Howard Electrical and Mechanical Company, Inc., a Colorado Corporation v. Frank Briscoe Company, Inc., a New Jersey Corporation
Docket: 84-1878
Court: Court of Appeals for the Ninth Circuit; February 28, 1985; Federal Appellate Court
A construction subcontractor, Howard Electrical and Mechanical Company, filed a diversity action in Nevada against the general contractor, Frank Briscoe Company, related to a subcontract for work on a wastewater treatment plant. The district court compelled arbitration for disputes arising from the subcontract and denied Briscoe's request to transfer the case to New Jersey. Briscoe appealed both decisions, but the court determined it had jurisdiction to hear the appeal regarding the arbitration order but not concerning the transfer denial.
The subcontract included several key provisions: it mandated binding arbitration for any related claims, conditioned Howard's recovery for additional work on Briscoe's prior recovery from the owner, allowed Briscoe to withhold payments until receiving funds from the owner, and limited Briscoe's liability for delays unless it received compensation from the owner. Additionally, the subcontract required that any legal action be filed in New Jersey and interpreted under New Jersey law.
In 1982, Howard claimed over $7.5 million for work outside the original subcontract scope and subsequently sought arbitration after Briscoe refused to proceed until resolving its own claims against the owner. Briscoe sought to transfer the case or stay proceedings, but the Nevada District Court ultimately ruled in favor of compelling arbitration while denying the transfer request. The appeal focuses on these rulings.
Howard filed a motion to dismiss an appeal based on a lack of jurisdiction, which was denied by a civil motions panel that determined the arbitration order was a "final decision" under 28 U.S.C. Sec. 1291. Howard contests both the panel's ruling and the appealability concerning the refusal to transfer the action. He argues that the arbitration order is not an appealable "final decision," citing prior Supreme Court rulings that he believes establish this point, while claiming the Ninth Circuit case referenced by the panel is not applicable.
However, the Supreme Court cases he cites do not support his argument. In Goodall-Sanford, the Court did not address the appealability of arbitration orders, and in Schoenamsgruber, it ruled that an order compelling arbitration was not appealable under a previous section of the Act, which differs from the current Section 4 involved in this case. The appellee's attempt to differentiate Francesco's B. is also seen as inadequate, as there is no compelling reason to treat arbitration orders under different statutes differently. Thus, both types of arbitration orders are considered immediately appealable final orders in this circuit.
Briscoe argues that the order compelling arbitration is legally erroneous due to unmet contractual "conditions precedent," specifically requiring full payment from the Owner before arbitration can occur. The district court disagreed, concluding that the provisions cited by Briscoe do not act as conditions precedent. The determination of arbitrability is subject to de novo review.
Under Section 4 of the Act, the district court must order arbitration if it finds that the existence of the arbitration agreement is not in dispute. The court's role is limited to confirming the existence of a written arbitration agreement and enforcing it per its terms. The Supreme Court's ruling in Moses H. Cone Memorial Hospital emphasizes a strong federal policy favoring arbitration, advocating for a broad interpretation of arbitration agreements and resolving any doubts regarding arbitrable issues in favor of arbitration.
The district court determined that the subcontract provisions cited by Briscoe were not conditions precedent to arbitration, as none explicitly mentioned arbitration. Paragraph 19 of the subcontract allowed for arbitration during ongoing construction, which aligns with the Arbitration Act's enforcement of arbitration agreements despite the involvement of other parties not bound by such agreements. Most cited provisions appeared to serve as defenses rather than prerequisites for adjudicating liability, placing the responsibility of evaluating claims and defenses with the arbitrator rather than the courts. The court emphasized a pro-arbitration stance, finding no basis to classify the subcontract provisions as conditions precedent.
Additionally, both parties requested a stay of district court proceedings pending arbitration, and Briscoe did not contest this aspect of the order. The court noted that if a defendant opposes arbitration, it is incorrect for the court to stay its proceedings without ordering arbitration, as it would hinder the plaintiff’s recovery efforts.
Briscoe’s argument that New Jersey law governs arbitrability was rejected, as federal law prevails over arbitrability issues within the scope of the Arbitration Act, regardless of the court's jurisdiction. Ultimately, the court affirmed the order compelling arbitration and addressed Briscoe's appeal concerning the refusal to transfer venue, ruling that such an order is not appealable as a final judgment under Ninth Circuit precedent. Briscoe's attempts to assert appellate jurisdiction were found unpersuasive, leading to the conclusion that the appeal regarding the venue transfer would not be entertained. The court upheld the arbitration order and declined to review the venue transfer issue.
