General Motors Corp. v. Pamela Equities Corp.

• Decision Date: 09 July 1998
• Docket Number: No. 97-30185,97-30185
• Citation: 146 F.3d 242
• Parties: GENERAL MOTORS CORPORATION, Plaintiff-Appellant, v. PAMELA EQUITIES CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 242

146 F.3d 242

GENERAL MOTORS CORPORATION, Plaintiff-Appellant, v. PAMELA EQUITIES CORPORATION, Defendant-Appellee.

No. 97-30185.

United States Court of Appeals, Fifth Circuit.

July 9, 1998.

Thomas A. Casey, Jr., John G. Gomila, Jr., Robert Louis Walsh, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, LA, for Plaintiff-Appellant.

David B. Vitter, Duplass, Witman, Zwain & Williams, Metairie, LA, for Defendant-Appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before EMILIO M. GARZA, STEWART and DENNIS, Circuit Judges.

DENNIS, Circuit Judge:

This arbitration-related case arises from an original dispute over whether General Motors Corporation ("GMC"), as a lessee, owes its lessor, Pamela Equities Corporation ("PEC"), damages for failure to return leased premises in good condition. The parties agree that the original dispute is subject to arbitration under an arbitration clause in the lease contract; and that PEC timely called for arbitration of the original dispute and appointed its arbitrator.

This appeal involves further disputes over (1) whether GMC waived its right to appoint its arbitrator by its failure to name him within the period allowed by the arbitration clause so that arbitration must proceed before PEC's arbitrator and an umpire selected by him; and (2) whether GMC and PEC agreed to submit that dispute regarding the appointment of the GMC arbitrator and the composition of the arbitration panel to PEC's arbitrator for arbitration.

I. BACKGROUND

This case arises under an arbitration clause in a lease agreement between appellant-lessee GMC and appellee-lessor PEC. ¹

Article VIII of the lease, entitled "Arbitration," sets forth the scope of the parties' agreement to arbitrate:

In case any differences arise between the Lessor and the Lessee regarding the true meaning and intent of any of the terms and provisions of this lease or if any dispute should arise between them regarding the performance or nonperformance by either of them of any of the terms, covenants and conditions hereof, or if any claim is made by either of them that the other is in default by reason of the non-performance of any act provided for hereunder, then, and in any of such events, the matter in dispute, whether the same be the performance of an act, the forbearance of an act, or the payment of money, shall be submitted to arbitration....

Section 8.01 of the arbitration provision establishes the method of selecting arbitrators:

(a) The party desiring arbitration shall notify the other party, specifying the dispute and appointing an individual as its arbitrator. Within fifteen (15) days thereafter the other party shall appoint an individual as its arbitrator and shall notify the original party thereof, and failing to appoint such an arbitrator, such party shall be bound by the determination of the arbitrator appointed by the party demanding arbitration, both as to the selection of an umpire and the award to be made in the arbitration proceedings;

(b) The arbitrators so appointed by each of the parties, or if the party against whom arbitration is demanded shall fail to appoint an arbitrator, then the arbitrator appointed by the party demanding arbitration, shall within ten (10) days thereafter appoint a disinterested individual who shall act as umpire;

In October 1994, GMC notified PEC that it intended to terminate the lease effective August 31, 1995. Thereafter, the parties had an on-going dispute concerning GMC's liability for alleged damage to the leased premises. On August 28, 1996, in accordance with the notice requirements of the lease, PEC sent duplicate certified letters to GMC's unnamed "Executive in Charge of Real Estate," and to G.E. Gilliken ("Gilliken"), the GMC property manager who had been negotiating the lease dispute with PEC. After describing in detail the nature of the dispute (also required by the terms of the lease), in the last paragraph of the letter, PEC advised GMC that it was electing to settle the dispute through arbitration, and that it had selected as its arbitrator Stephen H. Kupperman ("Kupperman"). On August 30, 1996, an unknown GMC representative signed a return receipt acknowledging receipt of PEC's arbitration demand letter. However, Gilliken was on vacation when GMC received the letter, and he did not see the letter until he returned to work on September 18, 1996.

By letter of September 25, 1996, GMC's attorney, Andrew S. Conway ("Conway"), notified PEC that GMC had appointed Judge George N. Bashara, Jr. ("Bashara") as its arbitrator. On October 2, 1996, PEC's arbitrator, Kupperman, wrote GMC that it had waived its right to appoint an arbitrator because GMC had not done so within the requisite fifteen days. Therefore, Kupperman said, he would appoint an umpire pursuant to the arbitration clause and proceed with arbitration. In this letter, Kupperman specifically requested that GMC inform him whether it disagreed with his "understanding" that GMC had waived its right by not appointing its arbitrator timely. Kupperman appointed as the "disinterested" umpire Campbell C. Hutchinson ("Hutchinson"), his own law partner.

On October 24, 1996, by letter to Kupperman, Conway made a "formal request" that GMC's appointment of Bashara as the second arbitrator be honored on the grounds that: (1) the nine-day period of delay was insignificant under the circumstances; (2) PEC's request for arbitration did not satisfy the lease's notice requirements; and (3) PEC suffered no palpable prejudice resulting from the delay. In this letter to PEC's arbitrator, GMC's counsel "respectfully request[ed] the arbitrator to recognize" the selection of Bashara, closing the letter with the phrase "Respectfully submitted."

In November 1996, Kupperman advised Conway by letter that he had reviewed GMC's "submissions" regarding the selection of a second arbitrator and had concluded that GMC's attempt to appoint Bashara was untimely, was not permitted under the lease, and that the arbitration would proceed with Kupperman as the single arbitrator and Hutchinson as the umpire.

In December 1996, GMC filed a Motion to Appoint Arbitrators and a Disinterested Umpire pursuant to the pre-arbitration provisions of the Federal Arbitration Act, 9 U.S.C. §§ 4 and 5. In its motion, GMC asked the district court for an order compelling the arbitration to proceed in "a fair and impartial manner," and allowing GMC's arbitrator to serve on the panel, along with a disinterested umpire to be selected by the two party-appointed arbitrators. The district court denied GMC's motion, finding that GMC had impliedly agreed to submit to Kupperman the issue of whether GMC's appointment of its arbitrator was valid. The court also found that GMC had waived its right to judicial review of Kupperman's decision by not expressly reserving this right. Finally, addressing the merits of Kupperman's decision, the court concluded that it was reasonable and should not be upset.

Thereafter, the district court granted GMC's motion to stay the arbitration pending disposition of this appeal.

II. STANDARD OF REVIEW

A court of appeals' review of a district court decision upholding an arbitration decision on the ground that the parties agreed to submit their dispute to arbitration should proceed like review of any other district court decision finding an agreement between parties, i.e., accepting findings of fact that are not "clearly erroneous" but deciding questions of law de novo. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48, 115 S.Ct. 1920, 1925-26, 131 L.Ed.2d 985 (1995); F.C. Schaffer & Assocs., Inc. v. Demech Contractors, Ltd., 101 F.3d 40, 43 (5th Cir.1996).

III. GENERAL PRINCIPLES

Arbitration is the reference of a particular dispute to an impartial third person chosen by the parties to a dispute who agree, in advance, to abide by the arbitrator's award issued after a hearing at which both parties have an opportunity to be heard. Rodolphe J.A. de Seife, Practice Guide § 3.02, in GABRIEL M. WILNER, 2 DOMKE ON COMMERCIAL ARBITRATION (Rev. ed. 1997) (citing BLACK'S LAW DICTIONARY (5th ed. 1979); THE PLAIN LANGUAGE LAW DICTIONARY (Rothenberg, ed. 1981); DICTIONARY OF LAW (Coughlin, ed. 1982); Britton, THE ARBITRATION GUIDE, (1982)). See also La.Civ.Code art. 3099. Parties may agree to the submission to arbitration of existing controversies without any previous contract to do so. Executone Info. Systems, Inc. v. Davis, 26 F.3d 1314, 1323 (5th Cir.1994). Parties may also agree upon the use of arbitration at the commencement of a contractual relationship to settle future disputes by including an arbitration clause in their contract. 1 DOMKE, supra § 1:01, at 2.

When the parties have entered a contract to arbitrate future disputes, the scope of authority of the arbitrator is not always controlled by that contract alone. Piggly Wiggly Operators' Warehouse, Inc. v. Piggly Wiggly Operators' Warehouse Independent Truck Drivers Union, 611 F.2d 580, 583 (5th Cir.1980). The arbitration contract is in essence a promise to arbitrate a category of future disagreements. Id. When such a dispute arises, in order for arbitration to actually proceed, the parties must supplement the contract with an agreement defining the issue to be submitted to the arbitrator(s) and by explicitly giving the arbitrator(s) authority to act. Id.

When the parties to a disagreement have not entered a pre-dispute arbitration contract, in order for arbitration to take place, they must agree to submit their existing controversy to the arbitrator(s), named by the parties or persons authorized to do so by them, for binding arbitration. 1 DOMKE, supra § 1.01, at 1-2; TOM CARBONNEAU, CASES AND MATERIALS ON COMMERCIAL ARBITRATION 17 (1997). Consequently, voluntary arbitration cannot occur, regardless of whether the parties have entered a pre-dispute contract to arbitrate, unless the parties to the dispute enter a...