Action Industries v. U.S. Fidelity & Guar. Co.

• Decision Date: 23 January 2004
• Docket Number: No. 02-60765.,02-60765.
• Citation: 358 F.3d 337
• Parties: ACTION INDUSTRIES, INC., Plaintiff, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Defendant. Action Industries, Inc., Plaintiff-Appellee, v. Engineered Handling Systems, Inc., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

358 F.3d 337

ACTION INDUSTRIES, INC., Plaintiff, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Defendant.

Action Industries, Inc., Plaintiff-Appellee, v. Engineered Handling Systems, Inc., Defendant-Appellant.

No. 02-60765.

United States Court of Appeals, Fifth Circuit.

January 23, 2004.

David Walker Upchurch (argued), Robert K. Upchurch, Josiah D. Coleman, Holland, Ray, Upchurch & Hillen, Tupelo, MS, for Plaintiff-Appellee.

Michael Noel Watts, Robert Bradley Best (argued), Holcomb Dunbar, Oxford, MS, for Defendant-Appellant.

Appeals from the United States District Court for the Northern District of Mississippi.

Before WIENER, CLEMENT, and PRADO, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

Engineered Handling Systems, Inc. ("EHS") appeals the district court's confirmation of an arbitration award.¹ EHS contends that the district court: (1) abused its discretion by denying EHS's motion to transfer; (2) reviewed the arbitration award under an improper vacatur standard; and (3) erroneously confirmed an award that exceeded the arbitration panel's scope of power. We affirm the judgment of the district court on each assignment of error.

I. FACTS AND PROCEEDINGS

On May 7, 1998, Action Industries, Inc. ("Action") and EHS entered a contract ("the Agreement") which provided that EHS would design, build and install a conveyor system for Action's furniture manufacturing and distribution facility in Lee County, Mississippi.² The Agreement specified that the conveyor would "accommodate the production rate of 11 units per minute." The finished conveyor ultimately failed to meet this production rate,³ and Action incurred substantial labor and maintenance costs as a result.

Pursuant to the terms of the Agreement,⁴ Action filed a demand for arbitration with the American Arbitration Association on October 2, 2000. Action asserted that EHS was liable for negligent design and for breaches of express and implied warranties.⁵ EHS counterclaimed for payment on past invoices. On December 10, 2001, the arbitration panel awarded Action $1,181,303.03.⁶

On December 27, 2001, Action filed a lawsuit in Mississippi state court to confirm the arbitration award. Thirteen days later, EHS sued Action in Tennessee state court to vacate the arbitration award. Both lawsuits were subsequently removed to federal court.⁷

On April 18, 2002, the Mississippi district court denied EHS's motion to transfer Action's lawsuit to Tennessee. On June 12, 2002, the Tennessee district court dismissed EHS's lawsuit on the grounds of comity. On August 14, 2002, the Mississippi district court confirmed the arbitration award under the standard of review set forth in the Federal Arbitration Act ("FAA"). EHS appeals the Mississippi district court's denial of the motion to transfer, its review of the award under the FAA's vacatur standard, and its conclusion that the arbitration award was within the panel's scope of power.

II. STANDARD OF REVIEW

We review a district court's findings of fact for clear error and its conclusions of law de novo. Switzer v. Wal-Mart Stores, Inc., 52 F.3d 1294, 1298 (5th Cir.1995). A district court's refusal to transfer a case is reviewed for abuse of discretion. Save Power Ltd. v. Syntek Fin. Corp., 121 F.3d 947, 949 n. 3 (5th Cir.1997). We review a district court's confirmation of an arbitration award de novo. Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1320 (5th Cir.1994).

III. DISCUSSION

A. Motion to Transfer

EHS first appeals the district court's denial of its motion to transfer Action's confirmation lawsuit to the district court for the Western District of Tennessee. "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." 28 U.S.C. § 1404(a) (2003). The determination of "convenience" turns on a number of public and private interest factors,⁸ none of which can be said to be of dispositive weight. Syndicate 420 at Lloyd's London v. Early Am. Ins., Co., 796 F.2d 821, 827 (5th Cir.1986).

EHS contends that the Western District of Tennessee is a more convenient venue than the Northern District of Mississippi because "the application of Tennessee law is integral to this case." This argument is without merit. First, EHS fails to establish that the Mississippi district court was either unable or unwilling to apply Tennessee law. Second, the Mississippi district court appears to have been the most convenient venue for the parties and potential witnesses. Action's principal place of business is in Mississippi, the Agreement was executed in Mississippi, and the contested arbitration was held in Mississippi. We therefore find that the district court did not abuse its discretion by denying EHS's motion to transfer.

B. Vacatur Standard

EHS next appeals the district court's application of the FAA vacatur standard. It contends that the arbitration award should be reviewed under the broader vacatur standard outlined in the Tennessee Uniform Arbitration Act ("TUAA").⁹

Arbitration under the FAA "is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit." Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Sanford Junior Univ., 489 U.S. 468, 477, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). "Just as parties may limit by contract the issues which they will arbitrate, so too may they specify by contract the rules under which that arbitration will be conducted." Id. Accordingly, this Court has consistently held that parties may modify the FAA's standard of arbitration review. Harris v. Parker Coll. of Chiropractic, 286 F.3d 790, 793 (5th Cir.2002); see also Hughes Training Inc. v. Cook, 254 F.3d 588, 593 (5th Cir.2001) ("An arbitration agreement may therefore expand judicial review of an arbitration award beyond the scope of the Federal Arbitration Act.").¹⁰

FAA rules apply absent clear and unambiguous contractual language to the contrary. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 59, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995); Hughes Training, 254 F.3d at 593. In general, this Court permits arbitration under non-FAA rules if a contract expressly references state arbitration law, or if its arbitration clause specifies with certain exactitude how the FAA rules are to be modified. For example, in Gateway Technologies, Inc. v. MCI Telecommunications Corp., 64 F.3d 993, 996 (5th Cir.1995), we held that a clause stating that "[t]he arbitration decision shall be final and binding on both parties, except that errors of law shall be subject to appeal" evinced the parties' clear intent to depart from the FAA's vacatur standard (emphasis added). In Harris, 286 F.3d at 793, we found that a contract providing that "[t]he award of the Arbitrator shall be binding on the parties hereto, although each party shall retain his right to appeal any questions of law" demonstrated a similar intent to modify the FAA standard (emphasis added). In Ford v. NYLCare Health Plans of the Gulf Coast, Inc., 141 F.3d 243, 247 (5th Cir.1998), we held that a contract which specifically referenced the "Texas General Arbitration Act" unambiguously expressed the parties' intent to supercede the FAA rules with Texas arbitration law.

In this case, the Agreement fails to expressly reference the TUAA,¹¹ and its arbitration clause does not in any way modify or replace the FAA's rules.¹² EHS nonetheless contends that the parties' intent to replace the FAA's vacatur standard can be gleaned from the Agreement's general choice-of-law provision, which provides that Tennessee law governs contractual execution and performance.¹³ We disagree.

In Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995), the Supreme Court held that a contract's choice-of-law provision did not evince the parties' clear intent to opt out of the FAA default rules. Mastrobuono involved a dispute between a securities broker and two of its customers. Id. at 54, 115 S.Ct. 1212. The parties agreed to resolve any disputes by arbitration, but stipulated that "the entire agreement" would be governed by New York law.¹⁴ In holding that New York law did not govern the arbitration, the Court reasoned that the choice-of-law provision should be read, at most, to "include only New York's substantive rights and obligations, and not the state's allocation of power between alternative tribunals." Id. at 60, 115 S.Ct. 1212.¹⁵

In the wake of Mastrobuono, this Court has held that a choice-of-law provision is insufficient, by itself, to demonstrate the parties' clear intent to depart from the FAA's default rules. See Ford, 141 F.3d at 249 (holding that a contract's choice-of-law provision did not determine the scope of an arbitration clause).¹⁶ Our sister circuits have reached the same result. In a case directly on point, the Third Circuit held that "an arbitration clause and a generic choice-of-law clause ... [do not] demonstrate a clear intent to displace the FAA's vacatur standards and replace them with ones borrowed from [state] law." Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287, 293 (3d Cir.2001). The court opined that "we need to establish a default rule, and the one we adopt is that a generic choice-of-law clause, standing alone, is insufficient to support a finding that contracting parties intended to opt out of the FAA's default standards." Id. Similarly, the Ninth Circuit recently held that "a general choice-of-law clause within an arbitration provision does not trump the presumption that the FAA supplies the rules for arbitration." Sovak v. Chugai Pharm Co., 280 F.3d 1266, 1270 (9th Cir.2002); see also UHC Mgmt. Co., Inc. v. Computer Sciences Corp., 148 F.3d 992, 997 (8th Cir. 1998) (same); Ferro Corp. v. Garrison Indus., Inc., 142 F.3d 926, 937 (6th Cir.1998) (same); Porter Hayden Co. v. Century Indem. Co., 136 F.3d 380, 382-83 (4th Cir. 1998) (...