Opinion ID: 455788
Heading Depth: 2
Heading Rank: 2

Heading: The Arbitration Convention

Text: 14 The Convention was negotiated pursuant to the Constitution's Treaty power. Congress then adopted enabling legislation to make the Convention the highest law of the land. As such, the Convention must be enforced according to its terms over all prior inconsistent rules of law. 15 Congress' implementing legislation for the Convention is found as part of the Arbitration Act. 9 U.S.C. Sec. 1 et seq. Chapter 1 of Title 9 is the Federal Arbitration Act passed long ago to overcome American courts' common law hostility to the arbitration of disputes. 12 Chapter 2 of Title 9 is devoted entirely to the Convention and Congress' enabling legislation. Thus, Sec. 201 provides that the Convention shall be enforced by United States courts. 13 In substance, the Convention replicates the Federal Arbitration Act. Indeed, Sec. 208 of the enabling legislation for the Convention incorporates all of the Convention into Chapter 1 of Title 9. 14 But while the Convention requires courts of the United States to enforce arbitration clauses along lines similar to those specified in the Arbitration Act, its reach is broader than the Arbitration Act. Both the Arbitration Act and the Convention provide that if a dispute in a pending lawsuit is subject to arbitration, the district court shall on application of one of the parties stay the trial of the action until such arbitration has been had. 15 Both provide that the district court shall make an order directing the parties to proceed to arbitration when the site for arbitration is within the district. 16 But Sec. 206 of the enabling legislation for the Convention also authorizes district courts to order parties to proceed with a Convention arbitration even outside the United States. 17 C. The Policy of Encouraging Arbitration and the End of 16 the Intertwining Doctrine The Supreme Court leaves no doubt that: 17 The goal of the convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement of commercial arbitration agreements and international contracts and to unify the standard by which the agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries. 18 Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n. 15, 94 S.Ct. 2449, 2457 n. 15, 41 L.Ed.2d 270 (1974). 19 The Fifth Circuit has been friendly to arbitration except possibly in those limited areas affected by the intertwining doctrine; the securities and antitrust laws. 18 Now, however, the Supreme Court has rejected the intertwining doctrine 19 and mandated that courts enforce arbitration agreements as part of party's legitimate contractual expectations. Dean Witter Reynolds v. Byrd, 83 U.S. ----, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985), involved the securities laws--long held to be an area of special federal concern in our circuit. Based on this special concern for the exclusive federal interest in enforcement of the securities laws, we used the intertwining doctrine to override party's arbitration agreements to prevent the piecemeal adjudication of disputes. As the Court said in Dean Witter Reynolds: 20 the Arbitration Act requires district courts to compel arbitration of pendent arbitrable claims when one of the parties files a motion to compel, even where the result would be the possible inefficient maintenance of separate proceedings in different forums.... By its terms, the Act leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed. 21 (emphasis in original). 20 22 Thus, Dean Witter Reynolds confirms the Court's teaching in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1982). In Moses Cone the Supreme Court held [t]he Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability. 23 Thus, [a]bsent allegations of fraud in the inducement of the arbitration clause itself, arbitration must proceed when an arbitration clause on its face appears broad enough to encompass the party's claims. Life of America Insurance Co. v. Aetna Life Insurance Co., 744 F.2d 409, 413 (5th Cir.1984); Commerce Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 338 (5th Cir.1984); Prima Paint Corp. v. Flood and Conklin Manufacturing Co., 388 U.S. 395, 406, 87 S.Ct. 1801, 1807, 18 L.Ed.2d 1270 (1967). Under the Arbitration Act, an arbitration agreement must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute, but not to the arbitration agreement. Tai Ping at 1146; Cf. Commerce Park at 339. 24 D. The Schoenamsgruber Peril: Appealability of the Motion 25 to Compel Arbitration 26 In Schoenamsgruber v. Hamburg American Line, 294 U.S. 454, 55 S.Ct. 475, 79 L.Ed. 989 (1935), the Supreme Court held Courts of Appeals lacked jurisdiction to hear appeals from a district court's order staying an admiralty proceeding pending arbitration. 21 Accordingly, we must closely examine the district court's order and the Convention to see if Schoenamsgruber causes us to founder. 27 The district court had before it two separate motions from Permargo. It chose, however, to dispose of both motions by means of one order. The district court denied both Permargo's motions (i) for an order directing arbitration and (ii) to stay all proceedings pending arbitration. The court denied the motions because of its ruling that Pemex was now a party to the litigation. In its order, the district court stated that arbitration had to be denied since Pemex was not bound by the arbitration clause in the charter party agreement between Sedco and Permargo. 22 While it appears that the district court based its decision to deny Permargo's motions upon the now rejected doctrine of intertwining, our case cannot be solved by a simple remand. The district court rejected motions made under the Convention. This Convention is the supreme law of the land. By its ratification in 1970, the United States obligated itself to enforce arbitration agreements between foreign and domestic contracting parties. Any law or decision prior in time to this express undertaking must be construed as consistent with the Convention or set aside by it. 28 Our decision is further supported by the recent opinion in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., --- U.S. ----, 105 S.Ct. 3346, 85 L.Ed.2d ---- (1985). Despite the uniform rule throughout the Circuits that federal antitrust claims are inappropriate for arbitration, the Court ruled that antitrust claims are arbitrable under the Federal Arbitration Act when they are encompassed within a valid arbitration clause in an agreement embodying an international commercial transaction. The Court focused on: 29 concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce the parties' agreement, even assuming that a contrary result would be forthcoming in a domestic context. 30 The Convention was passed in order to secure the right of arbitration in a commercial context among foreign and domestic parties. Congress could not have intended that a court's refusal to enforce an arbitration agreement falling under the Convention would be immediately appealable in a nonmaritime action--at law or equity--but would be shielded from appellate scrutiny in an admiralty suit. Accordingly, Schoenamsgruber's mummified prohibition on the nonappealability of stays in admiralty, to the extent that it interferes with United States obligations under the Convention, must give way. 23 We cannot extend the relic of Schoenamsgruber under 9 U.S.C. Sec. 8 to 9 U.S.C. Sec. 206. We hold that we have jurisdiction on this appeal to carry out the important congressional policy of insuring that arbitration contracts are enforced in the courts pursuant to the Convention. Moreover, to the extent that Schoenamsgruber was influenced by the ancient view that an admiralty court lacked the power to issue an injunction, the law has progressed. Judges may now stride the quarterdeck and issue injunctions. C.A.V.N. v. Perez, 303 F.2d 692 (5th Cir.1962), cert. denied, 371 U.S. 942, 83 S.Ct. 321, 9 L.Ed.2d 276 (1962). Although the trial court did not style its order as the denial of an injunction, its order has all the earmarks of a denial of injunctive relief under 28 U.S.C. Sec. 1292. Permargo sought an order to compel the affirmative action of arbitration outside the litigation. If Permargo's motion had been granted instead of denied, the court's order would have required Sedco to participate in arbitration in New York. Such an order would be, in effect, a mandatory injunction. Accordingly, the district court's refusal to grant the injunction mandated by the Convention is appealable under 28 U.S.C. Sec. 1292 in order to prevent the United States from violating its Treaty obligations with 65 nations. 24 31 Although our usual course would be to remand for the district court to correct its error of law in not ordering arbitration, here the district judge who entered the order is no longer on the bench. However, after three years of extensive discovery with well over 400 docket entries, the record before us is adequate to see that the requisites mandating the issuance of an order to arbitrate under the Convention have been met. Indeed, under the Convention any factual inquiry prior to a court being required to enforce an arbitration clause is strictly limited. See, Convention, Art. II; Ledee v. Ceramiche Ragno, 684 F.2d at 185-86; Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1982); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, 87 S.Ct. 1801, 1806-07, 18 L.Ed.2d 1270 (1967); cf. Oil, Chemical & Atomic Workers v. American Petrofina Co., 759 F.2d 512, 515 (5th Cir.1985) (obligation of the parties to submit to the arbitrator the issue of arbitrability....). 25 32 As we have emphasized throughout, the arbitration clause, in light of the substantive provisions of the charter party, is extremely broad. Consequently, we determine that it encompasses substantially all of the potential controversies growing out of the blowout of the IXTOC I well. Although in some situations we have stated that the court should first determine whether, and what, issues are for arbitration, we think that given the broad framework of the arbitration clause in this situation, the arbitrators should initially determine which of the intricate factual disputes come within the arbitration clause. 26 It goes without saying that questions as to the conduct of the arbitration are reserved to the United States District Court for the Southern District of Texas. E. The Possibility of Waiver 33 Although arbitration is a contractual right which can be waived 27 and Article II of the Convention contemplates the possibility of waiver of an arbitration agreement, the facts of this case do not demonstrate such a waiver. See I.T.A.D. Associates, Inc. v. Podar Bros., 636 F.2d 75, 77 (4th Cir.1981). Here Permargo raised the defense of arbitration in its answer. The only foundation for Sedco's assertion of waiver is the passage of time between filing of the limitation proceeding and the filing of Permargo's answer. As the court observed in Hilti v. Oldach, 392 F.2d 368, 371 (1st Cir.1968) [w]e start with the fact that defendant's answer, in its special defense, served notice on plaintiff of the arbitration defense. Given this, the burden is heavy on one who would prove waiver. 34 Indeed, though the sparring in Hilti was for nearly two years, the court thought it more important that the delay in the proceedings was caused by legitimate pre-arbitration discovery. 28 Southwest Industrial Import & Export v. Wilmod Co., Inc., 524 F.2d 468, 470 (5th Cir.1975) (willing participation in settlement discussions & reselling goods not waiver of arbitration rights); Germany v. River Terminal Railway Co., 477 F.2d 546, 547 (6th Cir.1973) (waiver may not be inferred from the fact that a party does not rely exclusively on the arbitration provisions of a contract, but attempts to meet all issues raised in litigation between it and another party to the agreement.) 35 In the case before us, the long fought dispute about whether the district court had jurisdiction over Permargo and Pemex likewise must be described as legitimate. Nor has Sedco been able to demonstrate that this jurisdictional jousting has been prejudicial. See also I.T.A.D. Associates, Inc. at 77; Robert Lawrence Co. v. Devonshire Fabrics, 271 F.2d 402, 412-13 (2d Cir.1959), cert. granted, 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618 (1960), cert. denied, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960). We hold there has been no waiver. 29