Commerce Park at DFW Freeport v. Mardian Const. Co.

• Decision Date: 09 April 1984
• Docket Number: No. 83-1142,83-1142
• Citation: 729 F.2d 334
• Parties: COMMERCE PARK AT DFW FREEPORT, Plaintiff-Appellant, v. MARDIAN CONSTRUCTION COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 334

729 F.2d 334

39 Fed.R.Serv.2d 134

COMMERCE PARK AT DFW FREEPORT, Plaintiff-Appellant, v. MARDIAN CONSTRUCTION COMPANY, Defendant-Appellee.

No. 83-1142.

United States Court of Appeals Fifth Circuit.

April 9, 1984.

Herman & Herman, Russ M. Herman, New Orleans, La., Shannon Jones, Jr., Dallas, Tex., for plaintiff-appellant.

Rain, Harrell, Emery, Young & Doke, Marshall M. Searcy, Timothy W. Mountz, Thomas E. Hill, Robb L. Voyles, Dallas, Tex., for defendant-appellee.

Appeals from the United States District Court for the Northern District of Texas.

Before RUBIN and RANDALL, Circuit Judges, and MITCHELL ^*, District Judge.

RANDALL, Circuit Judge:

This appeal is from the district court's order staying the parties' action in federal court pending arbitration, and from the court's subsequent order denying appellant Commerce Park's motion to clarify the stay order. For the reasons set forth below, we affirm.

I. Factual and Procedural Background.

Commerce Park is a Texas partnership involved in real estate development. In October, 1980, Commerce Park as owner and appellee Mardian Construction Company as prime contractor entered into a contract for the construction of an office-warehouse project in Irving, Texas. The contract included a clause providing that "[a]ll claims, disputes and other matters in question between the Contractor and the Owner arising out of, or relating to, the Contract Documents or the breach thereof ... shall be decided by arbitration ...."

On July 28, 1982, Commerce Park notified Mardian by letter that all of the concrete paving, curb work, and related subbase stabilization work on the project was rejected. On August 26, 1982, Mardian filed a demand for arbitration with the American Arbitration Association. Commerce Park subsequently filed suit in state court, seeking a declaratory judgment that the matters sought to be arbitrated were not arbitrable, an injunction against Mardian from proceeding with arbitration, and claiming damages pursuant to the Texas Deceptive Trade Practices--Consumer Protection Act ("DTPA"), Tex.Bus. & Com.Code Ann. Secs. 17.41-.63 (Vernon 1982 Supp.). The action was removed to federal court, and Mardian filed a motion to stay the proceedings pending arbitration. The district court's grant of this motion and its subsequent refusal to clarify its stay order are the subject of this appeal. Specifically, Commerce Park alleges that the district court erred (1) in failing to hold an evidentiary hearing on Commerce Park's motion for a preliminary injunction and Mardian's motion to stay the proceedings; (2) in denying Commerce Park's motion to clarify the stay order; and (3) in refusing to sever Commerce Park's allegedly non-arbitrable DTPA claims from those that are arbitrable, and to permit the former to go forward in federal court; or, in the alternative, in failing to find that the DTPA claims were inextricably intertwined with the other claims and proceeding with litigation as to all.

II. Jurisdiction.

The district court's order, although interlocutory, is appealable. In Coastal Industries Inc. v. Automatic Steam Products Corp., 654 F.2d 375 (5th Cir.1981), we held:

Both an order staying an action pending arbitration and an order staying arbitration, though interlocutory, are appealable under 28 U.S.C. Sec. 1292(a)(1) as orders similar to an injunction if (1) the action in which the order was made is an action which would have been an action at law prior to the fusion of law and equity; and (2) the stay was sought to permit the prior determination of an equitable defense.

Id. at 377 n. 1; see also Wick v. Atlantic Marine, Inc., 605 F.2d 166 (5th Cir.1979). The present appeal satisfies both of these criteria.

III. The Statutes.

The Federal Arbitration Act, 9 U.S.C. Secs. 1-14 (1982), provides, inter alia:

Sec. 2: A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

* * *

* * *

Sec. 3: If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

The DTPA provides:

Any waiver by a consumer of the provisions of this subchapter is contrary to public policy and is unenforceable and void ....

Tex.Bus. & Com.Code Ann. Sec. 17.42. Section 17.50 provides that consumers who have suffered damages as a result of conduct proscribed by the DTPA shall have a cause of action and may, upon prevailing, be awarded treble damages. It is the conflict between sections 2 and 3 on the one hand, and section 17.42 on the other, that forms the basis for this appeal.

IV. Arbitrability of Commerce Park's DTPA Claims.

Commerce Park contends that the district court erred in failing to sever its allegedly non-arbitrable DTPA claims and permitting them to be litigated prior to or simultaneously with the arbitration proceeding, or, in the alternative, in failing to find that Commerce Park's DTPA claims were inextricably intertwined with its other claims, thus totally precluding arbitration. Commerce Park bases its arguments on the premise that the DTPA's no-waiver provision, see Tex.Bus. & Com.Code Ann. Sec. 17.42, reserves to a judicial forum the resolution of claims brought under the DTPA despite the Federal Arbitration Act.

Commerce Park contends that as a matter of law the DTPA's no-waiver provision precludes the resolution of DTPA claims by arbitration; thus asserting, in effect, that the parties are precluded from agreeing to arbitrate a DTPA claim. We think that the Supreme Court's recent decision in Southland Corp. v. Keating, --- U.S. ----, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984), is dispositive of this argument. In Southland, the plaintiffs brought suit in state court pursuant to, inter alia, the California Franchise Investment Law, Cal.Corp.Code Sec. 31000 et seq. (West 1977). The contract between the parties included a broad arbitration clause extremely similar to the one before us today. ¹ The California statute included, in section 31512, a no-waiver provision very similar to the DTPA's. ² The California Supreme Court held that claims asserted under the Franchise Investment Law were not arbitrable because section 31512 precluded the waiver, effected by an arbitration clause, of their judicial consideration. The United States Supreme Court reversed, holding that section 31512 violated the supremacy clause. In doing so, the Court relied heavily on the policy underlying the Arbitration Act:

In enacting Sec. 2 of the federal Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.

104 S.Ct. at 853. Thus, the Court held that the Arbitration Act preempted a state law that purported to withdraw the power to enforce arbitration agreements. See also Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 ("Section 2 is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary"); Kroog v. Mait, 712 F.2d 1148 (7th Cir.1983). It is clear under Southland that Commerce Park's argument must fail, and that the parties are not precluded from overriding the DTPA's no-waiver provision by an agreement to arbitrate. The no-waiver provision of the DTPA, if given force in this case, would abrogate section 2 of the Arbitration Act. Such an abrogation would violate the supremacy clause.

Having determined that the parties may, if they choose, agree to arbitrate claims arising under the DTPA, we turn to the issue whether the dispute between the parties in the instant case was properly deemed arbitrable by the district court. ³ Initially, we note that the question of arbitrability is to be decided by the court on the basis of the contract entered into by the parties. See 9 U.S.C. Sec. 3; see also Southland, 104 S.Ct. at 860 n. 7; Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, 406, 87 S.Ct. 1801, 1806, 1807, 18 L.Ed.2d 1270 (1967). Arbitration should not be denied "unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue ...." Wick v. Atlantic Marine, Inc., 605 F.2d 166, 168 (5th Cir.1979). Doubts as to arbitrability are to be resolved in favor of arbitration. See Moses H. Cone, supra, 103 S.Ct. at 941. In Prima Paint, supra, the Supreme Court established that "in passing upon a Sec. 3 application for a stay while the parties arbitrate, a federal court may consider only issues relating to the making and performance of the agreement to arbitrate." 388 U.S. at 404, 87 S.Ct. at 1806. Thus, for example, if one of the parties alleges fraud in the inducement of the arbitration clause itself, see id. at 403-04, 87 S.Ct. at 1805-06, this may be determined by the court. Commerce Park does not contend, however, nor does it appear from the record, that any dispute exists in this case with regard to...