Government of United Kingdom of Great Britain and Northern Ireland, Through United Kingdom Defense Procuremant Office, Ministry of Defense v. Boeing Co.
| Decision Date | 29 June 1993 |
| Docket Number | No. 1028,D,1028 |
| Parties | , 62 USLW 2017, 26 Fed.R.Serv.3d 33 The GOVERNMENT OF the UNITED KINGDOM OF GREAT BRITAIN and Northern Ireland, Acting Through the UNITED KINGDOM DEFENSE PROCUREMENT OFFICE, MINISTRY OF DEFENSE, Petitioners-Appellees, v. The BOEING COMPANY, Boeing Defense & Space Group, Helicopters Division, formerly known as Boeing Vertol Company, Respondents-Appellants, Textron, Inc., Respondent. ocket 92-9242. |
| Court | U.S. Court of Appeals — Second Circuit |
George F. Hritz, New York City (Davis, Scott, Weber & Edwards, New York City, Steven S. Bell, Perkins Coie, Seattle, WA, of counsel), for respondents-appellants.
Peter Buscemi, Washington, DC (Markham Ball, Laurie B. Adams, Morgan, Lewis & Bockius, Washington, DC, of counsel), for petitioners-appellees.
Before: MESKILL, Chief Judge, PRATT, Circuit Judge and RESTANI, Judge. *
This is an appeal from a judgment of the United States District Court for the Southern District of New York, Stanton, J., granting the motion of petitioner-appellee Government of the United Kingdom, Ministry of We hold that a district court cannot order consolidation of arbitration proceedings arising from separate agreements to arbitrate absent the parties' agreement to allow such consolidation. Therefore, we reverse the district court.
Defense (United Kingdom), to consolidate an American Arbitration Association (AAA) arbitration proceeding between the United Kingdom and respondent-appellant The Boeing Company (Boeing) with a separate AAA arbitration proceeding between the United Kingdom and respondent Textron, Inc. (Textron). The district court held that it has the authority pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (FAA), and the Federal Rules of Civil Procedure to compel consolidation of separate arbitration proceedings when the proceedings involve the same questions of fact and law, even in the absence of the parties' consent to consolidation.
This case, filed under seal, arises from a January 1989 ground testing incident in which a military helicopter owned by the United Kingdom was damaged. The incident occurred during Boeing's testing of a new electronic fuel control system (FADEC) that had been designed by Textron and installed in the helicopter by Boeing. The helicopter had been manufactured by Boeing and its engine had been manufactured by Textron.
Boeing and Textron have separate contracts with the United Kingdom governing long-standing relationships that each company has with the United Kingdom on a variety of military projects. The relevant arbitration agreement between the United Kingdom and Boeing is contained in a 1981 base contract for certain services. The relevant arbitration agreement between the United Kingdom and Textron is contained in a 1985 contract relating specifically to the design and development of FADEC. The contracts contain identical arbitration clauses which read:
Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in New York City by three Arbitrators in accordance with the Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof.
Boeing and Textron also are parties to a separate Interface Agreement between them which defines their respective responsibilities for the FADEC project.
On July 18, 1991, the United Kingdom filed Demands for Arbitration with the AAA against Boeing and Textron for its losses resulting from the January 1989 ground testing incident. Both before and after filing the Demands for Arbitration, the United Kingdom requested that Boeing and Textron consent to consolidation of the arbitration proceedings. Boeing refused, alleging that consolidation would lead to undue expense and effort on its behalf because of the alleged simplicity of the issues involved in its arbitration with the United Kingdom compared to those in the United Kingdom/Textron arbitration. The AAA informed the United Kingdom that it would not order consolidation of arbitration proceedings without the consent of all parties.
On October 1, 1991, the United Kingdom filed a Petition to Compel Consolidated Arbitration in the United States District Court for the Southern District of New York. All parties agreed that both arbitrations would be stayed pending disposition of the United Kingdom's petition. On October 14, 1992, Judge Stanton issued a Memorandum Endorsement in which he granted the United Kingdom's Petition to Compel Consolidated Arbitration and denied Boeing's Motion to Dismiss. Judgment was entered on October 22, 1992 and this appeal followed. Judge Stanton entered an order staying his judgment pending the outcome of this appeal. We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291.
The United Kingdom urges, and the district court held, that our decision in Compania Espanola de Petroleos, S.A. v. Nereus Shipping, S.A., 527 F.2d 966 (2d Cir.1975), cert. denied, 426 U.S. 936, 96 S.Ct. 2650, 49 In Nereus, a maritime contract of affreightment, or Charter Party, was signed by Nereus, as owner, and Hideca, as charterer. The Charter Party contained a detailed arbitration clause somewhat similar to the one contained in the United Kingdom contracts. Five months later, Addendum No. 2 to the Charter Party was signed by Nereus, Hideca and Cepsa, as guarantor. The addendum provided that "should HIDECA default in payment or performance of its obligations under the Charter Party, [Cepsa] will perform the balance of the contract and assume the rights and obligations of HIDECA on the same terms and conditions as contained in the Charter Party." Nereus, 527 F.2d at 969-70. Later, when the Arab oil embargo occurred, complications developed causing Nereus to give notice to Cepsa that it felt Hideca was in default and asking Cepsa to perform the balance of the Charter Party. A month later Nereus demanded arbitration with Hideca and Hideca consented. Several weeks after that, Nereus demanded arbitration with Cepsa. Cepsa, however, rejected the demand, claiming that it had not agreed to arbitrate.
L.Ed.2d 387 (1976) (Nereus ), definitively established in this Circuit the district courts' authority pursuant to the FAA and the Federal Rules of Civil Procedure to consolidate arbitration proceedings that turn on the same questions of fact and law. As we describe in greater detail below, the facts in Nereus were much different than the facts in this case, and the district court erred in applying the Nereus holding
Cepsa filed suit in the district court seeking a declaratory judgment that it had not agreed to arbitrate disputes. The district court disagreed with Cepsa and held that Cepsa had consented to arbitrate disputes in signing Addendum No. 2, which the court held incorporated the arbitration clause of the Charter Party. Several months later Hideca filed suit seeking to restrain the Cepsa/Nereus arbitration until after the conclusion of the Hideca/Nereus arbitration. In this second action, one of the parties requested consolidation of the two arbitrations and the district court granted the request to compel consolidation.
On appeal, we affirmed the district court's order compelling consolidation and reformed the arbitration provision from which both arbitrations arose to provide for five arbitrators instead of three, one to be selected by each of the three parties and the remaining two arbitrators to be selected by the three arbitrators already selected. Id. at 975. We held that a guarantor can be bound by an arbitration clause contained in the original contract when broad and inclusive guarantee language is employed, such as the language of Addendum No. 2. Id. at 973-74; see also Progressive Casualty Ins. Co. v. C.A. Reaseguradora Nacional De Venezuela, 991 F.2d 42, 48 (2d Cir.1993) ().
Nereus is distinguishable from the case before us. In Nereus, all three parties signed Addendum No. 2, which incorporated the provisions of the Charter Party, including the arbitration provision. We held that in signing the addendum, Cepsa had agreed to "assume the rights and obligations" of Hideca, including the obligation to participate in arbitration over any disputes. Nereus, 527 F.2d at 973-74. Thus all three parties were in arbitration pursuant to a single arbitration agreement. We determined that the intention of the signatories to Addendum No. 2 would be most closely adhered to with a single arbitration proceeding. In contrast, in the case before us, Boeing and Textron are in arbitration with the United Kingdom pursuant to two distinct agreements to arbitrate contained in two distinct contracts. Neither agreement contains any provision for consolidation. Boeing never agreed to participate in arbitration with Textron, and vice versa. We simply have no grounds to conclude that the parties consented to consolidated arbitration. The district court is without authority to consolidate the two actions based upon the mere fact that the disputes contain similar or identical issues of fact and law. See Volt Info. Sciences v. Board of Trustees, 489 U.S. 468, 478, 109 S.Ct. 1248, 1255, 103 L.Ed.2d 488 (1989) ().
As the district court and the United Kingdom point out, in our holding in Nereus we also relied on the Federal Rules of Civil Procedure and the "liberal purposes" of the FAA. We stated that
Fed.R.Civ.P., Rules 42(a) and 81(a)(3), are applicable. Moreover, we think the liberal purposes of the Federal Arbitration Act clearly require that this act be interpreted so as to permit and even to encourage the consolidation of arbitration proceedings in proper cases,...
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