CALIFORNIA PRUNE & APRICOT GROWERS'ASS'N v. Catz Amer. Co.

• Decision Date: 10 August 1932
• Docket Number: No. 6615.,6615.
• Citation: 60 F.2d 788
• Parties: CALIFORNIA PRUNE & APRICOT GROWERS' ASS'N v. CATZ AMERICAN CO.
• Court: U.S. Court of Appeals — Ninth Circuit

60 F.2d 788 (1932)

CALIFORNIA PRUNE & APRICOT GROWERS' ASS'N v. CATZ AMERICAN CO.

No. 6615.

Circuit Court of Appeals, Ninth Circuit.

August 10, 1932.

Milton D. Sapiro, of San Francisco, Cal., for appellant.

Norman A. Eisner, of San Francisco, Cal., for appellee.

Before WILBUR and SAWTELLE, Circuit Judges.

SAWTELLE, Circuit Judge.

In its petition filed in the United States District Court for the Northern District of California, the appellee, Catz American Company, Inc., a New York corporation, alleges that on October 21, 1927, it entered into a contract in writing with appellant, California Prune & Apricot Growers' Association, a California corporation, wherein the Catz Company was to purchase from the association the latter's entire stock of 1926 California prunes; that said contract provides that any disputes arising under the said agreement be settled by arbitration before the Dried Fruit Association of California; that certain disputes therein mentioned have arisen between petitioner and the said association under said agreement.

The petition concludes with a prayer that an order be made by said District Court directing the said association to proceed to arbitrate in accordance with the terms of said agreement.

After hearing, and over the objection of appellant, an order and decree was entered by said court directing the parties to proceed with the arbitration in accordance with the terms of said written agreement, and it is from this order that the appellant has appealed to this court.

The appellee invoked the jurisdiction of the District Court upon the ground of the diversity of citizenship. Although there are other matters discussed in counsel's briefs, the primary question before this court is whether or not the District Court had jurisdiction to compel the parties to arbitrate the controversy herein involved in accordance with the California State Arbitration Act, title 10, part 3, of the California Code of Civil Procedure, the pertinent sections of which are as follows:

"§ 1282. Preliminary procedure. A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in writing providing for arbitration may petition any superior court of the county or city and county where either party resides, for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days' notice in writing of the hearing of such application shall be served personally upon the party in default. The court shall hear the parties, and upon being satisfied that the making of the agreement or such failure to comply therewith is not in issue, shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the agreement or the default be in issue an order shall be made directing a summary trial thereof. Where such an issue is raised, the party alleged to be in default, may, on or before the return day of the notice of application, demand a jury trial of such issue, and if such demand be made, said court shall make an order referring the issue or issues to a jury called and impaneled in the manner provided for the trial of actions at law. If no jury trial be demanded said court shall hear and determine such issue. If the finding be that no agreement in writing providing for arbitration was made, or that there is no default in proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and there is a default in proceeding thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. * * *

"§ 1284. Stay of civil action. If any suit or proceeding be brought upon any issue arising out of an agreement providing for the arbitration thereof, the court in which such suit or proceeding is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration, shall stay the action until an arbitration has been had in accordance with the terms of the agreement; provided, that the applicant for the stay is not in default in proceeding with such arbitration."

The appellant contends that said act is limited to granting authority to the Superior Court of the State of California to direct arbitration and that the federal court has no jurisdiction to grant relief under said act; that the provisions of the act themselves show that it is limited to petitions for arbitration brought in the state courts; that the state Legislature of California was without authority to confer jurisdiction upon the federal courts to enforce arbitration provisions in contracts or agreements; in other words, that the act creates no substantive right, but merely gives a new remedy, or "is intended to create a new procedural device."

The appellee, on the other hand, contends that it had the right to resort to the federal court by reason of diversity of citizenship; that the said court is capable of giving the same relief to which it would be entitled in the state court; and that the act gives "a substantive right, as well as supplies the remedy for enforcing it."

It thus appears that the question to be determined is one of jurisdiction.

The act itself discloses that it was the intention of the Legislature to provide a procedure peculiarly adaptable to the state courts of California; and, in view of many of the provisions of the act, it would be difficult if not impossible to harmonize it with the federal law and procedure.

But aside from these difficulties, there is the further fundamental question to be considered, namely, that of the jurisdiction of the District Court to direct an arbitration under the state law.

"Arbitration" is a form of procedure whereby differences may be settled. It is not a definition of the rights and wrongs out of which differences grow.

The cause of action and the right to prosecute it, whether in the federal or the state courts, grew out of the written contract of purchase and sale, and not out of the agreement for arbitration. The latter was merely a method of procedure adopted by the parties for the settlement of controversies arising thereunder, without litigation.

The arbitration agreement was a valid contract under the state law, and enforceable under that law in the state court. "The question is one of remedy, and not of right."

It is undoubtedly true that a federal court in proper cases may enforce state laws; but this principle is applicable only when the state legislation invoked, creates or establishes a substantive or general right.

The rights of the parties herein, we repeat, grew out of the contract for the purchase and sale of the property described therein, and not out of the agreement to arbitrate. The latter merely substitutes for a court action the remedy and procedure prescribed in the Arbitration Act, for the enforcement of those rights. It substitutes a special tribunal for the court.

The law that controls in the matter of the remedy is the law of the forum, and no other. The federal courts are without jurisdiction or power to enforce a purely remedial or procedural state law.

In Knapp, Stout & Co. v. McCaffrey, 177 U. S. 638, 644, 20 S. Ct. 824, 827, 44 L. Ed. 921, the Supreme Court quoted with approval Bouvier's definition of a "remedy" as "the means employed to enforce a right, or redress an injury." And in Chelentis v. Luckenbach Steamship Company, Incorporated, 247 U. S. 372, 379, 384, 38 S. Ct. 501, 504, 62 L. Ed. 1171, the court, after having observed that "the only difference between a proceeding in one court or the other would be that the remedy would be regulated by the lex fori," said: "The distinction between rights and remedies is fundamental. A right is a well founded or acknowledged claim; a remedy is the means employed to enforce a right or redress an injury. Bouvier's Law Dictionary."

If it be argued that the Conformity Act (28 USCA § 724) provides that "the practice, pleadings, and forms and modes of proceeding in civil causes" shall conform to those of the state courts, the answer is that "equity and admiralty causes" are specifically excepted from the provisions of such act.

And this is in the nature of an equity suit, in that it seeks specific performance. Indeed, the Supreme Court of the United States has held that the purpose of an Arbitration Law of this kind is "to make specific performance compellable." Red Cross Line Case, infra, at page 119, of 264 U. S., 44 S. Ct. 274, 275, 68 L. Ed. 582, citing the Berkovitz Case, infra, 230 N. Y. 261, 269, 130 N. E. 288.

Nor is the Rules of Decisions Act (28 USCA § 725) applicable, for that statute refers to substantive law, not "procedure in the federal courts." McBride et al. v. Neal (C. C. A. 7) 214 F. 966, 969.

A change in the form of remedies by the express agreement of the parties is vastly different from a substantive right created by statute. In the instant case, the wrong, if any, to be redressed was the alleged failure of the appellant to pay the appellee the sum of $16,470.98 and interest, by reason of charges said to have been improperly made and money claimed to have been improperly collected under the contract for the purchase of the prune crop. This alleged wrong was one for which the court afforded an ample remedy. All that the act has done is to add another remedy.

In Pusey & Jones Company v. Hanssen, 261 U. S. 491, 497-498, 499, 500, 43 S. Ct. 454, 456, 67 L. Ed. 763, the court said:

"That a remedial right to proceed in a federal court sitting in equity cannot be enlarged by a state statute is likewise clear. Scott v. Neely, 140 U. S. 106, 11 S. Ct. 712, 35 L. Ed. 358; Cates v. Allen, 149 U. S. 451, 13 S. Ct. 883, 977, 37 L. Ed. 804. Nor can it be so narrowed. Mississippi Mills v. Cohn, 150 U. S. 202, 14 S. Ct. 75, 37 L. Ed. 1052; Guffey v. Smith, 237 U. S. 101, 114, 35 S. Ct. 526, 59 L. Ed. 856. The ...