Hartford Financial Systems, Inc. v. Florida Software Services, Inc., Hartford Financial Systems, Inc. v. Florida Software Services, Inc., Florida Computer Services, Inc.

Citations: 712 F.2d 724; 1983 U.S. App. LEXIS 25479Docket: 82-1946

Court: Court of Appeals for the First Circuit; July 26, 1983; Federal Appellate Court

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Hartford Financial Systems, Inc. and Martin Marietta Corp. (the original partners in a Partnership contracted with Depositors Trust Co. for data processing services) underwent a reorganization that transferred over 99% of the Partnership to Florida Computer Services, Inc. (FCS). After the Partnership invoiced Depositors for additional expenses, Depositors alleged breach of contract and refused payment, prompting the Partnership to declare Depositors in default and terminate the contract. In response, Depositors sought substitute data processing services and initiated arbitration proceedings. Hartford and Martin opposed arbitration, filing lawsuits against Depositors to prevent substitute performance and against FCS to enforce the contract. The federal district court, citing the Federal Arbitration Act, ordered arbitration and stayed Hartford and Martin's lawsuit. They appealed, contending that the contract permitted arbitration of the Partnership but not its individual partners. However, the court determined it lacked jurisdiction to hear the appeal because the order was not final and did not meet the criteria for an appeal under the relevant jurisdictional statutes, as it was merely a postponement pending arbitration, not a collateral order or an injunction.

In Dellinger v. Mitchell, the court determined that an order not appealable exists when a stay is not equivalent to a dismissal. The appealability of such stays is governed by specific rules under 28 U.S.C. §§ 1291 and 1292, and Section 3 of the Arbitration Act mandates that a court must stay proceedings on any issue suitable for arbitration until arbitration occurs. Typically, stays are not appealable as they do not constitute final judgments or injunctions. Notable cases affirm this view, including Baltimore Contractors, Inc. v. Bodinger and Langley v. Colonial Leasing Co. of New England. However, a significant exception exists under the Enelow-Ettelson doctrine, which allows appeal of stays in legal actions pending arbitration, as these resemble historical injunctions. Conversely, stays in equitable actions are not appealable. In this instance, the underlying claim is equitable, as plaintiffs sought injunctions and declaratory judgments, which do not fit the Enelow-Ettelson exception. Declaratory judgments are ambiguous in character, straddling the legal and equitable realms. Therefore, the court concluded that the stay in this case is not appealable.

The declaratory judgment claim in this case is considered 'legal,' focusing on damage-oriented contract issues, while the injunctive claims are classified as equitable. The presence of these equitable claims categorizes the suit as equitable under the Enelow-Ettelson framework. Hartford contends that its injunctive claims are moot; however, historical legal principles indicate that mootness does not strip an equity court of jurisdiction over the remaining legal claims. Treatises by Justice Story and Professor Pomeroy support this view, emphasizing that equity courts can grant legal relief to avoid unnecessary litigation in separate courts. The document acknowledges the complexities of integrating moot injunctive requests with new declaratory actions but aligns itself with precedent that favors nonappealability of stay orders in such mixed cases. Consequently, the stay order, pertaining to an equitable action pending arbitration, is deemed non-appealable. Additionally, the district court's ruling to grant Depositors' motion under Section 4 of the Arbitration Act, allowing a party to petition for arbitration when another fails to do so, is highlighted, noting that such motions are typically filed in separate proceedings.

In instances where a defendant seeks both a stay and an order compelling arbitration, the treatment of such motions varies based on whether they are filed in independent proceedings or ongoing cases. Generally, orders resulting from independent proceedings are considered 'final' and appealable. However, when these motions arise during ongoing litigation, courts have shown uncertainty regarding their appealability under 28 U.S.C. § 1291. Specifically, while some cases affirm that an order compelling arbitration in an independent proceeding is appealable, others hold that similar orders made within the context of ongoing litigation are not. Notably, the case of Langley v. Colonial Leasing Co. established that a district court's denial of an arbitration order is not final if an underlying claim is still pending, to avoid piecemeal appeals and align with congressional policy favoring arbitration. The excerpt highlights that a grant of an arbitration order within an ongoing case has the same effect on finality as a denial, both preventing further consideration of the case merits until arbitration concludes. Thus, the distinction between a grant and a denial in ongoing cases may not significantly impact the appealability of arbitration orders.

Litigation will resume unless the parties settle, allowing for appeals following a final court decision. The appellants' concerns about the district court's ruling becoming both unreviewable and res judicata are unfounded, as the decision is not final, distinguishing it from the cited case, Moses H. Cone Memorial Hospital v. Mercury Construction Corp. The court clarifies that the order in question does not qualify as a 'collateral order' under Cohen v. Beneficial Industrial Loan Corp., as it will be reviewable upon appeal from a later final judgment. A '4 order' is not considered an 'injunction' under 28 U.S.C. § 1292(a)(1), as established in various precedents. The prior case of Langley allows for treating a '3 order' as appealable under specific circumstances, but does not extend that treatment to all 'embedded' 4 orders. Consequently, the court determines it lacks jurisdiction to hear the appeal, leading to its dismissal.