USM Corp. v. GKN Fasteners, Ltd., 77-1433

CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)
Citation574 F.2d 17
Docket NumberNo. 77-1433,77-1433
PartiesUSM CORPORATION, Plaintiff-Appellant, v. GKN FASTENERS, LIMITED, Defendant-Appellee. . Heard
Decision Date08 December 1977

Page 17

574 F.2d 17
USM CORPORATION, Plaintiff-Appellant,
GKN FASTENERS, LIMITED, Defendant-Appellee.
No. 77-1433.
United States Court of Appeals,
First Circuit.
Heard Dec. 8, 1977.
Decided April 6, 1978.
Motion Denied July 12, 1978.
See 578 F.2d 21.

Gerald D. Hosier, Chicago, Ill., with whom Raymond P. Niro, Hosier, Niro & Daleiden, Ltd., Chicago, Ill., Ansel B. Chaplin, Chaplin, Barzun & Casner and Richard B. Megley, Boston, Mass., were on brief, for plaintiff-appellant.

Gael Mahony, Boston, Mass., with whom Winifred I-Bin Li, Hill & Barlow, Boston, Mass., Victor S. Friedman and Fried, Frank, Harris, Shriver & Jacobson, New York City, were on brief, for defendant-appellee.

Before COFFIN, Chief Judge, CAMPBELL and BOWNES, Circuit Judges.

BOWNES, Circuit Judge.

In this action, we must first determine whether the shoals of the finality doctrine and the Enelow-Ettelson rule 1 have effectively

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scuttled the appeal of USM to this court.

Plaintiff-appellant USM filed suit in Massachusetts Suffolk County Superior Court for breach of contract, tortious interference with a contractual relationship, and tortious conspiracy to induce breach of contract and to defraud USM. Defendant-appellee GKN removed the case to the United States District Court for Massachusetts. See 28 U.S.C. § 1441. GKN moved the district court to stay USM's action pending arbitration of the agreement (which has an arbitration clause, infra, at 20, n. 4) under which USM brought suit. The district court granted the stay pursuant to 9 U.S.C. §§ 3, 201, 202, 208. USM appeals the propriety of the stay. GKN has responded, in part, by asserting that we are without jurisdiction to hear the appeal because the stay is not a final order appealable under 28 U.S.C. § 1291, nor, because of the niceties of the so-called Enelow-Ettelson rule, is the stay appealable as an interlocutory order granting an injunction under 28 U.S.C. § 1292(a)(1).

We note at the outset that we do have jurisdiction to decide whether we can hear the appeal. Ex parte McCardle, 74 U.S. 506, 514 (7 Wall.), 19 L.Ed. 264 (1869). As a general rule, appeals are permissible only from final orders. See 28 U.S.C. § 1291. Recognizing that the final judgment rule might prove impracticable or inequitable, Congress provided for specific statutory exceptions to the requirement of finality. 28 U.S.C. § 1292. We are confronted with the threshold question of whether the appeal in the instant case is embraced within either of these provisions.

We have ruled in the past that a stay issued by a district court so as to permit arbitration is not a final order within the meaning of 28 U.S.C. § 1291 unless one of two criteria is met: (1) the stay disposes of an independent or collateral claim of right which will evade review if not immediately appealable, such as to be embraced by the "collateral right rule," Cohen v. Beneficial Loan Corp., 337 U.S. 541, 546-547, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949); Limbach Co. v. Gevyn Const. Corp., 544 F.2d 1104, 1106 (1st Cir. 1976), cert. denied, 430 U.S. 916, 97 S.Ct. 1328, 51 L.Ed.2d 594 (1977); or (2) immediate review is necessary to resolve issues "fundamental to the further conduct of the case," Gillespie v. United States Steel Corp., 379 U.S. 148, 153, 85 S.Ct. 308, 311, 13 L.Ed.2d 199 (1964) (quoting United States v. General Motors Corp., 323 U.S. 373, 377, 65 S.Ct. 357, 89 L.Ed. 311 (1945)). New England Power Co. v. Asiatic Petroleum Corp., 456 F.2d 183, 185 (1st Cir. 1972).

We find the holding in Gillespie to be inapposite here: that case involved the appeal from a court order dismissing certain counts while proceeding with certain others. The Supreme Court formulated its holding to address that precise situation. The Court likened its action to that authorized under 28 U.S.C. § 1292(b), whereby a district court certifies controlling questions of law to the appellate court so that the case may be properly resolved during the ongoing litigation. Gillespie, supra, 379 U.S. at 154, 85 S.Ct. 308. In the case confronting us, the entire action is being stayed. Obviously, therefore, there will be no further conduct of the case until such time as the stay is lifted. We, accordingly, restrict our analysis to a determination of whether an independent right, collateral to the main action, requires immediate review at the peril of forever escaping appellate scrutiny.

In urging us to find the stay appealable under 28 U.S.C. § 1291, USM encourages us to stretch the contours of finality, so as to expand the jurisdiction of this court. However, in so doing, it collides head-on with two overriding policies of longstanding and widespread acceptance: disapproval of fragmentary appeals, Cobbledick v. United States, 309 U.S. 323, 324-325, 60 S.Ct. 540, 84 L.Ed. 783 (1940), and strong endorsement of giving effect to arbitration clauses, Scherk v. Alberto-Culver Co., 417 U.S. 506, 510-511, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974). USM bases its contention that the stay is appealable under 28 U.S.C. § 1291 on

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its claimed denial of a right to a jury trial and by attempting to characterize the 9 U.S.C. § 3 stay order as a 9 U.S.C. § 4 order compelling arbitration (which is appealable as a final order, see County of Middlesex v. Gevyn Construction Corp., 450 F.2d 53 (1st Cir. 1971), cert. denied, 405 U.S. 955, 92 S.Ct. 1176, 31 L.Ed.2d 232 (1972)).

We deal first with USM's attempt to treat the section 3 stay as a section 4 order compelling arbitration. Assuming USM's arguments to be true, viz., that the stay order is, for all practical purposes, equivalent to an order compelling arbitration, the two statutory sections, 9 U.S.C. §§ 3 and 4, have received different treatment as regards finality. We have recognized the incongruity of these legal distinctions, even terming them "medieval if not Byzantine peculiarities of this area of the law," New England Power Co. v. Asiatic Petroleum Corp., supra, 456 F.2d at 189, and yet are constrained to adhere to the legal precedent as enunciated. Unless a section 3 stay order can be brought within the Cohen or Gillespie rule, it will not be deemed a final order for purposes of 28 U.S.C. § 1291. We repeat what the Supreme Court stated in Baltimore Contractors v. Bodinger, 348 U.S. 176, 181, 75 S.Ct. 249, 252, 99 L.Ed. 233 (1955):

The Congress is in a position to weigh the competing interests of the dockets of the trial and appellate courts . . . . This Court, however, is not authorized to approve or declare judicial modification. It is the responsibility of all courts to see that no unauthorized extension or reduction of jurisdiction, direct or indirect, occurs in the federal system. (cite omitted)

Congress has expressed a policy against piecemeal appeals. 28 U.S.C. § 1291. The concept of finality, while not absolute, see Cohen v. Beneficial Loan Corp., supra, is not infinitely expandable. We shall resist responding on an ad hoc basis to pleas urging us to find "finality" in every disposition by a district court of motions brought before it, particularly where, as here, we are asked to do so by totally recasting the motion upon which the district court acted.

We will not perform reconstructive surgery on the district court's order. The motion brought and acted upon was a request for a stay, 9 U.S.C. § 3, and not a motion compelling arbitration, 9 U.S.C. § 4. We have no doubt but that frequently indirect results attend a court's action. That provides no rational basis, however, for disassembling a statute and rebuilding it to conform with any possible reverberation alleged by a disgruntled party. We note what the Supreme Court stated in Morgantown v. Royal Ins. Co., 337 U.S. 254, 258, 69 S.Ct. 1067, 1069, 93 L.Ed. 1347 (1949), "Many interlocutory orders . . . may determine the outcome of litigation, but they are not for that reason converted into injunctions." 2

USM, citing Beacon Theatres v. Westover, 359 U.S. 500, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959), claims that, by submitting to arbitration, it is denied the right to a jury trial on its contract claim. 3 It relies on the following language, "to allow claims of equitable origins to be tried ahead of legal ones . . . has the same effect as an equitable injunction of the legal claims." Id. at 507, 79 S.Ct. at 954. USM's reliance is misplaced. The district court's stay in the instant case does not permit the trial of equitable claims ahead of legal ones; rather it allows the parties to engage in previously agreed upon non-judicial arbitration proceedings. The statute is clear: once the district court is satisfied that the issue is referable to arbitration, it "shall" stay the

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action until arbitration is complete. 9 U.S.C. § 3. In other words, there are to be no court proceedings (on matters subject to the arbitration clause) until the arbitration, which was contracted for by both parties, is complete. It is only when the non-judicial arbitral proceedings are closed that a court is faced with the Beacon Theatres mandate requiring jury trial of legal issues prior to court determination of equitable issues.

Moreover, USM states too much: the order which the court entered, staying further proceedings pending the outcome of arbitration, does not finally dispose of USM's right to a jury trial. Should the prevailing party in the arbitration proceedings need to seek enforcement of the award, appeal to the district court under 9 U.S.C. §§ 4, 201, 207 is permitted. A jury could then be empanelled to decide if the other party were in default of the decree. Certain defenses to the arbitration clause could also be submitted to a jury. See 9...

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