Apex Plumbing Supply, Inc. v. U.S. Supply Co., Inc.

• Decision Date: 22 April 1998
• Docket Number: No. 97-1368,97-1368
• Citation: 142 F.3d 188
• Parties: APEX PLUMBING SUPPLY, INCORPORATED; Harold Falchick, Plaintiffs-Appellees, v. U.S. SUPPLY COMPANY, INCORPORATED, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 188

142 F.3d 188

APEX PLUMBING SUPPLY, INCORPORATED; Harold Falchick Plaintiffs-Appellees, v. U.S. SUPPLY COMPANY, INCORPORATED, Defendant-Appellant.

No. 97-1368.

United States Court of Appeals, Fourth Circuit.

Argued Dec. 1, 1997.

Decided April 22, 1998.

ARGUED: C. George Milner, C. George Milner, P.C., Philadelphia, PA, for Defendant-Appellant. Philip Scott Friedman, Ifshin & Friedman, Washington, DC, for Plaintiffs-Appellees. ON BRIEF: Gary S. Marx, David Kantrow, Marx & Frame, Washington, DC, for Plaintiffs-Appellees.

Before WILKINSON, Chief Judge, JONES, United States District Judge for the Western District of Virginia, sitting by designation, and MICHAEL, Senior United States District Judge for the Western District of Virginia, sitting by designation.

Affirmed by published opinion. Senior Judge MICHAEL wrote the opinion, in which Chief Judge WILKINSON and Judge JONES joined.

OPINION

MICHAEL, Senior District Judge:

In this case we consider appeals from the district court's confirmation of an arbitration award. Here, we decide whether, in an action seeking enforcement of such an award, the Federal Arbitration Act confers permissive or mandatory venue on Federal courts in and for the district in which the award was made. As well, we decide whether, in this case, the district court erred in confirming the award. For the reasons stated herein, we affirm the district court.

I. FACTUAL AND PROCEDURAL BACKGROUND

In December 1994, appellant U.S. Supply ("U.S.") and appellee Apex Plumbing Supply ("Apex") entered into a Management Agreement ("Agreement"). In the Agreement, Apex, a Maryland corporation, gave U.S., a Pennsylvania corporation, the right to manage Apex for a renewable, one-year period, as well as an option to purchase Apex after six months. The Agreement stated that a purchase price would be determined using a specific formula in which, inter alia, inventory would be valued based on how recently it was acquired (i.e. the more recent the acquisition, the higher the relative value), and that in any case inventory more than a year old would be given no value. Joint Appendix ("JA") at 334. In addition, the Agreement required the parties to submit any dispute to arbitration by the American Arbitration Association of Philadelphia, Pennsylvania, and to enter any award made by the arbitrator "in the Court of General Jurisdiction as a judgement of such court." JA at 338.

In its management role, U.S., per the Agreement, underwrote Apex's expenses. As a result, in January 1995, Apex gave a security interest in inventory, receivables, fixtures, leasehold rights, and equipment to U.S. JA at 287. Harold Falchick, president of Apex, guaranteed Apex's debt to U.S. JA at 344-45.

Near the end of its first year managing Apex, U.S. exercised the option to buy Apex. Prior to this time, however, Apex had become dissatisfied with U.S.'s performance of its duties under the Agreement, and a dispute arose as to how the purchase price should be determined. As a result of the disagreement, U.S. filed for arbitration.

After receiving testimony and other evidence at a hearing, an arbitrator made an award of $179,284 to Apex. The arbitrator based this award on the following calculations: first, the arbitrator credited to Apex $9,000, the amount received by U.S. from an auction of Apex inventory, as well as $45,725 in accounts receivable collected by Apex, for a total of $54,725. Then, the arbitrator valued Apex's inventory on April 24, 1996 (the last day Apex was in business) at $258,446, and gave an additional credit of $25,219 to Apex for trade fixtures, goodwill, unpaid rent, and unpaid salaries, for a total of $283,665. The arbitrator finally took this figure and subtracted from it the amount owed by Apex to U.S. ($104,381) to reach the $179,284 owed by U.S. to Apex.

U.S. filed a petition to vacate the award in the Court of Common Pleas of Montgomery County, Pennsylvania. Apex removed the action to the United States District Court for the Eastern District of Pennsylvania. Apex then filed a petition to modify or confirm the award in the United States District Court for the District of Maryland. U.S. filed a motion objecting to venue in Maryland, but that motion was denied. The Maryland district court confirmed the arbitrator's award. The Pennsylvania district court then dismissed all proceedings without prejudice. This appeal followed.

II. DISCUSSION

U.S. challenges one major aspect of the arbitrator's ultimate award. At the arbitration hearing, U.S. had claimed that the value of Apex's inventory on April 24, 1996 was $52,199 and Apex, using a "computer run" from 1995, had claimed that the value, instead, was $408,821.71. According to U.S., the arbitrator's calculation of inventory was higher substantially than its figure because the arbitrator failed to deduct the value of all inventory over one year old. In addition, U.S. raises the threshold issue of whether venue in the U.S. District Court for the District of Maryland was proper to begin with such that the confirmation action even could be heard. We address the issues in reverse order.

A. Venue under the Federal Arbitration Act

Section nine of the Federal Arbitration Act ("FAA"), the statute's venue provision, states, in pertinent part If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then ... any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title. If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made....

9 U.S.C. § 9 (emphasis added).

The appellant contends now, as it did below, that the Maryland district court lacked proper venue to hear the appellees' confirmation petition. Rather, it argues, the U.S. District Court for the Eastern District of Pennsylvania should have been the exclusive Federal forum under the FAA because section nine mandates that a party bring any confirmation action in the district court in the district where the arbitration occurred. Because, again, Philadelphia served as the situs of the arbitration, exclusive venue would vest in a Pennsylvania district court under U.S.'s reading of section nine. Apex, on the other hand, insists that the statute means what it says--that a party "may" not only choose to confirm an award in the local U.S. district court, but in any other district court that has subject matter and personal jurisdiction. In any district court meeting the jurisdictional requirements, venue is permissive under section nine, Apex concludes. The court below read the statute as Apex does and concluded that the FAA's venue provision conferred upon it permissive, not mandatory, venue. ¹ Apex Plumbing Supply, Inc., et al. v. U.S. Supply Co., Inc., Civil No. AW-96-3362, Memorandum Opinion at 3-6 (D.Md. January 14, 1997) ("Mem.Op."). JA at 863-66.

To begin our analysis, we agree fully with the finding of the district court that, looking at the Agreement, "... it is undisputed that no particular court was specified where confirmation of the award could be sought." Mem. Op. at 3. JA at 863. The Agreement's choice of law provision did specify that Pennsylvania law would apply to certain arbitration matters, ² but it in no way designated any one court as the exclusive forum in which a party could confirm an arbitration decision. Thus, because the parties themselves agreed to no particular forum, we address now whether the FAA confers permissive or mandatory venue on district courts to hear confirmation petitions when it states, "If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made." 9 U.S.C. § 9.

The issue is one of first impression in this circuit. While the circuits currently are split on the question (i.e., whether, in the absence of an agreement by the parties, a confirmation action must be brought in the district in which the arbitration award was rendered or merely can be brought there), a majority of the circuits interpret section nine's venue provision as permissive. See, e.g., Smiga v. Dean Witter Reynolds, Inc., 766 F.2d 698 (2d Cir.1985), cert. denied, 475 U.S. 1067, 106 S.Ct. 1381, 89 L.Ed.2d 607 (1986) (permissive); In Re VMS Securities Litigation, 21 F.3d 139 (7th Cir.1994) (permissive); but see Sunshine Beauty Supplies, Inc. v. United States District Court for the Central District of California, 872 F.2d 310, 312 (9th Cir.1989) (mandatory). Additionally, two district courts within this circuit, excluding the court in the decision below, have had occasion to interpret section nine; both have held that it confers permissive, rather than mandatory, venue on district courts with the requisite subject matter and personal jurisdiction. U.S. for Kirchdorfer v. Aegis/Zublin Joint Venture, 869 F.Supp. 387 (E.D.Va.1994) (holding that section nine does not limit confirmation of an award to the district court in the district of arbitration and confirmed a New York arbitration over whose parties the court had personal jurisdiction); Amalgamated Clothing and Textile Workers Union v. Federation of Union Reps., 664 F.Supp. 995 (S.D.W.Va.1987) (venue under section nine is permissive rather than exclusive).

Because there exists no binding precedent in this circuit, we look, first, to persuasive authority from our sister circuits. The Seventh Circuit undertook a particularly thorough examination of the question in In Re VMS Securities Litigation, supra. There, the court held that the venue provision of the FAA indeed is permissive. 21 F.3d at 145. The court looked to the...