New England Energy Inc. v. Keystone Shipping Co., s. 88-1202

• Decision Date: 07 April 1988
• Docket Number: Nos. 88-1202,88-1203,s. 88-1202
• Parties: , 57 USLW 2149 NEW ENGLAND ENERGY INC., et al., Plaintiffs, Appellants, v. KEYSTONE SHIPPING COMPANY, Defendant, Appellee. KEYSTONE SHIPPING COMPANY, Plaintiff, Appellee, v. NEW ENGLAND ENERGY INC., Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1

855 F.2d 1

1989 A.M.C. 537, 57 USLW 2149

NEW ENGLAND ENERGY INC., et al., Plaintiffs, Appellants, v. KEYSTONE SHIPPING COMPANY, Defendant, Appellee.

KEYSTONE SHIPPING COMPANY, Plaintiff, Appellee, v. NEW ENGLAND ENERGY INC., Defendant, Appellant.

Nos. 88-1202, 88-1203.

United States Court of Appeals, First Circuit.

Heard April 7, 1988.

Decided Aug. 24, 1988.

John M. Stevens with whom John H. Henn, Foley, Hoag & Eliot, John F. Sherman, III and Cheryl A. LaFleur, Boston, Mass., were on brief for plaintiffs, appellants.

Rudolph F. Pierce with whom Kitt Sawitsky, Joel R. Leeman, Goulston & Storrs, P.C., Boston, Mass., Raymond J. Burke, Thomas A. Dillon, Jr., Burke & Parsons, New York City, and Ralph G. Hill, were on brief for defendant, appellee.

Before COFFIN, TORRUELLA and SELYA, Circuit Judges.

COFFIN, Circuit Judge.

This case requires us to decide whether federal courts have the power to order consolidation of two arbitrations when the parties' agreements to arbitrate make no express reference to the issue of consolidation. The district court, although determining that consolidation was appropriate under the circumstances, held that it lacked the power to order consolidation. We have carefully reviewed the authorities and see no compulsion of law or policy barring a district court from issuing such an order, at least when the agreement between the parties is silent and the pertinent state law specifically provides for such. We therefore reverse.

I.

We shall briefly describe the facts at this point in order to give some context to our discussion, but the primary question before us is a purely legal one and so we need not dwell on the particulars of this case. The parties here are signatories to one of two maritime contracts, both of which provide that disputes arising out of the agreements will be referred to arbitration in Boston "pursuant to the laws relating to arbitration there in force." In one contract, appellant New England Energy Inc. (NEEI) and appellee Keystone Shipping Co. (Keystone) created a joint venture known as the New England Collier Company (NECCO), which became owner and operator of a coal carrying ship named the Energy Independence. In the other agreement, appellant New England Power Company (NEP) chartered the Energy Independence from the joint venture. Both NEEI and NEP are part of the New England Electric System, an electric utility holding company. Arbitration # 1 is between NEEI and Keystone--the joint venturers--and Arbitration # 2 is between NEP, the ship operator, and NECCO, the joint venture that chartered the ship to NEP.

NEEI and NEP filed an action in state court in January 1988 seeking consolidation of the two arbitrations pursuant to the Massachusetts Uniform Arbitration Act, Mass.Gen.Laws Ann. ch. 251, Sec. 2A. ¹ Keystone removed the action to federal court based on diversity jurisdiction. After a hearing, the district court ruled that the factual circumstances were appropriate for consolidation, but it nevertheless denied the application for consolidation on the ground that it lacked the power to join the cases. The court interpreted the Federal Arbitration Act and Supreme Court precedent to say that, in the absence of a specific provision in the parties' contracts allowing consolidation, federal courts are without power to consolidate arbitrations. The district court implicitly found both that the Act preempted the Massachusetts statute providing for consolidated arbitrations, and that it deprived the court of its power to order consolidation under Fed.R.Civ.P. 42(a). NEEI and NEP then filed this appeal.

After carefully reviewing the Supreme Court cases and considering the policies of the Act, we conclude that consolidation could be ordered in this case pursuant to the Massachusetts arbitration consolidation statute. We need not decide whether a federal court also has the power, under Fed.R.Civ.P. 42(a), to order consolidation in the absence of a state law providing for it. We now turn to our reasons for concluding that Massachusetts law is not preempted in this case.

II.

The Federal Arbitration Act, 9 U.S.C. Secs. 1-14, was passed to ensure that courts would honor the contractual agreements of parties who choose to resolve their disputes by means of the informal arbitration procedure. See, e.g., Mitsubishi Motors, Inc. v. Soler Chrysler-Plymouth, 473 U.S. 614, 625-626, 105 S.Ct. 3346, 3353-3354, 87 L.Ed.2d 444 (1985); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219-220 105 S.Ct. 1238, 1241-1242, 84 L.Ed.2d 158 (1985). Section 2 of the Act provides that arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. Sec. 2. Section 4 provides that once a court is satisfied that a contract provides for arbitration, the court must order the parties "to proceed to arbitration in accordance with the terms of the agreement." Id. at Sec. 4. The Act makes no reference to consolidation of arbitrations.

Recognizing that this statute establishes a "federal policy favoring arbitration," Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983), the United States Supreme Court in a series of recent decisions repeatedly has stressed that courts must " 'rigorously enforce agreements to arbitrate,' " Shearson/American Express v. McMahon, --- U.S. ----, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 (1987) (quoting Dean Witter Reynolds, 470 U.S. at 221, 105 S.Ct. at 1242). See also Perry v. Thomas, --- U.S. ----, 107 S.Ct. 2520, 2525, 96 L.Ed.2d 426 (1987); Mitsubishi Motors, 473 U.S. at 625, 105 S.Ct. at 3353; Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 858, 79 L.Ed.2d 1 (1984); Moses H. Cone Memorial Hospital, 460 U.S. at 24, 103 S.Ct. at 941.

Appellee argues that the principle of strict adherence to arbitration agreements, established by both the Act and the Supreme Court cases, means that unless consolidation is affirmatively approved in the agreement to arbitrate, it may not be ordered, notwithstanding any state law providing for consolidation. Specifically, appellee contends that ordering consolidation in the absence of the parties' explicit consent is barred by section 4 of the Act, which requires courts to enforce arbitration agreements "in accordance with [their] terms." Appellee relies for this proposition on two circuit court decisions holding that a federal court's role in this context is to determine "only whether the contract provides for consolidated arbitration, a question free of the underlying facts [concerning the merits]," Del E. Webb Construction v. Richardson Hospital Authority, 823 F.2d 145, 150 (5th Cir.1987). See also Weyerhaeuser Co. v. Western Seas Shipping Co., 743 F.2d 635, 637 (9th Cir.1984). One other circuit has held that federal courts may consolidate arbitrations. Compania Espanola de Petroleos, S.A. v. Nereus Shipping, S.A., 527 F.2d 966 (2d Cir.1975).

We note first that, even when federal law applies to an arbitration agreement, ² the Federal Arbitration Act has never been construed to preempt all state law on arbitration. We do not read the recent series of Supreme Court arbitration cases to establish such a proposition by implication. Those cases concerned only laws that would override the parties' choice to arbitrate rather than litigate in court, in direct conflict with the Act's primary purpose of ensuring the enforcement of privately negotiated arbitration agreements. See cases listed supra at 3-4. At best, the Supreme Court's decisions support a conclusion that all state laws seeking to limit the use of the arbitral process are superseded by federal law. None of the various preemption standards suggests that Congress intended the federal Act to supersede all state arbitration law, and appellee Keystone does not argue to the contrary. See Hyde Park Partners, L.P. v. Connolly, 839 F.2d 837, 849 (1st Cir.1988) (detailing the "variants" of the preemption doctrine, quoting Louisiana Public Service Comm'n v. FCC, 476 U.S. 355, 368-69, 106 S.Ct. 1890, 1898-99, 90 L.Ed.2d 369 (1986)). See also Societe Generale de Surveillance v. Raytheon, 643 F.2d 863, 867 (1st Cir.1981) (federal Arbitration Act preempts "only that state law inconsistent with its express provisions").

Nor do we see a preemption problem between the Act and the particular statute before us, the Massachusetts arbitration consolidation provision. Because the Act says nothing about consolidation, the Massachusetts statute--as appellants seek to enforce it ³--does not directly conflict with the Act's provisions. Appellee's argument, however, is not that the Act directly contradicts the Massachusetts statute, but that the state law is superseded in this case because the parties' contracts do not provide for consolidation, and an order to consolidate would therefore conflict with the requirement in section four of the federal Act that courts enforce arbitration agreements according to their terms.

We disagree that ordering consolidation pursuant to a state statute when the contract is silent on the subject improperly modifies the agreement struck by the parties in violation of section four. We believe, as appellants argue, that an order not contradicting the contractual terms regarding arbitration is "in accordance with [those] terms." This is certainly true when the language of the arbitration clause is broad and in no way suggests limits on the subjects or parties to the agreed-upon arbitration. See, e.g., Compania Espanola de Petroleos, 527 F.2d at 969 ("Any and all differences and disputes of whatsoever nature arising out of this Charter shall be put to arbitration...."). To borrow appellants' illustration, a person directed to take an early plane to New York would be acting "in accordance with" her instructions whether she flew coach or first class, notwithstanding the instructions'...