General Guar. Ins. Co. v. New Orleans General Agency, Inc.

• Decision Date: 15 June 1970
• Docket Number: No. 28486.,28486.
• Citation: 427 F.2d 924
• Parties: GENERAL GUARANTY INSURANCE COMPANY, Plaintiff-Appellee, v. NEW ORLEANS GENERAL AGENCY, INC., et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

427 F.2d 924 (1970)

GENERAL GUARANTY INSURANCE COMPANY, Plaintiff-Appellee, v. NEW ORLEANS GENERAL AGENCY, INC., et al., Defendants-Appellants.

No. 28486.

United States Court of Appeals, Fifth Circuit.

June 15, 1970.

Paul C. Tate, Mamou, La., James J. Morrison, New Orleans, La., for defendants-appellants.

Marian Mayer Berkett, Deutsch, Kerrigan & Stiles, New Orleans, La., for plaintiff-appellee.

Before GEWIN, GODBOLD and CLARK, Circuit Judges.

GODBOLD, Circuit Judge:

This is an appeal from the denial of a motion to stay court proceedings pending arbitration in a dispute between an insurance company and one of its general agents. It presents questions springing from the Federal Arbitration Act, 9 U.S.C. § 1 et seq., especially § 3.¹ We reverse.

New Orleans General Agency, Inc. (NOGA) was party to a general insurance agency contract with General Guaranty Insurance Company (GIC). In 1964 NOGA and GIC fell into controversy over whether NOGA was complying with its obligations under the contract. The contract contained an arbitration clause, but neither party demanded arbitration. Approximately ten months later, in 1965, GIC brought this diversity action against NOGA and three individuals alleged to be indemnitors of NOGA. GIC sought an accounting and damages for breach of contract, with judgment against NOGA and the indemnitors.

NOGA filed a motion seeking a summary judgment, dismissal of the complaint for failure to state a claim, and, in the alternative, a stay pending arbitration in accordance with 9 U.S.C. § 3. As grounds NOGA asserted that the complaint and motion and the exhibits attached to them showed on their face that the contract sued on had been abandoned by mutual consent and superseded by another contract with different terms and provisions between GIC, NOGA and Cravens, Dargan and Company (Cravens) under which the latter firm had been substituted in the place and stead of NOGA, so that defendants could have no liability to GIC. The alleged superseding agreement did not contain an arbitration clause.

The alternative request to stay proceedings pending arbitration was set out at length in this manner:

IV.

In the alternative, and with full reservation of all rights under the foregoing, and without waiving same, and only in the event this Honorable Court should hold or find that there is any part or portion of the first mentioned managing general agency agreement between GIC and NOGA on which this suit may be maintained, then defendant NOGA shows by reference to plaintiff\'s exhibits that said agreement expressly provides for the arbitration of any disputes thereunder in the following terms:

"If any controversy shall arise between the parties hereto with respect to any transaction arising out of this Agreement or with respect to any of its terms, the same shall be settled by arbitration." etc.

Immediately following the above-quoted language the arbitration clause states: "The arbitrators shall be either managers in the United States of foreign stock multiple-line insurance companies or presidents or vice presidents of stock multiple-line insurance companies organized under the laws of a state or territory of the United States and active in the business thereof".

V.

Defendant NOGA shows that a controversy has arisen; that NOGA claims that it is not in default, nor has it ever been, under the contract sued upon, nor has it ever breached same; that alternatively even if there were defaults and/or breaches thereunder, same have been waived by GIC in consideration of said Tripartite Agreement the alleged superseding agreement and otherwise; that NOGA is not in default in proceeding with arbitration, no demand therefor having been made; that the trial of this action should be stayed pursuant to 9 U.S.C.A. § 3, until arbitration has been had in accordance with the terms of said agreement.

In January, 1967, after hearing, the court denied the joint motion. Its order provided in part:

The question is then presented — should the parties be directed to arbitrate? We think not. There is a possibility that the contract has been abandoned. If this were the case, it would be because of some subsequent agreement over which it is agreed the arbitrator has no jurisdiction. That issue must be determined by the Court, and to avoid a useless arbitration, should be, we believe, determined now. It appears that the situation facing the Court at this time is one ideally suited for the application of Rule 42(b) of the Federal Rules of Civil Procedure. Accordingly,

IT IS FURTHER ORDERED that a separate trial of the issue of whether the contract was abandoned or merely terminated with the reservation of rights be held. If the contract was abandoned, this matter will be at an end. If it was not abandoned, however, we will then go into the question of whether the guarantors are to be bound by any arbitration award and the question of waiver of the right to arbitration by defendants, and depending upon its conclusions as to those issues, the matter will either be sent to arbitration or determined upon further trial. In view of our handling of this matter, determination of these other issues is pretermitted.

At the same hearing a motion by the indemnitors to be excused from further pleading was denied.^1A

NOGA then answered, reurging the issues previously raised in the joint motion and asserting also as defenses abandonment of the GIC-NOGA contract, failure of the plaintiff to make Cravens a party, and breach of the contract by GIC. As part of its answer NOGA filed a counterclaim against GIC seeking damages for alleged breach of the superseding agreement. The indemnitors answered, adopting the answer of NOGA and asserting alternatively that if there had been no abandonment of the contract it had been so substantially altered by the successor agreement as to discharge them. Subsequently NOGA sought to file a third party complaint against Cravens. Leave was denied.

In September, 1968, the court held a two-day hearing on the abandonment issue. In July, 1969, it entered findings and conclusions that there had been no abandonment of the GIC-NOGA agreement and that GIC was never a party to the alleged superseding contract. As to arbitration, the court found that NOGA had waived its right to arbitrate and was in default with proceeding with arbitration. Also the court found that it was unwise to invoke its power to stay since the largest part of the controversy had been tried and arbitration at that juncture could result in piecemeal adjudication and delay and unnecessary expense.²

The court based its conclusions of waiver and default on the following grounds. NOGA failed to ask for arbitration before suit was filed. It allowed plaintiff to proceed with taking depositions in Florida before indicating any intent to request arbitration. NOGA asked the court to exercise its jurisdiction and dismiss the suit "in preference to arbitration" and asked for a stay to arbitrate only in the alternative. NOGA denied liability on the original contract and filed a counterclaim and attempted to implead third persons (Cravens) not parties to the contract. The individual defendants had not conceded they were subject to the arbitration provisions of the contract or that they would be bound by the arbiter's findings.³

We conclude that NOGA was not in default under § 3, nor did it waive its right to insist on arbitration.

The Act is not limited by its terms to cases in which the party moving for a stay has made a pre-suit demand for arbitration. To limit the Act to so narrow a range of cases would be inconsistent with the salutary Congresssional purposes of furthering the intent of the parties and relieving the courts of burdens.

* * * Any doubts as to the construction of the Act ought to be resolved in line with its liberal policy of promoting arbitration both to accord with the original intention of the parties and to help ease the current congestion of court calendars.

Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 at 410 (2d Cir. 1959), cert. granted, 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, cert. dismissed, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960). The nonexistence of such a limitation is indicated by the many cases in which there has been searching inquiry into post-suit behavior to determine if there has been default or waiver. Requiring pre-suit demand will place on the party sought to be charged the duty to institute proceedings which may establish his own liability, though if he remains inactive the claims asserted against him may never be formally pressed in either arbitration or court proceedings (and in some instances may be wholly without merit). In a situation such as that of NOGA, a pre-suit demand for arbitration would subject it to the risk of a charge by the other party that by demanding arbitration it has recognized the continued existence of the contract claimed to be abandoned.

NOGA did not lose its rights to arbitration by pleading alternatively that the contract had been abandoned and that court proceedings should be stayed pending arbitration. The propriety and desirability of having an initial judicial determination of whether an arbitration contract exists is well recognized. Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d 978 (2d Cir. 1942); Mogge v. District No. 8, International Ass'n of Machinists, 387 F.2d 880 (7th Cir. 1967). Cf. Genesco, Inc., v. Joint Council 13, United Shoe Wkrs. of Amer., 341 F.2d 482 (2d Cir. 1965). See also Fed.R.Civ.P. 8(e) (2) and 6A Corbin, Contracts, § 1443 at 445 (1962).⁴ There is no magic in which alternative was set out first in NOGA's motion.

While never put so boldly, GIC's implicit position is this: because the issue of abandonment would determine not only the existence of an arbitration agreement but also effectually determine a defense of NOGA and the indemnitors on the merits, NOGA had to make an election — it could admit the contract...