McLaughlin Gormley v. Terminix Intl. Co. ( 1997 )

___________
No. 96-1619
___________
McLaughlin Gormley King *
Company, *
*
Plaintiff - Appellee, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
Terminix International *
Company, L.P., *
*
Defendant - Appellant. *
___________
Submitted: November 18, 1996
Filed: January 29, 1997
___________
Before BEAM, FRIEDMAN,* and LOKEN, Circuit Judges.
___________
LOKEN, Circuit Judge.
The main issue on this appeal is whether a court or an arbitrator
should determine whether the parties' commercial dispute is arbitrable.
Agreeing with the district court1 that the contracting parties left that
issue to the court, we affirm.
In 1984, McLaughlin Gormley King Company ("MGK") agreed to supply
fenvalerate, an insecticide, to Terminix International Company for
repackaging and sale to exterminators. The written contract provided for
arbitration of "[a]ny controversy arising out of, or relating to this
Agreement or any modification or extension
*The HONORABLE DANIEL M. FRIEDMAN, United States Circuit Judge
for the Federal Circuit, sitting by designation.
1
The HONORABLE PAUL A. MAGNUSON, Chief Judge of the United
States District Court for the District of Minnesota.
hereof." In 1990, the Herb family sued Terminix, alleging personal
injuries from exposure to fenvalerate. MGK refused to indemnify or defend
Terminix against this claim.
Terminix settled the Herb lawsuit and filed a demand to arbitrate its
claim against MGK for indemnification and defense costs. MGK refused to
arbitrate and filed this declaratory judgment action, claiming that the
dispute is not arbitrable because the 1984 contract expired before the
events giving rise to the Herb lawsuit. MGK moved for a preliminary
injunction prohibiting Terminix "from asserting or further asserting" its
demand to arbitrate, and for partial summary judgment declaring the dispute
non-arbitrable. Terminix responded with a motion to compel arbitration.
When these motions came on for decision, the district court concluded that
it needed further discovery on the issue of arbitrability. Therefore, it
granted the requested preliminary injunction, denied Terminix's motion to
compel arbitration, and continued the motion for partial summary judgment
for ninety days. Terminix appeals.
I. Appealability.
Terminix argues that we have jurisdiction under 28 U.S.C.
§ 1292(a)(1) because of the order's "injunctive effect." However,
appealability is governed by the specific appeal provisions added to the
Federal Arbitration Act in the 1988 Judicial Improvements and Access to
Justice Act. Those provisions permit an appeal from an order "denying an
application . . . to compel arbitration," 9 U.S.C. § 16(a)(1)(C), and from
"an interlocutory order granting . . . an injunction against an arbitration
subject to [the Act]," § 16(a)(2).
In many cases, such as Nordin v. Nutri/Sys., Inc., 897 F.2d 339 (8th
Cir. 1990), the arbitrability issue comes to this court after the district
court has ruled the dispute non-arbitrable.
-2-
Here, before deciding that question, the court has entered an order
freezing resolution of the parties' dispute pending discovery pertinent to
the issue of arbitrability. Terminix argues that the arbitrator, not the
court, must initially decide arbitrability.2 If Terminix is correct, the
order being appealed will have improperly and unnecessarily delayed the
arbitration process. Thus, although temporary in nature, it is "an order
that favors litigation over arbitration" and is immediately appealable
under § 16(a). Stedor Enters., Ltd. v. Armtex, Inc., 947 F.2d 727, 730
(4th Cir. 1991).
II. Who Decides Arbitrability.
The Supreme Court recently clarified the standard for deciding
whether the court or the arbitrator determines arbitrability. The issue,
the Court explained, turns on whether the parties "agree[d] to submit the
arbitrability question itself to arbitration." First Options of Chicago,
Inc., v. Kaplan, 115 S. Ct. 1920, 1923 (1995). In answering that question,
[c]ourts should not assume that the parties agreed to arbitrate
arbitrability unless there is `clea[r] and unmistakabl[e]'
evidence that they did so. In this manner 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 because it is within the
scope of a valid arbitration agreement.'
Id. at 1924 (citations omitted). Any other rule would "too often force
unwilling parties to arbitrate a matter they reasonably would have thought
a judge, not an arbitrator, would decide." Id. at
2
Terminix also urges us to leap ahead of the district court
and decide the issue of arbitrability. We decline to do so. The
issue properly before us is whether the district court erred in not
referring the issue of arbitrability to the arbitrator.
-3-
1925. Accord Litton Fin. Printing Div. v. N.L.R.B., 501 U.S. 190, 208-09
(1991) ("a party cannot be forced to `arbitrate the arbitrability
question'"); AT&T Techs., Inc. v. Communications Workers, 475 U.S. 643, 649
(1986); Local Union No. 884, United Rubber, Cork, Linoleum, and Plastic
Workers v. Bridgestone/ Firestone, Inc., 61 F.3d 1347, 1354 (8th Cir.
1995).
In this case, neither the arbitration clause nor any other provision
in the 1984 contract between Terminix and MGK clearly and unmistakably
evidenced the parties' intent to give the arbitrator power to determine
arbitrability. The arbitration clause made no mention of a "controversy"
over arbitrability. Terminix argues that the federal policy favoring
arbitration requires that the arbitrator decide issues of arbitrability if
the arbitration clause is broadly worded. The Court in First Options
rejected that contention, explaining that "the basic objective in this area
is . . . to ensure that commercial arbitration agreements, like other
contracts, `are enforced according to their terms.'" 115 S. Ct. at 1925
(citations omitted). Thus, the district court correctly undertook to
decide the issue of arbitrability.
III. The Preliminary Injunction.
Terminix further argues that the order preliminarily enjoining it
from pursuing arbitration was an abuse of the district court's discretion
under Dataphase Systems, Inc. v. CL Systems, Inc., 640 F.2d 109, 113 (8th
Cir. 1981). In particular, Terminix argues that the monetary cost MGK
would incur in arbitration is not legally recognized irreparable harm,
citing cases such as Emery Air Freight Corp. v. Local Union 295, 786 F.2d
93, 100 (2d Cir. 1986), in which irreparable injury was discussed only
after the court concluded that the dispute was, in fact, arbitrable.
In this case, our decision that the district court has properly
undertaken to resolve the question of arbitrability makes
-4-
this issue quite easy to resolve. If a court has concluded that a dispute
is non-arbitrable, prior cases uniformly hold that the party urging
arbitration may be enjoined from pursuing what would now be a futile
arbitration, even if the threatened irreparable injury to the other party
is only the cost of defending the arbitration and having the court set
aside any unfavorable award. See PaineWebber Inc. v. Hartmann, 921 F.2d
507, 514 (3rd Cir. 1990); Nordin, 897 F.2d at 343; U.S. v. Pool & Canfield,
Inc., 778 F. Supp. 1088, 1092 (W.D. Mo. 1991). If that is so, then the
order the court issued here, briefly freezing the parties' dispute
resolution activities until it determines arbitrability, is surely
appropriate. See Dean Witter Reynolds, Inc. v. McCoy, 995 F.2d 649, 651
(6th Cir. 1993). Cf. Daisy Mfg. Co. v. NCR Corp., 29 F.3d 389, 392 (8th
Cir. 1994) ("before a party may be compelled to arbitrate under the Federal
Arbitration Act, the court must engage in a limited review to ensure that
the dispute `is arbitrable'"). Indeed, although the court labeled this
portion of its order a preliminary injunction, the "injunction" furthers
its expeditious determination of the arbitrability question and thus looks
very much like a nonappealable order controlling the conduct and progress
of litigation before the court. See Gulfstream Aerospace Corp. v.
Mayacamas Corp., 485 U.S. 271, 279 (1988); Hamilton v. Robertson, 854 F.2d
740, 741 (5th Cir. 1988).
The order of the district court is affirmed.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
-5-