Buffler v. Electronic Computer Programming Inst., Inc.

• Decision Date: 30 August 1972
• Docket Number: No. 72-1082.,72-1082.
• Citation: 466 F.2d 694
• Parties: James A. BUFFLER and Electronic Computer Institute of Knoxville, Inc., Plaintiffs-Appellees, v. ELECTRONIC COMPUTER PROGRAMMING INSTITUTE, INC., et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

466 F.2d 694 (1972)

James A. BUFFLER and Electronic Computer Institute of Knoxville, Inc., Plaintiffs-Appellees, v. ELECTRONIC COMPUTER PROGRAMMING INSTITUTE, INC., et al., Defendants-Appellants.

No. 72-1082.

United States Court of Appeals, Sixth Circuit.

August 30, 1972.

Claude K. Robertson, Knoxville, Tenn., Fowler, Rowntree, Fowler & Robertson, Knoxville, Tenn., on brief; Lowenthal, Landau & Fischer, New York City, of counsel, for defendants-appellants.

Robert G. McDowell, Knoxville, Tenn., Baker, Worthington, Crossley & Stansberry, Knoxville, Tenn., Robert L. Crossley, Knoxville, Tenn., on brief, for plaintiffs-appellees.

Before CELEBREZZE, McCREE and MILLER, Circuit Judges.

CELEBREZZE, Circuit Judge.

On June 15, 1966, Plaintiffs-Appellees (hereinafter Buffler) entered into two franchise agreements with Defendants-Appellants (hereinafter ECPI), under which Buffler was to operate a computer training school as the exclusive franchisee of ECPI in Eastern Tennessee.

Under the agreements Buffler was required to pay ECPI initial franchise fees totalling $9,750.00 and a royalty of six percent of the gross tuition receipts. In exchange for these payments, Buffler was to receive from ECPI franchise rights and certain specified goods and services related to the operation of the local computer training school. The agreements provided for an initial franchise term of five years, with renewals for successive five-year terms without charge if Buffler had performed the covenants and undertakings prescribed in the agreements.

In a letter dated September 17, 1971, the president of ECPI informed Buffler that the franchise agreements between the parties had expired and that these agreements were terminated as of October 8, 1971. Apparently in the same letter, Buffler was advised that it owed ECPI $38,450.77 under the agreements. Buffler subsequently received from ECPI a "Demand for Arbitration" dated October 8, 1971, setting forth ECPI's intent to arbitrate the above claim before the American Arbitration Association in New York City, pursuant to the arbitration clause in the franchise agreements. Buffler received a similar notice from the American Arbitration Association advising the former that unless it participated in such arbitration on or before October 27, 1971, under Association rules the arbitration would proceed exparte. Buffler succeeded in obtaining a seven-day extension of this deadline until November 3, 1971.

On October 29, 1971, Buffler filed a complaint in the District Court, setting forth three causes of action against ECPI. Count I of the complaint asserts that the franchise agreements violate Sections 1 and 2 of the Sherman Act, 15 U.S.C.A. §§ 1 and 2 and Section 3 of the Clayton Act, 15 U.S.C. § 14, for which Buffler seeks treble damages and injunctive relief under Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§15 and 26. Count II seeks damages and rescission of the agreements for ECPI's alleged breach of contract in failing to meet its obligations under the agreements. Count III seeks damages arising from ECPI's alleged "fraud and breach of its confidential and fiduciary obligation" under a separate franchise agreement relating to Buffler's operation of a computer training school in Chattanooga, Tennessee.¹ Federal jurisdiction over Counts II and III is invoked under diversity of citizenship.

At the same time it filed the above complaint, Buffler moved for a temporary restraining order and a preliminary injunction against ECPI's continuing with the arbitration proceedings which were scheduled to commence in New York City on November 3rd. In support of these motions, Buffler claimed that it would suffer irreparable harm in that the arbitration would proceed ex parte if the restraining order and/or preliminary injunction were denied.

The District Court conducted a hearing on Buffler's motions on November 19, 1971, at which counsel for both parties appeared and presented argument. Relying on its "examination of the pleadings and careful listening to the respective arguments of counsel," the District Court concluded that the "record presents serious questions of law and fact which can be answered only after a full hearing on the merits." Finding that continuation of the arbitration proceedings "could cause irreparable loss and harm to the plaintiff who appears from the pleadings and arguments of his counsel to be a person in financial stress," the District Court granted Buffler's motion for a preliminary injunction against ECPI's continuing with the arbitration proceedings.

We vacate the District Court's order granting the injunction.

I. APPEALABILITY

We are initially faced with the question of whether we have jurisdiction to hear ECPI's appeal from the District Court's order granting a preliminary injunction against arbitration. ECPI invokes appellate jurisdiction under both 28 U.S.C. § 1291 (appeals from final decisions) and 28 U.S.C. § 1292(a)(1) (appeals from interlocutory decisions). Because we conclude below that the District Court's order is appealable under Section 1292(a)(1) as an interlocutory order granting an injunction, we need not consider whether it might otherwise be characterized as a final judgment under Section 1291, as that statute has been construed in Gillespie v. United States Steel Corp., 379 U.S. 148, 152-154, 85 S.Ct. 308, 13 L.Ed.2d 199 (1964); Swift & Co. Packers v. Compania Colombiana Del Caribe, S. A., 339 U.S. 684, 688-689, 70 S.Ct. 861, 94 L.Ed. 1206 (1950); and Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 545-547, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949).

In considering the appealability of the District Court's order² under 28 U.S.C. § 1292(a)(1), we do not write on a clean slate. In a series of decisions, the Court of Appeals for the Second Circuit has held that an order granting or denying an injunction against (or a stay of) arbitration proceedings is not appealable under Section 1292(a)(1). Greater Continental Corp. v. Schechter, 422 F.2d 1100, 1102-1103 (2d Cir. 1970); Lummus Co. v. Commonwealth Oil Refining Co., 297 F.2d 80, 84-86 (2d Cir. 1961), cert. denied, 368 U.S. 986, 82 S.Ct. 601, 7 L.Ed.2d 524 (1962); Greenstein v. National Skirt & Sportswear Ass'n, 274 F.2d 430 (2d Cir. 1960). The Court of Appeals for the Ninth Circuit has reached the opposite result, holding that the denial (and presumably the grant) of a stay of arbitration proceedings is appealable under Section 1292(a)(1). Power Replacements, Inc., v. Air Preheater Co., 426 F.2d 980, 982 (9th Cir. 1970); A. & E. Plastik Pak Co. v. Monsanto Co., 396 F.2d 710, 713 (9th Cir. 1968). The Court of Appeals for the First Circuit appears to have taken a hybrid approach by holding that the denial of a stay of arbitration proceedings is not appealable under Section 1292(a) (1), New England Power Co. v. Asiatic Petroleum Corp., 456 F.2d 183, 185-187 (1st Cir. 1972), but that the grant of such an injunction or stay is appealable under that Section, Lummus Co. v. Commonwealth Oil Refining Co., 280 F.2d 915, 917 (1st Cir.), cert. denied, 364 U.S. 911, 81 S.Ct. 274, 5 L.Ed. 2d 225 (1960).³See generally 9 Moore's Federal Practice, ¶ 110.20 4.-1 at 248-49 (2d ed. 1970) (commenting on the approaches taken by the Second and Ninth Circuits).

The Second Circuit bases its rule of nonappealability on the following grounds:

"(1) appealability of a denial to stay arbitration would further delay the arbitration proceedings and thereby eliminate one of the primary purposes of arbitration, i. e., the speed of the proceedings; (2) arbitration differs from another court proceeding in the essential respect that arbitration would not produce an enforceable result without further judicial action." Greater Continental Corp. v. Schechter, 422 F.2d 1100, 1102-1103 (1st Cir. 1970).⁴

See also Lummus Co. v. Commonwealth Oil Refining Co., 297 F.2d 80, 86 (2d Cir. 1961), cert. denied, 368 U.S. 986, 82 S.Ct. 601, 7 L.Ed.2d 524 (1962).

We are unable to see how arbitration proceedings are necessarily delayed when an appeal is taken from a District Court's order denying a stay of those proceedings. Presumably the arbitration goes forth untouched unless an injunction against arbitration pending appeal is issued by the District Court or the Court of Appeals under Rule 8(a), F.R.A.P. While we recognize that such injunctions pending appeal may often be sought to prevent the appeals from becoming moot, the granting of these injunctions under Rule 8(a) is nonetheless within the discretion of the court. Whatever may be the ramifications of this intriguing problem, we do not believe that it can be resolved only by the Second Circuit's rule of nonappealability.

If there are delays in arbitration which may accompany an appeal from an order denying a stay of arbitration, they do not appear to be as significant as the delays in arbitration which can result from the inability to appeal from an order granting a stay of arbitration. The District Court's order presently on appeal grants a preliminary injunction against arbitration which, from our reading of the Opinion from the Bench, could remain in effect through a trial on the merits of Buffler's antitrust, breach of contract, and breach of fiduciary duty claims. Needless to say, we do not find that the delays in arbitration which may result from appeals from orders denying stays of arbitration warrant a rule that bars appeals from orders granting or denying such stays.

The second reason cited by the Greater Continental Court in support of its rule of nonappealability appears to suggest that orders granting or denying stays of arbitration do not result in "serious, perhaps irreparable, consequences," Baltimore Contractors, Inc. v. Bodinger, 348 U.S. 176, 181, 75 S.Ct. 249, 99 L.Ed. 233 (1955), since arbitration awards are not enforceable without further judicial action which affords an opportunity for a court to review the propriety of the arbitration. See also Lummus Co. v....