American Airlines, Inc. v. Louisville & Jefferson CAB

Decision Date18 September 1959
Docket NumberNo. 13626-13628.,13626-13628.
Citation269 F.2d 811
PartiesAMERICAN AIRLINES, INC., Trans World Airlines, Inc., Eastern Air Lines, Inc., Appellants, v. LOUISVILLE AND JEFFERSON COUNTY AIR BOARD, Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

COPYRIGHT MATERIAL OMITTED

Arthur W. Grafton, Louisville, Ky., Wilson W. Wyatt and Gordon B. Davidson, Louisville, Ky., of counsel; Wyatt, Grafton & Grafton, Louisville, Ky., on brief, for appellants.

T. Kennedy Helm, Jr., Louisville, Ky., James W. Stites, Louisville, Ky., of counsel; Stites, Wood, Helm & Peabody, Louisville, Ky., on brief, for appellee.

Before MARTIN, Chief Judge, SIMONS, Circuit Judge, and MATHES, District Judge.

MATHES, District Judge.

These joint appeals are from like judgments of the District Court in separate actions for declaratory judgment 28 U.S.C. §§ 2201, 2202, entered upon orders sustaining motions of appellee Air Board for a summary judgment, decreeing that three substantially identical lease agreements covering facilities at the Louisville, Kentucky airport, executed in 1947 between appellee Air Board and appellant Airlines, "terminated and became no longer effective October 31, 1957"; also from like interlocutory orders in each action denying motions of appellant airlines to stay proceedings and order arbitration pursuant to §§ 3 and 4 of the Federal Arbitration statute 9 U.S.C. §§ 3 and 4, 61 Stat. 669 (1947).

Although other claims to relief are asserted by appellee Air Board as plaintiff in the District Court, they are not the subject of the present appeals, the District Judge having made an "express determination that there is no just reason for delay" and having directed entry of final judgment in each case, as permitted by Rule 54(b) Fed.R.Civ.P. 54 (b), 28 U.S.C., solely on the Air Board's claim for a declaration that the leases in question had terminated. Appellate jurisdiction as to the summary judgments so entered on only one of the Air Board's multiple claims is invoked under § 1291, and as to the interlocutory orders under § 1292(1), of the Judicial Code. 28 U.S. C. §§ 1291 and 1292(1); see: Shanferoke Coal & Supply Corp. of Delaware v. Westchester Service Corp., 1935, 293 U.S. 449, 55 S.Ct. 313, 79 L.Ed. 583; Hoover Motor Express Co. v. Teamsters, etc., 6 Cir., 1954, 217 F.2d 49, 51.

Each of three actions was originally commenced by the filing of a "Petition for a Declaration of Rights" under Kentucky's declaratory relief statute K.R.S. Chapter 418, in the Chancery Branch of the Jefferson Circuit Court at Louisville in the State of Kentucky, and thereafter removed from the State court upon petitions of appellant airlines under 28 U.S.C. § 1441 on the ground of diversity of citizenship. 28 U.S.C. § 1332; see: 28 U.S.C. § 2201; Skelly Oil Co. v. Phillips Petroleum Co., 1950, 339 U.S. 667, 671-672, 70 S.Ct. 876, 94 L.Ed. 1194. Following removal, the Air Board sought to remand the cases to the State court on the ground that "this declaratory judgment action involves a fundamental question of state policy requiring interpretation of a Kentucky statute which can be fully determined in the State Courts", but the motions to remand were overruled by the District Court.

Appellant airlines then made their answers to the Air Board's petition, with a counterclaim in each case seeking not only a declaration of rights, but also coercive relief by way of specific performance of the renewal provisions of the lease agreements in question. Appellee Air Board thereupon moved in each case for a summary judgment declaring that "the airport agreement terminated on October 31, 1957", and appellant airlines moved to stay the proceedings and compel arbitration. It is the District Court's "Order and Judgment" granting the former and denying the latter motion in each of the three cases which serves as the basis for these joint appeals.

The facts essential to decision are not in dispute and are fairly set forth in the findings of the District Court, as follows 160 F.Supp. 772:

"In 1947 each of the Airlines entered into similar lease agreements with the Air Board for the use of facilities at Standiford Field Louisville airport at certain agreed rentals for a period of ten years. The leases granted the Airlines an option to renew for a like period, Article II of the leases providing:
"`* * * Lessor hereby grants to Lessee an option to renew this lease for one * * * additional term of ten * * * years * * provided that Lessee shall notify Lessor in writing of Lessee\'s exercise of such option as to any such renewal term not less than six * * months before the expiration of the original term hereof. * * *\'
"The Airlines gave the Air Board timely notice of their renewal of their options and the renewals of the options were acknowledged by the Air Board. After the exercise of the options certain negotiations took place between the parties in an attempt to agree upon the rentals for the renewal terms, but the parties were unable to reach an agreement. * * * Article III(C) of the leases provides:
"`* * * In the event Lessee exercises its option to renew this Lease in accordance with the provisions hereof, the rentals, fees and charges for such renewal term shall be as mutually agreed upon between Lessor and Lessee prior to the end of the term. * * * In the event that Lessor and Lessee do not mutually agree as to such rentals, fees and charges for any such renewal term, the same shall be determined by arbitration, as hereinafter provided, and pending such determination the rentals, fees and charges last in effect shall continue in full force and effect.\'
"Article XIX of the leases * * provides as follows:
"`Any controversy or claim arising out of or relating to, the provisions of Article II * * * (and) Article III(C) * * * of this Agreement, which shall not have been settled by agreement between the parties hereto within ninety * * * days after notice of such controversy or claim has been served by the claimant upon the other party, shall be settled by arbitration in accordance with Chapter 417 of Kentucky Revised Statutes and the Commercial Arbitration Rules of Procedure, then obtaining, of the American Arbitration Association * *.\'
"Prior to the expiration of the original term of the leases * * * the Air Board gave the Airlines a notice of controversy provided for in Article XIX, but no steps have been taken by the parties to initiate arbitration proceedings, and they have not been able to mutually agree upon rental terms for the renewal period. The original term of the leases having expired on October 31, 1957, the Airlines are now seeking to enforce the arbitration provisions of the leases which the Air Board refuses to acknowledge as binding upon it."

The District Court declared in a memorandum opinion that the arbitration provisions of the leases were invalid and unenforceable because "the Air Board was without authority to contract to delegate to arbitrators its public and discretionary duty to fix rentals for the use of the facilities of the airport." The memorandum opinion concludes: "Having reached the conclusion the arbitration provisions of the leases are unenforceable and void and the Airlines are not entitled to specific performance of the void covenants of their leases, it is not necessary to consider the question of whether or not the establishment of renewal rentals is an arbitrable issue."

The leases were hence declared terminated as of the end of the original ten-year term on October 31, 1957, for lack of agreement by the parties as to an essential provision of the renewal term, namely, the rental fees and other charges to be paid by appellant airlines for facilities at Louisville airport during the forthcoming ten-year period.

Although the leases evidence "a transaction involving commerce among the several states", thus bringing the Federal arbitration statute into play see 9 U.S.C. §§ 1-14, 61 Stat. 669 (1947), the validity and enforceability of the renewal provisions, including those as to arbitration, were determined by the District Court in accordance with Kentucky law. On these appeals there is presented at the outset, then, the problem whether Federal or State law governs.

However, it should first be noted that above-quoted Article XIX of the lease agreements declares that "any controversy or claim arising out of or relative to the arbitration provisions * * * of this agreement * * * shall be settled by arbitration in accordance with Chapter 417 of the Kentucky Revised Statutes * * *." Although Chapter 417 includes provisions as to the validity and enforceability of agreements to arbitrate, appellant airlines in their briefs take the position that Chapter 417 "is merely to govern * * * procedure", and not "validity or enforceability." Moreover, appellee Air Board apparently acquiesces in this interpretation of the contractual language. Hence we need not now confront the interesting question whether parties to an arbitration agreement "evidencing a transaction involving commerce * * * among the several states" 9 U.S.C. §§ 1 and 2 may by mutual agreement waive the benefits of the Federal law insofar as validity and enforceability are concerned, and choose instead State law more to their liking.

The Federal arbitration statute, 9 U.S.C. §§ 1-14, 61 Stat. 669 (1947), was enacted in exercise of the Congress' plenary power over interstate commerce. U.S.Const. Art. I, § 8, clause 3; 9 U.S.C. §§ 1 and 2; cf. Bernhardt v. Polygraphic Company, 1956, 350 U.S. 198, 76 S.Ct. 273, 100 L.Ed. 199; Jackson v. Kentucky River Mills, D.C.E.D.Ky. 1946, 65 F.Supp. 601. Within the scope of the statute circumscribed by the Constitution, Federal law is of course paramount under the Supremacy Clause, and State law must give way. Kentucky River Mills v. Jackson, 6 Cir., 1953, 206 F.2d 111, 117, 47 A.L.R.2d 1331; Jackson v. Kentucky River Mills, supra, 65 F.Supp. at page 603; see Note, ...

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