Dockser v. Schwartzberg ( 2006 )

Filed: January 19, 2006
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-1273
(CA-03-3484-PJM)
WILLIAM B. DOCKSER; H. WILLIAM WILLOUGHBY;
C.R.I., INCORPORATED,
Plaintiffs - Appellants,
versus
MARTIN C. SCHWARTZBERG,
Defendant - Appellee.
O R D E R
The court amends its opinion filed January 3, 2006, as
follows:
On page 1, attorney information section, line 2 -- the name
“SHIFF” is corrected to read “SCHIFF.”
For the Court - By Direction
/s/ Patricia S. Connor
Clerk
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
WILLIAM B. DOCKSER; H. WILLIAM 
WILLOUGHBY; C.R.I., INCORPORATED,
Plaintiffs-Appellants,
v.  No. 05-1273
MARTIN C. SCHWARTZBERG,
Defendant-Appellee.

Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
Peter J. Messitte, District Judge.
(CA-03-3484-PJM)
Argued: December 1, 2005
Decided: January 3, 2006
Before WIDENER, WILKINSON, and TRAXLER, Circuit Judges.
Affirmed by published opinion. Judge Wilkinson wrote the opinion,
in which Judge Widener and Judge Traxler joined.
COUNSEL
ARGUED: Deborah L. Thaxter, NIXON PEABODY, L.L.P., Boston,
Massachusetts, for Appellants. Frederick J. Sperling, SCHIFF
HARDIN, L.L.P., Chicago, Illinois, for Appellee. ON BRIEF: Louis
E. Dolan, Jr., NIXON PEABODY, L.L.P., Washington, D.C., for
Appellants. Sondra A. Hemeryck, David C. Scott, SCHIFF HARDIN,
L.L.P., Chicago, Illinois; Rachel T. McGuckian, MILES & STOCK-
BRIDGE, P.C., Rockville, Maryland, for Appellee.
2 DOCKSER v. SCHWARTZBERG
OPINION
WILKINSON, Circuit Judge:
The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16 (2000),
establishes "a liberal federal policy favoring arbitration agreements."
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24 (1983). Plaintiffs in this case do not contest that they are contractu-
ally bound to arbitrate the merits of their dispute, but seek to litigate
whether one arbitrator, rather than three, should preside over the arbi-
tration. We conclude that judicial intervention on this issue would be
inappropriate. The parties have agreed that arbitrator selection should
follow the rules and procedures of the American Arbitration Associa-
tion, and the number of arbitrators is a procedural question to be
answered exclusively in that forum. The FAA promotes the efficient
resolution of disputes through arbitration, and this goal would be
undermined if we were to allow arbitration proceedings to be stalled
or nullified by ancillary litigation on minor issues of this type. We
accordingly affirm the judgment of the district court dismissing plain-
tiffs’ complaint.
I.
The parties in this case — defendant Martin Schwartzberg and
plaintiffs William Dockser, H. William Willoughby, and C.R.I. Inc.
— have for years been involved in disputes and litigation arising out
of a twenty-year business relationship involving real estate. The par-
ties concluded their litigation by entering into a Definitive Settlement
Agreement (DSA) in 1998. Unfortunately, this did not mark the end
of their conflict, as Schwartzberg has alleged that plaintiffs failed to
meet an obligation under the DSA to pay him over $1 million as his
share of distributions of certain real estate partnerships.
The DSA specifies that disputes of this type are to be resolved by
binding arbitration. Section 11.7 states in relevant part that
such arbitration shall be conducted by, and pursuant to the
rules of, the American Arbitration Association. . . . If within
twenty (20) days of service of the complainant’s notice of
DOCKSER v. SCHWARTZBERG 3
claim or complaint, the parties have not mutually agreed to
an arbitrator, the arbitrator shall be chosen pursuant to the
rules and procedures of the American Arbitration Associa-
tion.
Schwartzberg filed a Demand for Arbitration with the American
Arbitration Association (AAA) on October 15, 2003. In the cover let-
ter to the Demand, Schwartzberg requested that the dispute be arbi-
trated by a panel of three arbitrators, pursuant to Rule L-2(a) of the
AAA’s Procedures for Large, Complex Commercial Disputes. That
rule provides as follows:
Large, Complex Commercial Cases shall be heard and
determined by either one or three arbitrators, as may be
agreed upon by the parties. If the parties are unable to agree
upon the number of arbitrators and a claim or counterclaim
involves at least $1,000,000, then three arbitrator(s) shall
hear and determine the case. If the parties are unable to
agree on the number of arbitrators and each claim and coun-
terclaim is less than $1,000,000, then one arbitrator shall
hear and determine the case.
The AAA has also specified how and by whom its rules are to be
administered. Rule R-2 of its Commercial Arbitration Rules states
that
[w]hen parties agree to arbitrate under these rules, or when
they provide for arbitration by the AAA and arbitration is
initiated under these rules, they thereby authorize the AAA
to administer the arbitration. The authority and duties of the
AAA are prescribed in the agreement of the parties and in
these rules, and may be carried out through such of the
AAA’s representatives as it may direct.
Rule R-53 further provides that the rules should be "interpreted and
applied" by an arbitrator or by the AAA itself.
On November 10, 2003, plaintiffs filed a complaint in Maryland
state court, alleging that Schwartzberg’s request for a three-arbitrator
4 DOCKSER v. SCHWARTZBERG
panel violated the DSA. Plaintiffs read § 11.7 of the DSA to expressly
specify that a single arbitrator should hear the dispute. Their com-
plaint sought a declaratory judgment that the DSA "requires
Schwartzberg’s claim to be heard and decided by a single arbitrator,"
and court appointment of this arbitrator pursuant to § 5 of the FAA,
9 U.S.C. § 5.
Schwartzberg removed the case to federal court on the basis of
diversity jurisdiction. See 28 U.S.C. §§ 1332(a)(1), 1441(a) (2000).
He then filed a Rule 12(b)(6) motion to dismiss, arguing that plaintiffs
were not entitled to the relief they had requested. Schwartzberg con-
tends that § 5 does not apply because he has followed the arbitrator-
appointment method specified in the DSA, and that the question of
the proper number of arbitrators is not for judicial resolution.
Following oral argument, the district court issued a ruling from the
bench granting the motion to dismiss. The AAA subsequently
informed the parties via letter that three arbitrators would hear the dis-
pute.
Plaintiffs appeal the district court’s order. We review de novo a
dismissal under Rule 12(b)(6). See Venkatraman v. REI Sys., Inc., 417
F.3d 418, 420 (4th Cir. 2005).
II.
We first consider plaintiffs’ contention that the district court erred
in failing to appoint an arbitrator under § 5 of the FAA. Section 5 pro-
vides, in relevant part, that "[i]f in the agreement provision be made
for a method of naming or appointing an arbitrator or arbitrators . . .
and any party thereto shall fail to avail himself of such method . . .
then upon the application of either party to the controversy the court
shall designate and appoint an arbitrator or arbitrators." 9 U.S.C. § 5.
Plaintiffs contend that Schwartzberg has "failed to avail himself of"
the method of arbitrator appointment specified in § 11.7 of the DSA
by requesting three arbitrators rather than one.
We cannot agree. The operative language in § 11.7 states that "the
arbitrator shall be chosen pursuant to the rules and procedures of the
DOCKSER v. SCHWARTZBERG 5
American Arbitration Association." This is precisely the method of
which Schwartzberg has availed himself by sending a Demand for
Arbitration to the AAA and requesting the appointment of three arbi-
trators. AAA Rule L-2(a) provides that since this dispute involves
over $1 million, three arbitrators should be appointed unless the par-
ties have "agree[d] upon the number of arbitrators." Plaintiffs contend
that the parties have in fact "agreed" upon a single arbitrator, present-
ing a number of reasons why the term "arbitrator" in § 11.7 of the
DSA should be construed to mean a single individual rather than to
refer more generically to an arbitral body of unspecified size. But
these arguments implicate not the method of arbitrator selection —
which the DSA specifies to be the rules and procedures of the AAA
— but rather the application of that method to these particular cir-
cumstances. They therefore do nothing to change the fact that
Schwartzberg has "avail[ed] himself" of the proper method by
requesting arbitration under the AAA rules as he believes they should
be applied.
Plaintiffs’ reliance upon Cargill Rice, Inc. v. Empresa
Nicaraguense Dealimentos Basicos, 25 F.3d 223 (4th Cir. 1994), is
therefore misplaced. There, we examined an arbitration agreement
and determined that for purposes of § 5, "[t]he arbitration clause . . .
expressly set[ ] forth the parties’ method for appointing arbitrators" as
"appointment by mutual agreement of the parties." Id. at 225. We then
concluded that this method had not been followed where the arbitra-
tors had "determin[ed] . . . their own jurisdiction" by unilaterally
appointing themselves. Id. at 226. Here, by contrast, the agreement
expressly invokes a body of written rules to govern arbitrator selec-
tion, and Schwartzberg has not avoided those rules. The question
whether they have properly been applied falls outside the ambit of
§ 5.
III.
We therefore turn to consider whether, despite the district court’s
inability to appoint an arbitrator itself pursuant to § 5, it should have
issued a declaratory judgment that a single arbitrator must be
appointed under the rules and procedures of the AAA. This issue
turns on whether application of the parties’ chosen method of arbitra-
tor selection should be performed by a court or by the arbitral forum.
6 DOCKSER v. SCHWARTZBERG
We conclude that the question of the number of arbitrators is one of
arbitration procedure, and that the parties’ agreement does nothing to
overcome the presumption that such questions are for arbitral, rather
than judicial, resolution.
A.
The purpose behind Congress’s passage of the FAA "was to
reverse the longstanding judicial hostility to arbitration agreements
that had existed at English common law and had been adopted by
American courts." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.
20, 24 (1991). The FAA therefore eliminates any bias in favor of judi-
cial resolution of disputes, and establishes that where a contract
includes an arbitration provision, "any doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration." Moses H.
Cone, 460 U.S. at 24-25.
Included within the scope of this default rule are not only the mer-
its of the underlying dispute but also issues relating to the procedural
aspects of the arbitration itself. The Supreme Court has instructed that
"‘procedural’ questions which grow out of the dispute and bear on its
final disposition are presumptively not for the judge, but for an arbi-
trator, to decide." Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
79, 84 (2002) (internal quotation marks omitted). Not only would it
be extremely difficult to cleanly separate disputes into "procedural"
and "substantive" components, but attempting to do so would risk
both duplication of effort — because "the arbitrator would ordinarily
remain free to reconsider the ground covered by the court insofar as
it bore on the merits of the dispute" — and delay. John Wiley & Sons,
Inc. v. Livingston, 376 U.S. 543, 558 (1964).
There does exist a limited exception to the overarching policy
favoring the arbitral decisionmaker. "The question whether the parties
have submitted a particular dispute to arbitration, i.e., the ‘question of
arbitrability,’ is an issue for judicial determination unless the parties
clearly and unmistakably provide otherwise." Howsam, 537 U.S. at 83(internal quotation marks and alterations omitted). The Supreme
Court has found "questions of arbitrability" to exist only
in the kind of narrow circumstance where contracting parties
would likely have expected a court to decide [a] gateway
DOCKSER v. SCHWARTZBERG 7
matter, where they are not likely to have thought that they
had agreed that an arbitrator would do so, and, conse-
quently, where reference of the gateway dispute to the court
avoids the risk of forcing parties to arbitrate a matter that
they may well not have agreed to arbitrate.
Id. at 83-84. The Court has therefore found the exception applicable
only when there is a question regarding whether the parties should be
arbitrating at all. See, e.g., id. at 84 (court should decide "whether the
parties are bound by a given arbitration clause"); First Options of
Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (court should decide
whether a particular dispute on the merits falls within the scope of a
concededly binding arbitration clause). In other circumstances, reso-
lution by the arbitrator remains the presumptive rule. See Howsam,
537 U.S. at 83.
B.
The presumption of arbitration applies in this case, because
whether one arbitrator or three ought to hear the parties’ dispute is not
a "question of arbitrability," but instead a procedural one. It is not an
issue that parties would have expected a court rather than an arbitrator
to decide, see Howsam, 537 U.S. at 83, because the AAA rules, which
the parties contractually agreed to employ, provide specific non-
judicial procedures for its resolution. Moreover, judicial decision is
not necessary to "avoid[ ] the risk of forcing parties to arbitrate a mat-
ter that they may well not have agreed to arbitrate," id. at 83-84,
because the parties do not dispute that their arbitration clause is bind-
ing.
The issue instead fits squarely within the Supreme Court’s jurispru-
dence regarding what constitutes a "procedural" question. In Green
Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), a plurality of
the Court determined that an arbitrator, rather than a judge, should
determine whether an arbitration agreement allowed for class-action
arbitration proceedings. Id. at 447. As in that case, the issue here
"concerns neither the validity of the arbitration clause nor its applica-
bility to the underlying dispute between the parties," but rather "what
kind of arbitration proceeding the parties agreed to." Id. at 452. The
issue furthermore does not involve "a state statute or judicial proce-
8 DOCKSER v. SCHWARTZBERG
dures," but rather "contract interpretation and arbitration procedures."
Id. at 452-53. These are questions that "arbitrators are well situated
to answer." Id. at 453.
This case moreover resembles Howsam, in which the Court deter-
mined that an arbitrator rather than a court should decide whether the
arbitral forum’s time-limit rule barred a particular arbitration. See 537
U.S. at 85. This case, like that one, implicates the written rules gov-
erning the parties’ arbitration proceeding. As the Court explained in
Howsam, arbitrators are "comparatively more expert" regarding the
meanings of such rules and are "comparatively better able to interpret
and to apply" them. Id. at 85. "And for the law to assume an expecta-
tion that aligns (1) decisionmaker with (2) comparative expertise will
help better to secure a fair and expeditious resolution of the underly-
ing controversy — a goal of arbitration systems and judicial systems
alike." Id. It is therefore not only legally proper, but eminently sensi-
ble, that the dispute here is presumptively one for the arbitral forum
to resolve.
Plaintiffs take issue with this conclusion, raising the novel argu-
ment that arbitrating the question here would present an "absurd
‘chicken and egg’ problem." They claim that if x number of arbitra-
tors decide that there ought to be y number of arbitrators, the decision
becomes ipso facto invalid. But many procedural questions exhibit
this supposed bootstrapping problem, and accepting plaintiffs’ argu-
ment would nullify the rule that these questions are arbitrable. Under
plaintiffs’ view, an arbitrator could not, for example, determine
whether an arbitration agreement required arbitration in Boston
instead of California, see Richard C. Young & Co. v. Leventhal, 389
F.3d 1, 2, 4 (1st Cir. 2004) (holding forum-selection clauses arbitra-
ble), without succumbing to paralysis as to where to hold the proceed-
ings necessary to decide the issue. A similar conundrum would arise
regarding whether the permissibility of consolidating separate arbitra-
tion proceedings is an issue for a single arbitrator or a host of differ-
ent ones. See Green Tree, 539 U.S. at 447 (plurality opinion) (holding
that an arbitrator should decide whether plaintiffs can arbitrate as a
class); Shaw’s Supermarkets v. United Food & Commercial Workers
Union, Local 791, 321 F.3d 251, 252 (1st Cir. 2003) (holding that an
arbitrator should decide whether three arbitrations can be consolidated
into one). We need not countenance such a result, which would defy
DOCKSER v. SCHWARTZBERG 9
both the Supreme Court and the congressional policy favoring arbitra-
tion. By presumptively remitting procedural questions to the arbitral
body, the FAA necessarily recognizes that decisionmaker’s authority
to answer them.
C.
Applying the presumption favoring arbitrability, we find that
because the parties have not contractually agreed otherwise, the ques-
tion of the proper number of arbitrators is for arbitral rather than judi-
cial decision. Plaintiffs contend that we should reach a contrary
conclusion, attempting to factually distinguish Green Tree and How-
sam. According to them, the arbitration provisions in those cases were
written broadly enough to encompass arbitration of procedural issues,
whereas the one in the DSA is not. This argument turns the presump-
tion favoring arbitrability of procedural issues on its head. The entire
point of the presumption is that an arbitration agreement need not
expressly include procedural matters within its scope — silence is
simply the fact that triggers the presumption. Instead, the onus is on
the party seeking litigation on a procedural issue to show that the
agreement somehow excludes that issue from arbitration. See How-
sam, 537 U.S. at 84. Plaintiffs do not and cannot demonstrate such
exclusion here.
Plaintiffs also take issue with the fact that the question regarding
the number of arbitrators has apparently been resolved by a letter
from the AAA’s administrative staff, rather than in formal arbitration
proceedings. But they contractually agreed to precisely this proce-
dure. According to the AAA rules, parties that invoke the rules
"thereby authorize the AAA to administer the arbitration," and "[t]he
authority and duties of the AAA . . . may be carried out through such
of the AAA’s representatives as it may direct" (emphasis added).
While we may not recognize any general authority for administrative
bodies of arbitral forums to decide procedural questions, see Cargill,
25 F.3d at 226, parties are certainly empowered to expressly grant
them the ability to do so. See, e.g., First Options, 514 U.S. at 943("[A]rbitration is simply a matter of contract between the parties.").
Plaintiffs’ dissatisfaction with the alleged lack of formal consideration
given to their arguments in favor of a single arbitrator is a complaint
10 DOCKSER v. SCHWARTZBERG
with the AAA — and the contract they signed agreeing to abide by
its rules — rather than with a court.
IV.
The FAA’s "‘liberal federal policy favoring arbitration’" is prem-
ised upon "Congress’s view that arbitration constitutes a more effi-
cient dispute resolution process than litigation." Adkins v. Labor
Ready, Inc., 303 F.3d 496, 500 (4th Cir. 2002) (quoting Moses H.
Cone, 460 U.S. at 24). It would eviscerate this policy and the goal
underlying it if parties to a concededly binding arbitration agreement
were nonetheless able to hale one another into court to contest even
the most minor of issues regarding their arbitration. The presumption
that most matters are for the arbitrator exists specifically to repudiate
such scorched-earth litigation tactics. See, e.g., John Wiley & Sons,
376 U.S. at 558.
There is no reason to believe that plaintiffs will suffer prejudice if
their dispute is heard by a panel rather than by a single individual.
Indeed, if anything, the presence of three arbitrators might result in
a more deliberative decision. Nevertheless, this issue has been the
subject of extended controversy, not only in the district court but at
the appellate level as well. The goal of arbitration is to save time and
money, and the proceedings in this case have done precisely the oppo-
site. The district court’s dismissal of plaintiffs’ complaint is therefore
AFFIRMED.