Ultracashmere House, Ltd. v. Meyer

• Decision Date: 28 December 1981
• Docket Number: No. 81-7166,81-7166
• Citation: 664 F.2d 1176
• Parties: ULTRACASHMERE HOUSE, LTD., a corporation, Plaintiff-Appellant, v. Ted MEYER, d/b/a Alex Rice Company, Defendant-Appellee. Non-Argument Calendar.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1176

664 F.2d 1176

ULTRACASHMERE HOUSE, LTD., a corporation, Plaintiff-Appellant, v. Ted MEYER, d/b/a Alex Rice Company, Defendant-Appellee.

No. 81-7166

Non-Argument Calendar.

United States Court of Appeals, Eleventh Circuit.

Dec. 28, 1981.

Miller & Pappanastos, Charles P. Miller, Montgomery, Ala., for plaintiff-appellant.

Copeland, Franco, Screws & Gill, Albert W. Copeland, Montgomery, Ala., for defendant-appellee.

Appeal from the United States District Court for the Middle District of Alabama.

Before RONEY, KRAVITCH and CLARK, Circuit Judges.

KRAVITCH, Circuit Judge:

Appellant Ultracashmere brought this suit under 9 U.S.C. § 4, which authorizes suits in federal district court, if the prerequisites for federal jurisdiction are otherwise satisfied, to enforce arbitration agreements entered into by private parties. Appellant sought injunctive relief compelling arbitration under that statute and a stay under 28 U.S.C. § 2283 against the proceedings previously initiated by appellee in state court. The district court, 88 F.R.D. 359, in separate orders, denied both requests on the grounds that appellant had unduly delayed in asserting its claim in federal court and that, the state court having decided the issues, res judicata precluded relitigation. We agree with the district court that the Arbitration Act does not unconditionally entitle a party to relief in federal court. Rather, federalism and judicial efficiency require that the conduct of the parties, in particular the timeliness of their actions and the status of state court litigation between the same parties, be considered by federal courts in deciding whether to grant such relief. We also agree with the district court that appellant's failure to effectuate a timely removal, coupled with its delay in bringing this action, precluded that court from interfering with the state court proceedings and from allowing appellant to relitigate the issues. Thus we affirm.

I. The Facts

The facts of this case demonstrate the quagmire into which federal courts frequently have been thrust in arbitration disputes in which the parties have involved both state and federal tribunals. Compare this case with Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 637 F.2d 391, 394-95 (5th Cir. 1981). In February 1979, Ultracashmere, a New York clothing manufacturer, and Meyer, operator of several retail clothing stores in Alabama and Georgia, entered into three written agreements for the sale and purchase of clothing. The contracts all contained the same arbitration clause. ¹ Subsequently a dispute arose between the parties, and on November 5, 1971 Ultracashmere demanded arbitration. ² Meyer refused to arbitrate and instead instigated an action in the Circuit Court of Montgomery County, Alabama.

In his state court complaint, Meyer alleged that the arbitration clause was concealed by fine print, that Ultracashmere never informed Meyer that the clause called for arbitration in New York rather than Alabama, and that had Meyer been aware of the clause he would not have signed the contracts. Meyer also alleged that Ultracashmere had fraudently misrepresented certain facts concerning the substantive terms of the contracts. Meyer requested an injunction against further attempts by Ultracashmere to compel arbitration, a declaration that the contracts and the arbitration clause were null and void, and compensatory and punitive damages for losses allegedly sustained by him as a result of reliance on Ultracashmere's misrepresentations. Ultracashmere moved to dismiss Meyer's complaint arguing that the Alabama court was without jurisdiction over Ultracashmere because: (1) it was not a resident corporation of that state; (2) the contract was made in New York; (3) the contract compelled arbitration of any dispute concerning the contract; and (4) the contract required that such arbitration and any litigation of a contract dispute take place in New York. Meyer, meanwhile, moved for a partial summary judgment declaring the invalidity or unenforceability of the arbitration clause in the contracts. On May 29, 1980, the state court denied Ultracashmere's motion to dismiss but, upon Ultracashmere's request, postponed decision on Meyer's motion to allow Ultracashmere to supply authorities in opposition. The court also temporarily enjoined the American Arbitration Association from conducting arbitration of the dispute and ordered Ultracashmere to comply with Meyer's production requests and to provide the court with copies of the contract and the provisions of the National Dry Goods Association and the Apparel Industries Inter-Association Committee incorporated by reference into the arbitration clause of the contract. ³ On June 6, 1980, having found that Ultracashmere was persisting in its attempts to arbitrate the dispute in violation of its earlier order and that Ultracashmere appeared unlikely to respond promptly to the prior court order for production of documents, the court enjoined Ultracashmere from insisting on arbitration and ordered it to respond to the production requests by June 11, 1980. The court opined:

If the alleged arbitration clauses in the contracts between the parties are invalid or unenforceable, there is no basis to require plaintiff to arbitrate. Any arbitration proceedings would cause the parties to expend unnecessary time and money and any award made by the American Arbitration Association would be void and unenforceable. The validity or enforceability of the arbitration clauses involves questions of law which must be decided by a court and not by lay arbitrators.

By June 26, Ultracashmere still had not complied with the order for production of documents nor filed any evidence of the contracts or of the provisions of the two associations that had been incorporated into the contracts. Finding Ultracashmere in violation of its prior production orders thus preventing Meyer from attempting to prove, and the court from deciding, the invalidity of the arbitration clause, the court granted partial summary judgment to Meyer; it declared the purported arbitration clauses void and unenforceable and permanently enjoined Ultracashmere from pursuing its attempt to arbitrate its disputes with Meyer. The remainder of the state court litigation proceeded in much the same vein, with Ultracashmere continuing to insist on arbitration and ignoring Meyer's requests for, and the court's orders pertaining to, discovery and the court in response imposing sanctions on Ultracashmere under Ala.R.Civ.P. 37(b)(2)(A) by finding facts and deciding issues in favor of Meyer. The state court made every attempt to encourage Ultracashmere to discontinue its obstructionist tactics; it even offered to rescind previously imposed sanctions if Ultracashmere would respond to its orders. The court's efforts were for the most part unsuccessful, however, and by the time the trial date was set, all issues in the litigation had been decided by the court adversely to Ultracashmere with the exception of the amount of damages, which was the sole question to be submitted to the jury.

On December 11, four days before the state court trial and almost nine months after initiation of the state court proceedings, Ultracashmere filed this action in the Federal District Court for the Middle District of Alabama seeking a stay of the state court proceedings under 28 U.S.C. § 2283 and an order compelling arbitration under 9 U.S.C. § 4. The district court denied appellant's motion to stay on the grounds that, assuming arguendo that it had authority to grant the stay under section 2283, it would not exercise its discretion under that provision because of appellant's delay in seeking a stay until the state court had adjudicated all issues except the amount of damages. The district court noted that appellant had failed to remove the state court suit to federal court, which it could have done under 28 U.S.C. § 1441 and had instead "filed an answer and counterclaim to defendant's state court action, (taken) depositions of witnesses, and proceeded to litigate the same dispute for which it now seeks an order compelling arbitration and a stay."

II. The Arbitration Act

The purpose of the Federal Arbitration Act was to relieve congestion in the courts and to provide parties with an alternative method for dispute resolution that would be speedier and less costly than litigation. Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953); Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir. 1959), cert. denied, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37. The Act thus overrules the common law precedents prohibiting enforcement of arbitration agreements and creates a national law favoring such agreements where contained in contracts "evidencing a transaction involving commerce." 9 U.S.C. § 2. Robert Lawrence, supra, at 406-07. Federal and state courts alike are bound, under the supremacy clause, to enforce the Act's substantive provisions. Id. See also Prima Paint Co. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 400, 87 S.Ct. 1801, 1804, 18 L.Ed.2d 1270 (1967).

Enforcement of the Act is left primarily to state courts, federal courts being authorized to adjudicate only those arbitration disputes that are otherwise within their jurisdiction. 9 U.S.C. § 4. Moreover, the federal courts' jurisdiction over even this limited number of suits is not exclusive of but rather is concurrent with the jurisdiction of state courts. Id. § 3; Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 637 F.2d 391, 395 (5th Cir. 1981). It is thus clear that, while Congress considered the policies favoring arbitration agreements sufficiently important to override state law barriers to their enforcement, it nonetheless viewed state courts as fully capable of effectuating those policies; the Act evidences no hint of a concern by Congress that state tribunals would be less competent or less willing than the federal courts to give effect...