FILANTO, S.P.A. v. CHILEWICH INTERN. CORP

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Docket Number

No. 402, Docket 92-7657.

Attorney(S)

Richard N. Chassin, New York City (Joseph D. Becker, Michael J. Lane, Becker, Glynn, Melamed Muffly, on the brief), for plaintiff-appellant. Allen N. Ross, New York City (Lawrence J. Profeta, Warshaw Burstein Cohen Schlesinger Kuh, on the brief), for defendant-appellee.

Judges

Jon Ormond Newman

Acts

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Smart Summary

Factual and Procedural Background

Chilewich International Corp., a New York-based import-export company, contracted in 1989 to sell footwear to Raznoexport; that contract specified arbitration before the Moscow Chamber of Commerce and Industry ("Russian Contract"). Chilewich contracted with Filanto to fulfill the Russian Contract. Chilewich contends a March 13, 1990 letter to Filanto incorporated the Russian Contract "as far as practicable" and required arbitration; Filanto contends it never accepted those terms and that any later-formed contract would not include arbitration under international law. In January 1991 Chilewich refused to accept 90,000 boots, prompting Filanto to sue in the Southern District of New York for breach of contract. Chilewich moved to stay the proceedings pending arbitration. The District Court concluded that Filanto was estopped from denying an agreement to arbitrate and directed arbitration before the Moscow Chamber of Commerce and Industry. The District Court's written opinion indicated a final judgment containing a mandatory injunction to arbitrate, but the signed judgment did not dismiss the complaint; the docket, however, was marked "closed" on May 21, 1992. Filanto filed the present appeal from the District Court's May 21, 1992 judgment.

Legal Issues Presented

Whether an order of a district court directing arbitration is immediately appealable when entered in a lawsuit on the underlying dispute where the complaint is not dismissed but the case is marked "closed."

Arguments of the Parties

Plaintiff-Appellant (Filanto)

Filanto contends it never accepted the March 13, 1990 letter's terms and that any contract formed later by conduct would not include arbitration provisions under applicable principles of international law.
Filanto brought suit for breach after Chilewich refused to accept 90,000 boots and sought relief in district court rather than immediate arbitration.

Defendant-Appellee (Chilewich)

Chilewich contends the March 13, 1990 letter contained the essential terms of the contract, incorporated the Russian Contract "as far as practicable," and specifically indicated arbitration should proceed in accordance with that contract.
Chilewich moved to stay the district court proceedings pending arbitration in Moscow.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Matter of Chung and President Enterprises Corp., 943 F.2d 225, 227-29 (2d Cir. 1991)	Cited for the proposition that in "independent" suits (seeking orders compelling/prohibiting arbitration only) a final judgment is immediately appealable under 9 U.S.C. § 16(a)(3).	Used to explain the statutory regime distinguishing independent proceedings that are immediately appealable.
Stedor Enterprises, Ltd. v. Armtex, Inc., 947 F.2d 727, 731 (4th Cir. 1991)	Also cited for the rule that independent proceedings compelling or prohibiting arbitration are appealable under 9 U.S.C. § 16(a)(3).	Supports the characterization of independent proceedings for purposes of appealability.
Haviland v. Goldman, Sachs Co., 947 F.2d 601, 604 (2d Cir. 1991)	Cited for the proposition that in "embedded" suits, orders denying arbitration are immediately appealable.	Illustrates the distinction in appealability rules for embedded proceedings.
Com-Tech Associates v. Computer Associates International, Inc., 938 F.2d 1574, 1576 (2d Cir. 1991)	Cited similarly regarding appealability in embedded cases (appeal of antiarbitration order).	Used to exemplify appealability of orders denying arbitration in embedded actions.
McDermott International, Inc. v. Underwriters at Lloyds Subscribing to Memorandum of Insurance No. 104207, 981 F.2d 744 (5th Cir. 1993)	Cited for the proposition that appeals of pro-arbitration orders in embedded cases are dismissed (i.e., not immediately appealable).	Supports the rule that orders directing arbitration in embedded proceedings are not immediately appealable.
Perera v. Siegel Trading Co., 951 F.2d 780, 784-86 (7th Cir. 1992)	Cited for the same principle that pro-arbitration orders in embedded cases are not immediately appealable.	Reinforces the statutory limitation on appealing orders directing arbitration in embedded actions.
Steele v. L. F. Rothschild Co., 864 F.2d 1, 3 (2d Cir. 1988)	Cited for the proposition that the collateral order doctrine does not permit circumvention of the statutory appeal barriers for orders compelling arbitration.	Used to reject invocation of the collateral order doctrine to obtain immediate review of a pro-arbitration order.
McDonnell Douglas Finance Corp. v. Pennsylvania Power Light Co., 849 F.2d 761, 764 (2d Cir. 1988)	Cited similarly to show the collateral order doctrine does not allow immediate appeal of orders refusing to stay pending arbitration.	Supports the court's position that interlocutory statutory restrictions govern appealability, not the collateral order doctrine.
The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 16, 92 S.Ct. 1907, 1916, 32 L.Ed.2d 513 (1972)	Cited for the principle regarding forum selection clauses and the "seriously inconvenient" inquiry.	Applied to note that the District Court found the chosen arbitration location was not "seriously inconvenient."
Borden, Inc. v. Meiji Milk Products Co., 919 F.2d 822, 826 (2d Cir. 1990)	Cited for the proposition that a district court may retain jurisdiction over an action subject to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.	Used to explain that because the District Court declined to dismiss the complaint, its order compelling arbitration is not appealable under 9 U.S.C. § 16.
McCowan v. Dean Witter Reynolds Inc., 889 F.2d 451, 453 (2d Cir. 1989)	Cited regarding an instance where reference of claims to arbitration in an embedded proceeding was held unappealable despite a district court's statement that it had granted a motion to dismiss.	Referenced to illustrate limits on appealability even where dismissal language appears in court statements.
Corion Corp. v. Chen, 964 F.2d 55, 56-57 (1st Cir. 1992)	Cited for the proposition that administrative closure pending arbitration is not equivalent to a final judgment of dismissal.	Applied to conclude the docket entry marking the case "closed" had no jurisdictional significance.
Campbell v. Dominick Dominick, Inc., 872 F.2d 358, 360 (11th Cir. 1989)	Cited to show that closing a case for statistical or administrative purposes does not render the action final.	Supported the court's view that docket closure did not make the arbitration order immediately appealable.

Court's Reasoning and Analysis

The court analyzed appealability under the 1988 congressional amendment codified at 9 U.S.C. § 16, which distinguishes "independent" proceedings (seeking only orders about arbitration) from "embedded" proceedings (where a party seeks additional relief concerning the merits). The statutory scheme permits immediate appeal of final judgments in independent proceedings but, in embedded proceedings, denies immediate appeal of orders directing arbitration (while allowing immediate appeal of orders denying arbitration). The court classified this case as a classic embedded proceeding: Filanto sued on the contract (seeking merits relief) and Chilewich moved to stay pending arbitration. Because the District Court directed arbitration but did not dismiss the complaint, the order compelling arbitration was not immediately appealable under 9 U.S.C. § 16. The court rejected any jurisdictional effect from the docket entry marking the case "closed," treating that as administrative and noting authorities that administrative closure does not equal final dismissal. Consequently, the complaint remained within the District Court's jurisdiction and the pro-arbitration order could not be reviewed on immediate appeal.

Holding and Implications

Holding: The appeal is dismissed for lack of appellate jurisdiction.

Implications: The direct effect is that Filanto's appeal of the District Court's order directing arbitration is dismissed and the District Court retains jurisdiction over the complaint. The opinion does not discuss broader legal implications beyond application of 9 U.S.C. § 16 and the embedded/independent distinction; no broader precedent beyond application of those principles is announced in this opinion.

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FILANTO, S.P.A., PLAINTIFF-APPELLANT, v. CHILEWICH INTERNATIONAL CORP., DEFENDANT-APPELLEE.

JON O. NEWMAN, Circuit Judge:

This appeal presents a variation on the recurring issue of whether a district court's order requiring arbitration is appealable. The precise question is whether such an order is appealable when it is entered in a lawsuit brought on the underlying dispute, the complaint is not dismissed, but the case is nonetheless marked "closed." The issue arises on the purported appeal of Filanto, S.p.A. ("Filanto") from the May 21, 1992, judgment of the District Court for the Southern District of New York (Charles L. Brieant, Chief Judge), 789 F. Supp. 1229 (S.D.N.Y. 1992). We conclude that the appeal is premature, and accordingly dismiss the appeal.

Background

Defendant-appellee Chilewich International Corp. ("Chilewich") is a New York-based import-export company. In 1989, Chilewich contracted to sell footwear to Raznoexport, then a Soviet Government entity. This contract (the "Russian Contract") specified that all disputes would be resolved by arbitration before the Moscow Chamber of Commerce and Industry. To fulfill its obligations under the Russian Contract, Chilewich contracted with Filanto, the largest Italian manufacturer of shoes and boots. There is some dispute as to the content and time of formation of that contract. Chilewich contends that a March 13, 1990, letter it sent to Filanto contains the essential terms of the contract. This letter provided that the Russian Contract was "incorporated . . . as far as practicable," and specifically indicated that any arbitration should be in accordance with that contract. Filanto contends that it never accepted these terms, and that a contract was formed only by conduct at a later date. Under applicable principles of international law, Filanto contends, such a contract would not include any arbitration provisions.

In January 1991, Chilewich refused to accept 90,000 boots, causing Filanto to incur a substantial loss. Filanto filed a breach of contract suit in the District Court for the Southern District of New York, invoking jurisdiction on the basis of diversity of citizenship. Prior to answering, Chilewich moved to stay the proceeding pending arbitration in Moscow. The District Court concluded that various actions by Filanto estopped it from denying the existence of an agreement to arbitrate, and directed the parties to arbitrate their dispute before the Chamber of Commerce and Industry in Moscow, Russia.

Somewhat less clear is whether the District Court then intended to retain jurisdiction or to dismiss the action. In his written opinion, Chief Judge Brieant concluded that he had the power to stay the action, but that "to do so in this case would serve no purpose," and that "[a]ccordingly, it is appropriate that a final judgment issue here containing a mandatory injunction to arbitrate." 789 F. Supp. at 1242. But on the separate document submitted for his signature as the judgment of the District Court, Judge Brieant drew a line through the sentence that would have read: "ORDERED, ADJUDGED AND DECREED that plaintiff's complaint be and hereby is dismissed." The judgment, as entered, ordered only arbitration and did not dismiss the complaint. The docket entries, however, reflect that the case was "closed" on May 21, 1992.

Discussion

When Congress in 1988 added a new provision governing appeals of orders concerning arbitration, see Pub.L. 100-702, tit. X, § 1019(a), 102 Stat. 4642, 4670-71 (1988), codified at 9 U.S.C. § 16 (Supp.III 1991), it endeavored to promote appeals from orders barring arbitration and limit appeals from orders directing arbitration. However, Congress did not implement this policy fully. Instead, Congress built upon the distinction the courts had previously recognized between so-called "independent" proceedings and so-called "embedded" proceedings and authorized the following regime for appeals:

From 1988 to 1990, this provision was codified at 9 U.S.C. § 15. See Pub.L. 101-650, § 325(a), 104 Stat. 5089, 5120 (1990) (renumbering 9 U.S.C. § 15 to 9 U.S.C. § 16).

(a) If the suit is "independent," i.e., the plaintiff seeks an order compelling or prohibiting arbitration or a declaration that a dispute is arbitrable or not arbitrable, and no party seeks any other relief, a final, judgment ending such litigation is appealable at once. 9 U.S.C. § 16(a)(3); Matter of Chung and President Enterprises Corp., 943 F.2d 225, 227-29 (2d Cir. 1991); Stedor Enterprises, Ltd. v. Armtex, Inc., 947 F.2d 727, 731 (4th Cir. 1991). If arbitration has been ordered, the objecting party need not await the outcome of the arbitration before challenging the order to arbitrate.

(b) If the suit is "embedded," i.e., a party has sought some relief other than an order requiring or prohibiting arbitration (typically some relief concerning the merits of the allegedly arbitrable dispute), orders denying arbitration are immediately appealable, 9 U.S.C. § 16(a)(1)(A)-(C), (a)(2); see Haviland v. Goldman, Sachs Co., 947 F.2d 601, 604 (2d Cir. 1991) (appeal of antiarbitration order in embedded case), cert. denied, ___ U.S. ___, 112 S.Ct. 1995, 118 L.Ed.2d 591 (1992); Com-Tech Associates v. Computer Associates International, Inc., 938 F.2d 1574, 1576 (2d Cir. 1991) (same), but orders directing arbitration are not immediately appealable, 9 U.S.C. § 16(b); see McDermott International, Inc. v. Underwriters at Lloyds Subscribing to Memorandum of Insurance No. 104207, 981 F.2d 744 (5th Cir. 1993) (appeal of pro-arbitration order in embedded case dismissed); Perera v. Siegel Trading Co., 951 F.2d 780, 784-86 (7th Cir. 1992) (same). In the latter circumstance, the party opposing arbitration cannot challenge the arbitration requirement until the arbitration has occurred and its result is available for challenge on a motion to confirm or vacate the award. In effect, the pro-arbitration tile of the statute requires that, with respect to embedded actions, the party opposing arbitration must bear the initial consequence of an erroneous district court decision requiring arbitration.

An appeal might be specifically allowed pursuant to 28 U.S.C. § 1292(b) (1988). In the absence of certification, however, the barrier to appeal cannot be circumvented by the collateral order doctrine, whether the order compels arbitration, see Steele v. L. F. Rothschild Co., 864 F.2d 1, 3 (2d Cir. 1988), or refuses to stay an action pending arbitration, see McDonnell Douglas Finance Corp. v. Pennsylvania Power Light Co., 849 F.2d 761, 764 (2d Cir. 1988).

This case presents a classic example of an embedded proceeding. Filanto sued on a contract, and Chilewich moved to stay the proceedings pending arbitration. The District Court, having concluded that the parties made an agreement to arbitrate and that the chosen location was not "seriously inconvenient," see The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 16, 92 S.Ct. 1907, 1916, 32 L.Ed.2d 513 (1972) (forum selection clauses), directed the parties to arbitrate. Because the District Court declined to dismiss the complaint, see Borden, Inc. v. Meiji Milk Products Co., 919 F.2d 822, 826 (2d Cir. 1990) (district court may retain jurisdiction over action subject to Convention on the Recognition and Enforcement of Foreign Arbitral Awards), cert. denied, ___ U.S. ___, 111 S.Ct. 2259, 114 L.Ed.2d 712 (1991), its order compelling arbitration is not appealable under 9 U.S.C. § 16(a)(b)(3)

Had the complaint been dismissed, it is arguable that an appeal would be immediately available, though the relief might be limited to vacating the dismissal, reinstating the complaint, and declining to review at that stage the order directing arbitration. But see McCowan v. Dean Witter Reynolds Inc., 889 F.2d 451, 453 (2d Cir. 1989) (reference of claims to arbitration in embedded proceeding unappeable despite District Court's statement that it had granted motion to dismiss).

We see no jurisdictional significance to the docket entry marking the case as "closed," which we will assume was made for administrative or statistical convenience. See Corion Corp. v. Chen, 964 F.2d 55, 56-57 (1st Cir. 1992) (direction of district court "that the case be `administratively closed' pending arbitration . . . [not] equivalent to a final judgment of dismissal"); Campbell v. Dominick Dominick, Inc., 872 F.2d 358, 360 (11th Cir. 1989) (order closing case for statistical purposes did not render action final). The closing of the case without an adjudication of the complaint did not place the complaint in some sort of jurisdictional limbo and did not render the arbitration order available for immediate appeal. The complaint in the embedded action, not having been adjudicated, remains within the jurisdiction of the District Court, regardless of the effort to tidy up the docket card.

Conclusion

The appeal is dismissed for lack of appellate jurisdiction.