Mediterranean Enterprises, Inc., a California Corporation v. Ssangyong Corporation, a Korean Corporation, Ssangyong Construction Company, Ltd., a Korean Corporation

Citations: 708 F.2d 1458; 1983 U.S. App. LEXIS 26480Docket: 82-5779

Court: Court of Appeals for the Ninth Circuit; June 23, 1983; Federal Appellate Court

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Ssangyong Construction Company appeals an interlocutory order from the U.S. District Court for the Central District of California, which stayed proceedings and mandated arbitration for certain issues in a complaint brought by Mediterranean Enterprises, Inc. (MEI). The dispute centers around a "Preliminary Agreement for Formation of a Joint Venture" signed by MEI and Ssangyong, which includes an arbitration clause stipulating that disputes be resolved through binding arbitration in Seoul, Korea. MEI alleges that Ssangyong misused the Agreement to gain access to Saudi construction projects without establishing the joint venture, while Ssangyong contends it did not breach the Agreement due to government approval issues. The district court previously dismissed MEI's claims of fraudulent wording in the arbitration clause and determined that specific counts of MEI's complaint are subject to arbitration. The court's order to stay the action pending arbitration results is the basis for Ssangyong's appeal.

Jurisdiction over the district court's interlocutory order is affirmed, as the court has the authority to review certain stay orders under 28 U.S.C. Sec. 1292(a)(1), despite the general rule that such orders are not final under 28 U.S.C. Sec. 1291. The appeal from the stay order is valid if two conditions are met: the underlying action could have been maintained as a legal action before the merger of law and equity, and the stay was sought to allow for the resolution of an equitable defense. In this case, both conditions are satisfied; the complaint is predominantly an action at law, as it seeks monetary damages in most counts, while only one count involves an equitable claim.

Regarding the arbitration clause, the determination of arbitrability is subject to de novo review. The district court correctly identified the arbitration provision as part of a contract that involves commerce under 9 U.S.C. Sec. 2 of the Federal Arbitration Act. Federal law governs the interpretation of this agreement. While there is a strong federal policy favoring arbitration, especially in international transactions, it is also recognized that arbitration is contractual, meaning parties cannot be compelled to arbitrate disputes they did not agree to submit. The resolution of arbitrability ultimately hinges on the specific contract terms agreed upon by the parties.

Ssangyong contends that the arbitration clause encompasses "any" disputes, while MEI interprets "arising hereunder" to mean disputes directly related to the contract, excluding independent or collateral matters. No relevant case law in the circuit defines "arising hereunder" in this context, but the interpretation favoring MEI aligns with Second Circuit precedents. The term "arising under" is viewed as narrower than broader arbitration clauses, such as "arising out of or relating to this agreement." 

The district court's decision to send counts 1, 2, and 4 to arbitration was evaluated based on their relation to the contract's interpretation and performance. These counts, alleging breach of the Agreement and fiduciary duty, fall within the arbitration clause's scope. Conversely, counts 7, 8, and 9 are largely outside this scope. Count 7 involves allegations of inducing a breach of a separate contract (the Trac Agency Agreement), count 8 concerns a quantum meruit claim based on implied contract principles that cannot coexist with an express contract, and count 9 pertains to the alleged misappropriation of documents, which diverges from the central contract issues.

The district court's choice to send counts 1, 2, and 4 to arbitration aligns with the parties' intent. However, if the arbitrator exceeds authority by addressing matters beyond the arbitration clause, the court will not enforce such an award. Regarding the stay pending arbitration, a trial court's discretion to manage its docket should only be overturned if there is an abuse of that discretion, and it is deemed efficient and fair to stay proceedings while awaiting resolution of related claims.

The district court's decision to stay the action pending arbitration results is affirmed, as it did not abuse its discretion in sending certain issues from MEI's complaint to arbitration. Counts 3, 5, and 6 of the complaint, pertaining only to defendants Trac Enterprises and its president, are excluded from this appeal. The ruling interprets the Supreme Court's Enelow-Ettelson rule, which allows certain stay orders to be treated as injunctions appealable under 28 U.S.C. Sec. 1292(a)(1). Both parties agree that federal law governs the appeal, notwithstanding a clause in the Agreement stating California law applies. The court finds the cases cited by Ssangyong unconvincing, as they typically involve broader arbitration clauses designed to cover a wider range of disputes compared to the clause in question. Examples include cases where arbitration clauses explicitly encompass any claims arising from the agreement, unlike the current situation.