Destephano v. Broadwing Comm Inc

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 01-20238
NICHOLAS DESTEPHANO,
Plaintiff-Counter Defendant-Appellant-Cross-Appellee,
versus
BROADWING COMMUNICATIONS INC;
BROADWING TELECOMMUNICATIONS, INC.,
Defendants-Counter Claimants-Appellees-Cross-Appellants.
Appeals from the United States District Court
for the Southern District of Texas
(H-00-CV-2661)
AUGUST 20, 2002
Before GARWOOD and DENNIS, Circuit Judges and LITTLE, District
Judge.*
GARWOOD, Circuit Judge:**
Plaintiff-appellant-cross-appellee Nicholas DeStefano
*
Chief District Judge of the Western District of Louisiana,
sitting by designation.
**
Pursuant to 5TH CIR. R.47.5 the Court has determined that this
opinion should not be published and is not precedent except under the
limited circumstances set forth in 5TH CIR. R. 47.5.4.
(DeStefano) appeals the district court order compelling
arbitration.1 Defendants-appellees-cross-appellants Broadwing
Communications, Inc. and Broadwing Telecommunications, Inc.
(collectively, Broadwing) appeal an order of sanctions. We
affirm the district court in all respects.
Facts and Proceedings Below
In the fall of 1998, Austin-based IXC Communications and its
subsidiary, Eclipse Telecommunications, Inc. (collectively,
Eclipse) began acquisition discussions with Costal Telephone
Company (Coastal), a Houston-based telephone services company.
Eclipse is now Broadwing. Coastal was a privately held company,
owned by Andrew Bursten and other trustee entities (collectively,
the Burstens). On May 10, 1999, Eclipse acquired Coastal from
the Burstens.
DeStefano was Coastal’s sales manager and the supervisor of
a large telemarketing force. On January 8, 1999, DeStefano
entered into an employment agreement (the agreement) with
Eclipse. The agreement provided that DeStefano would be employed
by Eclipse for a three year term, commencing on the date that
Eclipse acquired Coastal. The agreement further provided that if
DeStefano were terminated “without cause,” prior to the
expiration of the agreement he would be entitled to certain
1
As we understand it, plaintiff spells his name “DeStefano;”
apparently through error it appears on the docket sheet and in the
record as “Destephano.”
2
severance payments.
The agreement also included an arbitration clause, which
provided as follows:
“Binding Arbitration. The parties hereby consent to
the resolution by binding arbitration of all claims or
controversies in any way arising out of, relating to or
associated with this Agreement. Any arbitration
required by this Agreement shall be conducted before a
single arbitrator in Austin, Texas in accordance with
the commercial arbitration rules of the American
Arbitration Association then existing, and any award,
order or judgment pursuant to such arbitration may be
enforced in any court of competent jurisdiction. The
arbitrator shall apply rules of Texas law and the
parties expressly waive any claim or right to an award
of punitive damages. All such arbitration proceedings
shall be conducted on a confidential basis.
Notwithstanding the foregoing, either party may seek
injunctive or other equitable relief in a court of law
without proceeding through arbitration.”
The Burstens had placed a sum of “bonus money” in escrow
with Craig Cavalier, the Burstens’ attorney. DeStefano was to
receive the escrowed funds if he remained employed with Coastal
for one year after Eclipse acquired Coastal. If not, the funds
were to revert to the Burstens.
In the fall of 1999, twenty-seven charges of discrimination
were filed with the Equal Employment Opportunity Commission
(EEOC) by employees in the Houston office of Coastal (now
Eclipse). Several of these charges alleged that DeStefano had
instigated a sexually-charged work environment or that he had
engaged in racial discrimination and harassment.
Eclipse terminated DeStefano’s employment on November 4,
3
1999. In December 1999, the Burstens filed suit against
Broadwing in state court (the Bursten litigation), seeking a
declaratory judgment regarding certain issues related to the
purchase agreement. After his termination, DeStefano made demand
upon Cavalier for payment of the bonus money being held in
escrow. DeStefano alleges that Broadwing sent a letter to
Cavalier stating, “Since the termination was for cause, no monies
should be paid to Mr. DeStefano.” DeStefano filed an
interpleader suit in state court with the Burstens and Cavalier
to obtain the bonus money. Broadwing was not a party to that
suit.
On June 27, 2000, DeStefano filed the instant suit against
Broadwing in Texas state court. DeStefano alleged breach of
contract, retaliatory discharge under Title VII, and tortious
interference with contract. On August 2, 2000, Broadwing removed
the case to the United States District Court for the Southern
District of Texas, Houston Division and filed a counterclaim
alleging fraud, breach of fiduciary duty, and negligence by
DeStefano in connection with Eclipse’s purchase of Coastal.
Broadwing filed a motion to compel arbitration pursuant to the
arbitration clause in the agreement. On October 30, 2000, the
district court entered an order granting Broadwing’s motion and
dismissing DeStefano’s suit against Broadwing (the arbitration
order). On November 3, 2000, Broadwing joined DeStefano in a
4
third-party action in the Bursten litigation, asserting the same
causes of action originally brought as counterclaims against
DeStefano in the instant suit.
On November 8, 2000, DeStefano filed a motion for sanctions,
seeking monetary sanctions and seeking to have the order
compelling arbitration rescinded and the case reinstated. The
district court held a hearing on the sanctions motion on December
19, 2000. On January 31, 2001, the district court granted a
monetary sanction against Broadwing in the amount of $5,160.00,
but declined to rescind the arbitration order.
DeStefano appeals the district court’s refusal to rescind
the arbitration order. In the alternative, DeStefano argues that
the district court erred in ordering arbitration of his Title VII
claim, his tortious interference claim, and Broadwing’s
counterclaims. Broadwing cross-appeals the district court’s
imposition of the monetary sanction.
Discussion
1. Sanctions and Waiver
DeStefano argues that the district erred by declining to
rescind the arbitration order as part of the sanction for its
finding of civil contempt. He argues that Broadwing waived its
right to arbitration by filing the third-party claims against
DeStefano in the Bursten litigation. Broadwing, on its cross-
appeal, argues that the district court erred in holding Broadwing
5
in contempt and ordering monetary sanctions.
We review a district court’s order holding a party in
contempt for abuse of discretion. Martin v. Trinity Industries,
Inc., 959 F.2d 42, 46 (5th Cir. 1992). The underlying factual
findings are reviewed for clear error and the underlying
conclusions of law are reviewed de novo. American Airlines, Inc.
v. Allied Pilots Ass’n, 228 F.3d 574, 578 (5th Cir. 2000). “A
movant in a civil contempt proceeding bears the burden of
establishing by clear and convincing evidence 1) that a court
order was in effect, 2) that the order required certain conduct
by the respondent, and 3) that the respondent failed to comply
with the court's order.” Martin, 959 F.2d at 47. Upon a finding
of contempt, the district court has broad discretion in assessing
sanctions to protect the sanctity of its decrees and the legal
process. See American Airlines, 228 F.3d at 585.
We first address Broadwing’s appeal of the district court’s
finding of contempt. The district court did not clearly err in
finding that Broadwing was in contempt of the arbitration order.
It is undisputed that Broadwing joined DeStefano to the state
court action four days after the district court entered the
arbitration order. Broadwing inexplicably argues that it could
not have violated the arbitration order because the arbitration
order “in no way requires any definite or specific action on the
part of Broadwing.” Broadwing’s motion to compel arbitration
6
requested, inter alia, the following relief: “Defendants
[Broadwing] be ordered to submit all counterclaims to binding
arbitration in accordance with Plaintiff’s Employment Agreement.”
The arbitration order granted Broadwing’s motion in full. The
district court’s order thus compelled Broadwing to submit its
counterclaims to arbitration and the district court did not err
in determining that submitting the same counterclaims to another
forum – the state court – was a failure to comply with the
arbitration order.
As an explanation of its joining DeStefano to the Bursten
litigation, Broadwing asserted that there were communication
delays and statute of limitations concerns on Broadwing’s side.
Nancy Patterson, counsel for Broadwing in this federal suit,
asserted that the district court’s arbitration order, entered on
October 30, 2000, did not arrive in her office until November 2,
2000. Patterson explained that she was out of the office that
day and did not become aware of the arbitration order until the
late afternoon of November 3, 2000. The Bursten litigation was
being handled, in state court, by another law firm, which,
according to Broadwing, was unaware of the arbitration order when
DeStefano was joined to the Bursten litigation on November 3,
2000. As the district court noted, Broadwing still did not
dismiss DeStefano from the state court proceedings even after
Broadwing became aware of the arbitration order and DeStefano had
7
still not been dismissed as of December 19, 2000, when the
district court held its hearing on the sanctions motion.
Broadwing also cited statute of limitations concerns regarding
their fraud claims against DeStefano, although the fraudulent
conduct allegedly took place in fall of 1998 and the statute of
limitations for a fraud claim in Texas is four years. Tex. Civ.
Prac. & Rem. Code § 16.004. The district court labeled
Broadwing’s arguments “wholly disingenuous.” Broadwing argues
that the district court did not make a specific finding of bad
faith. But the district court held specifically that Broadwing
“wilfully violated this Court’s order,” id. at 5, and, at any
rate, “good faith is irrelevant as a defense to a civil contempt
order,” Waffenschmidt v. Mackay, 763 F.2d 711, 726. The
district court did not abuse its discretion by holding that
Broadwing was in contempt of the court’s arbitration order.
The district court did not err in setting the amount of
monetary sanctions at $5,160.00. The parties agree that this sum
covers the cost of attorneys’ fees charged to DeStefano in
connection with bringing the motion for sanctions. As far as
concerns monetary relief, this is the full amount that DeStefano
requested. Compensation for losses sustained by the complainant
is a proper purpose for sanctions awarded in a civil contempt
proceeding. American Airlines, 228 F.3d at 585.
DeStefano also requested that the arbitration order be
8
rescinded and the court case be reinstated as a further sanction
for Broadwing’s contemptuous conduct. DeStefano, in his brief to
this court, compares Broadwing’s conduct to that of a party which
has waived its contractual right to arbitration. When a district
court has held that a party’s conduct amounted to waiver of its
right to arbitrate, we review that finding de novo. Walker v.
J.C. Bradford & Co. 938 F.2d 575, 577 (5th Cir. 1991). However,
in the instant case, we are considering conduct after arbitration
has been sought and been ordered by the court, and we are
reviewing a district court’s assessment of sanctions in respect
to that order. Thus, we still apply abuse of discretion review
to the district court’s determination that rescinding the
arbitration order was not an appropriate sanction in this case.
One proper purpose of a civil contempt sanction is to coerce the
contumacious party into compliance with the court’s order.
American Airlines, 228 F.3d at 585. Rescinding the arbitration
order would have served a precisely opposite purpose. It was
within the district court’s discretion to decline to rescind the
arbitration order. The district court did not abuse its
discretion by denying DeStefano’s request of this sanction.
2. The Confidentiality Provision
Having held that the district court did not abuse its
discretion by declining to rescind the arbitration order as a
sanction, we now turn to DeStefano’s challenges to the
9
substantive merits of the arbitration order. We review the grant
of a motion to compel arbitration de novo. Webb v. Investacorp,
89 F.3d 252, 257 (5th Cir. 1996).
“Arbitration is a matter of contract between the parties,
and a court cannot compel a party to arbitrate unless the court
determines the parties agreed to arbitrate the dispute in
question.” Pennzoil Exploration and Prod. Co. v. Ramco Energy,
139 F.3d 1061, 1064 (5th Cir. 1998).
“In adjudicating a motion to compel arbitration under
the Federal Arbitration Act, courts generally conduct a
two-step inquiry. The first step is to determine
whether the parties agreed to arbitrate the dispute in
question. This determination involves two
considerations: (1) whether there is a valid agreement
to arbitrate between the parties; and (2) whether the
dispute in question falls within the scope of that
arbitration agreement. When deciding whether the
parties agreed to arbitrate the dispute in question,
courts generally . . . should apply ordinary state-law
principles that govern the formation of contracts. In
applying state law, however, due regard must be given
to the federal policy favoring arbitration, and
ambiguities as to the scope of the arbitration clause
itself must be resolved in favor of arbitration. The
second step is to determine whether legal constraints
external to the parties' agreement foreclosed the
arbitration of those claims.” Webb, 89 F.3d at 257 -
58 (internal citations and quotation marks omitted).
DeStefano first argues that the arbitration clause’s
provision that “arbitration proceedings shall be conducted on a
confidential basis” renders the arbitration procedure an
inadequate alternative to the judicial forum. He contends that
the confidentiality provision would preclude the parties from
making a record of the arbitration proceedings, thereby
10
precluding judicial review.
DeStefano relies on the following language from Gilmer v.
Interstate/Johnson Lane Corp., 111 S. Ct. 1647, 1655 (1991):
“A further alleged deficiency of arbitration is that
arbitrators often will not issue written opinions,
resulting, Gilmer contends, in a lack of public
knowledge of employers' discriminatory policies, an
inability to obtain effective appellate review, and a
stifling of the development of the law. The NYSE rules,
however, do require that all arbitration awards be in
writing, and that the awards contain the names of the
parties, a summary of the issues in controversy, and a
description of the award issued. In addition, the
award decisions are made available to the public.”
(internal citations omitted).
Gilmer does not, as DeStefano contends, establish “minimal
standards” of non-confidentiality. In the first place, the
excerpted language does not constitute a holding of the Court; it
merely recounts a party’s argument and the Court’s explanation of
why it was unavailing. In the second place, the Gilmer Court
went on to note that “Gilmer's concerns apply equally to
settlements of ADEA claims, which . . . are clearly allowed.”
Id.
Additionally, DeStefano has not cited any evidence or
authority to support his contention that the “confidential basis”
provision would, in fact, preclude creation of a record.2 Nor
2
The arbitration clause further provides that the arbitration shall
be conducted “in accordance with the commercial arbitration rules of the
American Arbitration Association then existing.” The current version
of those rules has not been placed into the record, but we note that
Broadwing has asserted, and DeStefano has not denied, that they require
the creation of a record at the request of any party to the arbitration.
11
has he presented any evidence or authority to support his
speculation that confidentiality would have a chilling effect on
the production of witnesses. DeStefano’s point of error related
to the confidentiality provision is without merit.
3. The Waiver of Punitive Damages
DeStefano next argues that his Title VII claim cannot be
subject to arbitration because the arbitration clause provides,
“the parties expressly waive any claim or right to an award of
punitive damages.” DeStefano asserts that punitive damages are a
cause of action under Title VII and that, thus, they cannot be
prospectively waived. See Alexander v. Gardner-Denver Co. 94
S. Ct. 1011, 1021-22 (1974). This argument is without merit.
If parties agree to arbitration, they will be held to it
unless Congress has evinced an intention to preclude waiver of
judicial remedies for the statutory rights at issue. Mitsubishi
Motors v. Soler Chrysler-Plymouth, Inc., 105 S. Ct. 3346, 3354-55
(1985). “[Q]uestions of arbitrability must be addressed with a
healthy regard for the federal policy favoring arbitration.” Id.
at 3353. Doubts are resolved in favor of arbitrability. Id.
Punitive damages are not a cause of action under Title VII;
they are a remedy that Title VII makes available in certain
instances. See Rubinstein v. Administrators of the Tulane Educ.
Fund, 218 F.3d 392, 404 (5th Cir. 2000). “The potential
unavailability of punitive damages is not a ground for denying
12
effect to an otherwise valid agreement to arbitrate.” Morgan v.
Smith Barney, Harris Upham & Co., 729 F.2d 1163, 1168 n.7 (8th
Cir. 1983); see also, Great Western Mortgage Corp. v. Peacock,
110 F.3d 222, 232 (3d Cir. 1997) (“The availability of punitive
damages is not relevant to the nature of the forum in which the
complaint will be heard. Thus, availability of punitive damages
cannot enter into a decision to compel arbitration.”).
The arbitrator may consider the argument that the remedy of
punitive damages may not be effectively waived for a Title VII
claim. See Shearson/American Express v. McMahon, 107 S. Ct.
2332, 2340 (1987) (“[T]here is no reason to assume at the outset
that arbitrators will not follow the law.”); Mitsubishi Motors v.
Soler Chrysler-Plymouth, Inc., 105 S. Ct. 3346, 3354 (1985) (“By
agreeing to arbitrate a statutory claim, a party does not forgo
the substantive rights afforded by the statute; it only submits
to their resolution in an arbitral, rather than a judicial,
forum.”). The arbitrator’s decision would be subject to judicial
review. See Shearson/American Express, 107 S. Ct. at 2340
(“[S]uch review is sufficient to ensure that arbitrators comply
with the requirements of the statute.”) It may not even be
necessary to reach this issue if it is determined that
DeStefano’s Title VII claim is without merit (or, even if
meritorious, is not such as would support punitive damages under
13
Title VII).3
We hold that the district court did not err in holding that
DeStefano’s Title VII claim was arbitrable.
4. DeStefano’s Tortious Interference Claim
3
DeStefano’s Title VII claim alleged in relevant part:
“RETALIATORY DISCHARGE
15. Plaintiff would show that Defendant has violated
42 U.S.C. § 2000e-3 by firing him for investigating
allegations of unlawful discrimination and for attempting
to assist and participate in an EEOC investigation of
those allegations.
16. Charges were filed with the EEOC against
Defendants which included allegations against Plaintiff.
Plaintiff undertook his own investigation. Defendant,
through attorneys, instructed Plaintiff to stop his
investigation. The Defendant directed Plaintiff to meet
with representatives of Defendant to discuss the matter.
When Plaintiff notified Defendant that he intended to
bring his attorney with him, the Defendant objected.
Plaintiff appeared at the scheduled meeting with his
attorney, but representatives of Defendant would not meet
with them. In furtherance of its scheme to make Plaintiff
a scapegoat and to deprive him of the benefits of his
employment agreement, Defendant sought to preclude
Plaintiff from using his lawyer. Shortly thereafter,
Plaintiff was fired by Defendant with no explanation other
than it was “for cause.”
17. Based upon subsequent developments, it became
clear that a goal of the new ownership was to make
Plaintiff a scapegoat for the EEOC complaints, to suppress
the facts about any culpability of the new owners, and to
use an indemnity agreement from the prior owners and/or
funds and benefits owing to Plaintiff to fund the
settlement with the charging parties rather than conduct a
good faith investigation into the complaints, and to
deprive Plaintiff of the benefits of his employment
contract. Each of (1) Plaintiff’s attempt to investigate
and participate in the EEOC charges investigation and (2)
his use of a lawyer was a precipitating cause of the
firing of Plaintiff.”
14
DeStefano’s next argument is that his tortious interference
claim was outside the scope of the arbitration clause because it
arose after his employment with Broadwing had ended. This
argument is without merit.
The arbitration clause encompassed “all claims or
controversies in any way arising out of, relating to or
associated with this Agreement.” The conduct that DeStefano
alleges as the basis for his tortious interference claim is
associated with the employment agreement with Broadwing (formerly
Eclipse). DeStefano alleges that Broadwing tortiously interfered
with his relationship with the Burstens by instructing Cavalier
not to pay DeStefano the bonus money that the Burstens had put in
escrow. The crux of DeStefano’s argument is that Broadwing
informed Cavalier that DeStefano was terminated “for cause” even
though, according to DeStefano, the reasons for DeStefano’s
termination did not fall within the definition of “cause” as
contained in the employment agreement.
In light of the strong federal policy favoring arbitration,
doubts about the scope of an arbitration clause are resolved in
favor of arbitration. Moses H. Cone Memorial Hosp. v. Mercury
Constr. Corp., 103 S. Ct. 927, 941 (1983). “[A]rbitration should
not be denied unless it can be said with positive assurance that
an arbitration clause is not susceptible of an interpretation
which would cover the dispute at issue.” Neal v. Hardee’s Food
15
Systems, Inc., 918 F.2d 34, 37 (5th Cir. 1990) (internal
quotation marks omitted, citations omitted). An arbitration
provision is generally interpreted according to ordinary state
law principles governing the formation of contracts. Webb, 89
F.3d at 58; see Metropolitan Prop. & Liab. Co. v. Bridewell, 933
S.W.2d 358, 361 (Tex. App.–Waco, 1996) (citing Neal in support of
finding that a tortious interference claim was properly within
the scope of an arbitration clause).
In an arbitration-related context, we recently mandated a
broad reading of the phrase “relates to” as used in a statute.
See Beiser v. Weyler, 284 F.3d 665, 669 (5th Cir. 2002). Beiser
involved interpretation of “relates to” as that phrase is used in
a statute conferring jurisdiction. Id. This is, of course, not
equivalent to a holding that similar phrases in an arbitration
agreement must be interpreted in that fashion. Still, in a
general way, we find Beiser instructive as to the ordinary
meaning of a broad formulation such as the one we interpret here
-- “in any way arising out of, relating to or associated with.”
This formulation is broad enough to encompass DeStefano’s claim,
which was based on his assertion that the terms of the agreement
entitled him to receive the bonus money and severance benefits.
Because we must resolve any doubts in favor of arbitrability, we
conclude that the district court did not err in holding that
DeStefano’s tortious interference claim was within the scope of
16
the arbitration agreement.
5. Remaining Points of Error
On appeal, DeStefano raises two arguments that were not made
in the district court: (1) He argues that Broadwing’s
counterclaims were not properly within the scope of the
arbitration clause, and (2) he argues that he may not be
compelled to arbitrate his tortious interference claim because it
is against Texas public policy to permit waiver of punitive
damages for such a claim. DeStefano concedes that these issues
were not properly preserved for appeal. This court will not, as
a general rule, consider issues not raised in the district court.
United States v. Parker, 722 F.2d 179, 183 (5th Cir. 1983). We
decline to do so here.4
Conclusion
For the foregoing reasons, the judgment of the district
court is AFFIRMED.
4
We note that, at any rate, our analysis of the punitive damages
issue as it related to the Title VII claim would dispose of the same
argument as it relates to the tortious interference claim.
We further observe that DeStefano informs us that Broadwing has
dismissed its state court suit (third party claim) against him.
17