736 F.2d 409 (7th Cir. 1984), 83-2151, Snyder v. Smith

Docket Nº:83-2151.
Citation:736 F.2d 409
Party Name:Eleanor SNYDER, Executrix of the Estate of Leroy Liljedahl, Plaintiff-Appellee, v. Bruton SMITH, Defendant-Appellant.
Case Date:June 07, 1984
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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736 F.2d 409 (7th Cir. 1984)

Eleanor SNYDER, Executrix of the Estate of Leroy Liljedahl,



Bruton SMITH, Defendant-Appellant.

No. 83-2151.

United States Court of Appeals, Seventh Circuit

June 7, 1984

Argued Jan. 18, 1984.

Rehearing Denied July 3, 1984.

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Gaston H. Gage, Grier, Parker, Poe, Thompson, Bernstein, Gage & Preston, Charlotte, N.C., for defendant-appellant.

John D. Whitcher, Holmstrom & Green, P.C., Rockford, Ill., for plaintiff-appellee.

Before BAUER and FLAUM, Circuit Judges, and SWYGERT, Senior Circuit Judge.

FLAUM, Circuit Judge.

This appeal from the district court's order confirming an arbitration award challenges that order on a number of grounds. The district court had ordered the parties to arbitration in Rockford, Illinois. In that order, the court held that it had personal jurisdiction over appellant Bruton Smith. The court further held that the arbitration clause was contained in a "contract evidencing a transaction involving commerce" and thus the Federal Arbitration Act (FAA), 9 U.S.C. Secs. 1-14 (1982), was applicable to the dispute. Finally, the court held that it could compel arbitration to take place in the Northern District of Illinois even though the arbitration clause specified that any arbitration was to take place in Houston, Texas. After arbitration, the court confirmed the arbitration award, and Smith appealed. For the reasons stated below, we agree with the district court's holdings regarding personal jurisdiction and the applicability of the FAA, but we reverse the court's holding that it could compel arbitration in the Northern District of Illinois.


Appellee Eleanor Snyder is the executrix of the estate of Leroy Liljedahl. Liljedahl and appellant Smith, together with a third individual named Robert Hitt, were partners in Viking Investment Associates (Viking). The Viking partnership is limited to the ownership of certain property located in Harris County, Texas, and to any property purchased by the partnership within one mile of that property.

The partnership agreement was executed in September 1971. At that time, all three partners were Illinois residents. 1 The partnership mailing address was in Rockford, Illinois. For a period of time, Smith conducted the partnership's business from an office in Rockford. 2 The partnership borrowed money from and maintained a checking account with a bank in Rockford.

The partnership agreement provides that the death of a partner does not terminate the partnership but vests the surviving partners with the right to purchase the interest of the deceased partner. The agreement further provides that if the surviving partners or partner exercise the option to purchase, the parties are to attempt to agree on a purchase price; if the parties fail to agree on a price, the price shall be determined by arbitration. The partnership agreement states in pertinent part:

Any controversy or claim arising out of or relating to this agreement, or to the interpretation, breach or enforcement thereof, shall be submitted to three arbitrators and settled by arbitration in the City of Houston, Texas, ... provided, however, ... if the matter submitted to arbitration shall involve a [dispute] as to the [purchase price] of a deceased, ... Partner's Entire Partnership Interest, such arbitration shall be held before three arbitrators, one of whom shall be a certified public accountant and the other two of whom shall be licensed real estate appraisers maintaining offices and doing business in Harris County, Texas.... Any award made by any majority of the Arbitrators shall be final, binding, and

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conclusive on all parties hereto for all purposes, and a judgment may be enforced thereon in any court having jurisdiction thereof.

Viking Partnership Agreement, Article VII.

Liljedahl died on December 9, 1976. On January 31, 1977, Smith notified Snyder by letter that he elected to purchase Liljedahl's entire interest. 3 At that time, Smith was a resident of Illinois and the letter bore a return address in Rockford, Illinois. At some time after January 1977, Smith became a resident of North Carolina.

The parties were unable to agree on a purchase price. Smith returned to Illinois several times to negotiate the price. On July 15, 1980, Snyder served Smith with written demand for arbitration. On July 28, Smith notified the American Arbitration Association that he refused to participate in the arbitration. On that date, Smith also filed suit in a Texas state court, requesting the court to establish a purchase price for the partnership interest and alleging a cause of action for breach of contract. Snyder removed the case to federal district court in Texas. On August 4, 1980, Snyder filed a petition to compel arbitration in the district court for the Northern District of Illinois under section 4 of the FAA, 9 U.S.C. Sec. 4 (1982). Smith moved to dismiss the Illinois action for improper service of process and lack of personal jurisdiction. The matter was referred to a magistrate, who recommended that the court deny the motion to dismiss. On March 3, 1981, the court denied the motion. Smith subsequently submitted to the court a memorandum arguing that arbitration under the agreement could not take place in Illinois.

The district court in Texas, pursuant to agreement of the parties, entered an order staying its proceedings pending resolution of the Illinois action. On September 1, 1981, the district court in Illinois ordered the parties to arbitrate in Rockford, Illinois. Smith did not appeal that order.

On October 15, 1982, the arbitration panel awarded Snyder the sum of $549,755.00 plus administrative fees. Snyder applied to the district court in Illinois for an order confirming the arbitration award; Smith moved to vacate or modify the award. The court confirmed the arbitration award and entered judgment against Smith. Smith appealed.

On appeal, Smith raises four issues. First, Smith argues that the district court lacked personal jurisdiction over him. He contends that his casual and sporadic activities in Illinois are insufficient to meet the "transaction of business test" of the Illinois long-arm statute and that the cause of action did not "arise from" any transaction of business of his in Illinois. Second, he argues that the FAA is not applicable because the partnership agreement was not a "contract evidencing a transaction involving commerce" as required by 9 U.S.C. Sec. 2 (1982). Smith maintains that the agreement itself must evidence interstate commerce, that "involving commerce" is a much narrower test than "affecting commerce," and that any casual and sporadic interstate activities in which the partnership engaged are not sufficient to meet the statutory standard for application of the FAA. Third, Smith argues that the district court lacked the power to compel arbitration in the Northern District of Illinois because the arbitration agreement provided that arbitration was to take place in Houston, Texas; Section 4 of the FAA provides that the court shall order the parties to arbitrate "in accordance with the terms of the agreement." Finally, Smith argues that the order of confirmation and judgment violates article III of the Constitution.

Snyder argues that the district court correctly compelled arbitration and confirmed the award. First, Snyder contends that the district court's exercise of personal jurisdiction over Smith satisfies both the requirements of due process and the standards of the Illinois long-arm statute. She argues that the "arising from" requirement is broadly construed, and as such, this cause

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of action arises from Smith's transaction of business in Illinois. Second, she argues that the FAA is applicable because the "involving commerce" requirement must be construed broadly and that the facts support a finding that interstate commerce is involved. Third, Snyder asserts that the district court could compel arbitration in the Northern District of Illinois because the only statutory requirement is that the district court have subject matter jurisdiction over the controversy, which it had here. According to Snyder, any valid objection Smith could have would be as to venue, and Smith has waived any venue objection through failure to comply with rule 12(g) & (h) of the Federal Rules of Civil Procedure. Finally, Snyder argues that Smith did not raise his constitutional objections below and that in any event the district court's order did not violate article III.


We first must determine whether we have jurisdiction to examine the merits of the issues raised. At oral argument, counsel for Snyder requested this court to dismiss the appeal on the basis of the decision in University Life Insurance Co. of America v. Unimarc Ltd., 699 F.2d 846 (7th Cir.1983), which held that an order compelling arbitration is final and appealable under section 1291 even though the district court retains jurisdiction solely for the purposes of resolving further disputes over arbitrability and enforcing any arbitration award. Id. at 849. Smith did not appeal from the order compelling arbitration. Snyder argues that the time for appeal from that order has expired, see Fed.R.App.P. 4(a), and thus this court lacks jurisdiction to review any issues decided in that order. See Northcross v. Board of Education, 611 F.2d 624, 635 (6th Cir.1979), cert.denied, 447 U.S. 911, 100 S.Ct. 3000, 64 L.Ed.2d 862 (1980).

In this case, the district court compelled arbitration, in a proceeding where the only judicial remedy sought was an order to arbitrate...

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