Lead Opinion
Adаm Technologies International S.A. de C.V. appeals the district court’s denial of its motion to appoint an arbitrator under the Federal Arbitration Act. The district court denied the motion after determining the challenges to the appointment presented procedural questions to be decided by the International Centre for Dispute Resolution. We AFFIRM.
FACTUAL AND PROCEDURAL BACKGROUND
In March 2010, Sutherland Global Services, Inc., filed a demand for arbitration with the American Arbitration Association, alleging Adam owed Sutherland $618,626.08 for unpaid services. Sutherland referenced the parties’ Master Services Agreement, which provided that the parties agreed to resolve such dispute by arbitration in Rochester, New York, in accordance with the rules of the American Arbitration Association.
In May 2010, in a state court in Dallas, Texas, Adam filed an application to stay the arbitration and referenced the parties’ antecedent Letter of Intent, which provided a different forum-selection and choice-of-law clause for disputes regarding the interpretation and enforcement of the Letter of Intent. Adam contended that Sutherland performed the work under the Letter of Intent, while Sutherland argued that the subsequent Master Services Agreement controlled.
Sutherland removed the civil action to the United States District Court for the Northern District of Texas, invoking the
On October 18, 2010, the district court entered a final judgment and dismissed Adam’s claims for resolution by arbitration. In its original order, the district court determined the Master Services Agreement superseded the expired Letter of Intent. Accordingly, by basing its claims on an expired agreement, Adam had failed to state a claim upon which relief could be granted. Fed.R.Civ.P. 12(b)(6). Although not expressly using the word “compel” in its final judgment, the district court stated: “Plaintiffs claims are dismissed for resolution by arbitration.” Thus, the clear import of the judgment was that if Adam wished to proceed with its claims, it must do so in arbitration. On November 4, 2010, Adam filed a motion to alter or amend the judgment. As we will discuss, the district court ruled on the motion in May 2011.
In February 2011, the parties attemptеd to resolve their dispute through mediation. They selected attorney Phillip Spellane, who previously represented Sutherland in a labor dispute, as the mediator. By April, the parties were unable to reach an agreement through mediation and utilized the arbitration procedure provided in their Master Services Agreement. This agreement required the dispute to be brought to a sole arbitrator if the parties mutually agreed to one within a reasonable period. If not, the parties were required to refer the dispute to three arbitrators. Both Adam and Sutherland were required to appoint one arbitrator each, and those two appointed arbitrators were required to appoint a third, рresiding arbitrator.
After not agreeing to a sole arbitrator, Sutherland appointed its arbitrator, and Adam appointed former mediator Spellane as its arbitrator. On May 13, 2011, the International Centre for Dispute Resolution (“ICDR”), which is the arm of the American Arbitration Association that administers arbitration between internationally diverse parties, informed Sutherland that both arbitrators had agreed to serve. On May 16, Sutherland challenged Spel-lane’s appointment under Articles 7 and 8 of the ICDR International Arbitration Rules because of Spellane’s former involvement in the controversy and his ex parte communications with the parties.
Adam contended that Sutherland’s challenge was untimely, but the ICDR sustained the objection on June 6, and required Adam to appoint a new arbitratоr by June 21. Adam then filed a notice to arbitrate Spellane’s removal, which the ICDR denied on the basis that his removal “was decided and confirmed by the ICDR in its sole discretion as [an] administrative decision.” Adam received two extensions of the deadline to appoint an arbitrator and ultimatély failed to appoint anyone by the ICDR’s subsequent deadline of July 12. On July 29, the ICDR appointed the second arbitrator, who worked with Sutherland’s appointed arbitrator to select the third, presiding arbitrator. The panel initially set a final-hearing date for the arbitration in April 2012.
Meanwhile, on May 26, 2011, the district court vacated its October 18, 2010 order:
After careful consideration, the Court finds that it was unnecessary to determine that the [Letter of Intent] LOI was superseded by the [Master Services Agreement] MSA. Courts are required to resolve doubt over the coverage of an arbitration agreement in favor of arbitration. Southland Corp. v. Keating,465 U.S. 1 , 10 [104 S.Ct. 852 ,79 L.Ed.2d 1 ] (1984). Adam Technologies does not dispute the Court’s finding that this case belongs in arbitration. However, in de*446 termining whether the arbitration agreement controlled in this case, it was unnecessary for the Court to determine whether the MSA or the LOI controlled the dispute between the parties. Sutherland maintains its claims are brought pursuant to the MSA. Adam Technologies argued that the claims appeared to be brought pursuant to the LOI. Because there was a dispute as to whether the MSA, and thus, the arbitration agreement, controlled, and whether the LOI was superseded by the MSA, the Court was required to resolve doubt in favor of arbitration. Id. The determination as to which contract controls the dispute between the parties is for the arbitrator. Because the Court finds that its determination that the LOI was superseded by the MSA was unnecessary to its judgment, the Order of October 18, 2010 is vacated.
The court held it was not necessary to determine whether Adam had brought suit under an expired agreement, which was the conclusion in the vacated order. Instead, because any doubts over the coverage of an arbitration agreement are to be resolved in favor of arbitration, the court held that it was for an arbitrator to determine which of the parties’ agreements controlled. This left undecided whether the Master Services Agreement superseded the Letter of Intent. Because only the Master Services Agreement provided for arbitration, this amended ruling left for the arbitrator the decision of whether arbitration was required. The amended order did not address what was to occur if the arbitration determined, which it did not, that the Letter of Intent controlled and that arbitration was not the procedure to be followed to resolve the dispute.
If the district court was still dismissing the suit, nothing in the order explicitly stated that. The most definitive statement as to the result of the amended order was that the “Court grants in part and denies in part” the motion to amend. The earlier decision to dismiss based on Rule 12(b)(6) no longer had its legal underpinning, namely, that the complaint was based on an expired agreement on which no relief could be based. As the court initially held:
The Court finds that the LOI does not apply to the parties!’] dispute, but instead the MSA is the governing contract. Adam’s entire original petition is based on the application of the LOI and therefore Adam has failed to state a claim for which relief can be granted. For the forgoing reasons the Court GRANTS Sutherland’s Motion to Dismiss.
No new judgment was entered. We will discuss below whether we interpret the revised order as still dismissing the suit.
On November 18, 2011, Adam filed a motion under different subparts of Rule 60(b) to vacate the final judgment on grounds that Sutherland engaged in fraudulent misconduct and alternatively that the case presented еxceptional circumstances. Fed.R.Civ.P. 60(b). While that motion was pending, and using the same cause number, Adam filed a motion to appoint an arbitrator under 9 U.S.C. § 5 on December 14, 2011. Adam argued in part that Spellane’s disqualification by the ICDR was procedurally faulty because Sutherland failed to make a timely challenge to the appointment in accordance with Article 8 of the ICDR Rules. Adam further contended that the challenge to Spellane lacked a valid, substantive basis. Adam also argued that the procedure followed by the ICDR to appoint a replacement arbitrator was error because Articles 6 and 10 of the ICDR Rules required one of the parties to provide a written request before such appointment could be made. Adam requested that the district court remove
On June 18, 2012, the district court determined that the parties agreed the method for appointing arbitrators had been established in the Master Services Agreement, which incorporated the ICDR Rules through the contractual adoption of the American Arbitration Association’s rules. The court concluded Adam presented procedural questions which were left to the discretion of the ICDR to decide. All relief was denied. Adam timely appealed.
The parties have informed the court that a related action is pending in the United States District Court for the Western District of New York. On August 2, 2012, the arbitration panel issued a final award in favor of Sutherland, and Sutherland subsequently filed a petition to confirm the arbitration award in accordance with 9 U.S.C. § 9 on August 16. On December 21, 2012, the federal district court in New York entered an order to hold the petition in abeyance until this court issues a decision.
DISCUSSION
I. Jurisdiction
Sutherland challenges the district court’s subject matter jurisdiction over Adam’s post-judgment motion to appoint an arbitrator under 9 U.S.C. § 5. Though the court denied the motion, had there been no jurisdiction, the order should be vacated. “We exercise plenary, de novo review of a district court’s assumption of subject matter jurisdiction.” Local 1351 Int’l Longshoremens Assoc. v. Sea-Land Serv. Inc.,
Sutherland invoked the federal court’s diversity jurisdiction when it removed Adam’s state-court application to stay the arbitration. 28 U.S.C. § 1332. Nevertheless, Sutherland argues the district court lacked jurisdiction to consider Adam’s motion because the case had already been dismissed,
It is prudent for parties to arbitration agreements to “insist upon the enforcement of their contractual rights” and compliance with 9 U.S.C. § 5. Brook v. Peak Int’l, Ltd.,
The Supreme Court held there was no ancillary jurisdiction because the original and subsequent claims were not factually interdependent, nor was the district court’s enforcement order neсessary to give effect to the previous decree. Id.,
The new filing in Kokkonen was not the original dispute revived with all the jurisdictional prerequisites still in place. The new claim sought enforcement of one part of the previous settlement regarding files and did not re-urge original claims in the litigation. Id. at 376-77, 381,
The case before us is much different. No settlement or final resolution was reached. Instead, the district court held that one of the contracts between the parties provided for arbitration of the dispute. The dismissal effectively required the parties to arbitrate their controversy and not rely on a court to resolve it, at least unless the arbitrator said the claim was not arbi-trable. The post-judgment motion sought to enforce that earlier decision by showing that the pursuit of arbitration was failing due to the fault of one of the parties. By the time of the motion, the arbitration panel had issued an order regarding the procedure for arbitration. No arbitration hearing was held until after the district court denied Adam’s motion. We consider these facts about the status of the arbitration to be relevant to the merits of the motion but to have little effect on the district court’s jurisdiction to consider whether its earlier order effectively requiring arbitration was being thwarted.
We find guidance in Kokkonen from the Court’s description of the two principal purposes for ancillary jurisdiction:
Generally speaking, we have asserted ancillary jurisdiction (in the very broad sense in which that term is sometimes used) for two separate, though sometimes related, purposes: (1) to permit disposition by a single court of claims that are, in varying respects and degrees, factually interdependent, and (2) to enable a court to function successfully, that is, to manage its proceedings,*449 vindicate its authority, and effectuate its decrees.
Id. at 379-80,
We conclude that the second Kokkonen category applies here for the following reasons. On May 26, 2011, the district court amended its original order, but we conclude that the case remained dismissed in order that arbitration could occur. It is true that the court did not in any of its orders specifically require arbitration, but the reason for the dismissal was so that the parties would proceed to resolve their dispute in an arbitral forum. We do not consider the Rule 60(b) motion that Adam filed on November 18, 2011, to be relevant in our jurisdictional analysis. None of what is in the appeal to this court arises from the Rule 60(b) allegations. Instead, the current appeal is from what began with Adam’s motion to appoint an arbitrаtor under Section 5 on December 14, 2011. The argument was that the previous judgment dismissing the case in favor of arbitration was being thwarted by a lapse in appointment. The arbitration was on the original issues of the case, and the jurisdiction over whether that authority needed to be vindicated and the decree effectuated was ancillary to that of the original proceedings.
The judgment dismissing Adam’s initial lawsuit operated, in all practical effect, as the functional equivalent of an order compelling arbitration between these parties.
The dissent relies on decisions in which we have applied Kokkonen in the context of the enforcement of settlement agreements. SmallBizPros, Inc. v. MacDonald,
A significant procedural difficulty in both cases was that because the voluntary dismissal was immediately effective upon its filing by the plaintiff, the plaintiff had to delay filing the dismissal until the court order itself was filed or else make the filed dismissal contingent upon the later court order; if neither option occurred, then the case would be dismissed and the later court order necessary for enforcement jurisdiction would be a nullity. E.g., Small-BizPros,
To be clear, the analysis of those two precedents did not limit Kokkonen’s reach to cases that had been voluntarily dismissed. The Supreme Court and our two cited precedents each dealt with enforcement of a settlement and the need for the district court to have in a valid way earlier expressed its retention of jurisdiction to enforce it. If the district court did not, then there would have to be some other and independent basis for jurisdiction. Kokkonen,
The Supreme Court acknowledged that “ancillary jurisdiction properly exists where it enables a court ‘to manage its proceedings, vindicate its authority, and effectuate its decrees....”’ SmallBizPros,
The dissent also relies on decisions from the other circuits to support its point that the dismissal оrder must reveal an intent to retain jurisdiction. Those cases also apply to enforcement of terms of a stipulated agreement. RE/MAX Int’l, Inc. v. Realty One, Inc.,
The Supreme Court emphasized in Kok-konen that what one party sought was an enforcement of settlement terms, which was “more than just a continuation or renewal of the dismissed suit.”
Here, the district court’s denial of Adam’s motion at this stage of the proceеdings constituted “a final decision with respect to an arbitration.” 9 U.S.C. § 16(a)(3); see BP Exploration,
Adam first argues the district court erred in refusing to appoint an arbitrator because Adam provided proof that the parties had reached a lapse in naming an arbitrator after the ICDR sustained Sutherland’s objection to Spellane, and Adam did not comply with the ICDR’s deadlines for appointing another arbitrator. Specifically, Adam contends the parties’ agreement provided for a specific procedure in which each party would select its choice arbitrator and that such procedure “broke down” when Adam insisted on аppointing Spellane.
The Federal Arbitration Act provides, in part:
If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed; but ... if for any other reason there shall be a lapse in the naming of an arbitrator ..., then upon the application of either party to the controversy the court shall designate and appoint an arbitrator....
9 U.S.C. § 5 (emphasis added).
Caselaw has described a “lapse” under Section 5 as “a lapse in time in the naming of the arbitrator or in the filling of a vacancy on a panel of arbitrators, or some other mechanical breakdown in the arbitrator selection process.” BP Exploration,
Here, there wаs no mechanical breakdown that required the court’s intervention. Instead, it was Adam’s own noncompliance with the ICDR’s procedural requirements that prompted the ICDR to appoint an arbitrator, an appointment which the ICDR determined was in accordance with its rules. Article 36 of the ICDR Rules states an arbitral tribunal or administrator shall interpret these rules.
Further, the facts of this case show no “lapse” occurred under Section 5. At the time of Adam’s filing its motion to appoint an arbitrator, an arbitration panel had been empaneled, and a final hearing date was set to resolve the underlying dispute. Those facts stand in contrast to those of BP Exploration, where “[t]he parties attempted to resolve the impasse for months, floating numerous ideas to no avail.” Id. Consequently, we reject Adam’s argument on appeal that the district court was required to intervene on grounds that a lapse had occurred in the appointment process.
Adam next argues the district court was required to reach the merits of Adam’s request to reinstate Spellane because Section 5 provides: “If in the agreement provision be made for a method of
First, by contesting the process used to select the arbitrators, Adam has advanced a “challenge!) ] that essentially [goes] to the procedure of arbitration.” Gulf Guar. Life Ins. Co. v. Conn. Gen. Life Ins. Co.,
Adam nevertheless contends that such presumption does not apply because the parties contractually agreed otherwise. We disagree with this reasoning on these facts. The parties’ arbitration agreement stated that a “dispute or controversy between thе Parties with respect to the interpretation or application or enforcement of any provision of this Agreement ... shall be resolved as provided in this Section.” That section required an initial informal attempt to resolve any dispute. If the dispute could not be resolved, the parties were required to refer the dispute for resolution by arbitration. In addition to explaining the arbitrator-selection process, the parties’ contract incorporated the rules of the American Arbitration Association, and consequently the ICDR Rules, into the arbitration section of their agreement. The ICDR Rules provide for the challenging and replacing of arbitrators. Thus, Adam’s appellate argument that the How-sam рresumption disappears because of Adam’s interpretation that the parties agreed otherwise is unavailing.
Second, at the time Adam challenged the arbitrator-selection process in the Texas district court, three arbitrators were already empaneled, and no arbitration award had yet been made. The court had no statutory authority to reach the merits of Adam’s argument after the arbitration process had proceeded but “prior to issuance of the arbitral award.” Gulf Guar. Life Ins. Co.,
Adam advances a related argument that the district court was required to appoint an arbitrator, which necessarily implicates Adam’s request in the district court to remove two arbitrators. This circuit has explained, though, the Federal Arbitration Act “does not provide for removal of an arbitrator from service prior to an award, but only for potential vacatur of any award.” Gulf Guar. Life Ins. Co.,
Last, Adam contends the ICDR’s disqualification of Spellane was improper because Sutherland’s challenge to Spellane was untimely under Article 8 of the ICDR Rules, and Sutherland failed to allege a proper basis for disqualification. Adam also argues the appointment of Spellane’s replacement was improper under Articles 6 and 10 of the ICDR Rules because the parties’ agreement did not provide restraints on the amount of time each party had to appoint an arbitrator. These contentions amount to procedural challenges, and the language of the parties’ arbitration agreement, as well as the law’s presumption, mandates these issues be resolved by
AFFIRMED.
Notes
. In the final judgment entered on October 18, 2010, the district court dismissed all claims for resolution by arbitration. Although Section 3 of the Federal Arbitration Act directs district courts to stay pending arbitration, we are bound by our precedent which states that dismissal is appropriate "when all of the issues raised in the district court must be submitted to arbitration.” Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir.1992).
. A decision frоm another circuit has relevant similarities. There, the federal court litigation began as an employment discrimination action. Smiga v. Dean Witter Reynolds, Inc.,
On appeal, the plaintiff argued the district court did nоt have jurisdiction to confirm the award partly because the parties did not, as set' out in 9 U.S.C. § 9, explicitly agree to have "a judgment of the court ... entered upon the award.” Id. at 705. Nevertheless, the court determined there was jurisdiction to confirm the award because the "order denying [the employee's] motion to stay arbitration was essentially the equivalent of an order by the district court to compel arbitration.” Id.
Dissenting Opinion
dissenting:
I dissent from the majority’s holding that the district court had ancillary jurisdiction to decide Adam’s post-judgment motion to appoint an arbitrator.
The district court did not have ancillary jurisdiction over Adam’s motion. A federal court does not automatically retain jurisdiction to hear a motion to enforcе a settlement agreement in a case it has previously dismissed. See Kokkonen v. Guardian Life Ins. Co. of Am.,
In Hospitality House, Inc. v. Gilbert, we examined whether a dismissal order’s reference to an agreed motion to dismiss sufficed to incorporate the parties’ settlement agreement into the court’s dismissal order where the motion to dismiss expressly incorporated the settlement agree
Here, the district court’s dismissal order did not indicate an intention to retain jurisdiction over the parties’ dispute. After the district court determined that the parties agreed to arbitrate their dispute, the district court issued its final judgment and order dismissing the case, stating, “Plaintiffs claims are dismissed for resolution by arbitration.” Adam did not appeal the decision, the arbitration proceeded, and the underlying case was closed. It was not until six months after the deadline for Adam to appeal the final judgment passed that Adam filed the instant motion to appoint an arbitrator. Just as the mere mention of the agreed motion to dismiss in Hospitality House did not suffice to indicate an intention to retain jurisdiction over disputes arising out of the parties’ settlement аgreement, so also did mere mention of the arbitration proceedings in the dismissal order fail to indicate an intention to retain jurisdiction over disputes arising out of the arbitration. As the district court’s dismissal order did not imply the district court intended to retain any jurisdiction over the parties’ dispute, under Kokkonen, the district court did not have ancillary jurisdiction to reach the merits of Adam’s motion.
The majority holds the district court had ancillary jurisdiction over Adam’s motion under Kokkonen because jurisdiction was necessary to effectuate the court’s decree, ante, at 449, but the court’s decree was merely to dismiss the case.
Respectfully, I dissent.
. In Washington Hospital, unlike in Kokkonen, the stipulated agreement signed by the district court clearly implied the district court intended to retain jurisdiction to enforce the terms of the settlement agreement:
We think there is little question that the district court retained jurisdiction to resolve allegations of non-compliance with the stipulated agreement. Paragraph nine of the court-approved stipulation states:
"Plaintiffs will make no further effort to have their claims adjudicated or to request judicial relief upon those claims except insofar as questions or issues are rаised: (1) by any failure of Defendants to comply with the terms of this Agreement.”
. Kokkonen implies that where there is an independent basis for jurisdiction over a post-judgment motion ancillary jurisdiction is unnecessary. "Enforcement of the settlement agreement, however, whether through award of damages or decree of specific performance, is more than just a continuation or renewal of the dismissed suit, and hence requires its own basis for jurisdiction.” Kokkonen,
. In support of its holding that the district court had jurisdiction the majority cites Smi-ga v. Dean Witter Reynolds, Inc.,
. Sutherland filed a separate action to confirm the arbitration award in the United States District Court for the Western District of New York, and that court stayed the proceeding pending the result of this appeal. The fact a federal district court in Texas decided Adam’s motion to appoint an arbitrator and a district court in New York will decide whether to confirm the arbitration award underscores the strange procedural posture of this case.
. Adam simultaneously filed a motion to vacate the arbitration panel’s final judgment on grounds that Sutherland engaged in fraudulent misconduct and the case presented exceptional circumstances.