Power Replacements, Inc. v. Air Preheater Co.

• Decision Date: 06 May 1970
• Docket Number: No. 23312.,23312.
• Parties: POWER REPLACEMENTS, INC., and Max Wheeler, Plaintiffs-Appellants, v. AIR PREHEATER CO., Inc. and Combustion Engineering, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

426 F.2d 980 (1970)

POWER REPLACEMENTS, INC., and Max Wheeler, Plaintiffs-Appellants, v. AIR PREHEATER CO., Inc. and Combustion Engineering, Inc., Defendants-Appellees.

No. 23312.

United States Court of Appeals, Ninth Circuit.

May 6, 1970.

O. R. Rouse (argued), of Rouse & Hamilton, Palos Verdes Estates, Cal., for appellants.

Charles C. Parlin, Jr. (argued), of Latham & Watkins, Los Angeles, Cal., Richard H. Troy, of Shearman & Sterling, New York City, for appellees.

Before ELY and CARTER, Circuit Judges, and JAMESON^*, District Judge.

JAMESON, District Judge:

This is an appeal from an order denying motions of plaintiffs-appellants for a preliminary injunction and abatement of arbitration proceedings and granting a motion of defendants-appellees for a stay pending completion of the arbitration proceedings. Two questions are presented: (1) whether the order is appealable under 28 U.S.C. § 1292(a) (1); and (2) whether an agreement to arbitrate claims arising out of violations of the antitrust laws of the United States may be enforced.

Prior to 1962 appellee Air Preheater Co., Inc., was the sole manufacturer of an air preheater replacement element used by private industry and private and public utility companies. In 1962 appellant Power Replacements, Inc., was organized in California and began manufacturing and selling the element in competition with Air Preheater.

In April, 1965, Power Replacements filed a private antitrust action against Air Preheater and its parent company, Combustion Engineering, Inc., in the United States District Court for the Southern District of California. The complaint alleged that defendants had violated the federal antitrust laws and engaged in unfair competition through discriminatory predatory pricing activities directed toward eliminating Power Replacements as a competitor.

On August 2, 1965, Power Replacements, Inc. and Max Wheeler, its president and majority stockholder, executed a settlement agreement with Air Preheater and Combustion. Pertinent provisions of the agreement read:

"WHEREAS, all parties to this Agreement wish to settle their existing disputes and to agree upon an expeditious method of resolving any similar disputes between them arising during the next two years; * * *."

"* * *

"8. Power Replacement agrees that it, or any of its agents, will not:

(a) Solicit directly any employee of Air Preheater for the purpose of persuading the employee to become an employee of Power Replacement or any business enterprise affiliated with Power Replacement; or

(b) Engage in any practice in the course of competing with Air Preheater which would violate any Federal or State antitrust law; or

(c) Engage in any practice in the course of competing with Air Preheater which would constitute unfair competition or trade libel under the law of either California or New York.

"9. Air Preheater agrees that it, or any of its agents, will not:

(a) Solicit directly any employee of Power Replacement for the purpose of persuading said employee to become an employee of Air Preheater or any business enterprise affiliated with Air Preheater; or

(b) Engage in any practice in the course of competing with Power Replacement which would violate any Federal or State antitrust law; or

(c) Engage in any practice in the course of competing with Power Replacement which would constitute unfair competition or trade libel under the law of either California or New York.

"10. Any Claim that there has been a violation of Paragraphs 8 or 9 of this Agreement on or before August 2, 1967, shall be settled by arbitration before a single Arbitrator in accordance with the Commercial Arcan Arbitration Association, and judgment upon the award rendered by the Arbitrator may be entered in any Court having jurisdiction.

"11. Any such arbitration shall be held in either Los Angeles, California, or New York, New York, at the election of the party upon whom the demand for arbitration is made.

"12. The amount of the award in any arbitration hereunder shall be limited to the actual damages sustained by the party demanding arbitration. The recovery prescribed by Section 4 of the Clayton Act (15 U.S.C.A., Section 15) or any comparable State Statute shall not apply.

"13. In any arbitration under this Agreement, neither expenses nor counsel fees shall be included in any award. The Arbitrator shall, however, direct that all administrative fees be borne by the losing party to the arbitration."

During the year 1966 Power Replacements Corporation, a Pennsylvania corporation, was organized by Wheeler for the purpose of manufacturing and selling the element in competition with appellees in the eastern part of the United States. On October 9, 1967, Power Replacements Corporation filed an action in the United States District Court for the Eastern District of Pennsylvania alleging that Air Preheater and Combustion had engaged in a course of conduct violative of the antitrust laws. On November 24, 1967, Air Preheater and Combustion submitted to appellant Power Replacements Inc., a demand for arbitration. Pursuant to this demand, arbitration proceedings were instituted through the American Arbitration Association. On December 8, 1967, motions to stay proceedings in Pennsylvania pending arbitration and to compel arbitration were denied.¹

On January 17, 1968, appellants filed this action in the Superior Court of the State of California for the County of Los Angeles, seeking rescission of the agreement of August 2, 1965, damages, and injunctive relief. Appellees removed the action to the United States District Court for the Central District of California. Without conceding that the American Arbitration Association had jurisdiction, Power Replacements Inc. elected to have the arbitration proceedings transferred to the Los Angeles office of the American Arbitration Association.

Appellants filed a motion for a temporary restraining order and preliminary injunction. A temporary restraining order was granted on April 18, 1968. Appellants also filed a motion for abatement of the arbitration proceedings, and appellees filed a counter motion to abate the proceedings in the district court and compel arbitration. On April 24, 1968, appellants filed an amended complaint which added a cause of action seeking to have paragraphs 10, 11, 12 and 13 of the agreement, quoted supra, declared illegal and unenforceable. The district court entered an order granting defendants-appellees' motion for a stay pending arbitration and denying plaintiffs-appellants' motions for a preliminary injunction and abatement of the arbitration proceedings.

Appellees contend that this order was not appealable. 28 U.S.C. § 1292(a) (1) gives a court of appeals jurisdiction of appeals from: "(1) Interlocutory orders of the district courts of the United States * * * granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions * * *".

In A. & E. Plastik Pak Co. v. Monsanto Company, 1968, 396 F.2d 710, 713, this court held appealable an order denying a temporary injunction seeking to abate arbitration. After noting that the denial was not just a stay granted through exercise of the court's inherent power to control its own proceedings, we said:

"* * * Here the court was asked (and declined) affirmatively to interfere with proceedings in another forum; to exercise its equity powers to halt action of its litigants outside of its own court proceedings — the classic form of injunction. That arbitration is not a mere extension of court proceedings but involves a separate tribunal seems clear from Bernhardt v. Polygraphic Co. of America, 350 U.S. 198, 202-203, 76 S.Ct. 273, 100 L.Ed. 199 (1956)."²

It was noted in footnote 2 that if instead of declining to "stay" arbitration, the district court had chosen to "order its own proceedings stayed pending arbitration, the stay order would have been deemed an injunction and appealable", citing American Safety Equipment Corp. v. J. P. Maguire & Co., 2 Cir. 1968, 391 F.2d 821.

Both A. & E. Plastik Pak and American Safety involved the validity of agreements providing for arbitration of claims arising under the antitrust laws of the United States. The same is true here. The order in this case (1) granted a stay of the court's own proceedings pending arbitration; (2) denied abatement of the arbitration proceedings; and (3) denied a temporary injunction. The order was appealable.³

Is the agreement to arbitrate valid and enforceable? This question is answered in the negative by our decision in A. & E. Plastik Pak Co. v. Monsanto Company, supra,⁴ and the two cases there cited, American Safety Equipment Corp. v. J. P. Maguire & Co., supra, and Aimcee Wholesale Corporation v. Tomar Products, Inc., 1968, 21 N.Y.2d 621, 289 N.Y. S.2d 968, 237 N.E.2d 223 (holding state antitrust claims not arbitrable).

In A. & E. Plastik Pak we recognized that, "Where the validity of a contract is challenged upon the ground of fraud, the issue of fraud is a proper subject of arbitration;"⁵ but held that "whether a contract is valid under the federal antitrust laws is not an arbitrable issue." 396 F.2d at 715, 716. A. & E. Plastik Pak involved other issues, which we held arbitrable, but with respect to the antitrust claim we said:

"The

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