. owed Grace Puerto Rico $249,000. The defense made
some headway in cross-examining both Colón and the public
accountant but rested without presenting any witnesses of its own
for the defense. The jury then awarded Grace Puerto Rico $249,245
against Grace U.S.A. on the contract claim and Colón $75,000
against Kaweske on the fiduciary duty claim.1
On post-judgment motions by the defendants, the district
judge reaffirmed his denial of arbitration. He also rejected a
number of merits-related arguments by the defense for judgment as
a matter of law–a matter to which we will return. The defendants
then appealed to this court, arguing primarily that arbitration of
the dispute was required. Plaintiffs say that this claim was
waived because defendants failed to take an interlocutory appeal
and that in any event arbitration was not required.
Denials of arbitration under the Federal Arbitration Act
are, unlike most interlocutory rulings, immediately appealable. 9
1
The former figure is supported by the accountant's evidence
if the jury chose to resolve in Colón's favor the discrepancies in
the accountant's testimony. The source of the $75,000 figure is
less clear, but the defendants say nothing about a lack of evidence
on this issue.
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U.S.C. §§ 4, 16(a)(1)(B) (2000). Nothing in the statute requires
an immediate appeal but three circuits have held that the failure
to promptly appeal such a denial may by estoppel foreclose the
demanding party's right to arbitration, although this is not
automatic and depends on a showing of prejudice to the other side.2
The reason is that it is wasteful to have a full trial and then
determine by a post-trial appeal that the whole matter should have
been arbitrated and so start again.
Ordinarily, no forfeit results from the failure to take
an available interlocutory appeal (e.g., denials of qualified
immunity). Pearson v. Ramos, 237 F.3d 881, 883 (7th Cir. 2001)
(Posner, J.); 16 Wright & Miller, Federal Practice and Procedure,
§ 3921 (2d ed. 1996). But with arbitration denials, the argument
for forcing an immediate appeal is stronger than usual; not much
can be said for allowing the party who sought arbitration to
litigate and later seek arbitration on appeal if the trial goes
badly instead of appealing immediately. See Cotton v. Slone, 4
F.3d 176, 180 (2d Cir. 1993).
2
The three are the Second, Fifth and Eighth Circuits. Cargill
Ferrous Int'l v. Sea Phoenix MV, 325 F.3d 695, 700 (5th Cir. 2003);
John Morrell & Co. v. United Food & Commercial Workers Int'l Union,
37 F.3d 1302, 1303 n.3 (8th Cir. 1994); Cotton v. Slone, 4 F.3d
176, 180 (2d Cir. 1993); see also 15B Wright & Miller, Federal
Practice and Procedure, § 3914.17 (2d ed. Supp. 2003). The Fourth
Circuit appears to have rejected this view. See Clark v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 924 F.2d 550, 553 (4th Cir.
1991).
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We are sympathetic to the approach of the Second, Fifth
and Eighth Circuits, and it is wise for us to make this clear by
dictum so as to give warning to the bar. Yet this case is a
perfect example of why one would not employ a mechanical forfeiture
rule. Because in this case the district judge did not definitively
deny the arbitration request until after trial began--indeed, until
all the evidence was taken--any holding by us that the defendants
had to appeal the denial immediately so as to avoid an unnecessary
trial would be ridiculous: the trial had already occurred.
One might at first wonder why the trial judge delayed in
resolving the question of arbitrability: ordinarily the purposes of
arbitration are best served by having the issue decided before
trial. However, in what may be an over-cautious reaction to Beacon
Theatres, Inc. v. Westover, 359 U.S. 500 (1959), the arbitration
statute specifically commands that in non-admiralty cases a jury
(if timely demanded) must be used to decide the validity of the
agreement if it is disputed. 9 U.S.C. § 4 (2000); Doctor's
Assocs., Inc. v. Distajo, 107 F.3d 126, 129-30 (2d Cir. 1997).
Turning next to the question whether the district court
erred in denying arbitration, the matter is complicated but our
disposition is made swifter by the way the defense has framed the
issue. The January 1995 agreement does not by its terms apply to
either of the two claims submitted to the jury: neither involved a
claim by Colón against Grace U.S.A. and on appeal the defendants'
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brief in its argument section refers only to the U-4. The alleged
January 1997 agreement is out of the case because it was not
authenticated, a point that the defendants do not dispute.
Conceivably, more might have been said by the defendants
about the January 1995 agreement. For example, one might argue
that the agreement to arbitrate between Colón and Grace U.S.A.
ought to be read to cover claims by Colón against officers of Grace
U.S.A. so far as the latter acted in an official capacity.3 But
how far such arguments might have force, and whether they apply to
any part of the claims actually made in this case, have not been
briefed by defendants and will certainly not be pursued by the
court sua sponte. Mass Sch. of Law at Andover, Inc. v. Am. Bar
Ass'n, 142 F.3d 26, 43 (1st Cir. 1998).
As for the U-4, this was surely a possible basis for
arbitration. Unlike the January 1995 agreement, the U-4 is by its
terms not limited to claims between Grace U.S.A. and Colón; it
applies to any claim that Colón has against anyone that the NASD
rules require to be arbitrated. The defense says that this
includes any claim by Colón against Kaweske relating to the
securities business.
3
The district judge said that the January 1995 agreement was
irrelevant once Colón had said that he made no claims under it; but
whether a claim is one "under" that agreement could depend more on
its substance than on Colón's characterization--a point that
defense counsel grasped at trial but has not developed on appeal.
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The assertion, although not implausible, is offered in
one sentence and without citation. The U-4 form does not answer
the question on its face: it refers to claims that NASD rules
require to be arbitrated. Nothing in the defendants' brief
discusses or cites to the internal NASD rules, court precedents or
any other materials that would illuminate the issue of just how far
the clause extends beyond disputes with the company or customers.
Absent such information, the defendants' argument based on the U-4
must fail.
Defendants also say that the district court mistakenly
allowed Colón to recover based on an alleged oral understanding
between Colón and Kaweske that modified the earlier written
agreement made in January 1995 as to the share of commissions
intended to accrue to Colón. As best we can tell, this supposed
modification was part of the theory on which the plaintiffs'
recovery rests, and the January 1995 agreement did have a clause
forbidding oral modifications, although Colón has arguments of his
own as to why this does not matter.
However, once again this terse argument by defendants is
simply not developed on appeal. There is a lengthy recitation in
the fact section of the defense brief as to some of the evidence
bearing on this and other issues. But it is not this court's role
to assemble a coherent argument for one side merely because
evidentiary pieces are mentioned somewhere among the factual
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recitations and the topic sentence of the argument is supplied in
the argument section of the brief. Cf. U.S. Healthcare, Inc. v.
Healthsource, Inc., 986 F.2d 589, 599 (1st Cir. 1993).
There are two more short-form arguments offered by
defendants' brief. One is their claim, nowhere developed by
argument, that Colón has no authority as a 50% owner to represent
Grace Puerto Rico in litigation. The other is that the verdict is
"not supported by the evidence admitted at trial." Both are
invitations to this court to fill in the blanks by itself, which is
not our job.
Affirmed.
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