Source: https://law.justia.com/cases/federal/appellate-courts/F2/804/338/435254/
Timestamp: 2019-11-16 01:19:24
Document Index: 557830642

Matched Legal Cases: ['§ 1332', '§ 4', '§ 3', '§ 1291', '§ 1292', '§ 1292', '§ 1', '§ 3', '§ 4']

Municipal Energy Agency of Mississippi, Plaintiff-appellant, v. Big Rivers Electric Corporation, Defendant-appellee, 804 F.2d 338 (5th Cir. 1995) :: Justia
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Municipal Energy Agency of Mississippi, Plaintiff-appellant, v. Big Rivers Electric Corporation, Defendant-appellee, 804 F.2d 338 (5th Cir. 1995)
US Court of Appeals for the Fifth Circuit - 804 F.2d 338 (5th Cir. 1995)
MEAM filed the present declaratory judgment action on April 2, 1986, in the United States District Court for the Northern District of Mississippi. Jurisdiction was based on diversity of citizenship. 28 U.S.C. § 1332. MEAM sought a declaratory judgment that the Power Supply Agreement had terminated and sought repayment of amounts it paid to Big Rivers after October 1, 1985 in excess of 85 cents per kilowatt per week. On April 17, 1986, Big Rivers filed in the United States District Court for the Western District of Kentucky a petition to compel arbitration against MEAM pursuant to 9 U.S.C. § 4. On April 18, 1986, Big Rivers filed a motion to dismiss in the Mississippi action under Federal Rule of Civil Procedure 12(b) (6). In the alternative, Big Rivers moved the Mississippi court to stay the proceedings pending arbitration pursuant to 9 U.S.C. § 3. MEAM then sought to have the Mississippi district court enjoin Big Rivers from proceeding in the Kentucky action by motion dated June 5, 1986, on the ground that the issues in the two actions were the same and the Mississippi action was filed earlier. In its June 5 motion MEAM also asked the district court to expedite hearing on all motions then pending.
Big Rivers initially challenges the jurisdiction of this court to hear MEAM's appeal. An order granting a stay pending arbitration is not a final order, so it is not appealable under 28 U.S.C. § 1291. See Jackson Brewing Co. v. Clarke, 303 F.2d 844, 845 (5th Cir.), cert. denied, 371 U.S. 891, 83 S. Ct. 190, 9 L. Ed. 2d 124 (1962). The order may be appealable under 28 U.S.C. § 1292(a) (1) as an interlocutory order granting or refusing an injunction, but
Big Rivers' motion based on the existence of a contractual agreement to arbitrate clearly raises an equitable defense. Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 293 U.S. 449, 452, 55 S. Ct. 313, 314-15, 79 L. Ed. 583 (1935). However, the dispute here is whether MEAM's cause of action is legal or equitable. We must look behind the declaratory judgment action to determine the form that the action would have taken if the Declaratory Judgment Act were not in existence. See American Safety Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821, 824 (2d Cir. 1968). Big Rivers characterizes MEAM's suit as seeking "damages based on a reformation of the contract price," and points out that contract reformation is an equitable claim, Mar-Len of Louisiana, Inc. v. Parsons-Gilbane, 732 F.2d 444, 445 (5th Cir. 1984). MEAM characterizes its action as a suit for breach of contract to recover money damages, which is an action at law, Coastal Industries, Inc. v. Automatic Steam Products Corp., 654 F.2d 375, 377 n. 1 (5th Cir. 1981) (Unit B).
In this case, however, we do not need to "resort to archaic distinctions between law and equity," Mar-Len, 732 F.2d at 446 (Rubin, J., dissenting), because here there is an alternative basis of appellate jurisdiction. MEAM appeals not only the stay but also the district court's denial of its motion to enjoin Big Rivers from proceeding in the Kentucky action. This order is appealable under 28 U.S.C. § 1292(a) (1). Cf. A. & E. Plastik Pak Co. v. Monsanto Co., 396 F.2d 710, 713 (9th Cir. 1968) (denial of motion to enjoin arbitration is appealable); Petroleum Helicopters, Inc. v. Boeing-Vertol Co., 606 F.2d 114, 114 (5th Cir. 1979). Since this denial properly brings the order before us, we can also review the order staying the proceedings pending arbitration. Mercury Motor Express, Inc. v. Brinke, 475 F.2d 1086, 1091 (5th Cir. 1973). This court has jurisdiction over this appeal.
The issues in this case are governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-14, because the contract between MEAM and Big Rivers obviously is "a contract evidencing a transaction involving commerce." Id. Sec. 2. In enacting the Federal Arbitration Act, Congress declared a national policy in favor of arbitration. Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct. 852, 858, 79 L. Ed. 2d 1 (1984). Congressional intent was "to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible." Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 22, 103 S. Ct. 927, 940, 74 L. Ed. 2d 765 (1983). As such, the district court should grant a 9 U.S.C. § 3 application for a stay pending arbitration when the arbitration clause on its face covers a dispute. Seaboard Coast Line Railroad Co. v. National Rail Passenger Corp., 554 F.2d 657, 660 (5th Cir. 1977). If the dispute is within the scope of the arbitration clause, the court may not delve further into the merits of the dispute. City of Meridian v. Algernon Blair, Inc., 721 F.2d 525, 528 (5th Cir. 1983).
This dispute over contract termination is an arbitrable dispute under the arbitration clause in this case. An arbitration clause is separable from the contract in which it is embedded. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402-03, 87 S. Ct. 1801, 1805-06, 18 L. Ed. 2d 1270 (1967). A federal court can only adjudicate challenges to "the making and performance of the agreement to arbitrate," not challenges to the enforceability of the contract as a whole. Id. at 404, 87 S. Ct. at 1806. Thus, in Prima Paint, the United States Supreme Court held that the district court properly stayed proceedings before it when the party seeking to avoid arbitration did not allege that it was fraudulently induced to enter the arbitration agreement but only claimed that it was fraudulently induced to execute the contract. Id. at 406, 87 S. Ct. at 1807.
MEAM does not deny that it was bound by the Power Supply Agreement before that Agreement allegedly terminated. It thus necessarily concedes that it was bound by the arbitration clause as well. Because MEAM does not contest the making of the arbitration agreement, its reliance on Pollux Marine Agencies, Inc. v. Louis Dreyfus Corp., 455 F. Supp. 211, 216-20 (S.D.N.Y. 1978), is misplaced. Moreover, MEAM's claim that the arbitration clause terminated when the rest of the contract allegedly terminated is contradicted by the express language of the arbitration clause, which provides that " [t]his provision shall survive the termination of this agreement." MEAM does not suggest any meaning of this language other than the obvious. This specific provision controls the more general provisions of the termination clause. See Western Oil Fields, Inc. v. Pennzoil United, Inc., 421 F.2d 387, 389 (5th Cir. 1970).
The parties contracted to arbitrate the issue of contract termination. See Houston General Insurance Co. v. Realex Group, N.V., 776 F.2d 514, 516 (5th Cir. 1985). The district court properly stayed its own proceedings pending arbitration. In addition, the unambiguous language of the arbitration clause made it unnecessary for the district court to hold an evidentiary hearing. Commerce Park v. Mardian Construction Co., 729 F.2d 334, 340-41 (5th Cir. 1984).1
MEAM's second contention is that the district court erred in refusing to enjoin Big Rivers from proceeding in its Kentucky action to compel arbitration. MEAM argues that the facts and issues involved in the Mississippi action--the circumstances surrounding the making of the contract and the proper interpretation of the contractual provisions--are the same facts and issues involved in the Kentucky action. MEAM finds support in Dupuy-Busching General Agency, Inc. v. Ambassador Insurance Co., 524 F.2d 1275, 1277 (5th Cir. 1975), in which this court considered the effect of the defendant's answer and counterclaim petitioning for an order directing arbitration as a defense to an action on the contract. Asserting that the facts and issues in the two actions are similar, MEAM urges that the district court in the Mississippi action erred by not asserting "paramount jurisdiction" over the motion to compel arbitration in the present proceeding. In letter and spirit, Dupuy-Busching is distinguishable.
District courts have discretion to enjoin the filing of related lawsuits in other U.S. district courts. Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183-84, 72 S. Ct. 219, 221, 96 L. Ed. 200 (1952); Schauss v. Metals Depository Corp., 757 F.2d 649, 654 (5th Cir. 1985). "As between federal district courts, ... the general principle is to avoid duplicative litigation." Colorado River Water Conservation District v. United States, 424 U.S. 800, 817, 96 S. Ct. 1236, 1246, 47 L. Ed. 2d 483 (1976) (dictum). Often the case filed first will be allowed to proceed. West Gulf Maritime Association v. ILA Deep Sea Local 24, 751 F.2d 721, 729-30 (5th Cir. 1985). But we will reverse a district court's decision not to enjoin another proceeding only if the district court abused its discretion. Cowden Manufacturing Co. v. Koratron Co., 422 F.2d 371, 372 (6th Cir.), cert. denied, 398 U.S. 959, 90 S. Ct. 2173, 26 L. Ed. 2d 544 (1970) (finding no abuse of discretion in refusal to enjoin later-filed petition to compel arbitration in another U.S. district court).
The district court did not abuse its discretion in refusing to enjoin Big Rivers from proceeding in the Kentucky action. No part of the language of these two sections of the Arbitration Act indicates that a section 4 petition to compel arbitration must be made in an action in which a section 3 motion to stay is made.2 Indeed, section 4 provides that a petition to compel arbitration may be made in "any United States district court which, save for such agreement, would have jurisdiction under Title 28." 9 U.S.C. § 4.
We find further guidance in the United States Supreme Court's discussion in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983). Although Moses H. Cone involved duplicate federal and state proceedings, we find it equally useful in analyzing the allegedly duplicate federal proceedings in this case. The Court makes clear in Moses H. Cone that the section 3 stay and the section 4 order to arbitrate are "parallel devices for enforcing an arbitration agreement." Id. at 22, 103 S. Ct. at 940. Moreover, the Court in Moses H. Cone rejected an argument that the state action should have been allowed to proceed because it was filed first.
Id. at 21, 103 S. Ct. at 939. Similarly, in this case Big Rivers had no reasonable opportunity to file its petition to compel arbitration before MEAM filed its declaratory judgment action in the district court. MEAM did not notify Big Rivers of its intention to treat the contract as terminated until at most five days before filing suit.
The fact that the court in Dupuy-Busching treated the answer and counterclaim asserting a section 4 petition to compel arbitration in New Jersey as a compulsory counterclaim does not alter our conclusion. The holding in Dupuy-Busching was that a district court in Mississippi could compel arbitration in New Jersey notwithstanding the requirement of section 4 that the hearing and proceedings under the arbitration agreement "be within the district in which the petition for an order directing such arbitration is filed." 524 F.2d at 1278. The characterization of the defendant's answer and counterclaim as a compulsory counterclaim in that suit was collateral to that holding. The characterization is not controlling here either on a procedural or substantive basis. Procedurally, we note that in Dupuy-Busching the defense was presented as part of an answer, whereas in the present case Big Rivers filed a 12(b) (6) motion to dismiss. The time for filing an answer and counterclaim in the present suit had not arrived. In the present case Big Rivers never filed an answer; thus it would not be barred in a subsequent suit from raising any compulsory counterclaim. Fed. R. Civ. P. 13(a); Lawhorn v. Atlantic Refining Co., 299 F.2d 353, 356-57 (5th Cir. 1962).
Finally MEAM appears to be arguing that because it filed this action in Mississippi, Big Rivers must petition to compel arbitration in Mississippi, and that the Mississippi district court erred when it did not compel the arbitration MEAM seeks to avoid to be held in Mississippi. MEAM hopes its contract action established Mississippi as the forum for arbitration by clarifying the arbitration clause which does not specify the forum in which arbitration is to be held. But MEAM's action is an attempt to avoid its contractual obligation to arbitrate. See Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct. 852, 856, 79 L. Ed. 2d 1 (1984). Indeed, in opposing Big Rivers' section 3 motion to stay pending arbitration, MEAM has asserted that the parties are not bound by the arbitration clause. It would stand reason on its head to allow MEAM to dictate the choice of forum for arbitration by seeking to avoid arbitration. The district court did not abuse its discretion in refusing to enjoin Big Rivers.