J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A.

Decision Date13 December 1988
Docket Number87-1760 and 88-1501,Nos. 87-1759,s. 87-1759
Citation863 F.2d 315
PartiesJ.J. RYAN & SONS, INC. Plaintiff-Appellee, v. RHONE POULENC TEXTILE, S.A.; Rhone Poulenc Fibers, S.A.; Rhodia, A.G.; Sodetal, S.A.; Rhone Poulenc, S.A., Defendants-Appellants (Two Cases). J.J. RYAN & SONS, INC. Plaintiff-Appellant, v. RHONE POULENC TEXTILE, S.A.; Rhone Poulenc Fibers, S.A.; Rhodia, A.G.; Sodetal, S.A.; Rhone Poulenc, S.A., Defendants-Appellees.
CourtU.S. Court of Appeals — Fourth Circuit

Ellis Murray Johnston, II (Donald L. Ferguson, Haynsworth, Marion, McKay & Guerard, Greenville, S.C., on brief), for defendants-appellants.

William B. McGurn, III (Douglas Glucroft, Cleary, Gottlieb, Steen & Hamilton, New York City, Albert Q. Taylor, Jr., Joseph E. Major, Leatherwood, Walker, Todd & Mann, Greenville, S.C., on brief) for plaintiff-appellee.

Before PHILLIPS and ERVIN, Circuit Judges, and BUTZNER, Senior Circuit Judge.

BUTZNER, Senior Circuit Judge:

In an action brought by J.J. Ryan & Sons, Inc., against Rhone Poulenc Textile, S.A., and four of its affiliated corporations, the district court retained jurisdiction over the first count of the complaint. It dismissed the remaining seven counts for lack of jurisdiction, holding that the claims they asserted were referable to arbitration. Because the claim asserted in the first count is also arbitrable, we reverse that part of the district court's judgment pertaining to the first count, affirm the reference of the other counts to arbitration, and remand the case for further proceedings.

I

For many years Ryan has imported products manufactured by Rhone's affiliates, which are Rhone Poulenc Textile, S.A., Rhone Poulenc Fibers, S.A., Sodetal, S.A., all French corporations, and Rhodia, A.G., a German corporation. In 1984 a company owned by the two stockholders of Ryan entered into exclusive distribution agreements with each of the Rhone affiliates and assigned the contracts to Ryan. The four contracts are essentially the same. They provided that Ryan would be exclusive importer of certain products made by the affiliates, that Ryan would not sell competing products, that either party could terminate after notice, that prices and terms would be determined by agreement at the time of confirmation of each purchase order, that French law would govern with respect to the French affiliates and German law with respect to the German affiliate, and that all disputes would be arbitrated. The distribution agreements were implemented by separately negotiated purchase orders. Also, Ryan and the affiliates entered into security agreements covering Ryan's inventory and accounts receivable. South Carolina law applied to the security agreements.

Rhone later wanted its affiliates to undertake distribution of their products. In 1986 it made an offer to purchase Ryan, but the parties could not agree on the value of Ryan's goodwill. Ryan alleges that Rhone threatened to terminate the exclusive distribution agreements if Ryan did not accede to Rhone's valuation of Ryan's goodwill.

Ryan filed suit alleging the following causes of action: (I) civil conspiracy, (II) unfair trade practices, (III) intentional and tortious interference with contract, (IV) conversion, (V) abuse of process, (VI) libel, (VII) defamation, and (VIII) injurious falsehood. Ryan alleges that Rhone caused its affiliates: (1) to terminate the distribution agreements, (2) to cancel confirmed purchase orders, (3) to convert Ryan's inventory held in warehouses, (4) to instruct Ryan's customers not to pay invoices to Ryan, (5) to make defamatory remarks that Ryan was in default, and (6) to freeze Ryan's factoring accounts with its bank. Rhone and its affiliates moved to dismiss because the complaint alleged claims subject to the arbitration clauses in each of the distribution contracts.

The district court retained jurisdiction over the conspiracy count. It dismissed the remaining counts because they involved disputes that the parties contracted to arbitrate.

II

Ryan asserts that the district court erred in dismissing counts two through eight for lack of subject matter jurisdiction. It relies on a provision of the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. Sec. 1330, which confers jurisdiction on the district court of civil actions against a foreign state. The parties agree that Rhone and its affiliates should be considered a "foreign state" as defined by 28 U.S.C. Sec. 1603(a) & (b) because the French government owns a majority of Rhone's shares.

Section 1330 does not preclude reference to arbitration. The United States has acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1970), 3 U.S.T. 2517, T.I.A.S. No. 6997, reprinted following 9 U.S.C. Sec. 201. To implement the Convention, Congress authorized district courts to direct arbitration in accordance with the parties' agreement. 9 U.S.C. Secs. 201, 206. See generally Scherk v. Alberto-Culver Co., 417 U.S. 506, 520-21 n. 15, 94 S.Ct. 2449, 2457-58 n. 15, 41 L.Ed.2d 270 (1974). The Convention and its implementing statutes authorized the district court to exercise the jurisdiction conferred by 28 U.S.C. Sec. 1330 to determine whether the parties contracted to arbitrate their disputes. Having determined that counts two through eight involved disputes that were referable to arbitration, the district court properly applied Article II(3) of the Convention and referred the parties to arbitration. 1

III

Ryan also questions appellate jurisdiction over Rhone's assignment of error to the district court's ruling that the conspiracy alleged in count one is not referable to arbitration. Ryan relies on Gulfstream Aerospace Corp. v. Mayacamas Corp., --- U.S. ----, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988), in which the Supreme Court overruled cases establishing the anachronistic Enelow- Ettelson doctrine. Without recounting the intricacies of this no longer viable doctrine, it is sufficient to note that it provided the rationale for determining whether an order staying litigation pending arbitration is appealable under 28 U.S.C. Sec. 1292(a)(1). See Garner Lumber Co. v. Randolph E. Valensi, Lange, Inc., 513 F.2d 1171, 1172 (4th Cir.1975).

Nevertheless, the Court's decision to overturn the Enelow-Ettelson, doctrine was not intended to bar interlocutory appeals of orders that (1) "have the practical effect of granting or denying injunctions" and (2) "have 'serious, perhaps irreparable consequence.' " Gulfstream, 108 S.Ct. at 1142-43. The Court explained that in these instances section 1292(a)(1) will continue to provide appellate jurisdiction.

The denial of Rhone's motion with respect to count one satisfies the two requirements that the Court explained. First, an order refusing to stay proceedings and to compel arbitration has the practical effect of denying an injunction, although it is not expressed in such terms. See B & R Assocs. v. Dependable Ins. Co., 835 F.2d 526, 528 (4th Cir.1987); Garner Lumber Co., 513 F.2d at 1172.

There can be no doubt that a court's refusal to give effect to an arbitration clause has a "serious, perhaps irreparable, consequence"--the second of the two requirements for interlocutory appeal found in Gulfstream. In a case where the district and appellate courts had declined to enforce an arbitration clause involving international trade, the Supreme Court reversed, saying:

A contractual provision specifying in advance the forum in which disputes shall be litigated and the law to be applied is, therefore, an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction. Furthermore, such a provision obviates the danger that a dispute under the agreement might be submitted to a forum hostile to the interests of one of the parties or unfamiliar with the problem area involved.

A parochial refusal by the courts of one country to enforce an international arbitration agreement would not only frustrate these purposes, but would invite unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages. (Footnote omitted).

Scherk, 417 U.S. at 516-17, 94 S.Ct. at 2455-56. The Supreme Court has recently reiterated the serious consequences of failing to enforce international arbitration agreements. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 638-39, 105 S.Ct. 3346, 3359-60, 87 L.Ed.2d 444 (1985).

We conclude that the court's denial of Rhone's claim that the issues alleged in count one should be arbitrated is appealable under section 1292(a)(1). Cf. Kansas Gas & Electric Co. v. Westinghouse Electric Corp., 861 F.2d 420, 422 (4th Cir.1988) (Gulfstream does not preclude appeal of an order denying domestic arbitration).

There is no problem with appellate jurisdiction to review the order dismissing counts two through eight. The district court directed entry of a final judgment as to these counts pursuant to Federal Rule of Civil Procedure 54(b).

IV

Ryan and the Rhone affiliates agreed to arbitration by including in their distribution contracts a clause recommended by the International Chamber of Commerce, which provides: "All disputes arising in connection with the present contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the Rules." 2

The distribution contracts did not stipulate the price of imports or Ryan's compensation. They made no reference to security agreements. Instead, the distribution contracts simply provided: "The price and terms of all products listed above shall be by agreement of the parties simultaneous with or before confirmation of the purchase order." The importation of products, Ryan's compensation, and the affiliates' security interests were accomplished by separate purchase orders, compensation letters, and...

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