1

United States Court of Appeals,

Fifth Circuit.

Nos. 96-11088, 96-11463.

SUTTER CORPORATION, a California corporation, Plaintiff-Appellee,

v.

P & P INDUSTRIES, INC., an Oklahoma corporation; James Patton,

an individual; and Paul Patredis, an individual, DefendantsAppellants.

Oct. 27, 1997.

Appeals from the United States District Court for the Northern

District of Texas.

Before POLITZ, Chief Judge, and BENAVIDES and PARKER, Circuit

Judges.

ROBERT M. PARKER, Circuit Judge:

I.

Facts & Procedural History

This case presents an opportunity to resolve several questions

regarding the appropriate district court to confirm or vacate an

arbitration award under the Federal Arbitration Act ("FAA"), 9

U.S.C. §§ 9 and 10. The appellee Sutter Corporation ("Sutter")

manufactures post-operative rehabilitation devices. On March 1,

1993, P & P Industries, Inc. ("P & P"), formed by Paul Patredis and

James Patton, entered into an exclusive Agency Agreement with

Sutter, whereby P & P would represent (sell and rent) Sutter's

products for a period of five years with the option to renew for

two more five year periods. On August 14, 1995, Sutter

unilaterally terminated its agreement with P & P and allegedly

hired away all of P & P's sales staff. On that date Sutter
 

1The record does not indicate what happened to Sutter's suit

in California, but P & P in its initial brief states that the

federal district court in California declined to compel arbitration

citing a lack of jurisdiction. 

 

2FAA § 3 provides that: "[i]f any suit ... be brought in any

of the courts of the United States upon any issue referable to

arbitration under an agreement in writing for such arbitration, the

court in which such suit is pending, upon being satisfied that the

issue involved in such suit ... is referable to arbitration under

such an agreement, shall on application of one of the parties stay

the trial of the action until such arbitration has been had in

accordance with the terms of the agreement ..." 9 U.S.C. § 3. 

2

delivered to P & P a demand for arbitration, filed with the

American Arbitration Association ("AAA") in Dallas, Texas, on

August 10, and a complaint to compel arbitration, filed in the

Federal District Court for the Southern District of California on

August 11, 1995.1

On August 17, 1995, P & P filed an action against Sutter in

the Federal District Court for the Western District of Oklahoma,

alleging that Sutter had materially breached the Agency Agreement

("contract claims") and had committed various tortious acts at the

time of the breach ("tortious interference claims"). Sutter moved

to stay the action in Oklahoma pending arbitration under § 3 of the

Federal Arbitration Act ("FAA").2 The contract between Sutter and

P & P contained an arbitration clause which provided that:

[a]ny controversy, claim, or breach arising out of or relating

to this Agreement which the parties are unable to resolve to

their mutual satisfaction shall be resolved by arbitration

before the American Arbitration Association, in the office of

the Association nearest the principal place of business of

AGENT ...

P & P admitted that its contract claims were arbitrable but argued

that the tortious interference claims were not. The Oklahoma
 

3Specifically, P & P refused to accept the application of

American Arbitration Association Rule 47(c) which provides that

"[p]arties to these rules shall be deemed to have consented that

judgment upon the arbitration award may be entered in any federal

or state court having jurisdiction thereof." 

 

4The principal place of business of the AGENT, P & P, is

Oklahoma, but the nearest AAA office is Dallas, Texas, therefore

the arbitration was properly held in Dallas. 

3

district court disagreed, stayed P & P's action and submitted the

entire matter to arbitration. The Oklahoma district court's order

staying P & P's action pending arbitration was interlocutory and

was not immediately appealable under the FAA. 9 U.S.C. § 16. Left

with no other choice, P & P agreed to arbitration under a

reservation of the right to appeal the Oklahoma district court's

determination of the arbitrable issues. Further, P & P refused to

concede that the arbitration would be binding.3

Nevertheless, P & P did participate fully in the arbitration

in defense of the claims against it and in prosecution of its own

counter-claims against Sutter. The arbitration was held in Dallas,

Texas, and the arbitrator found against P & P on Sutter's claims

against it and on its counter-claims against Sutter.4 On April 4,

1996, Sutter informed the Oklahoma district court that the

arbitration was complete. On that same day, P & P filed a motion

to vacate the arbitration award, under FAA § 10 which states that:

the United States court in and for the district wherein the

award was made may make an order vacating the award upon the

application of any party to the arbitration ... [w]here the

arbitrators exceeded their powers ... 

9 U.S.C. § 10. The alleged excess of the arbitrator was in ruling

on matters which were not arbitrable under the parties' agreement,
4

i.e., P & P's tortious interference claims. Essentially, this

motion revived P & P's earlier motion before the Oklahoma district

court to limit the scope of the arbitration. Sutter responded on

the merits but also raised the possibility that the Oklahoma court

might not be the proper court to decide the motion to vacate under

§ 10, because the Oklahoma district court was not the "United

States court in and for the district wherein the award was made".

9 U.S.C. § 10.

On August 11, 1996, Sutter filed an action in the Federal

District Court for the Northern District of Texas, Dallas Division,

seeking confirmation of the arbitration award pursuant to FAA § 9,

which states that, "[i]f no court is specified in the agreement of

the parties, then such application [for confirmation] may be made

to the United States court in and for the district within which

such award was made." 9 U.S.C. § 9 (emphasis added). On May 6,

1996, P & P filed a motion in the Texas district court to dismiss

the Texas action, transfer the action to Oklahoma or stay the Texas

confirmation proceeding pending resolution by the Oklahoma district

court of P & P's motion to vacate the arbitration award, based on

the "first to file rule". Finally, on July 17, 1996, P & P filed

an alternative motion under § 10 in the Texas district court to

vacate the arbitration award, raising the same issues as its motion

to vacate previously filed in Oklahoma.

On August 14, 1996, the Texas district court denied P & P's

motion to dismiss, transfer or stay the confirmation proceeding,

finding that under the language of § 9 and the cases in this
5

Circuit construing that provision, the Northern District of Texas

was the only court which could decide Sutter's motion to confirm.

The Texas district court also denied P & P's motion to vacate the

arbitration award, holding that P & P's non-arbitrability argument

had already been addressed by the Oklahoma district court, and

therefore, there was no need to revisit the issue. Finally,

relying on this Court's decision in McKee v. Home Buyers Warranty

Corp. II, 45 F.3d 981, 983 (5th Cir.1995), the Texas district court

held that an agreement to submit to AAA arbitration implies

concensus that the award will be deemed binding and subject to

entry of judgment, unless the parties expressly agree otherwise.

Therefore, the arbitration in this case was deemed binding.

P & P appeals raising the following issues:

1. Whether the Texas district court should have dismissed,

transferred or stayed Sutter's confirmation action, pending

resolution by the Oklahoma district court of the P & P motion

to vacate the arbitration award, under the "first to file

rule";

2. Whether the Texas district court should have refused to confirm

the arbitration award, because the arbitration agreement did

not provide for finality of any such award;

3. Whether the Texas district court, in the alternative, should

have vacated the arbitration award under FAA § 10, because the

tortious interference claims were not arbitrable.

II.

P & P's Motion to Dismiss, Transfer or Stay

A.

Standard of Review

A district court's decision whether to grant a stay is

ordinarily reviewed for abuse of discretion.Save Power Limited v.
6

Syntek Finance Corp., 121 F.3d 947, 948 (5th Cir.1997). However,

to the extent the district court's decision in this case rests on

an interpretation of the law, the decision is reviewed de novo.

Goldman v. Bosco, 120 F.3d 53, 54 (5th Cir.1997).

B.

Law

The so-called "first to file rule" is a by-product of the

well-established axiom that:

[t]he federal courts long have recognized that the principle

of comity requires federal district courts—courts of

coordinate jurisdiction and equal rank—to exercise care to

avoid interference with each other's affairs. [citations

omitted] ... The concern manifestly is to avoid the waste of

duplication, to avoid rulings which may trench upon the

authority of sister courts, and to avoid piecemeal resolution

of issues that call for a uniform result. [citations omitted]

... To avoid these ills, a district court may dismiss an

action where the issues presented can be resolved in an

earlier-filed action pending in another district court.

West Gulf Maritime Ass'n v. ILA Deep Sea Local 24, 751 F.2d 721,

728-29 (5th Cir.1985). Therefore, typically if the Oklahoma and

Texas cases "overlap on the substantive issues, the cases [should]

be ... consolidated in ... the jurisdiction first seized of the

issues." Mann Mfg. Inc. v. Hortex, Inc., 439 F.2d 403, 408 n. 6

(5th Cir.1971).

However, concerns about comity notwithstanding, whether both

the Oklahoma and Texas district courts could decide Sutter's motion

to confirm, or just the Texas district court, is controlled by

statute. 9 U.S.C. § 9. Hence, the "first to file rule" must yield,

if § 9 establishes that the Texas district court is exclusively the

appropriate court to decide Sutter's motion to confirm, even though
 

5In the Ninth Circuit, where these provisions are viewed as

mandatory, the Court has found that an Arizona district court

properly refused to vacate a California arbitration award under §

10 citing a lack of subject matter jurisdiction. United States v.

Ets-Hokin Corp., 397 F.2d 935, 938-39 (9th Cir.1968). See also,

Feliciano v. Wirth, 911 F.2d 737 (9th Cir.1990)(vacatur of

California arbitration award under § 10 by Nevada district court

invalid for lack of subject matter jurisdiction). 

7

the same issues were first raised in the Oklahoma district court.

The question of which district court is the appropriate court

to decide post-arbitration motions under §§ 9, 10 and 11, is one of

permissive or mandatory venue. These statutory provisions are akin

to venue provisions in the sense that they identify which of the

several district courts having jurisdiction is the appropriate one

to decide these post-arbitration motions. If these so-called venue

provisions are mandatory (appropriately brought only in "the United

States court in and for the district within which such award was

made"), then they may be seen as jurisdictional, in that they would

deprive all other district courts of the power to decide these

motions.5 However, since we view these provisions as permissive,

they are more closely akin to venue provisions, because they do not

take the power to decide these post-arbitration motions away from

any federal district court otherwise having jurisdiction.

i.

 § 9 Venue

We are convinced that the district court's conclusion that

venue is mandatory under § 9 is based on a misunderstanding of the

law in this Circuit.

a.
8

Purdy

In Purdy v. Monex Intern. Ltd., 867 F.2d 1521, 1523 (5th

Cir.1989), this Court held that § 9 "does not establish an

exclusive forum for suits upon arbitral awards." In Purdy the

defendant removed a Texas state court action to federal court in

Texas and made a motion under § 3 for a stay pending arbitration in

California in accordance with the forum selection clause in their

contract, and a motion to compel arbitration under § 4. The Texas

district court granted the stay, ordered the parties to arbitrate

in California, and plaintiff immediately appealed. Plaintiff

argued that since venue under § 9 was mandatory in the California

district court, the Texas district court could not entertain a

post-arbitration application to confirm the award, and therefore,

its order to arbitrate in California was tantamount to a final

order.

This Court noted that § 9 "says only that a party may apply to

the federal court in the district where the award was entered to

seek its enforcement." Purdy, 867 F.2d at 1523 (emphasis in

original). Therefore, we concluded that "[t]his language does not

prevent the court in the Southern District of Texas, which stayed

the appellant's action pending California arbitration, from

re-opening that action after arbitration is concluded." Id. Since

venue under § 9 was permissive, the Texas district court could

retain venue and its stay was an interlocutory rather than final

order favoring arbitration, which was not immediately appealable.

9 U.S.C. § 16.
9

In the instant case, the Texas district court's holding that

§ 9 venue was mandatory in that court is clearly inconsistent with

the holding in Purdy. Such holding prevented the Oklahoma district

court from doing the very thing that the Court in Purdy seemed to

anticipate, i.e., staying P & P's action pending arbitration and

"re-opening that action after arbitration is concluded." The

district court relied in part on our pre-Purdy decision in City of

Naples v. Prepakt Concrete Company, 490 F.2d 182 (5th Cir.1974),

and the outcome in this case must necessarily turn on the

precedential value of that case. See, Oncale v. Sundowner Offshore

Services, Inc., 83 F.3d 118, 120 (5th Cir.1996)(discussing the

doctrine of stare decisis and how to identify obiter dictum ).

b.

Prepakt Concrete

In Prepakt Concrete the City of Naples, Florida, sued Prepakt,

an Ohio corporation, in Florida state court, Prepakt removed to

federal district court in Florida and moved for a stay pending

arbitration under § 3 and to compel arbitration under § 4. The

Florida district court granted the stay and ordered arbitration in

accordance with the agreement, which provided, by incorporation of

the AAA rules, that the AAA would fix the arbitration locale in

case of a dispute. A dispute arose, and the AAA decided that the

arbitration should be held in Ohio. The Ohio arbitrators awarded

Prepakt $90,000.00.

Prepakt filed a motion in the Northern District of Ohio under

§ 9 to confirm the award, as it was "the United States court in and
 

6§ 4 states that "[t]he hearings and proceedings ... shall be

within the district in which the petition for an order directing

such arbitration is filed." 9 U.S.C. § 4. 

10

for the district within which such award was made." 9 U.S.C. § 9.

Back in Florida the City asked the district court to enjoin the

Ohio proceedings arguing that § 4 of the FAA required the

arbitration to be held in Florida, which would make the Florida

district court the proper court to determine post-arbitration

motions.6 In response, Prepakt argued that the City had waived its

right to oppose arbitration in Ohio by waiting too long to bring §

4 to the attention of the Florida district court, and that venue

under § 9 was mandatory, making the Ohio district court the

exclusively appropriate court to determine its motion to confirm.

The Florida district court agreed with the City and issued an

injunction against any further proceedings in the matter in any

other court.

On appeal this Court held that the City had waived its right

to oppose Ohio arbitration under § 4 by "agreeing in an arm's

length commercial contract to abide by the AAA's decision as to

arbitration locale in cases of dispute ..." Prepakt Concrete, 490

F.2d at 185. This Court then stated that:

"[t]he City may be technically correct in urging that the

federal court in Florida retained jurisdiction over the stayed

lawsuit. Nevertheless, in view of § 9's command, and for

reasons of judicial restraint and comity, the District Judge

should have declined to enjoin the confirmation proceeding in

the Ohio District Court."

Prepakt Concrete, 490 F.2d at 184 (emphasis added), citing Reed &

Martin, Inc. v. Westinghouse Elec. Corp., 439 F.2d 1268, 1272-73
11

(2nd Cir.1971). The Court in Prepakt did not explain what it meant

by " § 9's command" or why that command compelled or even supported

the result reached.

The conclusion that the Florida district court retained

jurisdiction after the stay, but that the Ohio district court had

exclusive jurisdiction to decide all post-arbitration motions is

inconsistent. We have to ask, over what did the Florida district

court retain jurisdiction? The answer is nothing. If § 9 is

mandatory, then whenever a district court stays its proceedings in

favor of arbitration in another district, the stay is the

equivalent of a dismissal, because the district court thereby

deprives itself of venue over any further action in the matter.

This Court specifically recognized this absurd result created by

treating § 9 as mandatory. Purdy, 867 F.2d at 1523, citing NII

Metals Services, Inc. v. ICM Steel Corp., 514 F.Supp. 164

(N.D.Ill.1981). See also, In re VMS Securities Litigation, 21 F.3d

139, 145 (7th Cir.1994)(noting this and several other problems

caused by mandatory venue under § 9, 10 and 11). Since Prepakt

Concrete does not directly answer the question whether venue under

§ 9 is mandatory, we will not assume that it does, especially when

doing so would lead to a litany of absurd results. Purdy on the

other hand directly poses and answers the question of venue under

§ 9 in a context where its resolution is necessary to the Court's

ultimate conclusion. Therefore, we find that Purdy correctly

states the law in this Circuit. Venue under § 9 is not mandatory

and does not prevent the Texas district court in the instant case
12

from staying, dismissing or transferring Sutter's motion to

confirm, pending resolution of P & P's motion to vacate by the

Oklahoma district court.

ii.

 § 10 Venue

However, if venue under § 10 is mandatory, then the Texas

district court would be the exclusive forum to decide P & P's

motion to vacate the arbitration award, which would make a

dismissal, transfer or stay impossible. Those circuits which have

dealt with the question, uniformly agree that §§ 9 and 10 must be

construed the same, regardless of whether they are found to be

permissive or mandatory. In re VMS Securities Litigation, 21 F.3d

at 142, citing Sunshine Beauty Supplies, Inc. v. Unites States

District Court for Central Dist. of Cal., 872 F.2d 310, 312 n. 4

(9th Cir.1989), and Motion Picture Lab. Technicians Local 780 v.

McGregor & Werner, Inc., 804 F.2d 16, 19 (2d Cir.1986). In any

event, a mandatory reading of § 10 would create the same absurd

result decried in Purdy. We agree with the Seventh Circuit's

reasoning in In re VMS Securities Litigation, 21 F.3d at 142-45,

and hold that venue under § 10 is also permissive. Thus, § 10 did

not prevent the Texas district court from dismissing, staying or

transferring P & P's motion to vacate under the "first to file

rule".

C.

Analysis

Having concluded that the venue provisions of §§ 9 and 10 are
13

permissive, it does not necessarily follow that the Texas district

court had to grant P & P's motion to dismiss, transfer or stay the

Texas proceedings. However, "[t]he Fifth Circuit adheres to the

general rule, that the court in which an action is first filed is

the appropriate court to determine whether subsequently filed cases

involving substantially similar issues should proceed." Save Power

Limited, 121 F.3d 947, 948, citing West Gulf Maritime Association

v. ILA Deep Sea Local 24, 751 F.2d 721, 728 (5th Cir.1985); Mann

Mfg., 439 F.2d at 408 (5th Cir.1971). Therefore, the "first to

file rule" not only determines which court may decide the merits of

substantially similar cases, but also establishes which court may

decide whether the second suit filed must be dismissed, stayed or

transferred and consolidated. This Court stated in Mann Mfg., 439

F.2d at 408, that:

once the likelihood of substantial overlap [of issues] between

the two suits had been demonstrated, it was no longer up to

the court in Texas to resolve the question of whether both

should proceed. By virtue of its prior jurisdiction over the

common subject matter ... the determination of whether there

actually was substantial overlap requiring consolidation of

the two suits in [Oklahoma] belonged to the United States

District Court in [Oklahoma].

There is no doubt that substantial overlap exists between the

Texas and Oklahoma actions in the instant case. P & P's motion to

vacate in Oklahoma, Sutter's motion to confirm in Texas and P & P's

motion to vacate in Texas all present identical issues. Under

these circumstances, the Texas district court abused its

discretion. Therefore, we reverse and remand this matter to the

United States District Court for the Northern District of Texas, so

that it may transfer the matter to the United States District Court
 

7We do not reach the question of whether the arbitration in

this case was binding, or whether the Texas district court should

have vacated the arbitration award under § 10. The determination

of these questions will depend on the Oklahoma district court's

conclusion as to which court should decide them. 

14

for the Western District of Oklahoma for resolution of whether the

Texas action should be allowed to proceed independently or should

be consolidated in Oklahoma.7

REVERSE AND REMAND.