Caudle v. American Arbitration Assoc.

• Decision Date: 17 October 2000
• Docket Number: No. 00-1423,00-1423
• Parties: (7th Cir. 2000) Robert L. Caudle, Plaintiff-Appellant, v. American Arbitration Association, Defendant-Appellee
• Court: U.S. Court of Appeals — Seventh Circuit

Page 920

230 F.3d 920 (7th Cir. 2000)

Robert L. Caudle, Plaintiff-Appellant, v. American Arbitration Association, Defendant-Appellee.

No. 00-1423

In the United States Court of Appeals For the Seventh Circuit

Argued September 29, 2000

Decided October 17, 2000

Appeal from the United States District Court for the Southern District of Illinois. No. 99-4108-JPG--J. Phil Gilbert, Judge.

Before Easterbrook, Ripple, and Evans, Circuit Judges.

Easterbrook, Circuit Judge.

When Robert Caudle became a distributor of Sears products in 1989 he agreed to arbitrate (under the auspices of the American Arbitration Association) any disagreements arising out of that arrangement. After Sears terminated the distributorship, however, Caudle decided that he prefers litigation to arbitration--indeed, that he prefers lots of litigation.

Sears reorganized its distribution system in 1992, cutting out catalog centers that had been operated by independent businesses, including Caudle. Instead of initiating arbitration under the contract, Caudle filed a suit seeking to represent a class of all similar dealers. He thought that by pursuing relief for a class he could avoid arbitration, because the AAA does not conduct class-wide arbitrations. But the state courts held that Caudle's excuse for avoiding his promise to arbitrate--a claim that Sears had made oral promises in addition to the written contract--was unavailing. Caudle v. Sears, Roebuck & Co., 245 Ill. App. 3d 959, 614 N.E.2d 1312 (5th Dist. 1993). A procedural device aggregating multiple persons' claims in litigation does not entitle anyone to be in litigation; a contract promising to arbitrate the dispute removes the person from those eligible to represent a class of litigants. Next in line was a suit--also in state court, because both Caudle and Sears are citizens of Illinois--seeking a declaration that the arbitration clause in the contract is unenforceable. Once again Caudle lost. Caudle v. Sears, Roebuck & Co., 281 Ill. App. 3d 1151, 701 N.E.2d 844 (5th Dist. 1996) (unpublished order). After the Supreme Court denied his petition for certiorari, 520 U.S. 1143 (1997), Caudle finally initiated arbitration--but he did not pursue it. The AAA concluded that its procedures call for disputes of this kind to be heard by panels of three arbitrators, and it directed both Caudle and Sears to prepay fees $5,800 on top of the $3,400 assessed for a one- arbitrator proceeding. Sears complied; Caudle did not. He balked at paying more than $3,400; the AAA responded by informing Caudle that, if he did not pay in full, the proceedings would be closed. Caudle did not pay, and after the deadline had passed he filed this, his third lawsuit--and he filed it in federal court against the AAA, contending it broke a contract (one formed by Caudle's tender of $3,400) requiring it to provide arbitration services at a reasonable price.

Relying on Hawkins v. National Association of Securities Dealers Inc., 149 F.3d 330 (5th Cir. 1998); Olson v. National Association of Securities Dealers, 85 F.3d 381 (8th Cir. 1996), and many equivalent decisions from other courts, the district judge held that arbitrators (and sponsoring organizations such as the AAA) possess immunity from suit. Just as a litigant files an appeal, rather than suing the judge or the court of which the judge is a member, if he does not like decisions by the trial court (including calculations of filing fees and costs), so a party to arbitration should sue to enforce or set aside the award, naming as the adverse litigants the other parties to the original contract. (Applications for mandamus, to which district judges were nominal parties before the 1996 amendment to Fed. R. App. P. 21(a), are a form of appellate proceeding within a suit involving the real adversaries.) Like judges, arbitrators "have no interest in the outcome of the dispute between [the parties to the contract], and they should not be compelled to become parties to that dispute." Tamari v. Conrad, 552 F.2d 778, 781 (7th Cir. 1977). It is not clear whether this principle is properly understood as an "immunity" rather than a conclusion that arbitrators and organizing bodies are not the real parties in interest. See Fed. R. Civ. P. 17(a). Suppose Caudle had paid the full $9,200 the AAA specified, and the Association had pocketed the money without arbitrating the dispute; it is unlikely that the AAA could claim "immunity" in response to a demand for a refund (or an order to furnish the arbitration service for which it had been paid). Caudle contends that his grievance-- that he paid $3,400 yet has not received an arbitration--is like this hypothetical and thus outside the scope of arbitral immunity. We need not decide whether that is so, because there is a more fundamental question, one the district judge did not mention: What is this case doing in federal court?

As Caudle sees matters, the federal-question jurisdiction, 28 U.S.C. sec.1331, applies because he wants to compel the AAA to arbitrate his dispute under 9 U.S.C. sec.4. But sec.4 is neither a grant of jurisdiction nor the source of an...