Court Opinion

ID: 3038348
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:58:21.796889+00
Date Added: 2024-06-11T09:43:20.357933
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

J. PAUL REDDAM; J. PAUL REDDAM          
TRUST; CLARENCE VENTURES, LLC,
a Delaware Limited Liability
Company; ZED CORPORATION, a
California Corporation,
                Plaintiffs-Appellees,
                 v.
KPMG LLP; PRESIDIO ADVISORS,                  No. 05-56664
LLC; PRESIDIO ADVISORY SERVICES
INC.; PRESIDIO FUND ADVISORS,                  D.C. No.
LLC, d/b/a HOLLAND PARK CAPITAL             CV-04-01227-VAP
ADVISORS, LLC; DEUTSCHE BANK
AG; OLSON LEMONS PC,
                         Defendants,
                and
SIDLEY AUSTIN BROWN AND WOOD,
LLP,
               Defendant-Appellant.
                                        

                             9243
9244      REDDAM v. SIDLEY AUSTIN BROWN AND WOOD

J. PAUL REDDAM; J. PAUL REDDAM         
TRUST; CLARENCE VENTURES, LLC,
a Delaware Limited Liability
Company; ZED CORPORATION, a
California Corporation,
               Plaintiffs-Appellees,
                v.
KPMG LLP,                                    No. 05-56671
              Defendant-Appellant,
                                              D.C. No.
                                           CV-04-01227-VAP
               and
PRESIDIO ADVISORS, LLC; PRESIDIO              OPINION
ADVISORY SERVICES INC.; PRESIDIO
FUND ADVISORS, LLC, d/b/a
HOLLAND PARK CAPITAL ADVISORS,
LLC; SIDLEY AUSTIN BROWN AND
WOOD, LLP; DEUTSCHE BANK AG;
OLSON LEMONS PC,
                      Defendants.
                                       
       Appeal from the United States District Court
           for the Central District of California
       Virginia A. Phillips, District Judge, Presiding

                   Argued and Submitted
            July 25, 2006—Pasadena, California

                   Filed August 10, 2006

 Before: Ferdinand F. Fernandez, Pamela Ann Rymer, and
            Richard R. Clifton, Circuit Judges.

                Opinion by Judge Fernandez
9246     REDDAM v. SIDLEY AUSTIN BROWN AND WOOD

                       COUNSEL

Daniel L. Geyser, Munger, Tolles & Olson LLP, Los Angeles,
California, for defendant-appellant Sidley Austin LLP. Dale
E. Barnes, Bingham McCutchen LLP, San Francisco, Califor-
nia, for defendant-appellant KPMG LLP.
           REDDAM v. SIDLEY AUSTIN BROWN AND WOOD               9247
Laura Lindgren, Hennigan, Bennett & Dorman LLP, Los
Angeles, California; David W. Wiechert, Law Office of
David W. Wiechert, San Clemente, California, for the
plaintiffs-appellees.

                            OPINION

FERNANDEZ, Circuit Judge:

   KPMG LLP and Sidley Austin LLP (Sidley) appeal the dis-
trict court’s remand of this case, which had been removed
from the Superior Court of the State of California for the
County of Orange (Orange County Superior Court) pursuant
to 9 U.S.C. § 205 (removal of actions relating to arbitration
agreements under the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards). They argue that the
district court erred when it remanded after it determined that
an arbitration agreement had become unenforceable because
the arbitrator (the National Association of Securities Dealers,
Inc.) had declined jurisdiction over the parties.

  We have jurisdiction and we reverse.

                         BACKGROUND

   J. Paul Reddam, J. Paul Reddam Trust, Clarence Ventures,
LLC, and Zed Corporation (collectively Reddam) assert that
KPMG, Presidio Advisors LLC, Sidley1 and Deutsche Bank
AG formed a joint venture in which they agreed to develop,
implement and market certain complex programs (“the pro-
grams”), which were designed to reduce the taxes of those
who adopted the programs. The detailed nature of the pro-
grams is not relevant to this action. Suffice it to say that, as
relevant here, Reddam was to purchase shares of Deutsche
  1
   Actually, the law firm of Brown & Wood was the initial participant,
but Sidley is the successor in interest to Brown & Wood.
9248        REDDAM v. SIDLEY AUSTIN BROWN AND WOOD
Bank stock and that required the use of a securities broker.
Reddam was referred to Deutsche Bank Securities Invest-
ments (DBSI), a subsidiary of Deutsche Bank, for that pur-
pose.

   Reddam became involved because upon selling a company,
DiTech Funding Corp., for a substantial sum,2 Reddam
desired to minimize income tax liabilities. Reddam, on the
advice of KPMG and Sidley, did adopt the programs. As con-
templated by the design of the programs, Reddam did use
DBSI as a broker and entered into customer agreements for
that purpose. Each of those customer agreements contained an
identical arbitration clause which provided that:

      all controversies which may arise between us con-
      cerning any transaction of construction, perfor-
      mance, or breach of this or any other agreement
      between us . . . shall be determined by arbitration.
      Any arbitration under this agreement shall be deter-
      mined pursuant to the rules then in effect of the
      National Association of Securities Dealers, Inc., as
      the undersigned you may elect. If the undersigned
      fails to make such election, then you may make such
      election.

   Alas, the programs did not have the desired tax avoidance
effects, and Reddam incurred substantial tax liabilities as a
result.3 Reddam then filed this action against KPMG, Sidley,
Deutsche Bank and others in the Orange County Superior
Court. Reddam did not bring an action against DBSI,
although DBSI was mentioned in the complaint. Deutsche
Bank removed on the ground that the action related to the
arbitration agreement with DBSI. See 9 U.S.C. § 205.
  2
     Seventy million dollars in cash and an additional one hundred and sev-
enty million dollars in annual earn-out payments.
   3
     Thirty-six million dollars of liability to the United States Treasury and
sixteen million dollars of liability to the State of California.
           REDDAM v. SIDLEY AUSTIN BROWN AND WOOD                9249
Deutsche Bank, along with KPMG and Sidley, then moved to
compel arbitration. Reddam responded with a motion to
remand on the basis that the district court lacked removal
jurisdiction as to Deutsche Bank and that, at any rate, the
claims against KPMG and Sidley should be remanded. The
district court determined that it did have removal jurisdiction
and that Deutsche Bank, KPMG and Sidley could all enforce
the arbitration agreements.4

   Before the NASD, Reddam deleted all reference to DBSI
from its complaint, asserted that DBSI was not a party, and
suggested that the NASD did not have jurisdiction. The
NASD agreed with Reddam and refused to take jurisdiction
over the arbitration because, as it said, no named party was a
member or associated person of the NASD.

   The parties then returned to the district court where Red-
dam moved for remand because the NASD was no longer
available. KPMG and Sidley argued that the district court
should exercise its authority under 9 U.S.C. § 5 to appoint a
substitute arbitrator rather than remanding. However, the dis-
trict court agreed with Reddam and declared that “the claims
are no longer subject to arbitration” because the NASD had
declined to proceed. Thus, the district court remanded the
case to the Orange County Superior Court and refused to stay
its order pending appeal.

  This appeal by KMPG and Sidley followed.5

                  STANDARDS OF REVIEW

   “We review de novo the district court’s determination that
it lacked subject matter jurisdiction” over the action. Kelly v.
Fleetwood Enters., Inc., 377 F.3d 1034, 1037 (9th Cir. 2004).
  4
     The order was issued on December 14, 2004, by Gary L. Taylor, Dis-
trict Judge.
   5
     Deutsche Bank has settled and is not part of this appeal.
9250        REDDAM v. SIDLEY AUSTIN BROWN AND WOOD
We also review de novo the district court’s determinations
about the scope and validity of the contractual DBSI arbitra-
tion clauses. See Mediterranean Enters., Inc. v. Ssangyong
Corp., 708 F.2d 1458, 1462-63 (9th Cir. 1983). Similarly, we
review de novo the district court’s determination about
whether the issues remain arbitrable. See Simula, Inc. v.
Autoliv, Inc., 175 F.3d 716, 719 (9th Cir. 1999).

                           JURISDICTION

   Reddam argues that we do not have jurisdiction to review
the remand to the Orange County Superior Court because
“[a]n order remanding a case to the State court from which it
was removed is not reviewable on appeal or otherwise.” 28
U.S.C. § 1447(d). We disagree.

   [1] It is a commonplace that an order that is actually issued
pursuant to 28 U.S.C. § 1447(c), which provides for remand
when there is a defect in the removal or when there is a lack
of subject matter jurisdiction, cannot be reviewed by us. See,
e.g., Kircher v. Putnam Funds Trust, ___ U.S. ___, ___, 126
S. Ct. 2145, 2153, ___ L. Ed. 2d ___, ___ (2006); Abada v.
Charles Schwab & Co., Inc., 300 F.3d 1112, 1116 (9th Cir.
2002); Pelleport Investors, Inc. v. Budco Quality Theatres,
Inc., 741 F.2d 273, 276 (9th Cir. 1984). But despite its appar-
ently comprehensive language, § 1447(d) does not mean quite
what it says. Where the remand order is not based on defec-
tive removal or lack of subject matter jurisdiction at the time
of removal,6 § 1447(c) does not apply and the § 1447(d)
restriction does not apply either. As the Supreme Court has
put it, “only remand orders issued under § 1447(c) and invok-
ing the grounds specified therein . . . are immune from review
  6
   There can be little doubt that the question of jurisdiction is determined
as of the time of the removal itself. See Abada, 300 F.3d at 1117; Poore
v. Am.-Amicable Life Ins. Co., 218 F.3d 1287, 1290-91 (11th Cir. 2000);
Sparta Surgical Corp. v. NASD, Inc., 159 F.3d 1209, 1213 (9th Cir. 1998);
In re Amoco Petroleum Additives Co., 964 F.2d 706, 708 (7th Cir. 1992).
            REDDAM v. SIDLEY AUSTIN BROWN AND WOOD                  9251
under § 1447(d).” Thermtron Prods., Inc. v. Hermansdorfer,
423 U.S. 336, 346, 96 S. Ct. 584, 590, 46 L. Ed. 2d 542
(1976). Moreover, we are not bound by the district court’s
characterization of the basis for its remand order. See Abada,
300 F.3d at 1117; cf. Kunzi v. Pan Am. World Airways, Inc.,
833 F.2d 1291, 1293-94 (9th Cir. 1987) (district court did not
specify basis, but it was apparent that the basis was
§ 1447(c)).

   In the case at hand, the district court expressly declared that
it had jurisdiction in the first place. It never deviated from that
declaration. This case is unlike cases where a district court
later determines that there was no jurisdiction ab initio.7 In
this case, the district court determined that a later event—the
NASD’s refusal to arbitrate—had made the arbitration provi-
sion unenforceable as to the parties then before it.

   [2] We recognize that the district court referred to
§ 1447(c) when it decided the removal issue, but that is not
dispositive. On the face of its order, the district court
explained that it would remand because “[h]ere, based on the
decision by the NASD to decline jurisdiction, the claims are
no longer subject to arbitration. It follows, therefore, that the
sole basis for federal jurisdiction is no longer present. . . .
Thus, the Court has no basis for jurisdiction, and must remand
the case to state court.” (Emphasis added). That plainly indi-
cates that the later occurring events were the basis for the
decision. That cannot be a basis for a § 1447(c) remand order.
See Davis v. UAW, 392 F.3d 834, 837-38 (6th Cir. 2004),
petition for cert. filed, 74 U.S.L.W. 3051 (U.S. Jul. 15, 2005)
(No. 05-107); Poore, 218 F.3d at 1290-91; Sparta Surgical,
159 F.3d at 1211-13.
  7
   See DaWalt v. Purdue Pharma, L.P., 397 F.3d 392, 400-02 (6th Cir.
2005); Special Invs. Inc. v. Aero Air Inc., 360 F.3d 989, 996 & n.2 (9th
Cir. 2004) (Fernandez, J., concurring); Adkins v. Ill. Cent. R.R. Co., 326
F.3d 828, 833 (7th Cir. 2003).
9252        REDDAM v. SIDLEY AUSTIN BROWN AND WOOD
  [3] Therefore, we have jurisdiction to review the propriety
of the remand order.8

                             DISCUSSION

   At root, the district court remanded because the NASD
refused to act as the arbitrator. That, argued Reddam, meant
that the issues could not be arbitrable at all. The argument,
accepted by the district court, raises two questions. First, did
the agreement amount to a choice of forum clause? Second,
if it did, did the refusal of that forum to conduct the arbitra-
tion mean that no arbitration at all could go forward—that is,
was the choice of forum clause integral? The district court
answered both questions in the affirmative. We do not.

  A.    Was There a Choice of Forum Clause?

   As we have already pointed out, the arbitration clause used
in the customer agreement does state that “[a]ny arbitration
under this agreement shall be determined pursuant to the rules
then in effect of the National Association of Securities Deal-
ers, Inc., as the undersigned you may elect.” But what does
that mean? In deciding, we must, no doubt, apply the usual
principles of contract interpretation. See Wolsey, Ltd. v. Food-
maker, Inc., 144 F.3d 1205, 1210 (9th Cir. 1998).

   We have noted that state law generally applies to the con-
struction of arbitration agreements. See id. If so, the agree-
ment in question chooses the law of the State of New York.
But we need not resolve the question of whether state law, or
federal law,9 should apply to a construction of the forum
  8
     Beyond that, we have jurisdiction under 9 U.S.C. § 16(a)(1)(A) & (B)
to review the district court’s conclusion that it could no longer enforce the
arbitration agreement.
   9
     Other courts of appeals have applied federal law on the basis that argu-
ments about whom the arbitrator can be present issues of federal law. See,
e.g., Smith Barney, Inc. v. Critical Health Sys. of N.C., Inc., 212 F.3d 858,
860 (4th Cir. 2000); Weiner v. Gutfreund (In re Salomon Inc. S’holders’
Derivative Litig.), 68 F.3d 554, 559 (2d Cir. 1995).
           REDDAM v. SIDLEY AUSTIN BROWN AND WOOD           9253
selection provision before us. Whichever body of law is
applied, it is our task to determine and effectuate the intent of
the parties10 and on this record that means we must do so by
reference to the terms of the agreement itself. See In re Salo-
mon, 68 F.3d at 557-58; Cowen & Co. v. Anderson, 558
N.E.2d 27, 28-29 (N.Y. 1990).

   The provision in the DBSI customer agreement does select
the rules of the NASD, but does not state that the arbitration
is to take place before the NASD itself. Had the latter been
intended, the parties could easily have said so. In fact, a more
recent version of DBSI’s customer agreement reads: “I agree
to arbitrate with you any controversies . . . only before the
New York Stock Exchange or the National Association of
Securities Dealers Regulation, Inc. at my election.” The
absence of similar language militates in favor of a decision
that the provision in question here does not select a forum at
all.

   On the other hand, a commonsensical reading of the provi-
sion would suggest that the parties at least considered the
NASD to be a proper forum for their arbitration, and probably
expected that the NASD would be the forum. It is unlikely
that they wanted to use NASD rules, but did not intend to
select the NASD itself as the arbitrator, if it would agree to
arbitrate. A number of other courts of appeals have decided
that a clause which adopts the rules of an organization like the
NASD implicitly chooses that organization as the, or a,
forum. See Smith Barney, 212 F.3d at 860-61; Brown v. ITT
Consumer Fin. Corp., 211 F.3d 1217, 1222 (11th Cir. 2000);
In re Salomon, 68 F.3d at 557-58; Luckie v. Smith Barney,
Harris Upham & Co., Inc., 999 F.2d 509, 510-11, 513-14
(11th Cir. 1993) (per curiam); PaineWebber, Inc. v. Ruther-
ford, 903 F.2d 106, 108 (2d Cir. 1990); Roney & Co. v.
Goren, 875 F.2d 1218, 1219-20, 1223 (6th Cir. 1989).
  10
    See Wolsey, 144 F.3d at 1210.
9254      REDDAM v. SIDLEY AUSTIN BROWN AND WOOD
   Ultimately, we need not decide whether the provision at
issue was a choice of forum clause because, as explained
below, the provision was not integral to the arbitration agree-
ment in any event.

  B.   Was the Choice of the NASD Integral?

  [4] When a court asks whether a choice of forum is inte-
gral, it asks whether the whole arbitration agreement becomes
unenforceable if the chosen arbitrator cannot or will not act.
As one court of appeals put it:

    Only if the choice of forum is an integral part of the
    agreement to arbitrate, rather than an “ancillary
    logistical concern” will the failure of the chosen
    forum preclude arbitration. Here there is no evidence
    that the choice of the NAF as the arbitration forum
    was an integral part of the agreement to arbitrate.
    Brown’s argument that the arbitration agreement is
    void because the NAF was unavailable must fail.

Brown, 211 F.3d at 1222 (citations omitted). We see no evi-
dence that the choice was integral here—in fact, there was not
even an express statement that the NASD would be the arbi-
trator.

    The district court, however, relied upon In re Salomon, 68
F.3d at 555-56. That case did, indeed, declare that the implicit
choice was also implicitly integral and exclusive. It presented
little reasoning to support that determination but, rather,
pointed to other cases which had held that arbitration must go
forward in one of the chosen fora. Id. at 558-59. It then con-
cluded that where a forum selection clause “is as important a
consideration as the agreement to arbitrate itself, a court will
not sever the failed term from the rest of the agreement and
the entire arbitration provision will fail.” Id. at 561 (internal
quotation marks omitted). However, its holding is not persua-
sive. Essentially, the cases upon which it relied were inappo-
          REDDAM v. SIDLEY AUSTIN BROWN AND WOOD             9255
site. In Roney, 875 F.2d at 1223, the Sixth Circuit Court of
Appeals decided that when the parties had agreed to a particu-
lar arbitrator, which was still available, one of them could not
choose a different arbitrator. In PaineWebber, 903 F.2d at
107-08, the Second Circuit Court of Appeals reached the
same conclusion in the same context. Finally, in Luckie, 999
F.2d at 510-11, 513-14, the Eleventh Circuit Court of Appeals
was presented with the same situation and reached the same
result. Again, none of those cases dealt with a failure or
refusal of the named arbitrator to arbitrate. Thus, they cast lit-
tle light on that situation.

   Other cases relied upon by Reddam are no more to the pur-
pose. In Smith Barney, 212 F.3d at 862, the Fourth Circuit
Court of Appeals prevented a party from seeking another arbi-
trator when the fora mentioned in the agreement were avail-
able. Even further afield is a case where the agreement
expressly provided that arbitration could be “only before” cer-
tain fora and at least one of them was still available. Merrill
Lynch, Pierce, Fenner & Smith Inc. v. Georgiadis, 903 F.2d
109, 111-13 (2d Cir. 1990).

   [5] Thus, we cannot agree that the customer agreement
involved here became unenforceable between the parties
when the NASD bowed out. There is no evidence that naming
of the NASD was so central to the arbitration agreement that
the unavailability of that arbitrator brought the agreement to
an end. See Brown, 211 F.3d at 1222; McGuire, Cornwell &
Blakey v. Grider, 771 F. Supp. 319, 320 (D. Colo. 1991);
Astra Footwear Indus. v. Harwyn Int’l, Inc., 442 F. Supp.
907, 910-11 (S.D.N.Y. 1978). Something more direct is
required before we, in effect, annihilate an arbitration agree-
ment.

   [6] Our decision is analogous to our approach to forum
selection clauses which choose a particular court as the litiga-
tion arena. There we have not treated the selection of a spe-
cific forum as exclusive of all other fora, unless the parties
9256        REDDAM v. SIDLEY AUSTIN BROWN AND WOOD
have expressly stated that it was. Compare Pelleport Inves-
tors, 741 F.2d at 275, 280 (holding remand required where
contract provided that “disputes . . . shall be litigated only in
the Superior Court for Los Angeles, California (and in no
other)”), with N. Cal. Dist. Council of Laborers v. Pittsburg-
Des Moines Steel Co., 69 F.3d 1034, 1036-37 (9th Cir. 1995)
(holding remand not proper where contract provided that deci-
sions “shall be enforceable by a petition . . . filed in the Supe-
rior Court of the City and County of San Francisco” because
that language “is permissive.”), and Hunt Wesson Foods, Inc.
v. Supreme Oil Co., 817 F.2d 75, 76-78 (9th Cir. 1987) (hold-
ing remand not proper where contract provided that “[t]he
courts of California, County of Orange, shall have jurisdiction
over the parties”). In referring to those cases, we do not sug-
gest that other arbitral fora can be utilized when the one
selected by the parties is itself available. But here, of course,
the selected forum was not available.

   [7] Therefore, on this record we are constrained to hold that
the refusal of the NASD to conduct an arbitration neither ren-
dered the district court powerless to require arbitration to pro-
ceed11 nor deprived it of jurisdiction. In determining
otherwise, the district court erred.12

                           CONCLUSION

   When this case was removed, the district court determined
that it had jurisdiction and issued an order compelling arbitra-
tion. Thereafter, when the named arbitrator refused to accept
the case, the district court determined that the arbitration
  11
    See Brown, 211 F.3d at 1222.
  12
    Reddam asks that we affirm the district court’s remand order on the
basis that his claims against KPMG and Sidley were not subject to arbitra-
tion in the first place and should not have been removed and ordered to
arbitration. But removal was at the behest of Deutsche Bank, and 9 U.S.C.
§ 205 applies to actions, not individual claims within actions. Moreover,
an interlocutory order compelling arbitration cannot, itself, be appealed.
See 9 U.S.C. § 16(b)(3).
          REDDAM v. SIDLEY AUSTIN BROWN AND WOOD             9257
agreement had become unenforceable and that federal ques-
tion jurisdiction had dissipated like a brume in a breeze.

  We reverse because the evidence does not support a deter-
mination that the parties agreed to resile from arbitration if the
implicitly named arbitrator—the NASD—did not consent to
act.

  REVERSED. The district court shall enter an order recall-
ing the remand and shall notify the Orange County Superior
Court that the district court has resumed jurisdiction over the
action.