Americana Fabrics, Inc. v. L & L Textiles, Inc.

Decision Date09 January 1985
Docket NumberNo. 83-6485,83-6485
Citation754 F.2d 1524
PartiesAMERICANA FABRICS, INC., Petitioner-Appellant, v. L & L TEXTILES, INC., Respondent-Appellee. . Submitted * ,
CourtU.S. Court of Appeals — Ninth Circuit

Peter Jacobs, Marc R. Perman, Jacobs & Duetsch, New York City, for petitioner-appellant.

Bruce Isaacs, Freedman, Tucker & Baum, Beverly Hills, Cal., for respondent-appellee.

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

Before SNEED, POOLE, and FERGUSON, Circuit Judges.

SNEED, Circuit Judge:

Petitioner Americana Fabrics, Inc. brought this action in the United States District Court for the Central District of California, seeking an order compelling arbitration of its contract dispute with respondent L & L Textiles, Inc. Two other courts previously had addressed this issue. The Los Angeles County Superior Court had issued an order staying arbitration, but the United States District Court for the Southern District of New York had taken a different view and had issued an order finding an enforceable agreement to arbitrate and staying the state court proceedings.

The District Court for the Central District of California, the third court to address the issue, dismissed Americana's petition and Americana appeals. We, the first appellate court to consider this matter, hold that, under the "last in time" rule of res judicata, the order of the District Court for the Southern District of New York was binding on the Central District, and petitioner was therefore entitled, under the Federal Arbitration Act, to an order compelling arbitration. We also hold that respondent's arguments that the district court's order is not appealable, and that petitioner did not raise its res judicata argument in the district court, are without merit.

Reversed and remanded.

I. FACTS

Because the timing of events is both somewhat complicated and of controlling On May 21, 1982, appellant Americana Fabrics, Inc. (Americana) entered into a contract with appellee L & L Textiles, Inc. (L & L). Americana claims that the contract contains a valid clause requiring arbitration in Los Angeles of any disputes arising under the contract. L & L claims that the contract is self-contradictory on the arbitration issue and that therefore there was no meeting of the minds and there is no enforceable arbitration clause.

importance, each material event will be set forth with clarity.

On May 31, 1983, Americana demanded arbitration of a dispute arising under the contract.

On June 14, 1983, L & L filed an action in the Los Angeles County Superior Court (California court) seeking a stay of arbitration and a declaration that no arbitration agreement was in effect.

On July 15, 1983, Americana petitioned the U.S. District Court for the Southern District of New York (SDNY) for an order under section 4 of the Federal Arbitration Act, 9 U.S.C. Sec. 4 (1982), compelling arbitration, and for a stay of L & L's action in the California court. The basis for federal jurisdiction was diversity of citizenship.

On July 18, 1983, the SDNY issued an order noting that there "appear[ed]" to be an agreement to arbitrate and staying the California court proceeding. The order stated that "[a] final order to this effect will be entered if respondent [L & L] interposes no objections within 10 days of notice and service of this order."

On the same day, July 18, the California court granted L & L's motion to stay arbitration, and on July 19 the court issued an order to that effect. After reconsideration sua sponte, the court reaffirmed its order on August 4.

Within ten days of the SDNY's order, L & L filed objections to it. The objections were:

1. That Americana had failed to provide L & L with five-day notice, required by section 4 of the Federal Arbitration Act, 9 U.S.C. Sec. 4, of its petition to compel arbitration.

2. That the SDNY could not compel arbitration in Los Angeles, because section 4 of the Act, 9 U.S.C. Sec. 4, authorizes district courts to compel arbitration only within their own districts.

3. That there was no enforceable arbitration agreement.

4. That the SDNY had no power to stay a previously-filed action in a California court, because section 3 of the Arbitration Act, 9 U.S.C. Sec. 3, authorizes a district court to stay only its own proceedings, not state court proceedings, pending arbitration, and because the Anti-Injunction Act, 28 U.S.C. Sec. 2283, forbids a district court from staying a pending state court proceeding.

5. That the July 19 order of the California court staying arbitration was binding on the merits.

On August 23, 1983 the SDNY issued its final order. The order found that L & L had received adequate notice and that any defect in notice had been cured and was therefore harmless, reaffirmed that there was an enforceable agreement to arbitrate in Los Angeles, and reasserted the SDNY's power to stay the California court action. The SDNY accepted, however, L & L's argument that under the Arbitration Act the SDNY was without power to order arbitration in another district.

The order stated that "[w]hile the statute requires an order to compel arbitration to be issued by the Court in which arbitration is mandated, this Court has the authority, having found an agreement to arbitrate, to stay a state court proceeding until a federal court can order the parties to proceed." The order continued the stay of the California court action and gave Americana thirty days within which to file a petition to compel arbitration in the Central District of California (Central District; district court).

L & L did not appeal the SDNY's final order.

Pursuant to the SDNY's order, Americana on September 19, 1983 petitioned the Central District for an order compelling arbitration. On November 10, 1983, the Central District, Judge Richard Gadbois, denied and dismissed the petition without opinion.

Americana appeals.

II. ISSUES ON APPEAL

On appeal, Americana argues that the order of the SDNY is res judicata and establishes that there is an enforceable agreement to arbitrate. Americana argues that the California court's order was invalid because it was issued in violation of the stay imposed by the SDNY.

L & L argues that the order of the California court staying arbitration is res judicata and establishes that there is not an enforceable agreement to arbitrate. L & L offers the same objections to the SDNY's order that it argued before the SDNY. L & L also argues that Americana failed to raise its res judicata argument in the court below, and that that court's order dismissing Americana's petition is not appealable.

We will discuss in turn the issue of appealability, the question whether Americana's res judicata argument was raised in the court below, and the res judicata effect of the proceedings in the SDNY and the California court. Because we find that consideration of L & L's objections to the SDNY's order is barred by res judicata, we do not discuss the substance of those objections. Similarly, because we find that the SDNY's order, rather than that of the California court, is binding on the Central District, we need not discuss the effect of the SDNY's stay of the California court's proceedings.

III. APPEALABILITY

The Central District's order of November 10, 1983, which denied and dismissed Americana's petition to compel arbitration, completely and finally disposed of the only claim before that court. It is therefore appealable as a final order under 28 U.S.C. Sec. 1291.

L & L argues, citing Langley v. Colonial Leasing Co. of New England, 707 F.2d 1 (1st Cir.1983), that because there is another action pending between L & L and Americana in the California court, the Central District's order is not appealable. Langley, however, is completely inapposite. Langley was concerned with the appealability of the denial of a motion to compel arbitration when other issues are still pending in the same action in the same court. There is no authority for the proposition that a final order of a district court is rendered unappealable by the pendency of another action in another court. L & L's argument is therefore totally without merit.

IV. THE RES JUDICATA ISSUE
A. Failure to Assert Res Judicata

L & L's second argument, that Americana failed to raise below the contention that the orders of the SDNY are res judicata, is equally devoid of merit. Americana's petition in the Central District states that it is "based upon the orders" of the SDNY. Copies of the SDNY's orders are attached to the petition. The petition describes and quotes from the SDNY's final order, and characterizes it as "law of the case." Americana's "Reply Affirmation" in response to L & L's motion to dismiss Americana's petition repeatedly asserts that the SDNY's order is res judicata. The issue of the res judicata effect of the SDNY's orders was unquestionably before the district court. We therefore proceed to the merits of that issue.

B. The Merits of the Res Judicata Issue

The doctrine of res judicata "ensures the finality of decisions." Brown v Felsen, 442 U.S. 127, 131, 99 S.Ct. 2205, 2209, 60 L.Ed.2d 767 (1979). It serves to protect adversaries from the expense and vexation attending multiple lawsuits, to conserve judicial resources, and to foster reliance on judicial action by minimizing the possibility of inconsistent decisions. Montana v. United States, 440 U.S. 147, 153-54, 99 S.Ct. 970, 973-74, 59 L.Ed.2d 210 (1979). The doctrine applies to jurisdictional issues as well as substantive issues. See Durfee v. Duke, 375 U.S. 106, 84 S.Ct. 242, 11 L.Ed.2d 186 (1963); Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134, 83 L.Ed. 104 (1938); Yanow v. Weyerhauser Steamship Co., 274 F.2d 274, 277 (9th Cir.1959); Title v. United States, 263 F.2d 28, 30 (9th Cir.1959).

Res judicata encompasses two subsidiary doctrines, claim preclusion and issue preclusion. 1 Under claim preclusion, a final judgment on the merits of a claim bars...

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