Court Opinion

ID: 28490
Source: CourtListenerOpinion
Date Created: 2010-04-25 09:24:24+00
Date Added: 2024-06-11T14:55:29.869071
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                        FOR THE FIFTH CIRCUIT

                              No. 01-20238

     NICHOLAS DESTEPHANO,

          Plaintiff-Counter   Defendant-Appellant-Cross-Appellee,

           versus

     BROADWING COMMUNICATIONS INC;
     BROADWING TELECOMMUNICATIONS, INC.,

          Defendants-Counter Claimants-Appellees-Cross-Appellants.

           Appeals from the United States District Court
                 for the Southern District of Texas
                           (H-00-CV-2661)

                              AUGUST 20, 2002

Before GARWOOD and DENNIS, Circuit Judges and LITTLE, District
Judge.*

GARWOOD, Circuit Judge:**

     Plaintiff-appellant-cross-appellee Nicholas DeStefano

     *
      Chief District Judge of the Western District of Louisiana,
sitting by designation.
     **
      Pursuant to 5TH CIR. R.47.5 the Court has determined that this
opinion should not be published and is not precedent except under the
limited circumstances set forth in 5TH CIR. R. 47.5.4.
(DeStefano) appeals the district court order compelling

arbitration.1    Defendants-appellees-cross-appellants Broadwing

Communications, Inc. and Broadwing Telecommunications, Inc.

(collectively, Broadwing) appeal an order of sanctions.    We

affirm the district court in all respects.

                     Facts and Proceedings Below

     In the fall of 1998, Austin-based IXC Communications and its

subsidiary, Eclipse Telecommunications, Inc. (collectively,

Eclipse) began acquisition discussions with Costal Telephone

Company (Coastal), a Houston-based telephone services company.

Eclipse is now Broadwing.    Coastal was a privately held company,

owned by Andrew Bursten and other trustee entities (collectively,

the Burstens).    On May 10, 1999, Eclipse acquired Coastal from

the Burstens.

     DeStefano was Coastal’s sales manager and the supervisor of

a large telemarketing force.    On January 8, 1999, DeStefano

entered into an employment agreement (the agreement) with

Eclipse.   The agreement provided that DeStefano would be employed

by Eclipse for a three year term, commencing on the date that

Eclipse acquired Coastal.    The agreement further provided that if

DeStefano were terminated “without cause,” prior to the

expiration of the agreement he would be entitled to certain

     1
      As we understand it, plaintiff spells his name “DeStefano;”
apparently through error it appears on the docket sheet and in the
record as “Destephano.”

                                  2
severance payments.

     The agreement also included an arbitration clause, which

provided as follows:

     “Binding Arbitration. The parties hereby consent to
     the resolution by binding arbitration of all claims or
     controversies in any way arising out of, relating to or
     associated with this Agreement. Any arbitration
     required by this Agreement shall be conducted before a
     single arbitrator in Austin, Texas in accordance with
     the commercial arbitration rules of the American
     Arbitration Association then existing, and any award,
     order or judgment pursuant to such arbitration may be
     enforced in any court of competent jurisdiction. The
     arbitrator shall apply rules of Texas law and the
     parties expressly waive any claim or right to an award
     of punitive damages. All such arbitration proceedings
     shall be conducted on a confidential basis.
     Notwithstanding the foregoing, either party may seek
     injunctive or other equitable relief in a court of law
     without proceeding through arbitration.”

     The Burstens had placed a sum of “bonus money” in escrow

with Craig Cavalier, the Burstens’ attorney.   DeStefano was to

receive the escrowed funds if he remained employed with Coastal

for one year after Eclipse acquired Coastal.   If not, the funds

were to revert to the Burstens.

     In the fall of 1999, twenty-seven charges of discrimination

were filed with the Equal Employment Opportunity Commission

(EEOC) by employees in the Houston office of Coastal (now

Eclipse).   Several of these charges alleged that DeStefano had

instigated a sexually-charged work environment or that he had

engaged in racial discrimination and harassment.

     Eclipse terminated DeStefano’s employment on November 4,

                                  3
1999.   In December 1999, the Burstens filed suit against

Broadwing in state court (the Bursten litigation), seeking a

declaratory judgment regarding certain issues related to the

purchase agreement.   After his termination, DeStefano made demand

upon Cavalier for payment of the bonus money being held in

escrow.   DeStefano alleges that Broadwing sent a letter to

Cavalier stating, “Since the termination was for cause, no monies

should be paid to Mr. DeStefano.”       DeStefano filed an

interpleader suit in state court with the Burstens and Cavalier

to obtain the bonus money.    Broadwing was not a party to that

suit.

     On June 27, 2000, DeStefano filed the instant suit against

Broadwing in Texas state court.       DeStefano alleged breach of

contract, retaliatory discharge under Title VII, and tortious

interference with contract.    On August 2, 2000, Broadwing removed

the case to the United States District Court for the Southern

District of Texas, Houston Division and filed a counterclaim

alleging fraud, breach of fiduciary duty, and negligence by

DeStefano in connection with Eclipse’s purchase of Coastal.

Broadwing filed a motion to compel arbitration pursuant to the

arbitration clause in the agreement.       On October 30, 2000, the

district court entered an order granting Broadwing’s motion and

dismissing DeStefano’s suit against Broadwing (the arbitration

order).   On November 3, 2000, Broadwing joined DeStefano in a

                                  4
third-party action in the Bursten litigation, asserting the same

causes of action originally brought as counterclaims against

DeStefano in the instant suit.

     On November 8, 2000, DeStefano filed a motion for sanctions,

seeking monetary sanctions and seeking to have the order

compelling arbitration rescinded and the case reinstated.      The

district court held a hearing on the sanctions motion on December

19, 2000.   On January 31, 2001, the district court granted a

monetary sanction against Broadwing in the amount of $5,160.00,

but declined to rescind the arbitration order.

     DeStefano appeals the district court’s refusal to rescind

the arbitration order.    In the alternative, DeStefano argues that

the district court erred in ordering arbitration of his Title VII

claim, his tortious interference claim, and Broadwing’s

counterclaims.   Broadwing cross-appeals the district court’s

imposition of the monetary sanction.

                             Discussion

1. Sanctions and Waiver

     DeStefano argues that the district erred by declining to

rescind the arbitration order as part of the sanction for its

finding of civil contempt.   He argues that Broadwing waived its

right to arbitration by filing the third-party claims against

DeStefano in the Bursten litigation.      Broadwing, on its cross-

appeal, argues that the district court erred in holding Broadwing

                                  5
in contempt and ordering monetary sanctions.

     We review a district court’s order holding a party in

contempt for abuse of discretion.     Martin v. Trinity Industries,

Inc., 959 F.2d 42, 46 (5th Cir. 1992).    The underlying factual

findings are reviewed for clear error and the underlying

conclusions of law are reviewed de novo.     American Airlines, Inc.

v. Allied Pilots Ass’n, 228 F.3d 574, 578 (5th Cir. 2000).    “A

movant in a civil contempt proceeding bears the burden of

establishing by clear and convincing evidence 1) that a court

order was in effect, 2) that the order required certain conduct

by the respondent, and 3) that the respondent failed to comply

with the court's order.”    Martin, 959 F.2d at 47.   Upon a finding

of contempt, the district court has broad discretion in assessing

sanctions to protect the sanctity of its decrees and the legal

process.   See American Airlines, 228 F.3d at 585.

     We first address Broadwing’s appeal of the district court’s

finding of contempt.    The district court did not clearly err in

finding that Broadwing was in contempt of the arbitration order.

It is undisputed that Broadwing joined DeStefano to the state

court action four days after the district court entered the

arbitration order.    Broadwing inexplicably argues that it could

not have violated the arbitration order because the arbitration

order “in no way requires any definite or specific action on the

part of Broadwing.”    Broadwing’s motion to compel arbitration

                                  6
requested, inter alia, the following relief: “Defendants

[Broadwing] be ordered to submit all counterclaims to binding

arbitration in accordance with Plaintiff’s Employment Agreement.”

The arbitration order granted Broadwing’s motion in full.    The

district court’s order thus compelled Broadwing to submit its

counterclaims to arbitration and the district court did not err

in determining that submitting the same counterclaims to another

forum – the state court – was a failure to comply with the

arbitration order.

     As an explanation of its joining DeStefano to the Bursten

litigation, Broadwing asserted that there were communication

delays and statute of limitations concerns on Broadwing’s side.

Nancy Patterson, counsel for Broadwing in this federal suit,

asserted that the district court’s arbitration order, entered on

October 30, 2000, did not arrive in her office until November 2,

2000.   Patterson explained that she was out of the office that

day and did not become aware of the arbitration order until the

late afternoon of November 3, 2000.   The Bursten litigation was

being handled, in state court, by another law firm, which,

according to Broadwing, was unaware of the arbitration order when

DeStefano was joined to the Bursten litigation on November 3,

2000.   As the district court noted, Broadwing still did not

dismiss DeStefano from the state court proceedings even after

Broadwing became aware of the arbitration order and DeStefano had

                                 7
still not been dismissed as of December 19, 2000, when the

district court held its hearing on the sanctions motion.

Broadwing also cited statute of limitations concerns regarding

their fraud claims against DeStefano, although the fraudulent

conduct allegedly took place in fall of 1998 and the statute of

limitations for a fraud claim in Texas is four years.      Tex. Civ.

Prac. & Rem. Code § 16.004.   The district court labeled

Broadwing’s arguments “wholly disingenuous.”      Broadwing argues

that the district court did not make a specific finding of bad

faith.    But the district court held specifically that Broadwing

“wilfully violated this Court’s order,” id. at 5, and, at any

rate, “good faith is irrelevant as a defense to a civil contempt

order,”    Waffenschmidt v. Mackay, 763 F.2d 711, 726.     The

district court did not abuse its discretion by holding that

Broadwing was in contempt of the court’s arbitration order.

     The district court did not err in setting the amount of

monetary sanctions at $5,160.00.       The parties agree that this sum

covers the cost of attorneys’ fees charged to DeStefano in

connection with bringing the motion for sanctions.      As far as

concerns monetary relief, this is the full amount that DeStefano

requested.    Compensation for losses sustained by the complainant

is a proper purpose for sanctions awarded in a civil contempt

proceeding.    American Airlines, 228 F.3d at 585.

     DeStefano also requested that the arbitration order be

                                   8
rescinded and the court case be reinstated as a further sanction

for Broadwing’s contemptuous conduct.    DeStefano, in his brief to

this court, compares Broadwing’s conduct to that of a party which

has waived its contractual right to arbitration.    When a district

court has held that a party’s conduct amounted to waiver of its

right to arbitrate, we review that finding de novo.     Walker v.

J.C. Bradford & Co. 938 F.2d 575, 577 (5th Cir. 1991).      However,

in the instant case, we are considering conduct after arbitration

has been sought and been ordered by the court, and we are

reviewing a district court’s assessment of sanctions in respect

to that order.   Thus, we still apply abuse of discretion review

to the district court’s determination that rescinding the

arbitration order was not an appropriate sanction in this case.

One proper purpose of a civil contempt sanction is to coerce the

contumacious party into compliance with the court’s order.

American Airlines, 228 F.3d at 585.     Rescinding the arbitration

order would have served a precisely opposite purpose.    It was

within the district court’s discretion to decline to rescind the

arbitration order.   The district court did not abuse its

discretion by denying DeStefano’s request of this sanction.

2. The Confidentiality Provision

     Having held that the district court did not abuse its

discretion by declining to rescind the arbitration order as a

sanction, we now turn to DeStefano’s challenges to the

                                   9
substantive merits of the arbitration order.    We review the grant

of a motion to compel arbitration de novo.     Webb v. Investacorp,

89 F.3d 252, 257 (5th Cir. 1996).

     “Arbitration is a matter of contract between the parties,

and a court cannot compel a party to arbitrate unless the court

determines the parties agreed to arbitrate the dispute in

question.”   Pennzoil Exploration and Prod. Co. v. Ramco Energy,

139 F.3d 1061, 1064 (5th Cir. 1998).

     “In adjudicating a motion to compel arbitration under
     the Federal Arbitration Act, courts generally conduct a
     two-step inquiry. The first step is to determine
     whether the parties agreed to arbitrate the dispute in
     question. This determination involves two
     considerations: (1) whether there is a valid agreement
     to arbitrate between the parties; and (2) whether the
     dispute in question falls within the scope of that
     arbitration agreement. When deciding whether the
     parties agreed to arbitrate the dispute in question,
     courts generally . . . should apply ordinary state-law
     principles that govern the formation of contracts. In
     applying state law, however, due regard must be given
     to the federal policy favoring arbitration, and
     ambiguities as to the scope of the arbitration clause
     itself must be resolved in favor of arbitration. The
     second step is to determine whether legal constraints
     external to the parties' agreement foreclosed the
     arbitration of those claims.” Webb, 89 F.3d at 257 -
     58 (internal citations and quotation marks omitted).

     DeStefano first argues that the arbitration clause’s

provision that “arbitration proceedings shall be conducted on a

confidential basis” renders the arbitration procedure an

inadequate alternative to the judicial forum.    He contends that

the confidentiality provision would preclude the parties from

making a record of the arbitration proceedings, thereby

                                10
precluding judicial review.

      DeStefano relies on the following language from Gilmer v.

Interstate/Johnson Lane Corp., 111 S. Ct. 1647, 1655 (1991):

      “A further alleged deficiency of arbitration is that
      arbitrators often will not issue written opinions,
      resulting, Gilmer contends, in a lack of public
      knowledge of employers' discriminatory policies, an
      inability to obtain effective appellate review, and a
      stifling of the development of the law. The NYSE rules,
      however, do require that all arbitration awards be in
      writing, and that the awards contain the names of the
      parties, a summary of the issues in controversy, and a
      description of the award issued. In addition, the
      award decisions are made available to the public.”
      (internal citations omitted).

      Gilmer does not, as DeStefano contends, establish “minimal

standards” of non-confidentiality.      In the first place, the

excerpted language does not constitute a holding of the Court; it

merely recounts a party’s argument and the Court’s explanation of

why it was unavailing.    In the second place, the Gilmer Court

went on to note that “Gilmer's concerns apply equally to

settlements of ADEA claims, which . . . are clearly allowed.”

Id.

      Additionally, DeStefano has not cited any evidence or

authority to support his contention that the “confidential basis”

provision would, in fact, preclude creation of a record.2       Nor

      2
      The arbitration clause further provides that the arbitration shall
be conducted “in accordance with the commercial arbitration rules of the
American Arbitration Association then existing.” The current version
of those rules has not been placed into the record, but we note that
Broadwing has asserted, and DeStefano has not denied, that they require
the creation of a record at the request of any party to the arbitration.

                                   11
has he presented any evidence or authority to support his

speculation that confidentiality would have a chilling effect on

the production of witnesses.    DeStefano’s point of error related

to the confidentiality provision is without merit.

3. The Waiver of Punitive Damages

     DeStefano next argues that his Title VII claim cannot be

subject to arbitration because the arbitration clause provides,

“the parties expressly waive any claim or right to an award of

punitive damages.”    DeStefano asserts that punitive damages are a

cause of action under Title VII and that, thus, they cannot be

prospectively waived.    See Alexander v. Gardner-Denver Co. 94
S. Ct. 1011, 1021-22 (1974).    This argument is without merit.

     If parties agree to arbitration, they will be held to it

unless Congress has evinced an intention to preclude waiver of

judicial remedies for the statutory rights at issue.    Mitsubishi

Motors v. Soler Chrysler-Plymouth, Inc., 105 S. Ct. 3346, 3354-55

(1985).    “[Q]uestions of arbitrability must be addressed with a

healthy regard for the federal policy favoring arbitration.”       Id.

at 3353.    Doubts are resolved in favor of arbitrability.   Id.

     Punitive damages are not a cause of action under Title VII;

they are a remedy that Title VII makes available in certain

instances.    See Rubinstein v. Administrators of the Tulane Educ.

Fund, 218 F.3d 392, 404 (5th Cir. 2000).    “The potential

unavailability of punitive damages is not a ground for denying

                                 12
effect to an otherwise valid agreement to arbitrate.”       Morgan v.

Smith Barney, Harris Upham & Co., 729 F.2d 1163, 1168 n.7 (8th

Cir. 1983); see also, Great Western Mortgage Corp. v. Peacock,

110 F.3d 222, 232 (3d Cir. 1997) (“The availability of punitive

damages is not relevant to the nature of the forum in which the

complaint will be heard. Thus, availability of punitive damages

cannot enter into a decision to compel arbitration.”).

     The arbitrator may consider the argument that the remedy of

punitive damages may not be effectively waived for a Title VII

claim.    See    Shearson/American Express v. McMahon, 107 S. Ct.
2332, 2340 (1987) (“[T]here is no reason to assume at the outset

that arbitrators will not follow the law.”); Mitsubishi Motors v.

Soler Chrysler-Plymouth, Inc., 105 S. Ct. 3346, 3354 (1985) (“By

agreeing to arbitrate a statutory claim, a party does not forgo

the substantive rights afforded by the statute; it only submits

to their resolution in an arbitral, rather than a judicial,

forum.”).       The arbitrator’s decision would be subject to judicial

review.    See Shearson/American Express, 107 S. Ct. at 2340

(“[S]uch review is sufficient to ensure that arbitrators comply

with the requirements of the statute.”)      It may not even be

necessary to reach this issue if it is determined that

DeStefano’s Title VII claim is without merit (or, even if

meritorious, is not such as would support punitive damages under

                                    13
Title VII).3

     We hold that the district court did not err in holding that

DeStefano’s Title VII claim was arbitrable.

4. DeStefano’s Tortious Interference Claim

     3
      DeStefano’s Title VII claim alleged in relevant part:

                     “RETALIATORY DISCHARGE

          15. Plaintiff would show that Defendant has violated
     42 U.S.C. § 2000e-3 by firing him for investigating
     allegations of unlawful discrimination and for attempting
     to assist and participate in an EEOC investigation of
     those allegations.

          16. Charges were filed with the EEOC against
     Defendants which included allegations against Plaintiff.
     Plaintiff undertook his own investigation. Defendant,
     through attorneys, instructed Plaintiff to stop his
     investigation. The Defendant directed Plaintiff to meet
     with representatives of Defendant to discuss the matter.
     When Plaintiff notified Defendant that he intended to
     bring his attorney with him, the Defendant objected.
     Plaintiff appeared at the scheduled meeting with his
     attorney, but representatives of Defendant would not meet
     with them. In furtherance of its scheme to make Plaintiff
     a scapegoat and to deprive him of the benefits of his
     employment agreement, Defendant sought to preclude
     Plaintiff from using his lawyer. Shortly thereafter,
     Plaintiff was fired by Defendant with no explanation other
     than it was “for cause.”

          17. Based upon subsequent developments, it became
     clear that a goal of the new ownership was to make
     Plaintiff a scapegoat for the EEOC complaints, to suppress
     the facts about any culpability of the new owners, and to
     use an indemnity agreement from the prior owners and/or
     funds and benefits owing to Plaintiff to fund the
     settlement with the charging parties rather than conduct a
     good faith investigation into the complaints, and to
     deprive Plaintiff of the benefits of his employment
     contract. Each of (1) Plaintiff’s attempt to investigate
     and participate in the EEOC charges investigation and (2)
     his use of a lawyer was a precipitating cause of the
     firing of Plaintiff.”

                                14
     DeStefano’s next argument is that his tortious interference

claim was outside the scope of the arbitration clause because it

arose after his employment with Broadwing had ended.     This

argument is without merit.

     The arbitration clause encompassed “all claims or

controversies in any way arising out of, relating to or

associated with this Agreement.”     The conduct that DeStefano

alleges as the basis for his tortious interference claim is

associated with the employment agreement with Broadwing (formerly

Eclipse).   DeStefano alleges that Broadwing tortiously interfered

with his relationship with the Burstens by instructing Cavalier

not to pay DeStefano the bonus money that the Burstens had put in

escrow.   The crux of DeStefano’s argument is that Broadwing

informed Cavalier that DeStefano was terminated “for cause” even

though, according to DeStefano, the reasons for DeStefano’s

termination did not fall within the definition of “cause” as

contained in the employment agreement.

     In light of the strong federal policy favoring arbitration,

doubts about the scope of an arbitration clause are resolved in

favor of arbitration.   Moses H. Cone Memorial Hosp. v. Mercury

Constr. Corp., 103 S. Ct. 927, 941 (1983).     “[A]rbitration should

not be denied unless it can be said with positive assurance that

an arbitration clause is not susceptible of an interpretation

which would cover the dispute at issue.”     Neal v. Hardee’s Food

                                15
Systems, Inc., 918 F.2d 34, 37 (5th Cir. 1990) (internal

quotation marks omitted, citations omitted).     An arbitration

provision is generally interpreted according to ordinary state

law principles governing the formation of contracts.      Webb, 89
F.3d at 58; see Metropolitan Prop. & Liab. Co. v. Bridewell, 933
S.W.2d 358, 361 (Tex. App.–Waco, 1996) (citing Neal in support of

finding that a tortious interference claim was properly within

the scope of an arbitration clause).

      In an arbitration-related context, we recently mandated a

broad reading of the phrase “relates to” as used in a statute.

See   Beiser v. Weyler, 284 F.3d 665, 669 (5th Cir. 2002).       Beiser

involved interpretation of “relates to” as that phrase is used in

a statute conferring jurisdiction.     Id.   This is, of course, not

equivalent to a holding that similar phrases in an arbitration

agreement must be interpreted in that fashion.     Still, in a

general way, we find Beiser instructive as to the ordinary

meaning of a broad formulation such as the one we interpret here

-- “in any way arising out of, relating to or associated with.”

This formulation is broad enough to encompass DeStefano’s claim,

which was based on his assertion that the terms of the agreement

entitled him to receive the bonus money and severance benefits.

Because we must resolve any doubts in favor of arbitrability, we

conclude that the district court did not err in holding that

DeStefano’s tortious interference claim was within the scope of

                                16
the arbitration agreement.

5. Remaining Points of Error

     On appeal, DeStefano raises two arguments that were not made

in the district court: (1) He argues that Broadwing’s

counterclaims were not properly within the scope of the

arbitration clause, and (2) he argues that he may not be

compelled to arbitrate his tortious interference claim because it

is against Texas public policy to permit waiver of punitive

damages for such a claim.    DeStefano concedes that these issues

were not properly preserved for appeal.    This court will not, as

a general rule, consider issues not raised in the district court.

United States v. Parker, 722 F.2d 179, 183 (5th Cir. 1983).     We

decline to do so here.4

                             Conclusion

     For the foregoing reasons, the judgment of the district

court is AFFIRMED.

     4
      We note that, at any rate, our analysis of the punitive damages
issue as it related to the Title VII claim would dispose of the same
argument as it relates to the tortious interference claim.
     We further observe that DeStefano informs us that Broadwing has
dismissed its state court suit (third party claim) against him.

                                 17