United States Court of Appeals
For the First Circuit
No. 09-1625
POWERSHARE, INC.,
Plaintiff, Appellee,
v.
SYNTEL, INC.,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nancy Gertner, U.S. District Judge]
[Hon. Judith G. Dein, U.S. Magistrate Judge]
Before
Lynch,Chief Judge,
Souter,* Associate Justice,
and Selya, Circuit Judge.
Steven P. Perlmutter, with whom Christopher S. Feudo, Robinson
& Cole LLP, Dennis M. Haffey, Stephen W. King, and Dykema Gossett
PLLC were on brief, for appellant.
Paul Mark Sandler, with whom Robert B. Levin, John J. Lovejoy,
Shapiro Sher Guinot & Sandler, Rory Fitzpatrick, and Cetrulo &
Capone were on brief, for appellee.
March 1, 2010
*
Hon. David H. Souter, Associate Justice (Ret.) of the Supreme
Court of the United States, sitting by designation.
SELYA, Circuit Judge. Two corporations, one based in
Massachusetts, and the other in Michigan, entered into a business
arrangement (the Agreement). After a falling-out, one of the
contracting parties, PowerShare, Inc., commenced a civil action in
the district court to enforce the Agreement. The defendant, Syntel,
Inc., countered by instituting a parallel arbitration proceeding and
moving to stay litigation pending arbitration. The district court
denied the motion, and Syntel now appeals. We have jurisdiction
pursuant to the Federal Arbitration Act to review the interlocutory
order denying Syntel's motion to stay litigation pending
arbitration. See 9 U.S.C. § 16(a)(1)(A); Combined Energies v. CCI,
Inc., 514 F.3d 168, 170 (1st Cir. 2008).
The question that lies at the heart of the appeal is
whether the Agreement contains a mandatory arbitration provision.
The district court thought not. We hold that the Agreement does so
provide and therefore reverse. Along the way, we address, as a
matter of first impression at the federal appellate level, an issue
concerning the standard of review to be applied by a district judge
when reviewing a magistrate judge's disposition of a motion to stay
litigation pending the completion of a parallel arbitration
proceeding.
I. BACKGROUND
PowerShare and Syntel entered into the Agreement on July
16, 2003. Their evident purpose was to form a joint venture to
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handle the outsourcing needs of third parties. Paragraph 18 of the
Agreement reads in relevant part:1
All disputes, controversies and claims directly
or indirectly arising out of or in relation to
this Agreement or the validity, interpretation,
performance, breach, enforceability of the
Agreement (collectively referred to as
"Dispute") shall be resolved amicably between
Syntel and PowerShare at an operational level in
consultation with the top management of both
companies. If any such Dispute cannot be
resolved, as stated above, the same shall be
settled in accordance with the principles and
procedures of the American Arbitration
Association and per the decision of an
accredited arbitrator acceptable to both
parties. Nothing in this clause shall prejudice
Syntel or PowerShare's right to seek injunctive
relief or any other equitable/legal relief or
remedies available under law.
Some five years after the execution of the Agreement, a
dispute arose. On August 8, 2008, PowerShare invoked diversity
jurisdiction, 28 U.S.C. § 1332(a), and filed suit against Syntel,
claiming breach of the Agreement, in the United States District
Court for the District of Massachusetts. PowerShare accompanied its
complaint with a request for jury trial. See Fed. R. Civ. P. 38(b).
In response, Syntel lodged a demand for arbitration with
the American Arbitration Association (AAA). It simultaneously moved
in the district court to stay PowerShare's action pending resolution
1
The parties agree that other material at the beginning and
end of Paragraph 18 is, for present purposes, uncontroversial. We
thus quote the three relevant sentences of the paragraph and
henceforth refer to them as the "first," "second," and "third"
sentences. This practice emulates what the parties have done.
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of the parallel arbitration proceeding. Not to be outdone,
PowerShare filed a motion to stay the arbitration.
The district court assigned the motions to a magistrate
judge, who denied Syntel's motion to stay the litigation and granted
PowerShare's cross-motion to stay the arbitration. PowerShare, Inc.
v. Syntel, Inc., 607 F. Supp. 2d 240, 244 (D. Mass. 2008). In her
rescript, the magistrate judge concluded that, under the Agreement,
arbitration was optional. Id. at 241. She reasoned that the third
sentence of Paragraph 18, which refers to "any other equitable/legal
relief or remedies available under law," made manifest the parties'
intention to allow litigation because a jury trial is a remedy
"available under law." Id. at 243. In so holding, the magistrate
judge rejected Syntel's argument that the federal policy favoring
arbitration should be given weight. Rather, she declared that this
policy applies only to the resolution of "scope" questions, not to
questions about whether a contract calls for mandatory arbitration
at all. Id. at 244.
Syntel appealed this decision to the district judge, Fed
R. Civ. P. 72(a), who issued an electronic order stating that the
decision was "not clearly erroneous or contrary to law." This
timely appeal followed.
II. ANALYSIS
We divide our analysis into two parts. First, we clarify
the standard of review to be employed by a district judge when
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reviewing a magistrate judge's order on a motion to stay litigation
pending the resolution of a parallel arbitration proceeding. Only
then do we proceed to the merits.
A.
The Federal Magistrates Act confers authority upon
district judges to designate magistrate judges to hear pretrial
motions. 28 U.S.C. § 636(b)(1). Magistrate judges serve as aides
to, and under the supervision of, district judges; but magistrate
judges are not themselves Article III judicial officers. Given
their status as Article I judicial officers, magistrate judges
ordinarily may not decide motions that are dispositive either of a
case or of a claim or defense within a case.2 This is so because
"[t]he Constitution requires that Article III judges exercise final
decisionmaking authority." Ocelot Oil Corp. v. Sparrow Indus., 847
F.2d 1458, 1463 (10th Cir. 1988); see Stauble v. Warrob, Inc., 977
F.2d 690, 693-94 (1st Cir. 1992). Dispositive motions include those
enumerated in 28 U.S.C. § 636(b)(1)(A), but this list is not
exhaustive; rather, it simply "informs the classification of other
motions as dispositive or nondispositive." Phinney v. Wentworth
Douglas Hosp., 199 F.3d 1, 5-6 (1st Cir. 1999).
Consistent with this dichotomy between dispositive and
non-dispositive motions, Federal Rule of Civil Procedure 72 sets out
2
We say "ordinarily" because there is an exception for cases
in which all parties consent. See 28 U.S.C. § 636(c); Fed. R. Civ.
P. 73. The record reveals no such consent here.
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two separate standards of review to be employed by a district judge
in reviewing a magistrate judge's determinations. When a magistrate
judge decides a non-dispositive motion, the district judge may,
given a timely appeal, set aside the order if it "is clearly
erroneous or is contrary to law." Fed. R. Civ. P. 72(a). Absent a
timely appeal, the order stands. Id. When, however, a magistrate
judge passes upon a dispositive motion, he or she may only issue a
recommended decision, and if there is a timely objection, the
district judge must engage in de novo review. Fed. R. Civ. P.
72(b). Absent a timely objection, the recommended decision ripens
into an order. Id.
Here, the district judge employed the "clearly erroneous
or contrary to law" standard applicable to non-dispositive motions
under Rule 72(a). Syntel protests that its motion to stay the
litigation to allow resolution of the parallel arbitration
proceeding was, in effect, dispositive of the court case and, thus,
should have engendered de novo review by the district judge pursuant
to Rule 72(b).
No court of appeals has decided this precise question.
Nevertheless, a number of district courts have held that motions to
stay litigation and compel related arbitration are non-dispositive
motions under Rule 72(a). See, e.g., Gonzalez v. GE Group Adm'rs,
Inc., 321 F. Supp. 2d 165, 166 (D. Mass. 2004); Torrance v. Aames
Funding Corp., 242 F. Supp. 2d 862, 865 (D. Or. 2002); All Saint's
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Brands, Inc. v. Brewery Group Den., A/S, 57 F. Supp. 2d 825, 833 (D.
Minn. 1999); Herko v. Metro. Life Ins. Co., 978 F. Supp. 141, 142
n.1 (W.D.N.Y. 1997). But see Flannery v. Tri-State Div., 402 F.
Supp. 2d 819, 821 (E.D. Mich. 2005) (concluding that such a motion,
if granted, is dispositive because it "has the practical effect of
allowing the case to proceed in a different forum").
Motions to stay litigation pending the resolution of
parallel arbitration proceedings are not among the motions
enumerated in 28 U.S.C. § 636(b)(1)(A). Nor are they of the same
character as the listed motions. A federal court's ruling on a
motion to stay litigation pending arbitration is not dispositive of
either the case or any claim or defense within it. Although
granting or denying a stay may be an important step in the life of
a case (lawyers are keenly aware that there are substantive
consequences to whether or not a stay is granted), in the last
analysis a stay order is merely suspensory. Even if such a motion
is granted, the court still retains authority to dissolve the stay
or, after the arbitration has run its course, to make orders with
respect to the arbitral award. See Federal Arbitration Act, 9
U.S.C. § 9 (permitting parties to apply to the court for an order
confirming the award); id. § 10 (providing district courts with
authority to vacate an arbitral award); id. § 11 (providing district
courts with authority to modify an arbitral award). We acknowledge
that the scope of judicial review of arbitral awards is very narrow,
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but that does not extinguish such review. See Advest, Inc. v.
McCarthy, 914 F.2d 6, 8 (1st Cir. 1990). Thus, there is no final
exercise of Article III power at the time the court acts on the
motion to stay. See Herko, 978 F. Supp. at 142 n.1.
In light of these realities, we conclude that, from a
procedural standpoint, the district judge acted appropriately in
reviewing the magistrate judge's denial of Syntel's motion to stay
under the "clearly erroneous or contrary to law" standard elucidated
in Rule 72(a).
In this case arbitrability depended on interpreting a
contractual term, a question of law for the courts. See Combined
Energies, 514 F.3d at 171. Nothing in the contract expressly
provided that an arbitrator would decide questions of arbitrability
instead. See Coady v. Ashcraft & Gerel, 223 F.3d 1, 8-9 (1st Cir.
2000). When, as in this case, review of a non-dispositive motion by
a district judge turns on a pure question of law, that review is
plenary under the "contrary to law" branch of the Rule 72(a)
standard. See, e.g., Haines v. Liggett Group Inc., 975 F.2d 81, 91
(3d Cir. 1992); EEOC v. Burlington N. & Santa Fe Ry. Co., 621 F.
Supp. 2d 603, 605-06 (W.D. Tenn. 2009); Sprint Commc'ns Co. v.
Vonage Holdings Corp., 500 F. Supp. 2d 1290, 1346-47 (D. Kan. 2007);
14 James Wm. Moore et al., Moore's Federal Practice § 72.11[1][b]
(3d ed. 2009); 12 Charles Alan Wright, Arthur R. Miller & Richard L.
Marcus, Federal Practice and Procedure § 3069, at 350 (2d ed. 1997).
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This means that, for questions of law, there is no practical
difference between review under Rule 72(a)'s "contrary to law"
standard and review under Rule 72(b)'s de novo standard.
To complete the picture, we limn the standard of review at
this level. Here, too, the purely legal nature of the question
controls: we, like the district court, must afford de novo review to
the purely legal question of whether the Agreement provides for
mandatory arbitration of the parties' dispute. See Osband v.
Woodford, 290 F.3d 1036, 1041 (9th Cir. 2002).
B.
Arbitration is a matter of contract. First Options of
Chi., Inc. v. Kaplan, 514 U.S. 938, 943 (1995). In this case, the
Agreement contains a choice-of-law provision in favor of the laws of
the United States. The parties agree that this provision brings
into play the federal common and statutory law.
In construing a contract governed by federal common law,
courts must be guided by common-sense rules of contract
interpretation. Smart v. Gillette Co. Long-Term Disab. Plan, 70
F.3d 173, 178 (1st Cir. 1995); Burnham v. Guardian Life Ins. Co.,
873 F.2d 486, 489 (1st Cir. 1989). And although more a product of
the Federal Arbitration Act than of federal common law, per se,
federal law undeniably includes a policy favoring arbitration. See
Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ.,
489 U.S. 468, 475-76 (1989). At a minimum, this policy requires
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that "ambiguities as to the scope of the arbitration clause itself
[must be] resolved in favor of arbitration." Id.
Syntel contends that this policy creates a presumption of
arbitrability here. PowerShare demurs, relying principally on our
decision in Paul Revere Variable Annuity Insurance Co. v.
Kirschhofer, 226 F.3d 15, 25 (1st Cir. 2000), which it characterizes
as limiting the presumption of arbitrability to questions about the
scope of an arbitration agreement (as contrasted with questions
about the existence of such an agreement). Because the issue in
this case is whether a mandatory arbitration agreement exists,
PowerShare contends that the presumption does not attach.
Despite the parties' importunings, we need not decide
whether the federal policy favoring arbitration applies here. Even
if we assume that the presumption does not affect the decisional
calculus, the plain language of the Agreement mandates arbitration.
Thus, the applicability vel non of the presumption makes no ultimate
difference.
With this question set to one side, we go directly to the
language of the Agreement itself. Paragraph 18, quoted above, sets
out the mechanisms for resolving disputes between the parties. The
first sentence provides that all disputes "shall be resolved
amicably between Syntel and PowerShare." The second sentence
provides that if a dispute cannot be resolved amicably, it "shall be
settled in accordance with the principles and procedures of the
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American Arbitration Association and per the decision of an
accredited arbitrator." The third sentence states that "[n]othing
in this clause shall prejudice Syntel or PowerShare's right to seek
injunctive relief or any other equitable/legal relief or remedies
available under law."
In deciding whether this language mandates arbitration, we
are mindful that "an interpretation which gives effect to all the
terms of a contract is preferable to one that harps on isolated
provisions, heedless of context." Blackie v. Maine, 75 F.3d 716,
722 (1st Cir. 1996); see Fashion House, Inc. v. K mart Corp., 892
F.2d 1076, 1084 (1st Cir. 1989). In line with this wise counsel, we
strive for a reasonable interpretation of the Agreement as a whole,
while avoiding constructions that would render any term within it
meaningless. Summit Packaging Sys., Inc. v. Kenyon & Kenyon, 273
F.3d 9, 12 (1st Cir. 2001); Jimenez v. Penin. & Oriental Steam
Navig. Co., 974 F.2d 221, 223 (1st Cir. 1992).
PowerShare urges us to focus on the third sentence of
Paragraph 18 and to read that sentence as reserving to the parties
the right to pursue remedies at law (that is, the right to litigate
in court). In order to square this interpretation with the second
sentence of Paragraph 18, PowerShare suggests that the parties
intended arbitration to be an optional mechanism for dispute
resolution.
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Although PowerShare's interpretation of the third sentence
may be plausible when read in isolation, that interpretation cannot
be reconciled with the unvarnished language of Paragraph 18's
second sentence. That sentence states explicitly that disputes
between the parties "shall" be settled through arbitration. The
word "shall" denotes obligation, not choice; therefore, accepting
PowerShare's interpretation of the third sentence would drain the
second sentence of its essential meaning. Put bluntly, the word
"shall" in the second sentence would be rendered nugatory were we to
read the arbitration provision as creating nothing more than an
option. That PowerShare's interpretation of Paragraph 18 would
negate the obvious meaning of the second sentence is a powerful
argument against accepting that interpretation. See Mastrobuono v.
Shearson Lehman Hutton, Inc., 514 U.S. 52, 64 (1995) (rejecting
reading of two clauses in an arbitration agreement as "untenable"
when that reading "sets up the two clauses in conflict with one
another"); Blackie, 75 F.3d at 722 (rejecting reading of one section
of a contract when that reading would "flatly contradict[]" other
sections); see also Smart, 70 F.3d at 179 ("Accepted canons of
construction forbid the balkanization of contracts for
interpretative purposes.").
We conclude that the only sensible reading of Paragraph 18
is that the second sentence mandates arbitration and the third
sentence furnishes the arbitrator with broad legal and equitable
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powers should either party seek special kinds of relief (say, an
injunction). This is the only plausible interpretation of the third
sentence that fits with, and gives effect to, the plain meaning of
the second sentence.3
In an endeavor to deflect the force of this reasoning,
PowerShare argues that a jury trial is a "remedy" preserved in the
third sentence. It says that because only a court can implement
such a remedy, the interpretation that we propose must be incorrect.
This argument is unconvincing. Unlike the second
sentence, which plainly mandates arbitration, the reference in the
third sentence to "any other equitable/legal relief or remedies
available under law" never mentions jury trials (or, for that
matter, recourse to the courts). Moreover, there is no textual
support for a belief that this reference necessarily includes jury
trials.
PowerShare tries to counter-punch by citing a pair of
decisions holding that "remedies" include "jury trials." But some
words mean different things in different contexts, see United States
3
Other courts have reached similar conclusions. See, e.g.,
Laughton v. CGI Techs. & Sol'ns, Inc., 602 F. Supp. 2d 262, 265 (D.
Mass. 2009) (holding, in similar circumstances, that "[t]he correct
reading of the Arbitration and Cumulative Remedies provisions is
that arbitration is mandatory, but the arbitrator is not limited to
awarding certain remedies" (citation and internal quotation mark
omitted)); Kingstown Corp. v. Black Cat Cranberry Corp., 839 N.E.2d
333, 338 (Mass. App. Ct. 2005) (holding, in similar circumstances,
that the agreement "provides an aggrieved party with the right to
mandatory arbitration while also empowering an arbitrator to grant
injunctive or other equitable relief").
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v. Romain, 393 F.3d 63, 74 (1st Cir. 2004) (explaining that "words
are like chameleons; they frequently have different shades of
meaning depending upon the circumstances"); and when context is
taken into account, the decisions on which PowerShare relies are
off-point. Each of them interprets a savings clause in a maritime
statute. See Lewis v. Lewis & Clark Marine, Inc., 531 U.S. 438,
454-55 (2001) (holding that "[t]rial by jury is an obvious . . .
example of the remedies available" under the savings to suitors
clause of 28 U.S.C. § 1333(1)); Curcuru v. Rose's Oil Serv., Inc.,
802 N.E.2d 1032, 1037 (Mass. 2004) (holding that savings clause of
the Death on the High Seas Act preserves jury trial right in state
court). These decisions, immersed in the historical context of
admiralty law, offer little guidance for the issue of contract
interpretation with which we must grapple. See, e.g., Laughton v.
CGI Techs. & Sol'ns, Inc., 602 F. Supp. 2d 262, 265 (D. Mass. 2009)
(rejecting argument that reference to "remedies" in an agreement
containing a mandatory arbitration clause preserves a party's right
to litigate and, thus, renders the arbitration provision elective);
Beaver Constr. Co. v. Lakehouse, L.L.C., 742 So. 2d 159, 164 (Ala.
1999) (similar).
In the end, we come full circle. Reading the "remedies"
language in the third sentence to allow access to a jury trial would
place this provision at cross purposes with the mandatory
arbitration provision spelled out in the second sentence. That
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would violate one of the cardinal rules of contract interpretation:
"that a document should be read to give effect to all its provisions
and to render them consistent with each other." Mastrobuono, 514
U.S. at 63. Confronted with two competing interpretations of the
"remedies" language, we must give preference to the one that makes
sense of the Agreement as a whole. See Blackie, 75 F.3d at 722.
PowerShare tries to turn this principle to its advantage.
It asserts that our reading of the third sentence — to afford the
arbitrator broad power to dispense legal and equitable remedies —
renders that sentence superfluous because, under the AAA's rules, an
arbitrator already has those powers. As support for this assertion,
PowerShare identifies Rule 34(a) of the AAA's Commercial Arbitration
Rules, which allows an arbitrator to "take whatever interim measures
he or she deems necessary."
Here, however, the parties went beyond Rule 34(a); they
agreed to vest in the arbitrator broad powers extending to the
arbitrator's final decisionmaking, not just powers in connection
with interim relief. The "remedies" provision, read in this way, is
not superfluous but, rather, makes perfect sense. In commercial
arbitration cases, the scope of a final award is governed by Rule
43(a), which provides that the arbitrator "may grant any remedy or
relief that the arbitrator deems just and equitable and within the
scope of the agreement of the parties" (emphasis supplied). Because
an arbitrator's power to award relief can be shaped by the parties'
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agreement, it is reasonable — and certainly not redundant — for the
parties to clarify that the person arbitrating their disputes will
be free to choose from the widest possible array of remedies.
Consequently, PowerShare's superfluity argument fails.
The short of it is that the Agreement as a whole admits of
only one reasonable interpretation: the parties are obliged to
submit their disputes to arbitration. See Fashion House, 892 F.2d
at 1084 ("Black letter law teaches that 'a construction which
comports with the Agreement as a whole is to be preferred even if it
be thought that certain language, viewed only by itself, more
readily suggests something else.'" (quoting Spartans Indus., Inc.
v. John Pilling Shoe Co., 385 F.2d 495, 499 (1st Cir. 1967))).
III. CONCLUSION
We need go no further. For the reasons elucidated above,
we reverse the decision appealed from and remand the case to the
district court for the entry of an order staying the litigation
pending the resolution of the parallel arbitration proceeding,
dissolving the existing stay of arbitration, and making such other
provisions consistent with this opinion, as the district court may
deem meet.
Reversed and remanded.
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