Nordin v. Nutri/System, Inc.

• Decision Date: 28 February 1990
• Docket Number: No. 89-5243,89-5243
• Citation: 897 F.2d 339
• Parties: Duane NORDIN, Appellee, v. NUTRI/SYSTEM, INC., a Pennsylvania corporation, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 339

897 F.2d 339

5 Indiv.Empl.Rts.Cas. 199

Duane NORDIN, Appellee, v. NUTRI/SYSTEM, INC., a Pennsylvania corporation, Appellant.

No. 89-5243.

United States Court of Appeals Eighth Circuit.

Submitted Oct. 9, 1989.

Decided Feb. 28, 1990.

Steven R. Anderson, Minneapolis, Minn., for appellant.

Ann L. Iijima, Minneapolis, Minn., for appellee.

Before ARNOLD and MAGILL, Circuit Judges, and FLOYD R. GIBSON, Senior Circuit Judge.

MAGILL, Circuit Judge.

Nutri/System, Inc. (NS) appeals from an April 18, 1989 order of the district court enjoining NS from proceeding to arbitration and from an April 25, 1989 order denying its motions to compel arbitration and transfer venue. Two issues are presented by this appeal: (1) whether we have jurisdiction to review the district court's orders, and (2) if we have jurisdiction, whether the district court erred. As to the first issue, we hold that this court has jurisdiction under 28 U.S.C. Sec. 1292(a)(1) (1966 & Supp.1989) to review both the district court's order enjoining arbitration and its refusal to compel arbitration. However, we do not have jurisdiction to review the district court's refusal to transfer venue. Upon reaching the merits of NS's claims, we affirm the orders of the district court enjoining NS from proceeding to arbitration and denying its motions to compel arbitration.

I.

Duane Nordin began working for NS as general manager of its Minnesota operations in August 1987. Shortly after he commenced employment, NS required him to complete an employment application which included a covenant not to compete. The agreement provided in part:

I will not, for a period of two (2) years after termination of my employment, regardless of the cause, within a radius of ten (10) miles from any place of business of my employer or subsidiaries, affiliates and franchises of Nutri/System, Inc. engage in or have an interest in any enterprise which engages in, directly or indirectly, any business in competition with the business of my employer, subsidiaries, affiliates or franchises of Nutri/System, Inc.

Nearly one year after executing the employment agreement, NS required Nordin as a condition of continued employment to sign a non-disclosure agreement which modified the provisions of the restrictive covenant contained in the employment agreement by expanding the geographic scope and shortening the duration of the original restrictive covenant. The agreement provided in part:

Employee agrees that he/she will not at any time during the term of his/her employment or for a period of one year after termination of employment unless otherwise authorized by N/S become associated, engaged or employed:

(1) in any business of operating, conducting or franchising a specialized weight loss center or in any other business of N/S within a radius of twenty (20) miles from any existing N/S business or franchise; and

(2) in any business in which N/S has evidenced an interest for the purpose of acquisition or future franchising within a radius of twenty (20) miles from any existing N/S business or franchise.

In November 1988, Nordin terminated his employment relationship with NS. Shortly thereafter, he began work as an operational manager for a competitor. On February 1, 1989, Nordin executed a settlement agreement with NS under which he received $14,968 in consideration for several warranties, representations and covenants including in part:

5. Nordin hereby releases and forever discharges Nutri/System from all past, present, or future claims, demands, causes of action, suits, damages, losses and expenses of whatever kind or nature arising out of or resulting from his employment or his leaving Nutri/System.

* * * * * *

8. ... the laws of Pennsylvania will govern this Agreement.

9. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in accordance with the Rules of the American Arbitration Association in its Philadelphia offices, and judgment upon award rendered by arbitrator may be entered in any court having jurisdiction thereof.

Approximately two weeks after executing this agreement, Nordin brought suit against NS in Minnesota state court seeking a declaratory judgment that the restrictive covenants contained in the non-disclosure agreement were void for lack of consideration. On March 4, 1989, on motion of NS, the case was removed to the United States District Court for the District of Minnesota on the basis of diversity jurisdiction. On March 6, 1989, NS filed a unilateral demand for arbitration with the American Arbitration Association based on the settlement agreement. NS subsequently filed a motion to compel arbitration or, in the alternative, to transfer venue and dismiss the complaint. Nordin then moved for a temporary restraining order to enjoin the arbitration proceedings until the court could hold a hearing on the previously filed motions.

On April 18, 1989, following a contested hearing, the district court granted Nordin's motion for a temporary restraining order enjoining NS from "proceeding in any manner to arbitrate or seek arbitration of the disputes ... pending further order of this Court." On April 25, 1989, following another contested hearing, the district court denied NS's motions to compel arbitration and transfer venue. The court took Nordin's motion for a preliminary injunction under advisement pending a future hearing. On May 2, 1989, NS filed a notice of appeal from the district court's April 18 order enjoining arbitration and from the April 25 order denying NS's motions to compel arbitration and transfer venue.

II.

28 U.S.C. Sec. 1292(a)(1) confers jurisdiction on the courts of appeals to review "[i]nterlocutory orders of the district courts of the United States ... or of the judges thereof, ... granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions, except where a direct review may be had in the Supreme Court." In interpreting this section, the Supreme Court in Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 108 S.Ct 1133, 99 L.Ed.2d 296 (1988) (Gulfstream), noted in dicta that its holding ¹ would "not prevent interlocutory review of district court orders when [appellate] review is truly needed." Id. at 1142. The Court stated that "[s]ection 1292(a)(1) will ... continue to provide appellate jurisdiction over orders that grant or deny injunctions and orders that have the practical effect of granting or denying injunctions and have 'serious, perhaps irreparable, consequence.' " Id. at 1142-43 (quoting Carson v. American Brands, Inc., 450 U.S. 79, 84, 101 S.Ct. 993, 996, 67 L.Ed.2d 59 (1981)). In Swenson v. Management Recruiters Int'l, Inc., 872 F.2d 264 (8th Cir.), cert. denied, --- U.S. ----, 110 S.Ct. 143, 107 L.Ed.2d 102 (1989), we explained that in order to meet this standard, the moving party must demonstrate that the order from which it appeals (1) will have serious, irreparable consequences; and (2) can only be effectively challenged on immediate appeal. Id. at 266 (citing Carson v. American Brands, Inc., 450 U.S. at 84, 101 S.Ct. at 996).

The Fourth Circuit in Kansas Gas & Elec. Co. v. Westinghouse Elec. Corp., 861 F.2d 420 (4th Cir.1988), was presented with the issue we face today. The appellants appealed the district court's denial of their motion to compel arbitration. The court held the district court's order to be an appealable interlocutory order under 28 U.S.C. Sec. 1292(a)(1). Kansas Gas & Elec. Co. v. Westinghouse Elec. Corp., 861 F.2d at 422. In so holding, the court relied upon the Supreme Court's above-quoted dicta in Gulfstream. The court held that:

[o]rders denying arbitration do have an injunctive effect and have 'serious, perhaps irreparable, consequence.' The order is injunctive because it enjoins proceedings in another tribunal. It has serious consequences because of the 'irreparable harm that exists when arbitration is denied ab initio....' If a party 'must undergo the expense and delay of trial before being able to appeal, the advantages of arbitration--speed and economy--are lost forever.'

Id. (citations omitted); see Abernathy v. Southern California Edison, 885 F.2d 525, 527-28 & n. 9 (9th Cir.1989) (no jurisdiction to entertain appeals from orders staying proceedings pending arbitration and compelling arbitration; holding strictly limited to grant of a stay pending arbitration, not denial; noted rule of law in Fourth Circuit enunciated in Kansas Gas & Elec. Co. v. Westinghouse Elec. Corp.). We find the Fourth Circuit's reasoning to be persuasive.

This court has jurisdiction under Sec. 1292(a)(1) over the district court's denial of NS's motion to compel arbitration. This order, like the order at issue in Kansas Gas & Elec. Co. v. Westinghouse Elec. Corp., has an injunctive effect, and carries with it the serious, perhaps irreparable consequences identified by the Fourth Circuit. Because of these consequences, we find that a denial of a motion to compel arbitration can only be effectively challenged on immediate appeal because the advantages of arbitration will be forever lost if the appeal is delayed. Therefore, we have jurisdiction over the court's denial of NS's motion to compel arbitration pursuant to Sec. 1292(a)(1). ² See Swenson v. Management Recruiters Int'l, Inc., 872 F.2d at 266.

NS also appeals the district court orders enjoining it from proceeding with arbitration. The fact that the April 18 order enjoining arbitration was titled as a temporary restraining order does not affect our ability to entertain jurisdiction under 28 U.S.C. Sec. 1292(a)(1). If the order is in substance a preliminary injunction rather than a temporary restraining order, it is appealable under Sec. 1292(a)(1). Quinn v. Missouri, 839 F.2d 425, 426 (8th Cir.1988) (subsequent history omitted) (per curiam); Edudata Corp. v. Scientific Computers, Inc., 746 F.2d 429, 430 (8th Cir.1984) (per...