708 F.2d 1458 (9th Cir. 1983), 82-5779, Mediterranean Enterprises, Inc. v. Ssangyong Corp.

Docket Nº:82-5779.
Citation:708 F.2d 1458
Party Name:MEDITERRANEAN ENTERPRISES, INC., a California corporation, Plaintiff-Appellee, v. SSANGYONG CORPORATION, a Korean corporation, Defendant, Ssangyong Construction Company, Ltd., a Korean corporation, Defendant-Appellant.
Case Date:June 23, 1983
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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708 F.2d 1458 (9th Cir. 1983)

MEDITERRANEAN ENTERPRISES, INC., a California corporation,



SSANGYONG CORPORATION, a Korean corporation, Defendant,

Ssangyong Construction Company, Ltd., a Korean corporation,


No. 82-5779.

United States Court of Appeals, Ninth Circuit

June 23, 1983

Argued April 7, 1983.

Submitted April 12, 1983.

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[Copyrighted Material Omitted]

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Gary Phillips, Los Angeles, Cal., for plaintiff-appellee.

Donald F. Woods, Jr., Los Angeles, Cal., for defendant-appellant.

Appeal from the United States District Court for the Central District of California.

Before ANDERSON and NELSON, Circuit Judges, and WILLIAMS, [*] District Judge.

NELSON, Circuit Judge:

Defendant-appellant Ssangyong Construction Co. (Ssangyong) appeals the district court's interlocutory order staying the action and sending to arbitration certain issues raised in a complaint filed by plaintiff-appellee Mediterranean Enterprises, Inc. (MEI). Ssangyong contends that the district court improperly interpreted the scope of the arbitration clause in a contract between the parties. We affirm the district court's order.


MEI, a California corporation, provides engineering services for modular housing projects in developing countries. In May, 1978, MEI was invited by the Saudi Arabian Royal Commission to bid on certain construction projects in Saudi Arabia. In connection with this invitation, MEI contacted Ssangyong, a Korean contractor.

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On September 9, 1978, in Los Angeles, MEI and Ssangyong signed a "Preliminary Agreement for Formation of a Joint Venture" (Agreement). The arbitration clause in the Agreement provides as follows:

Any disputes arising hereunder or following the formation of joint venture shall be settled through binding arbitration pursuant to the Korean-U.S. Arbitration Agreement, with arbitration to take place in Seoul, Korea.

Subsequently, MEI and Ssangyong entered into an Agency Agreement dated October 21, 1978, with Trac Enterprises, providing that Trac would serve as the agent of the joint venture in Saudi Arabia.

The contemplated MEI--Ssangyong joint venture was never actually formed. In its complaint, MEI alleges that Ssangyong used the Agreement merely to gain access to the Saudi projects, and wrongfully commenced the projects in association with Trac (named as a defendant below) rather than with MEI. Ssangyong claims that no breach occurred, and that its non-performance of the Agreement was due to its inability to obtain certain Korean government approvals required by paragraph 20 of the Agreement. 1

On November 5, 1980, MEI commenced this action in district court. The complaint contains six counts against Ssangyong: breach of contract and breach of fiduciary duty (counts 1, 2 and 4), inducing and conspiracy to induce breach of contract [the Trac Agency Agreement] (count 7), quantum meruit (count 8), and conversion (count 9). 2

On November 9, 1981, the district court rejected MEI's contention that Ssangyong had fraudulently inserted the words "arising hereunder or" in the arbitration clause, and ordered Ssangyong to prepare findings of fact and conclusions of law on all of the issues relating to its motion to stay the proceedings pending arbitration. Ssangyong submitted its proposed findings and conclusions, which the court signed shortly thereafter. On December 1, 1981, the court held a hearing on the scope of the arbitration clause and took the matter under submission.

On July 19, 1982, the court entered its order amending one earlier conclusion of law, stating:

The issues raised by Counts 1, 2 and 4 of Mediterranean Enterprises, Inc.'s Complaint against Ssangyong Construction Co., Ltd. are found to be arbitrable and are ordered to arbitration between said parties pursuant to paragraph 16 of the Preliminary Agreement of September 9, 1978 between Mediterranean Enterprises, Inc. and Ssangyong Construction Co., Ltd.

The order also provides that "the action is stayed pending receipt by this court of the results of the arbitration between [MEI] and [Ssangyong]." It is from this order that Ssangyong appeals.


I. Does this court have jurisdiction over the district court's interlocutory order?

II. What is the scope of the arbitration clause?

III. Did the district court abuse its discretion in staying the action pending arbitration?


I. Jurisdiction

This court has jurisdiction over the district court's order. As a general rule, the "grant or denial of a stay of an action pending arbitration ... is not a 'final decision' appealable under 28 U.S.C. Sec. 1291." Danford v. Schwabacher, 488 F.2d 454, 455 (9th Cir.1973). However, under 28 U.S.C. Sec. 1292(a)(1) (1976), this court has jurisdiction over appeals from "[i]nterlocutory orders of the district courts ... granting, continuing, modifying, refusing, or dissolving injunctions, or refusing to dissolve or

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modify injunctions ...." Utilizing this section, this circuit has explained that under certain circumstances, an interlocutory stay order may be reviewed by the Court of Appeals. 3 See Brannon v. Warn Bros., Inc., 508 F.2d 115, 118-19 (9th Cir.1974); see also ATSA of California, Inc. v. Continental Insurance Co., 702 F.2d 172, 174 & n. 2 (9th Cir.1983).

An appeal from a stay order lies if two conditions are met:

(a) The action in which the motion for a stay was made could have been maintained as an action at law before the merger of law and equity, and (b) the stay was sought to permit prior determination of an equitable defense or counterclaim.

Danford, 488 F.2d at 455, quoted in Brannon, 508 F.2d at 118. Both prongs of the test are satisfied here. See Wren v. Sletten Construction Co., 654 F.2d 529, 532-33 (9th Cir.1981).

The second prong is satisfied because reliance upon an arbitration agreement to avoid immediate litigation is an equitable defense. See, e.g., Schanferoke Coal & Supply Corp. v. Westchester Service Corp., 293 U.S. 449, 452, 55 S.Ct. 313, 314-15, 79 L.Ed. 583, 586-87 (1935); Wren, 654 F.2d at 533; Danford, 488 F.2d at 456.

To determine whether the first prong of the test is satisfied, we must examine MEI's complaint to determine whether it would have been considered legal or equitable prior to the merger of the two forms of action. See Brannon, 508 F.2d at 118-19; Danford, 488 F.2d at 456. When the complaint is arguably a combination of legal and equitable claims, this circuit has applied a "dominant purpose" test, which provides that when the complaint is "wholly or basically and predominantly an action at law," it is considered legal for the purpose of satisfying the test's first prong. Alexander v. Pacific Maritime Ass'n, 332 F.2d 266, 267 (9th Cir.) (dictum), cert. denied, 379 U.S. 882, 85 S.Ct. 144, 13 L.Ed.2d 88 (1964), quoted in Brannon, 508 F.2d at 119.

In this case, the first prong is satisfied because MEI's complaint is predominantly an action at law. MEI seeks money damages in each of its six counts against Ssangyong, and while count 8, quantum meruit, is an equitable claim, MEI's other counts can be classified as legal. Counts 1, 2, and 7, which allege breach of contract and inducing breach of contract, are actions at law. See Wren, 654 F.2d at 533; Bear v. Hayden, Stone, Inc., 526 F.2d 734, 735 (9th Cir.1975). Count 4, alleging breach of fiduciary duty, has been considered an action at law when, as in this case, money damages are sought. Cf. Austin v. Wilcoxson, 149 Cal. 24, 26-27, 84 P. 417, 418-22 (1906); Ripling v. Superior Court, 112 Cal.App.2d 399, 403-07, 247 P.2d 117, 119 (1952) (actions alleging impropriety by trustees). Count 9, conversion, was also historically classified as a legal action. See, e.g., United States v. Bitter Root Development Co., 200 U.S. 451, 471-72, 26 S.Ct. 318, 324-25, 50 L.Ed. 550, 560-61 (1906); see also 1 T. Street, Federal Equity Practice 26-29 (1909).

II. Interpretation of the Arbitration Clause

A. Standard of review and applicable law

A determination of the arbitrability of a dispute, like the interpretation of any

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contractual provision, is subject to de novo review. See In re Bubble Up Delaware, Inc., 684 F.2d 1259, 1264 (9th Cir.1982) (de novo standard for contractual interpretation); Drake Bakeries, Inc. v. Local 50, American Bakery & Confectionery Workers International, 370 U.S. 254, 256, 82 S.Ct. 1346, 1348, 8 L.Ed.2d 474, 476-77 (1962) (issue of arbitrability a "question for the courts").

The district court's order followed Ssangyong's motion to stay brought pursuant to 9 U.S.C. Sec. 4, a section of the Federal Arbitration Act (Act), 9 U.S.C. Sec. 1 et seq. (1976). The district court correctly found that "the written arbitration provision is part of a 'contract evidencing a transaction involving commerce' within the meaning of [9 U.S.C. Sec. 2 (1976) ]." An action brought under the Act is properly characterized as arising under the body of federal law regulating interstate commerce. See generally Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967); Grand Bahama Petroleum Co. v. Asiatic Petroleum Corp., 550 F.2d 1320 (2d Cir.1977). Federal law therefore applies to our determination of the scope of this arbitration agreement. 4 ATSA of California, Inc. v. Continental Insurance Co., 702 F.2d 172, 174-75 (9th Cir.1983); Tullis v. Kohlmeyer & Co., 551 F.2d 632, 638 n. 8 (5th Cir.1977); Zell v. Jacoby-Bender, Inc., 542 F.2d 34, 37 (7th Cir.1976).

B. Policy considerations

The parties cite strong policies in support of their respective positions. Ssangyong argues...

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