Court Opinion

ID: 6933505
Source: CourtListenerOpinion
Date Created: 2022-07-24 00:17:44.757647+00
Date Added: 2024-06-11T16:07:19.793230
License: Public Domain

PHILLIPS, Senior Circuit Judge,
dissenting:
I agree with the majority that, if Harkins is not entitled to arbitration, the district court’s failure adequately to explain its reasons for rejecting Harkins’ claimed setoffs requires that we remand this ease for further proceedings. I would hold, however, that Global Supply should be bound by the arbitration clause in the contract between its garnishee, Harkins, and its judgment debtor, Toledo Drywall. Accordingly, I respectfully dissent.
I.
I do not believe that the majority’s thoughtful exegesis of the Virginia law of attachments and garnishments takes us as far as does the majority. While it may be true that “by act of garnishment, the judgment creditor does not replace the judgment debtor as owner of the property, but merely has the right to hold the garnishee hable for the value of that property,” ante, at 833-34, when the property in question is a money debt, the distinction seems to me to be one without a difference. I think there is little to be gained, therefore, in seeking to determine whether the judgment creditor does or does not “step into the shoes” of the judgment debtor. Quite obviously, the judgment creditor does not step into the debtor’s shoes for purposes of assuming duties owed the garnishee (beyond those duties reducible to contractual setoffs).. With equal certainty, it does no violence to the metaphor to conclude that the judgment creditor does step into the debtor’s shoes for purposes of calculating the value of the debtor’s property in the hands of the garnishee. Given that the judgment creditor can be said to step into its debtor’s shoes for some purposes and not for others, whether it should be understood to step into the debtor’s shoes for purposes of a contractual arbitration provision cannot be answered in the abstract, as though it were a question of metaphysics. ' In order to determine, with regard to any contractual provision, whether a judgment creditor should be bound as is its debtor, resort must be made to underlying policy concerns.
I read the majority opinion to identify two policy factors that militate against holding Global Supply bound to the arbitration provision in the Harkins-Toledo Drywall contract. First, the majority observes that were we “to designate Global Supply a party to the arbitration in addition to or in lieu of Toledo Drywall, we would, by judicial fiat, be modifying the agreement reached by the parties.” Ante, at 835. I cannot agree, for I believe that this statement confuses two distinct issues: whether an arbitration agreement between parties can bind nonparties, and whether a particular contractual arbitration provision purports to bind nonparties. Global Supply and Harkins have joined issue only on the former. That is, Global Supply appears to concede (rightly, I believe) that, solely as a matter of contract interpretation, the arbitration provisión does appear to bind nonparties such as judgment creditors. Thus, any reasons to hold that Global Supply is not bound to arbitrate the contractual set-offs must arise by operation of background law. A conclusion that Global Supply is bound to arbitrate would not “be modifying the agreement reached by the [contracting] parties,” Harkins and Toledo Drywall. Consequently, the only arguable policy reason for *837holding Global Supply not bound to arbitrate lies, to my mind, in the second factor that the majority identifies — judicial economy.
While such considerations must be taken seriously,* there are powerful countervailing factors of simple equity between the contending parties that I would treat as dispositive in favor of holding Global Supply bound to the arbitration provision. Indeed, the equities seem to me overwhelmingly in favor of that result.
An arbitration provision, after all, confers a substantial contractual right for which a party often gives valuable consideration. It seems unfair that a garnishee should be stripped of her contractual right to demand arbitration on the mere happenstance that the person asserting contractual rights against her is a nonparty whose interest arises only by virtue of the misfeasance of the garnishee’s creditor. On the other hand, there is no unfairness of which the garnishing judgment creditor can complain if the contract between garnishee and judgment debtor is construed to require him to arbitrate disputes regarding the value of the property the garnishee owes the debtor. To be sure, the garnishor might prefer not to be bound by such an arbitration provision, but he will just as likely prefer not to be bound by other “substantive” provisions of the contract — for example, a clause that permits the garnishee to deduct attorneys fees incurred in defense of a garnishment proceeding brought to recover monies owed on the contract. There is no qualitative difference between the two that makes imposition of the former inequitable while imposition of the latter remains equitable, indeed transparently so.
II.
In sum, I agree with the majority that just because “the contract terms must be consulted” when a garnishee disputes the amount of its contractual obligation to the garnishor’s judgment debtor “does not compel the conclusion that the contract’s procedural mechanisms for determining contract rights must displace court procedures.” Ante, at 834. Whether we should affirm that conclusion even though it is not compelled is inescapably a question of policy and thus a matter of judgment. While I do not pretend that resolution of that policy question is simple, I conclude that the better rule would be that a judgment creditor, pursuing a garnishment proceeding against a garnishee who owes money to the judgment debtor under a contract, is bound by a mandatory arbitration clause in that contract. Accordingly, I would remand to the district court with an order that it stay the garnishment action pending resolution of the disputed setoffs in an arbitration proceeding conducted pursuant to the terms of the Harkins-Toledo Drywall contract.

This is not necessarily to accept the majority's assertion that the rule it adopts will further judicial economy. The significant likelihood that any judicial interpretation of a complicated commercial contract will be appealed (and, as here, reversed and remanded) suggests that it might be more efficient for the trial court to order binding arbitration and then to stay its own proceedings.