Alascom, Inc. v. ITT North Elec. Co.

• Decision Date: 09 March 1984
• Docket Number: 83-3671 and 83-3754,Nos. 83-3633,s. 83-3633
• Citation: 727 F.2d 1419
• Parties: ALASCOM, INC., Plaintiff-Appellee, v. ITT NORTH ELECTRIC COMPANY, a Delaware corporation; et al., Defendants-Appellants. ALASCOM, INC., Plaintiff-Appellee, v. ITT NORTH ELECTRIC COMPANY, a Delaware corporation; ITT North International Operations Division of ITT Telecommunications Corporation, a Delaware corporation; and Insurance Company of North America, a Pennsylvania corporation, Defendants-Appellants. ALASCOM, INC., Plaintiff-Appellee, v. ITT NORTH ELECTRIC COMPANY, a Delaware corporation; ITT North International Operators Division of ITT Telecommunications Corporation, a Delaware corporation; ITT Telecommunications Corporation, a Delaware corporation; and Insurance Company of North America, a Pennsylvania corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1419

727 F.2d 1419

ALASCOM, INC., Plaintiff-Appellee, v. ITT NORTH ELECTRIC COMPANY, a Delaware corporation; et al.,

Defendants-Appellants.

ALASCOM, INC., Plaintiff-Appellee, v. ITT NORTH ELECTRIC COMPANY, a Delaware corporation; ITT

North International Operations Division of ITT

Telecommunications Corporation, a Delaware corporation; and

Insurance Company of North America, a Pennsylvania

corporation, Defendants-Appellants.

ALASCOM, INC., Plaintiff-Appellee, v. ITT NORTH ELECTRIC COMPANY, a Delaware corporation; ITT

North International Operators Division of ITT

Telecommunications Corporation, a Delaware corporation; ITT

Telecommunications Corporation, a Delaware corporation; and

Insurance Company of North America, a Pennsylvania

corporation, Defendants-Appellants.

Nos. 83-3633, 83-3671 and 83-3754.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 8, 1983.

Decided March 9, 1984.

John M. Conway, Atkinson, Conway, Bell & Gagnon, Anchorage, Alaska, for plaintiff-appellee.

James M. Ringer, John M. Quitmeyer, Rogers & Wells, New York City, for defendants-appellants.

Appeal from the United States District Court for the District of Alaska.

Before SNEED, NELSON and REINHARDT, Circuit Judges.

NELSON, Circuit Judge:

Appellants (collectively denominated as "North") challenge two district court orders, one granting a stay of arbitration, the other denying a stay of proceedings pending arbitration. Both orders were based on the district court's conclusion that none of North's claims was arbitrable under the arbitration provision of the parties' contract.

De novo examination of the arbitration clause indicates that the district court was correct in its finding of non-arbitrability. Therefore, it did not abuse its discretion in staying arbitration and refusing to stay its own proceedings. We affirm.

FACTS

The disputes in this case arise out of the performance of a contract under which North agreed to design and manufacture sophisticated telephone switching equipment for Alascom and several other telephone companies. The contract was negotiated with North by lawyers from New York Telephone Company and GTE Service, who acted on behalf of Alascom and the other United States companies.

For the purposes of this appeal, we need focus on only one contractual provision. Article 5, the arbitration clause, provides:

[Alascom] shall be the interpreter of the Contract but should [North] consider such interpretation to be at variance with the Contract Documents, it shall notify [Alascom] and [GTE] in writing before proceeding to carry out the work. Should [North] disagree with [Alascom's] or [GTE's] interpretation, [North] shall perform such work according to the interpretation Pursuant to this provision, North demanded arbitration of six claims against Alascom. (Of the nine claims asserted, Claims Three, Seven and Eight did not apply to Alascom.) The district court found that the claims did not fall within the arbitration provision. The court therefore granted Alascom's motion to stay the arbitration and denied North's cross-motion to stay the lawsuit commenced by Alascom. North appeals from these Orders.

of [Alascom]. Any question of additional cost resulting to [North] from [Alascom's] interpretation shall be decided by arbitration.

JURISDICTION ON APPEAL

1. Order denying motion to stay litigation

As a general rule, the "grant or denial of a stay of an action pending arbitration ... is not a 'final decision' appealable under 28 U.S.C. Sec. 1291." Danford v. Schwabacher, 488 F.2d 454, 455 (9th Cir.1973). However, 28 U.S.C. Sec. 1292(a)(1) gives this court jurisdiction over appeals from interlocutory orders granting or refusing injunctions. The Supreme Court has determined that certain orders granting or denying a stay of litigation pending the outcome of proceedings in another forum are analogous to injunctions and are therefore appealable under Sec. 1292(a)(1). Enelow v. New York Life Ins. Co., 293 U.S. 379, 55 S.Ct. 310, 79 L.Ed. 440 (1935); Ettelson v. Metropolitan Life Ins. Co., 317 U.S. 188, 63 S.Ct. 163, 87 L.Ed. 176 (1942). This circuit has interpreted the Enelow-Ettelson rule to allow an appeal from an order granting or denying a stay of proceedings pending arbitration if two conditions are met:

(a) The action in which the motion for a stay was made could have been maintained as an action at law before the merger of law and equity, and (b) the stay was sought to permit prior determination of an equitable defense or counterclaim.

Danford, 488 F.2d at 455. ¹

In this case the first prong of the test is satisfied since all six of North's claims were for money damages. The second prong is also satisfied because reliance upon an arbitration agreement to avoid immediate litigation is an equitable defense. Id. at 456, citing Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 293 U.S. 449, 452, 55 S.Ct. 313, 314, 79 L.Ed. 583 (1935). Therefore, we have jurisdiction over this Order.

2. Order granting motion to stay arbitration

An order granting or denying a stay of arbitration is also not a "final decision" within the meaning of 28 U.S.C. Sec. 1291. Its appealability will depend on whether it falls within section 1292(a)(1), which renders appealable orders "granting ... [or] refusing ... injunctions." ² This court has not yet specifically addressed the reviewability of an order granting a stay of arbitration.

In A. & E. Plastik Pak Co. v. Monsanto Co., 396 F.2d 710 (9th Cir.1968), this court found appealable an order denying a temporary injunction to stop arbitration. In reaching its conclusion, the court focused on the fact that the powers that a court must exercise to stay arbitration are equitable in nature:

Here the court was asked (and declined) affirmatively to interfere with proceedings in another forum; to exercise its equity powers to halt action of its litigants outside of its own court proceedings--the classic form of injunction.

Id. at 713. A. & E. Plastik dealt with the denial, but not the grant, of a motion to stay arbitration; under its reasoning, however We agree that the grant of a motion to stay arbitration is reviewable under section 1292(a)(1). We must question the reasoning underlying A. & E. Plastik, however, in light of Carson v. American Brands, Inc., 450 U.S. 79, 101 S.Ct. 993, 67 L.Ed.2d 59 (1980), an intervening Supreme Court case. In Carson, the fact that an order declining to enter a proposed consent decree had the practical effect of "refusing" an "injunction" did not, without more, render the order appealable. Rather, the litigant also had to establish that the interlocutory order might have a "serious, perhaps irreparable, consequence," and that the order could be "effectually challenged" only by immediate appeal. Id. at 84, 101 S.Ct. at 996. A. & E. Plastik's literal characterization of a stay of arbitration as an "injunction," with the necessary implication that an order "granting" a stay is appealable, is therefore of doubtful value after Carson.

both a grant and a denial would be appealable.

When applying the irreparable harm standard, most courts have held that an order denying a stay of arbitration is not appealable. Since arbitration awards are not self-executing, 9 U.S.C. Sec. 9, if arbitration was improper, the court will not enforce the award. Thus, any harm caused by the denial of a stay will ordinarily be neither serious nor irreparable. North Supply Co. v. Greaters Development and Services Corp., 728 F.2d 363 (6th Cir. 1984); New England Power Co. v. Asiatic Petroleum Corp., 456 F.2d 183 (1st Cir.1972); Stateside Machinery Co., Ltd. v. Alperin, 526 F.2d 480, 483-84 (3d Cir.1975); These cases also note the baneful effect that permitting appeals from orders denying stays would have upon one of the supposed advantages of arbitration--speed.

In contrast, where an order grants a stay of arbitration, one party is deprived of the inexpensive and expeditious means by which the parties had agreed to resolve their disputes. If that party must undergo the expense and delay of a trial before being able to appeal, the advantages of arbitration--speed and economy--are lost forever. We find this consequence "serious, perhaps, irreparable" and "effectually challenged" only by immediate appeal. See Buffler, 466 F.2d at 698; New England Power, 456 F.2d at 186 (dictum). The order staying arbitration is therefore appealable.

STANDARD OF REVIEW OF THE ORDERS

A denial of a stay of proceedings pending arbitration will only be overturned when there has been an abuse of discretion. Mediterranean Enterprises, Inc. v. Ssangyong, 708 F.2d 1458 (9th Cir.1983).

An order staying arbitration receives the same amount of scrutiny as an order denying a stay of arbitration. See Lummus Co. v. Commonwealth Oil Refining Co., 280 F.2d 915, 920 (1st Cir.1960). An order denying a stay of arbitration is reviewed for an abuse of discretion. A. & E. Plastik, 396 F.2d at 714.

In order to determine whether the district court abused its discretion, it is necessary to decide whether there were any claims to be arbitrated.

STANDARD OF REVIEW OF ARBITRABILITY

A determination of the arbitrability of a dispute, like the interpretation of any contractual provision, is subject to de novo review. Ssangyong, 708 F.2d at 1462-63.

APPLICABLE LAW

The subject matter of the parties' contract involves "commerce" and therefore falls within the provisions of the Federal Arbitration Act, 9 U.S.C. Sec. 1 et seq. While recognizing that federal policy favors the enforcement of arbitration agreements, this court has maintained that the issue of arbitrability is ultimately "to be determined by the contract entered into by the parties." Ssangyong, 708 F.2d at 1463. Therefore, the task before us is one of contractual interpretation.

THE CLAUSE

Article 5 of the contract is not the standard broad arbitration provision recommended by the American Arbitration Association. ³

3] Rather, it...