Pisgah Contractors, Inc. v. Rosen ( 1997 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: PISGAH CONTRACTORS,
INCORPORATED,
Debtor.
PISGAH CONTRACTORS, INCORPORATED,
No. 96-1179
Plaintiff-Appellant,
v.
MARTIN L. ROSEN, and wife, DORIS
R. ROSEN,
Defendants-Appellees.
In Re: PISGAH CONTRACTORS,
INCORPORATED,
Debtor.
PISGAH CONTRACTORS, INCORPORATED,
No. 96-1341
Plaintiff-Appellee,
v.
MARTIN L. ROSEN, and wife, DORIS
R. ROSEN,
Defendants-Appellants.
Appeals from the United States District Court
for the Western District of North Carolina, at Asheville.
Lacy H. Thornburg, District Judge.
(CA-94-193-1, BK-89-10629-AB)
Argued: May 6, 1997
Decided: June 24, 1997
Before HAMILTON and MOTZ, Circuit Judges, and
LEGG, United States District Judge for the
District of Maryland, sitting by designation.
_________________________________________________________________
Dismissed by published opinion. Judge Hamilton wrote the opinion,
in which Judge Motz and Judge Legg joined.
_________________________________________________________________
COUNSEL
ARGUED: David G. Gray, Jr., WESTALL, GRAY & CONNOLLY,
Asheville, North Carolina, for Appellant. Robert Arnold Lefkowitz,
HENDRICK LAW FIRM, Winston-Salem, North Carolina, for
Appellees.
_________________________________________________________________
OPINION
HAMILTON, Circuit Judge:
This appeal presents the question of whether we have subject mat-
ter jurisdiction to consider an appeal from a district court order direct-
ing arbitration to proceed. Because we conclude that there is no basis
for our jurisdiction under these circumstances, we dismiss this appeal.
I.
This suit arises out of a contractual dispute between Pisgah Con-
tractors, Inc. (Pisgah) and Martin and Doris Rosen (the Rosens)
involving Pisgah's construction of a home for the Rosens. In August
1988, Pisgah and Martin Rosen entered into a contract for the con-
struction of a home, which contained the following provision:
All claims or disputes between the Contractor and Owner
rising out of or relating to the Contract Documents, or the
breach thereof, shall be decided by arbitration in accordance
2
with the Construction Industry Arbitration Rules of the
American Arbitration Association currently in effect unless
the parties mutually agree . . . .
(J.A. 515). A dispute subsequently arose between the parties concern-
ing the construction of the house and payment for the construction.
On October 19, 1989, Pisgah filed a voluntary Chapter 11 bank-
ruptcy proceeding in the United States Bankruptcy Court for the
Western District of North Carolina. On September 17, 1990, Pisgah,
acting as debtor-in-possession, see 11 U.S.C. § 1107, filed an adver-
sary proceeding against the Rosens to recover funds Pisgah asserted
were due under the contract. In its complaint, Pisgah alleged causes
of action for breach of contract, violations of the North Carolina
Unfair Trade Practices Act, see N.C. GEN . STAT. §§ 75-1 to -35,
breach of a fiduciary relationship, and slander.
On October 19, 1990, prior to answering the complaint, the Rosens
filed a motion to dismiss and a motion to stay the proceedings and to
compel arbitration. On November 28, 1990, the bankruptcy court
denied the motion to stay the proceedings and compel arbitration,
granted the motion to dismiss as to all claims asserted against Doris
Rosen, and denied the remainder of the motion to dismiss. Regarding
the Rosens' motion to stay the proceedings and compel arbitration,
the bankruptcy court stated in its order that the arbitration provision
of the contract was abrogated by the ongoing bankruptcy.
On December 12, 1990, the Rosens filed an answer and counter-
claim to Pisgah's complaint. Then, on January 28, 1991, the bank-
ruptcy court reconsidered its earlier dismissal of all claims asserted
against Doris Rosen and amended its prior order to reinstate those
claims.
On June 16 and 17, 1994, the bankruptcy court conducted a trial
on the adversary proceeding. On August 19, 1994, the bankruptcy
court issued findings of fact and conclusions of law in favor of Pis-
gah, holding that Pisgah was entitled to relief as to its breach of con-
tract claim against the Rosens and awarding damages of over
$220,000. The bankruptcy court dismissed the remainder of Pisgah's
claims against the Rosens and the Rosens' counterclaim against Pis-
3
gah. The Rosens filed a timely notice of appeal to the United States
District Court for the Western District of North Carolina.
On November 2, 1995, the district court reversed and remanded. In
its memorandum opinion and order, the district court, inter alia, held
that the arbitration provision contained in the parties' agreement must
be honored despite the ongoing bankruptcy proceedings and that
doing so would not interfere with either the provisions or the policies
of the Bankruptcy Code. The district court then remanded the case to
the bankruptcy court for referral to arbitration of the contractual dis-
pute between the parties in accordance with their pre-petition agree-
ment. Pisgah filed a motion for reconsideration, and on January 30,
1996, the district court denied Pisgah's motion.
Pisgah filed a timely notice of appeal, and the Rosens cross-
appealed. Pisgah subsequently filed with the district court a motion
for a stay of the arbitration proceedings pending appeal, which was
denied on March 12, 1996. In its order denying Pisgah's motion to
stay the arbitration proceedings, the district court expressly declined
to certify its earlier order directing arbitration to proceed under 28
U.S.C. § 1292(b) for immediate appeal. The district court stated that
its order compelling arbitration did not involve a controlling question
of law, nor would further litigation of the matter advance the ultimate
termination of the case.
Pisgah then filed a motion to stay the arbitration proceedings pend-
ing appeal with this court, and we denied that motion on March 19,
1996.
II.
In response to Pisgah's filing of this appeal, the Rosens argue pri-
marily that we lack appellate jurisdiction over the district court's
order directing arbitration to proceed. Section 16 of the Federal Arbi-
tration Act (the Act) governs when a party may appeal, inter alia,
orders compelling or refusing to compel arbitration. See 9 U.S.C.
§ 16; see also Stedor Enterprises, Ltd. v. Armtex, Inc., 947 F.2d 727,
729 (4th Cir. 1991) (§ 16 governs appeals from district court orders
in cases involving arbitration). Because the district court's order in
4
this case compels the arbitration of the parties' dispute, we must
determine whether we have jurisdiction to hear this appeal under § 16.
Section 16(a) provides that an appeal may be taken from any order
favoring litigation over arbitration, including orders refusing to com-
pel arbitration.1 See 9 U.S.C. § 16(a)(1); Stedor Enterprises, 947 F.2d
at 730. In addition, § 16(a) provides that an appeal may be taken from
"a final decision with respect to an arbitration." 9 U.S.C. § 16(a)(3).
Section 16(b), however, provides that, except as provided in 28
U.S.C. § 1292(b), an appeal may not be taken from an interlocutory
order in favor of arbitration over litigation until after the arbitration
has proceeded to a final award.2See id. § 16(b); Stedor Enterprises,
947 F.2d at 730. Under these provisions, then, while we have jurisdic-
tion to consider an appeal from an interlocutory order denying a
motion to compel arbitration, we generally do not have jurisdiction
over an interlocutory order compelling arbitration or directing arbitra-
tion to proceed. See Stedor Enterprises, 947 F.2d at 730; Jeske v.
Brooks, 875 F.2d 71, 73 (4th Cir. 1989). Taken together, subsections
(a) and (b) of § 16 contemplate the immediate review of a decision
favoring arbitration under only two circumstances: (1) when the dis-
trict court's order represents "a final decision with respect to an arbi-
tration," 9 U.S.C. § 16(a)(3); and (2) when 28 U.S.C. § 1292(b)
provides the means for an interlocutory appeal, id. § 16(b). See
Humphrey v. Prudential Sec., Inc., 4 F.3d 313, 317 (4th Cir. 1993).
Since the district court's order in this case favored arbitration over lit-
igation, by directing that arbitration proceed, our task is to determine
_________________________________________________________________
1 Specifically, § 16(a) provides that an appeal may be taken from: (1)
an order refusing a stay of any action pending arbitration under § 3 of the
Act; denying a petition under § 4 or an application under § 206 for an
order compelling arbitration; confirming or denying confirmation of an
award following arbitration; or modifying, correcting, or vacating an
arbitration award; (2) an interlocutory order granting, continuing, or
modifying an injunction against arbitration; and (3) a final decision with
respect to an arbitration. See 9 U.S.C.§ 16(a).
2 More precisely, § 16(b) provides that an appeal "may not be taken
from an interlocutory order": (1) granting a stay of any action pending
arbitration under § 3 of the Act; (2) directing arbitration to proceed under
§ 4; (3) compelling arbitration under § 206; or (4) refusing to enjoin an
arbitration. 9 U.S.C. § 16(b).
5
whether the district court's order in this case falls within either of
these two possible exceptions or bases for jurisdiction.
In addressing whether a particular order represents a "final deci-
sion" with respect to an arbitration, we have stated that "[a]n order
compelling arbitration is final when it results from a proceeding in
which the sole issue before the district court is the arbitrability of the
dispute." Id. (emphasis added); see also Altman Nursing, Inc. v. Clay
Capital Corp., 84 F.3d 769, 770-71 (5th Cir. 1996) (an order concern-
ing arbitration is "independent" and, therefore, "final" where the only
issue before the court is the dispute's arbitrability); Prudential Ins.
Co. v. Lai, 42 F.3d 1299, 1302 (9th Cir. 1994) (a decision to compel
arbitration is not reviewable unless the motion to compel arbitration
"is the only claim before the district court"), cert. denied, 116 S. Ct.
61 (1995); Adair Bus Sales, Inc. v. Blue Bird Corp., 25 F.3d 953, 955
(10th Cir. 1994) (adopting majority approach permitting immediate
review of order compelling arbitration only where"arbitrability is the
sole issue before the district court"). Even where a district court's
order compelling arbitration compels the arbitration of all substantive
claims involved in the dispute, that order is not"final" for purposes
of appealability, unless the only issue before the district court was
whether an order directing arbitration should be issued or not. See
Humphrey, 4 F.3d at 318; see also Perera v. Siegel Trading Co., Inc.,
951 F.2d 780, 785-86 (7th Cir. 1992) (rejecting argument that order
compelling arbitration was final, even though arbitration was not the
sole issue before the district court, where district court ordered arbi-
tration for all claims involved). The issue of whether an order compel-
ling arbitration may be immediately appealed as a"final decision,"
then, depends on whether the order was issued in an"independent"
action, in which the only issue before the court was whether the dis-
pute should be arbitrated, or whether the order was issued in an "em-
bedded" action, in which the arbitration issue was one issue among
others for the district court to resolve. See Humphrey, 4 F.3d at 317;
see also Altman Nursing, 84 F.3d at 770-71 (distinguishing between
"independent" proceeding and "embedded" proceeding); Prudential
Ins. Co., 42 F.3d at 1302 (same); Gammaro v. Thorp Consumer Dis-
count Co., 15 F.3d 93, 95 (8th Cir. 1994) (same); Filanto, S.P.A. v.
Chilewich Internat'l Corp., 984 F.2d 58, 60 (2d Cir. 1993) (same).
In this case, the arbitration issue was only one of numerous sub-
stantive issues presented to the bankruptcy court in the context of an
6
adversary proceeding instituted by Pisgah. Because the district court
entered an order directing the parties to proceed to arbitration in the
context of a larger breach of contract dispute, the arbitration issue was
"embedded" in Pisgah's substantive breach of contract claim and,
therefore, the district court's order was not a"final decision" for pur-
poses of § 16(a)(3). See Jeske, 875 F.2d at 73-74 (dismissing appeal
of district court order compelling arbitration where district court faced
not only motions to compel arbitration, but also numerous substantive
claims); see also Filanto, 984 F.2d at 61 (characterizing motion to
stay proceedings and compel arbitration in the context of a breach of
contract action as "a classic example of an embedded proceeding").
Section 16(a)(3), therefore, does not provide us with a basis for appel-
late jurisdiction in this case.
The second possible basis for appellate jurisdiction over a district
court order compelling arbitration is 28 U.S.C.§ 1292(b). See 9
U.S.C. § 16(b); Humphrey, 4 F.3d at 317. Section 1292(b) provides
that a district court may certify an order for immediate appeal where
the district court states in writing: (1) that the order involves a con-
trolling question of law as to which there is substantial ground for dif-
ference of opinion; and (2) that an immediate appeal from the order
may materially advance the ultimate termination of the litigation. See
28 U.S.C. § 1292(b). The court of appeals then has the discretion to
permit an appeal of the certified order. See id.
Section 1292(b) does not provide us with subject matter jurisdic-
tion in this case because the district court expressly declined to certify
its order compelling arbitration under § 1292(b). In its order denying
Pisgah's motion to stay arbitration pending this appeal, the district
court stated that its order directing arbitration to proceed did not
involve a controlling question of law as to which there was substantial
ground for difference of opinion. The district court stated further that
an immediate appeal would not advance the ultimate termination of
the case. Therefore, the requirements for our assertion of appellate
jurisdiction over an interlocutory order under § 1292(b) are not met.
III.
The district court's order is neither a "final decision" immediately
appealable under § 16(a)(3) of the Act nor an interlocutory order that
7
has been certified under 28 U.S.C. § 1292(b). Rather, it is an order
compelling arbitration over which we lack jurisdiction under the clear
directive of § 16 of the Act. Accordingly, this appeal is dismissed.
DISMISSED
8