Adam Technologies International S.A. De C v. v. Sutherland Global Services, Inc. , 729 F.3d 443 ( 2013 )

Case: 12-10760 Document: 00512363552 Page: 1 Date Filed: 09/05/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
September 5, 2013
No. 12-10760 Lyle W. Cayce
Clerk
ADAM TECHNOLOGIES INTERNATIONAL S.A. DE C.V.,
Plaintiff-Appellant
v.
SUTHERLAND GLOBAL SERVICES, INCORPORATED,
Defendant-Appellee
Appeal from the United States District Court
for the Northern District of Texas
Before GARZA, SOUTHWICK, and HAYNES, Circuit Judges.
LESLIE H. SOUTHWICK, Circuit Judge:
Adam Technologies International S.A. de C.V. appeals the district court’s
denial of its motion to appoint an arbitrator under the Federal Arbitration Act.
The district court denied the motion after determining the challenges to the
appointment presented procedural questions to be decided by the International
Centre for Dispute Resolution. We AFFIRM.
FACTUAL AND PROCEDURAL BACKGROUND
In March 2010, Sutherland Global Services, Inc., filed a demand for
arbitration with the American Arbitration Association, alleging Adam owed
Sutherland $618,626.08 for unpaid services. Sutherland referenced the parties’
Master Services Agreement, which provided that the parties agreed to resolve
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such dispute by arbitration in Rochester, New York, in accordance with the rules
of the American Arbitration Association.
In May 2010, in a state court in Dallas, Texas, Adam filed an application
to stay the arbitration and referenced the parties’ antecedent Letter of Intent,
which provided a different forum-selection and choice-of-law clause for disputes
regarding the interpretation and enforcement of the Letter of Intent. Adam
contended that Sutherland performed the work under the Letter of Intent, while
Sutherland argued that the subsequent Master Services Agreement controlled.
Sutherland removed the civil action to the United States District Court for
the Northern District of Texas, invoking the court’s original diversity
jurisdiction. 28 U.S.C. § 1332. Sutherland then filed a motion to stay the
proceeding in favor of arbitration or in the alternative to dismiss.
On October 18, 2010, the district court entered a final judgment and
dismissed Adam’s claims for resolution by arbitration. In its original order, the
district court determined the Master Services Agreement superseded the expired
Letter of Intent. Accordingly, by basing its claims on an expired agreement,
Adam had failed to state a claim upon which relief could be granted. Fed. R. Civ.
P. 12(b)(6). Although not expressly using the word “compel” in its final
judgment, the district court stated: “Plaintiff’s claims are dismissed for
resolution by arbitration.” Thus, the clear import of the judgment was that if
Adam wished to proceed with its claims, it must do so in arbitration. On
November 4, 2010, Adam filed a motion to alter or amend the judgment. As we
will discuss, the district court ruled on the motion in May 2011.
In February 2011, the parties attempted to resolve their dispute through
mediation. They selected attorney Phillip Spellane, who previously represented
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Sutherland in a labor dispute, as the mediator. By April, the parties were
unable to reach an agreement through mediation and utilized the arbitration
procedure provided in their Master Services Agreement. This agreement
required the dispute to be brought to a sole arbitrator if the parties mutually
agreed to one within a reasonable period. If not, the parties were required to
refer the dispute to three arbitrators. Both Adam and Sutherland were required
to appoint one arbitrator each, and those two appointed arbitrators were
required to appoint a third, presiding arbitrator.
After not agreeing to a sole arbitrator, Sutherland appointed its arbitrator,
and Adam appointed former mediator Spellane as its arbitrator. On May 13,
2011, the International Centre for Dispute Resolution (“ICDR”), which is the
arm of the American Arbitration Association that administers arbitration
between internationally diverse parties, informed Sutherland that both
arbitrators had agreed to serve. On May 16, Sutherland challenged Spellane’s
appointment under Articles 7 and 8 of the ICDR International Arbitration Rules
because of Spellane’s former involvement in the controversy and his ex parte
communications with the parties.
Adam contended that Sutherland’s challenge was untimely, but the ICDR
sustained the objection on June 6, and required Adam to appoint a new
arbitrator by June 21. Adam then filed a notice to arbitrate Spellane’s removal,
which the ICDR denied on the basis that his removal “was decided and
confirmed by the ICDR in its sole discretion as [an] administrative decision.”
Adam received two extensions of the deadline to appoint an arbitrator and
ultimately failed to appoint anyone by the ICDR’s subsequent deadline of July
12. On July 29, the ICDR appointed the second arbitrator, who worked with
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Sutherland’s appointed arbitrator to select the third, presiding arbitrator. The
panel initially set a final-hearing date for the arbitration in April 2012.
Meanwhile, on May 26, 2011, the district court vacated its October 18,
2010 order:
After careful consideration, the Court finds that it was
unnecessary to determine that the [Letter of Intent] LOI was
superseded by the [Master Services Agreement] MSA. Courts are
required to resolve doubt over the coverage of an arbitration
agreement in favor of arbitration. Southland Corp. v Keating, 465
U.S. 1, 10 (1984). Adam Technologies does not dispute the Court's
finding that this case belongs in arbitration. However, in
determining whether the arbitration agreement controlled in this
case, it was unnecessary for the Court to determine whether the
MSA or the LOI controlled the dispute between the parties.
Sutherland maintains its claims are brought pursuant to the MSA.
Adam Technologies argued that the claims appeared to be brought
pursuant to the LOI. Because there was a dispute as to whether the
MSA, and thus, the arbitration agreement, controlled, and whether
the LOI was superseded by the MSA, the Court was required to
resolve doubt in favor of arbitration. Id. The determination as to
which contract controls the dispute between the parties is for the
arbitrator. Because the Court finds that its determination that the
LOI was superseded by the MSA was unnecessary to its judgment,
the Order of October 18, 2010 is vacated.
The court held it was not necessary to determine whether Adam had
brought suit under an expired agreement, which was the conclusion in the
vacated order. Instead, because any doubts over the coverage of an arbitration
agreement are to be resolved in favor of arbitration, the court held that it was
for an arbitrator to determine which of the parties’ agreements controlled. This
left undecided whether the Master Services Agreement superseded the Letter
of Intent. Because only the Master Services Agreement provided for arbitration,
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this amended ruling left for the arbitrator the decision of whether arbitration
was required. The amended order did not address what was to occur if the
arbitration determined, which it did not, that the Letter of Intent controlled and
that arbitration was not the procedure to be followed to resolve the dispute.
If the district court was still dismissing the suit, nothing in the order
explicitly stated that. The most definitive statement as to the result of the
amended order was that the “Court grants in part and denies in part” the motion
to amend. The earlier decision to dismiss based on Rule 12(b)(6) no longer had
its legal underpinning, namely, that the complaint was based on an expired
agreement on which no relief could be based. As the court initially held:
The Court finds that the LOI does not apply to the parties[’] dispute,
but instead the MSA is the governing contract. Adam’s entire
original petition is based on the application of the LOI and therefore
Adam has failed to state a claim for which relief can be granted. For
the forgoing reasons the Court GRANTS Sutherland’s Motion to
Dismiss.
No new judgment was entered. We will discuss below whether we
interpret the revised order as still dismissing the suit.
On November 18, 2011, Adam filed a motion under different subparts of
Rule 60(b) to vacate the final judgment on grounds that Sutherland engaged in
fraudulent misconduct and alternatively that the case presented exceptional
circumstances. Fed. R. Civ. P. 60(b). While that motion was pending, and using
the same cause number, Adam filed a motion to appoint an arbitrator under 9
U.S.C. § 5 on December 14, 2011. Adam argued in part that Spellane’s
disqualification by the ICDR was procedurally faulty because Sutherland failed
to make a timely challenge to the appointment in accordance with Article 8 of
the ICDR Rules. Adam further contended that the challenge to Spellane lacked
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a valid, substantive basis. Adam also argued that the procedure followed by the
ICDR to appoint a replacement arbitrator was error because Articles 6 and 10
of the ICDR Rules required one of the parties to provide a written request before
such appointment could be made. Adam requested that the district court remove
two of the appointed arbitrators, reinstate Spellane, and order the third
arbitrator be appointed by Sutherland’s appointed arbitrator and Spellane.
On June 18, 2012, the district court determined that the parties agreed the
method for appointing arbitrators had been established in the Master Services
Agreement, which incorporated the ICDR Rules through the contractual
adoption of the American Arbitration Association’s rules. The court concluded
Adam presented procedural questions which were left to the discretion of the
ICDR to decide. All relief was denied. Adam timely appealed.
The parties have informed the court that a related action is pending in the
United States District Court for the Western District of New York. On August
2, 2012, the arbitration panel issued a final award in favor of Sutherland, and
Sutherland subsequently filed a petition to confirm the arbitration award in
accordance with 9 U.S.C. § 9 on August 16. On December 21, 2012, the federal
district court in New York entered an order to hold the petition in abeyance until
this court issues a decision.
DISCUSSION
I. Jurisdiction
Sutherland challenges the district court’s subject matter jurisdiction over
Adam’s post-judgment motion to appoint an arbitrator under 9 U.S.C. § 5.
Though the court denied the motion, had there been no jurisdiction, the order
should be vacated. “We exercise plenary, de novo review of a district court’s
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assumption of subject matter jurisdiction.” Local 1351 Int’l Longshoremens
Assoc. v. Sea-Land Serv. Inc., 214 F.3d 566, 569 (5th Cir. 2000).
Sutherland invoked the federal court’s diversity jurisdiction when it
removed Adam’s state-court application to stay the arbitration. 28 U.S.C. §
1332. Nevertheless, Sutherland argues the district court lacked jurisdiction to
consider Adam’s motion because the case had already been dismissed,1 and in
the motion, Adam did not state a basis for the district court’s jurisdiction.
Nothing suggests nor is even alleged that the diversity of the parties’ citizenship
or the amount in controversy that originally supported jurisdiction has since
changed. Sutherland’s contention is, in effect, an attack on the procedural
method by which Adam sought an appointment of an arbitrator by post-
judgment motion instead of an independent action.
It is prudent for parties to arbitration agreements to “insist upon the
enforcement of their contractual rights” and compliance with 9 U.S.C. § 5. Brook
v. Peak Int’l, Ltd., 294 F.3d 668, 673-74 (5th Cir. 2002). A litigant may seek an
arbitrator’s appointment under Section 5 by filing an independent action. E.g.,
BP Exploration Libya Ltd. v. ExxonMobil Libya Ltd., 689 F.3d 481, 486-87 (5th
Cir. 2012). Instead of following that procedure, Adam requested appointment
by filing a post-judgment motion in the original suit. The motion was filed a few
weeks after Adam filed a Rule 60(b) motion in the same dismissed suit.
Disputing the validity of this procedure, Sutherland points out that a
district court does not have continuing jurisdiction to enforce a settlement after
1
In the final judgment entered on October 18, 2010, the district court dismissed all
claims for resolution by arbitration. Although Section 3 of the Federal Arbitration Act directs
district courts to stay pending arbitration, we are bound by our precedent which states that
dismissal is appropriate “when all of the issues raised in the district court must be submitted
to arbitration.” Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992).
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parties reached a settlement agreement under Federal Rule of Civil Procedure
41(a)(1) and executed a stipulation, and the court then dismissed. Kokkonen v.
Guardian Life Ins. Co. of Am., 511 U.S. 375, 376-77 (1994). In that case, a party
to earlier diversity litigation in the same court returned to that court after a
final order of dismissal in order to enforce a provision in the settlement
agreement requiring another party to return certain files. Id. at 376-77. The
district court held it had ancillary jurisdiction over the claim. Id. The Supreme
Court determined the district court lacked jurisdiction because there was no
independent basis for jurisdiction, retention of jurisdiction, or an incorporation
of the settlement agreement into the order. Id. at 379-82.
The Supreme Court held there was no ancillary jurisdiction because the
original and subsequent claims were not factually interdependent, nor was the
district court’s enforcement order necessary to give effect to the previous decree.
Id., 511 U.S. at 379-81. In the previous dismissal of the complaint and cross-
complaint, the district court signed the parties’ proposed order with no
reservation of jurisdiction or incorporation of the agreement. Id. at 376-77.
Similarly in the prior proceedings in our case, the final judgment of October 18,
2010, dismissed all claims “for resolution by arbitration.” When that judgement
was amended on May 26, 2011, there was no suggestion that the suit was no
longer dismissed.
The new filing in Kokkonen was not the original dispute revived with all
the jurisdictional prerequisites still in place. The new claim sought enforcement
of one part of the previous settlement regarding files and did not re-urge original
claims in the litigation. Id. at 376-77, 381. Consequently, the federal court did
not have an “independent basis for federal jurisdiction.” Id. at 382.
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The case before us is much different. No settlement or final resolution was
reached. Instead, the district court held that one of the contracts between the
parties provided for arbitration of the dispute. The dismissal effectively required
the parties to arbitrate their controversy and not rely on a court to resolve it, at
least unless the arbitrator said the claim was not arbitrable. The post-judgment
motion sought to enforce that earlier decision by showing that the pursuit of
arbitration was failing due to the fault of one of the parties. By the time of the
motion, the arbitration panel had issued an order regarding the procedure for
arbitration. No arbitration hearing was held until after the district court denied
Adam’s motion. We consider these facts about the status of the arbitration to be
relevant to the merits of the motion but to have little effect on the district court’s
jurisdiction to consider whether its earlier order effectively requiring arbitration
was being thwarted.
We find guidance in Kokkonen from the Court’s description of the two
principal purposes for ancillary jurisdiction:
Generally speaking, we have asserted ancillary jurisdiction (in the
very broad sense in which that term is sometimes used) for two
separate, though sometimes related, purposes: (1) to permit
disposition by a single court of claims that are, in varying respects
and degrees, factually interdependent, and (2) to enable a court to
function successfully, that is, to manage its proceedings, vindicate
its authority, and effectuate its decrees.
Id. at 379-80 (citations omitted).
We conclude that the second Kokkonen category applies here for the
following reasons. On May 26, 2011, the district court amended its original
order, but we conclude that the case remained dismissed in order that
arbitration could occur. It is true that the court did not in any of its orders
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specifically require arbitration, but the reason for the dismissal was so that the
parties would proceed to resolve their dispute in an arbitral forum. We do not
consider the Rule 60(b) motion that Adam filed on November 18, 2011, to be
relevant in our jurisdictional analysis. None of what is in the appeal to this
court arises from the Rule 60(b) allegations. Instead, the current appeal is from
what began with Adam’s motion to appoint an arbitrator under Section 5 on
December 14, 2011. The argument was that the previous judgment dismissing
the case in favor of arbitration was being thwarted by a lapse in appointment.
The arbitration was on the original issues of the case, and the jurisdiction over
whether that authority needed to be vindicated and the decree effectuated was
ancillary to that of the original proceedings.
The judgment dismissing Adam’s initial lawsuit operated, in all practical
effect, as the functional equivalent of an order compelling arbitration between
these parties.2 We conclude that ancillary jurisdiction existed to allow the
district court later to evaluate whether the dismissal that allowed the dispute
to be taken to arbitration was being thwarted. The district court eventually
2
A decision from another circuit has relevant similarities. There, the federal court
litigation began as an employment discrimination action. Smiga v. Dean Witter Reynolds, Inc.,
766 F.2d 698, 702 (2d Cir. 1985). Before the suit was filed, the employer had alleged the
plaintiff employee had been overpaid and demanded arbitration. Id. at 701. In the federal
suit, the employee moved to enjoin the arbitration, but the court denied the motion. Id. at 701-
02. The arbitration resulted in an award in favor of the employer. Id. at 702. The employee
then amended her federal action, deleting the objections to arbitration and leaving her claims
of sexual harassment. Id. The employer moved to confirm the arbitration award; the district
court did so. Id. The discrimination claim remained pending. Id. at 703.
On appeal, the plaintiff argued the district court did not have jurisdiction to confirm
the award partly because the parties did not, as set out in 9 U.S.C. § 9, explicitly agree to have
“a judgment of the court . . . entered upon the award.” Id. at 705. Nevertheless, the court
determined there was jurisdiction to confirm the award because the “order denying [the
employee’s] motion to stay arbitration was essentially the equivalent of an order by the district
court to compel arbitration.” Id.10
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decided it had no role to play, but we find no absence of jurisdiction for making
that evaluation and reaching that conclusion.
The dissent relies on decisions in which we have applied Kokkonen in the
context of the enforcement of settlement agreements. SmallBizPros, Inc. v.
MacDonald, 618 F.3d 458, 460-61 (5th Cir. 2010); Hospitality House, Inc. v.
Gilbert, 298 F.3d 424, 428, 430 (5th Cir. 2002). The dismissals in those two
lawsuits had been pursuant to a rule permitting a plaintiff to dismiss a case
voluntarily. SmallBizPros, 618 F.3d at 460; Hospitality House, 298 F.3d at 430
n.6 (citing Fed. R. Civ. P. 41(a)(1)(A)(ii)). The dismissal generally becomes
effective upon its filing, and no court order is required. SmallBizPros, 618 F.3d
at 461. If a court order is nonetheless entered, a district court would have
jurisdiction to enforce the settlement underlying the dismissal only if the
dismissal order expressly retained jurisdiction or the settlement terms were
incorporated in the order. SmallBizPros, 618 F.3d at 462-64; Hospitality House,
298 F.3d at 430-32.
A significant procedural difficulty in both cases was that because the
voluntary dismissal was immediately effective upon its filing by the plaintiff, the
plaintiff had to delay filing the dismissal until the court order itself was filed or
else make the filed dismissal contingent upon the later court order; if neither
option occurred, then the case would be dismissed and the later court order
necessary for enforcement jurisdiction would be a nullity. E.g., SmallBizPros,
618 F.3d at 462-63. Neither dismissal in the present case was voluntary. The
dismissal on October 18, 2010 was under Rule 12(b)(6) and very much over the
plaintiff’s objection. On May 26, 2011, the district court amended its earlier
judgment but still dismissed in order that arbitration could occur.
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To be clear, the analysis of those two precedents did not limit Kokkonen’s
reach to cases that had been voluntarily dismissed. The Supreme Court and our
two cited precedents each dealt with enforcement of a settlement and the need
for the district court to have in a valid way earlier expressed its retention of
jurisdiction to enforce it. If the district court did not, then there would have to
be some other and independent basis for jurisdiction. Kokkonen, 511 U.S. at 382.
The Supreme Court acknowledged that “ancillary jurisdiction properly
exists where it enables a court ‘to manage its proceedings, vindicate its
authority, and effectuate its decrees . . . .’” SmallBizPros, 618 F.3d at 461-62(quoting Kokkonen, 511 U.S. at 380). We see a significant distinction between
deciding that a court is not vindicating its authority when it is enforcing a
contract of settlement which the court did not require but only acceded to by
dismissal, and deciding that a district court is vindicating its authority by
requiring parties to honor the court’s decision that an obligation to arbitrate
necessitated involuntary dismissal of a case. The final judgment of October 2010
stated the claims were “dismissed for resolution by arbitration.” In May 2011,
the district court noted in its order on Adam’s motion for reconsideration, that
the court’s October 2010 “finding that this case belongs in arbitration” was not
being challenged. The order responded to some arguments by stating they would
be for the arbitrator. We have held that the district court effectively if only
implicitly ordered arbitration. If a party interferes with the carrying out of an
order to arbitrate, there is effectuation and vindication inherent in the district
court entering relevant new orders.
The dissent also relies on decisions from the other circuits to support its
point that the dismissal order must reveal an intent to retain jurisdiction. Those
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cases also apply to enforcement of terms of a stipulated agreement. RE/MAX
Int’l, Inc. v. Realty One, Inc., 271 F.3d 633, 641 (6th Cir. 2001); Washington
Hosp. v. White, 889 F.2d 1294, 1297-99 (3d Cir. 1989).
The Supreme Court emphasized in Kokkonen that what one party sought
was an enforcement of settlement terms, which was “more than just a
continuation or renewal of the dismissed suit.” 511 U.S. at 378. We are not
considering a settlement agreement. Our jurisdictional question is to be
answered in the context of a court’s dismissal of a case so that it will be
arbitrated. The Supreme Court in Kokkonen allowed the use of ancillary
jurisdiction to “enable a court to function successfully, that is, to manage its
proceedings, vindicate its authority, and effectuate its decrees.” Id. at 380. We
conclude that is what occurred here.
II. Merits
Here, the district court’s denial of Adam’s motion at this stage of the
proceedings constituted “a final decision with respect to an arbitration.” 9
U.S.C. § 16(a)(3); see BP Exploration, 689 F.3d at 489. Accordingly, we exercise
appellate jurisdiction, and we review the district court’s decision de novo. See
BP Exploration, 689 F.3d at 489-90.
Adam first argues the district court erred in refusing to appoint an
arbitrator because Adam provided proof that the parties had reached a lapse in
naming an arbitrator after the ICDR sustained Sutherland’s objection to
Spellane, and Adam did not comply with the ICDR’s deadlines for appointing
another arbitrator. Specifically, Adam contends the parties’ agreement provided
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for a specific procedure in which each party would select its choice arbitrator and
that such procedure “broke down” when Adam insisted on appointing Spellane.
The Federal Arbitration Act provides, in part:
If in the agreement provision be made for a method of naming or
appointing an arbitrator or arbitrators or an umpire, such method
shall be followed; but . . . if for any other reason there shall be a
lapse in the naming of an arbitrator . . . , then upon the application
of either party to the controversy the court shall designate and
appoint an arbitrator . . . .
9 U.S.C. § 5 (emphasis added).
Caselaw has described a “lapse” under Section 5 as “a lapse in time in the
naming of the arbitrator or in the filling of a vacancy on a panel of arbitrators,
or some other mechanical breakdown in the arbitrator selection process.” BP
Exploration, 689 F.3d at 491-92 (quotation marks omitted). In BP Exploration,
the three parties involved had “reached an impenetrable deadlock over the
appointment of arbitrators” despite the presence of an appointment method
because such method did not contemplate the existence of three parties to the
controversy. Id. at 492. The party initiating arbitration appointed an arbitrator
in accordance with the agreement. Id. The co-respondents were then required
to appoint arbitrators. Id. The agreement required both a total of three
arbitrators and the appointment of a neutral arbitrator “at the unanimous
choosing of the party-appointed arbitrators.” Id. With each party having
appointed an arbitrator, the parties could not comply with the agreed-to
appointment method.
Here, there was no mechanical breakdown that required the court’s
intervention. Instead, it was Adam’s own noncompliance with the ICDR’s
procedural requirements that prompted the ICDR to appoint an arbitrator, an
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appointment which the ICDR determined was in accordance with its rules.
Article 36 of the ICDR Rules states an arbitral tribunal or administrator shall
interpret these rules.
Further, the facts of this case show no “lapse” occurred under Section 5.
At the time of Adam’s filing its motion to appoint an arbitrator, an arbitration
panel had been empaneled, and a final hearing date was set to resolve the
underlying dispute. Those facts stand in contrast to those of BP Exploration,
where “[t]he parties attempted to resolve the impasse for months, floating
numerous ideas to no avail.” Id. Consequently, we reject Adam’s argument on
appeal that the district court was required to intervene on grounds that a lapse
had occurred in the appointment process.
Adam next argues the district court was required to reach the merits of
Adam’s request to reinstate Spellane because Section 5 provides: “If in the
agreement provision be made for a method of naming or appointing an arbitrator
or arbitrators or an umpire, such method shall be followed.” More specifically,
Adam contends the parties’ agreement provided that they should be able to
appoint their choice arbitrators; further, Adam argues the agreement imposed
no time limit. Adam thus concludes the ICDR did not follow the agreement’s
method of appointing arbitrators and the district court was required to
intervene. We disagree for the following reasons.
First, by contesting the process used to select the arbitrators, Adam has
advanced a “challenge[] that essentially [goes] to the procedure of arbitration.”
Gulf Guar. Life Ins. Co. v. Conn. Gen. Life Ins. Co., 304 F.3d 476, 488 (5th Cir.
2002). The law presumes that “procedural questions” are for an arbitrator to
decide. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002).
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Adam nevertheless contends that such presumption does not apply
because the parties contractually agreed otherwise. We disagree with this
reasoning on these facts. The parties’ arbitration agreement stated that a
“dispute or controversy between the Parties with respect to the interpretation
or application or enforcement of any provision of this Agreement . . . shall be
resolved as provided in this Section.” That section required an initial informal
attempt to resolve any dispute. If the dispute could not be resolved, the parties
were required to refer the dispute for resolution by arbitration. In addition to
explaining the arbitrator-selection process, the parties’ contract incorporated the
rules of the American Arbitration Association, and consequently the ICDR Rules,
into the arbitration section of their agreement. The ICDR Rules provide for the
challenging and replacing of arbitrators. Thus, Adam’s appellate argument that
the Howsam presumption disappears because of Adam’s interpretation that the
parties agreed otherwise is unavailing.
Second, at the time Adam challenged the arbitrator-selection process in
the Texas district court, three arbitrators were already empaneled, and no
arbitration award had yet been made. The court had no statutory authority to
reach the merits of Adam’s argument after the arbitration process had proceeded
but “prior to issuance of the arbitral award.” Gulf Guar. Life Ins. Co., 304 F.3d
at 488, 490; see Brook, 294 F.3d at 673-74.
Adam advances a related argument that the district court was required to
appoint an arbitrator, which necessarily implicates Adam’s request in the
district court to remove two arbitrators. This circuit has explained, though, the
Federal Arbitration Act “does not provide for removal of an arbitrator from
service prior to an award, but only for potential vacatur of any award.” Gulf
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Guar. Life Ins. Co., 304 F.3d at 490. Adam did not, and could not have at the
time, move for a vacatur of an award in the district court. Therefore, we cannot
conclude the district court erred in denying the motion to appoint an arbitrator
based on this argument.
Last, Adam contends the ICDR’s disqualification of Spellane was improper
because Sutherland’s challenge to Spellane was untimely under Article 8 of the
ICDR Rules, and Sutherland failed to allege a proper basis for disqualification.
Adam also argues the appointment of Spellane’s replacement was improper
under Articles 6 and 10 of the ICDR Rules because the parties’ agreement did
not provide restraints on the amount of time each party had to appoint an
arbitrator. These contentions amount to procedural challenges, and the
language of the parties’ arbitration agreement, as well as the law’s presumption,
mandates these issues be resolved by arbitration. See Howsam, 537 U.S. at 84-
85; Gulf Guar. Life Ins. Co., 304 F.3d at 488.
AFFIRMED.
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EMILIO M. GARZA, Circuit Judge, dissenting:
I dissent from the majority’s holding that the district court had ancillary
jurisdiction to decide Adam’s post-judgment motion to appoint an arbitrator.
The district court did not have ancillary jurisdiction over Adam’s motion.
A federal court does not automatically retain jurisdiction to hear a motion to
enforce a settlement agreement in a case it has previously dismissed. See
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 380–82 (1994). The
touchstone of whether the district court retains jurisdiction post-dismissal to
enforce the terms of a settlement agreement is whether it is possible to infer
such an intention from its dismissal order. SmallBizPros, Inc. v. MacDonald,
618 F.3d 458, 464 (5th Cir. 2010) (holding in order to retain jurisdiction to
enforce parties’ settlement agreement district court’s dismissal order “must
expressly retain jurisdiction or must otherwise embody the terms of the
agreement within the dismissal order so that any violation of the terms would
also be a violation of the court’s order.”); Washington Hosp. v. White, 889 F.2d
1294, 1298–99 (3d Cir. 1989) (“Although a district court does not have continuing
jurisdiction over disputes about its orders merely because it had jurisdiction over
the original dispute, a stipulated agreement signed by the court does allow a
district court to retain jurisdiction . . . . All that is necessary is that it be possible
to infer that he did intend to retain jurisdiction.”) (emphasis added). In
Kokkonen, in holding the district court lacked jurisdiction to enforce the
settlement agreement, the Court placed great weight on the fact the dismissal
order did not even reference the settlement agreement. 511 U.S. at 377 (“The
Stipulation and Order did not reserve jurisdiction in the District Court to enforce
the settlement agreement; indeed, it did not so much as refer to the settlement
agreement.”); See RE/MAX Int’l, Inc. v. Realty One, Inc., 271 F.3d 633, 643 (6th
Cir. 2001) (“Kokkonen only requires a reasonable indication that the court has
retained jurisdiction, such as a provision retaining jurisdiction over the
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settlement agreement. In this way, the Court intended to avoid subjective
interpretations of what a district court intended to accomplish through its order
of dismissal . . . .”).1
In Hospitality House, Inc. v. Gilbert, we examined whether a dismissal
order’s reference to an agreed motion to dismiss sufficed to incorporate the
parties’ settlement agreement into the court’s dismissal order where the motion
to dismiss expressly incorporated the settlement agreement. 298 F.3d 424, 433
(5th Cir. 2002). We held that mere mention of the agreed motion to dismiss in
the dismissal order did not suffice to incorporate the settlement agreement. Id.We further held that under Kokkenen and its progeny, in order for the district
court to retain ancillary jurisdiction to enforce the terms of the parties’
settlement agreement, the dismissal order must clearly indicate the court’s
intent to make the terms of the settlement agreement part of its dismissal order.
Id.Here, the district court’s dismissal order did not indicate an intention to
retain jurisdiction over the parties’ dispute. After the district court determined
that the parties agreed to arbitrate their dispute, the district court issued its
final judgment and order dismissing the case, stating, “Plaintiff’s claims are
1
In Washington Hospital, unlike in Kokkonen, the stipulated agreement signed by the
district court clearly implied the district court intended to retain jurisdiction to enforce the
terms of the settlement agreement:
We think there is little question that the district court retained jurisdiction to
resolve allegations of non-compliance with the stipulated agreement. Paragraph
nine of the court-approved stipulation states: “Plaintiffs will make no further
effort to have their claims adjudicated or to request judicial relief upon those
claims except insofar as questions or issues are raised: (1) by any failure of
Defendants to comply with the terms of this Agreement.”
889 F.2d at 1299. The Third Circuit thus held under Kokkonen the district court had
jurisdiction to enforce the terms of the parties’ agreement. Id.19
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dismissed for resolution by arbitration.” Adam did not appeal the decision, the
arbitration proceeded, and the underlying case was closed. It was not until six
months after the deadline for Adam to appeal the final judgment passed that
Adam filed the instant motion to appoint an arbitrator. Just as the mere
mention of the agreed motion to dismiss in Hospital House did not suffice to
indicate an intention to retain jurisdiction over disputes arising out of the
parties’ settlement agreement, so also did mere mention of the arbitration
proceedings in the dismissal order fail to indicate an intention to retain
jurisdiction over disputes arising out of the arbitration. As the district court’s
dismissal order did not imply the district court intended to retain any
jurisdiction over the parties’ dispute, under Kokkonen, the district court did not
have ancillary jurisdiction to reach the merits of Adam’s motion.2 Cf. Bell v.
Schexnayder, 36 F.3d 447, 448 (5th Cir. 1994) (holding district court had
properly retained jurisdiction by including language in dismissal order that gave
parties right to reopen judgment if settlement was not consummated within
sixty days).
2
Kokkonen implies that where there is an independent basis for jurisdiction over a
post-judgment motion ancillary jurisdiction is unnecessary. “Enforcement of the settlement
agreement, however, whether through award of damages or decree of specific performance, is
more than just a continuation or renewal of the dismissed suit, and hence requires its own
basis for jurisdiction.” Kokkonen, 511 U.S. 375 at 378. Here, however, there is no independent
basis for jurisdiction over Adam’s post-judgment motion merely because the district court had
diversity jurisdiction over the dismissed suit. Adam did not file a new complaint stating the
diversity of the parties and the dollar amount in controversy. Moreover, Adam’s motion to
appoint an arbitrator was not a continuation or renewal of the dismissed suit. In the
dismissed suit Adam sought to stay the arbitration and addressed the question of whether the
parties had an obligation to arbitrate their dispute. By contrast, Adam’s motion does not
renew the question of whether the parties were bound to arbitrate their dispute but rather
raises a new question of arbitration procedure.
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The majority holds the district court had ancillary jurisdiction over Adam’s
motion under Kokkonen because jurisdiction was necessary to effectuate the
court’s decree, ante, at 10, but the court’s decree was merely to dismiss the
case.3 Had the district court dismissed Adam’s motion for lack of jurisdiction,
Adam would have had to either file an independent action, or be left to resolve
the dispute in arbitration, where it was resolved.4 The majority holds that by
deciding Adam’s motion to arbitrate the district court was “vindicating its
authority by requiring [the] parties to honor the court’s decision that an
obligation to arbitrate necessitated involuntary dismissal of [the] case.” Ante,
at 12. This is unconvincing. At the time Adam filed the motion to appoint an
arbitrator in the district court, the arbitration panel had already issued its final
judgment. Adam’s motion was part of a collateral attack on that judgment.5 The
district court did not “effectuate” its dismissal order by reentering the parties’
dispute after the arbitration panel issued its final judgment. Accordingly, the
3
In support of its holding that the district court had jurisdiction the majority cites
Smiga v. Dean Witter Reynolds, Inc., 766 F.2d 698, 706 (2d Cir. 1985), ante, at 10, but this case
is readily distinguishable as there the district court stayed the case pending arbitration rather
than dismissed the case. By staying the case pending arbitration, the district court clearly
indicated an intent to retain jurisdiction over the underlying dispute. Smiga, 766 F.2d at 705.
Here, by contrast, the district court dismissed Adam’s claims for resolution by arbitration
without indicating any intent to retain jurisdiction over Adam’s claims.
4
Sutherland filed a separate action to confirm the arbitration award in the United
States District Court for the Western District of New York, and that court stayed the
proceeding pending the result of this appeal. The fact a federal district court in Texas decided
Adam’s motion to appoint an arbitrator and a district court in New York will decide whether
to confirm the arbitration award underscores the strange procedural posture of this case.
5
Adam simultaneously filed a motion to vacate the arbitration panel’s final judgment
on grounds that Sutherland engaged in fraudulent misconduct and the case presented
exceptional circumstances.
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majority’s conclusion that the district court had ancillary jurisdiction over
Adam’s post-judgment motion is erroneous.
Respectfully, I dissent.
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