Seacoast v. Chrysler

• Court: Court of Appeals for the First Circuit
• Decided: May 14, 1998
• Docket: 97-1694
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 97-1694



               SEACOAST MOTORS OF SALISBURY, INC.,



                     Plaintiff, Appellant,

                                

                               v.

                                

                     CHRYSLER CORPORATION,

                                

                      Defendant, Appellee.


APPEAL FROM THE UNITED STATES DISTRICT COURT

                                

               FOR THE DISTRICT OF MASSACHUSETTS

                                

        [Hon. Robert B. Collings, U.S. Magistrate Judge]


Before

                                

                      Stahl, Circuit Judge,

                   Cyr, Senior Circuit Judge,

                  and Shadur,* District Judge,


Nicholas J. Decoulos, with whom Decoulos & Decoulos was on

brief, for appellant.

     George W. Mykulak, with whom Robert D. Cultice, Louis J.

Scerra, Jr., and Goldstein & Manello, P.C. were on brief, for

appellee.


May 13, 1998


_____________________

*Of the Northern District of Illinois, sitting by designation.          STAHL, Circuit Judge.  Plaintiff-appellant Seacoast

Motors of Salisbury, Inc. ("Seacoast") appeals from a district

court order dismissing its complaint and compelling arbitration. 

We hold that we lack jurisdiction to review the propriety of the

district court's non-final, "embedded" order compelling

arbitration. 

                 I.  FACTS AND PRIOR PROCEEDINGS

          On October 21, 1991, Seacoast, an automobile dealership,

and Chrysler Corporation ("Chrysler") entered into five agreements

authorizing Seacoast to sell and service new Chrysler motor

vehicles in Salisbury, Massachusetts.  By the terms of the

agreements, all disputes had to be submitted to arbitration.       On

          February 6, 1996, Chrysler notified Seacoast that it intended to

          establish a new Chrysler dealership in nearby Haverhill,

          Massachusetts.  In response, on August 9, 1996, Seacoast filed a

          complaint in the Essex County Superior Court alleging that, by

          seeking to establish a dealership in Seacoast's market area,

          Chrysler had engaged in unfair or deceptive acts or practices in

          violation of Mass. Gen. Laws ch. 93B.  Seacoast sought to enjoin

          establishment of the new franchise and to recover damages, fees,

          and costs.  

                    On August 22, 1996, Chrysler removed the case to federal

          court based on diversity jurisdiction.  Shortly thereafter, relying

          on sections 3 and 4 of the Federal Arbitration Act ("FAA"), 9

          U.S.C.  1-16, Chrysler moved for "an order dismissing or,

          alternatively, staying the action and compelling the plaintiff

          . . . to proceed with arbitration."  Seacoast opposed the motion on

          the ground that arbitration in this case would contravene public

          policy.  Pursuant to an agreement between the parties, the case was

          transferred to a magistrate judge, who, on April 22, 1997,

          dismissed the case with costs and compelled arbitration.  Seacoast

          now appeals the dismissal.

                                 II.  DISCUSSION

                    Seacoast urges us to review the propriety of the lower

          court's order, which both dismissed the action and compelled

          arbitration.  The question that we must address initially is

          whether appellate jurisdiction attaches to the court's order

          compelling arbitration.  We conclude that the order was

          interlocutory, and that we therefore lack jurisdiction to review

          it.

                    Section 3 of the FAA provides that, when an action

          implicates an issue covered by an arbitration agreement between the

          parties, the district court, at the request of any party, "shall

          . . . stay the trial of the action until such arbitration has been

          had in accordance with the terms of the agreement."  9 U.S.C.  3. 

          Section 4 provides that any party to an arbitration agreement may

          petition the district court for an order compelling arbitration,

          irrespective of any ongoing proceeding.  See id.  4.  Appellate

          review of orders that favor arbitration -- that is, orders that

          stay an action pending arbitration pursuant to section 3 or compel

          arbitration under section 4 -- is proscribed, if those orders are

          "interlocutory."  See id.  16(b)(1) & (2).  Under section

          16(a)(3), however, an appellate court may review the merits of

          orders that favor arbitration, if those orders are "final

          decision[s]."  Id.  16(a)(3).  Thus, whether a particular order

          favoring arbitration is appealable depends on whether it is final

          or interlocutory.

                    The general rule governing what constitutes a final

          decision under section 16 is that an order compelling arbitration

          is not final, and therefore not immediately reviewable, if the

          arbitrability issue is "embedded" -- that is, "if issues other than

          the propriety of arbitration are raised or relief other than a

          determination as to the arbitrability of the dispute is sought." 

          Adair, 25 F.3d at 955.  By contrast, an order qualifies as a final

          order within the meaning of section 16 if the action is

          "independent," or brought solely for the purpose of obtaining such

          an order.  See Prudential Ins. Co. of America v. Lai, 42 F.3d 1299,

          1302 (9th Cir. 1994); Humphrey v. Prudential Secs., Inc., 4 F.3d

          313, 317 (4th Cir. 1993); S+L+H S.p.A. v. Miller-St. Nazianz, Inc.,

          988 F.2d 1518, 1522 (7th Cir. 1993); Filanto, S.P.A. v. Chilewich

          Int'l Corp., 984 F.2d 58, 60 (2d Cir. 1993).  We follow this rule

          of appealability, which is based on finality principles that were

          firmly established at the time of section 16's enactment in 1988. 

          See Stedor Enters., Ltd. v. Armtex, Inc., 947 F.2d 727, 729-32 (4th

          Cir. 1991).  

                    Chrysler's request for arbitration is embedded because

          the issue of arbitrability arises here in the context of a claim

          for relief (brought by Seacoast) that goes beyond a determination

          of the arbitrability of the dispute.  It does not matter that all

          of the substantive claims in the suit -- the "other relief sought"

          -- are would-be subjects of the arbitration.  See Gammaro v. Thorp

          Consumer Discount Co., 15 F.3d 93, 96 (8th Cir. 1994) (holding

          that, even when the pending suit is limited to arbitrable claims,

          the order compelling arbitration is embedded); Humphrey, 4 F.3d at

          318 (same).  

                    However, that arbitrability was an embedded issue does

          not by itself answer the jurisdictional question.  In most embedded

          proceedings in which the district court's decision favors

          arbitration, the district court, pursuant to section 3, stays the

          action pending arbitration.  Here, by contrast, although the

          district court granted Chrysler's motion to compel arbitration, it

          entered an order dismissing, rather than staying, the proceedings. 

          We must address, then, whether a dismissal without prejudice in

          deference to arbitration in the context of an embedded proceeding

          is an appealable (that is, final) decision.  

                    This circuit has not addressed this question before, and

          other circuits have been divided on the issue.  As the Seventh

          Circuit outlined recently in Napleton v. General Motors Corp., 1998

          WL 117893, __ F.3d __, __ (7th Cir. 1998), some circuits have

          determined that an order of dismissal accompanying an order

          favoring arbitration is appealable as a final decision, even if the

          proceeding is embedded, see Armijo v. Prudential Ins. Co. of Am.,

          72 F.3d 793, 797 (10th Cir. 1995) (finding jurisdiction when, in an

          embedded proceeding, the district court had ordered arbitration and

          dismissed action, on the basis that the moving party had requested

          that the action be dismissed, not stayed, pending arbitration);

          Nationwide Ins. Co. of Columbus, Ohio v. Patterson, 953 F.2d 44, 46

          (3d Cir. 1991) (finding jurisdiction to review an arbitration order

          on the basis that "the district court's dismissal of [the] action

          plainly signifies that th[e] arbitration is not a part of any

          ongoing proceeding"); see also Arnold v. Arnold Corp., 920 F.2d

          1269, 1276 (6th Cir. 1990) (discerning in the FAA's legislative

          history an intention to abrogate the distinction between embedded

          and independent proceedings and to "allow[] appeals from final

          decisions affecting arbitration whether or not they direct or

          refuse to direct arbitration," and, correspondingly, finding

          jurisdiction to review an arbitration order in which the

          proceedings had been dismissed), while other circuits have focused

          on the distinction between embedded and independent proceedings to

          determine whether jurisdiction exists over an appeal from a

          dismissal of an order favoring arbitration, see McCarthy v.

          Providential Corp., 122 F.3d 1242, 1244 (9th Cir. 1997); In re

          Pisgah Contractors, Inc., 117 F.3d 133, 136 (4th Cir. 1997); Altman

          Nursing, Inc. v. Clay Capital Corp., 84 F.3d 769, 771 (5th Cir.

          1996); Gammaro, 15 F.3d at 96.  

                    The Napleton panel followed the latter approach,

          concluding that "it is the nature of the underlying action, not the

          style of the district court's decision requiring arbitration, that

          determines whether we have jurisdiction over appeals from decisions

          granting arbitration."  1998 WL 117893, at *4, __ F.3d at __.  We

          do likewise and hold that we lack jurisdiction under the FAA to

          review whether the court's order compelling arbitration was proper. 

          Such a result avoids elevating form over substance and promotes

          both the pro-arbitration purposes of the FAA and the institutional

          goal of avoiding piecemeal appeals and systemic delays.  See id. at

          *4-*6, __ F.3d at __.  

                    Accordingly, Seacoast's appeal is dismissed for want of

          appellate jurisdiction.

          

                    Costs to appellee.