Stedor Enterprises, Ltd. v. Armtex, Inc., 91-1705

CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)
Citation947 F.2d 727
Docket NumberNo. 91-1705,91-1705
PartiesSTEDOR ENTERPRISES, LIMITED, Plaintiff-Appellant, v. ARMTEX, INCORPORATED, Defendant-Appellee.
Decision Date18 October 1991

William Ashley Jordan, Jr., Jordan & Jordan, Greenville, S.C., argued (Patricia A. Jordan, Herman E. Cox, on brief), for plaintiff-appellant.

Robert Joseph Clerkin, Hahn & Hessen, New York City, argued (John G. Creech, Andreas N. Satterfield, Jr., Haynsworth, Baldwin, Johnson & Greaves, P.A., Greenville, S.C., on brief), for defendant-appellee.

Before WILKINSON, WILKINS, and NIEMEYER, Circuit Judges.

OPINION

WILKINSON, Circuit Judge:

This case presents a question of appellate jurisdiction that is of practical importance to the functioning and effectiveness of the 1988 amendment to the Federal Arbitration Act, 9 U.S.C. § 1 et seq., which is now codified at 9 U.S.C. § 16. The case involves an appeal from a district court order compelling arbitration in an action in which the arbitrability of the dispute was the only issue before the district court. The questions presented are whether we have jurisdiction to hear this appeal and, if we do, whether the district court correctly compelled arbitration. Despite the strong congressional policy against appeals that delay the onset of arbitration, we conclude that we are bound by the statutory language and legislative history of section 16 to entertain this appeal. On the merits, we affirm the district court's order compelling arbitration.

I.

Both parties in this case are experienced businesses in the textile industry. Appellee Armtex, Inc., is a North Carolina textile mill that sells knitted fabrics to the garment industry across the country. Appellant Stedor Enterprises, Ltd., is a South Carolina corporation and a textile manufacturer.

Because the case comes to us on summary judgment for Armtex, we shall take the inferences in the light most favorable to Stedor. From May to September of 1989 Stedor placed by telephone at least four purchase orders with Armtex for significant quantities of fabric. The parties did not negotiate about any subjects except price, quantity, and the date of delivery. Although Stedor never sent to Armtex any written purchase orders or sales contracts for those transactions, Armtex sent Stedor prior to each shipment a written sales contract that confirmed Armtex's order and the sale. Each contract presented the details of the order on the face of the form. Near the top the form reads: "We confirm the following sale: Subject to terms and conditions stated below and on reverse side hereof." At the bottom is the following:

"IMPORTANT: This confirmation is given subject to all the terms and conditions on the face and reverse sides hereof, including the provisions for Arbitration and exclusion of warranties, all of which are accepted by Buyer, supersedes Buyer's order form, if any, and constitutes the entire contract between Buyer and Seller. This confirmation shall become a contract for the entire quantity specified either (a) when signed and returned by Buyer and accepted by Seller, or (b) when Buyer receives and retains this confirmation without written objection for ten (10) days, or (c) when Buyer accepts delivery of all or any part of the goods hereunder, or (d) when Buyer has given to Seller specifications or assortments, delivery dates, shipping instructions or instructions to bill and hold, or (e) when Buyer has otherwise assented to the terms and conditions hereof."

On the back of each form is a detailed arbitration clause providing that "[a]ny controversy or claim arising under or in relation to this order or contract, or any modification thereof, shall be settled by arbitration." The clause provides that arbitration shall be held before three arbitrators of either the American Arbitration Association or the General Arbitration Council of the Textile and Apparel Industries and is governed by the laws of the state of New York. Although each form states on the front, "PLEASE SIGN AND RETURN COPY TO THE ABOVE PILOT MOUNTAIN ADDRESS," Stedor failed to sign or return any of the forms, and never discussed the arbitration clause with Armtex.

This action arises from the sale by Armtex of certain textile piece goods, at a price of approximately $129,166.60, that were shipped to Stedor in September 1989. Stedor has refused to pay for the fabric because it claims that it was of poor quality and too light in weight for the clothing it intended to make. Stedor has not, however, returned the fabric to Armtex.

On May 15, 1990, Armtex served on Stedor a notice of intention to arbitrate and a demand for arbitration. Stedor responded on June 5 by seeking temporary and permanent injunctions against arbitration in South Carolina state court. After removing the action to the federal district court for the District of South Carolina, Armtex filed an answer opposing issuance of the injunctions and sought an order compelling arbitration under 9 U.S.C. § 4. Armtex did not seek damages for breach of contract or any other legal or equitable relief against Stedor. Upon Armtex's motion for summary judgment, the district court dismissed Stedor's complaint and ordered the parties to proceed with arbitration in South Carolina.

Stedor appealed from this order. Prior to oral argument, Armtex moved to dismiss the appeal for want of appellate jurisdiction. We deferred decision on this motion until oral argument and now address Armtex's jurisdictional claims.

II.

A brief review of the background of the appealability of district court orders with respect to arbitration is appropriate. The rules governing the appealability of orders denying or granting motions to compel arbitration have always been somewhat intricate. Before the adoption of section 16, whether an order granting or denying a motion to compel arbitration was appealable depended on whether it was a final decision under 28 U.S.C. § 1291. Whether the order was final depended in turn on whether the sole object of the suit was to determine arbitrability. See generally 15 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3914.34, at 413-15 (Supp.1990). If the order was issued in an independent action in which the only issue before the court was the dispute's arbitrability, the order was considered final because it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 633-34, 89 L.Ed. 911 (1945). See, e.g., Americana Fabrics, Inc. v. L & L Textiles, Inc., 754 F.2d 1524, 1528 (9th Cir.1985); County of Durham v. Richards & Assocs., Inc., 742 F.2d 811, 812-14 (4th Cir.1984); Tradax Ltd. v. M.V. Holendrecht, 550 F.2d 1337, 1339 (2d Cir.1977). In contrast, if other relief was sought in the action in which the order was issued--i.e., the arbitrability question was "embedded" in a broader action such as one seeking damages based on the underlying contractual dispute--then courts held that the order was interlocutory and hence nonappealable. 1 See, e.g., Construction Laborers Pension Trust v. Cen-Vi-Ro Concrete Pipe & Prods. Co., 776 F.2d 1416, 1420 n. 5 (9th Cir.1985); Wilson Wear, Inc. v. United Merchants & Mfrs., Inc., 713 F.2d 324, 326 (7th Cir.1983); Langley v. Colonial Leasing Co., 707 F.2d 1, 3-5 (1st Cir.1983). In neither instance did the appealability of the district court order depend on whether the challenged order favored arbitration or litigation.

This body of law was substantially altered in 1988 when Congress adopted 9 U.S.C. § 16, an amendment to the Federal Arbitration Act that governs appeals from district court orders in cases involving arbitration. 2 See Judicial Improvements and Access to Justice Act, Pub.L. No. 100-702, Title X, § 1019(a), 102 Stat. 4642, 4671 (1988). The broad purpose of section 16 was to implement Congress' "deliberate determination that appeal rules should reflect a strong policy favoring arbitration." 15 C. Wright, A. Miller & E. Cooper, supra, § 3914.34, at 412. Congress sought to effectuate this policy in two ways. First, an order that favors litigation over arbitration--whether it refuses to stay the litigation in deference to arbitration; refuses to compel arbitration; denies confirmation to or modifies, corrects, or vacates an arbitral award; or grants, continues, or modifies an injunction against arbitration--is immediately appealable, even if interlocutory in nature. See 9 U.S.C. § 16(a)(1) and (2). Thus, a party who believes that arbitration is required by an agreement between the parties need not suffer the expense and inconvenience of litigation before receiving appellate review of a district court judgment that arbitration was inappropriate.

Second, Congress sought to prevent parties from frustrating arbitration through lengthy preliminary appeals by providing that, "if the district court ... determine[s] that arbitration is called for, the court system's interference with the arbitral process will terminate then and there, leaving the arbitration free to go forward. To accomplish this, § 16 provides in general that there may be no appeal from the proarbitration determination until after the arbitration has gone forward to a final award." Siegel, Practice Commentary, 9 U.S.C.A. at p. 219, 219 (West Supp.1991). This decision reflects a congressional judgment that "[d]enial of appeal when arbitration is given precedence should not often be costly: district courts usually will be correct, and the arbitration process is apt to produce considerable savings in the process of preparing for trial if the dispute is ultimately found nonarbitrable." 134 Cong.Rec. S16,309 (daily ed. Oct. 14, 1988) (section-by-section analysis of S. 1482).

III.

There is, however, an exception to the non-appealability of orders favoring arbitration: section 16(a)(3) permits an appeal from "a final decision with respect to an...

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