General Electric Co v. Deutz AG

Opinions of the United

2001 Decisions States Court of Appeals

for the Third Circuit

10-31-2001

General Electric Co v. Deutz AG

Precedential or Non-Precedential:

Docket 00-2387

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Filed October 31, 2001

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 00-2387

GENERAL ELECTRIC COMPANY

v.

DEUTZ AG,

Appellant

ON APPEAL FROM THE

UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

(D.C. Civ. No. 98-00370E)

District Judge: Honorable Sean J. McLaughlin

Argued: June 26, 2001

Before: NYGAARD, WEIS, and REAVLEY,*

Circuit Judges

(Filed: October 31, 2001)

Michael E. Barry (ARGUED)

Evan S. Williams

Gardner, Carton & Douglas

321 North Clark Street, Suite 3400

Chicago, Illinois 60610-4795

_________________________________________________________________

*Honorable Thomas M. Reavley, United States Circuit Judge for the Fifth

Circuit, sitting by designation.

Kenneth Wargo

Quinn, Buseck, Leemhuis, Toohey

& Kroto, Inc.

2222 West Grandview Boulevard

Erie, Pennsylvania 16506-4509

Attorneys for Appellant

David W. Rivkin, Esq. (ARGUED)

Frances L. Kellner, Esq.

Debevoise & Plimpton

919 Third Avenue

New York, New York 10022

Roger H. Taft, Esq.

MacDonald, Illig, Jones &

Britton, L.L.P.

100 State Street, Suite 700

Erie, Pennsylvania 16507

Attorneys For Appellee

OPINION OF THE COURT

WEIS, Circuit Judge.

In this breach of contract suit, the District Court found

that the defendant, a German guarantor, had sufficient

contacts with Pennsylvania to be subject to personal

jurisdiction. After a jury determination, the Court also

found that the defendant was not entitled to invoke the

arbitration clause in the underlying contract signed by its

subsidiary. We will affirm these rulings. The Court also

enjoined the defendant from applying to the English courts

to enforce the alleged right to arbitration. We will reverse

the grant of that injunction principally on the grounds of

comity.

In June 1993, plaintiff General Electric, a New York

corporation with manufacturing facilities in western

Pennsylvania, entered into a contract with Moteren-Werke

Mannheim AG, a German corporation with headquarters in

Mannheim, Germany. Essentially, the agreement provided

that Moteren-Werke would design, and General Electric

2

would manufacture, high horsepower diesel engines for

locomotives. The contract also included a section in which

Deutz AG,1 the parent company of Moteren-Werke,

guaranteed the obligations of its subsidiary.

By late 1997, the joint venture was encountering

difficulties, and General Electric eventually called upon

Deutz to provide the additional funding necessary for the

work to continue. The parties held extended discussions,

but were unable to resolve their differences. In December

1998, General Electric filed suit in the United States

District Court for the Western District of Pennsylvania,

asserting breach of contract claims against Deutz. The

complaint sought damages as a result of lost sales and

diversion of resources toward tasks that were the

contractual responsibility of Moteren-Werke.

Deutz moved to dismiss for lack of personal jurisdiction

or, alternatively, to compel international arbitration as it

alleged the contract required. In July 1999, while these

matters were proceeding in the District Court, Deutz sought

arbitration before a panel of the International Arbitration

Association in London.

The District Court issued an Opinion and Order on

December 29, 1999, holding that Deutz's contacts with the

forum state, made in the course of pre-contract

negotiations and post-contract visits by Deutz executives in

an effort to resolve the parties' dispute, provided sufficient

evidence to support a finding of specific jurisdiction. The

Court also ruled that the language of the contract did not

unambiguously include Deutz within the scope of its

arbitration provisions. The issue was submitted to a jury,

which found that Deutz was not entitled to arbitration.

In April 2000, before the arbitration panel issued a

decision, Deutz petitioned the High Court in London to

enjoin General Electric from further proceedings in the

Western District of Pennsylvania. The High Court declined

to issue an injunction.

_________________________________________________________________

1. At the time the contract was signed, Deutz was known as Klockner-

Humboldt-Deutz. It was the latter entity, often referred to as "KHD," that

actually signed the contract. For convenience, we will refer to the

company throughout this Opinion as "Deutz," the name it later assumed.

3

On July 31, 2000, the District Court enjoined Deutz from

resorting to the High Court in the future. It was not until

November 14, 2000, that the arbitration Panel held that

General Electric and Deutz had not agreed to arbitrate their

contractual disputes. Deutz has appealed all of the orders

of the District Court.

I.

We first address our appellate jurisdiction. Generally

speaking, an order finding personal jurisdiction is

interlocutory and non-appealable. In this case, however, we

have jurisdiction over the appeal from the injunction. 28

U.S.C. S 1292(a)(1). Interlocutory orders that are

"inextricably bound" to an injunction may also be

considered in the same appeal. Kershner v. Mazurkiewicz,

670 F.2d 440, 449 (3d Cir. 1982) (en banc); see also

Marshak v. Treadwell, 240 F.3d 184, 190 (3d Cir. 2001)

("When we have jurisdiction to review an order relating to

an injunction under S 1292(a)(1), our jurisdiction extends to

matters inextricably linked to the appealable order.").

The order finding personal jurisdiction is essential to the

validity of the injunction in this case. If jurisdiction does

not exist, then the District Court necessarily lacked the

power to issue the injunction. Accordingly, the personal

jurisdiction matter is properly before us.

The ruling finding the arbitration clause inapplicable to

Deutz is appealable under 9 U.S.C. S 16(a)(1). Again, there

is an unmistakable overlap of issues between the injunction

and the legitimacy of the order denying arbitration. We

therefore have appellate jurisdiction over the orders

presented in this appeal.

II.

PERSONAL JURISDICTION

Due process shields persons from the judgments of a

forum with which they have established no substantial ties

or relationship. In order to be subject to personal

jurisdiction, a defendant's conduct in connection with the

4

forum state must be such that he may "reasonably

anticipate being haled into court there." World-wide

Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980).

Once it is challenged, the burden rests upon the plaintiff

to establish personal jurisdiction. Mellon Bank (East) PSFS,

Nat'l Ass'n v. Farino, 960 F.2d 1217, 1223 (3d Cir. 1992).

A nexus between the defendant, the forum and the

litigation is the essential foundation of in personam

jurisdiction.

Personal jurisdiction may be either general or specific. A

defendant is subject to general jurisdiction when it has

continuous and systematic contacts with the forum state.

Helicopteros Nacionales de Columbia, S.A. v. Hall , 466 U.S.

408, 414-16 (1984).

Specific jurisdiction is established when a non-resident

defendant has "purposefully directed" his activities at a

resident of the forum and the injury arises from or is

related to those activities. Burger King Corp. v. Rudzewicz,

471 U.S. 462, 472 (1985); see also Dollar Sav. Bank v. First

Sec. Bank of Utah, N.A., 746 F.2d 208 (3d Cir. 1984)

(discussing personal jurisdiction).

Questions of specific jurisdiction are properly tied to the

particular claims asserted. In contract cases, courts should

inquire whether the defendant's contacts with the forum

were instrumental in either the formation of the contract or

its breach. Phillips Exeter Acad. v. Howard Phillips Fund,

Inc., 196 F.3d 284, 289 (1st Cir. 1999). Parties who "reach

out beyond [their] state and create continuing relationships

and obligations with citizens of another state" are subject to

the regulations of their activity in that undertaking. Burger

King, 471 U.S. at 473 (quotations omitted). Courts are not

reluctant to find personal jurisdiction in such instances.

"[M]odern transportation and communications have made it

much less burdensome for a party sued to defend himself

in a State where he engages in economic activity . .. ." Id.

at 474.

Specific jurisdiction frequently depends on physical

contacts with the forum. Actual presence during pre-

contractual negotiations, performance, and resolution of

post-contract difficulties is generally factored into the

5

jurisdictional determination. Remick v. Manfredy , 238 F.3d

248, 255-56 (3d Cir. 2001); Farino, 960 F.2d at 1223-24. In

modern commercial business arrangements, however,

communication by electronic facilities, rather than physical

presence, is the rule. Where these types of long-term

relationships have been established, actual territorial

presence becomes less determinative. Burger King , 471 U.S.

at 476.

It is not significant that one or the other party initiated

the relationship. Carteret Sav. Bank, FA v. Shushan, 954

F.2d 141, 150 (3d Cir. 1992). In the commercial milieu, the

intention to establish a common venture extending over a

substantial period of time is a more important

consideration.

The record here demonstrates both physical contacts and

a deliberate assumption of long-term obligations. In 1993,

when it began negotiations with General Electric, Moteren-

Werke was one of several subsidiaries of Deutz. Both

companies retained the same law firm in Philadelphia,

Pennsylvania to represent their interests. After Moteren-

Werke had reached an agreement with General Electric on

most of the contract's terms, the document was reviewed by

Dr. Gunther Wagner, Executive Vice-President of Deutz and

a member of its Board of Directors.

Moteren-Werke began performing its contractual

obligations in Pennsylvania shortly after the agreement was

signed on June 15, 1993. The following year, Dr. Wagner,

who was not only a Deutz executive but also a member of

the Moteren-Werke management board responsible for its

engine business, met with General Electric officials in

Pennsylvania. The parties addressed Deutz's financial

stability as well as other matters related to performance of

the contract.

In 1996, Anton Schneider, Chairman of Deutz's Executive

Board, joined Moteren-Werke officials in a tour of General

Electric's Erie and Grove City, Pennsylvania facilities. At

that time, he discussed with General Electric officials such

matters as the development status of the engines and the

level of resources required to complete the venture.

6

In mid-1996, Deutz moved to curtail its subsidiaries'

losses and reduce the number of Moteren-Werke employees

on the General Electric project. The following year, the

parties held a conference in Erie, Pennsylvania; in

attendance were Peter Stark, a member of Deutz's

management board and chairman of the management

board of Moteren-Werke, three other Moteren-Werke

employees, and several General Electric officials. Stark

promised that Deutz would supply additional resources for

the project. He returned to Erie in February 1998 to

determine if a new engine was ready for marketing.

In mid-April 1998, Deutz announced its intention to

completely take over the Moteren-Werke business. Dr.

Leopold Mikulic, a vice president of Deutz, traveled to Erie

on three separate occasions in June and July of 1998 for

meetings with General Electric representatives. Deutz's

Chairman Schneider accompanied him on the last of these

occasions. Neither these sessions nor extensive

correspondence enabled the companies to resolve their

dispute. Accordingly, on December 22, 1998, General

Electric filed suit in the District Court against Deutz alone,

alleging that it and Moteren-Werke had breached the

contract.2

Deutz's motion for dismissal contended that the Court

lacked personal jurisdiction because the Deutz officials who

came from Germany were acting solely on behalf of

Moteren-Werke and did not represent its parent company.

The District Court rejected that contention, and we do not

find fault with its conclusion. The record reveals that Deutz

failed to keep its presence or interests separate from those

of Moteren-Werke. Deutz's financial status, a matter critical

to its obligations as guarantor, was a frequent subject at

the conferences held by the companies. Deutz's continued

requests for additional financial contributions from General

Electric were likewise intimately related to the guarantor's

liability.

The Deutz and Moteren-Werke entities made little effort

to maintain their independence. The overlapping and

_________________________________________________________________

2. Moteren-Werke was not named as a defendant, presumably because it

was bound by the arbitration clause in the contract.

7

interlocking committees and officials came close to creating

a de facto alter ego arrangement.3 The visits by Deutz

officials were not casual or fortuitous events, but serious

efforts aimed at furthering the joint commercial enterprise.

Deutz's status as a guarantor was not merely incidental,

but was an important, perhaps indispensable, ingredient of

the project, and the stakes were not minimal.

In sum, the behavior of Deutz and its officials clearly

amounts to "purposeful direction" of business activity

toward General Electric, a Pennsylvania resident. It is also

beyond dispute that this suit arose out of Deutz's

contractual endeavors. Finally, Pennsylvania's assertion of

personal jurisdiction over Deutz is neither unfair nor

unreasonable.

Unquestionably, it is less convenient for a German

corporation to litigate in Pennsylvania, but Deutz had

actively overseen the performance of the contract in that

state for five years with no apparent difficulties in

communication or travel. Given that the contract was

performed primarily in Pennsylvania, General Electric has

an obvious interest in conducting this litigation there.

Deutz, moreover, has failed to present any persuasive

reason why the matter should not proceed in that forum.

See Travelers Health Ass'n v. Virginia, 339 U.S. 643, 648

(1950) (discussing state's interest that contractual

obligations be observed).

Thus, we conclude that the District Court correctly

determined that Deutz's activities adequately supported a

finding of specific jurisdiction.

_________________________________________________________________

3. On January 27, 1999, some months after General Electric filed this

suit, Deutz purchased all of Moteren-Werke's assets and obligations

under the 1993 agreement. As the District Court observed, that

transaction did not affect Deutz's purported arbitration rights vis-a-vis

General Electric.

8

III.

THE ARBITRATION AGREEMENT

As its alternate challenge to the District Court's

jurisdiction, Deutz insisted that as guarantor, it and

General Electric were bound by the terms of the arbitration

provisions in the Moteren-Werke contract. Deutz contended

that the question of arbitrability was one for the arbiters to

decide in the first instance. Because the arbitration clause

did not clearly and unmistakably provide for arbitral

determination of jurisdiction, however, the Court ruled that

it must resolve the issue. See AT&T Tech., Inc. v.

Communications Workers of Am., 475 U.S. 643, 651 (1986)

("It is the court's duty to interpret the agreement and to

determine whether the parties intended to arbitrate

grievances . . . ."). As events developed, Deutz ultimately

did obtain a decision by the arbitration panel on

jurisdiction, though it was adverse. Be that as it may, we

are not relieved of our responsibility to review the District

Court's ruling.

The contract is titled "Commercial Agreement dated June

15th, 1993 between Moteren-Werke Mannheim AG and

General Electric Company," indicating that the Agreement

was between those two entities. Those companies initialed

every page of the Agreement; Deutz did not.

Section 7.01 provides that "[a]ll disputes, controversies,

and claims directly or indirectly arising out of or in relation

to this Agreement" shall be submitted to arbitration.

Elsewhere in Article 7, which establishes arbitration

procedures, the contract states that General Electric and

Moteren-Werke would nominate the arbiters and that

General Electric and Moteren-Werke agree to certain

conditions. Deutz is not mentioned in that section.

Deutz signed the contract in a separate signature block,

specifying that it was a party "for purposes of the

obligations set forth in Section 9.08 hereof and Sections

4.05, 4.06, and 4.07 hereof." Section 9.08 contains the

guaranty, and Sections 4.05 through 4.07 require the

parties and their affiliates to maintain the confidentiality of

design and other information. Section 9.04, the only other

9

portion of the agreement that mentions Deutz, provides

that a copy of any notice to Moteren-Werke should also be

sent to its parent company.

General Electric argued that Deutz had only agreed to be

bound to the specific portions of the contract listed in the

signature block, and had not expressly or impliedly adopted

the arbitration clause. Deutz responded that although it

limited its participation to specific portions of the

agreement, the framework of that document, including

such provisions as notice, governing law, and dispute

resolution, was intended to be part of its commitment.

Applying the forum's conflicts of laws doctrine, the

District Court concluded that Pennsylvania law should

govern because that state had the greatest interest in the

outcome of the dispute. That forum was the site of most of

the contract's performance, as well as the location of much

of the pre-contract negotiations. Although the arbitration

clause called for the application of Swiss law, that provision

applied to the arbitration proceeding, not to the initial

determination of whether there had been an agreement on

who would decide arbitrability. In any event, there did not

appear to be any substantial difference between

Pennsylvania and Swiss law in this respect.

After giving due consideration to the language of the

contract and the parties' conflicting interpretations, the

Court concluded that the arbitration clause was

ambiguous. Accordingly, the matter was submitted to a

jury as permitted by the Federal Arbitration Act. See 9

U.S.C. S 4. After two days of testimony from both parties'

negotiators, the jury returned a special verdict, finding that

General Electric and Deutz had not agreed to arbitrate their

disputes.

Deutz now contests the District Court's determination

that the arbitration clause was ambiguous. Having reviewed

the contractual language, however, we are not persuaded

that the District Court's ruling was erroneous. In finding

that the contentions of both parties were reasonable, the

Court took an even-handed view of the dispute that cannot,

we conclude, fairly be criticized.

10

Deutz points to landmark Supreme Court decisions in

support of its position that federal policy favors arbitration

for the resolution of international commercial disputes, see

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473

U.S. 614, 631 (1985), and that "any doubts concerning the

scope of arbitrable issues should be resolved in favor of

arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr.

Corp., 460 U.S. 1, 24-25 (1983). Although we agree that

providing for dispute resolution in a neutral forum by an

acknowledged competent agency is highly desirable, the

matter does not end there. A court may only compel a party

to arbitrate where that party has entered into a written

agreement to do so. E.I. DuPont de Nemours & Co. v. Rhone

Poulenc Fiber & Resin Intermediates, S.A.S., No. 00-3550,

2001 WL 1229797, at *4 (3d Cir. Oct. 15, 2001) (quotations

omitted).

The United States Courts certainly recognize

international arbitration agreements. Our nation, like the

United Kingdom, Germany and scores of other countries,

has adopted the United Nations Convention on the

Recognition and Enforcement of Foreign Arbitral Awards

("The New York Convention"), June 10, 1958, 21 U.S.T.

2517, T.I.A.S. No. 6997, reprinted in 9 U.S.C. S 201 note.

The Federal Arbitration Act implements the United States'

accession to the Convention, see 9 U.S.C.SS 201-08, and

provides that it "shall be enforced in United States courts

. . . ." Id. S 201. The arbitration clause in the instant case

falls within the ambit of the Convention and the Federal

Arbitration Act.

As the Supreme Court observed in Scherk v. Alberto-

Culver Co., 417 U.S. 506, 520 n.15 (1974), the goal of the

Convention is to encourage the recognition and

enforcement of commercial contracts and to unify the

standards by which arbitration agreements are observed.

We have commented that "[t]he policy of the Convention is

best served by an approach which leads to upholding

agreements to arbitrate." Rhone Mediterranee Compagnia

Francese di Assicurazioni E Riassicurazoni v. Lauro , 712

F.2d 50, 54 (3d Cir. 1983).

Federal law applies to the interpretation of arbitration

agreements. Scherk, 417 U.S. at 519-20; Becker Autoradio

11

U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 43

(3d Cir. 1978). If the parties have stipulated that certain

disputes will be submitted to arbitration and that the law

of a particular jurisdiction will govern the controversy,

federal courts will enforce that agreement. Becker

Autoradio, 585 F.2d at 43.

Thus, "whether a particular dispute is within the class of

those disputes governed by the arbitration and choice of

law clause is a matter of federal law." Id . The court decides

the arbitrability of a dispute. Id. at 44 n.10. Although the

issue of ambiguity per se is one of law, resolution of the

uncertainty is one for the fact-finder. See Ram Constr. Co.

v. Am. States Ins. Co., 749 F.2d 1049, 1052 (3d Cir. 1984).

In general, then, federal rather than state law governs

international arbitration agreements. It appears, however,

that there is a limited exception to this rule where the

question is whether the controversy is arbitrable.

The Supreme Court has explained that if the arbitration

agreement does not provide that the question of

arbitrability vel non is to be decided by the arbitrators, then

a court determines the issue. First Options of Chicago, Inc.

v. Kaplan, 514 U.S. 938, 944-47 (1995). In so doing, a

court should apply ordinary state law principles governing

contract formation. Id. at 944. "Courts should not assume

that the parties agreed to arbitrate arbitrability unless there

is clear and unmistakable evidence that they did so." Id.

(internal quotations omitted). On the contrary,"the law

treats silence or ambiguity about the question who

(primarily) should decide arbitrability differently from the

way it treats silence or ambiguity about the question

whether a particular merits-related dispute is arbitrable

. . . ." Id. (internal quotations omitted).

In these situations, the law reverses the ordinary

presumption of arbitrability. Id. at 944-45. This approach

reflects a reluctance to "force unwilling parties to arbitrate

a matter they reasonably would have thought a judge . . .

would decide." Id. at 945.

We recognize that First Options is a domestic arbitration

case, but the international nature of the present litigation

does not affect the application of First Options ' principles.

12

In any event, the question of whether federal or state law

applies is not a determinative factor at this point. Neither

party urges the application of federal law to the

interpretation of the agreement; they have limited their

choices to either Swiss or Pennsylvania law. In general, we

respect the choice of law that parties agree upon to resolve

their private disputes. See Assicurazioni Generali, S.P.A. v.

Clover, 195 F.3d 161, 164-65 (3d Cir. 1999); see also 19

Charles A. Wright, Arthur R. Miller, & Edward H. Cooper,

Fed. Prac. & Proc. S 4514, at 135 (2d ed. Supp. 2001) ("[T]he

law ordinarily allows parties to a contract to structure their

affairs by choosing to have their contract governed by the

body of law that best suits their needs . . . ."). In addition,

we doubt that the application of federal law would change

the outcome of this litigation in any significant respect.

Deutz further contends that the special verdict slip given

to the jurors misled them by asking whether General

Electric and Deutz "both agreed to arbitrate difficulties with

each other." Deutz's only objection to this language at trial

was aimed at the use of the word "both;" as its attorney

stated, "[w]e have two people, they either agreed or didn't

agree . . . . [the word "both" is] not necessary." We find no

reversible error in the text of the verdict slip.

Deutz also asks us to find that the evidence indicating an

agreement to arbitrate was so overwhelmingly favorable to

it that we should grant judgment in its favor on this point.

We are not persuaded that the record supports Deutz's

optimistic evaluation of the strength of its case, nor that we

should reverse the jury's factual finding. "[J]ury verdicts

can be overturned only if the record fails to contain the

minimum quantum of evidence from which the jury could

have rationally reached a verdict." Dutton v. Wolpoff &

Abramson, 5 F.3d 649, 653 (3d Cir. 1993) (internal

quotations omitted).

In sum, we find no error in the District Court's resolution

on the issue of arbitrability. Moreover, although not

controlling on us or the District Court, it is interesting that

the ICC Panel, applying Swiss law, also held that Deutz was

not entitled to arbitration. Focusing first on the provisions

listed in Deutz's signature block and the fact that the

13

article establishing arbitration procedures did not mention

Deutz, the Panel found the contract ambiguous.

Swiss law required the Panel to look to the parties' pre-

contract history and other relevant circumstances. After

considering Deutz's active participation in the negotiations,

its refusal to add a reference to Article 7 in the signature

block in spite of the attention this portion of the contract

received during the final two weeks of negotiations, and the

fact that all parties were assisted by lawyers, the Panel held

that there was no arbitration agreement between Deutz and

General Electric. It also observed that the outcome would

not have been different had it adhered to one of the other

possibly applicable national laws.

We also note in passing Deutz's contention that it is

inconsistent to suggest that the company approached the

status of Moteren-Werke's "alter ego" for the purposes of

personal jurisdiction, but not in connection with the

arbitration clause. This argument confuses two very

different issues, the terms of the contract and Deutz's

presence in Pennsylvania.

The fact that many Moteren-Werke officials were also

high-ranking officers of Deutz is relevant to the personal

jurisdiction analysis because the personal contacts these

officials had with the forum state were made on behalf of

both the parent company and its subsidiary. It is not the

alter ego arrangement that gave the District Court personal

jurisdiction over Deutz. Rather, it is the fact that Deutz

officials -- in their own capacity as well as in that of

managers of Moteren-Werke -- made frequent contact with

General Electric in Pennsylvania for the purpose of

discussing issues pertaining to Deutz's obligations under

the contract.

On the other hand, the contract text distinguishes the

obligations of Moteren-Werke and its parent company. The

interrelationship of the Deutz and Moteren-Werke officers

simply does not alter their contractual arrangement and the

obligations to which each company agreed.4

_________________________________________________________________

4. We note that in certain circumstances, some Courts of Appeals have

applied the principle of equitable estoppel to permit non-signatories to

14

IV.

THE INJUNCTION

As noted earlier, while the parties were litigating in

Pennsylvania, Deutz initiated an arbitration proceeding

before the International Chamber of Commerce Court of

Arbitration in July 1999. Despite General Electric's

objections, the ICC assembled a panel of arbitrators to

consider the jurisdictional issue.

After the ICC Panel set a schedule for its proceedings,

Deutz applied to the Queen's Bench Division of the High

Court in London for an order restraining General Electric

from seeking an injunction in the District Court in

Pennsylvania against Deutz proceeding before the ICC.

Justice Thomas of the High Court, in a judgment dated

April 14, 2000, dismissed the request. He emphasized that

in the posture of the matter before the Court that he was

"not in any way finally deciding the point." Nonetheless, it

appeared that "the words by which Deutz became a party to

the agreement [did] not establish a serious issue to be tried

on the question of whether [it] became a party to the

arbitration clause."

The High Court also recognized that each party had been

given a full opportunity to produce evidence in the District

_________________________________________________________________

enforce arbitration agreements against signatories to various contracts.

See, e.g., Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th

Cir. 2000); Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d

753

(11th Cir. 1993); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A.,

863 F.2d 315 (4th Cir. 1988); Hughes Masonry Co., Inc. v. Greater Clark

County Sch. Bldg. Corp., 659 F.2d 836 (7th Cir. 1981). But see Grigson,

210 F.3d at 531-40 (Dennis, J., dissenting). This Court has noted that

line of cases, although their reasoning was factually inapplicable to the

case before us. See E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber

& Resin Intermediates, S.A.S., No. 00-3550, 2001 WL 1229797 (3d Cir.

Oct. 15, 2001). Deutz, however, did not raise the theory of equitable

estoppel in the District Court or on appeal, and we therefore do not

consider whether we would apply that doctrine in this case. See First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995); Dayhoff Inc. v.

H.J. Heinz Co., 86 F.3d 1287 (3d Cir. 1996).

15

Court, which had applied principles similar to those

adhered to by the Queen's Bench. Finally, Justice Thomas

remarked that Deutz would be able to assert its contentions

in the forthcoming District Court proceedings, particularly

the argument that comity should inform the deference to be

accorded the jurisdiction of the ICC Panel. In the meantime,

the ICC Panel continued to receive memorials and expert

opinions from the parties bearing on the jurisdictional

question.

After argument and further briefing, the District Court,

citing its authority to enjoin parties from pursuing parallel

litigation in foreign as well as domestic courts, issued an

order on July 31, 2000, "permanently enjoin[ing] Deutz

from appealing the forthcoming jurisdictional order of the

Arbitral Tribunal to the English courts or from taking any

other action in furtherance of its prosecution of the ICC

arbitration." Because the parties had purportedly completed

their submissions to the arbitration panel, and nothing

remained but the issuance of a decision, the Court limited

its order, enjoining Deutz from appealing the ICC ruling to

the English courts or taking further steps in arbitration

thereafter.

The District Court acknowledged that its injunctive power

must be exercised sparingly; parallel proceedings are

ordinarily permitted to proceed simultaneously, at least

until one has reached the stage where its ruling becomes

res judicata. Recognizing that an intercircuit split has

developed over the degree of deference owed foreign courts,

the District Court concluded that the better approach

emphasizes international comity. Using this standard, it

would issue an injunction only if res judicata applied, or if

the foreign proceeding threatened the Court's jurisdiction

over the matter at hand or a strong public policy of the

United States.

The District Court first considered whether its February

28, 2000 order incorporating the jury verdict that found the

dispute non-arbitrable was sufficiently final to serve as the

basis of res judicata. Relying on Towers, Perrin, Forster &

Crosby, Inc. v. Brown, 732 F.2d 345 (3d Cir. 1984), the

Court concluded that: "[O]ur order is clearly final and

conclusive in the sense that the issue will not be relitigated

16

in this Court during the proceedings on the merits of [ ]

General Electric's breach of contract claim."

Even if this were not the case, the Court concluded in the

alternative that the ICC proceeding posed a threat to its

jurisdiction, reasoning that "if the Tribunal were to decide

that the parties did agree to arbitrate, it would in effect be

declaring that it had jurisdiction and this Court does not."

Finally, the Court found that preserving the sanctity of the

jury verdict was an important public policy of the United

States, and was made vulnerable by a potential ICC finding

that the case belonged in arbitration.

We are persuaded that none of the bases relied upon by

the District Court supports the issuance of an injunction in

this case, and will discuss each of them in turn.

First, res judicata or claim preclusion 5 is designed to

avoid piecemeal litigation of claims arising from the same

events. The determination of whether two suits are based

on the same cause of action turns on the essential

similarity of the underlying events giving rise to the various

legal claims. Generally speaking, claim preclusion or res

judicata requires a final judgment on the merits in a prior

suit involving the same parties or their privies, and a

subsequent suit based on the same cause of action.

Churchill v. Star Enters., 183 F.3d 184, 194 (3d Cir. 1999);

see also Gregory v. Chehi, 843 F.2d 111 (3d Cir. 1988)

(describing generally the principles of res judicata). The

party seeking to take advantage of claim preclusion has the

burden of establishing it. United States v. Athlone Indus.,

Inc., 746 F.2d 977, 983 (3d Cir. 1984).

_________________________________________________________________

5. Courts and commentators have used varying terminology, often

referred to collectively as "res judicata," in discussing the preclusive

effects of prior adjudication. Today, however, res judicata is sometimes

used to represent two distinct preclusion concepts,"issue preclusion"

and "claim preclusion." While the former refers to the effect of a

judgment in foreclosing further adjudication of a matter actually decided,

claim preclusion prohibits litigants from pursuing a matter that has not

previously been litigated but which should have been advanced in an

earlier suit. Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75,

77

n.1 (1984).

17

Res judicata is commonly, and properly, pleaded as an

affirmative defense in a second suit arising out of the same

injury. See Churchill, 183 F.3d at 189. Only in aggravated

circumstances may the court presiding over the first case

anticipate the second by entering an injunction against

initiation of further proceedings; the tendency to issue such

injunctions should almost always be avoided. The judicial

consensus is ably summarized by Wright and Miller in their

treatise:

"However tempting it may be for a court to conclude

that it is in the best position to assess the preclusive

effects of its own judgments, application of preclusion

principles requires familiarity not only with the first

judgment but also with the subsequent proceedings.

The first court should not lightly usurp the jurisdiction

of another court to dispose of pending litigation."

18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper,

Fed. Prac. & Proc. S 4405, at 41-42 (1981).

In the case before us, only the interlocutory orders

finding personal jurisdiction and dismissing Deutz's

arbitration request have been entered. General Electric's

claims against Deutz for damages have not been resolved.

Although the order denying arbitration was appealable, see

9 U.S.C. S 16(a); 28 U.S.C. S 1292(a)(1), Deutz had not yet

taken an appeal at the time the District Court entered its

injunction.

In Towers, defendants appealed the California trial

court's dismissal of their petition to compel arbitration. 723

F.2d at 346. Before the appeal was decided, they filed suit

in federal court in Pennsylvania, seeking an order

compelling arbitration over the same dispute. While the

federal action was pending, the California appellate court

affirmed the order denying arbitration. Despite that ruling,

the federal district court granted the petition for arbitration

and stayed the California proceedings. Id. at 346-47.

We reversed the district court's order, observing that

under California law, the arbitration issue could be

considered separately from the merits and that the state

appellate court had affirmed the ruling of non-arbitrability.

In those circumstances, the California order was res

18

judicata. Accordingly, we barred the federal district court

from proceeding further. Id. at 348-50; see also Moses H.

Cone Mem'l Hosp., 460 U.S. at 10 (stay of later-filed federal

suit pending resolution of state suit precluded further

litigation in federal forum; state court's judgment would,

therefore, be res judicata). Our Court explicitly declined to

discuss the controlling rule where a federal court issues the

prior order. Towers, 732 F.2d at 350 n.2.

Although the Towers case is generally cited for the

proposition that a state court's order denying arbitration

may be treated as final for res judicata purposes, it is not

irrelevant that the order had already been affirmed on

appeal when the District Court came to a contrary

conclusion. One reason we found the California trial court's

order to be sufficiently final was that it was "free from

attack on appeal. The determination of non-arbitrability

[was] upheld on direct appeal and could not be reviewed

again on appeal from a determination of the merits of the

dispute." Id. at 349 (internal quotations and citations

omitted).

Furthermore, even if Towers supports a finding of res

judicata in this case, it does not necessarily follow that an

injunction should issue. In that case, we reviewed an order

denying arbitration entered by a trial court in another

system. Here, on the other hand, the District Court relied

on its own order, as yet unappealed, to preclude litigation

in another forum.

"Anticipatory" injunctions, issued before the subsequent

suit is under way, are to be used in the rarest of

circumstances on the domestic front. In view of the

international reach of the injunction, the District Court

should have left the res judicata effect of its order to the

determination of the other forum. The District Court's

determination that its order was sufficient for res judicata

purposes would not necessarily be binding on English

courts.

The circumstances here were not so aggravated as to

justify interference with the jurisdiction of the courts of

another sovereign state, and there is no indication that the

English courts would have prevented General Electric from

19

arguing the res judicata effect of the February 28, 2000

order.

General Electric argues that if Deutz had not been so

restrained, it might have destroyed the District Court's

jurisdiction by securing an order from the High Court

compelling arbitration. The record, however, reveals little

basis for such qualms. Deutz petitioned the High Court two

months after the District Court had dismissed the

arbitration request, and the High Court declined to issue an

injunction restraining General Electric from proceeding in

the federal court, voicing serious doubts about the strength

of Deutz's position. Thus, the District Court knew before it

enjoined Deutz that the High Court had shown no

inclination to disagree with the non-arbitrability ruling.

Similarly ill-founded is General Electric's assertion that

the sanctity of the jury verdict would be jeopardized by

permitting Deutz to repair once again to the High Court in

London. Although the jury unquestionably has a more

important role in the American jurisprudential system than

in that of any other nation, its verdict is neither infallible

nor immune from judicial scrutiny.

We have been cited to no authority that endorses

enjoining proceedings in a foreign court on the grounds

that an American jury verdict might be called into question.

Indeed, in denying Deutz's application, the High Court took

pains to mention that the findings of fact had been made by

a jury. There is little reason to believe that the High Court

would give any less deference to the jury's role as fact-

finder if the issue were presented a second time.

V.

COMITY

In parallel litigation, the issue of comity is an important

and omnipresent factor. Although it is a consideration in

federal and state litigation, it assumes even more

significance in international proceedings. The Supreme

Court has described comity as "the recognition which one

nation allows within its territory to the legislative, executive

20

or judicial acts of another nation, having due regard both

to international duty and convenience, and to the rights of

its own citizens or of other persons who are under the

protection of its laws." Hilton v. Guyot, 159 U.S. 113, 164

(1895); see also Somportex, Ltd. v. Philadelphia Chewing

Gum Corp., 453 F.2d 435, 440 (3d Cir. 1971) (describing

comity as a rule of "practice, convenience, and

expediency").

The Court of Appeals for the D.C. Circuit has described

comity as a "complex and elusive concept," the deference a

domestic court should pay to the actions of a foreign

government, not otherwise binding on the forum. Laker

Airways Ltd. v. Sabena, Belgian World Airlines, 731 F.2d

909, 937 (D.C. Cir. 1984). The primary reason for

giving effect to the rulings of foreign tribunals is

that such recognition factors international cooperation and

encourages reciprocity. Thus, comity promotes

predictability and stability in legal expectations, two critical

components of successful international commercial

enterprises. It also encourages the rule of law, which is

especially important because as trade expands across

international borders, the necessity for cooperation among

nations increases as well. Id.

The Supreme Court has taken to task American courts

that have demonstrated unduly narrow attitudes in this

area:

"The expansion of American business and industry will

hardly be encouraged if, notwithstanding solemn

contracts, we insist on a parochial concept that all

disputes must be resolved under our laws and in our

courts. . . . We cannot have trade and commerce in

world markets and international waters on our terms,

governed by our laws, and resolved in our courts."

THE BREMEN v. Zapata Off-Shore Co., 407 U.S. 1, 9 (1972).

In another case emphasizing world economic

interdependence, the Court of Appeals for the Sixth Circuit

noted that the proper exercise of comity demonstrates

confidence in the foreign court's ability to adjudicate a

dispute fairly and efficiently. Gau Shan Co., Ltd. v. Bankers

Trust Co., 956 F.2d 1349, 1355 (6th Cir. 1992). Failure to

21

accord such deference invites similar disrespect for our

judicial proceedings. Reciprocity and cooperation are

worthy goals of comity. Id.

The federal Courts of Appeals have not established a

uniform rule for determining when injunctions on foreign

litigation are justified. Two standards, it appears, have

developed. Courts following the "liberal" or"lax" standard

will issue an injunction where policy in the enjoining forum

is frustrated, the foreign proceeding would be vexatious or

would threaten a domestic court's in rem or quasi in rem

jurisdiction or other equitable considerations, and finally,

where allowing the foreign proceedings to continue would

result in delay. The Courts of Appeals for the Fifth,

Seventh, and Ninth Circuits generally apply this standard.6

By contrast, the Second, Sixth and District of Columbia

Circuits use a more restrictive approach, rarely permitting

injunctions against foreign proceedings.7 These courts

approve enjoining foreign parallel proceedings only to

protect jurisdiction or an important public policy.

Vexatiousness and inconvenience to the parties carry far

less weight.

Our Court is among those that resort to the more

restrictive standard. In Compagnie des Bauxites de Guinea

v. Insurance Co. of North America, 651 F.2d 877, 887 (3d

Cir. 1981), we reversed the grant of an injunction against

parties seeking to initiate parallel litigation in the United

Kingdom and concluded that parallel in personam actions

should be allowed to proceed in foreign as well as domestic

cases. Id. The fact that the District Court in that case found

the English proceeding would be harassing and vexatious

was not enough to justify an injunction. Id.

We took a similarly restrictive approach in Republic of

_________________________________________________________________

6. See Kaepa, Inc. v. Achilles Corp., 76 F.3d 624, 626-28 (5th Cir. 1996);

Allendale Mut. Ins. Co. v. Bull Data Sys., Inc., 10 F.3d 425, 431-32 (7th

Cir. 1993); Seattle Totems Hockey Club, Inc. v. Nat'l Hockey League, 652

F.2d 852, 856 (9th Cir. 1981).

7. See Gau Shan Co., 956 F.2d at 1354-59; China Trade & Dev. Corp. v.

M.V. Choong Yong, 837 F.2d 33, 36 (2d Cir. 1987); Laker Airways, 731

F.2d at 937-45.

22

Philippines v. Westinghouse Electric Corp., 43 F.3d 65 (3d

Cir. 1995). There, the Philippine government filed suit as

plaintiff in the United States District Court for the District

of New Jersey. During the litigation, that government was

alleged to have taken punitive measures against its own

citizens who had testified adversely to it in the proceedings.

The District Court enjoined the Philippine government from

engaging in this harassment. 43 F.3d at 67-71.

Despite the aggravated nature of that government's

alleged action, we reversed the grant of an injunction.

Conceding that the District Court had the power to enjoin

the Philippine government as it did, we concluded that the

remedy was, nevertheless, extraordinarily intrusive into the

activities of a government within its own territory and

involving its own citizens. Id. at 80-81. The injunction

violated fundamental notions of comity and, accordingly, it

was vacated. Id. at 74-81; see also Remington Rand Corp.-

Del. v. Bus. Sys. Inc., 830 F.2d 1260, 1272-74 (3d Cir.

1987) (order imposing constructive trust on bankrupt

Dutch corporation's assets wherever located substantially

impaired bankruptcy trustee's ability to perform duties

under Dutch bankruptcy law, thereby offending principles

of comity); Mannington Mills, Inc. v. Congoleum Corp., 595

F.2d 1287, 1296 (3d Cir. 1979) ("When foreign nations are

involved, . . . it is unwise to ignore the fact that foreign

policy, reciprocity, comity, and limitations of judicial power

are considerations that should have a bearing on the

decision to exercise or decline jurisdiction.").

Our jurisprudence thus reflects a serious concern for

comity. This Court may properly be aligned with those that

have adopted a strict approach when injunctive relief

against foreign judicial proceedings is sought. Although it

recognized our adherence to that restrictive standard, the

District Court in this case invoked the threat to jurisdiction

and violation of public policy factors to justify the

injunction. As we noted earlier, the evidence supporting

application of these factors was extremely weak, and any

doubts to the contrary should have been put to rest by the

High Court's judgment, issued before the injunction was

granted.

23

The High Court's Justice Thomas commented with

respect to General Electric's request for an injunction, then

pending in the District Court:

"He [the district judge] will no doubt take into account

. . . that he, as a judge of the United States Court, is

being asked to exercise extraordinary extra-territorial

jurisdiction over an arbitral tribunal sitting in London

within the jurisdiction of this Court. He will no doubt

pay high regard to issues of comity, just as this Court

has paid high regard to issues of comity in relation to

the decisions made by him."

High Ct. Op. at 26.

At another point in his judgment, concluding that there

was no serious issue of arbitrability, Justice Thomas

observed, "It seems to me very difficult to see on what basis

this Court should intervene in a proceeding so far advanced

in the United States, where that particular issue has

already been determined against Deutz." Id . at 30.

Assuming arguendo that the District Court's order

denying arbitration can constitute a ruling that is final for

res judicata purposes before its disposition on appeal, it

does not follow that there is a sufficient basis for enjoining

the proceedings in the English courts. This is not an

aggravated case that calls for extraordinary intervention,

nor is it sufficient that the ruling of the arbitral panel might

have jeopardized the District Court's jurisdiction.

We do, of course, have a considerable advantage over the

District Court, because the ICC Panel has now agreed that

the case was not arbitrable. Although that decision colors

our ruling, it does not weaken our conclusion, arrived at

independently, that the District Court lacked sufficient

grounds to grant the injunction. We are also confident that

there was no serious threat to an important public policy

because of the happenstance that essential fact finding in

the District Court was performed by a jury rather than by

the judge.

The Order granting the injunction will be reversed. In all

other respects, we will affirm the Orders of the District

Court.

24

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

25