Tenneco Resins, Inc. v. Davy Intern., AG

• Decision Date: 06 August 1985
• Docket Number: No. 84-2676,84-2676
• Parties: TENNECO RESINS, INC., and Tenn-USS Chemicals Co., Plaintiffs-Appellees, v. DAVY INTERNATIONAL, AG and/or Davy McKee International, AG, Defendants-Appellants. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 416

770 F.2d 416

TENNECO RESINS, INC., and Tenn-USS Chemicals Co., Plaintiffs-Appellees, v. DAVY INTERNATIONAL, AG and/or Davy McKee International, AG Defendants-Appellants.

No. 84-2676

Summary Calendar.

United States Court of Appeals Fifth Circuit.

Aug. 6, 1985.

Steven K. DeWolf, Butler & Binion, Allied Bank Plaza, Houston, Tex., for defendants-appellants.

Edward J. Murphy, Bettina Ellen Brownstein, Houston, Tex., for Tenneco Resins, Inc.

Robert M. Julian, Houston, Tex., for Atlantic Cargo Services.

Appeal from the United States District Court for the Southern District of Texas.

Before CLARK, Chief Judge, GARWOOD and DAVIS, Circuit Judges.

GARWOOD, Circuit Judge:

Defendant appeals the denial of its motion to stay the district court proceedings pending arbitration. We reverse.

FACTS AND PROCEEDINGS BELOW

On May 16, 1980, appellant, Davy McKee Ag (Davy), contracted with appellee, Tenneco Resins, Inc. (Tenneco), to supply catalyst on the basis of F.O.B. North German Seaport. That contract also provided that:

"If any dispute or difference shall arise, except with respect to patent law of the United States ... [it] shall be referred to arbitration under the commercial rules of the American Arbitration Association, the place of arbitration being New York, New York, U.S.A."

Tenneco's rights and obligations under this contract were subsequently assigned to Tenn-USS, a joint venture between Tenneco and United States Steel. In October 1982, 870 drums of catalyst were placed aboard the vessel, M/V FINN ROSE, in Bremen, West Germany, and a clean bill of lading was issued. When the drums of catalyst arrived at appellee's plant in Pasadena, Texas, 538 of the drums were heavily damaged.

In September 1983, appellee originally filed suit against Davy and others. ¹ In its answer of November 17, 1983, Davy alleged as a defense that the action should be dismissed because the dispute was covered by a valid and enforceable arbitration clause in the contract between the parties. Davy also served Tenneco with Interrogatories and a Request for Production of Documents. Tenneco responded to both.

On January 26, 1984, Tenneco noticed the deposition of a Davy corporate representative for Houston, Texas. On February 7, 1984, Davy filed a Motion for a Protective Order and/or a Motion to Quash the deposition. On February 17, 1984, the district court ordered depositions to be taken at appellant's corporate headquarters in West Germany. On April 9, 1984, Tenneco filed a Motion for a Protective Order asking the court to require Davy to produce witnesses in Germany or be subject to sanctions. In response, Davy asked that the court deny Tenneco's Motion for a Protective Order and/or order Davy to comply with the procedural requirements of the Hague Convention on taking evidence abroad in civil and commercial cases. On April 18, 1984, the district court held a hearing to consider Tenneco's motion to compel Davy to produce witnesses, and, on April 19, 1984, the district court ordered Davy to produce the designated corporate representatives and documents in Germany, noting that Davy had willingly volunteered to do so.

Prior to that hearing, on April 16, 1984, Davy had filed its Motion to Stay the proceedings pending arbitration. At the hearing of April 18, counsel for Davy raised the issue of whether its production of requested witnesses and documents would be considered evidence of waiver of the right to arbitrate. The court stated that, in considering the April 16 Motion to Stay, anything that happened after the motion was filed would be considered to have been done under court compulsion which would not cause waiver of the right to arbitrate. The court did also state that actions taken by Davy before filing of the motion would be considered voluntary. The district court heard and denied Davy's Motion to Stay, from which order Davy prosecutes this appeal.

DISCUSSION

A. Jurisdiction

1. Appealability. Appellee contends that this Court lacks jurisdiction over Davy's appeal because the district court's order denying appellant's motion to stay litigation pending arbitration is not an appealable order. Title 28 U.S.C. Sec. 1292(a)(1) provides a statutory exception to the final judgment rule for injunctive orders. Under 28 U.S.C. Sec. 1292(a)(1), an order granting or denying a stay of proceedings may be appealable as an order equivalent to an injunction. This Circuit has stated the rule:

"An order staying or refusing to stay proceedings in the District Court is appealable under Sec. 1292(a)(1) only if (A) the action in which the order was made is an action which, before the fusion of law and equity, was by its nature an action at law; and (B) the stay was sought to permit the prior determination of some equitable defense or counterclaim." Jackson Brewing Company v. Clarke, 303 F.2d 844, 845 (5th Cir.) (emphasis in original), cert. denied, 371 U.S. 891 [83 S.Ct. 190, 9 L.Ed.2d 124] (1962).

Appellee concedes that, since this action is based on a contract, the first prong of the Jackson Brewing test is satisfied but argues that the second prong is not met. ² However, it is clearly settled that, when a stay of proceedings is granted or denied in a contract action, which is clearly legal, pending arbitration proceedings, which are equitable in nature, the order falls within the rule and is appealable. Coastal Industries v. Automatic Steam Products, 654 F.2d 375, 377 n. 1 (5th Cir.1981); Wick v. Atlantic Marine, Inc., 605 F.2d 166, 167-68 n. 2 (5th Cir.1979); J.S. & H. Construction Co. v. Richmond County Hospital Authority, 473 F.2d 212, 213 n. 1 (5th Cir.1973).

2. Ripeness. Appellee also contends that this appeal must fail for lack of ripeness. Appellee argues that Davy's Motion to Stay and this appeal are premature because Davy has never pursued arbitration by making an arbitration demand which has been refused by Tenneco. Appellee cites no authority for the proposition that defendant-appellant must have commenced arbitration proceedings before seeking to stay proceedings in the district court. Appellant refers us to Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 293 U.S. 449, 55 S.Ct. 313, 79 L.Ed. 583 (1935). In that case, Shanferoke Coal & Supply Corporation brought a contract action in federal district court to which the defendants set up in its answer as a special defense that the dispute was arbitrable under the terms of the contract and that the plaintiff had not proceeded with arbitration. ³ Defendants subsequently moved for a stay pending arbitration. The district court denied the stay, but, in a decision which the United States Supreme Court affirmed in Shanferoke, the Second Circuit reversed and granted the stay of litigation, though no affirmative demand for arbitration had been made and no motion to compel arbitration had been sought and, evidently, there were as yet no ongoing arbitration proceedings. Id. at 453-54, 55 S.Ct. at 315.

In General Guaranty Insurance Co. v. New Orleans General Agency, Inc., 427 F.2d 924 (5th Cir.1970), this Circuit stated that it is not necessary that the party moving for a stay of proceedings have made a pre-suit demand for arbitration. For, "[r]equiring pre-suit demand will place on the party sought to be charged the duty to institute proceedings which may establish his own liability, though if he remains inactive the claims asserted against him may never be formally pressed in either arbitration or court proceedings...." Id. at 928; see also Coastal Industries v. Automatic Steam Products Corp., 654 F.2d 375, 376 (5th Cir.1981) (in response to filing of suit, defendant sought stay of proceedings under 9 U.S.C. Sec. 3 alleging existence of arbitration agreement and subsequently requested arbitration); J.S. & H. Construction Co. v. Richmond County Hospital Authority, 473 F.2d 212, 214 (5th Cir.1973) (after suit and cross-claim filed, two co-defendants sought stay pending arbitration); Hilti, Inc. v. Oldach, 392 F.2d 368, 370 (1st Cir.1968) (delay of nearly two years before demanding arbitration is not failure to proceed with such arbitration with diligence when during course of initial litigation defendant had invoked arbitration agreement in initial motion to dismiss, in its answer, and in a motion for summary judgment).

We hold the denial of stay is an appealable order properly before us for review.

B. Denial of Motion

1. Waiver. Appellee argues that, if this Court has jurisdiction to consider the lower court's denial of the motion to stay pending arbitration, the lower court's ruling should in any event be upheld because Davy is in default on its right to arbitrate under section 3 of the Arbitration Act, 9 U.S.C. Sec. 3, ⁴ by virtue of its active participation in this lawsuit which has prejudiced Tenneco. In support of this contention, appellee points out that, prior to moving for a stay, ⁵ Davy filed an answer to Tenneco's complaint, filed interrogatories and a request for production of documents, moved for a protective order, and agreed to a joint motion for continuance requesting an extension of the discovery period.

"The burden on one seeking to prove a waiver of arbitration is a heavy one." Sibley v. Tandy Corp., 543 F.2d 540, 542 (5th Cir.1976), cert. denied, 434 U.S. 824, 98 S.Ct. 71, 54 L.Ed.2d 82 (1977). "Moreover, where as here the party seeking arbitration has made a timely demand for arbitration at or before the commencement of judicial proceedings in the Trial Court, the burden of proving waiver falls even more heavily on the shoulders of the party seeking to prove waiver." Southwest Industrial Import & Export, Inc. v. Wilmod Co., Inc., 524 F.2d 468, 470 (5th Cir.1975). Thus, "[o]nce the defendant, by answer, has given notice of insisting on arbitration the burden is heavy on the party seeking to prove waiver." General Guaranty Insurance Co. v. New Orleans General Agency, Inc., 427 F.2d 924, 929 n. 5 (5th Cir.1970) (emphasis added). Although Davy...