Apollo Computer, Inc. v. Berg

• Decision Date: 01 August 1989
• Docket Number: No. 89-1528,89-1528
• Parties: APOLLO COMPUTER, INC., Plaintiff, Appellant, v. Helge BERG, et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 469

886 F.2d 469

APOLLO COMPUTER, INC., Plaintiff, Appellant, v. Helge BERG, et al., Defendants, Appellees.

No. 89-1528.

United States Court of Appeals, First Circuit.

Heard Aug. 1, 1989.

Decided Sept. 28, 1989.

Rehearing Denied Oct. 25, 1989.

Richard J. McCarthy, with whom Timothy Q. Feeley and Gaston & Snow, Boston, Mass., was on brief, for plaintiff, appellant.

Steven L. Manchel with whom Goldstein & Manello, Boston, Mass., was on brief, for defendants, appellees.

Before CAMPBELL, Chief Judge, TORRUELLA, Circuit Judge, and WOODLOCK, ^* District Judge.

TORRUELLA, Circuit Judge.

The plaintiff appeals from a district court order refusing its request for a permanent stay of arbitration proceedings. The facts of the case are undisputed. On March 23, 1984, Apollo Computer, Inc. ("Apollo") and Dicoscan Distributed Computing Scandinavia AB ("Dico") entered into an agreement granting Dico, a Swedish company having its principal place of business in Stockholm, the right to distribute Apollo's computers in four Scandinavian countries. Helge Berg and Lars Arvid Skoog, the defendants in this action, signed the agreement on Dico's behalf in their respective capacities as its chairman and president. The agreement contained a clause stating that all disputes arising out of or in connection with the agreement would be settled in accordance with the Rules of Arbitration of the International Chamber of Commerce ("ICC"), and another clause that stated that the agreement was to be governed by Massachusetts law. The agreement also provided that it could not be assigned by Dico without the written consent of Apollo. ¹

In September 1984, after disputes relating to the financing of Dico's purchases, Apollo notified Dico that it intended to terminate the agreement, effective immediately. Dico then filed for protection from its creditors under Swedish bankruptcy law and subsequently entered into liquidation, with its affairs being handled by its trustee in bankruptcy. The trustee assigned Dico's right to bring claims for damages against Apollo to the defendants. In May 1988, the defendants filed a complaint and a request for arbitration with the ICC.

On August 24, 1988, Apollo rejected arbitration, claiming that there was no agreement to arbitrate between it and the defendants, and that assignment of Dico's contractual right to arbitrate was precluded by the agreement's nonassignment clause. The ICC requested both parties to submit briefs on the issue. On December 15, 1988, the ICC's Court of Arbitration decided that pursuant to its rules, the arbitrator should resolve the issue of arbitrability, and directed the parties to commence arbitration proceedings to resolve that issue and, if necessary, the merits.

On January 11, 1989, Apollo filed the instant action in federal district court under diversity of citizenship jurisdiction. It sought a permanent stay of the arbitration, pursuant to M.G.L. ch. 251, Sec. 2(b), on the grounds that there is no arbitration agreement between the parties. The parties submitted a statement of material facts not in dispute. Apollo then moved for summary judgment. On May 11, 1989, the district court denied the request to stay arbitration and the motion for summary judgment. The court stated that "[a]s this order is determinative of the entire action, judgment for the defendants shall enter forthwith." Appendix at 78 (hereinafter "App.").

On May 16, 1989, Apollo filed a Notice of Appeal. On May 25, 1989, the defendants filed a motion to dismiss the appeal for lack of jurisdiction, claiming that the district court's order was not final for purposes of 28 U.S.C. Sec. 1291. After receipt of Apollo's opposition to this motion, this court denied the defendants' motion without prejudice and directed the parties to brief the jurisdictional issue, along with the merits, in their briefs on appeal. ²

Appellate jurisdiction

We address the jurisdictional issue first. Apollo's complaint raised only one issue--the defendants' right to compel it to arbitrate the dispute between them. The district court's order resolved that issue and was therefore "determinative of the entire action." App. at 78. The district court's order left "nothing to be done except execution of the judgment," United States v. Metropolitan District Commission, 847 F.2d 12, 14 (1st Cir.1988), and certainly appears to be final and appealable for purposes of 28 U.S.C. Sec. 1291. Treating the order in this manner is perfectly consistent with this Circuit's precedents in the context of motions to compel arbitration under 9 U.S.C. Sec. 4. We have held that when a federal suit on the underlying claim is pending, a district court's grant or denial of a motion seeking compelled arbitration is not appealable under Sec. 1291. See Hartford Financial Systems, Inc. v. Florida Software Services, Inc., 712 F.2d 724, 729 (1st Cir.1983); Langley v. Colonial Leasing Co., 707 F.2d 1, 5 (1st Cir.1983). When Sec. 4 motions are made in independent proceedings, however, the resulting order is "universally" conceded to be final and appealable under Sec. 1291. Hartford Financial Systems, 712 F.2d at 728. ³ The fact that Apollo's motion was made under state law rather than federal law does not alter the analysis. The critical fact is that the motion was brought in an independent proceeding. Consequently, permitting an immediate appeal from the denial of the motion will not lead to piecemeal appeals.

The defendants argue that Apollo's action, despite the form in which it was pleaded, is really not an independent proceeding. Apollo could have included claims related to the substantive dispute in its complaint, the defendants explain, but chose not to do so to create an opportunity for immediate appeal of an adverse decision by the district court. Defendants urge this court not to allow Apollo and other plaintiffs to use crafty pleading tactics to avoid the rules barring interlocutory appeals. If we decide that we do have jurisdiction over this appeal, the defendants urge us to bar Apollo from litigating in the future the substantive claims that it should have brought in this proceeding.

This argument is misconceived. It rejects the concept of an independent proceeding, and insists that procedural and substantive claims must be brought together in one proceeding. This position is completely inconsistent with federal practice, which has long recognized the existence of an independent proceeding to resolve the threshold procedural issue of whether a dispute should be arbitrated. See Hartford Financial Systems, 712 F.2d at 728 (listing cases discussing independent proceedings under Sec. 4 of the Federal Arbitration Act). Our decision here does not represent a new assault on the policy against piecemeal appeals; litigants who restrict their lawsuit to the issue of arbitrability have always been allowed an immediate appeal from the resulting order. See Chatham Shipping Co. v. Fertex Steamship Corp., 352 F.2d 291, 294 (2d Cir.1965).

Defendants also argue that the failure to plead substantive claims in a proceeding focusing on arbitrability of those issues bars their subsequent litigation. In the arbitration context, as explained above, courts have long permitted the separate adjudication of arbitrability and the underlying substantive issues. Defendants have not identified and we are not aware of any authority even suggesting that dividing arbitration-related litigation in this manner triggers claim preclusion concerns. ⁴

Arbitrability

Having determined that we have jurisdiction over this appeal, we now turn to the merits, beginning with a summary of the opinion below. The district court first decided that the parties had explicitly agreed to have the issue of arbitrability decided by the arbitrator. Notwithstanding this conclusion, the court then proceeded to analyze the issue of arbitrability itself. It determined that Dico would have the right to seek arbitration of the underlying claims if it had pursued them on its own behalf. The only remaining issue, the court reasoned, was whether the agreement's non-assignment clause prevented the defendants from asserting Dico's right to arbitrate. The court ruled that it did not because under Massachusetts law, a general nonassignment clause will be construed as barring only the delegation of duties, not the assignment of rights.

Apollo makes the following claims on appeal. First, it argues that the right to compel arbitration did not survive the termination of the agreement, so that even Dico would not have had the right to compel arbitration of the claims at issue. Second, it argues that even if Dico had the right to compel arbitration of the claims, it had not validly assigned that right to the defendants. Third, it argues that the agreement's nonassignment clause renders the purported assignment unenforceable against Apollo.

We do not reach any of these arguments because we find that the parties contracted to submit issues of arbitrability to the arbitrator. There is no question that this contract falls under the aegis of the Federal Arbitration Act, 9 U.S.C. Sec. 1, et seq. See 9 U.S.C. Sec. 2; Societe Generale de Surveillance, S.A. v. Raytheon European Management and Systems Co., 643 F.2d 863, 867 (1st Cir.1981). Both parties agree that under the Federal Arbitration Act, the general rule is that the arbitrability of a dispute is to be determined by the court. See Necchi v. Necchi Sewing Machine Sales Corp., 348 F.2d 693, 696 (2d Cir.1965) (Marshall, J.), cert. denied, 383 U.S. 909, 86 S.Ct. 892, 15 L.Ed.2d 664 (1966); Domke on Commercial Arbitration Sec. 12.01, at 152; see also AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986) (reaffirming this general rule in the labor arbitration context); Mobil Oil Corp. v. Local 8-766, 600 F.2d 322, 324-25 (1st Cir.1979) (same). Parties may, however, agree to allow the arbitrator to decide both...