McDermott Intern., Inc. v. Underwriters At Lloyds Subscribing To Memorandum of Ins. No.

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________
No. 92-3622
_______________________
McDERMOTT INTERNATIONAL, INC.,
Plaintiff-Appellant,
versus
UNDERWRITERS AT LLOYDS SUBSCRIBING
TO MEMORANDUM OF INSURANCE NO. 104207,
Defendant-Appellee.
_________________________________________________________________
Appeal from the United States District Court
for the Eastern District of Louisiana
_________________________________________________________________
(January 6, 1993)
Before JONES and BARKSDALE, Circuit Judges, and JUSTICE,1 District
Judge.
BARKSDALE, Circuit Judge:
The determinative starting point for this appeal by McDermott
International, Inc., is whether the district court orders
compelling arbitration of McDermott's dispute with certain
Underwriters at Lloyds and staying litigation pending arbitration
are interlocutory, not final. Because we hold that they are the
former, and because § 16 of the Federal Arbitration Act, 9 U.S.C.
§ 1 et seq., prohibits appeal from such orders, we DISMISS for lack
of jurisdiction. Likewise, we DENY the alternative application for
a writ of mandamus.
1
District judge for the Eastern District of Texas, sitting by
designation.
I.
McDermott, a Panamanian corporation headquartered in Orleans
Parish, had an insurance policy with Underwriters that covered the
operations of one of McDermott's subsidiaries. The policy required
arbitration of "[a]ll differences arising out of this contract".
In 1989, the subsidiary's property was damaged; and McDermott
submitted a policy claim. Maxson Young Associates, Inc., was
retained to adjust the loss. Underwriters denied coverage, and
this litigation ensued.
Beginning in late 1990, McDermott filed two actions in
Louisiana state court against Underwriters: one for contract
damages; the other for a declaratory judgment to block arbitration
sought by Underwriters. Invoking the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards, 9 U.S.C. § 201 et seq.,
Underwriters removed both actions to federal district court, where
they were consolidated.
The district court remanded the cases to state court, holding
that a service-of-suit clause in the policy waived Underwriters'
removal rights; but this court vacated that order. McDermott
Int'l, Inc. v. Lloyds Underwriters of London, 944 F.2d 1199 (5th
Cir. 1991). Three additional actions were consolidated into the
action: a state court suit, removed through diversity, by McDermott
against the adjuster, Young, alleging that an unauthorized coverage
letter contractually obligated Young to pay for the loss; and two
diversity actions by Underwriters against Young, seeking
2
indemnification for any damages awarded McDermott against
Underwriters.
Underwriters' motion to compel arbitration and stay litigation
pending arbitration was granted in February 1992. The stay
extended not only to the parties to the arbitration agreement, but
also to those parties and claims not subject to arbitration.
II.
A.
Because this appeal turns on jurisdiction, we do not reach the
issues raised by McDermott -- essentially, whether compelling
arbitration was erroneous. Underwriters contends that we lack
jurisdiction, maintaining that appeal from the district court's
orders is barred by § 16 of the Federal Arbitration Act (FAA), 9
U.S.C. § 1 et seq. That section, 9 U.S.C. § 16, governs appellate
jurisdiction over orders affecting arbitration, whether issued
under the FAA or the Convention.2 See 9 U.S.C. § 208.
2
Section 16 provides:
(a) An appeal may be taken from --
(1) an order --
(A) refusing a stay of any action under
section 3 of this title,
(B) denying a petition under section 4 of
this title to order arbitration to proceed,
(C) denying an application under section 206
of this title to compel arbitration,
(D) confirming or denying confirm-action of
an award or partial award, or
(E) modifying, correcting, or vacating an
3
The FAA manifests a "liberal federal policy favoring
arbitration". Gilmer v. Interstate/Johnson Lane Corp., ___ U.S.
___, 111 S. Ct. 1647, 1651 (1991) (quoting Moses H. Cone Memorial
Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983)). Section 16
promotes this policy "by permitting interlocutory appeals of orders
favoring litigation over arbitration and precluding review of
interlocutory orders that favor arbitration." Forsythe Int'l, S.A.
v. Gibbs Oil Co. of Texas, 915 F.2d 1017, 1020 (5th Cir. 1990). It
"does not solely favor the arbitration process, [however,] because
appeals may still be taken from final judgments concerning
arbitration or pursuant to a 28 U.S.C. § 1292(b) certificate."
award;
(2) an interlocutory order granting, continuing, or
modifying an injunction against an arbitration that is
subject to this title; or
(3) a final decision with respect to an arbitration
that is subject to this title.
(b) Except as otherwise provided in section 1292(b) of
title 28, an appeal may not be taken from an interlocutory
order --
(1) granting a stay of any action under section 3
of this title;
(2) directing arbitration to proceed under section
4 of this title;
(3) compelling arbitration under section 206 of
this title; or
(4) refusing to enjoin an arbitration that is
subject to this title.
9 U.S.C. § 16.
4
Turboff v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 867 F.2d
1518, 1520 (5th Cir. 1989); 9 U.S.C. § 16(a)(3)(b).3
The orders staying the litigation and compelling arbitration,
if interlocutory, clearly fall under § 16(b), which prohibits
appeals from orders "granting a stay of any action under section 3
of this title" and "compelling arbitration under section 206 of
this title". 9 U.S.C. §§ 16(b)(1) & (b)(3). As noted, if final,
§ 16(a)(3) allows appeal. Therefore, at issue is whether the
orders are interlocutory or final.
An order is considered final if it "ends the litigation on the
merits and leaves nothing for the court to do but execute the
judgment." Catlin v. United States, 324 U.S. 229, 233 (1945).4 In
determining whether an order affecting arbitration is final or
interlocutory, most courts distinguish between arbitration actions
that are "independent" and those that are "embedded" among other
claims. Generally, if the only issue before the court is the
dispute's arbitrability, the action is considered independent and
a court's decision on that issue constitutes a final decision.
See, e.g., Matter of Chung and President Enters. Corp., 943 F.2d
225, 228 (2d Cir. 1991). If, however, the case includes other
3
Permissive § 1292(b) jurisdiction is not before us. The
district court declined to so certify this matter.
4
Because § 16 does not define "interlocutory" and "final", we
look for guidance to cases interpreting those terms in the context
of 28 U.S.C. § 1291. See, e.g., Turboff v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 867 F.2d 1518, 1520 (5th Cir. 1989) (relying
on the finality determination reached by "a slightly different
path" in a pre-§ 16 case, Jolley v. Paine Webber Jackson & Curtis,
Inc., 864 F.2d 402 (5th Cir.), supplemented, 867 F.2d 891 (5th Cir.
1989)).
5
claims for relief, an arbitrability ruling does not "end the
litigation on the merits", but is considered interlocutory only.
See, e.g., Construction Laborers Pension Trust v. Cen-Vi-Ro
Concrete Pipe & Prods. Co., Inc., 776 F.2d 1416, 1420 n.5 (9th Cir.
1985); Wilson Wear, Inc. v. United Merchants & Mfrs., Inc., 713
F.2d 324, 326 (7th Cir. 1983); Langley v. Colonial Leasing Co. of
New England, 707 F.2d 1, 4 (1st Cir. 1983). Although this circuit
has never been called upon to apply the distinction, it has
acknowledged its existence. See Jolley v. Paine Webber Jackson &
Curtis, Inc., 864 F.2d 402, 405 & n.3 (5th Cir.) supplemented, 867
F.2d 891 (5th Cir. 1989).
McDermott maintains that the decision was final in its own
"judicial context",5 because the only jurisdictional basis for the
original suit's removal to federal court was the question of
arbitrability under the Convention. It denies the relevance of
both the state law claims raised in the original suit and the other
suits that were later consolidated with it. On the other hand,
Underwriters asserts that because the arbitrability issue is
embedded among other claims, the district court's decision cannot
be deemed to have ended the litigation on the merits.
We agree with Underwriters. When the cases were consolidated
pursuant to Fed. R. Civ. P. 42(a), they became a single judicial
unit, as described in Road Sprinkler Fitters Local Union v.
5
In support of its argument, McDermott quotes Siegel, Appeals
from Arbitrability Determinations Under the New § 15 of the U.S.
Arbitration Act, 126 F.R.D. 589, 591 (1989). (Section 16 was
formerly 15.)
6
Continental Sprinkler Co., 967 F.2d 145, 151 (5th Cir. 1992). The
consolidation orders broadly indicated that the cases were being
consolidated "for disposition" because they grew out of the same
factual situation. As in Road Sprinkler, "[t]here is no indication
that the district court consolidated the cases only for limited
purposes." Id. Furthermore, at least some of the suits could have
been brought as a single action originally, and all are "based
largely on the same operative facts." See id.Because the interpretation urged by McDermott ignores the
broad scope of the consolidation orders, we hold that the finality
of the arbitration decision depends upon the present posture of the
case, not on the narrow context in which the arbitrability question
first arose. Accord, Middleby Corp. v. Hussman Corp., 962 F.2d
614, 615 (7th Cir. 1992) (stating that where two suits were
consolidated for all purposes under Fed. R. Civ. P. 42(a), only a
"final decision on the full proceeding" is considered final under
28 U.S.C. § 1291). Therefore, we do not address whether the orders
would have been considered final absent the consolidation.
Fifth Circuit precedent firmly establishes that, in pending,
nonindependent suits, an order compelling arbitration accompanied
by a stay of the proceedings pending arbitration is not a final
decision for purposes of § 16(a)(3). See Turboff, 867 F.2d at
1520-21; Purdy v. Monex Int'l, Ltd., 867 F.2d 1521, 1523 (5th
Cir.), cert. denied, 493 U.S. 863 (1989). Although presently
stayed, the indemnification claims between Underwriters and Young
remain pending before the district court, and will have to be
7
addressed following arbitration. And, McDermott's claim against
Young, based on the alleged unauthorized coverage letter, also
awaits resolution. Additionally, further proceedings between
McDermott and Underwriters will be required not only to confirm an
arbitral award, but also to determine the effect of arbitration on
McDermott's original contract claims against Underwriters. See
Jolley, 864 F.2d at 405. With these matters still pending, the
district court's orders clearly did not "end[] the litigation on
the merits and leave[] nothing for the court to do but execute the
judgment." Catlin, 324 U.S. at 233.
Because the district court's orders were interlocutory, not
final, appeal is barred by § 16(b).
2.
Alternatively, McDermott urges us to review the orders under
an application for a writ of mandamus.6 This court has recognized
that such review may be available. See Turboff, 867 F.2d at 1520
n.5. But, needless to say, the writ is an extraordinary remedy,
reserved for extraordinary situations. Gulfstream Aerospace Corp.
v. Mayacamas Corp., 485 U.S. 271, 289 (1988). Traditionally,
federal courts have exercised their mandamus power only "to confine
an inferior court to a lawful exercise of its prescribed
jurisdiction or to compel it to exercise its authority when it is
its duty to do so." Id. at 289 (quoting Roche v. Evaporated Milk
6
A separate petition for the writ (No. 92-3621) was denied by
a motions panel of this court on July 28, 1992. That panel noted,
however, that the alternative request for mandamus contained in
McDermott's appellate brief would be considered with the appeal.
We now consider that request.
8
Ass'n, 319 U.S. 21, 26 (1943)). The party seeking mandamus has the
burden of demonstrating a "clear and indisputable" right to it.
See Gulfstream, 485 U.S. at 289 (quoting Bankers Life & Cas. Co. v.
Holland, 346 U.S. 379, 384 (1953)). Here, that burden is
particularly heavy, because Congress has expressly limited
interlocutory review of a district court decision on arbitration.
McDermott has failed to satisfy this most demanding standard.
The district court did not clearly overstep its authority when it
granted the order compelling arbitration and stayed further
proceedings pending that arbitration. Moreover, it is more than
well settled that a writ of mandamus is not to be used as a
substitute for appeal, see In re Cajun Elec. Power Co-Op., Inc.,
791 F.2d 353, 365-66 (5th Cir. 1986); and we see no reason why all
issues presented in this appeal cannot be raised in an appeal after
the arbitration is completed and a final judgment entered.
III.
Congress has forbidden the appeal of interlocutory orders
favoring arbitration, intending that the parties first submit to
arbitration. Accordingly, this appeal is DISMISSED and the
application for a writ of mandamus DENIED.
9