Langley v. Colonial Leasing Co. of New England, 82-1564

• Decision Date: 02 May 1983
• Docket Number: No. 82-1564,82-1564
• Citation: 707 F.2d 1
• Parties: David J. LANGLEY, d/b/a Dave's Auto Service Center, Plaintiff, Appellee, v. COLONIAL LEASING COMPANY OF NEW ENGLAND, etc., Defendant, Appellee. Major Muffler Center, Inc., etc., Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 1

707 F.2d 1

David J. LANGLEY, d/b/a Dave's Auto Service Center, Plaintiff, Appellee, v. COLONIAL LEASING COMPANY OF NEW ENGLAND, etc., Defendant, Appellee.

Major Muffler Center, Inc., etc., Defendant, Appellant.

No. 82-1564.

United States Court of Appeals, First Circuit.

Argued Dec. 8, 1982.

Decided May 2, 1983.

Oleg Nikolyszyn, Providence, R.I., with whom Randy M. Kornfeld, and Lester A. Lazarus, P.C., New York City, were on brief, for defendant, appellant.

Edward John Mulligan, Warwick, R.I., for plaintiff, appellee David J. Langley.

Before COFFIN, Chief Judge, BREYER, Circuit Judge, and SMITH, ^* Senior District Judge.

COFFIN, Chief Judge.

Nearly a half century after the merger of law and equity in the federal courts, we are called upon in this appeal to decide whether a complaint is "legal" or "equitable". The cause of our labors is the so-called Enelow-Ettelson rule, a much-criticized exception to the general bar on interlocutory appeals, under which the denial (or grant) of an equitable defense--here, arbitration ¹--is immediately appealable if the underlying suit is "legal" but not if it is "equitable". ² Since we conclude that appellee's suit is equitable for Enelow-Ettelson purposes, we dismiss the appeal for want of appellate jurisdiction.

I

The action arose when appellee David Langley, doing business in Rhode Island as Dave's Auto Service Center, became dissatisfied with pipe-bending equipment he had bought from Major Muffler via a lease/finance arrangement with Colonial Leasing Co. of New England, and refused to make further payments under the lease. Colonial sued for breach and obtained a default judgment against Langley in federal district court in Oregon pursuant to a clause in the lease purporting to permit suit in that remote forum. In response, Langley sued Colonial and Major in Rhode Island state court to block enforcement of the Oregon judgment and, inter alia, to void the lease and sale contract. Colonial then removed the Rhode Island action to federal court, whereupon Major moved the district court for an arbitration order, invoking an arbitration clause in its sales contract with Langley. ³ Major's motion was denied by a magistrate and, upon reconsideration, by the district court. Major appeals.

II

We address at the outset the jurisdictional implications of Major's claim that it sought not only a stay pending arbitration under section 3 of the federal arbitration act, 9 U.S.C. Sec. 3, but also an order compelling arbitration under section 4 of the act, 9 U.S.C. Sec. 4. It is well settled that the denial of motion or petition for stay pending arbitration under 9 U.S.C. Sec. 3 is not appealable as a "final judgment" under 28 U.S.C. Sec. 1291 or as a "collateral" order under Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949); see USM Corp. v. GKN Fasteners, Ltd., 574 F.2d 17, 18-19 (1st Cir.1978), and is appealable as an injunction under 28 U.S.C. Sec. 1292(a)(1) only if Enelow-Ettelson requirements are met--that is, only if the underlying claim is "legal". See USM Corp. v. GKN Fasteners, Ltd., 574 F.2d 17, 18-19 (1st Cir.1978). By contrast, language in three cases of this court suggests that the denial of an order compelling arbitration under 9 U.S.C. Sec. 4 is immediately appealable as a final judgment under 28 U.S.C. Sec. 1291, without regard to Enelow-Ettelson. See USM Corp. v. GKN Fasteners, Ltd., supra; New England Power Co. v. Asiatic Petroleum Corp., 456 F.2d 183, 188 (1st Cir.1972); County of Middlesex v. Gevyn Construction Corp., 450 F.2d 53 (1st Cir.1971).

Whatever its formal denomination, we are persuaded that Major's "petition" was in substance only a motion for stay under section 3 of the arbitration act and not for an order compelling arbitration under section 4. As Major's counsel himself argued below, Major is in effect home free; it has no claim against Langley and nothing to gain from arbitration. Major thus has no interest in initiating, much less compelling, arbitration:

"Major Muffler is not the petitioner [plaintiff] in this cause of action .... Major Muffler is defending in this action .... It is Mr. Langley who is bringing this action, not us .... We are not obliged to go to arbitration .... We don't want to go to arbitration .... [S]ince we have performed all obligations under the contract, we are not seeking any remedies whatsoever. We are defending, we can't pursue [arbitration] .... It is up to them [Langley] to go to arbitration because we have no difficulty with the contract."

For this reason, we might reasonably deem Major's section 4 request abandoned. In argument here, however, Major's counsel equivocated on the issue. We therefore do not rest on abandonment alone, but examine the question taken for granted in USM Corp., New England Power, and County of Middlesex, supra: namely, the general appealability of section 4 petitions brought in federal court after federal suit is already pending on the underlying claim for which arbitration is sought.

1. Appealability Under 28 U.S.C. Sec. 1291

We begin our analysis with the observation that in none of the three cited cases was the question presented here actually decided. USM was a section 3 case which we specifically refused to treat as a section 4 case. In New England Power, the district court granted a stay under section 3 without ruling on the defendant's request for an order compelling arbitration under section 4; the section 4 request was thus not before us. Middlesex was a declaratory judgment action in which the district court's "order compelling arbitration" was in reality a full final judgment. Whether or not the denial of an order compelling arbitration in pending litigation is appealable as a final judgment generally, the grant of the order in Middlesex was. Moreover, Middlesex dealt with arbitration under Massachusetts law, not section 4 of the federal arbitration act.

At any rate, whatever the literal language of these previous cases, the authority we cited in New England Power makes clear that the denial of a section 4 petition is immediately appealable as a final judgment under 28 U.S.C. Sec. 1291 only where petition is brought "in an independent proceeding" before litigation on the underlying claim is begun, "while those issued in the course of a continuing suit would not be." Standard Chlorine of Delaware, Inc. v. Leonard, 384 F.2d 304, 308 (2d Cir.1967), cited with approval in New England Power Co. v. Asiatic Petroleum Corp., 456 F.2d at 188. Other Second Circuit authority confirms this limitation. See, e.g., N.V. Maatschappij Voor Industriele Waarden v. A.O. Smith Corp., 532 F.2d 874, 875 (2d Cir.1976) (arbitration under 9 U.S.C. Sec. 4 appealable "since it constituted a final judgment in an independent proceeding commenced by petition to compel arbitration") (emphasis added); Farr & Co. v. CIA. Intercontinental de Navegacion, 243 F.2d 342, 344-45 (2d Cir.1957) (distinguishing between section 4 orders entered in independent proceedings and those entered "in the course of a continuing suit"). While other cases have entertained section 4 appeals in the course of continuing suits without reference to the final judgment rule or Enelow-Ettelson, see, e.g., Prima Paint Corp. v. Flood & Conklin Mfg. Co., 360 F.2d 315 (2d Cir.1966), aff'd without mention of jurisdictional question, 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), questioned in relevant part in Standard Chlorine, supra, 384 F.2d at 308 & n. 10, they have done so without discussion or notice of the jurisdictional problem such orders present under 28 U.S.C. Sec. 1291, and we are persuaded for several reasons that the limitation of Farr, Standard Chlorine and A.O. Smith represents the better view.

First, we have no jurisdiction except as granted by Congress. That jurisdiction is for the most part confined to final decisions, subject to limited, narrowly enumerated exceptions. In the absence of express statutory authorization, we are reluctant to find implied jurisdiction under 28 U.S.C. Sec. 1291 over what are in essence interlocutory orders. Since suit is left to proceed, denial of a section 4 request in the course of suit on the underlying claim is not a "final" order in the literal sense. Nor is it a "collateral" order under Cohen. To be appealable under Cohen, an order "must conclusively determine the disputed question, resolve an important issue completely separate from the merits of the action, and be effectively unreviewable on appeal from a final judgment." Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 98 S.Ct. 2454, 2457, 57 L.Ed.2d 351 (1978) (emphasis added). Whatever the application of the first two criteria, it is clear that no right is irrevocably prejudiced by the lack of immediate appeal from the denial of the section 4 request here. If erroneous, the denial can always be reversed on appeal from final judgment on the underlying claim, and the dispute referred to arbitration on remand. ⁴

Second, to give broader appealability to section 4 denials in pending cases than to section 3 requests would invite litigants interested in delay to concoct appealable orders by simply renumbering their motions or by joining section 3 and section 4 prayers. Although the two sections differ, the differences are irrelevant to the question of interlocutory appealability, and do not warrant different treatment here.

Third, litigants who wish to insure immediate appealability will have an incentive to seek arbitration early, before litigation on the underlying claim has begun. Given the strong Congressional policy in favor of arbitration, such early resort should be encouraged.

Finally, while arbitration may well be warranted in this case and a waste of judicial resources inevitable, we are persuaded that, in the long run, a narrower approach to appealability in section 4 cases will best serve those ends of judicial economy and speedy dispute resolution that underlie...