Mellon Bank, N. A. v. Pritchard-Keang Nam Corp.

• Citation: 651 F.2d 1244
• Decision Date: 01 June 1981
• Docket Number: Nos. 80-1967,80-1973,PRITCHARD-KEANG,s. 80-1967
• Parties: MELLON BANK, N. A., a national banking association, Appellant, International Systems & Controls Corporation, a corporation v.NAM CORPORATION, Delaware, a corporation; and the Pritchard Corporation, a corporation; and Robert D. Schaff, Appellees. Mellon Bank, N.A., a national banking association INTERNATIONAL SYSTEMS & CONTROLS CORPORATION, a corporation, Appellant, v.NAM CORPORATION, Delaware, a corporation; and the Pritchard Corporation, a corporation; and Robert D. Schaff, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 1244

651 F.2d 1244

MELLON BANK, N. A., a national banking association, Appellant, International Systems & Controls Corporation, a corporation v. PRITCHARD-KEANG NAM CORPORATION, Delaware, a corporation; and the Pritchard Corporation, a corporation; and Robert D. Schaff, Appellees.

Mellon Bank, N.A., a national banking association INTERNATIONAL SYSTEMS & CONTROLS CORPORATION, a corporation, Appellant, v. PRITCHARD-KEANG NAM CORPORATION, Delaware, a corporation; and the Pritchard Corporation, a corporation; and Robert D. Schaff, Appellees.

Nos. 80-1967, 80-1973.

United States Court of Appeals Eighth Circuit.

Submitted March 10, 1981.

Decided June 1, 1981.

Lawrence R. Brown and W. Perry Brandt, Stinson, Mag & Fizzel, Kansas City, Mo., J. Tomlinson Fort and Paul M. Singer, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., for appellant Mellon Bank, N. A.

Hillix, Brewer, Hoffhaus & Whittaker by Kent E. Whittaker and Mark G. Flaherty, Kansas City, Mo., for Intern. Systems & Controls Corp.

Hughes, Hubbard & Reed, Norbert A. Schlei, William T. Bisset, John J. Kralik, IV, Los Angeles, Cal., for Pritchard-Keang Nam Corp.

Gage & Tucker, William L. Turner and George P. Coughlin, Kansas City, Mo., for appellees.

Before HEANEY and HENLEY, Circuit Judges, and PECK, ^* Senior Circuit Judge.

HEANEY, Circuit Judge.

This matter is before the Court on appeal from an order of the United States District Court for the Western District of Missouri ¹ granting a motion to stay further district court proceedings pending arbitration of disputes between two of the parties. Because we conclude that we currently lack jurisdiction over the issues raised, we dismiss the appeal.

I

In July of 1978, appellant International Systems & Controls Corporation (ISC) entered into a written agreement with Keang-Nam Enterprises, Ltd., a Korean corporation, under which ISC sold the assets of two of its subsidiaries J. F. Pritchard & Company (JFP) and Pritchard International Corporation (PIC) to appellee Pritchard-Keang Nam Corporation (PKN). PKN is a Delaware subsidiary of Keang-Nam Enterprises, Ltd., incorporated for the purpose of receiving the rights to the agreement. The agreement contained a clause requiring arbitration of "(a)ny controversy, dispute or claim arising out of, or relating to, this Agreement." PKN supplied part of the purchase price for the sale by assuming $2 million in promissory notes which had been executed by JFP and were payable to ISC. Eight separate notes of $250,000 each were involved, with maturity dates from October of 1979 to October of 1983. JFP had secured these notes in part by pledging 45,014 shares of stock issued by the Atlantic, Gulf and Pacific Company of Manila, Inc. (AG&P), which were part of JFP's assets. ISC, in turn, had pledged the AG&P stock to appellant Mellon Bank as security for debts owed to Mellon Bank by ISC.

In January of 1979, PKN expressed a desire to sell the AG&P stock, but ISC and its assignee Mellon Bank refused to release the stock unless PKN agreed to prepay $500,000 on the sixth and seventh JFP notes. Consequently, PKN executed a "Pledge Agreement" on February 27, 1979, in which PKN promised to pay Mellon Bank $500,000 following the release of the AG&P stock and its subsequent sale.

On August 28, 1979, Mellon Bank filed a complaint in which it alleged that although the stock certificates were released in accordance with the Pledge Agreement, PKN failed to remit the $500,000. Mellon Bank sought specific performance of the Pledge Agreement restitution of the AG&P stock and damages, both actual and punitive. On October 15, 1979, PKN filed its answer, asserting as an affirmative defense that Mellon Bank's claims must first be submitted to arbitration pursuant to the original agreement. It also filed a counterclaim against Mellon Bank and against ISC as a third-party defendant, alleging that part of the assets transferred in the original sale an account receivable allegedly owed to PIC by an Algerian oil company was worthless. PKN charged that the receivable had been obtained through fraud, bribery and other violations of Algerian law and that ISC made false and fraudulent representations to PKN concerning it. PKN sought partial rescission of the original agreement insofar as it concerned the Algerian receivable, imposition of a constructive trust on that portion of the purchase price attributable to the receivable, damages for fraud and breach of contract, and a declaratory judgment that the Pledge Agreement was unenforceable. ISC counterclaimed against PKN, asserting substantially the same claims as Mellon Bank.

On August 23, 1979, five days prior to the filing of Mellon Bank's initial complaint, PKN sent to both ISC and Mellon Bank a "Pre-Arbitration Notice of Claim" required by the arbitration provision of the original agreement. On October 15, 1979, PKN formerly demanded arbitration of all matters and disputes described in its counterclaim and, in its counterclaim, specifically requested a stay of all proceedings pending completion of arbitration. In February of 1980, ISC moved to stay district court proceedings pending arbitration. PKN opposed this motion and proceeded with discovery. At the end of March, ISC moved to withdraw its request for a stay. In June, the district court directed PKN to clarify its position concerning a stay, and on July 9, 1980, PKN moved to stay all district court proceedings pending the conclusion of arbitration. On July 25, ISC moved to stay the arbitration proceedings. In an order dated September 11, 1980, the district court granted PKN's motion to stay further proceedings in the district court. Mellon Bank and ISC bring this appeal from that order, claiming, inter alia, that PKN waived its right to arbitration. ²

II

PKN asserts that this Court lacks jurisdiction over the appeal because the district court decision is not a final order appealable under 28 U.S.C. § 1291 nor is it an order granting or denying an injunction appealable under § 1292(a) (1). Neither Mellon Bank nor ISC contend that § 1291 should apply to this case. Mellon Bank argues, however, that Judge Clark's order staying district court proceedings pending the conclusion of arbitration should be considered a grant of an injunction appealable under § 1292(a)(1). ISC maintains that the district court order should be considered a denial of its request for a stay of the arbitration proceedings appealable under the same section. We agree with neither contention.

The determination of whether a district court stay order is to be considered appealable as an injunction is far from simple. The blame for the complication can be traced back to the time when law courts and equity courts were separate entities. Although in the federal judicial system the distinction is now long dead, this case demonstrates that its specter continues to haunt the modern court attempting to discern the murky bounds of appellate jurisdiction.

An order prohibiting a party from pursuing litigation in another court is unquestionably an injunction for purposes of interlocutory appeal. See, e. g., United States v. Dorgan, 522 F.2d 969, 971 n.1 (8th Cir. 1975). Prior to the complete merger of law and equity, therefore, an order from the Chancellor staying proceedings in a law court was considered an appealable injunction. See Enelow v. New York Life Ins. Co., 293 U.S. 379, 382-383, 55 S.Ct. 310, 311, 79 L.Ed. 440 (1935). Following the adoption of the Federal Rules of Civil Procedure and the merger of law and equity, the Supreme Court chose to continue reasoning by historical analogy and reaffirmed the rule that an equitable order restraining a legal action is appealable as an injunction. Ettelson v. Metropolitan Life Ins. Co., 317 U.S. 188, 63 S.Ct. 163, 87 L.Ed. 176 (1942). In more recent pronouncements, a number of courts have held that the Enelow-Ettelson rule operates to permit appeal from a district court's stay of its own proceedings, provided "(1) the original cause of action could have been maintained only at law in the days preceding the single form of action, and (2) the stay is sought to permit the interposition of an equitable defense." USM Corp. v. GKN Fasteners, Ltd., 574 F.2d 17, 21 (1st Cir. 1978); see Baltimore Contractors, Inc. v. Bodinger, 348 U.S. 176, 182-185, 75 S.Ct. 249, 253-254, 99 L.Ed. 233 (1955); Mansbach v. Prescott, Ball & Turben, 598 F.2d 1017, 1022-1023 (6th Cir. 1979); Hussain v. Bache & Co., 562 F.2d 1287, 1288-1289 (D.C.Cir.1977); Thompson v. House of Nine, Inc., 482 F.2d 888, 890 (5th Cir. 1973); Standard Chlorine of Del., Inc. v. Leonard, 384 F.2d 304, 308 (2d Cir. 1967). See generally C. Wright & A. Miller, Federal Practice and Procedure, § 3923 (1977). Although the Enelow-Ettelson rule has been roundly criticized by nearly every court and commentator that has considered its application, ³ it remains an established principle of federal appellate jurisdiction.

Because the interposition of an arbitration agreement is clearly an equitable defense, see Shanferoke Coal & Supply Corp v. Westchester Serv. Corp., 293 U.S. 449, 452, 55 S.Ct. 313, 314, 79 L.Ed. 583 (1935), the second requirement of the Enelow-Ettelson formula is satisfied in this case. Accordingly, our concern is with the first part of the test whether Mellon Bank's original claim or ISC's counterclaim would have been considered legal or equitable in nature prior to the establishment of the single form of action.

Mellon Bank's complaint alleges five separate causes of action. The final four counts are clearly legal in nature, seeking damages for breach of contract, false statements, conspiracy to defraud and conversion. The first count, however, seeks specific performance of the Pledge Agreement, asking the court to order PKN to remit $500,000 as it had agreed or, in the alternative, to return the AG&P stock. This prayer for specific performance is plainly equitable in nature. ⁴ See Standard Chlorine of Del., Inc. v....