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

• Court: Court of Appeals for the Fifth Circuit
• Decided: January 7, 1993
• Docket: 92-3622
• Status: Published

Opinion

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.