Richard C. Young & Co. v. Leventhal

United States Court of Appeals
For the First Circuit

No. 04-1124

RICHARD C. YOUNG & CO., LTD.,

Plaintiff, Appellant,

v.

MORRIS LEVENTHAL, D.D.S., M.S.,
Individually and as Trustee of the
Leventhal Family Revocable Trust;
JUDITH LEVENTHAL, as Trustee of the
Leventhal Family Revocable Trust,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Robert E. Keeton, U.S. District Judge]

Before

Boudin, Chief Judge,
Lynch, Circuit Judge,
and Schwarzer,* Senior District Judge.

Vincent L. DiCianni, with whom Michael Unger and Nur-ul-
Haq and Rubin and Rudman LLP were on brief, for appellant.
Angela H. Magary, with whom John E. Sutherland and
Brickley, Sears & Sorett, P.A. were on brief, for appellee.

October 28, 2004

*
Of the Northern District of California, sitting by
designation.
 SCHWARZER, Senior District Judge. Plaintiff Richard C.

Young & Co., Ltd., brought this action against Dr. Morris Leventhal

and Judith Leventhal for a declaration that the parties’ investment

and trust management agreements required arbitration under them to

be held in Boston. Young also sought an injunction against the

arbitration initiated by the Leventhals against Young in

California. The District Court enjoined the California arbitration

but declined the requested declaration and, instead, ordered the

Leventhals to submit the dispute to the American Arbitration

Association (AAA) in Boston. Young appeals the District Court’s

judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Young is a Rhode Island corporation registered as an

investment advisor with the United States Securities and Exchange

Commission with its principal office in Newport, Rhode Island.

Dr. Morris Leventhal and his wife, Judith Leventhal, are clients of

Young residing in Ventura, California. Both Leventhals serve as

trustees of the Leventhal Family Revocable Trust.

Dr. Leventhal has employed Young’s services for over ten

years. In March of 2002, he executed an investment management

agreement with Young. In May of 2002, the Leventhals executed a

trust management agreement. Both agreements contained the

following arbitration clause:

Arbitration. In the event of any disagreement
between us in connection with this Agreement
we will meet in good faith to attempt to
resolve such disagreement. If we are unable to

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 resolve the disagreement within 30 days after
receipt of written notice by either party from
the other that such a disagreement exists, the
disagreement will be submitted for arbitration
to the American Arbitration Association in
Boston, Massachusetts, in accordance with the
Rules of Commercial Arbitration of the
Association. There is no obligation to
arbitrate changes in or additions to the terms
of this Agreement, and no arbitrator will have
the power to add to or subtract from the terms
of this Agreement. Each of us will bear his
own costs. Judgment may be entered in any
court within the State of Rhode Island.
(Emphasis added.)

At some point after executing the agreements,

Dr. Leventhal took exception to Young’s handling of his trust

management account. He wrote a notice of claim letter to Young in

an attempt to resolve his dispute in accordance with the

arbitration clause, followed by a second letter. On February 3,

2003, he instituted an arbitration proceeding against Young with

the AAA in California.

Upon receipt of notice of the arbitration claim, Young

objected to the arbitration being held in California. AAA in

California requested and received submissions regarding

determination of the locale and concluded that the arbitration

should go forward in California. Because of the pendency of this

action, commencement of the arbitration was deferred.

Young then brought this action in the District Court,

contending that the language of the arbitration clause emphasized

above was a forum selection clause requiring any arbitration to be

held in Boston. The District Court rejected this interpretation,

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holding that the clause did not require the Leventhals to arbitrate

in Boston, but did require them to submit the request for

arbitration to the Boston office of the AAA. It enjoined further

proceedings in California and compelled the Leventhals to submit

the arbitration request to the AAA in Boston. Young then appealed

to this court.

At oral argument counsel advised the court that while the

appeal had been pending the Leventhals submitted their dispute to

the AAA in Boston as required by the agreement. The AAA requested

the parties to provide information and their reasons with respect

to the location of the arbitration and then determined that the

arbitration should be heard in California.

DISCUSSION

I. SUBJECT MATTER JURISDICTION

The Leventhals challenge the court’s subject matter

jurisdiction. Young invoked diversity jurisdiction. 28 U.S.C.

§ 1332(a). The Leventhals dispute that the amount in controversy

exceeds $75,000, arguing that the statute prohibits including

interest and costs in the calculation. The District Court rejected

the argument. It found the amount in controversy in the

arbitration to be $59,703.56, plus interest. In addition, the

court included the costs that Young would incur as a result of

arbitrating in California, i.e., the incremental costs it would

incur if relief were denied in this action, amounting to $30,000.

Courts have repeatedly held that the value of the matter in

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controversy is measured not by the monetary judgment which the

plaintiff may recover but by the judgment’s pecuniary consequences

to those involved in the litigation. Duderwicz v. Sweetwater

Savings Assoc., 595 F.2d 1008, 1014 (5th Cir. 1979); Beacon Constr.

Co. v. Matco Elec. Co., 521 F.2d 392, 399 (2d Cir. 1975); Mass.

State Pharmaceutical Ass’n v. Fed. Prescription Serv., 431 F.2d

130, 132 (8th Cir. 1970). Here, the object of the litigation was

to avoid the additional costs Young would incur if the arbitration

were held in California instead of Boston. Those costs are

properly included in the calculation of the amount in controversy.

See Hunt v. Wash. Apple Adver. Comm’n, 432 U.S. 333, 347 (1977)

(stating that “[i]n actions seeking declaratory or injunctive

relief it is well established that the amount in controversy is

measured by the value of the object of the litigation”). We

conclude that the District Court had subject matter jurisdiction.

II. THE MERITS

Because this appeal presents a question of law, appellate

review is plenary. Shaw’s Supermarkets v. United Food & Commercial

Workers Union, Local 791, 321 F.3d 251, 253 (1st Cir. 2003).

The central issue raised by Young’s appeal is whether the

language of the arbitration clause emphasized above is a forum

selection clause, requiring the arbitration to be held in Boston.

The District Court rejected Young’s contention, interpreting the

clause as merely requiring the Leventhals to submit their dispute

to the AAA in Boston. The court reasoned that the clause was

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ambiguous and that the agreement, as a contract of adhesion, should

be construed against Young.

At the threshold the court addressed the question of its

power to interpret the forum selection clause. The court

acknowledged that the recent Supreme Court decisions in Howsam v.

Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), and Green Tree

Financial Corp. v. Bazzle, 539 U.S. 444 (2003), arguably left it

without authority to interpret the forum selection clause. It

found more persuasive, however, earlier decisions by courts of

appeals holding that the interpretation of forum selection clauses

was for the court, not the arbitrator, citing Bear, Stearns & Co.

Inc. v. Bennett, 938 F.2d 31 (2d Cir. 1991); Snyder v. Smith,

736 F.2d 409 (7th Cir. 1984), overruled on other grounds by Felzen

v. Andreas, 134 F.3d 873 (7th Cir. 1998); McCullough v. Dean Witter

Reynolds, Inc., 177 F.3d 1307 (11th Cir. 1999); see also KKW Enter.

Inc. v. Gloria Jean’s Gourmet Coffees Franchising Corp., 184 F.3d

42 (1st Cir. 1999).1

In Howsam, the Court held that the time limit rule

governing arbitrations under the rules of the National Association

of Securities Dealers was the kind of dispute that did not present

a question of arbitrability and was therefore presumptively for the

arbitrator. 537 U.S. at 85. The Court explained that under its

1
KKW Enterprises involved an appeal from orders staying
arbitration. It did not involve a question of interpretation of a
forum selection clause or of the respective powers of the
arbitrator and the court.

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precedents, “a gateway dispute about whether the parties are bound

by a given arbitration clause raises a question of arbitrability

for a court to decide.” Id. at 84. On the other hand, “the phrase

‘question of arbitrability’ [is] not applicable . . . [to]

‘procedural questions which grow out of the dispute and bear on its

final disposition’ [and which] are presumptively not for the judge,

but for an arbitrator, to decide.” Id. (citing John Wiley & Sons,

Inc. v. Livingston, 376 U.S. 543, 557 (1964)). The dispute between

the parties in this case over the location of the arbitration

raises not a question of arbitrability but a procedural question

and is therefore for the arbitrator, not the court.

In Green Tree, a plurality held that the question whether

the parties’ arbitration agreement forbade the use of class

arbitration was for an arbitrator, not a court. 539 U.S. at 447.

It reasoned that because the dispute fell within the terms of the

arbitration agreement as one “relating to this [arbitration]

contract . . . the parties seem to have agreed that an arbitrator,

not a judge, would [decide it].” Id. at 445. Similarly, in this

case the arbitration agreement states that

[i]n the event of any disagreement between us
in connection with this Agreement, we will
meet in good faith to attempt to resolve the
disagreement. If we are unable to resolve the
disagreement . . . the disagreement will be
submitted to arbitration. (Emphasis added.)

Under the reasoning of Green Tree, the disagreement over the

interpretation of the so-called forum selection clause is one “in

connection with this Agreement” and hence one the parties agreed to

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submit to arbitration. As the Court put it, “if there is any doubt

about the matter—about “the ‘scope of arbitrable issues’—we should

resolve that doubt in favor of arbitration.” 539 U.S. at 445

(quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,

473 U.S. 614, 626 (1985)).

In Shaw’s Supermarkets, this court considered Howsam in

the context of a dispute over the consolidation for arbitration of

three grievances filed under a collective bargaining agreement.

The court said:

The issue before us is who should make
the determination as to whether to consolidate
the three grievances into a single
arbitration: the arbitrator or a federal
court. Since each of the three grievances is
itself concededly arbitrable, we think the
answer is clear. Under Howsam, this is a
procedural matter for the arbitrator.

321 F.3d at 254 (citations omitted). So here. Since the dispute

between the parties is concededly arbitrable, determining the place

of the arbitration is simply a procedural matter and hence for the

arbitrator.

We conclude that the District Court lacked power to

interpret the forum selection clause and that the judgment must

therefore be vacated. We should stress that the present case

concerns only the question whether, after the matter was properly

refiled with the Boston Office of the AAA, the AAA could then

transfer the matter to California. It is this subsidiary issue

which we regard as a matter for the arbitrator. Whether the

District Court had authority to intervene to address the

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Leventhals' original filing in California is a different issue

which has been mooted by the refiling and which we reserve for

consideration in a case where it matters. The arbitration can

proceed forthwith, and Young can present its arguments concerning

the forum selection clause to the arbitrator.

CONCLUSION

For the reasons stated, we VACATE the judgment of the

District Court and REMAND with directions to DISMISS the action.

VACATED AND REMANDED.

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