Virgin Islands Housing Authority v. Coastal General Const. Services Corp., 93-7819

• Decision Date: 24 June 1994
• Docket Number: No. 93-7819,93-7819
• Citation: 27 F.3d 911
• Parties: VIRGIN ISLANDS HOUSING AUTHORITY; American Arbitration Association, Virgin Islands Housing Authority, Appellee, v. COASTAL GENERAL CONSTRUCTION SERVICES CORPORATION; Charley's Trucking, Coastal General Construction Services Corporation, Appellant. COASTAL GENERAL CONSTRUCTION SERVICES CORPORATION, Appellant, v. AMERICAN ARBITRATION ASSOCIATION; Virgin Islands Housing Authority, Virgin Islands Housing Authority, Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 911

27 F.3d 911

VIRGIN ISLANDS HOUSING AUTHORITY; American Arbitration

Association, Virgin Islands Housing Authority, Appellee, v. COASTAL GENERAL CONSTRUCTION SERVICES CORPORATION;

Charley's Trucking, Coastal General Construction

Services Corporation, Appellant.

COASTAL GENERAL CONSTRUCTION SERVICES CORPORATION, Appellant, v. AMERICAN ARBITRATION ASSOCIATION; Virgin Islands Housing

Authority, Virgin Islands Housing Authority, Appellee.

No. 93-7819.

United States Court of Appeals Third Circuit.

Argued April 22, 1994.

Decided June 24, 1994.

Appeal from the District Court of the Virgin Islands, Division of St. Thomas and St. John (D.C. Civ. Nos. 93-00039 & 93-00042). ¹

Peter Goetz (argued), William B. Flynn, Goetz, Fitzpatrick & Flynn, New York City, Matthew J. Duensing, D'Amour Jones Stryker & Duensing, Charlotte Amalie, St. Thomas U.S. VI, for appellant, Coastal General Const. Services Corp.

Christopher M. Kise (argued), Edward C. Adkins, Adkins & Kise, P.A., Tampa, FL, Vincent F. Frazer, Law Offices of Frazer & Williams, Charlotte Amalie, St. Thomas U.S. VI, for appellee, Virgin Islands Housing Authority.

Before: STAPLETON, ALITO, and WEIS, Circuit Judges.

OPINION OF THE COURT

WEIS, Circuit Judge.

In this appeal, we hold that in the Virgin Islands, unless an independent basis for federal jurisdiction exists, a suit to confirm or vacate an arbitrator's award pursuant to the Federal Arbitration Act must be brought in the Territorial Court, not in the District Court of the Virgin Islands. We also decide that an arbitrated dispute that is based on the breach of a construction contract growing out of a territorial housing project financed by federal funds does not establish federal question jurisdiction. Accordingly, we will reverse an order of the district court vacating an arbitrator's award.

Plaintiff Virgin Islands Housing Authority entered into a contract with defendant Coastal General Construction Services Corp. for renovation of the Donoe Housing Project on St. Thomas. Funding for the project was supplied by a program that receives part of its funding from the United States Department of Housing and Urban Development (HUD) under the Comprehensive Improvement Assistance Program, 42 U.S.C. 1437l (Supp.1993).

The contract was executed on September 29, 1988, but no notice to proceed was issued. The Housing Authority terminated the contract on June 6, 1989, as permitted by the terms of the agreement. Contending that it was entitled to compensation for the work it had performed before the termination, Coastal submitted the matter for a hearing before the American Arbitration Association as provided in the contract.

On February 5, 1992, Coastal presented its claim for termination damages in the amount of $1,114,799.40 (amended on October 5, 1992 to be $1,149,922). One day before the hearing scheduled for November 17, 1992, however, Coastal presented an amended claim in the amount of $2,343,933, almost double the amount it had previously requested. At the beginning of the hearing, the Housing Authority asked the arbitrator to either disallow the latest amended claim or continue the hearing to allow time for further evaluation of the amount claimed. The arbitrator did not postpone the hearing, and in its final written argument to the arbitrator, the Housing Authority asserted that consideration of the amended claim was unfair and prejudicial.

After final submissions by the parties, the arbitrator awarded Coastal $1,262,049. The Housing Authority filed suit in the Territorial Court seeking to vacate the arbitration award because of Coastal's alleged fraud in inflating its claim. Coastal then removed the case to the District Court of the Virgin Islands, and filed a separate action in that forum seeking confirmation of the award. The two cases were consolidated by an order that was originally limited to discovery. However, the court and the parties treated the consolidation as applicable generally.

The District Court determined that it had federal question jurisdiction and denied the Housing Authority's motion for remand. In a subsequent memorandum, the court found that Coastal's last-minute submission of an amended claim with its accompanying documentation presented sufficient cause for postponement and concluded that the arbitrator had improvidently closed the hearing. Based on evidence that some of the expenses claimed by Coastal might have been inflated or completely false, the district court reasoned that the Housing Authority may have been prejudiced, vacated the award and "remanded for completion of the agreed upon arbitration." Coastal has appealed.

I.

The first question confronting us is whether the District Court's order is appealable. We resolve this issue by reference to the statutory provisions of the Federal Arbitration Act, 9 U.S.C. Sec. 1, et seq. Section 16(a)(1) of the Act authorizes an immediate appeal from an order that (A) refuses a stay of an action under 9 U.S.C. Sec. 3; (B) denies a petition to order arbitration to proceed; (C) refuses to compel arbitration; (D) confirms or denies confirmation of an award; or (E) modifies, corrects, or vacates an order. Id. Sec. 16(a)(1). On the other hand, section 16(b) of the Act prohibits an appeal from interlocutory orders directing or permitting arbitration to proceed.

If the District Court had simply vacated the award in this case, the order would be clearly appealable under subsection 16(a)(1)(E), but the additional direction for a remand has clouded the issue. The appealability of such an order was discussed by the United States Court of Appeals for the Fifth Circuit in Atlantic Aviation, Inc. v. EBM Group, Inc., 11 F.3d 1276, 1280 (5th Cir.1994). That Court observed that the Federal Arbitration Act "does not distinguish between orders vacating arbitration awards without directing a rehearing and those orders which vacate awards and direct a rehearing of the arbitration dispute; both are appealable." Id.

Forsythe Int'l, S.A. v. Gibbs Oil Co. of Texas, 915 F.2d 1017 (5th Cir.1990), presented a similar issue. In that case, the district court found that the misrepresentation by one of the parties and the failure of the arbitrators to take any corrective action required that the award be vacated and the matter remanded to a new panel of arbitrators. The Court of Appeals concluded that the order was appealable because otherwise the parties could never determine whether the district court had complied with the narrow statutory limits governing vacatur. Id. at 1020. The Court stated in a footnote, however, that if the district court had simply remanded the case to the original arbitration panel for clarification of its award, "the policies disfavoring partial resolution by arbitration would preclude appellate intrusion until the arbitration was complete." Id. at 1020 n. 1.

In the case before us, the District Court's order does not specify whether it is the original arbitrator who is to conduct the hearing on remand. Even if that is the implication, however, we do not believe that the order is an interlocutory one within the scope of 9 U.S.C. Sec. 16(b). Here, the District Court did not simply request clarification, but instead directed a re-evaluation of the entire controversy based on the Housing Authority's allegations that Coastal's claim for reimbursement was submitted with fraudulent documentation.

We are not convinced by the dictum in Forsythe that appealability in situations of this nature should be determined by whether the remand is to the original or a new arbitrator. Rather, the distinction is whether the additional hearing is ordered merely for purposes of clarification--an order that would not be appealable--or whether the remand constitutes a re-opening that would begin the arbitration all over again. Here, the vacation and remand order is essentially no different from that of the district courts in Atlantic Aviation and Forsythe where the Court of Appeals held that the orders were appealable. We therefore follow the rulings in those cases and hold that we do have jurisdiction to entertain this appeal.

II.

Having found that the order is appealable, the next question is whether the District Court or the Territorial Court had jurisdiction over the Housing Authority's petition to vacate the arbitration award and Coastal's request for confirmation.

In Brow v. Farrelly, 994 F.2d 1027, 1032-34 (3d Cir.1993), we discussed the division of jurisdiction between the District Court of the Virgin Islands and the Territorial Court. The opinion reviewed the history of the two courts as well as the congressional and local legislative enactments that resulted in the allocation of various forms of civil litigation between the two forums. Id.

In brief, the Territorial Court has original jurisdiction over all local civil actions. Id. at 1034; see 48 U.S.C. Sec. 1612(b); V.I.Code tit. 4, Sec. 76(a). The District Court of the Virgin Islands has exclusive jurisdiction equivalent to United States District Courts over such fields as admiralty, bankruptcy, patent, copyright and trademark, and other matters not relevant here. Brow, 994 F.2d at 1034 (citing 48 U.S.C. Sec. 1612(a)). The Territorial Court and the District Court have concurrent jurisdiction over federal question and diversity cases. Id.

Because complete diversity of citizenship does not exist between the parties in this case, the jurisdiction of the District Court cannot rest on that ground. ² Nor does this case involve those matters that would come within the exclusive jurisdiction of the District Court. That leaves for determination whether a federal question exists here to give the District Court jurisdiction.

28 U.S.C. Sec. 1331(a) gives district courts jurisdiction over "civil actions arising under the Constitution, laws, or treaties of the United States." The Supreme Court has explained that section 1331(a) authorizes the courts to hear either originally or by...