Six Clinics Holding Corp., II v. Cafcomp Systems, Inc.

• Decision Date: 12 June 1997
• Docket Number: No. 95-1560,95-1560
• Citation: 119 F.3d 393
• Parties: SIX CLINICS HOLDING CORPORATION, II, Plaintiff-Appellee, v. CAFCOMP SYSTEMS, INC., a Michigan corporation, and Ayana L. Reaves, Independent Personal Representative of the Estate of Lenza D. Reaves, Jr., deceased, Jointly and Severally, Defendants- Appellants. . Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 393

119 F.3d 393

SIX CLINICS HOLDING CORPORATION, II, Plaintiff-Appellee, v. CAFCOMP SYSTEMS, INC., a Michigan corporation, and Ayana L.

Reaves, Independent Personal Representative of the

Estate of Lenza D. Reaves, Jr.,

deceased, Jointly and

Severally,

Defendants-

Appellants.

No. 95-1560.

United States Court of Appeals, Sixth Circuit.

Argued: June 12, 1997.

Decided: July 17, 1997.

Maureen A. Darmanin (briefed), Clark, Klein & Beaumont, Detroit, MI, J. Walker Henry (argued and briefed), Michael F. Smith (briefed), Clark, Hill, Detroit, MI, for Plaintiff-Appellee.

Drake D. Hill (briefed), Robert C. Zack (argued), Bassey & Selesko, Southfield, MI, for Defendants-Appellants.

Before: KENNEDY, SILER, and MOORE, Circuit Judges.

OPINION

KENNEDY, Circuit Judge.

This case comes to us upon interlocutory appeal of the District Court's order granting plaintiff's motion for a preliminary injunction staying arbitration proceedings between the parties. We are asked to decide (1) whether the District Court lacked jurisdiction to grant the injunction under the Anti-Injunction Act, 28 U.S.C. § 2283, and (2) whether the issuance of the preliminary injunction was proper. For the following reasons, we AFFIRM.

I. Facts

A. Background

Defendant, Cafcomp, Inc. (Cafcomp), is an employee benefits administration company that provides comprehensive cafeteria plan services, including plan design and plan administration. A cafeteria plan permits employees to set aside pre-tax dollars to purchase certain "qualified benefits." See 26 U.S.C. § 125(d), (f). Lenza D. Reaves, Jr. ("Reaves"), who is now deceased, was the chief executive officer and president of Cafcomp.

Six Clinics Holding Corporation II ("Six Clinics"), a Michigan corporation almost wholly owned by the City of Detroit General Retirement System, provides physical and occupational therapy services and operates several Detroit area facilities. In 1992, Six Clinics, then known as American Rehabilitation Network ("ARN"), became interested in instituting a cafeteria plan for its employees and, on the recommendation of its insurance agent, it contacted Cafcomp. ¹ In August 1992, Reaves met with officers to describe the services Cafcomp could offer their company. According to ARN, Reaves recommended either their "Salary Reduction Full Cafeteria Plan," or their "Pay+PLUS TM Plan." ARN decided to establish a Pay+PLUS TM Plan for its employees.

On October 9, 1992, ARN and Cafcomp entered into the "Cafcomp Systems, Inc. Pay+PLUS TM Administrative Services Agreement." The contract detailed the services Cafcomp would provide in connection with the "American Rehabilitation Network, Inc. Pay+PLUS Plan" (Plan). The agreement established an initial term of two years and contained an arbitration clause providing that "[a]ny controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration." Joint Appendix at 13. The Plan began operation on January 1, 1993.

B. Arbitration

In the early fall of 1993, ARN expressed concerns to Cafcomp regarding the legality of the Plan. Then, by letter dated November 22, 1993, ARN notified Cafcomp that it was terminating the administrative services agreement. On March 3, 1994, Cafcomp filed a demand for arbitration with the American Arbitration Association (AAA), alleging improper termination by ARN of the agreement. The action sought damages in excess of $250,000 for breach of contract and other state law claims.

On September 6, 1994, ARN filed an arbitration counterclaim alleging various violations of Cafcomp's fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461. ARN apparently planned to argue to the arbitration panel that Cafcomp's operation of the plan had been in violation of the Internal Revenue Code ² and that Cafcomp had violated its fiduciary duties under ERISA; therefore, as a plan fiduciary, ARN had to terminate the administrative services agreement in order to comply with its own fiduciary duties. ARN intended to make this argument both in the form of a defense to Cafcomp's breach of contract claim and in the form of the asserted counterclaim.

On January 19, 1995, Cafcomp filed a motion for summary disposition, seeking dismissal of both the ERISA counterclaims and defenses. Cafcomp argued that the arbitration panel lacked subject matter jurisdiction to hear the ERISA claims because, under 29 U.S.C. § 1132(e)(1), the federal courts have exclusive jurisdiction of the sort of claims alleged by ARN. In response, ARN began this action in federal court by filing a complaint on February 1, 1995, alleging that Cafcomp and Reaves ³ had violated their fiduciary duties under ERISA. Additionally, ARN asked the arbitrators to stay the arbitration until resolution of the federal suit.

On February 6, 1995, the arbitration panel dismissed the ERISA counterclaims, finding that it did not have jurisdiction to consider them. The panel also refused ARN's request to stay the arbitration. It appears from the record that the arbitration panel never issued a written order excluding the ERISA matters from the arbitration. Proposed orders submitted by the parties to the AAA demonstrate that the parties disagreed about the scope of the arbitration panel's ruling: Cafcomp's proposed order provided that the ERISA counterclaims and defenses would be excluded from the arbitration, while ARN's proposed order provided that only the counterclaims would be excluded. Despite correspondence to the arbitration panel regarding this dispute, the record does not indicate whether the panel ever resolved the matter. However, after making its rulings, the arbitration panel heard four days of testimony and scheduled the arbitration to resume in early May 1995.

C. Federal Litigation

On April 11, 1995, ARN filed an action in the District Court seeking a stay of the arbitration proceedings pending resolution of the federal lawsuit. In the alternative, ARN requested that the Court order the arbitration proceeding to remain open prior to an entry of an arbitration award.

On May 1, 1995, the District Court heard oral argument on ARN's motion for a preliminary injunction. The court found that it had jurisdiction to enjoin the arbitration, because the arbitration was not a state court proceeding within the meaning of the Anti-Injunction Act, or, in the alternative, because ERISA expressly authorized an injunction. The court then decided to grant a preliminary injunction. While noting that it did not have to make a final ruling as to Cafcomp's fiduciary status, the District Court found that Cafcomp was a fiduciary. ⁴ In doing so, it relied primarily on statements found in the Summary Plan Description and Cafcomp's promotional materials. The District Court concluded that "the Court finds the movant is likely to prevail on the issue of ERISA claims in federal court, there would be irreparable injury to proceedings in the ... arbitration proceedings; that there would be harm to public interest. As the ERISA law states, ERISA matters should be dealt with in the federal court." Joint Appendix at 393.

On May 10, 1995, the District Court issued an order granting ARN's motion for a preliminary injunction "for the reasons stated on the Court record" and ordered that "the extrajudicial proceedings be stayed until a final determination by this Court on Plaintiff's ERISA claims against Defendants." This timely appeal followed. We have jurisdiction to review the District Court's interlocutory order pursuant to 28 U.S.C. § 1292(a)(1).

II. Discussion

A. Anti-Injunction Act

Cafcomp argues that the District Court lacked the authority to stay the arbitration proceeding, because the Anti-Injunction Act (Act) prohibited such an action. The Anti-Injunction Act provides:

A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.

28 U.S.C. § 2283. The jurisdiction of the federal courts and the availability of injunctive relief under the Anti-Injunction Act are questions of law subject to de novo review. See Gafford v. General Elec. Co., 997 F.2d 150, 155 (6th Cir.1993).

The Supreme Court has explained that in the Anti-Injunction Act, "[l]egislative policy is here expressed in a clear-cut prohibition qualified only by specifically defined exceptions." Amalgamated Clothing Workers v. Richman Bros., 348 U.S. 511, 516, 75 S.Ct. 452, 455, 99 L.Ed. 600 (1955). In addition to the Act's express exceptions, however, courts have recognized that the Act applies only to certain "proceedings in a State court." Thus, we have held that the Act does not apply to state administrative proceedings. See American Motors Sales Corp. v. Runke, 708 F.2d 202, 204 (6th Cir.1983). The Supreme Court has held that the Act forbids the use of a federal injunction "to stay litigation in a state court" or, in other words, to interfere with the decision of a legal controversy in a state court. See Roudebush v. Hartke, 405 U.S. 15, 20, 92 S.Ct. 804, 808, 31 L.Ed.2d 1 (1972). In Roudebush, the plaintiff asked a federal court to enjoin a recount of an election for the United States Senate. The recount had been ordered by an Indiana state court. The Supreme Court held that the state court order was not the kind of state proceeding to which the Act applied. The Court explained that a nonenjoinable "proceeding" under the Act is that which involves the performance of a "judicial inquiry." See id. at 20-21, 92 S.Ct. at 808-09. "A judicial inquiry investigates, declares and enforces liabilities as they stand on present or past facts and under laws supposed already to exist." Id. at 21, 92 S.Ct. at 809 (quoting Prentis v. Atlantic Coast Line Co., 211 U.S. 210, 226, 29 S.Ct. 67, 69, 53 L.Ed. 150 (1908)). Since the duty of the state court in ordering the recount...