Whiteside v. Teltech Corp.

Decision Date31 July 1991
Docket NumberNos. 90-3144,90-3145 and 90-3164,s. 90-3144
Citation940 F.2d 99
PartiesJohn M. WHITESIDE, Plaintiff-Appellant, v. TELTECH CORPORATION; Telic Corporation; National Telephone Services, Incorporated, Defendants-Appellees. John WHITESIDE, Plaintiff-Appellant, v. Ronald J. HAAN, Defendant-Appellee. John WHITESIDE, Plaintiff-Appellant, v. TELTECH CORPORATION; Telic Corporation; National Telephone Services, Incorporated, Defendants-Appellees.
CourtU.S. Court of Appeals — Fourth Circuit

Lawrence Howard Schwartz, argued (Nicholas H. Hantzes, Karen M. Simonek, on brief), Cooter & Gell, Washington, D.C., for defendants-appellees.

Before WILKINSON and NIEMEYER, Circuit Judges, and MICHAEL, District Judge for the Western District of Virginia, sitting by designation.

OPINION

NIEMEYER, Circuit Judge:

This appeal raises questions about rights created by the Federal Arbitration Act (FAA), 9 U.S.C. Sec. 1 et seq. (1988), in the context of an employment dispute. The issue is whether the district court improperly refused to hear a federal suit to compel arbitration when the dispute sought to be arbitrated is the subject of a pending state case. Because the district court failed to recognize its independent duty to adjudicate a claim prosecuted under the FAA, we reverse and remand to permit it to determine whether the dispute between the parties is arbitrable. Although the appellant has also requested that we review the nature of the dispute and compel arbitration, we decline the invitation so that the district court, in the first instance, can make that determination.

I

John M. Whiteside entered into a written employment agreement with Teltech Corporation to serve as senior vice president of Teltech and as a member of the board of directors of two subsidiary corporations, Telic Corporation and National Telephone Services, Inc. (NTS). Teltech's obligations under the employment agreement were guaranteed by Telic and NTS, and the agreement was signed on behalf of Teltech, Telic and NTS by Ronald J. Haan. Haan was the chairman of the board, president and sole shareholder of Teltech and the chief executive officer, president, and majority shareholder of Telic.

A fracture in the employment relationship between Whiteside and Teltech prompted Whiteside to seek damages through arbitration, as provided for in the employment agreement. When Teltech, Telic and NTS resisted arbitration, Whiteside filed his first federal action and the district court compelled the arbitration. Following an arbitration award for Whiteside, the district court entered a confirming judgment in favor of Whiteside in the amount of $564,139.51. After this judgment was paid and marked satisfied, Telic and Haan filed suit against Whiteside in a state court in Loudoun County, Virginia, alleging that Whiteside's conduct, while employed as vice president of Teltech, damaged them. That suit stated counts for breach of fiduciary duty, tortious interference with contractual relationship, defamation, and conspiracy to injure another in trade, business or profession.

Believing that the issues raised in the state court proceedings should have been arbitrated in the just-completed arbitration or, alternatively, should be arbitrated in a new arbitration because they "arise out of" or "relate to" the employment agreement between Whiteside and Teltech, Whiteside filed a motion in the federal action, which had been closed by an order of satisfaction, seeking an order to enjoin the state suit and to compel a second arbitration. The district court denied the motion to enjoin the state case and, on the motion to compel arbitration, stated:

As far as I am concerned, my ruling on the injunction takes care of your motion on arbitration. I mean, if you have got a separate motion for me to just pick up a case in Loudoun County and send it to arbitration, I am not even going to take jurisdiction here to do anything about the injunction, much less pick up some state case and send it to arbitration.

* * * * * *

I am certainly not going to let you file a suit here by motion. I am just not going to do that. I don't know what remedies you have.

J.A. 166-69.

Concerned about the district court's comment that it would not treat his motion as the equivalent of a new law suit, Whiteside filed a second action in the federal district court, relying on diversity jurisdiction, in which he again sought to compel arbitration under the FAA. In the hearing on the motion to compel arbitration, the court again denied the motion, relying on the reasons it gave in denying the motion that was filed in the first federal suit. The court stated:

I have already sent the case to arbitration. It was already here and I sent it, sent the whole thing, didn't I?

* * * * * *

They arbitrate, the arbiters made an award, I have entered a judgment, and this thing is over as far as this case is concerned.

* * * * * *

Now somebody is in another court raising issues which you say have already been before arbitration, they were the subject of this suit, they either were dealt with or should have been dealt with, it is res judicata and, therefore, they shouldn't be in Loudoun County. But I am not the one to determine that. Whoever is hearing this suit up in Loudoun County has got to be the one to hear that.

J.A. 177-78 (emphasis added). When counsel for Whiteside assured the court that Whiteside was seeking no relief on the issues pending in Loudoun County but rather was seeking remedies in federal court under the FAA, the court denied his relief saying, "I haven't got any authority." J.A. 181.

From the court's denial of the motions to compel arbitration, Whiteside appealed the refusals to compel arbitration in both the closed federal action (cases 90-3144 and 90-3145) and the second federal action filed under the FAA (case 90-3164).

II

In denying the motions to compel arbitration, the court believed either that the plaintiff did not have a separate federal right under the FAA to bring suit, or that it should stay its hand under a notion of abstention in favor of the pending state court case. In either case, we find error.

The purpose for enacting the FAA was to assure judicial enforcement of privately made agreements to arbitrate by placing them "upon the same footing as other contracts." Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219, 105 S.Ct. 1238, 1242, 84 L.Ed.2d 158 (1985) (quoting H.R.Rep. No. 96, 68th Cong., 1st Sess. 1 (1924)); see also Gilmer v. Interstate/Johnson Lane Corp., --- U.S. ----, 111 S.Ct. 1647, 1651, 114 L.Ed.2d 26 (1991). Prior to enactment of the FAA, courts were hostile to the enforcement of arbitration provisions, following a long-standing common law rule which evolved from the judiciary's jealous refusals to oust courts of jurisdiction in favor of other dispute resolution mechanisms. Dean Witter, 470 U.S. at 220 n. 6, 105 S.Ct. at 1242 n. 6. The Act's purpose is thus fulfilled at its core by the declaration in Sec. 2 that a written agreement to arbitrate is "valid, irrevocable, and enforceable" and the sanction provided in Sec. 4 for specific enforcement of the agreement. 9 U.S.C. Secs. 2 & 4 (1988).

The FAA creates a separate federal cause of action for enforcement of agreements within its scope, even if the underlying dispute depends entirely on state law. It does not, however, mandate arbitration for all disputes simply when arbitration is demanded. Rather, it provides for the enforcement of agreements in which the parties have agreed to arbitration. Although the FAA manifests a liberal federal policy...

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