Sutter Corp. v. P & P Industries, Inc.

• Decision Date: 27 October 1997
• Docket Number: 96-11463,Nos. 96-11088,s. 96-11088
• Parties: SUTTER CORPORATION, a California corporation, Plaintiff-Appellee, v. P & P INDUSTRIES, INC., an Oklahoma corporation; James Patton, an individual; and Paul Patredis, an individual, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 914

125 F.3d 914

SUTTER CORPORATION, a California corporation, Plaintiff-Appellee, v. P & P INDUSTRIES, INC., an Oklahoma corporation; James Patton, an individual; and Paul Patredis, an individual, Defendants-Appellants.

Nos. 96-11088, 96-11463.

United States Court of Appeals Fifth Circuit.

Oct. 27, 1997.

Edward J. McIntyre, San Diego, CA, for Plaintiff-Appellee.

Stephen G. Solomon, Derryberry, Quigley, Solomon, Blankenship & Naifeh, Oklahoma City, OK, for Defendants-Appellants.

Appeals from the United States District Court for the Northern District of Texas.

Before POLITZ, Chief Judge, and BENAVIDES and PARKER, Circuit Judges.

ROBERT M. PARKER, Circuit Judge:

I.

Facts & Procedural History

This case presents an opportunity to resolve several questions regarding the appropriate district court to confirm or vacate an arbitration award under the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 9 and 10. The appellee Sutter Corporation ("Sutter") manufactures post-operative rehabilitation devices. On March 1, 1993, P & P Industries, Inc. ("P & P"), formed by Paul Patredis and James Patton, entered into an exclusive Agency Agreement with Sutter, whereby P & P would represent (sell and rent) Sutter's products for a period of five years with the option to renew for two more five year periods. On August 14, 1995, Sutter unilaterally terminated its agreement with P & P and allegedly hired away all of P & P's sales staff. On that date Sutter delivered to P & P a demand for arbitration, filed with the American Arbitration Association ("AAA") in Dallas, Texas, on August 10, and a complaint to compel arbitration, filed in the Federal District Court for the Southern District of California on August 11, 1995. ¹

On August 17, 1995, P & P filed an action against Sutter in the Federal District Court for the Western District of Oklahoma, alleging that Sutter had materially breached the Agency Agreement ("contract claims") and had committed various tortious acts at the time of the breach ("tortious interference claims"). Sutter moved to stay the action in Oklahoma pending arbitration under § 3 of the Federal Arbitration Act ("FAA"). ² The contract between Sutter and P & P contained an arbitration clause which provided that:

[a]ny controversy, claim, or breach arising out of or relating to this Agreement which the parties are unable to resolve to their mutual satisfaction shall be resolved by arbitration before the American Arbitration Association, in the office of the Association nearest the principal place of business of AGENT ...

P & P admitted that its contract claims were arbitrable but argued that the tortious interference claims were not. The Oklahoma district court disagreed, stayed P & P's action and submitted the entire matter to arbitration. The Oklahoma district court's order staying P & P's action pending arbitration was interlocutory and was not immediately appealable under the FAA. 9 U.S.C. § 16. Left with no other choice, P & P agreed to arbitration under a reservation of the right to appeal the Oklahoma district court's determination of the arbitrable issues. Further, P & P refused to concede that the arbitration would be binding. ³

Nevertheless, P & P did participate fully in the arbitration in defense of the claims against it and in prosecution of its own counter-claims against Sutter. The arbitration was held in Dallas, Texas, and the arbitrator found against P & P on Sutter's claims against it and on its counter-claims against Sutter. ⁴ On April 4, 1996, Sutter informed the Oklahoma district court that the arbitration was complete. On that same day, P & P filed a motion to vacate the arbitration award, under FAA § 10 which states that:

the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration ... [w]here the arbitrators exceeded their powers ...

9 U.S.C. § 10. The alleged excess of the arbitrator was in ruling on matters which were not arbitrable under the parties' agreement, i.e., P & P's tortious interference claims. Essentially, this motion revived P & P's earlier motion before the Oklahoma district court to limit the scope of the arbitration. Sutter responded on the merits but also raised the possibility that the Oklahoma court might not be the proper court to decide the motion to vacate under § 10, because the Oklahoma district court was not the "United States court in and for the district wherein the award was made". 9 U.S.C. § 10.

On August 11, 1996, Sutter filed an action in the Federal District Court for the Northern District of Texas, Dallas Division, seeking confirmation of the arbitration award pursuant to FAA § 9, which states that, "[i]f no court is specified in the agreement of the parties, then such application [for confirmation] may be made to the United States court in and for the district within which such award was made." 9 U.S.C. § 9 (emphasis added). On May 6, 1996, P & P filed a motion in the Texas district court to dismiss the Texas action, transfer the action to Oklahoma or stay the Texas confirmation proceeding pending resolution by the Oklahoma district court of P & P's motion to vacate the arbitration award, based on the "first to file rule". Finally, on July 17, 1996, P & P filed an alternative motion under § 10 in the Texas district court to vacate the arbitration award, raising the same issues as its motion to vacate previously filed in Oklahoma.

On August 14, 1996, the Texas district court denied P & P's motion to dismiss, transfer or stay the confirmation proceeding, finding that under the language of § 9 and the cases in this Circuit construing that provision, the Northern District of Texas was the only court which could decide Sutter's motion to confirm. The Texas district court also denied P & P's motion to vacate the arbitration award, holding that P & P's non-arbitrability argument had already been addressed by the Oklahoma district court, and therefore, there was no need to revisit the issue. Finally, relying on this Court's decision in McKee v. Home Buyers Warranty Corp. II, 45 F.3d 981, 983 (5th Cir.1995), the Texas district court held that an agreement to submit to AAA arbitration implies concensus that the award will be deemed binding and subject to entry of judgment, unless the parties expressly agree otherwise. Therefore, the arbitration in this case was deemed binding.

P & P appeals raising the following issues:

1. Whether the Texas district court should have dismissed, transferred or stayed Sutter's confirmation action, pending resolution by the Oklahoma district court of the P & P motion to vacate the arbitration award, under the "first to file rule";

2. Whether the Texas district court should have refused to confirm the arbitration award, because the arbitration agreement did not provide for finality of any such award;

3. Whether the Texas district court, in the alternative, should have vacated the arbitration award under FAA § 10, because the tortious interference claims were not arbitrable.

II.

P & P's Motion to Dismiss, Transfer or Stay

A. Standard of Review

A district court's decision whether to grant a stay is ordinarily reviewed for abuse of discretion. Save Power Limited v. Syntek Finance Corp., 121 F.3d 947, 948 (5th Cir.1997). However, to the extent the district court's decision in this case rests on an interpretation of the law, the decision is reviewed de novo. Goldman v. Bosco, 120 F.3d 53, 54 (5th Cir.1997).

B. Law

The so-called "first to file rule" is a by-product of the well-established axiom that:

[t]he federal courts long have recognized that the principle of comity requires federal district courts--courts of coordinate jurisdiction and equal rank--to exercise care to avoid interference with each other's affairs. [citations omitted] ... The concern manifestly is to avoid the waste of duplication, to avoid rulings which may trench upon the authority of sister courts, and to avoid piecemeal resolution of issues that call for a uniform result. [citations omitted] ... To avoid these ills, a district court may dismiss an action where the issues presented can be resolved in an earlier-filed action pending in another district court.

West Gulf Maritime Ass'n v. ILA Deep Sea Local 24, 751 F.2d 721, 728-29 (5th Cir.1985). Therefore, typically if the Oklahoma and Texas cases "overlap on the substantive issues, the cases [should] be ... consolidated in ... the jurisdiction first seized of the issues." Mann Mfg. Inc. v. Hortex, Inc., 439 F.2d 403, 408 n. 6 (5th Cir.1971).

However, concerns about comity notwithstanding, whether both the Oklahoma and Texas district courts could decide Sutter's motion to confirm, or just the Texas district court, is controlled by statute. 9 U.S.C. § 9. Hence, the "first to file rule" must yield, if § 9 establishes that the Texas district court is exclusively the appropriate court to decide Sutter's motion to confirm, even though the same issues were first raised in the Oklahoma district court.

The question of which district court is the appropriate court to decide post-arbitration motions under §§ 9, 10 and 11, is one of permissive or mandatory venue. These statutory provisions are akin to venue provisions in the sense that they identify which of the several district courts having jurisdiction is the appropriate one to decide these post-arbitration motions. If these so-called venue provisions are mandatory (appropriately brought only in "the United States court in and for the district within which such award was made"), then they may be seen as jurisdictional, in that they would deprive all other district courts of the power to decide these motions. ⁵ However, since we view these provisions as permissive, they are more closely akin to venue provisions, because they do not take the power to decide these post-arbitration motions away from any federal district court otherwise having...