General Electric Co v. Deutz AG ( 2001 )

Opinions of the United
2001 Decisions States Court of Appeals
for the Third Circuit
10-31-2001
General Electric Co v. Deutz AG
Precedential or Non-Precedential:
Docket 00-2387
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Filed October 31, 2001
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 00-2387
GENERAL ELECTRIC COMPANY
v.
DEUTZ AG,
Appellant
ON APPEAL FROM THE
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
(D.C. Civ. No. 98-00370E)
District Judge: Honorable Sean J. McLaughlin
Argued: June 26, 2001
Before: NYGAARD, WEIS, and REAVLEY,*
Circuit Judges
(Filed: October 31, 2001)
Michael E. Barry (ARGUED)
Evan S. Williams
Gardner, Carton & Douglas
321 North Clark Street, Suite 3400
Chicago, Illinois 60610-4795
_________________________________________________________________
*Honorable Thomas M. Reavley, United States Circuit Judge for the Fifth
Circuit, sitting by designation.
Kenneth Wargo
Quinn, Buseck, Leemhuis, Toohey
& Kroto, Inc.
2222 West Grandview Boulevard
Erie, Pennsylvania 16506-4509
Attorneys for Appellant
David W. Rivkin, Esq. (ARGUED)
Frances L. Kellner, Esq.
Debevoise & Plimpton
919 Third Avenue
New York, New York 10022
Roger H. Taft, Esq.
MacDonald, Illig, Jones &
Britton, L.L.P.
100 State Street, Suite 700
Erie, Pennsylvania 16507
Attorneys For Appellee
OPINION OF THE COURT
WEIS, Circuit Judge.
In this breach of contract suit, the District Court found
that the defendant, a German guarantor, had sufficient
contacts with Pennsylvania to be subject to personal
jurisdiction. After a jury determination, the Court also
found that the defendant was not entitled to invoke the
arbitration clause in the underlying contract signed by its
subsidiary. We will affirm these rulings. The Court also
enjoined the defendant from applying to the English courts
to enforce the alleged right to arbitration. We will reverse
the grant of that injunction principally on the grounds of
comity.
In June 1993, plaintiff General Electric, a New York
corporation with manufacturing facilities in western
Pennsylvania, entered into a contract with Moteren-Werke
Mannheim AG, a German corporation with headquarters in
Mannheim, Germany. Essentially, the agreement provided
that Moteren-Werke would design, and General Electric
2
would manufacture, high horsepower diesel engines for
locomotives. The contract also included a section in which
Deutz AG,1 the parent company of Moteren-Werke,
guaranteed the obligations of its subsidiary.
By late 1997, the joint venture was encountering
difficulties, and General Electric eventually called upon
Deutz to provide the additional funding necessary for the
work to continue. The parties held extended discussions,
but were unable to resolve their differences. In December
1998, General Electric filed suit in the United States
District Court for the Western District of Pennsylvania,
asserting breach of contract claims against Deutz. The
complaint sought damages as a result of lost sales and
diversion of resources toward tasks that were the
contractual responsibility of Moteren-Werke.
Deutz moved to dismiss for lack of personal jurisdiction
or, alternatively, to compel international arbitration as it
alleged the contract required. In July 1999, while these
matters were proceeding in the District Court, Deutz sought
arbitration before a panel of the International Arbitration
Association in London.
The District Court issued an Opinion and Order on
December 29, 1999, holding that Deutz's contacts with the
forum state, made in the course of pre-contract
negotiations and post-contract visits by Deutz executives in
an effort to resolve the parties' dispute, provided sufficient
evidence to support a finding of specific jurisdiction. The
Court also ruled that the language of the contract did not
unambiguously include Deutz within the scope of its
arbitration provisions. The issue was submitted to a jury,
which found that Deutz was not entitled to arbitration.
In April 2000, before the arbitration panel issued a
decision, Deutz petitioned the High Court in London to
enjoin General Electric from further proceedings in the
Western District of Pennsylvania. The High Court declined
to issue an injunction.
_________________________________________________________________
1. At the time the contract was signed, Deutz was known as Klockner-
Humboldt-Deutz. It was the latter entity, often referred to as "KHD," that
actually signed the contract. For convenience, we will refer to the
company throughout this Opinion as "Deutz," the name it later assumed.
3
On July 31, 2000, the District Court enjoined Deutz from
resorting to the High Court in the future. It was not until
November 14, 2000, that the arbitration Panel held that
General Electric and Deutz had not agreed to arbitrate their
contractual disputes. Deutz has appealed all of the orders
of the District Court.
I.
We first address our appellate jurisdiction. Generally
speaking, an order finding personal jurisdiction is
interlocutory and non-appealable. In this case, however, we
have jurisdiction over the appeal from the injunction. 28
U.S.C. S 1292(a)(1). Interlocutory orders that are
"inextricably bound" to an injunction may also be
considered in the same appeal. Kershner v. Mazurkiewicz,
670 F.2d 440, 449 (3d Cir. 1982) (en banc); see also
Marshak v. Treadwell, 240 F.3d 184, 190 (3d Cir. 2001)
("When we have jurisdiction to review an order relating to
an injunction under S 1292(a)(1), our jurisdiction extends to
matters inextricably linked to the appealable order.").
The order finding personal jurisdiction is essential to the
validity of the injunction in this case. If jurisdiction does
not exist, then the District Court necessarily lacked the
power to issue the injunction. Accordingly, the personal
jurisdiction matter is properly before us.
The ruling finding the arbitration clause inapplicable to
Deutz is appealable under 9 U.S.C. S 16(a)(1). Again, there
is an unmistakable overlap of issues between the injunction
and the legitimacy of the order denying arbitration. We
therefore have appellate jurisdiction over the orders
presented in this appeal.
II.
PERSONAL JURISDICTION
Due process shields persons from the judgments of a
forum with which they have established no substantial ties
or relationship. In order to be subject to personal
jurisdiction, a defendant's conduct in connection with the
4
forum state must be such that he may "reasonably
anticipate being haled into court there." World-wide
Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980).
Once it is challenged, the burden rests upon the plaintiff
to establish personal jurisdiction. Mellon Bank (East) PSFS,
Nat'l Ass'n v. Farino, 960 F.2d 1217, 1223 (3d Cir. 1992).
A nexus between the defendant, the forum and the
litigation is the essential foundation of in personam
jurisdiction.
Personal jurisdiction may be either general or specific. A
defendant is subject to general jurisdiction when it has
continuous and systematic contacts with the forum state.
Helicopteros Nacionales de Columbia, S.A. v. Hall , 466 U.S.
408, 414-16 (1984).
Specific jurisdiction is established when a non-resident
defendant has "purposefully directed" his activities at a
resident of the forum and the injury arises from or is
related to those activities. Burger King Corp. v. Rudzewicz,
471 U.S. 462, 472 (1985); see also Dollar Sav. Bank v. First
Sec. Bank of Utah, N.A., 746 F.2d 208 (3d Cir. 1984)
(discussing personal jurisdiction).
Questions of specific jurisdiction are properly tied to the
particular claims asserted. In contract cases, courts should
inquire whether the defendant's contacts with the forum
were instrumental in either the formation of the contract or
its breach. Phillips Exeter Acad. v. Howard Phillips Fund,
Inc., 196 F.3d 284, 289 (1st Cir. 1999). Parties who "reach
out beyond [their] state and create continuing relationships
and obligations with citizens of another state" are subject to
the regulations of their activity in that undertaking. Burger
King, 471 U.S. at 473 (quotations omitted). Courts are not
reluctant to find personal jurisdiction in such instances.
"[M]odern transportation and communications have made it
much less burdensome for a party sued to defend himself
in a State where he engages in economic activity . .. ." Id.
at 474.
Specific jurisdiction frequently depends on physical
contacts with the forum. Actual presence during pre-
contractual negotiations, performance, and resolution of
post-contract difficulties is generally factored into the
5
jurisdictional determination. Remick v. Manfredy , 238 F.3d
248, 255-56 (3d Cir. 2001); Farino, 960 F.2d at 1223-24. In
modern commercial business arrangements, however,
communication by electronic facilities, rather than physical
presence, is the rule. Where these types of long-term
relationships have been established, actual territorial
presence becomes less determinative. Burger King , 471 U.S.
at 476.
It is not significant that one or the other party initiated
the relationship. Carteret Sav. Bank, FA v. Shushan, 954
F.2d 141, 150 (3d Cir. 1992). In the commercial milieu, the
intention to establish a common venture extending over a
substantial period of time is a more important
consideration.
The record here demonstrates both physical contacts and
a deliberate assumption of long-term obligations. In 1993,
when it began negotiations with General Electric, Moteren-
Werke was one of several subsidiaries of Deutz. Both
companies retained the same law firm in Philadelphia,
Pennsylvania to represent their interests. After Moteren-
Werke had reached an agreement with General Electric on
most of the contract's terms, the document was reviewed by
Dr. Gunther Wagner, Executive Vice-President of Deutz and
a member of its Board of Directors.
Moteren-Werke began performing its contractual
obligations in Pennsylvania shortly after the agreement was
signed on June 15, 1993. The following year, Dr. Wagner,
who was not only a Deutz executive but also a member of
the Moteren-Werke management board responsible for its
engine business, met with General Electric officials in
Pennsylvania. The parties addressed Deutz's financial
stability as well as other matters related to performance of
the contract.
In 1996, Anton Schneider, Chairman of Deutz's Executive
Board, joined Moteren-Werke officials in a tour of General
Electric's Erie and Grove City, Pennsylvania facilities. At
that time, he discussed with General Electric officials such
matters as the development status of the engines and the
level of resources required to complete the venture.
6
In mid-1996, Deutz moved to curtail its subsidiaries'
losses and reduce the number of Moteren-Werke employees
on the General Electric project. The following year, the
parties held a conference in Erie, Pennsylvania; in
attendance were Peter Stark, a member of Deutz's
management board and chairman of the management
board of Moteren-Werke, three other Moteren-Werke
employees, and several General Electric officials. Stark
promised that Deutz would supply additional resources for
the project. He returned to Erie in February 1998 to
determine if a new engine was ready for marketing.
In mid-April 1998, Deutz announced its intention to
completely take over the Moteren-Werke business. Dr.
Leopold Mikulic, a vice president of Deutz, traveled to Erie
on three separate occasions in June and July of 1998 for
meetings with General Electric representatives. Deutz's
Chairman Schneider accompanied him on the last of these
occasions. Neither these sessions nor extensive
correspondence enabled the companies to resolve their
dispute. Accordingly, on December 22, 1998, General
Electric filed suit in the District Court against Deutz alone,
alleging that it and Moteren-Werke had breached the
contract.2
Deutz's motion for dismissal contended that the Court
lacked personal jurisdiction because the Deutz officials who
came from Germany were acting solely on behalf of
Moteren-Werke and did not represent its parent company.
The District Court rejected that contention, and we do not
find fault with its conclusion. The record reveals that Deutz
failed to keep its presence or interests separate from those
of Moteren-Werke. Deutz's financial status, a matter critical
to its obligations as guarantor, was a frequent subject at
the conferences held by the companies. Deutz's continued
requests for additional financial contributions from General
Electric were likewise intimately related to the guarantor's
liability.
The Deutz and Moteren-Werke entities made little effort
to maintain their independence. The overlapping and
_________________________________________________________________
2. Moteren-Werke was not named as a defendant, presumably because it
was bound by the arbitration clause in the contract.
7
interlocking committees and officials came close to creating
a de facto alter ego arrangement.3 The visits by Deutz
officials were not casual or fortuitous events, but serious
efforts aimed at furthering the joint commercial enterprise.
Deutz's status as a guarantor was not merely incidental,
but was an important, perhaps indispensable, ingredient of
the project, and the stakes were not minimal.
In sum, the behavior of Deutz and its officials clearly
amounts to "purposeful direction" of business activity
toward General Electric, a Pennsylvania resident. It is also
beyond dispute that this suit arose out of Deutz's
contractual endeavors. Finally, Pennsylvania's assertion of
personal jurisdiction over Deutz is neither unfair nor
unreasonable.
Unquestionably, it is less convenient for a German
corporation to litigate in Pennsylvania, but Deutz had
actively overseen the performance of the contract in that
state for five years with no apparent difficulties in
communication or travel. Given that the contract was
performed primarily in Pennsylvania, General Electric has
an obvious interest in conducting this litigation there.
Deutz, moreover, has failed to present any persuasive
reason why the matter should not proceed in that forum.
See Travelers Health Ass'n v. Virginia, 339 U.S. 643, 648
(1950) (discussing state's interest that contractual
obligations be observed).
Thus, we conclude that the District Court correctly
determined that Deutz's activities adequately supported a
finding of specific jurisdiction.
_________________________________________________________________
3. On January 27, 1999, some months after General Electric filed this
suit, Deutz purchased all of Moteren-Werke's assets and obligations
under the 1993 agreement. As the District Court observed, that
transaction did not affect Deutz's purported arbitration rights vis-a-vis
General Electric.
8
III.
THE ARBITRATION AGREEMENT
As its alternate challenge to the District Court's
jurisdiction, Deutz insisted that as guarantor, it and
General Electric were bound by the terms of the arbitration
provisions in the Moteren-Werke contract. Deutz contended
that the question of arbitrability was one for the arbiters to
decide in the first instance. Because the arbitration clause
did not clearly and unmistakably provide for arbitral
determination of jurisdiction, however, the Court ruled that
it must resolve the issue. See AT&T Tech., Inc. v.
Communications Workers of Am., 475 U.S. 643, 651 (1986)
("It is the court's duty to interpret the agreement and to
determine whether the parties intended to arbitrate
grievances . . . ."). As events developed, Deutz ultimately
did obtain a decision by the arbitration panel on
jurisdiction, though it was adverse. Be that as it may, we
are not relieved of our responsibility to review the District
Court's ruling.
The contract is titled "Commercial Agreement dated June
15th, 1993 between Moteren-Werke Mannheim AG and
General Electric Company," indicating that the Agreement
was between those two entities. Those companies initialed
every page of the Agreement; Deutz did not.
Section 7.01 provides that "[a]ll disputes, controversies,
and claims directly or indirectly arising out of or in relation
to this Agreement" shall be submitted to arbitration.
Elsewhere in Article 7, which establishes arbitration
procedures, the contract states that General Electric and
Moteren-Werke would nominate the arbiters and that
General Electric and Moteren-Werke agree to certain
conditions. Deutz is not mentioned in that section.
Deutz signed the contract in a separate signature block,
specifying that it was a party "for purposes of the
obligations set forth in Section 9.08 hereof and Sections
4.05, 4.06, and 4.07 hereof." Section 9.08 contains the
guaranty, and Sections 4.05 through 4.07 require the
parties and their affiliates to maintain the confidentiality of
design and other information. Section 9.04, the only other
9
portion of the agreement that mentions Deutz, provides
that a copy of any notice to Moteren-Werke should also be
sent to its parent company.
General Electric argued that Deutz had only agreed to be
bound to the specific portions of the contract listed in the
signature block, and had not expressly or impliedly adopted
the arbitration clause. Deutz responded that although it
limited its participation to specific portions of the
agreement, the framework of that document, including
such provisions as notice, governing law, and dispute
resolution, was intended to be part of its commitment.
Applying the forum's conflicts of laws doctrine, the
District Court concluded that Pennsylvania law should
govern because that state had the greatest interest in the
outcome of the dispute. That forum was the site of most of
the contract's performance, as well as the location of much
of the pre-contract negotiations. Although the arbitration
clause called for the application of Swiss law, that provision
applied to the arbitration proceeding, not to the initial
determination of whether there had been an agreement on
who would decide arbitrability. In any event, there did not
appear to be any substantial difference between
Pennsylvania and Swiss law in this respect.
After giving due consideration to the language of the
contract and the parties' conflicting interpretations, the
Court concluded that the arbitration clause was
ambiguous. Accordingly, the matter was submitted to a
jury as permitted by the Federal Arbitration Act. See 9
U.S.C. S 4. After two days of testimony from both parties'
negotiators, the jury returned a special verdict, finding that
General Electric and Deutz had not agreed to arbitrate their
disputes.
Deutz now contests the District Court's determination
that the arbitration clause was ambiguous. Having reviewed
the contractual language, however, we are not persuaded
that the District Court's ruling was erroneous. In finding
that the contentions of both parties were reasonable, the
Court took an even-handed view of the dispute that cannot,
we conclude, fairly be criticized.
10
Deutz points to landmark Supreme Court decisions in
support of its position that federal policy favors arbitration
for the resolution of international commercial disputes, see
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473
U.S. 614, 631 (1985), and that "any doubts concerning the
scope of arbitrable issues should be resolved in favor of
arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 24-25 (1983). Although we agree that
providing for dispute resolution in a neutral forum by an
acknowledged competent agency is highly desirable, the
matter does not end there. A court may only compel a party
to arbitrate where that party has entered into a written
agreement to do so. E.I. DuPont de Nemours & Co. v. Rhone
Poulenc Fiber & Resin Intermediates, S.A.S., No. 00-3550,
2001 WL 1229797, at *4 (3d Cir. Oct. 15, 2001) (quotations
omitted).
The United States Courts certainly recognize
international arbitration agreements. Our nation, like the
United Kingdom, Germany and scores of other countries,
has adopted the United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards
("The New York Convention"), June 10, 1958, 21 U.S.T.
2517, T.I.A.S. No. 6997, reprinted in 9 U.S.C. S 201 note.
The Federal Arbitration Act implements the United States'
accession to the Convention, see 9 U.S.C.SS 201-08, and
provides that it "shall be enforced in United States courts
. . . ." Id. S 201. The arbitration clause in the instant case
falls within the ambit of the Convention and the Federal
Arbitration Act.
As the Supreme Court observed in Scherk v. Alberto-
Culver Co., 417 U.S. 506, 520 n.15 (1974), the goal of the
Convention is to encourage the recognition and
enforcement of commercial contracts and to unify the
standards by which arbitration agreements are observed.
We have commented that "[t]he policy of the Convention is
best served by an approach which leads to upholding
agreements to arbitrate." Rhone Mediterranee Compagnia
Francese di Assicurazioni E Riassicurazoni v. Lauro , 712
F.2d 50, 54 (3d Cir. 1983).
Federal law applies to the interpretation of arbitration
agreements. Scherk, 417 U.S. at 519-20; Becker Autoradio
11
U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 43
(3d Cir. 1978). If the parties have stipulated that certain
disputes will be submitted to arbitration and that the law
of a particular jurisdiction will govern the controversy,
federal courts will enforce that agreement. Becker
Autoradio, 585 F.2d at 43.
Thus, "whether a particular dispute is within the class of
those disputes governed by the arbitration and choice of
law clause is a matter of federal law." Id . The court decides
the arbitrability of a dispute. Id. at 44 n.10. Although the
issue of ambiguity per se is one of law, resolution of the
uncertainty is one for the fact-finder. See Ram Constr. Co.
v. Am. States Ins. Co., 749 F.2d 1049, 1052 (3d Cir. 1984).
In general, then, federal rather than state law governs
international arbitration agreements. It appears, however,
that there is a limited exception to this rule where the
question is whether the controversy is arbitrable.
The Supreme Court has explained that if the arbitration
agreement does not provide that the question of
arbitrability vel non is to be decided by the arbitrators, then
a court determines the issue. First Options of Chicago, Inc.
v. Kaplan, 514 U.S. 938, 944-47 (1995). In so doing, a
court should apply ordinary state law principles governing
contract formation. Id. at 944. "Courts should not assume
that the parties agreed to arbitrate arbitrability unless there
is clear and unmistakable evidence that they did so." Id.(internal quotations omitted). On the contrary,"the law
treats silence or ambiguity about the question who
(primarily) should decide arbitrability differently from the
way it treats silence or ambiguity about the question
whether a particular merits-related dispute is arbitrable
. . . ." Id. (internal quotations omitted).
In these situations, the law reverses the ordinary
presumption of arbitrability. Id. at 944-45. This approach
reflects a reluctance to "force unwilling parties to arbitrate
a matter they reasonably would have thought a judge . . .
would decide." Id. at 945.
We recognize that First Options is a domestic arbitration
case, but the international nature of the present litigation
does not affect the application of First Options ' principles.
12
In any event, the question of whether federal or state law
applies is not a determinative factor at this point. Neither
party urges the application of federal law to the
interpretation of the agreement; they have limited their
choices to either Swiss or Pennsylvania law. In general, we
respect the choice of law that parties agree upon to resolve
their private disputes. See Assicurazioni Generali, S.P.A. v.
Clover, 195 F.3d 161, 164-65 (3d Cir. 1999); see also 19
Charles A. Wright, Arthur R. Miller, & Edward H. Cooper,
Fed. Prac. & Proc. S 4514, at 135 (2d ed. Supp. 2001) ("[T]he
law ordinarily allows parties to a contract to structure their
affairs by choosing to have their contract governed by the
body of law that best suits their needs . . . ."). In addition,
we doubt that the application of federal law would change
the outcome of this litigation in any significant respect.
Deutz further contends that the special verdict slip given
to the jurors misled them by asking whether General
Electric and Deutz "both agreed to arbitrate difficulties with
each other." Deutz's only objection to this language at trial
was aimed at the use of the word "both;" as its attorney
stated, "[w]e have two people, they either agreed or didn't
agree . . . . [the word "both" is] not necessary." We find no
reversible error in the text of the verdict slip.
Deutz also asks us to find that the evidence indicating an
agreement to arbitrate was so overwhelmingly favorable to
it that we should grant judgment in its favor on this point.
We are not persuaded that the record supports Deutz's
optimistic evaluation of the strength of its case, nor that we
should reverse the jury's factual finding. "[J]ury verdicts
can be overturned only if the record fails to contain the
minimum quantum of evidence from which the jury could
have rationally reached a verdict." Dutton v. Wolpoff &
Abramson, 5 F.3d 649, 653 (3d Cir. 1993) (internal
quotations omitted).
In sum, we find no error in the District Court's resolution
on the issue of arbitrability. Moreover, although not
controlling on us or the District Court, it is interesting that
the ICC Panel, applying Swiss law, also held that Deutz was
not entitled to arbitration. Focusing first on the provisions
listed in Deutz's signature block and the fact that the
13
article establishing arbitration procedures did not mention
Deutz, the Panel found the contract ambiguous.
Swiss law required the Panel to look to the parties' pre-
contract history and other relevant circumstances. After
considering Deutz's active participation in the negotiations,
its refusal to add a reference to Article 7 in the signature
block in spite of the attention this portion of the contract
received during the final two weeks of negotiations, and the
fact that all parties were assisted by lawyers, the Panel held
that there was no arbitration agreement between Deutz and
General Electric. It also observed that the outcome would
not have been different had it adhered to one of the other
possibly applicable national laws.
We also note in passing Deutz's contention that it is
inconsistent to suggest that the company approached the
status of Moteren-Werke's "alter ego" for the purposes of
personal jurisdiction, but not in connection with the
arbitration clause. This argument confuses two very
different issues, the terms of the contract and Deutz's
presence in Pennsylvania.
The fact that many Moteren-Werke officials were also
high-ranking officers of Deutz is relevant to the personal
jurisdiction analysis because the personal contacts these
officials had with the forum state were made on behalf of
both the parent company and its subsidiary. It is not the
alter ego arrangement that gave the District Court personal
jurisdiction over Deutz. Rather, it is the fact that Deutz
officials -- in their own capacity as well as in that of
managers of Moteren-Werke -- made frequent contact with
General Electric in Pennsylvania for the purpose of
discussing issues pertaining to Deutz's obligations under
the contract.
On the other hand, the contract text distinguishes the
obligations of Moteren-Werke and its parent company. The
interrelationship of the Deutz and Moteren-Werke officers
simply does not alter their contractual arrangement and the
obligations to which each company agreed.4
_________________________________________________________________
4. We note that in certain circumstances, some Courts of Appeals have
applied the principle of equitable estoppel to permit non-signatories to
14
IV.
THE INJUNCTION
As noted earlier, while the parties were litigating in
Pennsylvania, Deutz initiated an arbitration proceeding
before the International Chamber of Commerce Court of
Arbitration in July 1999. Despite General Electric's
objections, the ICC assembled a panel of arbitrators to
consider the jurisdictional issue.
After the ICC Panel set a schedule for its proceedings,
Deutz applied to the Queen's Bench Division of the High
Court in London for an order restraining General Electric
from seeking an injunction in the District Court in
Pennsylvania against Deutz proceeding before the ICC.
Justice Thomas of the High Court, in a judgment dated
April 14, 2000, dismissed the request. He emphasized that
in the posture of the matter before the Court that he was
"not in any way finally deciding the point." Nonetheless, it
appeared that "the words by which Deutz became a party to
the agreement [did] not establish a serious issue to be tried
on the question of whether [it] became a party to the
arbitration clause."
The High Court also recognized that each party had been
given a full opportunity to produce evidence in the District
_________________________________________________________________
enforce arbitration agreements against signatories to various contracts.
See, e.g., Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th
Cir. 2000); Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d
753(11th Cir. 1993); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A.,
863 F.2d 315 (4th Cir. 1988); Hughes Masonry Co., Inc. v. Greater Clark
County Sch. Bldg. Corp., 659 F.2d 836 (7th Cir. 1981). But see Grigson,
210 F.3d at 531-40 (Dennis, J., dissenting). This Court has noted that
line of cases, although their reasoning was factually inapplicable to the
case before us. See E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber
& Resin Intermediates, S.A.S., No. 00-3550, 2001 WL 1229797 (3d Cir.
Oct. 15, 2001). Deutz, however, did not raise the theory of equitable
estoppel in the District Court or on appeal, and we therefore do not
consider whether we would apply that doctrine in this case. See First
Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995); Dayhoff Inc. v.
H.J. Heinz Co., 86 F.3d 1287 (3d Cir. 1996).
15
Court, which had applied principles similar to those
adhered to by the Queen's Bench. Finally, Justice Thomas
remarked that Deutz would be able to assert its contentions
in the forthcoming District Court proceedings, particularly
the argument that comity should inform the deference to be
accorded the jurisdiction of the ICC Panel. In the meantime,
the ICC Panel continued to receive memorials and expert
opinions from the parties bearing on the jurisdictional
question.
After argument and further briefing, the District Court,
citing its authority to enjoin parties from pursuing parallel
litigation in foreign as well as domestic courts, issued an
order on July 31, 2000, "permanently enjoin[ing] Deutz
from appealing the forthcoming jurisdictional order of the
Arbitral Tribunal to the English courts or from taking any
other action in furtherance of its prosecution of the ICC
arbitration." Because the parties had purportedly completed
their submissions to the arbitration panel, and nothing
remained but the issuance of a decision, the Court limited
its order, enjoining Deutz from appealing the ICC ruling to
the English courts or taking further steps in arbitration
thereafter.
The District Court acknowledged that its injunctive power
must be exercised sparingly; parallel proceedings are
ordinarily permitted to proceed simultaneously, at least
until one has reached the stage where its ruling becomes
res judicata. Recognizing that an intercircuit split has
developed over the degree of deference owed foreign courts,
the District Court concluded that the better approach
emphasizes international comity. Using this standard, it
would issue an injunction only if res judicata applied, or if
the foreign proceeding threatened the Court's jurisdiction
over the matter at hand or a strong public policy of the
United States.
The District Court first considered whether its February
28, 2000 order incorporating the jury verdict that found the
dispute non-arbitrable was sufficiently final to serve as the
basis of res judicata. Relying on Towers, Perrin, Forster &
Crosby, Inc. v. Brown, 732 F.2d 345 (3d Cir. 1984), the
Court concluded that: "[O]ur order is clearly final and
conclusive in the sense that the issue will not be relitigated
16
in this Court during the proceedings on the merits of [ ]
General Electric's breach of contract claim."
Even if this were not the case, the Court concluded in the
alternative that the ICC proceeding posed a threat to its
jurisdiction, reasoning that "if the Tribunal were to decide
that the parties did agree to arbitrate, it would in effect be
declaring that it had jurisdiction and this Court does not."
Finally, the Court found that preserving the sanctity of the
jury verdict was an important public policy of the United
States, and was made vulnerable by a potential ICC finding
that the case belonged in arbitration.
We are persuaded that none of the bases relied upon by
the District Court supports the issuance of an injunction in
this case, and will discuss each of them in turn.
First, res judicata or claim preclusion 5 is designed to
avoid piecemeal litigation of claims arising from the same
events. The determination of whether two suits are based
on the same cause of action turns on the essential
similarity of the underlying events giving rise to the various
legal claims. Generally speaking, claim preclusion or res
judicata requires a final judgment on the merits in a prior
suit involving the same parties or their privies, and a
subsequent suit based on the same cause of action.
Churchill v. Star Enters., 183 F.3d 184, 194 (3d Cir. 1999);
see also Gregory v. Chehi, 843 F.2d 111 (3d Cir. 1988)
(describing generally the principles of res judicata). The
party seeking to take advantage of claim preclusion has the
burden of establishing it. United States v. Athlone Indus.,
Inc., 746 F.2d 977, 983 (3d Cir. 1984).
_________________________________________________________________
5. Courts and commentators have used varying terminology, often
referred to collectively as "res judicata," in discussing the preclusive
effects of prior adjudication. Today, however, res judicata is sometimes
used to represent two distinct preclusion concepts,"issue preclusion"
and "claim preclusion." While the former refers to the effect of a
judgment in foreclosing further adjudication of a matter actually decided,
claim preclusion prohibits litigants from pursuing a matter that has not
previously been litigated but which should have been advanced in an
earlier suit. Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75,
77
n.1 (1984).
17
Res judicata is commonly, and properly, pleaded as an
affirmative defense in a second suit arising out of the same
injury. See Churchill, 183 F.3d at 189. Only in aggravated
circumstances may the court presiding over the first case
anticipate the second by entering an injunction against
initiation of further proceedings; the tendency to issue such
injunctions should almost always be avoided. The judicial
consensus is ably summarized by Wright and Miller in their
treatise:
"However tempting it may be for a court to conclude
that it is in the best position to assess the preclusive
effects of its own judgments, application of preclusion
principles requires familiarity not only with the first
judgment but also with the subsequent proceedings.
The first court should not lightly usurp the jurisdiction
of another court to dispose of pending litigation."
18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper,
Fed. Prac. & Proc. S 4405, at 41-42 (1981).
In the case before us, only the interlocutory orders
finding personal jurisdiction and dismissing Deutz's
arbitration request have been entered. General Electric's
claims against Deutz for damages have not been resolved.
Although the order denying arbitration was appealable, see
9 U.S.C. S 16(a); 28 U.S.C. S 1292(a)(1), Deutz had not yet
taken an appeal at the time the District Court entered its
injunction.
In Towers, defendants appealed the California trial
court's dismissal of their petition to compel arbitration. 723
F.2d at 346. Before the appeal was decided, they filed suit
in federal court in Pennsylvania, seeking an order
compelling arbitration over the same dispute. While the
federal action was pending, the California appellate court
affirmed the order denying arbitration. Despite that ruling,
the federal district court granted the petition for arbitration
and stayed the California proceedings. Id. at 346-47.
We reversed the district court's order, observing that
under California law, the arbitration issue could be
considered separately from the merits and that the state
appellate court had affirmed the ruling of non-arbitrability.
In those circumstances, the California order was res
18
judicata. Accordingly, we barred the federal district court
from proceeding further. Id. at 348-50; see also Moses H.
Cone Mem'l Hosp., 460 U.S. at 10 (stay of later-filed federal
suit pending resolution of state suit precluded further
litigation in federal forum; state court's judgment would,
therefore, be res judicata). Our Court explicitly declined to
discuss the controlling rule where a federal court issues the
prior order. Towers, 732 F.2d at 350 n.2.
Although the Towers case is generally cited for the
proposition that a state court's order denying arbitration
may be treated as final for res judicata purposes, it is not
irrelevant that the order had already been affirmed on
appeal when the District Court came to a contrary
conclusion. One reason we found the California trial court's
order to be sufficiently final was that it was "free from
attack on appeal. The determination of non-arbitrability
[was] upheld on direct appeal and could not be reviewed
again on appeal from a determination of the merits of the
dispute." Id. at 349 (internal quotations and citations
omitted).
Furthermore, even if Towers supports a finding of res
judicata in this case, it does not necessarily follow that an
injunction should issue. In that case, we reviewed an order
denying arbitration entered by a trial court in another
system. Here, on the other hand, the District Court relied
on its own order, as yet unappealed, to preclude litigation
in another forum.
"Anticipatory" injunctions, issued before the subsequent
suit is under way, are to be used in the rarest of
circumstances on the domestic front. In view of the
international reach of the injunction, the District Court
should have left the res judicata effect of its order to the
determination of the other forum. The District Court's
determination that its order was sufficient for res judicata
purposes would not necessarily be binding on English
courts.
The circumstances here were not so aggravated as to
justify interference with the jurisdiction of the courts of
another sovereign state, and there is no indication that the
English courts would have prevented General Electric from
19
arguing the res judicata effect of the February 28, 2000
order.
General Electric argues that if Deutz had not been so
restrained, it might have destroyed the District Court's
jurisdiction by securing an order from the High Court
compelling arbitration. The record, however, reveals little
basis for such qualms. Deutz petitioned the High Court two
months after the District Court had dismissed the
arbitration request, and the High Court declined to issue an
injunction restraining General Electric from proceeding in
the federal court, voicing serious doubts about the strength
of Deutz's position. Thus, the District Court knew before it
enjoined Deutz that the High Court had shown no
inclination to disagree with the non-arbitrability ruling.
Similarly ill-founded is General Electric's assertion that
the sanctity of the jury verdict would be jeopardized by
permitting Deutz to repair once again to the High Court in
London. Although the jury unquestionably has a more
important role in the American jurisprudential system than
in that of any other nation, its verdict is neither infallible
nor immune from judicial scrutiny.
We have been cited to no authority that endorses
enjoining proceedings in a foreign court on the grounds
that an American jury verdict might be called into question.
Indeed, in denying Deutz's application, the High Court took
pains to mention that the findings of fact had been made by
a jury. There is little reason to believe that the High Court
would give any less deference to the jury's role as fact-
finder if the issue were presented a second time.
V.
COMITY
In parallel litigation, the issue of comity is an important
and omnipresent factor. Although it is a consideration in
federal and state litigation, it assumes even more
significance in international proceedings. The Supreme
Court has described comity as "the recognition which one
nation allows within its territory to the legislative, executive
20
or judicial acts of another nation, having due regard both
to international duty and convenience, and to the rights of
its own citizens or of other persons who are under the
protection of its laws." Hilton v. Guyot, 159 U.S. 113, 164
(1895); see also Somportex, Ltd. v. Philadelphia Chewing
Gum Corp., 453 F.2d 435, 440 (3d Cir. 1971) (describing
comity as a rule of "practice, convenience, and
expediency").
The Court of Appeals for the D.C. Circuit has described
comity as a "complex and elusive concept," the deference a
domestic court should pay to the actions of a foreign
government, not otherwise binding on the forum. Laker
Airways Ltd. v. Sabena, Belgian World Airlines, 731 F.2d
909, 937 (D.C. Cir. 1984). The primary reason for
giving effect to the rulings of foreign tribunals is
that such recognition factors international cooperation and
encourages reciprocity. Thus, comity promotes
predictability and stability in legal expectations, two critical
components of successful international commercial
enterprises. It also encourages the rule of law, which is
especially important because as trade expands across
international borders, the necessity for cooperation among
nations increases as well. Id.The Supreme Court has taken to task American courts
that have demonstrated unduly narrow attitudes in this
area:
"The expansion of American business and industry will
hardly be encouraged if, notwithstanding solemn
contracts, we insist on a parochial concept that all
disputes must be resolved under our laws and in our
courts. . . . We cannot have trade and commerce in
world markets and international waters on our terms,
governed by our laws, and resolved in our courts."
THE BREMEN v. Zapata Off-Shore Co., 407 U.S. 1, 9 (1972).
In another case emphasizing world economic
interdependence, the Court of Appeals for the Sixth Circuit
noted that the proper exercise of comity demonstrates
confidence in the foreign court's ability to adjudicate a
dispute fairly and efficiently. Gau Shan Co., Ltd. v. Bankers
Trust Co., 956 F.2d 1349, 1355 (6th Cir. 1992). Failure to
21
accord such deference invites similar disrespect for our
judicial proceedings. Reciprocity and cooperation are
worthy goals of comity. Id.The federal Courts of Appeals have not established a
uniform rule for determining when injunctions on foreign
litigation are justified. Two standards, it appears, have
developed. Courts following the "liberal" or"lax" standard
will issue an injunction where policy in the enjoining forum
is frustrated, the foreign proceeding would be vexatious or
would threaten a domestic court's in rem or quasi in rem
jurisdiction or other equitable considerations, and finally,
where allowing the foreign proceedings to continue would
result in delay. The Courts of Appeals for the Fifth,
Seventh, and Ninth Circuits generally apply this standard.6
By contrast, the Second, Sixth and District of Columbia
Circuits use a more restrictive approach, rarely permitting
injunctions against foreign proceedings.7 These courts
approve enjoining foreign parallel proceedings only to
protect jurisdiction or an important public policy.
Vexatiousness and inconvenience to the parties carry far
less weight.
Our Court is among those that resort to the more
restrictive standard. In Compagnie des Bauxites de Guinea
v. Insurance Co. of North America, 651 F.2d 877, 887 (3d
Cir. 1981), we reversed the grant of an injunction against
parties seeking to initiate parallel litigation in the United
Kingdom and concluded that parallel in personam actions
should be allowed to proceed in foreign as well as domestic
cases. Id. The fact that the District Court in that case found
the English proceeding would be harassing and vexatious
was not enough to justify an injunction. Id.We took a similarly restrictive approach in Republic of
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6. See Kaepa, Inc. v. Achilles Corp., 76 F.3d 624, 626-28 (5th Cir. 1996);
Allendale Mut. Ins. Co. v. Bull Data Sys., Inc., 10 F.3d 425, 431-32 (7th
Cir. 1993); Seattle Totems Hockey Club, Inc. v. Nat'l Hockey League, 652
F.2d 852, 856 (9th Cir. 1981).
7. See Gau Shan Co., 956 F.2d at 1354-59; China Trade & Dev. Corp. v.
M.V. Choong Yong, 837 F.2d 33, 36 (2d Cir. 1987); Laker Airways, 731
F.2d at 937-45.
22
Philippines v. Westinghouse Electric Corp., 43 F.3d 65 (3d
Cir. 1995). There, the Philippine government filed suit as
plaintiff in the United States District Court for the District
of New Jersey. During the litigation, that government was
alleged to have taken punitive measures against its own
citizens who had testified adversely to it in the proceedings.
The District Court enjoined the Philippine government from
engaging in this harassment. 43 F.3d at 67-71.
Despite the aggravated nature of that government's
alleged action, we reversed the grant of an injunction.
Conceding that the District Court had the power to enjoin
the Philippine government as it did, we concluded that the
remedy was, nevertheless, extraordinarily intrusive into the
activities of a government within its own territory and
involving its own citizens. Id. at 80-81. The injunction
violated fundamental notions of comity and, accordingly, it
was vacated. Id. at 74-81; see also Remington Rand Corp.-
Del. v. Bus. Sys. Inc., 830 F.2d 1260, 1272-74 (3d Cir.
1987) (order imposing constructive trust on bankrupt
Dutch corporation's assets wherever located substantially
impaired bankruptcy trustee's ability to perform duties
under Dutch bankruptcy law, thereby offending principles
of comity); Mannington Mills, Inc. v. Congoleum Corp., 595
F.2d 1287, 1296 (3d Cir. 1979) ("When foreign nations are
involved, . . . it is unwise to ignore the fact that foreign
policy, reciprocity, comity, and limitations of judicial power
are considerations that should have a bearing on the
decision to exercise or decline jurisdiction.").
Our jurisprudence thus reflects a serious concern for
comity. This Court may properly be aligned with those that
have adopted a strict approach when injunctive relief
against foreign judicial proceedings is sought. Although it
recognized our adherence to that restrictive standard, the
District Court in this case invoked the threat to jurisdiction
and violation of public policy factors to justify the
injunction. As we noted earlier, the evidence supporting
application of these factors was extremely weak, and any
doubts to the contrary should have been put to rest by the
High Court's judgment, issued before the injunction was
granted.
23
The High Court's Justice Thomas commented with
respect to General Electric's request for an injunction, then
pending in the District Court:
"He [the district judge] will no doubt take into account
. . . that he, as a judge of the United States Court, is
being asked to exercise extraordinary extra-territorial
jurisdiction over an arbitral tribunal sitting in London
within the jurisdiction of this Court. He will no doubt
pay high regard to issues of comity, just as this Court
has paid high regard to issues of comity in relation to
the decisions made by him."
High Ct. Op. at 26.
At another point in his judgment, concluding that there
was no serious issue of arbitrability, Justice Thomas
observed, "It seems to me very difficult to see on what basis
this Court should intervene in a proceeding so far advanced
in the United States, where that particular issue has
already been determined against Deutz." Id . at 30.
Assuming arguendo that the District Court's order
denying arbitration can constitute a ruling that is final for
res judicata purposes before its disposition on appeal, it
does not follow that there is a sufficient basis for enjoining
the proceedings in the English courts. This is not an
aggravated case that calls for extraordinary intervention,
nor is it sufficient that the ruling of the arbitral panel might
have jeopardized the District Court's jurisdiction.
We do, of course, have a considerable advantage over the
District Court, because the ICC Panel has now agreed that
the case was not arbitrable. Although that decision colors
our ruling, it does not weaken our conclusion, arrived at
independently, that the District Court lacked sufficient
grounds to grant the injunction. We are also confident that
there was no serious threat to an important public policy
because of the happenstance that essential fact finding in
the District Court was performed by a jury rather than by
the judge.
The Order granting the injunction will be reversed. In all
other respects, we will affirm the Orders of the District
Court.
24
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
25