ADAM TECHNOLOGIES INTERNATIONAL S.A. dе C.V., Plaintiff-Appellant v. SUTHERLAND GLOBAL SERVICES, INCORPORATED, Defendant-Appellee.
No. 12-10760.
United States Court of Appeals, Fifth Circuit.
Sept. 5, 2013.
729 F.3d 443
C.
The Providers argue that subsection (A)s cause of action is unconstitutionally vague, but, as we explained above, they lack standing to pursue that claim against these defendants. The Providers do not contend that subsection (C)(2) is unconstitutionally vague.
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We REVERSE the judgment of the district court striking down subsection (C)(2) of Act 825. We VACATE its judgment regarding subsection (A) and dismiss that claim for want of jurisdiction.
Lance E. Caughfield, General Attorney, Stephen A. Khoury, Kelsoe, Anderson, Khoury & Clark, Dallas, TX, for Plaintiff-Appellant.
Joel Randall Sharp, Attorney, Bryan Christopher Bond, Hunton & Williams, L.L.P., Dallas, TX, for Defendant-Appellee.
Before GARZA, SOUTHWICK, and HAYNES, Circuit Judges.
LESLIE H. SOUTHWICK, Circuit Judge:
Adam Technologies International S.A. de C.V. appeals the district courts 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 рrovided 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
On October 18, 2010, the district court entered a final judgment and dismissed Adams 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 сlaims on an expired agreement, Adam had failed to state a claim upon which relief could be granted.
In February 2011, the parties attempted 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 аrbitration 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, presiding 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 Associаtion that administers arbitration between internationally diverse parties, informed Sutherland that both arbitrators had agreed to serve. On May 16, Sutherland challenged Spellanes appointment under Articles 7 and 8 of the ICDR International Arbitration Rules because of Spellanes former involvement in the controversy and his ex parte communications with the parties.
Adam contended that Sutherlands challenge was untimely, but the ICDR sustained the objection on June 6, and required Adam to appoint a new arbitrator by June 21. Adam then filed a notice to arbitrate Spellanes 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 ultimately failed to appoint anyone by the ICDRs subsequent deadline of July 12. On July 29, the ICDR appointed the second arbitrator, who worked with Sutherlands 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 Courts finding that this case belongs in arbitration. However, in de-
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
The Court finds that the LOI does not apply to the parties[‘] dispute, but instead the MSA is the governing contract. Adams entire original petition is based on the application of the LOI аnd therefore Adam has failed to state a claim for which relief can be granted. For the forgoing reasons the Court GRANTS Sutherlands 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
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 Associations 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
DISCUSSION
I. Jurisdiction
Sutherland challenges the district courts subject matter jurisdiction over Adams post-judgment motion to appoint an arbitrator under
Sutherland invoked the federal courts diversity jurisdiction when it removed Adams state-court application to stay the arbitration.
It is prudent for parties to arbitration agreements to “insist upon the enforcement of their contractual rights” and compliance with
The Supreme Court held there was no ancillary jurisdiction because the original and subsequent claims were not factually interdependent, nor was the district courts enforcement order necessary to give effect to the previous decree. Id. at 379-81. In the previous dismissal of the complaint and cross-complaint, the district court signed the parties’ proposed order with no reservation of jurisdiction or incorporation of the agreement. Id. at 376-77. Similarly in the prior proceedings in our case, the final judgment of October 18, 2010, dismissed all claims “for resolution by arbitration.” When that judgement was amended on May 26, 2011, there was no suggestion that the suit was no longer dismissed.
The new filing in Kokkonen was not the original dispute revivеd 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. Consequently, the federal court did not have an “independent basis for federal jurisdiction.” Id. at 382.
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 arbitrable. 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 Adams 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 courts jurisdiction to consider whether its earlier order effectively requiring arbitration was being thwarted.
We find guidance in Kokkonen from the Courts 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,
vindicate its authority, and effectuate its decrees.
Id. at 379-80 (citations omitted).
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 rеlevant 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 Adams motion to appoint an arbitrator 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 Adams initial lawsuit operated, in all practical effect, as the functional equivalent of an order compelling arbitration between these parties.2 We conclude that ancillary jurisdiction existed to allow the district court later to evaluate whether the dismissal that allowed the dispute to be taken to arbitration was being thwarted. The district court eventually decided it had no role to play, but we find no absence of jurisdiction for making that evaluation and reaching that conclusion.
The dissent relies on decisions in which we have applied Kokkonen in the context of the enforcement of settlement agreements. SmallBizPros, Inc. v. MacDonald, 618 F.3d 458, 460–61 (5th Cir. 2010); Hospitality House, Inc. v. Gilbert, 298 F.3d 424, 428, 430 (5th Cir. 2002). The dismissals in those two lawsuits had been pursuant to a rule permitting a plaintiff to dismiss a case voluntarily. SmallBizPros, 618 F.3d at 460; Hospitality House, 298 F.3d at 430 n. 6 (citing
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., SmallBizPros, 618 F.3d at 462-63. Neither dismissal in the present case was voluntary. The dismissal on October 18, 2010 was under
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, 511 U.S. at 382.
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, 618 F.3d at 461-62 (quoting Kokkonen, 511 U.S. at 380). We see a significant distinction between deciding that a court is not vindicating its authority when it is enforcing a contract of settlement which the cоurt did not require but only acceded to by dismissal, and deciding that a district court is vindicating its authority by requiring parties to honor the courts decision that an obligation to arbitrate necessitated involuntary dismissal of a case. The final judgment of October 2010 stated the claims were “dismissed for resolution by arbitration.” In May 2011, the district court noted in its order on Adams motion for reconsideration, that the courts October 2010 “finding that this case belongs in arbitration” was not being challenged. The order responded to some arguments by stating they would be for the arbitrator. We have held that the district court effectively if only implicitly ordered arbitration. If a party interferes with the carrying out of an order to arbitrate, there is effectuation and vindication inherеnt in the district court entering relevant new orders.
The dissent also relies on decisions from the other circuits to support its point that the dismissal order 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., 271 F.3d 633, 641 (6th Cir. 2001); Washington Hosp. v. White, 889 F.2d 1294, 1297–99 (3d Cir. 1989).
The Supreme Court emphasized in Kokkonen that what one party sought was an enforcement of settlement terms, which was “more than just a continuation or renewal of the dismissed suit.” 511 U.S. at 378. We are not considering a settlement agreement. Our jurisdictional question is to be answered in the context of a courts dismissal of a case so that it will be arbitrated. The Supreme Court in Kokkonen allowed the use of ancillary jurisdiction to “enable a court to function successfully, that is, to manage its proceedings, vindiсate its authority, and effectuate its decrees.” Id. at 380. We conclude that is what occurred here.
Here, the district courts denial of Adams motion at this stage of the proceedings constituted “a final decision with respect to an arbitration.”
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 Sutherlands objection to Spellane, and Adam did not comply with the ICDRs deadlines for appointing another arbitrator. Specifically, Adam contends the parties’ agreement provided for a specific procedurе in which each party would select its choice arbitrator and that such procedure “broke down” when Adam insisted on appointing 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....
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, 689 F.3d at 491-92 (quotation marks omitted). In BP Exploration, the three parties involved had “reached an impenetrable deadlock over the appointment of arbitrators” despite the presence of an appointment method because such method did not contemplate the existence of three parties to the controversy. Id. at 492. The party initiating arbitration appointed an arbitrator in accordance with the agreement. Id. The co-respondents were then required to appoint arbitrators. Id. The agreement required both a total of three arbitrators and the appointment of a neutral arbitrator “at the unanimous choosing of the party-appointed arbitrators.” Id. With еach party having appointed an arbitrator, the parties could not comply with the agreed-to appointment method.
Here, there was no mechanical breakdown that required the courts intervention. Instead, it was Adams own non-compliance with the ICDRs 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 Adams 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 Adams 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 Adams 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., 304 F.3d 476, 488 (5th Cir. 2002). The law presumes that “procedural questions” are for an arbitrator to decide. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002).
Adam nevertheless contends that such presumption does not apply because the parties contractually agreed otherwise. We disagrеe with this reasoning on these facts. The parties’ arbitration agreement stated that a “dispute or controversy between the 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 agrеement. The ICDR Rules provide for the challenging and replacing of arbitrators. Thus, Adams appellate argument that the Howsam presumption disappears because of Adams 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 Adams argument after the arbitration process had proceeded but “prior to issuance of the arbitral award.” Gulf Guar. Life Ins. Co., 304 F.3d at 488, 490; see Brook, 294 F.3d at 673-74.
Adam advances a related argument that the district court was required to appoint an arbitrator, which necessarily implicates Adams 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., 304 F.3d at 490. Adam did not, and could not have at the time, move for a vacatur of an award in the district court. Therefore, we cannot conclude the district court erred in denying the motion to appoint an arbitrator based on this argument.
Last, Adam contends the ICDRs disqualification of Spellane was improper because Sutherlands 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 Spellanes 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.
EMILIO M. GARZA, Circuit Judge, dissenting:
I dissent from the majority‘s holding that the district court had ancillary jurisdiction to decide Adams post-judgment motion to appoint an arbitrator.
The district court did not have ancillary jurisdiction over Adams motion. A federal court does not automаtically retain jurisdiction to hear a motion to enforce a settlement agreement in a case it has previously dismissed. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 380-82, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). The touchstone of whether the district court retains jurisdiction post-dismissal to enforce the terms of a settlement agreement is whether it is possible to infer such an intention from its dismissal order. SmallBizPros, Inc. v. MacDonald, 618 F.3d 458, 464 (5th Cir. 2010) (holding in order to retain jurisdiction to enforce parties’ settlement agreement district court‘s dismissal order “must expressly retain jurisdiction or must otherwise embody the terms of the agreement within the dismissal order so that any violation of the terms would also be a violation of the court‘s order.“); Washington Hosp. v. White, 889 F.2d 1294, 1298-99 (3d Cir. 1989) (“Although a district court does not have continuing jurisdiction over disputes about its orders merely because it had jurisdiction over thе original dispute, a stipulated agreement signed by the court does allow a district court to retain jurisdiction.... All that is necessary is that it be possible to infer that he did intend to retain jurisdiction.“) (emphasis added). In Kokkonen, in holding the district court lacked jurisdiction to enforce the settlement agreement, the Court placed great weight on the fact the dismissal order did not even reference the settlement agreement. 511 U.S. at 377 (“The Stipulation and Order did not reserve jurisdiction in the District Court to enforce the settlement agreement; indeed, it did not so much as refer to the settlement agreement.“); See RE/MAX Int‘l, Inc. v. Realty One, Inc., 271 F.3d 633, 643 (6th Cir. 2001) (”Kokkonen only requires a reasonable indication that the court has retained jurisdiction, such as a provision retaining jurisdiction over the settlement agrеement. In this way, the Court intended to avoid subjective interpretations of what a district court intended to accomplish through its order of dismissal....“).1
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 rеtain jurisdiction over disputes arising out of the parties’ settlement agreement, 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 Adams motion.2 Cf. Bell v. Schexnayder, 36 F.3d 447, 448 (5th Cir. 1994) (holding district court had properly retained jurisdiction by including language in dismissal order that gave parties right to reopen judgment if settlement was not consummated within sixty days).
The majority holds the district court had ancillary jurisdiction over Adams motion under Kokkonen because jurisdiction was necessary to effectuаte the court‘s decree, ante, at 449, but the court‘s decree was merely to dismiss the case.3 Had the dis-
Respectfully, I dissent.
John A. IRVINE; Lynda Irvine; Kenneth L. Kraemer; Billy J. White; Ina J. White, Plaintiffs-Appellants v. UNITED STATES of America, Defendant-Appellee.
No. 12-20523.
United States Court of Appeals, Fifth Circuit.
Sept. 5, 2013.
Notes
889 F.2d at 1299. The Third Circuit thus held under Kokkonen the district court had jurisdiction to enforce the terms of the parties’ agreement. Id.“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 raised: (1) by any failure of Defendants to comply with the terms of this Agreеment.”