Ansari v. Qwest Communications Corp.

• Decision Date: 12 July 2005
• Docket Number: No. 04-1262.,04-1262.
• Citation: 414 F.3d 1214
• Parties: Hamid ANSARI; Broadband Utility Resources, L.P., Plaintiffs-Appellees, v. QWEST COMMUNICATIONS CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

414 F.3d 1214

Hamid ANSARI; Broadband Utility Resources, L.P., Plaintiffs-Appellees, v. QWEST COMMUNICATIONS CORPORATION, Defendant-Appellant.

No. 04-1262.

United States Court of Appeals, Tenth Circuit.

July 12, 2005.

Bobbee J. Musgrave, Steven J. Perfrement, and Paul J. Lopach, Musgrave & Theis, LLP, Denver, CO, for Defendant-Appellant.

K.C. Groves, Ireland, Stapleton, Pryor & Pascoe, P.C., Denver, CO, and James G. Rizzo and James E. Smith, McDermott Will & Emery LLP, Washington, D.C., for Plaintiffs-Appellees.

Before LUCERO, McKAY, and ANDERSON, Circuit Judges.

McKAY, Circuit Judge.

Plaintiffs Hamid Ansari and Broadband Utility Resources, L.P. (BUR) filed suit in Colorado district court against defendant Qwest Communications Corp. alleging several claims. Qwest petitioned to compel arbitration in Colorado based on the parties' agreement that disputes would be settled by arbitration. The district court denied the petition, concluding that it had no authority to compel arbitration in Colorado, because the parties had agreed that Washington, D.C. would be the arbitration forum. Also, the court concluded it had no authority to compel arbitration in Washington, D.C. Qwest appeals.

This appeal presents the following issue of first impression in this circuit: Whether § 4 of the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, prohibited the Colorado district court from compelling arbitration in Colorado when the parties' contractual agreement designated Washington, D.C. as the arbitration forum. Like the district court, we conclude that § 4 did prohibit the district court from compelling arbitration in either Colorado or Washington, D.C. Accordingly, we affirm the district court's order denying arbitration.¹

BACKGROUND

In their complaint, plaintiffs asserted the following facts. In mid-June 2001, Qwest and BUR orally agreed that BUR would purchase an Indefeasible Right of Use (IRU)² for certain long-distance telecommunications services from Qwest for $20,092,520 conditioned upon Qwest's purchase of equipment from Mr. Ansari's then-employer Sonus Networks, Inc. Qwest refused to memorialize the terms of both agreements in a single contract. On June 28, 2001, Qwest and BUR signed the IRU Agreement, and BUR made an initial payment of $5,023,130. Also, at that time, Mr. Ansari pledged his personal Sonus Networks stock valued at $15,963,547 as collateral for the balance due on the IRU Agreement.

The IRU Agreement gave BUR the exclusive right to use a specified portion of a telecommunications cable owned by Qwest, specifically the exclusive right to use eight circuits of specified capacity over five defined routes for their entire economically useful life. Aplt. Br. at 3-4. The IRU Agreement also contained an arbitration provision. This provision stated that any dispute between Qwest and BUR concerning the IRU Agreement shall be settled by arbitration in Washington, D.C. in accordance with the Commercial Arbitration Rules of the American Arbitration Association.³

Despite this arbitration provision, plaintiffs filed suit against Qwest in Colorado district court alleging several claims for relief: (1) fraud in the inducement; (2) breach of an implied covenant of good faith and fair dealing; (3) breach of warranty; (4) rescission; (5) unjust enrichment; (6) fraud; and (7) violation of §§ 201(a), 201(b), 202(a) and 271 of the Communications Act of 1934, 47 U.S.C. §§ 151-615b. They asserted that federal law barred Qwest from providing some of the circuit capacity identified in the IRU Agreement and that Qwest induced BUR to execute the IRU Agreement by entering into a contemporaneous equipment purchase agreement with Sonus Networks that Qwest never intended to honor.

In response to the complaint, Qwest filed a petition to compel arbitration in Colorado under 9 U.S.C. § 4 based on the arbitration clause in the IRU Agreement. Qwest asserted that because plaintiffs initiated this action in Colorado, arbitration was proper in Colorado, even though the arbitration clause of the IRU Agreement stated arbitration was to be held in Washington, D.C. Plaintiffs opposed the petition. The magistrate judge recommended that the petition be denied, because the district court lacked "power to compel arbitration in any district because the arbitration provision requires that arbitration occur in a forum outside the district." Aplt.App. at 160; see also id. at 162 (recommending petition to compel arbitration be denied because court lacked authority to order arbitration in Colorado or Washington, D.C.). Accordingly, the magistrate judge recommended that the district court adopt the position "that if an arbitration agreement contains a forum selection clause only the district court in that forum can issue an order compelling arbitration under Section 4 of the FAA." Id. at 160 (citing cases). Additionally, the magistrate judge recommended that the district court stay proceedings pending a determination in the District of Columbia whether some or all of plaintiffs' claims are arbitrable.

Reviewing de novo, the district court adopted the magistrate judge's recommendation. Id. at 188. The court denied the petition to compel arbitration, ordered that any arguments regarding arbitrability of plaintiffs' claims be decided by the district court in the District of Columbia if Qwest files a petition to compel arbitration there,⁴ and stayed the action pending a determination by the District of Columbia district court on the arbitrability of the claims and the outcome of any arbitration proceeding.

JURISDICTION

Before addressing the merits, we must consider whether we have jurisdiction to consider this appeal. Plaintiffs argue that this court lacks jurisdiction because the district court did not rule on the merits of Qwest's petition to compel arbitration and instead denied the petition after holding that it lacked authority to rule on the petition. The FAA, however, makes no such distinction. It expressly permits an appeal from a district court's order "denying a petition under section 4 ... to order arbitration to proceed." 9 U.S.C. § 16(a)(1)(B).

In interpreting this plain language, other courts have held, contrary to plaintiffs' assertion, that § 16(a)(1)(B) does not require a final determination of the merits of a petition to compel arbitration. See, e.g., Palcko v. Airborne Express, Inc., 372 F.3d 588, 592 (3d Cir.2004) (holding all orders declining to compel arbitration are reviewable under § 16(a)), cert. denied, ___ U.S. ___, 125 S.Ct. 863, 160 L.Ed.2d 769 (2005); Madol v. Dan Nelson Auto. Group, 372 F.3d 997, 998-99 (8th Cir.2004) (permitting immediate appeal where district court reopened discovery and rejected magistrate judge's recommendation compelling arbitration); Microchip Tech. Inc. v. U.S. Philips Corp., 367 F.3d 1350, 1355 (Fed.Cir.2004) (agreeing with "sister circuits that section 16 allows for appeal of orders denying motions to compel arbitration even when the issue of arbitrability has not been finally decided"); Colon v. R.K. Grace & Co., 358 F.3d 1, 4 (1st Cir. 2003) (holding order denying arbitration under FAA is immediately appealable); Boomer v. AT & T Corp., 309 F.3d 404, 411-12 (7th Cir.2002) (permitting immediate appeal from order denying request for arbitration to proceed, where district court held that further discovery was needed before it could conclusively rule on motion to compel arbitration); Snowden v. CheckPoint Check Cashing, 290 F.3d 631, 636 (4th Cir.2002) (recognizing sister circuits have reached conclusion that plain language of statute gives appellate jurisdiction over appeals from orders denying motions to compel arbitration); Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 103 (3d Cir.2000) ("treat[ing] all orders declining to compel arbitration as reviewable"); In re Pisgah Contractors, Inc., 117 F.3d 133, 135 (4th Cir.1997) (recognizing appellate courts have jurisdiction to consider appeals from interlocutory orders denying motions to compel arbitration). See generally Spahr v. Secco, 330 F.3d 1266, 1268 (10th Cir.2003) (exercising, without specifically addressing, jurisdiction under § 16 when considering district court's order denying arbitration).

Also, § 16(b)'s listing of interlocutory arbitration-related orders that are not immediately appealable shows Congressional intent to permit an immediate appeal of the denial of a petition to compel arbitration. Boomer, 309 F.3d at 412; see also Adair Bus Sales, Inc. v. Blue Bird Corp., 25 F.3d 953, 955 (10th Cir.1994) (recognizing Congressional intent to permit appeals from orders denying arbitration, but limiting appeals from orders granting arbitration); Sandvik AB, 220 F.3d at 104 (recognizing that refusing appeal circumvents FAA's purpose to enforce binding arbitration agreements); McDermott Int'l, Inc. v. Underwriters at Lloyds Subscribing to Mem. of Ins. No. 104207, 981 F.2d 744, 746-47 (5th Cir.1993) (recognizing § 16 promotes liberal FAA policy of favoring arbitration by permitting interlocutory appeals of orders favoring litigation over arbitration).

Accordingly, we conclude the plain language of § 16(a)(1)(B) provides for the immediate appeal of the denial of a petition to compel arbitration. Because the district court here clearly precluded Qwest from proceeding with arbitration in Colorado, we therefore have jurisdiction to consider this appeal.

DISCUSSION

Qwest argues that the district court erred in failing to consider the merits of its petition to compel arbitration and should not have required Qwest to initiate a new action in Washington, D.C. Qwest maintains that the plain language of the FAA, its purpose, and its legislative history direct a conclusion that the district court had the authority to compel arbitration in Colorado despite the language of the arbitration clause providing for arbitration to be held in Washington, D.C.

"We review the denial of a motion to compel arbitration de novo and employ the same legal...