Patten Securities Corp., Inc. v. Diamond Greyhound & Genetics, Inc.

Decision Date21 May 1987
Docket NumberNo. 86-5646,86-5646
Citation819 F.2d 400
PartiesPATTEN SECURITIES CORP., INC., Appellant, v. DIAMOND GREYHOUND & GENETICS, INC., Appellee.
CourtU.S. Court of Appeals — Third Circuit

Matthew Farley, Brian F. McDonough (argued), Shanley & Fisher, P.C., Morristown, N.J., for appellant.

Eric A. Savage (argued), David B. Moser, Lampf, Lipkind, Prupis & Petigrow, West Orange, N.J., for appellee.

Before GIBBONS, Chief Judge, and SEITZ and ALDISERT, Circuit Judges.

GIBBONS, Chief Judge:

Patten Securities Corp. (Patten) appeals from an order of the district court denying its motion for an order directing Diamond Greyhound & Genetics, Inc. (Diamond) to discontinue a pending arbitration proceeding, and granting Diamond's cross motion to dismiss or stay the instant action pending the resolution of that arbitration. We hold that we have appellate jurisdiction, and that the order should be affirmed.

I.

Diamond is a Colorado corporation engaged in the business of breeding and training greyhound dogs. Patten, a New Jersey corporation, is a securities broker/dealer, and a member of the National Association of Securities Dealers (NASD). Diamond negotiated to have Patten act as the coordinating underwriter for the sale of 200,000 units of Diamond shares and warrants at $4.50 per unit. These negotiations led to an agreement, dated October 15, 1985, in which Patten was designated as the coordinating underwriter, and in which the underwriters undertook to buy the 200,000 units at $4.50 per unit, subject to various conditions.

The sale of the securities never occurred. Patten contends that Diamond failed to perform several conditions precedent, and that some of Diamond's representations and warranties were unfulfilled. Diamond contends that Patten was obligated to purchase the securities, that Patten breached the underwriting agreement, and that Patten should pay damages for that breach.

As a NASD member, Patten is bound by its rules. NASD Rules of Fair Practice, Art. I, Sec. 5, p 2005, reprinted in NASD Manual (CCH) 2011. NASD has adopted a Code of Arbitration Procedure under which a customer may compel arbitration of any dispute eligible for arbitration. NASD Code of Arbitration Procedures, Sec. 12, p 3712, reprinted in NASD Manual (CCH) 3713. Contending that it is a public customer within the meaning of the Code of Arbitration, Diamond filed a statement of claim against Patten with the NASD Director of Arbitration on January 29, 1986. NASD accepted the claim and instituted arbitration proceedings. Patten, in an answer to the claim, contended that Diamond is not a public customer and the claim is not arbitrable.

Patten also filed a complaint in the district court against Diamond seeking a declaratory judgment that it has no liability to Diamond because no binding underwriting agreement exists. In the alternative, Patten contends that if an agreement exists, Diamond is in breach, or has failed to perform necessary conditions precedent to Patten's obligation. One Count also alleges that if there is a binding contract, Diamond failed to deliver certificates representing the securities at the time specified by the contract, and seeks compensatory damages for such nondelivery in an amount to be determined at trial. Federal jurisdiction is predicated on 28 U.S.C. Sec. 1332 (1982), and it is alleged that the amount in controversy exceeds $10,000. Thus the declaratory judgment sought by Patten is a judgment that it is not liable to Diamond for money damages. The non-declaratory relief sought, alternatively, is money damages for Diamond's breach of contract.

Patten moved in the district court for an order compelling Diamond to discontinue the NASD arbitration. In support of this motion Patten urged: (1) that Diamond is not a public customer within the meaning of section 12(a) of the NASD Code of Arbitration Procedure, and thus could not compel arbitration; and (2) that even if Diamond is a public customer it waived the right to demand arbitration by agreeing in Section 14 of the Underwriting Agreement to a forum selection clause designating courts in New Jersey for suit. Diamond made a cross motion to dismiss the action for failure to state a claim upon which relief could be granted, or alternatively to stay the action pending the outcome of the arbitration proceeding. The district court entered the following order:

It is on this 2nd day of September, 1986 ORDERED that plaintiff's motion to compel defendant to discontinue the arbitration proceeding be and the same is hereby DENIED; and it is further

ORDERED, that defendant's cross motion to dismiss is denied; and it is further

ORDERED that the within action be and the same is hereby administratively terminated, pending the result of an arbitration proceeding involving the same parties now pending before the National Association of Securities Dealers in Denver, Colorado, bearing Arbitration No. 86-191; and it is further

ORDERED that this matter may be reinstated upon motion by either party for good cause shown.

Patten appeals from the quoted order.

II.

The parties agree that we have appellate jurisdiction, both under 28 U.S.C. Sec. 1291 (1982) and under 28 U.S.C. Sec. 1292(a) (1982). Their agreement, however, does not relieve us of the responsibility of an independent determination of appealability.

We do not agree that the quoted order can be treated as a final judgment. While the action is "administratively terminated," it may be reinstated upon motion by either party for good cause shown. The district court expressly denied Diamond's motion to dismiss. While it is not clear what course the case will take upon the completion of the pending arbitration, the order clearly contemplates the possibility of further proceedings. One possible course, if Diamond should be unsuccessful in the arbitration, would be further proceedings with respect to Patten's claim for money damages for nondelivery of certificates. Thus we must reject the parties' shared contention that the order is final rather than interlocutory.

Nor do we agree that the order denying Patten's motion to compel Diamond to discontinue arbitration is reviewable under section 1292(a)(1). 1 The rule recognized in many circuits is that "an order staying an arbitration pending trial is an injunction, thereby making its grant or denial subject to interlocutory appeal." Federal Civil Appellate Jurisdiction: An Interlocutory Restatement, 47 Law & Contemp. Probs. 13, 129-130 (1984). See, e.g., Buffler v. Electronic Computer Programming Institute, Inc., 466 F.2d 694, 696-99 (6th Cir.1972); Power Replacements, Inc. v. Air Preheator Co., 426 F.2d 980 (9th Cir.1970). In this court, however, we have held that the denial of a motion to stay an arbitration proceeding is not appealable under section 1292(a)(1) as the denial of an injunction. Stateside Machinery Co. Ltd. v. Alperin, 526 F.2d 480, 482-83 (3d Cir.1975). See also Mellon Bank, N.A. v. Pritchard-Keang Nam Corp., 651 F.2d 1244, 1250 (8th Cir.1981); New England Power Co. v. Asiatic Petroleum Corp., 456 F.2d 183, 185-87 (1st Cir.1972); Greater Continental Corp. v. Schechter, 422 F.2d 1100, 1102 (2d Cir.1970). We reasoned in Stateside Machinery v. Alperin that because the question of arbitrability could be reconsidered when an effort was made to enforce the award, the harm from the denial of a motion to stay arbitration was unlikely to be irreparable. While the Stateside rule may be another illustration of the needless complexity which has been created with respect to federal interlocutory appellate review, this panel is bound by it.

What is left, therefore, is the order "administratively terminating" Patten's action for declaratory relief and damages. This amounts to a stay of the action pending arbitration. Such an order requires consideration of the metaphysical Enelow-Ettelson doctrine. 2 As this court recently noted, under the Enelow-Ettelson rule:

[A]n order by which a court grants or denies a stay of its own proceedings in an action at law pending the resolution of an equitable defense or counterclaim is analogized to an order enjoining or refusing to enjoin proceedings in another suit, hearkening back to the days before the merger of law and equity. Since an order granting or denying an injunction is appealable under 28 U.S.C. Sec. 1292(a)(1), so too is an Enelow-Ettelson order.

Cost Bros., Inc. v. Travelers Indemn. Co., 760 F.2d 58, 59-60 n. 1 (3d Cir.1985). As we noted in H.C. Lawton, Jr., Inc. v. Truck Drivers, Chauffeurs and Helpers Local Union No. 384, 755 F.2d 324, 327 (3d Cir.1985), an agreement to arbitrate a legal dispute is considered an equitable defense. Thus Patten's obligation to arbitrate, if it exists by virtue of Patten's membership in NASD, qualifies as an equitable defense for Diamond.

The remaining question is whether Patten's action is one at law. To the extent that the complaint pleads, even alternatively, a claim of damages for failure to deliver certificates pursuant to the underwriting agreement, it pleads an action at law. Actions for declaratory judgments are generally considered neither equitable nor legal, for declaratory relief can be given in either type of action. Thus, for Enelow-Ettelson purposes, one treatise indicates that "they must be converted into one or the other by looking to the kind of action, legal or equitable, that would ultimately have been brought had Congress not provided the declaratory judgment remedy." 9 J. Moore, W. Taggart & J. Wicker, Moore's Federal Practice p 110.20, at 243. See also American Safety Equip. Corp. v. J.P. Maguire & Co., 391 F.2d 821 (2d Cir.1968).

The relationship between the Enelow-Ettelson doctrine and the stay of an action which seeks declaratory judgment, for purposes of pursuing an arbitration proceeding, is discussed with clarity in Hartford Financial Systems v. Florida Software Serv., Inc., 712 F.2d 724 (1st Cir.1983). In...

To continue reading

Request your trial
75 cases
  • Pompano-Windy City Partners v. Bear, Stearns & Co.
    • United States
    • U.S. District Court — Southern District of New York
    • 27 Ottobre 1988
    ...of law provision generally, does not affect the validity of the arbitration clauses. Cf., Patten Securities Corp., Inc. v. Diamond Greyhound & Genetics Inc., 819 F.2d 400, 407 (3d Cir.1987) (choice of forum clause not affecting The last objection to arbitration raised by plaintiffs is one o......
  • Gruntal & Co., Inc. v. Steinberg, Civ. A. No. 93-4323 (AJL).
    • United States
    • U.S. District Court — District of New Jersey
    • 5 Gennaio 1994
    ...580 (2d Cir.1984) (emphasis added) (addressing arbitration rules of New York Stock Exchange); see Patten Securities Corp. v. Diamond Greyhound & Genetics, Inc., 819 F.2d 400, 406 (3d Cir.1987) (Customer of broker-dealer "can demand arbitration of its disputes with broker-dealer by virtue of......
  • Zosky v. Boyer
    • United States
    • U.S. Court of Appeals — Third Circuit
    • 30 Settembre 1988
    ...be regarded as final if the right to review it on appeal is to be given. 262 F.2d at 182; see also Patten Secs. Corp. v. Diamond Greyhound & Genetics, Inc., 819 F.2d 400, 403 (3d Cir.1987) (arbitration order not final where it "clearly contemplates the possibility of further proceedings"); ......
  • Century Indemnity v. Underwriters, Lloyd's, London
    • United States
    • U.S. Court of Appeals — Third Circuit
    • 15 Ottobre 2009
    ...clauses by establishing a judicial forum in which a party may enforce arbitration. See Patten Secs. Corp. v. Diamond Greyhound & Genetics, Inc., 819 F.2d 400, 406-07 (3d Cir. 1987); Suter v. Munich Reins. Co., 223 F.3d 150, 155-56 (3d Cir.2000); Gaffer Ins. Co. v. Discover Reins. Co., 936 A......
  • Request a trial to view additional results
1 books & journal articles
  • Defining 'Customer': A Survey of Who Can Demand FINRA Arbitration
    • United States
    • Louisiana Law Review No. 74-1, October 2013
    • 1 Ottobre 2013
    ...the ‘customer’ is a purchaser of services related to the issuance and sale of securities rather than an investor in securities.”). 111. 819 F.2d 400, 405–07 (3d Cir. 1987), abrogated on other grounds . 112. Id. at 402. 113. Id. at 402−03. 114. Id. at 406. 115. Id. 116. 712 F. Supp. 2d 70 (S......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT