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835 F.2d 526 RICO Bus - Disp.Guide 6846: United States Court of Appeals, Fourth Circuit
835 F.2d 526 RICO Bus - Disp.Guide 6846: United States Court of Appeals, Fourth Circuit
2d 526
RICO Bus.Disp.Guide 6846
Francis Samuel Brocato (Brocato & Keelty, Baltimore, Md., on brief), for
plaintiff-appellant.
Andrew Jay Graham (Kramon & Graham, P.A., Gordon C. Murray,
Baltimore, Md., on brief), for defendant-appellee.
Before WIDENER, HALL, and MURNAGHAN, Circuit Judges.
K.K. HALL, Circuit Judge:
B & R Associates ("B & R") appeals from an order of the district court staying
proceedings in a contract action while compelling arbitration of all claims
arising out of a contract between B & R and Meridian Electric Corporation
("Meridian"). B & R brought its initial complaint against Dependable Insurance
("Dependable"), as surety, for breach of a performance bond and labor and
material bond, which the surety wrote with Meridian as principal/obligor, to the
benefit of B & R, as obligee. Following Dependable's Petition for an Order for
Stay Pending Arbitration and for an Order Directing Arbitration, the district
court ordered, in part, that all claims arising out of the contract between B & R
and Meridian should be submitted to arbitration and that further proceedings in
this case be stayed pending arbitration. Dependable cross-appeals. We reverse
and remand for further proceedings.
I.
2
In May, 1984, B & R entered into a contract1 with Meridian for the
performance of electrical work on a construction project. Dependable provided
performance and labor and material bonds relative to Meridian's obligations on
the project. Meridian then commenced work on the project in June of 1984. In
April of 1985, B & R and Meridian negotiated the cost of certain extra work
authorizations which were submitted to the surety as soon as their values were
finalized. On April 30, 1985, Meridian ceased work on the project claiming
that it had not been sufficiently paid under the contract. After receiving
notification from B & R that Meridian was in default, Dependable proposed
that B & R pay Meridian $106,904 and that B & R negotiate changes in the
contract with Meridian. B & R declined to conduct negotiations. Dependable
subsequently notified B & R that the bond had been negated and was no longer
in force because B & R had supposedly violated provisions of the surety bond
by failing to notify Dependable of any modifications or change orders. B & R
brought suit in federal district court against Dependable, as surety, for breach of
the performance bond and the labor and material bond. Meridian was named as
a party defendant whose interests might be affected but was later dismissed to
retain diversity jurisdiction. Dependable subsequently filed a motion for an
order directing arbitration, an order staying proceedings pending arbitration and
a motion to file a counter claim2 against B & R. The counter claim asserted
breach of contract; failure of payment; tortious interference and breach of
contract; and RICO fraud, among other claims. The district court conducted a
hearing on the arbitration motions and the motion to file a counter claim.
3
In a bench opinion, the district court ruled that there had been no waiver of the
arbitration clause; the RICO claim, along with all other arbitrable claims,
would be submitted to arbitration; and the litigation of any non-arbitrable
claims would be stayed pending the outcome of the arbitration. In addition, the
district court ruled that the motions to compel discovery and to file a
counterclaim were rendered potentially moot and denied without prejudice.
This appeal followed.
II.
4
On appeal, B & R contends that all claims are not arbitrable and, therefore, the
district court erred when it failed to specifically set out which issues were to be
submitted to arbitration. On cross-appeal, Dependable contends that if this
Court remands for an amendment of the district court's order, then the language
of its proposed order be adopted for submission to the arbitrator.4 We find B &
The district court ordered all claims arising out of the contract be submitted to
arbitration. It is clear, however, that the court anticipated that some of the
claims might not be arbitrable when it reserved jurisdiction over any claims or
issues not resolved by the arbitrator. There can be no doubt that the court must
sever and compel arbitration of all arbitrable claims and reserve jurisdiction of
any non-arbitrable claims. Atkinson v. Sinclair Refining Co., 370 U.S. 238, 82
S.Ct. 1318, 8 L.Ed.2d 462 (1962); AT & T Technologies, Inc. v.
Communication Workers of America, 475 U.S. 643, 106 S.Ct. 1415, 89
L.Ed.2d 648 (1986); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105
S.Ct. 1238, 84 L.Ed.2d 158 (1985). In light of the district court's failure to
specify which claims were to be submitted to arbitration and which claims were
not subject to compelled arbitration, the arbitration order must be reversed and
this matter remanded for further proceedings consistent with this opinion. We
reject, however, Dependable's position on cross-appeal. On remand, the district
court is under no requirement to accept Dependable's order. It is in the district
court's sound discretion whether to accept a proposed order from a party. Andre
v. Bendix Corp., 774 F.2d 786 (7th Cir.1985).
Though I concur with the majority in its decision that we have jurisdiction
under 28 U.S.C. Sec. 1292(a)(1) and the Enelow-Ettelson doctrine, I part
company with the majority in its decision on the merits. The majority
incorrectly in my view settles an important issue of law in the Fourth Circuit.
The issue is who, federal trial judge or arbitrator in the circumstances of such a
case as the present one, decides the scope of an arbitration clause. I would
adopt the rule of the Second Circuit that the arbitrator should decide what
disputes fall within the arbitration clause when the clause is broadly worded
and the court should make the determination as to arbitrability when the clause
is narrowly worded.5
10
12
13
The rule as I discern it is that when the parties, as they did in the case at bar,
agree to an arbitration clause providing that "all claims, disputes and other
matters in question arising out of, or relating to, this Contract or the breach
thereof ... shall be decided by arbitration ...," they clearly and unmistakably
agree to arbitrate the issue of arbitrability. A dispute as to interpretation of the
arbitration provision is surely one that "arises out of, or relates to" the contract.
The only manner in which the parties could be more clear in this case as to their
intent to arbitrate the issue of arbitrability would have entailed their explicitly
stating "we agree to arbitrate the issue of arbitrability." The Supreme Court
decision in AT & T Technologies does not require specificity to that extent and
I would not create it.
14
The district court ordered arbitration and reserved jurisdiction over claims not
subject to arbitration without determining which claims were and were not
arbitrable. The majority remands for a determination of arbitrable claims, a
function I believe properly left initially to the arbitrator. I would affirm the
district court.
The contract contained an arbitration clause which specified that all claims and
disputes relating to the contract were to be decided by arbitration
The district court requested that both parties submit a proposed order staying
the district court action pending arbitration of all arbitrable issues and directing
arbitration of all issues arbitrable, including RICO. Both parties submitted
proposed orders. The district court, however, rejected both orders
Associated Brick Mason Contr. v. Harrington, 820 F.2d 31, 35 (2d Cir.1987);
Prudential Lines v. Exxon, 704 F.2d 59, 64 (2d Cir.1983) (Simply stated, a
court should compel arbitration and permit the arbitrator to decide, in the first
instance whether the dispute falls within the clause, if the clause is "broad." In
contrast, if the clause is "narrow," arbitration should not be directed unless the
court first determines that the dispute falls within the clause.). See also Sedco,
Inc. v. Pemex, 767 F.2d 1140, 1145 (5th Cir.1985) (applying Convention on
the Recognition and Enforcement of Foreign Arbitral Awards but citing
Prudential Lines and discerning principles common to the Convention and the
Federal Arbitration Act)