Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-89-06413/USCOURTS-ca10-89-06413-0/pdf.json

Parties Involved:
Oklahoma City Associates
Appellant
Wal-Mart Stores, Inc.
Appellee

Document Text:

, 

FILED 

United Stawe CoJ.rt oi Ap~S . T,mth ei,.i:m!t. · PUBLISH 

JAN 161991 

UNITED STATES COURT OF APPEALS !tOBERT L. HOECKER 

FOR THE TENTH CIRCUIT Clerk 

OKLAHOMA CITY ASSOCIATES, ) 

) 

Plaintiff-Appellee/ ) 

Cross-Plaintiff-Appellant, ) 

v. 

) 

) Nos. 89-6389, 89-6413 

WAL-MART STORES, INC., 

) 

) 

) 

) 

) 

Defendant-Appellant/ 

Cross-Defendant-Appellee. 

Appeal from the United States District Court 

For the Western District of Oklahoma 

D.C. No. CIV-89-457-W 

William H. Ewing of Hangley Connolly Epstein Chicco Foxman & 

Ewing, Philadelphia, Pennsylvania, (Claire Rocco, Albert G. 

Bixler, and Gary A. Rosen of Hangley Connolly Epstein Chicco 

Foxman & Ewing, Philadelphia, Pennsylvania; A. Daniel Woska and 

Janet Chesley of Naifeh & Woska, Oklahoma City, Oklahoma, with him 

on the briefs) for Plaintiff-Appellee/Cross-Plaintiff-Appellant. 

Jon B. Comstock of Rosenstein, Fist & Ringold, Tulsa, Oklahoma, 

(Rodney C. Ramsey and Bruce V. Winston of Stewart & Elder, 

Oklahoma City, Oklahoma; Craig R. Carver of Gibson, Dunn & 

Crutcher, Denver, Colorado, with him on the briefs) for DefendantAppellant/Cross-Defendant-Appellee. 

Before MOORE, TACHA, and BRORBY, Circuit Judges. 

MOORE, Circuit Judge. 

Appellate Case: 89-6413 Document: 010110016242 Date Filed: 01/16/1991 Page: 1 
This is an appeal from a judgment by the district court 

enforcing an arbitration award pursuant to the Federal Arbitration 

Act (FAA), 9 U.S.C. §§ 1-15. We conclude the district court did 

not have subject matter jurisdiction; therefore, we remand with 

directions to dismiss. 

The present dispute began when Wal-Mart Stores, Inc., vacated 

its space in a shopping center owned by Oklahoma City Associates 

(OKC) before the lease between the parties (the Lease) expired. 

Pursuant to an arbitration clause in the Lease, the parties 

submitted their dispute to an arbitration panel which awarded OKC 

$330,000 in minimum rent and $570,000 in percentage rent together 

with interest accruing at-18% a year. Wal-Mart agreed t~ pay the 

minimum rent portion but refused to pay the percentage rent and 

OKC filed a , ... +-'ho r';c::,+-..-;,-,+- ,-,nn..-+- +-n .......... _ .......... ._... _ __, _____ ----- -·-

confirm the arbitration award under the FAA's summary confirmation 

procedure. The district court upheld the award in all respects, 

except for the rate of interest which was reduced to the statutory 

rate of 8.27% pursuant to 28 u.s.c. § 1961. Wal-Mart now appeals 

the district court's confirmation of the award in No. 89-6389, but 

defends the reduction of the interest rate in No. 89-6413. We 

remand for dismissal because of the district court's lack of 

subject matter jurisdiction to confirm the award under§ 9 of the 

FAA. 

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Appellate Case: 89-6413 Document: 010110016242 Date Filed: 01/16/1991 Page: 2 
I. Jurisdiction of the District Court Under§ 9 of the FAA 

Wal-Mart raises the issue of the district court's lack of 

subject matter jurisdiction to confirm the award for the first 

time in this appeal. It argues§ 9 of the FAA limits a federal 

court's jurisdiction to confirm arbitration awards to only those 

cases where "the parties in their agreement have agreed that a 

judgment of the court shall be entered upon the award made 

pursuant to the arbitration." 9 u.s.c. § 9. Since the parties 

did not include such an agreement in the arbitration clause in the 

Lease, Wal-Mart argues the district court lacked subject matter 

jurisdiction under the FAA to confirm this award. Wal-Mart 

contends because§ 9 concerns subject matter jurisdiction, this 

issue can be raised at any-time. 

OKC responds that Wal-Mart has waived any objection to 

jurisdiction by not raising the issue before the district court. 

Specifically, OKC claims that since the FAA by itself does not 

confer subject matter jurisdiction on the federal courts, "by 

definition, because the Act itself cannot create subject matter 

jurisdiction, failure to comply with the strictures of the Act 

cannot affect the presence (or absence) of subject matter 

jurisdiction one iota." In the alternative, OKC argues that even 

if Wal-Mart can raise this argument for the first time on appeal, 

Wal-Mart has tacitly consented to resolution under the American 

Arbitration Association (AAA) Rules by its conduct in proceeding 

under those rules in the arbitration. OKC maintains such tacit 

consent to resolution under the AAA Rules has been held to satisfy 

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Appellate Case: 89-6413 Document: 010110016242 Date Filed: 01/16/1991 Page: 3 
the language of§ 9 establishing federal court subject matter 

jurisdiction to confirm. 

When the FAA was enacted in 1925, the question arose whether 

the FAA alone can confer subject matter jurisdiction on the 

federal courts without an independent jurisdictional basis. This 

issue was settled in Moses H. Cone Memorial Hosp. v. Mercury 

Constr. Corp., 460 U.S. 1, 25 n.32 (1983), in which the Supreme 

Court held that the FAA requires an independent basis for subject 

matter jurisdiction, such as 28 u.s.c. § 1331 federal question or 

28 u.s.c. § 1332 diversity of citizenship jurisdiction. 

However the question of what kind of jurisdiction § 9 

involves remains unsettled. Some courts have treated§ 9 as 

addressing the venue of an -action to confirm an award, implying it 

concerns personal jurisdiction which can be waived by the parties. 

See, e.g., Stroh Container Co. v. Delphi Indus., Inc., 783 F.2d 

743, 748 n.7 (8th Cir. 1986) ("We construe section 9, however, not 

as creating a jurisdictional barrier, but as a special venue 

provision."); Westar Assocs., Inc. v. Tin Metals Co., 752 F.2d 5, 

7 (1st Cir. 1985). Other courts have held§ 9 is a second level 

subject matter prerequisite for confirmation of an award under the 

FAA in federal court. See, e.g., I/S Stavborg v. National Metal 

Converters, 500 F.2d 424, 425-26 (2d Cir. 1974) ("The fact that 

the question [of district court jurisdiction] was raised for the 

first time on appeal is immaterial since the jurisdiction of the 

federal district court is at stake."); Higgins v. United States 

Postal Service, 655 F. Supp. 739 (D. Me. 1987) (to confer subject 

matter jurisdiction under the FAA, the parties must explicitly 

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Appellate Case: 89-6413 Document: 010110016242 Date Filed: 01/16/1991 Page: 4 
provide for enforcement in their arbitration agreement or provide 

corroborating evidence of their intent to have the award confirmed 

in federal court). 

The unambiguous language of§ 9 leads us to believe that it 

creates its own level of subject matter jurisdiction for 

confirmation under the FAA. Section 9 conditions applicability of 

the FAA's summary confirmation process on whether "the parties in 

their agreement have agreed that a judgment of the court shall be 

entered upon the award made pursuant to the arbitration." The 

clear import of this phrase is that there is no federal court 

jurisdiction to confirm under the FAA where such jurisdiction has 

not been made a part of the arbitration agreement. 

We do not suggest, ·however, that a federal court would not 

have subject matter jurisdiction to decide this case outside of 

the FAA. See Moses H. Cone Memorial Hosp., 460 U.S. at 25 n.32. 

The requirements of a§ 1332 diversity suit are clearly met, for 

example, in the present case.

1 As this case is postured, however, 

we are concerned only with subject matter jurisdiction under the 

FAA. That, of course, determines whether Wal-Mart may object to 

jurisdiction for the first time on appeal. We hold that § 9 

pertains to subject matter jurisdiction and, therefore, Wal-Mart 

can raise the issue of federal court jurisdiction to confirm this 

award under the FAA for the first time on appeal. American Fire & 

Casualty Co. v. Finn, 341 U.S. 6, 17-18 (1951); Basso v. Utah 

Power & Light Co., 495 F.2d 906, 909-10 (10th Cir. 1974). 

1Neither party 

citizenship to 

1332. 

has contested the existence of diversity of 

confer federal court jurisdiction under 28 u.s.c. 

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Appellate Case: 89-6413 Document: 010110016242 Date Filed: 01/16/1991 Page: 5 
II. Federal Court Jurisdiction to Confirm This Award Under the FAA 

The arbitration clause in the Lease reads: 

Any controversy which shall arise between the Lessor and 

the Lessee regarding the rights, duties, or liabilities 

hereunder by either party shall be settled by 

arbitration. Such arbitration shall be before one 

disinterested arbitrator if one can be agreed upon, 

otherwise, before three disinterested arbitrators - one 

named by the Lessor, one by the Lessee, and one by the 

two thus chosen. The arbitrator or arbitrators shall 

determine the controversy in accordance with the laws of 

the State of Oklahoma as applies to the facts found by 

him or them. 

We note at the outset that this clause does not contain 

either one of two provisions commonly found in arbitration 

clauses: (1) a "finality" provision, such as, "the parties agree 

that the arbitration award will be final and binding," see, e.g., 

Booth v. Hume Publishing, Inc., 902 F.2d 925, 930 (11th Cir. 

1990); I/S Stavborg, 500 F.2d at 425-26; or (2) an "AAA Rules" 

provision, such as, "the parties agree that the rules of the 

American Arbitration Association shall govern this arbitration." 

See, e.g., Milwaukee Typographical Union No. 23 v. Newspapers, 

Inc., 639 F.2d 386, 389-90 (7th Cir.), cert. denied, 454 U.S. 838 

(1981); Commonwealth Edison Co. v. Gulf Oil Corp., 541 F.2d 1263, 

1273 (7th Cir. 1976). 

We have found no court, absent explicit consent to have 

judgment entered and absent both a finality clause and an AAA 

Rules clause in the contract, that has found consent to have 

judgment entered by mere participation in an arbitration hearing. 

Neither have we found a court that has addressed the issue of 

whether a party proceeding under the AAA Rules in an arbitration 

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Appellate Case: 89-6413 Document: 010110016242 Date Filed: 01/16/1991 Page: 6 
can be deemed to have consented to the full panoply of these 

rules, including AAA Rule 47(c)'s assumption of consent to have 

judgment entered. 

While there have been disagreements on exactly what 

arbitration clause language is necessary to show consent to 

federal court jurisdiction under the FAA, some courts have found 

that a finality clause is enough to constitute an agreement to 

have judgment entered by a federal court under § 9 because this 

would be the only way to fulfill the parties' intent to make the 

award final and binding. Booth, 902 F.2d at 930; I/S Stavborg, 

500 F.2d at 425-26; Milwaukee Typographical Union No. 23, 639 F.2d 

at 389-90. Although this exception is well-established, its logic 

is questionable because ·§ 9 requires that the consent to have 

judgment entered be "in the agreement." See Higgins, 655 F. Supp. 

at 743 (finality clause absent other corroborating evidence is not 

explicit enough to show intent of the parties to have judgment 

entered). Also, without more, it is equally plausible that a 

finality clause could be interpreted to mean the parties intended 

to have the award enforced in state rather than federal court. 

However, since there is no finality provision in the arbitration 

clause before us, the issue of the finality exception to the plain 

language of§ 9 is not before this court. 

Several courts have held that an agreement in the arbitration 

clause to abide by the AAA Rules satisfies§ 9's jurisdictional 

requirements. These courts reach that conclusion because AAA Rule 

47(c) states that parties to the AAA Rules are deemed to have 

consented to have judgment entered upon the award in a federal or 

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Appellate Case: 89-6413 Document: 010110016242 Date Filed: 01/16/1991 Page: 7 
state court. See, e.g., Milwaukee Typographical Union No. 23, 639 

F.2d at 389-90; but see Division 1287, Amalgamated Transit Union 

AFL-CIO v. Kansas City Area Transp. Auth., 485 F. Supp. 856, 859-

62 (W."D. Mo. 1980); Varley v. Tarrytown Assoc. Inc., 477 F.2d 

208, 210 (2d Cir. 1973) (a pre-Rule 47(c) holding that the 

language of§ 9 requires some form of consent in the agreement to 

have judgment entered). OKC's argument here is that, although 

there is no explicit consent to be governed by the AAA Rules in 

the contract, Wal-Mart implicitly consented to the Rules, and thus 

to Rule 47(c)'s consent to judgment, by failing to object to the 

use of the Rules in the arbitration hearing. 

We have examined the record to determine if it is necessary 

to consider whether an inference reasonably could be drawn that 

Wal-Mart implicitly consented to the full force of the AAA Rules 

by its actions during the arbitration proceeding. A review of the 

transcript of the arbitration proceeding reveals nothing that 

could be construed as constituting Wal-Mart's consent to proceed 

under the full and exclusive force of the AAA Rules. 2 The only 

statement in the record concerning Wal-Mart's consent to the AAA's 

Rules appears in OKC's assertions in the pleadings and briefs. 

Therefore, there is no evidence in the record to support OKC's 

claim that Wal-Mart implicitly consented to the AAA Rules and 

specifically to Rule 47(c). 

2while the AAA Rules were sometimes referred to, this arbitration 

proceeding was characterized by a series of ad hoc procedural 

rulings tailored to the needs of this case. R. III, 77, 106, 197; 

R. IV, 412-18; R. VI, 683, 784. For example, although the parties 

discussed the AAA's rule concerning the order of presentation of 

the closing argument, they eventually agreed to discard the AAA 

procedure and make up their own. R. III, 514-17. 

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Appellate Case: 89-6413 Document: 010110016242 Date Filed: 01/16/1991 Page: 8 
Resolution of the jurisdictional issue in this appeal, 

however, does not depend on whether Wal-Mart implicitly consented 

to the AAA Rules during the arbitration proceeding. Section 9 

requires some manifestation of the agreement to have judgment 

entered in the contract itself. There is no language in the Lease 

that would provide even a beachhead for imputing consent into the 

clause through Wal-Mart's behavior. 3 

OKC has failed to point out any language in the arbitration 

clause that either explicitly or implicitly demonstrates an intent 

of the parties to have judgment entered on an arbitration award. 

Therefore, OKC has not fulfilled the jurisdictional requirements 

of§ 9 of the FAA, and the district court was without jurisdiction 

to confirm this award under the FAA. 

REVERSED WITH DIRECTIONS TO DISMISS THE COMPLAINT. 

3 Any argument that there was an oral modification of the 

arbitration clause incorporating consent to be governed by the AAA 

Rules fails because the contract contains an explicit provision 

that all modifications be made in writing. Lease Agreement 

,r 31 (D). Remand to the district court to determine whether WalMart orally consented to have the award confirmed would be futile 

because the arbitration clause itself contains neither a finality 

provision, nor an AAA Rules provision, nor any other provision 

demonstrating an intent of the parties to have judgment entered on 

the award. 

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Appellate Case: 89-6413 Document: 010110016242 Date Filed: 01/16/1991 Page: 9