Mendez v. Puerto Rican Intl Co ( 2009 )

Opinions of the United
2009 Decisions States Court of Appeals
for the Third Circuit
1-26-2009
Mendez v. Puerto Rican Intl Co
Precedential or Non-Precedential: Precedential
Docket No. 07-4053
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PRECEDENTIAL
IN THE UNITED STATES COURT
OF APPEALS
FOR THE THIRD CIRCUIT
NO. 07-4053
JUAN MENDEZ; MERCEDES CRUZ; MAXIMO
GUERRERO; FELIPE FIGUEROA; HERIBERTO LABOY;
MARCEL HIPPOLYTE; SANDRO RIVERA; LUCHO
HERNANDEZ; GEORGIE ANTHONY ACOSTA; SHAWN
SMITH; MARCELO LANDERS; ORLANDO PAGAN;
MICHAEL BYNOE; ELROD BAPTISTE; BERTRIL
WILLIAM; THOMAS DUPARL; JOSEPH NICHOLAS;
ORSON OLANDO FLEMMING; GREGORY LA FORCE;
PIUS AURELIEN; CATHERINE SABIN; MIGUEL LIRIANO;
JOSH GONDELEC; NATHANIEL HOBSON; MARK
VITALIS; MARCO RIJO; SABINO CASTILLO; IRA
CLAXTON; ALFRED JAMES; HUMBERTO ORTIZ;
JOSEPH OSCAR; ERNESTO RODRIGUEZ; SENCION
GUERRERO; ALFREDO DIAZ; CYRIL THOMAS;
SOSTENES MONTILLA; ANGEL OSCAR LOPEZ
VELASQUEZ; ANGEL OSCAR MARTINEZ VELASQUEZ;
KEITH LEWIS SIMON, JR.; JORGE RODRIGUEZ; ROBERT
L. JONES CHARLESMAN; WALDEMAR OLMEDA;
RODOLF R. KOCK; LUIS A. MEDINA; BIENVENIDO
CARRASCO; RAQUEL CONCEPCION; JOSE GONZALEZ;
CARLOS GARCIA
v.
PUERTO RICAN INTERNATIONAL COMPANIES, INC.;
FLUOR CORPORATION, d/b/a Fluor Daniel Construction;
PLANT PERFORMANCE SERVICES LLC (P2S);
HOVENSA LLC
(D.C. No. 05-cv-00174)
SHAWN SMITH; MICHAEL BYNOE
v.
PUERTO RICAN INTERNATIONAL COMPANIES;
FLUOR CORPORATION d/b/a Fluor Daniel Construction;
PLANT PERFORMANCE SERVICE LLC;
HOVENSA LLC
(D.C. No. 05-cv-00199)
Fluor Corporation
Plant Performances Services, LLC,
Appellants
2
On Appeal From the United States District Court
For the District of the Virgin Islands
(D.C. Civil Action Nos. 05-cv-00174 and 05-cv-00199)
District Judge: Hon. Raymond L. Finch
Argued December 8, 2008
BEFORE: FISHER, JORDAN and STAPLETON,
Circuit Judges
(Opinion Filed: January 26, 2009)
Simone R.D. Francis (Argued)
Charles E. Engeman
Ogletree, Deakins, Nash, Smoak & Stewart
1336 Beltjen Road, Suite 201
Charlotte Amalie
St. Thomas, USVI 00802
Attorneys for Appellants
Valerie M. Nannery (Argued)
John Vail
Center for Constitutional Litigation, P.C.
777 Sixth Street, N.W., Suite 520
Washington, D.C. 20001-3723
and
3
K. Glenda Cameron
Lee J. Rohn
Rohn & Cameron, L.L.C.
1101 King Street, Suite 2
Christiansted
St. Croix, USVI 00820-0000
Attorneys for Appellees
OPINION OF THE COURT
STAPLETON, Circuit Judge:
I.
Forty-nine individual plaintiffs brought this employment
discrimination and retaliation case against appellants Plant
Performance Services, LLC (“PPS”), and Fluor Corporation
(“Fluor”), as well as others. Appellants moved to stay the case
under Section 3 of the Federal Arbitration Act (“FAA”), 9
U.S.C. § 3, alleging “on information and belief” that all of the
plaintiffs at the initiation of their employment had entered into
written agreements committing themselves to arbitrate disputes
of this kind. Forty-one plaintiffs responded with affidavits
averring that they had not entered into such agreements.
Appellants produced written agreements signed by eight of the
plaintiffs containing arbitration clauses sufficiently broad to
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cover this case. The District Court granted the motion to stay
pending arbitration with respect to the eight plaintiffs who had
entered into arbitration agreements. It denied the motion to stay
with respect to the remaining plaintiffs, however, “because there
[was] no evidence that any of the other plaintiffs agreed to
arbitrate their disputes.” App. at 3. PPS and Fluor filed this
appeal.
II.
We must first address our jurisdiction to entertain this
appeal. As a general rule, a district court’s order is appealable
under our final order jurisdiction, 28 U.S.C. § 1291, only when
the decision “‘ends the litigation on the merits and leaves
nothing for the court to do but execute the judgment.’”
Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S.
271, 275 (1988) (citing Catlin v. United States, 324 U.S. 229,
233 (1945)); see Michelson v. Citicorp Nat’l Serv., Inc., 138
F.3d 508, 513 (3d Cir. 1998). Stay orders normally are not
appealable final orders because they merely delay proceedings
in the suit. Marcus v. Twp of Abington, 38 F.3d 1367, 1370 (3d
Cir. 1994) (citing Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 10 n.11 (1983)). However, Section
16(a)(1)(A) of the FAA provides that an “appeal may be taken
from . . . an order . . . refusing a stay of any action under section
3 of” the FAA. 9 U.S.C. § 16(a)(1)(A). We have held that this
section “confers appellate jurisdiction to review a denial of a
motion for a stay pending arbitration which alleges a prima facie
case of entitlement thereto under Section 3 of the FAA.”
Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 213 (3d Cir.
2007).
5
Section 3 provides:
If any suit or proceeding be brought in any of the
courts of the United States upon any issue
referable to arbitration under an agreement in
writing for such arbitration, the court in which
such suit is pending, upon being satisfied that the
issue involved in such suit or proceeding is
referable to arbitration under such an agreement,
shall on application of one of the parties stay the
trial of the action until such arbitration has been
had in accordance with the terms of the
agreement, providing the applicant for the stay is
not in default in proceeding with such arbitration.
9 U.S.C. § 3.
While the District Court was correct in concluding that
the record contained no admissible evidence of a written
agreement with respect to the forty-one plaintiffs whose cases
were not stayed and while that fact gives rise to the sole issue
for resolution on the merits of this appeal, PPS’s and Fluor’s
motion clearly alleged a prima facie showing of entitlement to
a Section 3 stay with respect to all plaintiffs. Accordingly, PPS
and Fluor are entitled to a merits review of the District Court’s
denial of a stay under Section 16(a)(1)(A) of the FAA.1
1
Given our ruling in Ehleiter that prima facie allegations
of entitlement to a Section 3 stay will support our jurisdiction,
PPS and Fluor are entitled to a review of both the District
6
III.
Turning to the merits, the issue for resolution is whether
a defendant who is entitled to arbitrate an issue which it has with
one plaintiff in a suit can insist on a mandatory stay of litigation
of issues it has with other plaintiffs who are not committed to
arbitrate those issues. We conclude that Section 3 was not
intended to mandate curtailment of the litigation rights of
anyone who has not agreed to arbitrate any of the issues before
the court.
We acknowledge at the outset that Section 3 can be read
literally to confer a right to a mandatory stay in the context of
this case. Section 3 is an integral part of a statutory scheme,
however, and reading it in the context of the FAA as a whole,
we decline to attribute that intent to Congress.
The purpose of the FAA is to render agreements to
arbitrate fully enforceable. 9 U.S.C. § 2 (a contract to arbitrate
“shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any
contract”). The purpose of Section 3, in particular, is to
guarantee that a party who has secured the agreement of another
to arbitrate rather than litigate a dispute will reap the full
benefits of its bargain. In short, the “liberal policy ‘favoring
Court’s determination that no admissible evidence of arbitration
agreements signed by forty-one plaintiffs had been tendered and
its holding that the absence of such evidence required denial of
a stay. There is no dispute on appeal as to the former issue.
7
arbitration agreements . . . is at bottom a policy guaranteeing the
enforcement of private contractual arrangements.’” E.I. DuPont
de Nemours & Co. v. Rhone Poulenc Fiber & Resin
Intermediates, S.A.S., 269 F.3d 187, 194 (3d Cir. 2001) (quoting
Sandvik AB v. Advent Int’l Corp., 220 F.3d 99, 104-05 (3d Cir.
2000)) (alteration in original). Accordingly, “under the FAA, ‘a
court may compel a party to arbitrate where that party has
entered into a written agreement to arbitrate that covers the
dispute.’” Id. Because Congress thus limited the rights it
created in the FAA to situations involving corresponding
obligations voluntarily assumed by another, we decline
appellants’ invitation to interpret Section 3 in a way that would
mandate the imposition of a material burden on a party’s right
to litigate claims it has not agreed to arbitrate. While Section 3,
as appellants read it, would postpone rather than eliminate a
party’s right to litigate its claims against another, it would
nevertheless defer that right for the duration of a proceeding
over which the constrained party has no control and would
deprive the Court of any discretion to consider the impact of that
delay on that party. We find no persuasive evidence in the FAA
for sanctioning such a burden.
Section 3 is drafted to fit the paradigm situation in which
a motion for a stay pending arbitration occurs – a plaintiff brings
suit on a claim involving an issue it is obligated to arbitrate
under an agreement in writing with a defendant and that
defendant seeks to stay the litigation pending arbitration. The
defendant is entitled to a mandatory stay of the “suit or
proceeding” in such circumstances providing it “is not in default
in proceeding with such arbitration.” While Section 3 can
reasonably be read to speak to situations in which the “suit or
8
proceeding” involves a non-arbitrable “issue” between the
parties as well as the arbitrable “one,” we do not believe it can
reasonably be read to resolve issues presented in situations
involving a party who has not committed itself to arbitrate any
issue before the court.
Appellants’ reading of Section 3 imposes a mandatory
stay on a party’s right to litigate a claim it is free to litigate
depending on the fortuity of whether there happens to be other
parties to the suit who have agreed to arbitrate a different claim,
whether it be related or unrelated. The slate of parties that wind
up before a district court in litigation is unpredictable and quite
frequently not within the control of an individual litigant. While
the plaintiffs can here be said to have joined together
voluntarily, it is unlikely that forty-one of them did so with
knowledge of the contractual arrangements of the remaining
eight. More troubling, a party who is free to litigate and wishes
to do so may find itself by a plaintiff’s choice involuntarily
joined with defendants who are obligated to arbitrate even
unrelated claims. And there are numerous other situations in
which litigants who are free to litigate a claim could lose their
right to do so by being involuntarily joined with parties who are
not free to litigate some issue in suit – class actions and
consolidations most readily come to mind.
Appellants would thus read Section 3 as intended to
address all of the myriad of circumstances in which a party who
is free to litigate might find itself in multi-party litigation
involving a party who has agreed to arbitrate and to dictate in all
that the party’s right to court access be curtailed without any
consideration of the impact of that curtailment. We decline to
9
attribute such an arbitrary result to Congress based on the
limited scope of Section 3. We find it far more likely that
Congress intended Section 3 to be limited to the situation it
directly addresses and to leave situations involving parties who
have undertaken no obligation to arbitrate for resolution in
accordance with the discretion of the court. It is, of course, true,
as the Supreme Court has put it:
In some cases, of course, it may be
advisable to stay litigation among the non-
arbitrating parties pending the outcome of the
arbitration. That decision is one left to the district
court (or to the state trial court under applicable
state procedural rules) as a matter of its discretion
to control its docket. See generally Landis v.
North American Co., 299 U.S. 248, 254-255
(1936).
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 20, n.23 (1983).
We find support for our limited reading of Section 3 in
cases from four of our sister Courts of Appeals. In IDS Life Ins.
Co. v. SunAmerica, Inc., 103 F.3d 524 (7th Cir. 1996), for
example, the two plaintiffs and two of the four defendants were
members of the National Association of Securities Dealers and,
accordingly, parties to an agreement to arbitrate disputes. All
four defendants moved for a stay of the district court
proceedings pending arbitration. The District Court granted the
motion to stay the plaintiffs’ claims against the two defendants
who had agreed to arbitrate but denied the motion to stay the
10
plaintiffs’ claims against the other defendants. The Court of
Appeals affirmed, holding:
Although not expressly so limited, section
3 assumes and the case law holds that the movant
for a stay, in order to be entitled to a stay under
the arbitration act, must be a party to the
agreement to arbitrate, as must be the person
sought to be stayed. . . . The only purpose that we
can ascribe to the word “issue” in section 3 is to
enable litigation to be stayed pending arbitration
even if only one of the issues in the litigation is
subject to an agreement to arbitrate. The statute
has no application to “issues” in cases between
different parties. Parallel proceedings, one
judicial, one arbitral, are governed instead, as
cases such as Nederlandse Erts-
Tankersmaatschappij, N.V. v. Isbrandtsen Co.,
supra, 339 F.2d at 441, and Sierra Rutile Ltd. v.
Katz, 937 F.2d 743, 750 (2d Cir. 1991),
recognize, by the normal rules for parallel-
proceeding abstention.
Id. at 529; see also Citrus Marketing Bd. of Israel v. J. Lauritzen
A/S, 943 F.2d 220, 224-25 (2d Cir. 1991) (“We have construed
section 3 not to authorize a stay at the behest of . . . a nonparty
to the arbitration agreement. . . . [H]owever, we deem it
appropriate to point out that ‘the district court had inherent
power to grant the requested stay.’”) (quoting Nederlandse, 339
F.2d at 441).
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We find support as well in so-called “equitable estoppel”
cases holding that Section 3 is inapplicable where the party
seeking a mandatory stay was not a party to a written arbitration
agreement with the party opposing the motion but relied upon an
agreement to arbitrate between other parties to the suit having
similar or identical issues between them. See Carlisle v. Curtis,
Mallet-Prevost, Cole & Mosle, LLP, 521 F.3d 597 (6th Cir.
2008), cert. granted, 129 S. Ct. 529 (Nov. 7, 2008) (No. 08-
146); In re Universal Serv. Fund Tel. Billing Practice Litig. v.
Sprint Commc’n Co., L.P., 428 F.3d 940 (10th Cir. 2005).
The Fifth Circuit Court of Appeals’ reading of Section 3
is at odds with ours, but, even there, we have found no case
which would require a holding that the stay was improperly
denied here. The law of that Circuit is most recently reviewed
in Waste Mgmt., Inc. v. Residuos Industriales Multiquim, S.A. de
C.V., 372 F.3d 339 (5th Cir. 2004). The Court there held that a
subsidiary company was entitled to a mandatory stay of
litigation with its former parent pending the outcome of
arbitration between the former parent company and the then
current parent company, despite the facts that the subsidiary was
not a party to the arbitration agreement between the parents and
that the parties to the arbitration agreement were not both parties
to the suit.
The Court began by acknowledging that Ҥ 3 usually
applies only to the parties to an arbitration agreement,” citing
Adams v. Ga. Gulf Corp., 237 F.3d 538, 540 (5th Cir. 2001)
(“The denial of the benefit of the mandatory stay provision to
nonsignatories has been grounded in the recognition that the
nonsignatory’s litigation with an arbitrating party cannot be
12
referred to arbitration.”). 372 F.3d at 342. The Court
nevertheless gave Section 3 the following reading:
[T]he first issue we must resolve is whether § 3
gives RIMSA [the subsidiary] standing to invoke
the arbitral rights of the signatories to an
arbitration agreement. A parsing of the language
of § 3 demonstrates that, in certain limited
circumstances, non-signatories do have the right
to ask the court for a mandatory stay of litigation,
in favor of pending arbitration to which they are
not a party. That is, in any suit brought in federal
court “upon any issue referable to arbitration”
under a written arbitration agreement, “the court
. . . shall on application of one of the parties” stay
the suit. 9 U.S.C. § 3 (emphasis added). The
grammatical structure of this sentence would
seem to make clear that any of the parties to the
suit can apply to the court for a mandatory stay,
and the court must grant the stay if the claim at
issue is indeed covered by the arbitration
agreement. Although the final phrase of the
statute – “providing the applicant for the stay is
not in default in proceeding with such arbitration”
– suggests that Congress contemplated that the
litigant applying for the stay would also be a party
to the arbitration, the preceding language allows
for the anomalous situation where a non-signatory
requests a stay of litigation on an issue covered by
an arbitration agreement.
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Id. at 342.
The Waste Management Court then applied Section 3 as
so interpreted to the facts before it:
We thus turn to the issue of whether WM’s
[the former parent] claims against RIMSA, a non-
signatory, are “referable to arbitration” under the
agreement with Onyx [the current parent].
Synthesizing this Court’s precedent, several
factors emerge for invoking § 3 on the application
of a non-signatory: 1) the arbitrated and litigated
disputes must involve the same operative facts; 2)
the claims asserted in the arbitration and litigation
must be “inherently inseparable”; and 3) the
litigation must have a “critical impact” on the
arbitration. See, e.g., Hill, 282 F.3d at 347;
Harvey, 199 F.3d at 795-96. The question is not
ultimately one of weighing potential harm to the
interests of the non-signatory, but of determining
whether proceeding with litigation will destroy
the signatories’ right to a meaningful arbitration.
Adams, 237 F.3d at 541.
Id. at 343 (footnote omitted).
With respect, we believe the criteria that have been
developed in Fifth Circuit jurisprudence find more in Section 3
than its text will support and would appear more appropriate to
serve as guides for a district court’s exercise of its inherent
discretion. Clearly, those criteria deprive Section 3 of the bright
14
line periphery we believe it was intended to have.2 In any event,
we are not satisfied by the record before us that these criteria
have been met.3
IV.
We here join with our sister Courts of Appeals which
have held that, in order for a party to be the subject of a
mandatory stay pending arbitration under Section 3 of the FAA,
that party must have committed itself to arbitrate one or more
issues in suit. The District Court’s order of August 13, 2007,
2
The absence of such a bright line periphery may prove
troublesome, among other reasons, because of the determinative
role Section 3 plays in defining Section 16(a)(1)(A) appellate
jurisdiction. See DSMC, Inc. v. Convera Corp., 349 F.3d 679,
683 (D.C. Cir. 2003) (citing Grubart, Inc. v. Great Lakes
Dredge & Dock, 513 U.S. 527, 547 (1995)) (“jurisdictional rules
should be, to the extent possible, clear, predictable, bright-line
rules that can be applied to determine jurisdiction with a fair
degree of certainty”).
3
While the parties have briefed the issue of whether the
District Court “abused its discretion” in denying the stay, the
District Court did not exercise its discretion. Moreover, the
denial of a stay based on an exercise of the District Court’s
discretion, as opposed to the denial of a mandatory stay based on
a failure to meet the requirements of Section 3, would be a non-
final order over which we would have no jurisdiction. Moses H.
Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983).
15
will be affirmed.
16