Societe Generale De Surveillance, S.A. v. Raytheon European Management and Systems Co.

• Decision Date: 25 February 1981
• Docket Number: No. 80-1517,80-1517
• Citation: 643 F.2d 863
• Parties: SOCIETE GENERALE de SURVEILLANCE, S.A., Plaintiff, Appellee, v. RAYTHEON EUROPEAN MANAGEMENT AND SYSTEMS COMPANY, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 863

643 F.2d 863

SOCIETE GENERALE de SURVEILLANCE, S.A., Plaintiff, Appellee, v. RAYTHEON EUROPEAN MANAGEMENT AND SYSTEMS COMPANY, Defendant,

Appellant.

No. 80-1517.

United States Court of Appeals, First Circuit.

Argued Jan. 5, 1981.

Decided Feb. 25, 1981.

Howard E. Hensleigh, Bedford, Mass., for defendant-appellant.

Laurence M. Johnson, Boston, Mass., with whom Robert W. Meserve, Andrea L. Davis and Palmer & Dodge, Boston, Mass., were on brief, for plaintiff-appellee.

Before COFFIN, Chief Judge, MARKEY, ^* Judge, and BREYER, Circuit Judge.

BREYER, Circuit Judge.

This case involves a disagreement between Raytheon Management Systems ("REMSCO") and Societe Generale de Surveillance ("SGS") about whether, or where, they must arbitrate a dispute arising under a contract between them for the testing of Hawk missiles. REMSCO sought to arbitrate the dispute before the American Arbitration Association in Boston. SGS then brought a diversity action in the United States District Court in Massachusetts seeking an order under Massachusetts General Laws, ch. 251, §§ 2, 15, ¹ restraining REMSCO from proceeding with that arbitration. The district court granted the temporary restraining order that SGS sought and several months later denied REMSCO's motion to modify or to vacate its order. REMSCO appeals.

This court has jurisdiction under 28 U.S.C. § 1292(a)(1), which provides for appeals of "orders ... granting, continuing, ... or refusing to dissolve or modify injunctions ...." ² We affirm the decision of the district court and remand the case for possible further proceedings consistent with this opinion.

I.

On July 10, 1975, REMSCO, a Massachusetts firm, and SGS, a French company, entered into a sub-contract under which SGS agreed to provide transportation, and other related services, for NATO Hawk missiles. This sub-contract (which we shall call the Basic Contract) was written on a two page Raytheon Purchase Order Form, to which were attached fifteen typewritten pages of provisions and fifty other pages of typed and printed exhibits and addenda. The Purchase Order is numbered 11.1108.02.0144. The typed statements on the form state the basic subject matter ("transportation and ... other services"), refer the reader to the attached sixty-five pages for the terms of the contract, delete the printed conditions on the back of the form, ³ and state that the number of the Purchase Order (11.1108.02.0144) "shall be used in all references and correspondence regarding to this agreement". The subsequent sixty-five pages set forth a series of Articles spelling out the nature of the work, and provided for price ceilings, credit, security measures, insurance, audits, communication, disputes, and other basic matters. Article 16 provides that the Basic Contract will be "construed and interpreted in accordance with the law of the Republic of France". Article 17.2 provides that "all disputes ... arising in connection with" the Basic Contract "shall be finally settled by arbitration" under the rules of the International Chamber of Commerce in Lausanne, Switzerland. The Basic Contract further provides that any future changes must be in writing.

Over the next few years, the parties entered into a series of "change orders". Typically, the change order would be written on a Raytheon Purchase Order Form. In the upper left of the form, under the printed words "purchase order number" the typed Basic Contract number (11.1108.02.0144) would appear. In a box next to it titled "c. o. number" the typed number of the change order would appear. At the bottom of the page, among other printed statements, the printed words "ship subject to the terms and conditions on the face and back hereof" appeared. Apparently often, or at least sometimes, this latter printed instruction was expressly countermanded by a typed statement. For example, Change Order No. Six, entered into on December 16, 1976, has the typed statement on its face that "this change ... does not change the Terms and Conditions." Thus, even though Change Order No. Six, and subsequent change orders were written on a new Raytheon form one with printed terms on the back providing for arbitration in Massachusetts the terms of the Basic Contract, not the printed terms on the back of the form, appeared to govern.

In December 1976 the parties signed a Memorandum of Understanding which set forth certain changes in the work provided by the Basic Contract, particularly with respect to management services, the rate of exchange, and payment. The Memorandum states that the subject matter "will form the basis of a firm definitive contract" to be executed before January 31, 1977. That memorandum was attached to Change Order No. 7. That change order has the number of the Basic Contract (11.1108.02.0144) typed in the upper left hand corner; it has "7" typed under the printed legend "c. o. number"; it has the same printed terms on the face and back as No. 6; but the typing on the front simply refers to the Memorandum of Understanding and does not say that other terms and conditions remain the same.

On June 12, 1977, the parties agreed to Change Order No. 8. That change order also has the same Basic Contract number in the upper left hand corner; it has the number "8" typed under the printed legend "c. o. number"; it has the same printed terms on the face and back as No. 6. It provides, however, not for the transportation of missiles but for their field testing, inspection and evaluation. And, like order No. 6, but unlike order No. 7, it has the typed statement on its face: "All other terms and conditions set forth in this contract remain unchanged."

Subsequently, a dispute arose in which REMSCO claimed that SGS was negligent in its performance under Change Order No. 8. After informal efforts to resolve the dispute failed, REMSCO sought arbitration in Switzerland under Article 17.2 of the Basic Contract. SGS opposed this arbitration, however, arguing in a letter to REMSCO that the testing and other services called for by Change Order No. 8 were different from the transportation and other services described in the Basic Contract to the point where the arbitration clause of the Basic Contract did not apply. REMSCO then sought arbitration in Boston, presumably on the theory that if Article 17.2 of the Basic Contract did not apply, then the printed arbitration clause on the back of Change Order No. 8 must apply. SGS responded by bringing this action in the district court under Massachusetts law seeking to enjoin the Boston arbitration. Judge McNaught entered a temporary restraining order enjoining the Boston arbitration on December 4, 1979. He found that SGS would probably succeed on the merits of its action. He wrote that it is "logical ... to claim that, if arbitration is to be held at all, it must be held in these circumstances under Article 17.2 of the original contract. It is not inconsistent to urge further that, by reason of the nature of the services called for by the change order, no arbitration is required should a dispute arise."

On December 17, 1979, REMSCO filed a motion to dissolve the temporary restraining order or in the alternative to "condition any ... injunction ... upon SGS's participation in ... arbitration in Lausanne Switzerland" in accordance with the Basic Contract. Judge McNaught denied this motion in July 1980. In September 1980 REMSCO renewed its motion, specifically requesting the court to "dissolve the temporary restraining order and compel arbitration in either Boston, Massachusetts, or Lausanne, Switzerland." This motion was denied on September 16, 1980. At the same time REMSCO filed with the International Chamber of Commerce a demand for arbitration in Switzerland. SGS filed a response in which it denied that the arbitration clause in the original contract applied to the present controversy but apparently was prepared to allow the arbitration to proceed, reserving the right to argue that Article 17 of the Basic Contract does not apply. Thus, at the present time Judge McNaught's restraining order, preventing arbitration before the American Arbitration Association in Boston remains in effect while some form of arbitration is proceeding (with reservations) in Switzerland.

II.

In appealing from Judge McNaught's refusal to dissolve or to modify the temporary restraining order, enjoining arbitration before the American Arbitration Association in Boston, REMSCO makes three basic arguments. First, it claims that the district court erred as a matter of law in issuing the temporary restraining order, for the Federal Arbitration Act, not Massachusetts state law, applies to this proceeding, and that Act does not grant the court the power to stay arbitration proceedings. Second, it claims that, beginning with Change Order No. 7, the parties created a new contract; thus the Basic Contract (and in particular Article 17) does not apply to Change Order No. 8; rather, the printed arbitration provision on the back of Change Order No. 8 applies. Third, in any event, if the Basic Contract applies, the district court should have ordered arbitration in Switzerland under Article 17. We shall consider each of these arguments in turn.

A.

We agree with REMSCO that the Federal Arbitration Act applies to this dispute. The Act applies to a

"written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ...." 9 U.S.C. § 2.

There is a strong judicial policy favoring the submission of contractual disputes to arbitration particularly under the provisions of the Federal Arbitration Act, which embodies the agreements reached in an international convention on arbitration. ⁴ Scherk v. Alberto-Culver Co., 417 U.S. 506, 510-520, 94 S.Ct. 2449, 2452-2457, 41 L.Ed.2d 270 (1974). Thus, the courts have held that the term "commerce" in this provision of the Act refers to interstate or foreign...