Forsythe Intern., S.A. v. Gibbs Oil Co. of Texas

• Citation: 915 F.2d 1017
• Decision Date: 31 October 1990
• Docket Number: No. 89-6148,89-6148
• Parties: FORSYTHE INTERNATIONAL, S.A., Plaintiff-Appellant, v. GIBBS OIL COMPANY OF TEXAS, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 1017

915 F.2d 1017

FORSYTHE INTERNATIONAL, S.A., Plaintiff-Appellant, v. GIBBS OIL COMPANY OF TEXAS, Defendant-Appellee.

No. 89-6148.

United States Court of Appeals, Fifth Circuit.

Oct. 31, 1990.

James J. Sentner, Jr., Antoninette Van Heugten, Erik G. Heymann, Haight, Gardner, Poor & Havens, Houston, Tex., for plaintiff-appellant.

Barbara Lowe, Susman, Godfrey & McGowan, Houston, Tex., for defendant-appellee.

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

Before REAVLEY, DUHE and WIENER, Circuit Judges.

REAVLEY, Circuit Judge:

An arbitration panel awarded appellant Forsythe International, S.A. ("Forsythe") damages for breach of an oral contract by Gibbs Oil Company ("Gibbs"). The district court vacated the award and remanded the cause to a new panel, finding that Forsythe fraudulently procured the award and that the panel was guilty of misconduct for refusing to hear material evidence or act on the allegations of misrepresentation against Forsythe. We reverse the judgment and remand the case to the district court.

I. FACTS

Gibbs agreed to sell Forsythe approximately 78,000 metric tons of fuel oil. Forsythe intended to resell the oil to the South of Scotland Electric Board ("SSEB"). Gibbs agreed to deliver the oil to SSEB in Scotland. Forsythe's contract with SSEB required a duty-free cargo. The contract between Forsythe and Gibbs did not expressly allocate any responsibility for U.K. duty fees but did require Gibbs to obtain an EUR-1 form to facilitate duty-free passage of the fuel oil through countries of the European Economic Community. An EUR-1 form issues from an exporting EEC-related government, but does not bind the importing country and thus does not guarantee duty-free entrance.

Gibbs shipped the oil to St. Eustatius, Netherlands Antilles, where an EUR-1 form was obtained. The EUR-1 Form obtained by Gibbs was subsequently declared invalid by U.K. customs officials. SSEB charged Forsythe with the customs duty. Forsythe claimed that Gibbs was liable for the customs duty because Gibbs had failed to provide a duty-free cargo. That was the controversy submitted for arbitration.

The three-member arbitration panel, comprised of a representative from each side and a neutral member chosen by the two representatives, heard evidence from both sides. During the proceedings, Gibbs raised an issue of discovery abuse by Forsythe concerning the telephonic deposition of Peter Tap, the former Forsythe employee who had drafted letters of credit underlying the Forsythe-Gibbs oil transaction. The panel did not precisely rule on the issue of discovery abuse, but indicated that it would consider all the evidence before it and would consider any misconduct on the part of Forsythe in its ultimate ruling. The panel majority later rendered a decision for Forsythe.

The panel's decision rested primarily on the actions of Gibbs rather than on the disputed language used by the parties. The term "duty-free" appeared nowhere in pertinent documents between the parties. The parties disputed whether the term "EEC qualified" meant duty-free. The panel bypassed the semantic dispute, noting only that various contract amendments had not expressly abolished duty-free status. The panel concluded that the series of events, from Gibbs' loading in Houston to its deviating via St. Eustatius, supported its decision that "Gibbs always was well aware of the DUTY-FREE requirement by Forsythe." Had the parties not intended duty-free delivery, the panel determined, "Gibbs had no reason to decide to send the cargo from Houston to St. Eustatius."

After the panel decision, Forsythe asked the district court to confirm the award and Gibbs petitioned to have the award vacated or modified. The district court initially issued a Memorandum and Order, deferring a ruling on the parties' motions and ordering further briefing on the issues of Tap's deposition and interest payments on the award. After the additional briefing, the court found that "the actions and representations of Forsythe during pre-hearing discovery and the arbitral panel's response or lack of response thereto so seriously undermined the arbitral process and award as to require the vacatur of the award." The court found satisfactory grounds for vacatur under 9 U.S.C. Sec. 10(a), which addresses award procurement by "corruption, fraud, or undue means," and 9 U.S.C. Sec. 10(c), which addresses panel misconduct that prejudices the rights of a party. The court found that Forsythe's actions and misrepresentations amounted to "corruption, fraud, or undue means, and ... the panel's refusal to take any action in that regard amounted to (i) the refusal to hear pertinent and material evidence and to (ii) misbehavior that prejudiced the rights of Gibbs." The court vacated the award and remanded the cause to a new panel. Forsythe brought this appeal. We decide that the necessarily limited judicial review of the arbitration award yields no justification for disturbing it. We reverse and remand.

II. DISCUSSION

A. Appellate Jurisdiction

Appellee Gibbs contests our jurisdiction, arguing that the district court's vacatur and remand to a different arbitration panel compel further arbitration and therefore constitute an unappealable interlocutory order. We disagree.

The statute that governs appellate jurisdiction of district court decisions in arbitration cases authorizes an appeal from an order vacating an arbitration award, 9 U.S.C. Sec. 15(a)(1)(E), or from "a final decision with respect to an arbitration," 9 U.S.C. Sec. 15(a)(3), but prohibits appeal from interlocutory orders directing or permitting arbitration to proceed, 9 U.S.C. Sec. 15(b). The statute does not address the appealability of an order of remand.

Section 15 embodies the federal policy promoting arbitration by permitting interlocutory appeals of orders favoring litigation over arbitration and precluding review of interlocutory orders that favor arbitration. United Offshore Co. v. Southern Deepwater Pipeline Co., 899 F.2d 405, 407 (5th Cir.1990). Accordingly, this court has twice held that orders staying judicial proceedings and ordering arbitration are not appealable. Turboff v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 867 F.2d 1518, 1521 (5th Cir.1989); Jolley v. Paine Webber Jackson & Curtis, Inc., 867 F.2d 891, 892 (5th Cir.1989). This is not such a case.

While the district court's order commanded further arbitration, it also nullified the decision of an arbitration panel. If an order remanding the case to a different arbitration panel ¹ renders a vacatur unreviewable, parties to arbitration could never determine whether the district court acted within the narrow statutory limits governing vacatur of the original award. Such a result would disserve the policies that promote arbitration and restrict judicial review of awards. Where the district court has vacated an award and ordered new arbitration by a different panel, its vacatur becomes reviewable pursuant to 9 U.S.C. Sec. 15(a)(1)(E).

B. The Standard of Review

"Judicial review of an arbitration award is extraordinarily narrow." Antwine v. Prudential Bache Securities, Inc., 899 F.2d 410, 413 (5th Cir.1990). Specifically, judicial review of a commercial arbitration award is limited to Sections 10 and 11 of the Federal Arbitration Act, 9 U.S.C. Sec. 1 et seq. Moseley, Hallgarten, Estabrook & Weeden v. Ellis, 849 F.2d 264, 267 (7th Cir.1988). Accordingly, a district court has no authority to vacate an arbitration award unless: (1) the award was procured by corruption, fraud, or undue means; (2) there is evidence of partiality or corruption among the arbitrators; (3) the arbitrators were guilty of misconduct which prejudiced the rights of one of the parties; or (4) the arbitrators exceeded their powers. 9 U.S.C. Sec. 10(a)-(d). The district court vacated the Forsythe award on grounds (1) and (3).

In reviewing the district court's vacatur, we posit the same question addressed by the district court: whether the arbitration proceedings were fundamentally unfair. See Teamsters, Local Union 657 v. Stanley Structures, Inc., 735 F.2d 903, 906 (5th Cir.1984). We review the district court's conclusion de novo, which is consistent with this circuit's holdings in the arbitration context. See, e.g., Folger Coffee Co. v. International Union, Local 1805, 905 F.2d 108, 110-12 (5th Cir.1990) (implicitly reviewing de novo whether award drew essence from collective bargaining agreement); Antwine, 899 F.2d at 412-13 (implicitly reviewing de novo district court's refusal to vacate award based on panel's alleged noncompliance with securities arbitration rules); Delta Queen Steamboat Co. v. District 2 Marine Eng'rs Beneficial Ass'n, 889 F.2d 599, 602 (5th Cir.1989) (expressly reviewing de novo whether award grounded in collective bargaining agreement), cert. denied, --- U.S. ----, 111 S.Ct. 148, 112 L.Ed.2d 114 (1990); Container Products, Inc. v. United Steelworkers of Am., 873 F.2d 818, 819 (5th Cir.1989) (implicitly reviewing de novo whether arbitrator exceeded his authority).

Gibbs urges application of Pullman Standard v. Swint, 456 U.S. 273, 102 S.Ct. 1781, 72 L.Ed.2d 66 (1982), wherein the Supreme Court compelled application of the "clearly erroneous" standard to all factual issues and erased the distinction cultivated in this circuit ² between ultimate and subsidiary facts. Id. at 287, 102 S.Ct. at 1789. The issue of arbitral fairness is not, however, the kind of "ultimate fact" that properly triggers Swint. Fraudulent procurement of an award and panel misconduct, as ultimate conclusions, may mingle factual and legal issues, but the Swint Court expressly exempted from its analysis these "mixed questions of law and fact ... [where] the issue is whether the facts satisfy the statutory standard, or ... whether the rule of law as applied to the established facts is or is not violated." Id. at 289 & n. 19, 102 S.Ct. at 1790 & n. 19. The issue we r...