Atlantic Aviation, Inc. v. EBM Group, Inc., 92-2108

• Decision Date: 19 January 1994
• Docket Number: No. 92-2108,92-2108
• Citation: 11 F.3d 1276
• Parties: ATLANTIC AVIATION, INC., Plaintiff-Appellant, v. EBM GROUP, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1276

11 F.3d 1276

ATLANTIC AVIATION, INC., Plaintiff-Appellant, v. EBM GROUP, INC., Defendant-Appellee.

No. 92-2108.

United States Court of Appeals, Fifth Circuit.

Jan. 19, 1994.

William R. Burke, Jr., Baker & Botts, Houston, TX, for plaintiff-appellant.

Robert D. Powell, Washington, DC, for defendant-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, GARWOOD and DAVIS, Circuit Judges.

GARWOOD, Circuit Judge:

Plaintiff-appellant Atlantic Aviation Corporation (Atlantic) filed this action in state court in Houston, Texas, seeking to modify, correct, and confirm a commercial arbitration award. Defendant-appellee EBM Group, Inc. (EBM) removed the action on the basis of diversity jurisdiction and counter-claimed to have the arbitration award vacated. After a two-day bench trial, the district court entered a "take nothing" judgment against Atlantic, finding the award unenforceable for lack of finality. Atlantic appeals. We reverse and remand the case to the district court.

Facts and Proceedings Below

This lawsuit arises out of an arbitration proceeding conducted pursuant to an arbitration clause in a contract entered into by Atlantic and EBM on February 8, 1989. The contract provided that Atlantic was to install a twenty-four place commuter-configured interior into a Gulfstream-1 aircraft owned by EBM. The contract price owed by EBM was $166,643. EBM made an initial payment of $55,000; the balance of $111,643 remains unpaid. Atlantic breached the contract when it did not complete the installation within the thirty-day period provided by the contract. ¹

In November 1989, EBM announced its intent to submit the dispute over the contract to an arbitration panel, as provided for in Article XII of the contract, which specified that contract disputes between the parties were to be submitted to a panel of three arbitrators. The members of the panel included Lloyd R. Cunningham, a Houston lawyer, chosen by Atlantic; Harry H. Herman, a Washington, D.C. engineer, appointed by EBM; and W. Marc Schwartz, a partner with Coopers & Lybrand in Houston, as the neutral arbitrator.

Also in November 1989, EBM executed a promissory note in the amount of $94,979, ² payable to Atlantic within 10 days of the entry of the arbitration award, on the condition that Atlantic was the prevailing party and was awarded damages in that amount by the panel. EBM deposited the promissory note with an escrow agent. ³

The arbitration panel held a hearing in Houston in May 1990. EBM claimed large damages for itself and third parties arising from the delay. Atlantic conceded that it had breached the contract but disclaimed liability for the consequential damages claimed by EBM, raising defenses of failure to prove actual damages, lack of foreseeability, and contractual limitation of damages. In addition, Atlantic counterclaimed for the amount remaining due under the contract. Following the hearing, EBM was permitted to amend its claims to include allegations of fraud and of violation of the Texas Deceptive Trade Practices Act (DTPA). The parties submitted post-hearing briefs to the arbitration panel.

The panel issued its ruling in February 1991. The award, issued in broad form, included four findings: (1) Atlantic had breached its contract with EBM by failing to deliver the aircraft within the time period specified; (2) EBM's recovery of damages for this breach was limited by the terms of the contract to $16,664; (3) EBM was awarded damages of $16,664; and (4) EBM's promissory note was "not an issue subject to the panel's deliberation" because "under its terms it is not due yet nor do its provisions call for arbitration by this panel." Mr. Herman, EBM's member of the panel, disagreed with the panel's findings on the amount of damages owed to EBM as a result of the delay (findings two and three).

The panel made no formal findings concerning the balance owed to Atlantic and its award failed to offset the delay damages awarded to EBM by the amount still owed by EBM to Atlantic under the contract. Atlantic moved the panel to modify or correct its ruling on the fourth issue, that of the promissory note, to reflect the balance owed to Atlantic.

When EBM indicated that it would not agree to further actions by the panel, Atlantic filed suit in state court, seeking to modify, correct, and confirm the arbitration award. EBM removed the case to the United States District Court for the Southern District of Texas on the basis of diversity of citizenship and counterclaimed to vacate and set aside the award. Following a two-day bench trial, the district court entered a judgment that Atlantic take nothing.

The district court declined to set aside the arbitration award as requested by EBM in its counterclaim on the grounds that EBM had not produced sufficient evidence warranting such action. The court found that the award was unenforceable for lack of finality because the panel had failed to consider and decide EBM's fraud and DTPA claims and Atlantic's arbitration counterclaim for the contract balance. The court declined to correct or modify the award, on the grounds that it could not do so without affecting the merits of the case. Instead, it remanded the matter for arbitration before a new panel.

Atlantic timely appealed from the judgment. EBM did not cross-appeal the district court's refusal to set aside the award. ⁴

Discussion

I. Jurisdiction

As a preliminary matter, EBM contends that this Court lacks jurisdiction to hear this appeal. EBM bases this argument upon application of the Texas General Arbitration Act, the law invoked by the parties before the district court, and upon the Uniform Arbitration Act, the law agreed upon by the parties in the contract to govern review of the arbitration award. ⁵ Neither of these laws allow appeals from orders which both vacate an award and direct a rehearing of the dispute. See TEX.REV.CIV.STAT.ANN. art. 238-2 Sec. A (Vernon 1973) ("An appeal may be taken from: ... (5) An order vacating an award without directing a rehearing...."); UNIFORM ARBITRATION ACT Sec. 19(a) (same).

We determine that federal law controls our jurisdiction here. Contrary to EBM's assertion that state law should apply because neither party relied on the Federal Arbitration Act (FAA) below, the federal statute governing arbitrations is "applicable to any arbitration agreement within the coverage of the Act." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 23, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983).

The FAA applies to, inter alia, "a contract evidencing a transaction involving commerce." 9 U.S.C. Sec. 2. "Commerce" is defined in the Act as

"commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation, [with the exception of certain employment contracts]." 9 U.S.C. Sec. 1.

We have indicated that the term "commerce" refers to interstate or foreign commerce and is to be broadly construed. See Del E. Webb Constr. v. Richardson Hosp. Auth., 823 F.2d 145, 148 (5th Cir.1987).

If an arbitration agreement is within the coverage of the FAA, its provisions are applicable in state as well as federal courts. ⁶ Southland Corp. v. Keating, 465 U.S. 1, 14-16, 104 S.Ct. 852, 860-861, 79 L.Ed.2d 1 (1984). See also 13B C. WRIGHT, A. MILLER, & E. COOPER, FEDERAL PRACTICE AND PROCEDURE, Sec. 3569 (2d ed. 1984) ("[E]ven in a diversity suit or an action in state court if a maritime transaction or one in interstate or foreign commerce is involved, the substantive rules contained in the Act, based as it is on the commerce and admiralty powers, are to be applied regardless of state law").

Furthermore, the FAA governs judicial review of arbitration proceedings notwithstanding any choice of law provision or state law to the contrary. Mesa Operating Ltd. Partnership v. Louisiana Intrastate Gas Corp., 797 F.2d 238, 243-244 (5th Cir.1986) ("[T]he existence of commerce under the FAA is dispositive with respect to the law which governs arbitrability even where the parties contemplated state law governance"). See also Northern Illinois Gas Co. v. Airco Indus. Gases, 676 F.2d 270, 274-275 (7th Cir.1982) ("Notwithstanding the parties' choice of law provision in their contract calling for application of Illinois law, and irrespective of the fact that this is a diversity case, federal arbitration law governs the analysis of arbitration provisions in any contract evidencing a transaction in interstate commerce.").

EBM asserts that the contract does not involve commerce because the work was to be performed solely within the state of Texas. We disagree. This Court has held that a contract may involve commerce under the FAA if the parties engaged in the performance of contract activities are citizens of different states, where such a contract involves interstate travel of both personnel and payments. Mesa Operating Ltd. Partnership, 797 F.2d at 243. Under this reasoning, the contract between Atlantic and EBM unquestionably involved commerce. Atlantic is incorporated and has its principal place of business in Delaware; EBM is a New York corporation with its principal place of business in Washington, D.C. Atlantic operates a fixed-base aircraft supply and maintenance operation at Hobby Airport in Houston, Texas, where the contract work was performed. The contract was negotiated in interstate commerce and involved interstate payments by EBM to Atlantic. Atlantic's work on the aircraft was subject to the approval of the Federal Aviation Agency, an agency with jurisdiction over federal aircraft regulations. Furthermore, although the contract provided for primary delivery at the airport in Houston, the contract also allowed...