Court Opinion

ID: 9468253
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:09:22.908358+00
Date Added: 2024-06-11T17:40:45.922134
License: Public Domain

K. K. HALL, Circuit Judge,
dissenting:
I am at a loss to understand how the majority could have strayed so far afield in its resolution of this case. We have been called upon to determine whether the district court properly exercised its discretion by deferring to the state court. Rather than addressing this question, the majority concentrates on tangential matters which are not ripe for adjudication and which serve only to divert attention from the true controversy.1
This controversy is a product of the parallel legal proceedings instituted by the parties. Initially, the Hospital filed a declaratory judgment action in state court seeking a declaration of its rights and liabilities under the construction contract. The Hospital alleged, among other things, that Mercury was not entitled to invoke the arbitration clause of the contract because it had waived arbitration, and was otherwise prohibited by laches and estoppel. In response, Mercury asserted its right to arbitration.
Although North Carolina provides by statute a means for compelling arbitration,2 Mercury nevertheless filed in federal court a petition to compel arbitration pursuant to the Federal Arbitration Act and a petition to remove the state action to federal court. The district court judge denied removal and declined to rule on the petition to compel because the identical issues were already before the state court. Mercury now asks us to decide whether the district court properly stayed its consideration of the petition to compel arbitration pending the outcome of the parallel state proceeding.
When analyzing this question, we must remember the nature of the case and its procedural posture. The identical issues of arbitration and waiver have been presented to both a state and federal court. The parties to the arbitration agreement are before both courts, and each court has statutory authority to compel arbitration.3 *949Therefore, both courts are capable of providing the appropriate relief to the parties, Further, both lawsuits are still in the pleading stage, so neither party has had an opportunity to present its arguments for or against arbitration. Thus, the next step in these proceedings is for a trial court to hear the parties and determine whether the issues are arbitrable. Against this background, we must decide whether the district court is obligated to make that determination.
The Federal Arbitration Act does not specify the obligations of the district judge when confronted with a parallel state proceeding. Of the various provisions of the Act, Section 4 comes the closest to governing this situation.4 That section requires the court to consider a petition to compel and then to either order arbitration or, if necessary, to entertain certain specified challenges to the agreement. The clear Congressional purpose behind these directives is to expedite the arbitration process by requiring prompt action by the court. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, 87 S.Ct. 1801, 1806, 18 L.Ed.2d 1270 (1967).
In this case, however, the purpose of Section 4 will be competently and authoritatively implemented by the state court. It would serve no purpose to read into Section *9504 the requirement that the federal court must also rule upon the petition, thereby duplicating the efforts of the state court and possibly contradicting its result. Under such circumstances, Section 4 does not require the federal court to rule upon the petition.
We next turn to the Supreme Court’s landmark decision in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), in which the Court developed several principles and standards for gauging the propriety of a federal court’s deferral to a state court. The Court stated that, as a general rule, “the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction . . . . ” Id. at 817, 96 S.Ct. at 1246, quoting McClellan v. Carland, 217 U.S. 268, 282, 30 S.Ct. 501, 504, 54 L.Ed. 762 (1910). The Court further observed that the federal district courts have a “virtually unflagging obligation” to exercise the jurisdiction given them. 424 U.S. at 817, 96 S.Ct. at 1246. However, the Court also recognized the importance of wise judicial administration, conservation of judicial resources and the comprehensive disposition of litigation, and found that exceptional circumstances would justify deferral by the federal court. Those circumstances include: (1) the prior assumption of jurisdiction over the res by state court; (2) the inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation; and (4) the order in which jurisdiction was obtained by the concurrent forums. Id. at 818, 96 S.Ct. at 1246.
Such exceptional circumstances are present here.5 As discussed earlier, the waiver issue was first presented to the state court, which has the authority and competence to provide appropriate relief. A stay of the federal action gives proper deference to the prior jurisdiction of the state court and eliminátes the possibility of duplicative effort and conflicting results. Further, the state court, having jurisdiction over both the arbitration issue and the substantive action on the merits, is in a better position to bring the entire litigation to a prompt conclusion.
Despite these strong considerations, the majority concludes that the federal court must rule upon Mercury’s petition because “federal substantive law” gives Mercury the right to arbitrate the Hospital’s waiver defenses. The majority overlooks the fact that we do not know the basis for these defenses because this case is still in the pleading stage, and therefore we cannot know whether the defenses are of an arbi-trable nature. Nevertheless, the majority jumps to the conclusion that arbitration would immediately ensue, and in the process forgets that we are supposed to be deciding which court will make that very determination. In other words, with a near total ignorance of the surrounding circumstances, the majority has ruled upon Mercury’s petition to compel arbitration and has used that ruling to admonish the district court for not acting in the first place.
I suspect the majority’s primary fear is that the Hospital has attempted to deprive Mercury of its access to a federal forum. The majority refers ominously to the filing of the state action as intended “to defeat arbitration,” and labels the joinder of the architect-agent as a ploy to avoid diversity. These inferences ultimately compel the majority to accuse the Hospital of filing “a contrived action” and forum-shopping.
The more reasonable explanation for these acts is that after months of negotiations, and having discovered the possible misfeasance of its architect, the Hospital decided it had better litigate its cause. The Hospital did so in state court so that it *951could bring all the parties before one forum. The treacherous motives attributed to these acts is more likely a conjecture stemming from the majority’s hindsight than the reasoned product of the Hospital’s foresight.
In the final analysis, the majority has combined a form of bootstrap logic with misconceptions of bad faith to reach a conclusion which is supported neither by law nor fact. For these reasons, I dissent.

. The majority opinion, which in effect directs arbitration, will come as a surprise to all parties. No one argued that this court should decide that issue. The bone of contention concerned which trial court should decide, in accordance with the plain provisions of the statutes, whether arbitration should be compelled.

. N.C. Gen. Stat. § 1-567.1 ei seq.

. The clear majority of decisions has held that a state court is obliged to apply the Federal Arbitration Act to arbitration disputes involving interstate commerce. Main v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 67 Cal. App.3d 19, 136 Cal.Rptr. 378 (1977); West Point-Pepperell, Inc. v. Multi-Line Industries, Inc., 231 Ga. 329, 201 S.E.2d 452 (1973); Pathman Const. Co. v. Knox County Hospital Ass’n, 164 Ind.App. 121, 326 N.E.2d 844 (1975); Fite & Warmath Const. Co. v. MYS Corp., 559 S.W.2d 729 (Ky.1977); In re A/S J. Ludwig Mowinckels Rederi, 25 N.Y.2d 576, 307 N.Y. S.2d 660, 255 N.E.2d 774, cert. den. 398 U.S. 939, 90 S.Ct. 1844, 26 L.Ed.2d 272 (1970); Episcopal Housing Corp. v. Federal Insurance Co., 269 S.C. 631, 239 S.E.2d 647 (1977); Miller v. Puritan Fashions Corp., 516 S.W.2d 234 (Tex. Civ.App. 1974); Port of Seattle v. Washington Utilities & Transportation Comm., 92 Wash.2d 325, 597 P.2d 383 (1979) (en banc). Cases reaching a contrary conclusion include Pullman, Inc. v. Phoenix Steel Corp., 304 A.2d 334 (Del.Super.1973); Standard Co. of New Orleans v. Elliott Const. Co., 363 So.2d 671 (La. 1978); and Wilson & Co. v. Fremont Cake & Meal Co., 153 Neb. 160, 43 N.W.2d 657 (1950), cert. den. 342 U.S. 812, 72 S.Ct. 25, 96 L.Ed. 614 (1951).
The position of North Carolina is unclear. In the two decisions cited by the majority, the North Carolina Court of Appeals ruled that the Federal Arbitration Act did not apply to the contracts in question because those contracts did not involve interstate commerce. Burke County Public Schools Bd. of Ed. v. The Shaver Partnership, 46 N.C.App. 573, 265 S.E.2d 481 (N.C.App. 1980); Bryant-Durham Electric Co. v. Durham County Hospital Corp., 42 N.C.App. 351, 256 S.E.2d 529 (1979).
However, we need not address the issue here. North Carolina has adopted the Uniform Arbitration Act, N.C.Gen.Stat. § 1-567.1 et seq. The Uniform Act requires the state court to compel arbitration in virtually the identical manner and circumstances set forth in the Federal Act. See note 3, infra. Therefore, the same result should be obtained regardless of the law applied.
The North Carolina act provides, in pertinent part:
§ 1-567.2. Arbitration agreements made valid, irrevocable and enforceable; scope.— (a) Two or more parties may agree in writing *949to submit to arbitration any controversy existing between them at the time of the agreement, or they may include in a written contract a provision for the settlement by arbitration of any controversy thereafter arising between them relating to such contract or the failure or refusal to perform the whole or any part thereof. Such agreement or provision shall be valid, enforceable, and irrevocable except with the consent of all the parties, without regard to the justiciable character of the controversy.
§ 1-567.3. Proceedings to compel or stay arbitration. — (a) On application of a party showing an agreement described in G.S. 1-567.2, and the opposing party’s refusal to arbitrate, the court shall order the parties to proceed with arbitration, but if the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised and shall order arbitration if found for the moving party, otherwise, the application shall be denied.
(c) If an issue referable to arbitration under the alleged agreement is involved in an action or proceeding pending in a court having jurisdiction to hear applications under subsection (a) of this section, the application shall be made therein. Otherwise the application may be made in any court of competent jurisdiction.

. 9 U.S.C. § 4 provides:
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days’ notice in writing of such application shall be served upon the party in default. Service thereof shall be made in the manner provided by the Federal Rules of Civil Procedure. The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed. If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. If no jury trial be demanded by the party alleged to be in default, or if the matter in dispute is within admiralty jurisdiction, the court shall hear and determine such issue. Where such an issue is raised, the party alleged to be in default may, except in cases of admiralty, on or before the return day of the notice of application, demand a jury trial of such issue, and upon such demand the court shall make an order referring the issue or issues to a jury in the manner provided by the Federal Rules of Civil Procedure, or may specifically call a jury for that purpose. If the jury find that no agreement in writing for arbitration was made or that there is no default in proceeding thereunder, the proceeding shall be dismissed. If the jury find that an agreement for arbitration was made in writing and that there is a default in proceed--ing thereunder, the court shall make an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.

. The factors regarding the state court’s previous assumption of jurisdiction over the res and the inconvenience of the federal forum are not present. Though these factors are important in their own right, we do not view their absence as dispositive. As the Supreme Court stated in Colorado River:
“No one factor is necessarily determinative; a carefully considered judgment taking into account both the obligation to exercise jurisdiction and the combination of factors coun-selling against that exercise is required.”
424 U.S. at 818-19, 96 S.Ct. at 1246-47.