MCI Telecommunications Corp. v. Matrix Communications Corp.

• Decision Date: 04 November 1997
• Docket Number: Nos. 96-2246,97-1570,s. 96-2246
• Citation: 135 F.3d 27
• Parties: MCI TELECOMMUNICATIONS CORPORATION, Plaintiff, Appellee, v. MATRIX COMMUNICATIONS CORPORATION, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 27

135 F.3d 27

MCI TELECOMMUNICATIONS CORPORATION, Plaintiff, Appellee, v. MATRIX COMMUNICATIONS CORPORATION, Defendant, Appellant.

Nos. 96-2246, 97-1570.

United States Court of Appeals, First Circuit.

Heard Nov. 4, 1997.

Decided Jan. 27, 1998.

Richard W. Miller with whom Stephen R. Miller, Andrew C. Gately, Kansas City, MO, John D. Hanify, and Joseph A. Cortellini, Boston, MA, were on brief, for appellant.

Paul M. Smith with whom Ross B. Bricker, Terri L. Mascherin, Chicago, IL, Mark A. Berthiaume, Louis J. Scerra, Jr., Boston, MA, and David J. Brecher, New York City, were on brief, for appellee.

Before BOUDIN, Circuit Judge, COFFIN, Senior Circuit Judge, and DOWD, ^* Senior District Judge.

COFFIN, Senior Circuit Judge.

The parties in this case have been engaged in a heated battle over the proper setting for their underlying legal dispute. Appellee MCI Telecommunications Corp. insists that the conflict must be resolved through arbitration, while appellant Matrix Communications Corp. asserts that the arbitration clause in the parties' contract does not apply here, and that it is entitled to a judicial forum for its claims. The district court sided with MCI--thus ordering arbitration--and then rejected Matrix's motion under Fed.R.Civ.P. 60(b) to set aside that ruling based on newly discovered evidence. Matrix appeals both the judgment on the merits and the Rule 60(b) decision. After close review of the tangled procedural backdrop and the substantive issues, we affirm.

I. Factual and Procedural Background

Little needs to be said about the companies' underlying dispute, which arises from an October 1995 agreement (the "Agent Agreement") in which MCI gave Matrix limited agency to sell MCI services. The Agent Agreement provided for substantial commissions if Matrix generated a specified minimum amount of revenue for MCI. Matrix alleged, inter alia, that MCI improperly terminated the Agent Agreement eight months later, in June 1996, because Matrix was so successful in obtaining customers that MCI owed it more than one billion dollars in commissions that the corporation did not wish to pay. MCI countered that termination was proper because Matrix breached the terms of the Agent Agreement in various ways.

Following MCI's termination, Matrix filed suit in Massachusetts state court. MCI removed the action to federal court. It then moved to stay the litigation and compel arbitration, on the ground that the language of the arbitration clause in the Agent Agreement unambiguously evidenced the parties' intent to arbitrate all disputes arising from that agreement. The provision, contained in paragraph 22 of the Agent Agreement, states:

Any dispute relating to this Agreement shall be submitted for binding arbitration in accordance with the rules contained in MCI Tariff FCC No. 1 and judgement[sic] on any award entered therein may be entered in any court of competent jurisdiction.

Matrix opposed the motion to stay, arguing that, because MCI Tariff FCC No. 1 ("the Tariff") expressly limited arbitration to customer billing disputes of $10,000 or more, and Matrix neither was a customer nor had a billing dispute of any amount with MCI, the arbitration clause did not apply to its dispute. ¹

Judge Harrington of the United States District Court for the District of Massachusetts held a hearing on MCI's motion to compel arbitration on September 27, 1996. Later that day, he signed an order granting the motion, concluding that the arbitration clause unambiguously reflected an intention by the parties to arbitrate all disputes relating to the Agreement. In his view, the Tariff was referenced not to define the scope of the agreement to arbitrate but to provide the procedural rules under which any arbitration would take place.

The same day, Matrix filed a notice of voluntary dismissal under Fed.R.Civ.P. 41(a)(1)(i). ² In a letter to Judge Harrington, Matrix's counsel explained that the company had decided to ask the arbitrator to rule on whether Matrix could receive all the relief it sought through arbitration. If so, Matrix would consent to continue the arbitration; if not, Matrix would refile its action in federal court.

Judge Harrington dismissed the action. On September 30, the day both the order compelling arbitration and the grant of dismissal were entered on the docket, Matrix initiated the arbitration by filing a claim with J.A.M.S./Endispute ("JAMS"), the arbitration administrator designated by MCI in its Tariff. Matrix argued to the arbitrator, as it had to the court, that its claims were not arbitrable, and again relied on a reading of the arbitration clause that limited its scope to billing disputes exceeding $10,000.

MCI responded two days later, on October 2, by filing its own action in federal court seeking to compel arbitration of Matrix's claims. Although Matrix was at that point participating in arbitration, MCI was concerned that Matrix would not follow through if the arbitrator decided the threshold questions against Matrix's position. Because of his involvement in the earlier proceeding, Judge Harrington was assigned the MCI action. Without additional hearings or any responsive pleading from Matrix, he entered an order on October 10 compelling Matrix to arbitrate all of its claims and awarding MCI attorney's fees.

Meanwhile, the arbitration that Matrix had initiated went forward, and, on December 10, 1996, the arbitrator ruled that Matrix's claims were arbitrable but that certain types of relief sought by Matrix, including multiple damages and attorney's fees, were unavailable in the arbitration because the Tariff barred such remedies. In February 1997, Matrix filed a motion in district court under Fed.R.Civ.P. 60(b), seeking relief from the October 10 order. Matrix contended that MCI had fraudulently induced it to enter into the arbitration clause in the Agent Agreement by concealing an agreement between JAMS and MCI that provided for a close working relationship between the two companies and specified various payments and services to be given by MCI to JAMS. Matrix argued that the MCI/JAMS Agreement constituted newly discovered evidence of bias on the part of JAMS in favor of MCI. MCI opposed the motion, filing affidavits and other materials in support of its position that the JAMS Agreement had not been concealed and did not evidence bias on the part either of JAMS, or, more importantly, the arbitrator.

Following a hearing, District Court Judge Saris denied the Rule 60(b) motion, ³ concluding that Matrix had failed to show the elements necessary for post-judgment relief, see Hoult v. Hoult, 57 F.3d 1, 5-6 (1st Cir.1995). See infra at 34.

Matrix appeals from the October 10, 1996 order compelling arbitration of its claims, and the March 27, 1997 denial of its rule 60(b) motion.

II. Discussion

Before discussing the district court's October 10 judgment and its subsequent rejection of Matrix's Rule 60(b) motion, we must address a threshold issue raised by MCI. It claims that, because Matrix voluntarily submitted the issue of arbitrability to the arbitrator, who then determined that Matrix's claims are arbitrable, Matrix cannot at this juncture challenge the arbitrator's authority to hear the case. This appeal, MCI contends, is moot.

We have little difficulty in concluding that the appeal should go forward. From the outset, Matrix explicitly advised the district court that it would return to the courtroom if the arbitrator ruled that Matrix could not obtain all the relief it sought in the arbitral forum. Although MCI cites language suggesting that Matrix later agreed to arbitrate its claims if the arbitrator ruled that they were arbitrable, we are persuaded that that language was unfairly drawn out of context and that Matrix's actual position has been consistently in opposition to resolving its claims through arbitration unless it were possible to obtain full relief. Indeed, we think it disingenuous, and bordering on effrontery, for MCI to suggest otherwise.

We now turn to the issues raised by Matrix on appeal.

A. The October 10 Ruling

At the outset of our analysis, it is worth recalling the context of the district court's decision on October 10 to compel arbitration. The motion on which the court ruled was filed by MCI on October 2. Only three working days earlier, on September 27, the court had held a hearing on arbitrability pursuant to Matrix's action, and had concluded that the Agent Agreement's arbitration clause embraced all disputes. That decision was not enforced then because, virtually contemporaneously, Matrix dismissed its suit. Seeking to resolve the arbitrability question, MCI jumped in with its own action, and the court responded on October 10 by compelling arbitration, thereby effectively (though not technically) reinstating its earlier decision. ⁴

If review of that decision posed only the question whether the court properly interpreted the Agent Agreement to compel arbitration of the parties' dispute, our task would be straightforward and relatively easy. But several factors affect our analysis, two of which complicate the inquiry. First, the court ruled before Matrix had answered MCI's complaint seeking to compel arbitration, and without a hearing, although Section 4 of the Federal Arbitration Act states that "[t]he court shall hear the parties" before ordering arbitration to proceed. ⁵ The second difficulty is that Matrix's appellate challenge to the arbitration clause includes arguments that the district court never considered, an omission that typically forecloses us from taking them into account. See United States v. Bongiorno, 106 F.3d 1027, 1034 (1st Cir.1997). The two problems obviously are intertwined; Matrix logically points out that it had no opportunity to make any arguments to the district court because, in its view, the court ruled prematurely.

The third factor, somewhat simplifying our task, is that Matrix asserts that it does not challenge any procedural...