National R.R. Passenger Corp. v. Expresstrak

• Decision Date: 06 June 2003
• Docket Number: No. 03-7059.,No. 02-7163.,No. 02-7164.,No. 03-7058.,02-7163.,02-7164.,03-7058.,03-7059.
• Citation: 330 F.3d 523
• Parties: NATIONAL RAILROAD PASSENGER CORPORATION, Appellant, v. EXPRESSTRAK, L.L.C., Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

330 F.3d 523

NATIONAL RAILROAD PASSENGER CORPORATION, Appellant, v. EXPRESSTRAK, L.L.C., Appellee.

No. 02-7163.

No. 02-7164.

No. 03-7058.

No. 03-7059.

United States Court of Appeals, District of Columbia Circuit.

Argued May 9, 2003.

Decided June 6, 2003.

Appeals from the United States District Court for the District of Columbia (No. 02cv01773) (No. 02cv02012).

Jack McKay argued the cause for appellant. With him on the briefs was Jonathan W. Gannon.

Philip A. Nacke argued the cause for appellee. With him on the briefs were John G. DeGooyer and Steven C. Lambert.

Before: GINSBURG, Chief Judge, and ROGERS and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

In this expedited appeal, the National Railroad Passenger Corp. ("Amtrak") appeals orders of the district court (1) interpreting its lease agreements with ExpressTrak, L.L.C., to require arbitration of any disputes; (2) enjoining the parties to continue performing under the terms of the leases during arbitration; and (3) confirming an interim arbitration award. Amtrak contends that the district court failed to abide by the parties' clearly expressed intent to litigate disputes arising under the leases. Our jurisdiction to review the grant of the injunction compelling continued performance of the leases and the order confirming the interim arbitrator's award is clear. Under 28 U.S.C. § 1292(a)(1)(2002), the court has jurisdiction to review the district court's entry of the injunction because, although denominated "permanent," the injunction is interlocutory in nature, as the district court has not entered a final order winding up the parties' litigation. Under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 16(a)(1)(D), the court has jurisdiction to review the district court's order confirming the interim award. Although orders compelling arbitration are usually non-appealable under FAA § 16(b), to review either the injunction or the interim award, the court must determine whether the parties' dispute was properly arbitrable; hence, the court has pendent appellant jurisdiction over that order as well. As to arbitrability, we hold that the parties' dispute was not properly arbitrable. Accordingly, we reverse the order compelling arbitration as well as the injunction and the confirmation order, and we remand the case to the district court for trial on Amtrak's claim that ExpressTrak breached the lease agreements.

I.

Amtrak and ExpressTrak executed three agreements providing for the transportation of perishable goods in temperature-controlled express cars attached to Amtrak passenger trains: an Operating Agreement, a Sublease, and a Direct Lease. Under the Operating Agreement of October 27, 1999, ExpressTrak was to acquire express cars, have them refurbished, and convey the express cars to a third-party lessor. The third-party lessor would then lease the cars to Amtrak, which, in turn, would sublease the cars to ExpressTrak. Operating Agreement § 1.8. Orix Financial Services, acting as the third-party lessor, agreed to purchase 110 express cars, and on May 15, 2001, Orix executed a Headlease with Amtrak, which required Orix to lease the express cars to Amtrak. On the same day, Amtrak entered a Sublease with ExpressTrak, in which Amtrak agreed to sublease the 110 express cars to ExpressTrak. In November 2001, after financing only fifty-five of the 110 express cars, Orix suspended its funding. Amtrak and ExpressTrak subsequently entered into a letter agreement ("Direct Lease") on November 30, 2001, whereby Amtrak agreed to purchase the fifty-five remaining express cars from the refurbishing vendor, and lease them to ExpressTrak. The letter agreement stated that the parties have "substantially the same rights and obligations with respect to the railcars made subject thereto as each currently holds with respect to the railcars subject to the Sublease...." Direct Lease ¶ 2. Although the parties contemplated executing a more formal document, they never did.

By letters of April 15, 2002, Amtrak informed ExpressTrak that because ExpressTrak had failed to make its January and April 2002 payments, it was in default under the Sublease and the Direct Lease (collectively "the Leases"), and Amtrak was terminating the Leases; Amtrak also demanded return of all express cars leased to ExpressTrak under the Leases. ExpressTrak paid Amtrak the overdue amounts on April 17, 2002, and by letter of April 25 to Amtrak denied that it had defaulted under the Leases and asserted that the April 15 notice of default was "ineffective and unenforceable," that Amtrak could not unilaterally "demand return of the express cars," and that Amtrak had "defaulted on numerous obligations" under the Operating Agreement. In an attempt to resolve their differences, the parties operated under a standstill agreement from May 3, 2002, to September 8, 2002, pursuant to which Amtrak agreed not to take any steps toward repossessing the express cars. During this period, Amtrak continued to run the express cars with ExpressTrak freight and make payments to Orix, as required under the Headlease.

On September 9, 2002, Amtrak filed suit against ExpressTrak, alleging that ExpressTrak had defaulted under the Leases when it failed to make timely payments, and seeking declaratory relief and damages. In response, ExpressTrak moved for a stay of the litigation pending arbitration and an order compelling Amtrak to continue conducting business, arguing that the Operating Agreement requires the parties to submit their disputes to arbitration. Amtrak then moved to enjoin the arbitration on the ground that the Leases require the parties to settle their differences by litigation, not arbitration. On October 15, 2002, ExpressTrak filed suit against Amtrak seeking a preliminary injunction and an order compelling arbitration. The district court consolidated the lawsuits, and on December 5, 2002, ruled that the dispute resolution provisions of the Operating Agreement, and not those in the Leases, governed the parties' dispute. Nat'l R.R. Passenger Corp. v. Expresstrak, L.L.C., 233 F.Supp.2d 39 (D.D.C.2002). Accordingly, the district court stayed both cases, directed the parties to submit their disputes to arbitration, and entered a preliminary injunction "requiring the parties to continue conducting business while such arbitration proceedings are pending." Amtrak appealed the December 5 Order and also filed a motion in the district court to set bond pursuant to Fed.R.Civ.P. 65(c), which ExpressTrak opposed.

On Amtrak's emergency motion, this court expedited its appeal, and set oral arguments for May 9, 2003. In the interim, the district court heard testimony on the amount of damages Amtrak would suffer as a result of the injunction, and on January 27, 2003, ordered ExpressTrak to post bond by February 15, 2003, in the amount of $857,415, to cover the first three months of the injunction period. By notice of February 14, 2003, ExpressTrak informed the district court that it was unable to post bond. Amtrak responded by filing a motion to dissolve the preliminary injunction, and the district court sua sponte, on March 11, 2003, ordered ExpressTrak to post bond by March 14, 2003, in the amount of $110,000 — the maximum amount ExpressTrak claimed it could pay. ExpressTrak complied with the bond order.

The arbitration panel also convened during the interim period to consider Amtrak's request that it not be required to continue contract performance pending arbitration. Following a hearing, the panel by Order of March 19, 2003, denied Amtrak's request. Order, In re Arbitration Between ExpressTrak and Amtrak 2 (Mar. 19, 2003) ("Interim Arbitration Order"). In light of the panel's decision, Amtrak renewed its motion in the district court to dissolve the preliminary injunction, and ExpressTrak moved the district court to confirm the panel's interim award. By Order of May 1, 2003, the district court confirmed the interim arbitration award, declined to dissolve the preliminary injunction, and converted the preliminary injunction into a permanent injunction. Order, Nat'l R.R. Passenger Corp. v. ExpressTrak, L.L.C., at 2 (D.D.C. May 1, 2002) ("May 1 Order").

Both parties then filed emergency motions in this court. Amtrak moved to expedite its appeal from the district court's May 1 Order, consolidate the May 1 appeal with the pending appeal of the December 5, 2002 Order, and require supplemental briefing. ExpressTrak, in turn, moved to dismiss Amtrak's appeal for lack of jurisdiction. The court granted Amtrak's emergency motion and deferred decision on the motion to dismiss pending oral argument.

II.

The court's jurisdiction to review the district court orders enjoining the parties to continue conducting business under the Leases and confirming the interim arbitration award is clear. First, under 28 U.S.C. § 1292(a)(1), the court has jurisdiction to review "[i]nterlocutory orders of the district courts of the United States ... granting, continuing, modifying, refusing, or dissolving injunctions, or refusing to dissolve or modify injunctions.. . ." 28 U.S.C. § 1292(a)(1). Although the provision is typically invoked to appeal preliminary injunctions, it can be invoked to appeal permanent injunctions that are interlocutory in nature. Smith v. Vulcan Iron Works, 165 U.S. 518, 17 S.Ct. 407, 41 L.Ed. 810 (1897); see also Ty, Inc. v. Publ'ns Int'l Ltd., 292 F.3d 512, 516 (7th Cir.2002), cert. denied, ___ U.S. ___, 123 S.Ct. 892, 154 L.Ed.2d 783 (2003); Cohen v. Bd. of Trs. of Univ. of Med. & Dentistry, 867 F.2d 1455, 1464 n. 7 (3d Cir.1989); CFTC v. Preferred Capital Inv. Co., 664 F.2d 1316, 1319 n. 4 (5th Cir.1982); 16 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3924 (2d ed. 1996). While the district court characterized its May 1 injunction as "permanent," both parties agree that the district court has not entered a final order winding up the litigation...