Petition — Paducah Associates, Ltd. v. Indiana Insurance

Supreme Court brief1981

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MAR 413 j98)

ALEXANDER L. STEVaS. |

CLERK

tens teeat

No.

In the Supreme Court of the United States

October Term, 1980

PADUCAH ASSOCIATES, LTD.,

Petitioner,

VS.

INDIANA INSURANCE COMPANY

and

ALL PRIDE DEVELOPMENT CORPORATION,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Dona.p D. WEINSTEIN (Counsel of Record)

and

BERNARD L, BALKIN

A. MorGAN HICKENLOOPER of

SANDLER, BALKIN, HELLMAN & WEINSTEIN

Professional Corporation

3130 Broadway, Third Floor

Kansas City, Missouri 64111

Telephone: (816) 753-3525

Counsel for Petitioner

March 13, 1981

E. L. Menvenwatt, INc., 926 Cherry Street, Kansas City, Mo. 64106, (816) 421-3030

QUESTIONS PRESENTED

1. Whether arbitrators acting under a binding ar-

bitration clause in a construction contract may, with agree-

ment of the parties, reserve issues from their award, leav-

ing to the parties the right to assert such issues before a

Federal District Court independent of the award.

2. Whether a judgment entered by a Federal District

Court in an arbitration award confirmation action pur-

suant to The Federal Arbitration Code is binding upon

the parties thereto such that an issue there determined

may not be relitigated or form the basis for a conflicting

summary judgment in a subsequent action between the

Same parties on the same subject matter before a second

District Court because of the doctrines of res judicata and

law of the case.

3. Whether a federal District Court may grant sum-

mary judgment under Federal Rules of Civil Procedure

Rule 56 on the basis of a claim of a contractual waiver of

a claim before an arbitration board, when there is a gen-

uine issue of fact that there was no such waiver.

4. Whether summary judgment which results in for-

feiture of a claim is the appropriate form of relief under

The Federal Arbitration Code with regard to a claim

which may be arbitrable under a written arbitration agree-

ment, but which comes before a United States District

Court without having been first submitted to arbitration.

ITI

TABLE OF CONTENTS

1. Questions Presented oo... ccocccccececeeeeeeeeeecoeccee I

2. Table of Contents o.........o.n.c.ccccceccccccccechccsoesecoceseseeseses III

3. Table of Authorities 20.0.0... ccccccccccccccecceceeeeceseeeeen., V

4. Opinions Below 20000000000... aceaehieeaeenaemenacaatie 2

I I cs cscsspanennnnsroserannaummraceccevese 2

6. Statutory Provisions and Rule of Civil Procedure

ee 2

7. Statement of Case—

a. Contract and Initial Suit by Paducah ........ 3

b. Proceedings Before Board of Arbitrators... 4

c. Confirmation of Arbitration Award ............ 6

d. Proceedings Subsequent to Confirmation... 6

e. Proceedings Before the Circuit Court of

SI eee ee 8

8. Reasons for Granting Writ—

1. The Decision of the Court of Appeals for

the Sixth Circuit Conflicts With Decisions

by Other Circuit Courts Regarding Waiver

of Arbitration and Regarding the Power of

Arbitrators to Reserve Questions for Sub-

Bequent Litigation ..................-cccacecsecceccsecsesee 9

2. The Decision Below Raises a Significant

Question Regarding the Application of the

Federal Arbitration Code Which Should

Be Resolved by This Court 0.0.0.0... 12

3. The District Court Below Has So Far

Departed From the Accepted and Usual

Course of Judicial Proceedings As to Call

for an Exercise of This Court’s Power of

PIII eden enacsessevenssxinexaucssvaeoencummernteantens 14

PREVIOUS PAGE WAS BLANK

ee I Teta nn yere OF: sR hk et tee 21

1”. Appendices—

a. Order, United States Court of Appeals for

the Sixth Circuit (Affirming District

NNR ects en ren ae Al

b. Memorandum Opinion and Order and

Judgment, United States District Court

for the Western District of Kentucky ........ A3

c. Disposition of Pending Motiens for Sum-

mary Judgment, United States District

Court for the Southern District of Ohio .... All

d. Order, United States Court of Appeals

for the Sixth Circuit (denying rehearing)

senoseailanaanacibeaananeatadldbtigestadd racsegtss ay Saige daiendcnamieateede baci A28

e. Statutory Provisions and Rule of Civil

Procedure Involved o00........cecccececcesecceceesees A29

Table of Authorities

CASES

Almacenes Fernandez, S.A. v. Golodetz, 148 F.2d 625

Se SY eed ee 15

American Locomotive Co. v. Chemical Research Corp.,

171 F.2d 115 (6th Cir. 1948) ooo ccccccccccccccceeeeeeees 15

American Locomotive Co. v. Gyro Process Co., 185

FOG SIG (Gt Cir, 1QGD) onnccincccccccccncncececsccesescocecsvcecssese. 15,17

Brown v. Bridgeport Rolling Mills Co., 245 F. Supp. 41

Oe | __) aaeaeny Re inter eo ee ee 19

Burton-Dixie Corporation v. Timothy McCarthy Con-

struction Co., Inc., 436 F.2d 405 (5th Cir. 1971) ...... 10, 15

Cornell & Co. v. Barber & Ross Co., 360 F.2d 512, 123

Wd. PADD. TOC, BPG (UGOB) nan ccccsensesvocnnsseseseacadeceresecsoeseesce, 17

Hannevig v. R. W. J. Sutherland & Co., 256 Fed. 445

(2d Cir.), cert. den., 249 U.S. 612 (1919) oo. 17

James L. Saphier Agency, Inc. v. Green, 190 F. Supp.

713 (S.D. N.Y.), aff’d, 293 F.2d 769 (2d Cir. 1961) ... 19

Kentucky River Mills v. Jackson, 206 F.2d 111, 47 A.L.R.

2d 1331 (6th Cir.), cert. den., 346 U.S. 887 (1953) ........ 18

Lundgren v. Freeman, 307 F.2d 104 (9th Cir. 1962) Liotbe ae

Order of Rwy. Conductors and Brakemen v. Clinchfield

R. R. Co., 407 F.2d 985 (6th Cir. 1969) 200. 17

Reid Burton Construction, Inc. v. Carpenters District

Council of Southern Colorado, 614 F.2d 698 (10th

RN SE -Sisitancssbeea ti eemenstiacnivenohieamsaceeceons a oes 10, 15, 17

United States v. U.S. Smelting, Refining & Mining Co.,

SOO WB, BOG (1BGO) nica csccnccsccccsscsececcossacvecsvecseceeenecacensess. 20

U.S. Plywood Corp. v. Hudson Lumber Co., 127 F.

Supp. 489 (S.D. N.Y. 1954) ool cececcceceeceeeeseee. 19

Volunteer Elec. Co-op v. TVA, 139 F. Supp. 22 (E.D.

Tenn. 1954), aff’d per curiam, 231 F.2d 446 (6th Cir.

No.

In the Supreme Court of the United States

October Term, 1980

PADUCAH ASSOCIATES, LTD.,

Petitioner,

VS.

INDIANA INSURANCE COMPANY

and

ALL PRIDE DEVELOPMENT CORPORATION,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

The petitioner, Paducah Associates, Ltd.. respectfully

prays that a Writ of Certiorari issue to review the judg-

ment and opinion of the United States Court of Appeals

for the Sixth Circuit in this proceeding.*

*The names of all parties to this proceeding below appear in

the case caption.

OPINIONS BELOW

The decision of the Court of Appeals, reported at 636

F.2d 1219, appears in full in the Appendix hereto at pages

Al through A2. This decision affirms the decision of

the United States District Court for the Western District

of Kentucky entered September 12, 1978, which District

Court decision has not been reported and appears in the

Appendix hereto at pages A3 through Al0. This petition

also concerns a decision of the United States District Court

for the Southern District of Ohio entered March 14, 1977,

which decision has not been reported and appears in the

Appendix hereto at pages All through A27.

JURISDICTION

The judgment of the Court of Appeals for the Sixth

Circuit was entered on November 13, 1980. A timely Peti-

tion for Rehearing was filed and was denied on December

15, 1980 (Appendix, p. A28), and this petition for a writ of

certiorari was filed within ninety (90) days of that date.

Jurisdiction of this Court is invoked under 28 U.S.C.

§1254(1).

STATUTORY PROVISIONS AND RULE OF

CIVIL PROCEDURE INVOLVED

This case involves construction and application of 9

U.S.C. $§3, 9, 10 and 11, portions of the Federal Arbitration

Code, and Rule 56, Federal Rules of Civil Procedure.

The full text of the above-cited provisions are printed

in the Appendix hereto at pages A29 through A34.

STATEMENT OF THE CASE

This case arises out of a dispute involving a construc-

tion contract between Paducah Associates, Ltd., petitioner

herein and appellant and plaintiff below (hereinafter called

“Paducah”) and All Pride Development Corporation, re-

spondent herein and appellee and defendant below (here-

after called “All Pride’). Indiana Insurance Company,

respondent herein and appellee and defendant below (here-

after called “Indiana’’) was surety under a contract bond

in which All Pride was principal and Paducah was obligee

pursuant to All Pride’s contract with Paducah. This dis-

pute has passed through five distinct phases, each of which

must be discussed in some detail to provide an adequate

understanding of this somewhat complex case.

The Contract and Initial Suit by Paducah

Paducah, a Kentucky Limited Partnership, filed suit

on August 19, 1974, in McCracken Circuit Court, McCracken

County, Kentucky against All Pride and Indiana, both

Indiana corporations. In its pleading, Paducah alleged

that it had entered into a contract with All Pride on

October 10, 1973, whereby All Pride was to provide the

labor and material necessary to perform the on-site con-

struction of a motel in Paducah, Kentucky, in accordance

with certain plans and specifications. Paducah further

alleged that as a condition of this contract, All Pride

secured, from Indiana, a contract bond naming All Pride

as principal, Paducah as obligee, and Indiana as surety,

which bond was to indemnify Paducah against loss or

damage arising by reason of the failure of All Pride to

perform the construction contract. Paducah further al-

leged that All Pride defaulted in performance of the con-

struction contract and that Indiana, as surety, undertook

to provide financial assistance to All Pride and to perform

the terms and conditions of the construction contract to

completion; but that subsequently, in August of 1974,

Indiana discontinued providing financial assistance, aban-

doned its performance and gave notice to Paducah that it

intended to file a mechanic’s lien upon the real property

which was the site of the motel.

Paducah’s initial pleading was a suit to enjoin Indiana

from filing a lien upon the construction site real property

and a temporary restraining order was granted to Paducah

by the State Court, Thereafter, the case was removed

by Indiana and All Pride to the United States District

Court for the Western District of Kentucky, Paducah

Division, with jurisdiction for such removal being based

upon diversity of citizenship under 28 U.S.C. §§1332 and

1441. The temporary restraining order expired by its

terms and both Indiana and Paducah filed mechanic’s

liens against Paducah’s real property. Paducah filed an

Amended Complaint in October, 1974 and a Second

Amended Complaint in January, 1975, stating in its first

count a complaint of disparagement of its title hindering

its ability to obtain financing by reason of the threatened

mechanic’s liens and in its second count a breach of con-

tract by All Pride under the construction contract and

Indiana under the contract bond. The construction con-

tract contained an arbitration clause which was invoked

by Indiana and All Pride and, on April 11, 1975, Paducah

consented to arbitration.

Proceedings Before Board of Arbitrators

Six days of arbitration hearings were held before

a three-member Board of Arbitrators in the Regional

Offices of the American Arbitration Association, Cincin-

nati, Ohio, during September and October, 1975. No

transcript of the hearings was made, but a Summary of

the hearings was prepared by the attorneys for Paducah

based upon their notes, which summary was submitted

to the Board of Arbitrators and counsel for Indiana and

All Pride prior to the Board’s determination. This sum-

mary shows that on the fifth hearing day, October 23,

1975, the arbitrators notified the parties that the Board

would not consider the issue of slander or disparagement

of title in their determination, stating that such question

was outside the submission to them as arbitrators (Appen-

dix p. A7). Following this decision, the parties pro-

ceeded with arbitration and, honoring the arbitrators’ deci-

sion, excluded the issue of slander or disparagement of

title from any further offers of proof and from the ques-

tions briefed before the Board.

The arbitrators entered their award, limiting their

determination to the questions of breach of contract which

they found in favor of Paducah and against both All Pride

and Indiana, specifically finding that Paducah bore no lia-

bility for damages as to either All Pride or Indiana. The

issue of slander or disparagement of title was expressly ex-

cluded from the arbitrators’ award in paragraph seven (7)

thereof, which stated:

7. This award does not determine the right of any

of the parties (the owner, contractor and surety) to

subrogation or indemnification as to any other person

not a party to the arbitration. This award does not

determine the rights of any party to damages or any

other remedy, legal or equitable, which may have

arisen or which may exist outside the arbitration sub-

mission and, specifically, this award does not relate, in

any way, to any claim for damages of any sort which

may exist by reason of the filing of mechanic’s liens

by any of the parties to this arbitration. (Emphasis

added; see Appendix p. A8).

Confirmation of Arbitration Award

Paducah filed a suit in the United States District

Court for the Southern District of Ohio to confirm the

arbitration award pursuant to 9 U.S.C. §9, Federal Arbi-

tration Code. Indiana filed a counterclaim seeking modi-

fication of Paragraph 7 of the award, alleging that Paducah

had been obligated to assert its slander of title claim before

the arbitrators and, since Paducah did not rely upon or

assert that claim before the arbitrators, the claim had

been waived and the award should be modified to bar

Paducah from later claiming damages due to slander of

title. Both Paducah and Indiana filed motions for sum-

mary judgment and, in March, 1977, the District Court

handed down its opinion confirming the arbitration award

and, at the same time, dismissing Indiana’s counterclaim

for modification of Paragraph 7.

The District ‘Court held, with regard to Indiana’s

counterclaim, that on the record before the court there

was no evidence that the slander of title claim had ever

been submitted to or considered by the arbitration panel

and, in fact, the record demonstrated that just the opposite

was the case (Appendix p. A23). Moreover, the court

noted that it could not determine that the absence of the

slander of title issue to the panel was solely the respon-

sibility of Paducah and, therefore, it granted Paducah’s

motion for summary judgment as to Indiana’s counter-

claim for modification of the arbitration award (Appen-

dix p. A24).

Proceedings Subsequent to Confirmation

Paducah filed a motion for leave to supplement its

complaint in the pending action before the United States

District Court for the Western District of Kentucky at

approximately the same time it filed its confirmation

action in the United States District Court for the Southern

District of Ohio, In March, 1976, Paducah was given

leave to file its supplemental complaint. Paducah as-

serted, in its supplemental complaint, that the arbitration

award had not resolved all disputes between the parties,

specifically referencing Paragraph 7 of the arbitration

award which excluded Paducah’s claim for damages which

might exist by reason of the filing of mechanic’s liens.

Further, Paducah alleged, consistent with the arbitration

award, that neither Indiana nor All Pride was entitled

to any damages against Paducah and that Paducah was

entitled to damages from Indiana on account of its having

wrongfully, willfully and maliciously filed a mechanic’s

lien against Paducah’s property when it knew that it

had no right to do so.

Indiana filed a Motion for Summary Judgment on

the grounds that (1) all issues were or could have been

submitted to arbitration and the arbitration award barred

Paducah’s slander of title action on the grounds of the

doctrine of res judicata; (2) Paducah had waived its claim

based on slander of title by failing to assert it in the

arbitration proceedings; (3) the action was barred by the

applicable statutes of limitation, and (4) Indiana’s filing

of its notice of mechanic’s lien was privileged. Paducah

responded to this motion with suggestions in opposition,

supported by affidavits and exhibits, asserting that gen-

uine issues of material fact remained for trial.

Initially, in July of 1978, the District Court denied

Indiana’s Motion for Summary Judgment, finding that

there were issues of material fact remaining ( Appendix

p. A3). However, on September 12, 1978, the Court

reversed its earlier decision and sustained Indiana’s Motion

for Summary Judgment solely on the ground that Paducah

had waived its right to pursue the slander of title action

= a

(Appendix p. A9). Concurrently, the Court ruled that

Paducah’s claim was not barred by res judicata as Indiana

had asserted (Appendix p. A6), but did not address

Indiana’s statutes of limitation or privilege claims. Pa-

ducah filed a Motion for a New Trial, Amendment of the

Court’s Judgment or, in the Alternative, for Reconsidera-

tion of the Court’s Order Sustaining Indiana’s Motion

for Summary Judgment. Thereafter, the District Court

overruled Paducah’s Motion and Paducah appealed to

the United States Court of Appeals for the Sixth Circuit.

Proceedings Before the Circuit Court of Appeals

Paducah asserted, before the Court of Appeals, that

the District Court erred in sustaining Indiana’s Motion

for Summary Judgment on the basis that Paducah had

waived its slander of title claim in that:

1. There was a genuine issue of material fact as to

whether the parties had both agreed to a limitation or

withdrawal of the slander of title issue from arbitration;

2. It was established beyond doubt, based upon the

record before the trial court, including the arbitration

awan~d, that either the parties had reserved such issue

for trial in the District Court or that Indiana had waived

its right to demand arbitration of the slander of title

issue;

3. In any event, there was a genuine issue of mate-

rial fact as to whether Paducah had contractually waived

its substantive right to damages for slander of title:

4. Summary judgment, a judgment on the merits.

was an inappropriate form of relief as Indiana’s objection

was to the procedure to be followed and not to the valid-

ity of Paducah’s claim; and

5. The claim of waiver had already been asserted

by Indiana in the arbitration award confirmation hearing

before the United States District Court for the Southern

District of Ohio, had been there determined adversely

to Indiana, and therefore was res judicata against Indiana

as to that issue or, at the very least, Indiana was barred

by the doctrine of law of the case.

The Court of Appeals, without addressing the issues

raised by Paducah, adopted and affirmed the District

Court decision in a one line opinion.

REASONS FOR GRANTING WRIT

1. The Decision of the Court of Appeals for the Sixth

Circuit Conflicts With Decisions by Other Circuit

Courts Regarding Waiver of Arbitration and Re-

garding the Power of Arbitrators to Reserve Ques-

tions for Subsequent Litigation.

A. The Court below, by adopting Judge Johnstone’s

District Court Memorandum Order filed September 12,

1978, held that Indiana was entitled to summary judgment

as to Paducah’s slander of title claim for the stated reason

that Paducah had contractually waived its right to assert

this claim by not submitting it to arbitration (Appendix

p. Al). By so holding, the Court, by necessity, con-

cluded that there was no genuine issue of material fact

regarding the slander of title claim remaining for trial

and that, as a matter of law, under Federal Rule 56(c),

Indiana was entitled to judgment based upon the record

before the Court. Basing such a determination upon a

conclusion of waiver on the part of Paducah conflicts

with the principle established in other Circuits that the

question of factual waiver of a right to arbitrate a claim

or waiver of a claim subject to arbitration by a pz ty

thereto depends upon the facts of each case and generally

calls for a finding by the trier of facts. Reid Burton

Construction, Inc. v. Carpenters District Council of South-

ern Colorado, 614 F.2d 698 (10th Cir. 1980); Burton-Dizxie

Corporation v. Timothy McCarthy Construction Co., Inc.,

436 F.2d 405 (5th Cir. 1971).

Reid Burton Construction Co., Inc., and Burton-Dizxie

Corporation both dealt with construction contract cases

wherein the defendants were found by the trier of fact

to have factually waived their right to arbitration. In

affirming the finding of waiver, both of the Circuit Courts

of Appeal held:

There is no set rule as to what constitutes a waiver

or abandonment of the arbitration agreement; the

question depends upon the facts of each case and

usually calls for a finding by the trier of facts.

(Loc. Cit. 614 F.2d at 702 citing to 436 F.2d at 408).

Paducah, throughout the course of this litigation in

the courts below, has vehemently asserted that there

remain genuine issues of material fact as to whether or

not it has waived its right to assert its slander of title

claim against Indiana and there has been no evidentiary

finding of a factual waiver by Paducah of such claim.

In any event, there remains a genuine issue of material

fact as to whether any such waiver occurred, including

whether or not this claim was either mutually withheld

from submission to the arbitrators by the parties or re-

served by the arbitrators for subsequent judicial deter-

mination and acceded to by the parties. Clearly, under

the Reid Burton Construction, Inc. and Burton-Dixie

Corporation decisions, these would be questions which

should be decided by the trier of fact and not as a matter

of law under Rule 56(c), Federal Rules of Civil Procedure.

It has often been stated that a summary judgment is

not a substitute for a trial of disputed fact issues. Vol-

unteer Elec. Co-op v. TVA, 139 F. Supp. 22 (E.D. Tenn.

1954), aff'd per curiam, 231 F.2d 446 (6th Cir. 1956).

Accordingly, the Court may not try issues of disputed

fact under a Rule 56 motion. Felix v. Young, 536 F.2d

1126 (6th Cir. 1976). Nonetheless, this is precisely what

the trial court has done ar’ the Sixth Circuit has af-

firmed.

B. The decision by the Sixth Circuit in this case

also conflicts with the decision reached in Lundgren v.

Freeman, 307 F.2d 104 (9th Cir. 1962) regarding the

question of whether a board of arbitrators may reserve

issues from their award and leave the parties free to have

the issues so reserved judicially resolved. By holding

that Indiana was entitled to summary judgment as to

Paducah’s slander of title claim, despite the express reser-

vation by the arbitrators of claims for damages arising

out of the filing of a mechanic’s lien by any party to

the arbitration, the Courts below, contrary to the Lundgren

holding, held that the arbitrators may not reserve issues

from their award for later judicial determination.

The Lundgren case involved a construction contract

containing an arbitration clause very similar to that con-

tained in the Paducah-All Pride contract. In that case,

claims by the contractor, Lundgren, for unpaid contract

balances, losses due to defects in plans and specifications,

payment for doing work not called for in the contract

and loss of the builder’s fee were submitted to arbitration

under contract provisions which recited, “All disputes,

claims or questions subject to arbitration under this con-

tract shall be submitted to arbitration. .. .” 307 F.2d

at 108, n. 2. The arbitrators entered their award, but

refused to pass upon claims made by Lundgren for sev-

eral items, reserving decision as to these claims for the

United States District Court. The District Court subse-

quently heard and determined these claims and awarded

Lundgren an additional amount. The Ninth Circuit, after

recognizing the arbitrators’ implied authority under a

broad arbitration clause to exclude and reserve certain

issues from their award (loc. cit. 307 F.2d at 110, n. 6),

affirmed the trial court’s incremental award to Lundgren.

It is important to note that the Lundgren court affirmed

the trial court’s award of additional sums in satisfaction

of claims based upon questions reserved by the arbitra-

tion panel even though the construction contract had

provided, as does the contract in the case at bar, that

“all disputes, claims or questions subject to arbitration

under this contract shall be submitted to arbitration. .. .”

Accordingly, the Lundgren court recognized (1) the right

of arbitrators to reserve questions from their award and

(2) the right of parties to have a later judicial determina-

tion of those issues. When the Sixth Circuit was pre-

sented the identical question regarding arbitrators’ reser-

vation of issues, however, it held directly opposite from

the Lundgren Court on this decisive question, without

so much as a word addressing Paducah’s argument re-

garding this issue.

2. The Decision Below Raises a Significant Question

Regarding the Application of the Federal Arbitra-

tion Code Which Should Be Resolved by This

Court.

Paducah submits that Indiana improperly invoked

the remedy of summary judgment before the District

Court when, at best, it was entitled only to a stay of

the proceedings under the Federal Arbitration Code, 9

U.S.C. §3. This section provides the remedy for a party

claiming that an issue is referable to arbitration when

that issue has been brought before a court of the United

States and provides as follows:

If any suit or proceeding be brought in any of the

courts of the United States upon any issue referable

to arbitration under an agreement in writing for such

arbitration, the court in which such suit is pending,

upon being satisfied that the issue involved in such

suit or proceeding is referable to arbitration under such

an agreement, shall on application of one of the parties

stay the trial of the action until such arbitration has

been had in accordance with the terms of the agree-

ment, providing the applicant for the stay is not in de-

fault in proceeding with such arbitration.

9 U.S.C. §3.

The courts below have proceeded as though a stay

in the proceedings, as mandated in 9 U.S.C. §3, is merely

an alternative form of relief to summary judgment and

that either may be granted when an issue subject to

arbitration is submitted to the court. Paducah urgently

asserts that 9 U.S.C. §3 gives the court no such choice,

but mandates that the court “shall... stay the trial of

the action until such arbitration has been had .. .” when

confronted with a fact pattern as is presented in this

case.

Clearly, Indiana invoked, the trial court granted, and

the Circuit Court of Appeals affirmed the wrong remedy

if it is accepted that the slander of title issue should

have been submitted to arbitration. At best, upon a

finding that the slander of title issue was subject to

arbitration, the District Court should have stayed the

trial and ordered arbitration. Under 9 U.S.C. $3 and the

policy favoring arbitration which underlies the Federal

Arbitration Code, the court was authorized to do this and

nothing more. Thus, it is for this court to decide whether

a District Court may, consistent with the provisions of the

Federal Arbitration Code, grant summary judgment, a

judgment on the merits, amounting to a forfeiture of a

valuable claim, rather than order a stay in the proceedings

when presented an issue which is subject to arbitration,

but which has not been decided by any court, board of

arbitrators or other tribunal.

3. The District Court Below Has So Far Departed

From the Accepted and Usual Course of Judicial

Proceedings As to Call for an Exercise of This

Court’s Power of Supervision.

The District Court has so far departed from the

accepted and usual course of judicial proceedings, and

the Circuit Court of Appeals has sanctioned such depar-

ture, that Paducah has been denied basic due process of

law regarding its slander of title claim and, therefore,

the supervisory power of this Court should be exercised.

These departures have occurred in a number of areas:

First, the courts below have permitted entry of a

summary judgment against Paducah when genuine issues

of material fact remained for trial.

Second, the courts below failed to find that Indiana

had waived its right to demand arbitration of the slander

of title issue by: (1) agreeing to withhold said issue

from the submission to the arbitrators: (2) acquiescing

in the ruling of the arbitrators that such issue had not

been submitted to them and proceeding without objection

to such reservation throughout the arbitration; and (3)

litigating said issue on the merits before the United States

District Court for the Southern District of Ohio.

Third, the courts below based the award of summary

judgment on a finding that Paducah had waived its slan-

der of title claim when the question of such waiver had

previously been litigated in the District Court for the

Southern District of Ohio and should have been barred

by the doctrines of res judicata and law of the case.

A. The first contention of error, that summary judg-

ment was improperly granted in that there remained

genuine issues of fact for trial, has been touched upon

above. Paducah has contended throughout the course of

this case that it was under no obligation to submit its

tort claim of slander of title to arbitration under a con-

tractual agreement which applied only to disputes arising

under the contract. Even if it were assumed, however,

that such an obligation did exist, Paducah is still entitled

to a factual determination as to whether or not the con-

tractual agreement to arbitrate this issue had been waived

or modified by the conduct of the parties. The courts

below never indicated the manner in which the alleged

waiver took place other than to refer to the construction

contract provision authorizing arbitration. Clearly the

courts have confused the agreement to arbitrate with the

submission of matters to arbitration. It has often been

held that parties to a contract providing for arbitration

may factually waive the right to arbitrate or may limit

or amend matters to be submitted to arbitration. Reid

Burton Construction, Inc.., supra; Burton-Dixie Corpora-

tion, supra; American Locomotive Co. v. Gyro Process

Co., 185 F.2d 316 (6th Cir. 1950); Almacenes Fernandez,

S.A. v. Golodetz, 148 F.2d 625 (2d Cir. 1945); American

Locomotive Co. v. Chemical Research Corp., 171 F.2d 115

(6th Cir. 1948).

The courts below gave weight to an undated “Second

Stipulation” in granting summary judgment to Indiana

(Appendix p. A7), finding thereon that Paducah had

contractually waived its right to pursue its slander of

title claim by submitting all claims to the arbitrators.

A closer examination of this stipulation than was made

below reveals, however, that it in no way refutes Pa-

ducah’s contention that there was no waiver of its right

to have the slander of title claim heard. This stipulation

states that the arbitrators’ award would address “all issues,

claims, or defenses between the parties which are en-

compassed in the pleadings . . . pending in the United

States District Court for the Western District of Ken-

tucky. .. .” (Appendix p. A7). It is important to note

that Paducah’s complaint at that time addressed only

the issue of Indiana’s threatened mechanic’s lien. Pa-

ducah’s slander of title action was not on file at the time

of the arbitration proceedings. It referred to a subsequent

course of events which gave rise to that claim after the

arbitrators had determined that Indiana had no claim

against Paducah by reason of the construction contract

or bond. Secondly, the stipulation refers to submission

of the “claimed rights of Indiana Insurance Company

under the mechanic’s lien. . . .” (Appendix p. A7). This

provision, like the earlier quoted provision does not sup-

port the court’s conclusion of waiver, This portion of

the stipulation, by its terms, refers to Indiana’s rights

under the lien and could not, even by tortured construc-

tion, be twisted to refer to Paducah’s slander of title

claim against Indiana.

Paducah has not had its day in court regarding its

slander of title claim and is entitled to be heard. The

District Court for the Southern District of Ohio recog-

nized that the arbitrators had expressly excluded this

issue from their award and clearly ruled that this issue

had not been determined by the arbitrators and that

Paducah was not barred thereafter from asserting its

slander of title claim (Appendix pp. A23-24). Accordingly,

the only question remaining was not whether Paducah

could assert its claim against Indiana for slander of title,

but where such claim should be asserted. By granting

Indiana’s motion for summary judgment, the courts below

have denied Paducah one of the most rudimentary ele-

ments of due process, an opportunity to be heard.

B. Paducah contends, as its second assertion of error,

that the courts below improperly failed to find that

Indiana had waived its right to demand arbitration of

the slander of title issue, A party to arbitration may

not be heard to complain that a claim is barred because

it was not submitted to the arbitrators when the party

has acquiesced in the ruling of the board of arbitrators

that such claim would not be addressed and has continued

without objection throughout the arbitration proceedings.

Cornell & Co. v. Barber & Ross Co., 360 F.2d 512, 123

U.S. App. D.C. 378 (1966); American Locomotive Co.

v. Gyro Process Co., supra. Defects in arbitration pro-

ceedings may be waived by a party’s acquiescence in the

arbitration despite knowledge of the defect. Order of

Railway Conductors and Brakemen v. Clinchfield Rail-

road Co., 407 F.2d 985 (6th Cir. 1969). When no proof

is presented to a board of arbitrators in connection with

a claim arguably subject to a broad arbitration clause,

the parties remain free to litigate such claim in court.

Hannevig v. R. W. J. Sutherland & Co., 256 Fed. 445 (2d

Cir.), cert. den., 249 U.S. 612 (1919). Moreover, ‘the

right to demand arbitration of an issue, or to assert

failure to arbitrate as a defense, may be waived by in-

voking the jurisdiction of a court as to such issue or

by participating in the litigation of it. Reid Burton Con-

struction, Inc., supra,

It is clear from the record below that Indiana acqui-

esced in the arbitrators’ ruling excluding the slander of

title question from the arbitration determination and

continued to participate in the arbitration proceedings

without objection. Indiana, throughout the arbitration

proceedings presented evidence and made arguments re-

garding the issues submitted to the board, but remained

silent as to any claim that the arbitrators were not

properly determining the issues submitted to them. When

the question arose as to the propriety of the submission

to the board, it was incumbent upon Indiana to raise

its concerns before the appropriate court. Kentucky

River Mills v. Jackson, 206 F.2d 111, 47 A.L.R.2d 1331

(6th Cir.), cert. den., 346 U.S. 887 (1953). Nonetheless,

it was not until Paducah filed its motion to confirm the

arbitration award in the District Court for the Southern

District of Ohio, months after the arbitrators’ award was

made, that Indiana for the first time, argued that the

slander of title claim should have been submitted to the

board of arbitrators. Moreover, in making such argu-

ment, Indiana did not request that the confirmation pro-

ceedings be stayed penuing arbitration of this issue, but

rather joined this issue by way of a counterclaim, in-

voking the jurisdiction of the court, and litigated it to

conclusion with an ultimate resolution in Paducah’s favor.

Clearly, Indiana waived its right to assert in the courts

below that the slander of title claim should have been ar-

bitrated based on the above-cited cases. Nonetheless, the

courts below granted and affirmed a summary judgment

in favor of Indiana. If allowed to stand, the decision of the

courts below would amount to a sanction of the proposition

that a party to arbitration may sit silently by while the

board of abritrators proceeds erroneously, only to spring

from ambush, claiming failure to arbitrate, months or even

years later when the other party seeks to assert its rights.

This has not been and should not be the law under facts as

are presented here and this Court should exercise its super-

visory power to ensure that this is not the law applied to

this case. Justice demands nothing less.

C. Paducah respectfully asserts, as its third conten-

tion of error, that the courts below erred in not barring

Indiana’s claim of waiver on the grounds of the doctrines

of res judicata and law of the case. An award of a board

of arbitrators generally has the effect of a judgment and

a judgment entered upon confirmation of such an award

is a judgment on the merits. U.S. Plywood Corp. v. Hudson

Lumber Co., 127 F. Supp. 489 (S.D. N.Y. 1954). A judg-

ment entered in prior proceedings which overrules a motion

to vacate or modify the provisions of an arbitration award

is res judicata or at least collateral estoppel by judgment

as to all issues involving the validity of the award in a

subsequent action. Brown v. Bridgeport Rolling Mills Co.,

245 F.Supp. 41 (D. Conn. 1965); James L. Saphier Agency,

Inc. v. Green, 190 F.Supp. 713 (S.D. N.Y.), aff'd, 293 F.2d

769 (2d Cir. 1961). |

The issue of waiver raised by Indiana in support of its

Motion for Summary Judgment was raised by it in its

counterclaim to Paducah’s confirmation suit before the

District Court for the Southern District of Ohio. This

counterclaim was a motion to modify the arbitration award

and the court, with regard to said counterclaim, granted

summary judgment in favor of Paducah and against In-

diana (Appendix p. A24). No appeal of this decision was

taken and it, therefore, became final. Accordingly, the

courts below erroneously permitted Indiana to reassert its

claim of waiver when such claim had already been litigated

to a final decision adversely to Indiana in the District Court

for the Southern District of Ohio and should have been

barred by the doctrine of res judicata.

Equally applicable to these facts is the doctrine of law

of the case. Briefly stated, this doctrine says that if an

appellate body has passed on a legal question and re-

manded the case for further proceedings, the legal ques-

tions so determined will not be differently determined in

a subsequent appeal of the case. United States v. U.S.

Smelting, Refining & Mining Co., 33f U.S. 186 (1950). In

the present case, the appellate body was the United States

District Court for the Southern District of Ohio which was

authorized to confirm, modify or vacate the arbitration

award. 9 U.S.C. §§9, 10, 11. The issue of waiver raised

by Indiana in support of its Motion for Summary Judg-

ment below was the same as it raised before that court

in support of its Counterclaim. The District Court for the

Southern District of Ohio discussed this issue at length in

Part II of its opinion (Appendix pp. A22-24) and concluded,

as a matter of law: (1) that the arbitrators had specif-

ically excluded the issue of slander of title from their

award; (2) that the issue had not been submitted to the

board of arbitrators for consideration; (3) that the blame,

if any, for not submitting this issue to the arbitrators could

not be laid exclusively at the feet of Paducah; (4) that

Paducah was not thereafter barred from having its slander

of title claim heard; and, therefore, (5) that no modifica-

tion of the arbitration award would be permitted. Ac-

cordingly, the District Court for the Western District of

Kentucky, when confronted with the same issues as had

already been finally determined by the District Court for

the Southern District of Ohio, was bound by the earlier

determination and should have denied Indiana’s Motion

for Summary Judgment. Its failure to do so was plain

error in that the court determined the issue of waiver dif-

ferently than had the District Court for the Southern Dis-

trict of Ohio and, thus, failed to follow the law of the

case. As the Circuit Court of Appeals for the Sixth Cir-

cuit has sanctioned this failing, it falls to this Court to ex-

ercise its supervisory power to correct this error and set

right the manifest injustice done thereby to Paducah.

CONCLUSION

For the foregoing reasons, a writ of certiorari should

issue to review the judgment and opinion herein of the

United States Court of Appeals for the Sixth Circuit.

Respectfully submitted,

DonaLp D. WEINSTEIN (Counsel of Record)

and

BERNARD L, BALKIN

A. Morcan HICKENLOOPER of

SANDLER, BALKIN, HELLMAN & WEINSTEIN

Professional Corporation

3130 Broadway, Third Floor

Kansas City, Missouri 64111

Telephone: (816) 753-3525

Counsel for Petitioner

APPENDIX

APPENDIX A

79-3157

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

PADUCAH ASSOCIATES, LTD.,

Plaintiff-Appellant,

INDIANA INSURANCE COMPANY and ALL PRIDE

DEVELOPMENT CORPORATION,

Defendants-Appellees.

ORDER

(Filed November 13, 1980)

Before: LIVELY and ENGEL, Circuit Judges and PECK,

Senior Circuit Judge

Paducah Associates appeals from an order of the dis-

trict court dismissing its diversity claim of slander of title

against defendants Indiana Insurance Company and All

Pride Development Corporation. All three parties had

entered into a construction contract that contained a broad

arbitration clause. A breach of contract dispute arose and

the parties agreed to arbitration. Paducah did not pursue

its slander of title claim before the arbitration panel. The

district court granted summary judgment, finding that Pa-

ducah had waived its slander claim by failing to pursue its

claim at arbitration.

For the reasons set forth in the memorandum opinion

of United States District Judge Edward H. Johnstone, filed

in the district court September 12, 1978,

IT IS ORDERED that the judgment of the district

court be and it is hereby affirmed.

ENTERED BY ORDER OF THE COURT

/s/ John P. Hehman

Clerk

APPENDIX B

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF KENTUCKY

AT PADUCAH

Civil Action No. 74-89-P

PADUCAH ASSOCIATES, LTD.,

Plaintiff,

INDIANA INSURANCE CO. and ALL-PRIDE

DEVELOPMENT CoO.,

Defendants.

MEMORANDUM OPINION

(Entered September 12, 1978)

This slander-of-title action stands before the Court on

a motion by Indiana Insurance Company (hereinafter “In-

diana”) for summary judgment. Previously, we denied the

motion because of a then-perceived genuine issue as to

a material fact. For the reasons discussed below, the

motion is now granted.

The expansive record in this case may be summarized

in the following relevant chronology. In 1973 the parties

entered into a contract for the construction of a motel in

Paducah, Kentucky. The plaintiff, Paducah Associates

(hereinafter “Paducah’’), was the owner of the motel.

All-Pride Development Company, the contractor, was to

perform the actual construction, with Indiana acting as

the surety. Included in the agreement was a broad arbi-

tration clause:

All claims, disputes and other matters in question aris-

ing out of, or relating to, this Contract or the breach

thereof . . . shall be decided by arbitration in accor-

dance with the Construction Industry Arbitration Rules

of the American Arbitration Association then obtain-

ing, unless the parties mutually agree otherwise. This

agreement to arbitrate shall be specifically enforce-

able under the prevailing arbitration law. The award

rendered by the arbitrators shall be final, and judg-

ment may be entered upon it in accordance with

applicable law in any court having jurisdiction thereof.

Sometime after work commenced, disputes arose among

the parties as to their performance and obligations under

the contract. When efforts to resolve the differences

proved unsuccessful, Paducah brought suit in McCracken

Circuit Court alleging various contract breaches and also

seeking equitable relief against the threatened filing of a

mechanic’s lien by All-Pride and Indiana on the subject

property of the contract. The state court issued a restrain-

ing order against the filing of the lien.

The defendants then removed the action to this Court

and, after the restraining order expired, filed a mechanic’s

lien statement against the plaintiff's property on Septem-

ber 20, 1974. Following Paducah’s second amended com-

plaint and Indiana’s invocation of the arbitration clause,

the parties agreed to arbitrate their disputes, despite Pa-

ducah’s initial objections. The arbitrators entered an

award for the contract claims on December 24, 1975, but

they did not address the mechanic’s lien issue. The

award was confirmed by the United States District Court

for the Southern District of Ohio.

The defendants released the mechanic’s lien on Jan-

uary 26, 1976. Paducah then filed a supplemental com-

plaint in this Court on March 12, 1976, seeking damages

for slander of title arising from the mechanic’s lien. There

followed Indiana’s present motion for summary judgment.

Indiana relies on three arguments to support its mo-

tion: (1) the slander-of-title claim is barred by the stat-

ute of limitations; (2) the filing of the mechanic’s lien was

privileged; and (3) the slander-of-title claim is barred by

the principles of res judicata or waiver. We shall confine

our discussion to the third argument.

Indiana contends that Paducah had an opportunity to

submit its slander-of-title claim to the arbitrators. Hav-

ing failed to do so, it is barred by the principles of res

judicata from now asserting that claim in this Court.

Despite an earlier ambiguity on this point, the parties now

agree that the slander-of-title claim was never submitted

to the arbitrators for decision.

We conclude that the doctrine of res judicata does not

apply to these facts. Generally, the doctrine precludes

relitigating not only those matters which were actually in-

volved in a prior proceeding but also those that might

have been presented. Mayer v. Distel Tool & Machine Co.,

596 F.2d 798 (6th Cir. 1977); Coogan v. Cincinnati Bar

Association, 431 F.2d 1209 (6th Cir. 1970). It has been

held that the doctrine applies to arbitration proceedings.

Bower v. Eastern Airlines, Inc., 214 F.2d 623 (3rd Cir.

1954); Overseas Motors Inc. v. Import Motors Limited, Inc.,

375 F.Supp. 499 (E.D. Mich. 1974), aff’d, 519 F.2d 119 (6th

Cir. 1975), cert. denied, 423 U.S. 987, 96 S.Ct. 395 (1975).

However, an important distinction must be made.

Res judicata bars a party from retrying the same cause

of action, even if he has neglected to present all possible

issues or theories of recovery. Buta party may still litigate

an entirely separate cause of action. Thus, the central

issue is the meaning of a “cause of action.” Three princi-

pal definitions have been cited. F. James, Civil Procedure

553-554 (1965). Under the narrowest definition a cause

of action is a single remedial right. Consequently, a single

injury might give rise to several successive suits based

on different theories of recovery. A broader, more modern

definition is a single breach of a primary duty. Under

this test, one occurrence might give rise to several causes

of action but only for independent breaches of duty, not

merely different theories of recovery. The third defini-

tion is cast in terms of factual unity:

The narrowest version of this view would require that

the same evidence support both actions. A broader

version, however, would not require identity of evi-

dence but would define “cause of action” broadly to

include the group of operative facts pragmatically de-

termined by the court as those which should be treated

asaunit... Id. at 554.

Even under this broad definition, we think that Paducah’s

contract cause of action is distinct from its slander-of-title

claim. Factually, the two claims might be supported by

some common evidence, and certainly the filing of the

mechanic’s lien was a contract-related act. “However, the

mere fact that the two actions relate to the same subject

matter does not necessarily establish that they are on the

same cause of action.” 46 Am. Jur. 2d Judgments §407

(1969). As to the two actions under discussion, there is a

factual relationship but not factual unity. Surely, a plain-

tiff might wish to join both claims in the same suit, but

permissive joinder is not the test. The mechanic’s lien

was not filed until disagreements over the contract arose.

Whatever claim for damages this may have given Paducah

did not depend solely on the underlying contract disputes.

We do not find the requisite factual coherence so as to

apply the rule of res judicata.

We do conclude, however, that Paducah has waived

its right to pursue its slander-of-title action in this court.

As noted earlier, the arbitration clause required that all

claims relating to the contract be submitted to arbitration.

When Indiana invoked that clause, the parties arranged for

arbitration proceedings. In the record there is an undated

“Second Stipulation” Stating that all claims and disputes

had been submitted to the arbitrators:

The parties hereby agree that all issues between

them have been submitted. to arbitration including...

any and all issues, claims, or defenses between the

parties which are encompassed in the pleadings in the

case of Paducah Associates, Ltd., Plaintiff, vs. Indiana

Insurance Company and All-Pride Development Com-

pany, Defendants, pending in the United States Dis-

trict Court for the Western District of Kentucky ...

and the claimed rights of Indiana Insurance Company

under the Mechanic’s Lien claim filed in the Office of

the McCracken County Clerk, Paducah, McCracken

County, Kentucky, dated September 20, 1974.

Paducah had never asserted a slander-of-title claim by that

name in the pleadings prior to arbitration, though it had

sought equitable relief against the filing of the lien. Yet a

summary transcript of the arbitration hearing demon-

strates that slander of title had emerged as a possible issue

for consideration:

Hardy (arbitrator): Submission does not include

any damages arising from the filing of the mechanic’s

lien claim.

Hardy says slander of title question not before

arbitrators, i.e., whether not in good faith and known

not to be in good faith. (Arbitration transcript, p. 48)

Thus, on the one hand the parties had stipulated that all

issues had been submitted to arbitration, but it is un-

disputed that the slander-of-title claim was not presented

by Paducah, even though it was a live dispute. Paragraph

7 of the Award of the Arbitrators bears out this point:

This award does not determine the rights of any party

to damages or to any other remedy, legal or equitable,

which may have arisen or which may exist outside the

arbitration submission and, specifically, this award

does not relate, in any way, to any claim for dam-

ages of any sort which may exist by reason of the

filing of mechanic’s liens by any of the parties to this

arbitration.

Given that state of affairs, we hold that Paducah has

contractually waived its right to bring the present action.

Both parties have cited the case, Lundgren v. Freeman, 307

F.2d 104 (9th Cir. 1962), to support their positions. In

that case, Lundgren, a builder, had contracted with a school

district to build various structures and facilities. Prior

to completion, the school district terminated the contract

upon the advice of architects. Lundgren then sued the

school district for unpaid balances and joined a claim

against the architects for interference with his perform-

ance of the contract and for other damages, including

damage to reputation and credit. His claim against the

school district was submitted to arbitration pursuant to

an arbitration clause similar to the present one. The

eventual] arbitration award was confirmed by the district

court, and later the court ruled that no issue remained

between Lundgren and the school district. On appeal,

Lundgren argued that further issues did remain because

he had sustained special damages such as loss of reputa-

tion and loss of credit standing. The court held that the

arbitration award barred further proceedings: “The

short answer to this contention is that Lundgren never

claimed such damages in his complaint against school

district. The stipulation was to arbitrate ‘the issues be-

tween the parties.’” Lundgren v. Freeman, supra at 115.

Whatever the factual differences between that case and

the instant one, Lundgren can fairly be cited for the prop-

osition that a contractual stipulation to arbitrate al] issues

bars the later presentation of new claims.

Paducah, however, cites Lundgren for another facet

of the case. The court held that Lundgren could maintain

an action against the architects for damages arising from

acts that exceeded their authority as agents for the school

district. But Lundgren’s suit against the architects was

never submitted to arbitration in the first place, Fur-

thermore, the court stated that “insofar as architects acted

as agents or quasi-arbitrators, Lundgren has elected his

remedy and cannot now recover from them any of the

damages passed upon by the arbitrators, whether allowed

or disallowed by them.” Lundgren v. Freeman, supra at

119. Consequently, this holding does little to advance

Paducah’s argument.

CONCLUSION

Broad arbitration agreements manifest a desire to

arbitrate disputes rather than resort to the courts. Georgia

Power Co. v. Cimarron Coal Corp., 526 F.2d 101 (6th Cir,

1975), cert. denied, 425 U.S. 952, 96 S.Ct. 1727 (1976).

Paducah had the opportunity to press its slander-of-title

claim before the arbitrators. In light of its failure to

exercise that right, coupled with the signed stipulation

that all issues had been submitted to arbitration, we hold

that Paducah has waived its right to seek judicial deter

mination of that claim.

Accordingly, the motion of the defendant, Indiana In-

surance Company, for summary judgment is granted. A

separate order is this day entered.

DATED: September 6, 1978.

/s/ Edward H. Johnstone

Edward H. Johnstone

Judge, United States District

Court

Al0

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF KENTUCKY

AT PADUCAH

Civil Action No. 74-89-P

PADUCAH ASSOCIATES, LTD.,

Plaintiff,

INDIANA INSURANCE CO., and ALL-PRIDE

DEVELOPMENT CO.,

Defendants.

ORDER AND JUDGMENT

(Entered September 12, 1978)

The defendant, Indiana Insurance Company, having

moved the Court for summary judgment, and the Court

having entered its memorandum opinion and being other-

wise sufficiently advised,

IT IS HEREBY ORDERED AND ADJUDGED that

the defendant’s motion be, and it is hereby SUSTAINED.

This is a final and appealable judgment and there is

no just cause for delay.

DATED: September 6, 1978.

/s/ Edward H. Johnstone

Edward H. Johnstone

Judge, United States District

Court

All

APPENDIX C

UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION

No. C-1-76-47

PADUCAH ASSOCIATES, LIMITED

Plaintiff,

VS.

INDIANA INSURANCE COMPANY

and

ALL PRIDE DEVELOPMENT CORPORATION,

Defendants.

DISPOSITION OF PENDING MOTIONS

FOR SUMMARY JUDGMENT

(Filed March 14, 1977)

This was once a relatively simple action to confirm

an arbitration award pursuant to 9 U.S.C. § 9. The defen-

dant Indiana Insurance Company then filed a counterclaim

seeking modification of the award of the Arbitrators with

reference to possible subsequent claims by the plaintiff

against the defendant. The plaintiff thereafter amended

its complaint to seek modification of the actual amount

awarded by the arbitrators to the plaintiff. The cause is

now before the Court upon cross-motions for summary

judgment.

* * % 4 * * +

A discussion of the factual and procedural events of

this case is necessary before one may come to grips with

the muddled legal issues.

Al2

In October of 1973 the plaintiff Paducah Associates

(Paducah) contracted with All-Pride Development Cor-

poration (All-Pride) for a motel construction project. The

defendant Indiana Insurance Company (Indiana) executed

a performance bond at approximately the same time. In

May of 1974 All-Pride developed financial difficulties and

requested assistance from Indiana Insurance. Indiana paid

subcontractors and All-Pride payroll employees until Au-

gust of 1974, when it ceased all payments.

On August 19, 1974, the plaintiff filed suit against

All-Pride and Indiana in McCracken Circuit Court, Mc-

Cracken County, Kentucky. That action was removed to

the United States District Court for the Western District of

Kentucky. The defendant Indiana then invoked the man-

datory arbitration clause of the bond contract, and a num-

ber of issues were submitted to the arbitrators. The ar-

bitration panel conducted five days of hearings - September

16-18 and October 22-23 of 1975.

On October 17, 1975, after the September arbitration

hearings, but before the October hearings, subcontractors

holding mechanic’s liens on the Paducah/All-Pride project

filed suits in McCracken Circuit Court to enforce those

liens against Paducah and Indiana Insurance in an action

styled Cole Lumber and Supply Co., Inc. v. McBride, Civil

No. 14,876. The lienholders sought to enforce their claims

against property held by Paducah and against the bond

given by Indiana to Paducah.' There is still a dispute be-

tween Paducah and Indiana as to whether the arbitration

panel considered the liens of all the subcontractors in

making its award, an issue discussed infu.

1. In Kentucky a subcontractor may, in certain circum-

stances, directly sue a surety on a bond to which it is not a party,

but to which it is a third-party beneficiary.

Al3

On December 24, 1975, the arbitration panel issued

an award of damages in favor of Paducah and against

Indiana in the amount of $159,842.12. plus interest of ap-

proximately $12,000. The amount due by the surety In-

diana to Paducah was computed by deducting credits paid

by the surety to All-Pride’s subcontractors during May-

August, 1974 ($165,000) from the total amount of the bond,

i.e. $325,000. While the focal issue in the arbitration was

whether or not the surety’s liability was limited to the

original amount of the bond, the plaintiff iow apparently

challenges not only the determination that Indiana’s li-

ability was limited to $325,000, but also the allowance of

the credits for the funds advanced to All-Pride’s subcon-

tractors in May-August of 1974.

On January 26, 1976, Indiana, rather than paying the

amount of the award directly to Paducah, interpled $173,-

795 into the Cole Lumber and Supply action in McCracken

Circuit Court. In interpleading that amount the defendant

Indiana claimed the sum represented the total liability

which it had on the bond as determined by the arbitration

panel, a position which it continues to assert in this action.

This action was filed by the plaintiff on February 38,

1976, asking for confirmation of the arbitration award and

the entry of a judgment on the award amount declared

due to it by Indiana in the arbitration award. The pri-

mary purpose of such a motion for confirmation and judg-

ment would be to establish whether the defendant In-

diana had discharged its liability as set forth in an ar-

bitration award by interpleading the amount of the award

rather than tendering it directly to Paducah.

The defendant Indiana answered the complaint in this

action on February 25, 1976 by stating, inter alia, that

it had interpleaded the amount into the McCracken County

Al4

Court in the Cole Lumber suit. The defendant also

counter-claimed, asking for a modification of the arbitra-

tion award to reflect the consideration and disposition of

any possible slander of title action by the plaintiff Paducah

against it.

On June 7, 1976, the plaintiff and defendant, together

with most, if not all, of the individual subcontractor-lien-

holders in the McCracken County suit, entered into a stip-

ulation which permitted the interpleaded funds to be drawn

down by Paducah Associates. The drawn-down funds

were thereafter to be paid at a rate of 75 cents on each

dollar of claimed debt to the individual subcontractor-

lienholders, who would then release their liens upon the

real property of Paducah. The stipulation provided in

relevant part:

1. Defendant, Indiana .. . has filed a counter-

claim and cross-claim interpleader ... and on J anuary

26, 1976 deposited . . . the sum of $173,755.00 alleg-

ing that this fund represents the full extent of its lia-

bility and a contract bond which it executed on behalf

of All-Pride Development Corporation as determined

by an award in arbitration between Paducah .. . and

Indiana ...and All-Pride....

2. That Thomas Vernier, Receiver for the de-

fendant, Paducah . . . has moved to be substituted as

party-defendant for Paducah . . . in this cause and

claims the entire amount of the deposit in .. . the

Court as the property of the defendant Paducah .. .

as the award in arbitration.

10. That, except as stipulated . . . all the parties

hereto reserve their claims, rights, causes of action

and defenses as asserted in the pleadings in this cause.

Al5

11. That the plaintiffs and defendants . . . stip-

ulate with the defendant Thomas Vernier, that upon

final determination of their claims against Indiana...

under the . . . bond, from any amount assessed in

their favor against Indiana .. . the unpaid principal

balance of their respective claims shall first be paid

to them and the remainder of such award shall be

paid to the defendant Thomas Vernier as Receiver

of Paducah...

Based on that Stipulation, the McCracken County

Court issued an order approving the draw-down by Vernier

as Receiver for Paducah,? and the distribution of those

funds to the named creditors. The Order does not ad-

judge the limits of Indiana’s liability, and specifically re-

serves the claims and defenses asserted to all parties, not-

withstanding the draw-down and distribution. Indiana is

specifically held to have no objection to distribution prior to

the determination of liability, since it was liable for at least

the amount interpled to the claimants, { 9, Cole Lumber &

Supply Co., Inc. v. McBride, Order of June 7, 1976, Civil

Action No. 14,876 (McCracken, Kentucky, Circuit Court.

Division No. I).

There appears to be no dispute that the interpled fund

was drawn down by Paducah’s receiver and paid out to

the creditors, who thereafter released their liens against

Paducah’s real property.

On July 7, 1976, five months after the date of the

original complaint and six and one-half months after the

arbitration award was issued, the plaintiff moved for

leave to amend its complaint to include a petition for

2. The Court notes that Paducah was, and still is, in receiver-

ship, yet the receiver is not a party to this action. Since the

defendant has not sought to raise the issue, the Court need not

decide whether the proper party in interest is before it.

Al6

modification, correction or vacation of the arbitration

award. An order granting leave was issued on September

29, 1976.

This Court is now asked to consider and act upon three

issues. First, should the arbitration award be modified as

to the damages which were awarded to Paducah. Second,

should the award be modified to reflect the disposition

of certain claims for disparagement of title apparently

raised by the plaintiff against the defendant in another

court and action other than the present one. Third, was

the impleader of the award amount by the defendant In-

diana proper satisfaction of the arbitration award to the

plaintiff.

I. The Arbitration Award: Damages

The plaintiff has asked this Court to amend - or vacate

- that part of the arbitration award which credited Indiana

with the amounts which it had paid to subcontractors of

All-Pride from May to August of 1974. The plaintiff

also apparently challenges the arbitration panel’s limitation

of Indiana’s liability to the amount of the bond, contending

that under applicable law, if the defendant surety had

undertaken the performance of the contract, its liability

was not limited to the amount of the bond.

The power of this Court to modify or vacate the arbitra-

tion award in question is governed by 9 U.S.C. §§ 10 and 11.

Modification or correction of an award under § 11 is

limited to three circumstances, only one of which is rele-

vant to the plaintiff's claim. Under § 1l(a) an evident

material miscalculation may be corrected by the Court,

as may an evident material mistake in the description of

any person, thing, or property. In the present case the

plaintiff's challenge to the amount awarded by the arbitra-

tion pane! is not based upon any miscalculation, evident

Al7

or otherwise. except to the extent that the plaintiff alleges

that the computations were not consistent with either the

law or the panel’s own findings. Put another way, given

the premise the various credits could be allowed and the

various interest penalties assessed in the manner set forth

by the panel, the calculations are at least mathematically

correct. To that extent, there is no basis for modification

or correction under § 11, at least so far as the plaintiff's

claims are concerned.

Title 9 U.S.C. § 10 provides for the vacation of an

arbitration award in a number of circumstances, one of

which is applicable to the plaintiff’s claims. Section 10(d)

provides that where arbitrators exceed their powers, or

so imperfectly execute them that a material, final and

definite award upon the subject matter submitted was

not made, the Court may vacate it. In the particular con-

text of arbitrations which are challenged because the

arbitrators erred as to findings of fact or law, the general

rule is that mere errors on the part of an arbitrator will

not support the Court’s vacation of an award, Wilko v.

Swan, 346 U.S. 427, 436-437 (1953); Sobel v. Hertz, Warner

& Co., 469 F.2d 1211, 1214 (2nd Cir., 1972). Put another

way, only manifest disregard for the law or a lack of funda-

mental rationality will be grounds for vacating an award,

Swift Industries, Inc. v. Botany Industries, Inc., 466 F.2d

1125, 1131 (8rd Cir. 1972) (fundamental rationality); Bell

Aerospace Co., Division of Textron, Inc. v. Local 516, Int.

Union, United Auto, Aerospace & Agri. Implement Workers,

356 F.Supp. 354, 356 (S.D. N.Y., 1973), aff'd in part, rev’d

in part 500 F.2d 921 (2nd Cir. 1974).

Both parties have submitted to this Court extensive

exhibits concerning the facts and law submitted to the

arbitration panel and provided more than ample comment

upon the allegations of (in)consistency of the award and

the law; the knowledge of the arbitrators; and the legal

Al’

principles applicable to the parties and the bond contract

in this action. The Court must, however, make the award

itself as the focal point of any consideration of a motion

to vacate.

The award states that, pursuant to the contractor’s

(All-Pride’s) request, the surety (Indiana) extended fi-

nancial assistance to the contractor, which was in default

({ 4), but that the agreement did not constitute an election

by Indiana to perform the remainder of the contract ({ 8)

and that there was no intention by the surety or the con-

tractor that the surety waive the maximum obligation of

its bond ($325,000). The award also states that the surety

is entitled to no damages against the owner (Paducah),

either by way of set off, assignment or subrogation ({ 13).

Those findings by the arbitration panel are, after ex-

amining the applicable law as cited both to the arbitrators

and the Court, not only fundamentally rational, but also

appear to be correct as a matter of law. At any rate, the

Court finds no manifest disregard for the law in that part

of the award, and it will not be vacated or modified. The

total liability of Indiana is $325,000.

The crux of the plaintiff's claim is that, assuming the

surety did not undertake to perform the contract, thereby

limiting its liability to the bond of $325,000, Indiana’s lia-

bility cannot be reduced by the $165,157.88 paid out on

behalf of All-Pride in the face of the finding in Award § 13,

i.e., that the surety is entitled to no damages against the

owner by way of set-off, assignment or subrogation.

First, it is not clear to the Court from these pleadings

whether, as a matter of law, the amounts paid by a surety

to a contractor to keep such a contractor “afloat” before

undertaking performance of the contract can legitimately

be credited against ultimate liability on the amount of

Al19

the bond. It is not clear, therefore, whether the arbitration

panel ruled correctly as a matter of law. That point is not,

as previously noted, controlling in the consideration of a

motion to vacate or modify.

Secondly, and more to the point, it is not clear that

the arbitration panel knew the law and proceeded to dis-

regard it. The plaintiff’s position is that the parties both

agreed that the panel could go one of two ways. The panel

could find that the surety had undertaken performance,

waiving the limits of the bond. In such a situation, the

surety could naturally claim the payments it made on

behalf of All-Pride, but would be liable for a much larger

total amount. The plaintiff contends that the only other

option available to the panel was to find that the plaintiff

has not undertaken to perform the contract, had not waived

the amount of the bond as the limit of its liability, and

consequently was liable for the amount of the bond, $325,-

000. So far, all the parties are in agreement.

The plaintiff next argues that if the defendant surety

did not elect to perform, it must pay the entire amount

of the bond, regardless of any amounts already advanced to

the contractor All-Pride. Put another way, the plaintiff

contends that the arbitration panel could not deduct the

$165,000 advanced by Indiana to the subcontractors “for

the benefit of the owner” in 1974; that both parties agreed

that it was the law that such credits could not be de-

ducted; and that the panel knew that such credits could

not be deducted. The plaintiff cites to § 13 of the award,

which declares that the surety had no right of damages

against the owner (Paducah), “either directly or by way

of set-off, assignment or subrogation,” as evidence that the

panel knew it had only one of two choices in computing

the award. The plaintiff concludes that the award of the

$165,000 credit is in manifest disregard of the law as the

A20

arbitration panel knew it. See Post-Hearing Memorandum

Brief of Paducah Associates, Ltd. at p. 16 (Exhibits at-

tached to Second Affidavit of Alan H. Lobley, Docket No.

25).

Were the plaintiff correct in its assertion that both

parties agreed both to the law as it applied to the credits

claimed by Indiana and that the arbitration panel knew that

it could compute damages in relation to those credits in

only one of two ways, this Court might then be required to

examine the “fundamental rationality” of the award and

determine whether the arbitration panel manifestly dis-

regarded the law.

An examination of the submissions to the arbitration

panel reveals, however, that Indiana had consistently

argued for a third method of computing its remaining lia-

bility to Paducah. The pre-hearing brief of Indiana In-

surance Company (Exhibit 2 attached to Second Affidavit

of Alan H. Lobley, Docket No. 25), at page 2, claims from

the very outset that it was released from liability to the

owner to the extent of the $160,000 it had already paid

under the bond. Indiana also argues, at page 8 of that

same brief, that such payments were made pursuant to the

contractual provisions of the bond. It is clear beyond

question that the surety was contending at arbitration (1)

that its total liability was limited to $325,000, the amount

of the bond, and (2) that its liability to Paducah was to be

reduced by the amount already advanced under the bond

provisions.

Whether Indiana was correct as a matter of law is a

question which this Court need not consider. It is suf-

ficient for purposes of review under 9 U.S.C. § 10 that

the arbitration panel was faced with three different legal

theories of recovery and chose one. Whether correct or

not, there was no “manifest disregard for the law.” The

A21

Court further specifically finds that the award manifests

a fundamental rationality. Without attempting to decipher

the law of suretyship, it appears to this Court that pay-

ments made by the surety on behalf of the owner may be

deducted from the amount of a bond in determining the net

amount owing by the surety to the assured.

The plaintiff's arguments with respect to the alleged

inconsistency between { 13 of the findings and the award

are not persuasive. The disallowance of damages for

Indiana as against the owner Paducah is consistent with

the crediting of payments made by the surety on behalf of

Paducah. Indiana had advanced at arbitration items of

damages against Paducah separate and distinct from the

claim that it had already advanced amounts under the

bond to subcontractors. Those claims for damages related,

at least in part, to the alleged breaches of contract by

the owner Paducah discussed and ruled on in favor of

Paducah in paragraphs 5 and 6 of the Award findings,

The findings and award of the arbitration panel will

not be disturbed as to the credits of funds previously ad-

vanced by Indiana for the benefit of Paducah in computing

the net liability of Indiana to Paducah.

II. Defendant’s Counterclaim for Modification

or Correction of the Award

The plaintiff has moved for Summary judgment as to

the defendant’s motion to modify the wording of the award.

The plaintiff’s counterclaim recites that Paducah was re-

quired under the terms of the bond to submit all of its

claims to arbitration; that Paducah submitted a claim to

the arbitration panel; that it did not rely upon or assert

any claim for slander of title to the arbitrators and that

the arbitration award is “in error” to the extent that it

does not reflect the submitted ;stipulation of the parties

A22

that all claims and other questions between the parties

arising out of the contract or the breach thereof were to

be submitted to that arbitration.

The defendant seeks to incorporate additional language

into the order reflecting the arbitration panel’s disposition

of only certain issues - as opposed to all claims arising in

this dispute - because Paducah did not assert such claims.

The plaintiff’s motion for summary judgment is based

in part upon the assertion that not only did the parties not

submit the issue of slander of title to the arbitration panel,

but that the defendant apparently admitted that the slander

of title issue had been specifically excluded by the arbi-

trators at the hearings. The plaintiff also proffered the

exhibits attached to the plaintiff's amended complaint

herein as evidence that the slander of title issue had not

been submitted by either party.

The defendant has replied that it expressly denied

the plaintiff's request for an admission that the arbitration

panel had ruled the slander of title issue to be outside

of the submissions of either party, and concluded that there

are no facts before the Court upon which to predicate a

summary judgment.

The state of the pleadings on this issue are particularly

muddled. The Court will attempt to unravel, without

breaking, the threads of issues, arguments and exhibits.

FIRST, it is axiomatic under Rule 56 that there must

be no issues of material fact and the moving party must

be entitled to judgment as a matter of law.

SECOND, the party opposing the motion may not rest

upon its pleadings as to fact issues, and must come for-

ward with affidavits or other appropriate submissions if it

wishes to demonstrate that issues of fact remain, Rule

A23

96(e), F.R.Civ.P., Williams v. B. & O. R. Co., 303 F.2d 323,

324 (6th Cir., 1962): see generally 10 Wright & Miller

Federal Practice and Procedure $ 2739.

One of the alleged “fact issues” relevant to this motion

is the alleged admission by the defendant of “Plaintiff's

First Request for Admissions herein, Item +2, Second

Summary, pages 37 and 48.” Neither the request nor the

admission (or denial) are before this Court.’ The Court

cannot, therefore, consider the allegations that the defen-

dant either admitted or denied, in a request for admiss-

sions, the fact that the panel had specifically excluded

the slander of title issue from consideration. That de-

termination is without prejudice to the relevancy - if any -

of the fact that the arbitration panel did or did not so

state that it was not deciding the slander of title issue at

the hearing.

What is before the Court is verified evidence of the

submissions by the parties to the arbitrators: the undated

second stipulation of the parties to the arbitrators (Ex-

hibit 11 to the second affidavit of Alan H. Lobley, Docket

No. 25); the previously-stated undisputed chronology of the

mechanic's lienholder suits, which were filed after the first

arbitration hearing had been completed; and the state-

ment of the arbitration award specifically excluding the

slander of title issue from its consideration (€ 7). The

Court concludes that, on the present record, there is no

evidence that the slander of title issue was presented to

the arbitration panel, or that they considered it. The

record demonstrates that just the opposite occurred. Given

that undisputed state of facts, the defendant cannot suc-

3. On the off chance that either or both of these items are

buried within the mass of documents provided by the parties,

it may be noted that no identification or Citation to an exhibit

has been provided to the Court.

A24

cessful.y maintain that the arbitration award §| 7 is mani-

festly in disregard of the law or that it lacks fundamental

rationality.

It appears, furthermore, that there is no evidence at

this time as to where, when or even if the slander of title

issue has ever been raised. It certainly is not clear from

these pleadings that any slander of title action had ever

commenced in any Court, let alone by the time issues were

to have been submitted to the arbitration panel. If such

an action did exist before the arbitration commenced, this

Court could not, on this record, lay the blame, if any, ex-

clusively at the feet of Paducah. Claims by subcon-

tractors other than those submitted by either Paducah or

Indiana to the arbitration panel apparently escaped de-

tection prior to the filing of the Cole Lumber suit in Mc-

Cracken County on October 17, 1975.

To conclude, there is no evidence of a “manifest dis-

regard of law” or of any lack of fundamental rationality in

the arbitration award’s treatment of possible claims for

damages arising from mechanic’s lien as set forth in § 7

of the award, and no modification (under § 11) or vaca-

tion (under § 10) may be awarded as to the counterclaim

of the defendant Indiana. Summary judgment will be

granted to the plaintiff as to the defendant’s counterclaim,

and the counterclaim will be dismissed.

III, Discharge of Arbitration Award

This Court is in a peculiar position in relation to the

request of Paducah to confirm the arbitration award and

to enter a judgment thereon. The Court has no problem

with a confirmation consistent with the preceding parts of

this opinion, nor any reluctance in entering a judgment

thereon. The crux of the problem is determining whether

the drawing-down of the interpleaded funds in the Cole

2 a

A25

Lumber case constitutes a discharge of - or at least a credit

towards - the amount due.

A review of the current status of the impleaded funds

reveals the following facts:

1. Indiana has interpleaded the amount of the award

plus the interest due up to and including the date of

interpleader.

2. Indiana claims that the amount interpleaded into

Court is the entire amount owing under the bond as

fixed by the arbitration.

3. Paducah claims the entire amount of the interpled

funds is owing to it under the arbitration award.

4. Paducah, Indiana and the lien creditors have stip-

ulated to the distribution of the interpled funds with-

out prejudice to the rights of the parties to finally ad-

judicate claims in the suit (except that the lien cred-

itors were to release their liens upon Paducah real

property ).

0. Paducah has, rursuant to Court order based on the

stipulation, drawn down the interpled funds and dis-

tributed them to the lien creditors.

6. The McCracken County Court has not determined

whether Indiana is liable to the subcontractors as

third-party beneficiaries to the bond beyond and aside

from any arbitration determination as between Pa-

ducah and Indiana.

7. The McCracken Court has not determined whether

the entire amount of the interpled funds is due to

Paducah.

One other important fact enters into this determina-

iton: The asserted third-party beneficiaries of the bond,

A26

i.e., the Kentucky subcontractors of All-Pride, were not

parties to the arbitration now being considered by this

Court. Given this set of facts, it cannot be said whether

or not Indiana has discharged its obligation under the arbi-

tration award.

Should the McCracken Circuit Court find that Indiana

has obligations under the bond to any or all of the sub-

contractors, then, to the extent those awards were paid

out by Paducah from the drawn-down funds in the registry

of the Court, the drawn-down funds would not have satis-

fied the amounts which the arbitration panel awarded as

between Paducah and Indiana. The Court here notes and

emphasizes that its confirmation of the arbitration award

operates only to fix the amounts due as between those two

parties, and does not in any way adjudicate claims raised

by creditor subcontractors under Kentucky law and in a

Kentucky court.

On the other hand, should the McCracken Circuit Court

find that none of the creditor subcontractors have valid

claims against Indiana and that the drawn-down funds

were properly paid to Paducah in satisfaction of the claim

raised in that Court by Paducah that it was due the funds

in satisfaction of the arbitration award, this Court would

find the award satisfied. There are, of course, other pos-

sible resolutions of the dispute over the interpled funds

which this Court can neither anticipate nor could it speak

to at this time. Suffice it to say that the determination

of the discharge of the judgment and any order of execution

by this Court must await the determination of the claims

and rights of the parties in the Cole Lumber action.

The defendant Indiana has argued in its reply memo

that under Kentucky law none of the subcontractors may

sue as third-party beneficiaries to the particular type of

bond at issue. That is not a question which is properly

A27

before this Court. The Kentucky Court must properly

answer that question, and this Court would be most pre-

sumptive to hazard any opinion upon that point of law.

CONCLUSION

The award in the arbitration between Paducah and

Indiana is confirmed pursuant to 9 U.S.C. § 9.

The defendant’s motion for summary judgment as to

the plaintiff's claims for amendment of the amount of the

award is granted, and the plaintiff’s cross-motion for sum-

mary judgment on that same issue is denied.

The plaintiff's motion for summary judgment as to

the defendant’s counterclaim seeking to amend § 7 of the

award is granted, and the defendant’s counterclaim is dis-

missed.

The parties may submit a judgment consistent with

this memo. Execution upon any judgment will be stayed,

however, pending the resolution of claims in Cole Lumber

& Supply Co., Inc. v. McBride, Civil Action No. 14,876, Mc-

Cracken Circuit Court, Kentucky.

/s/ Timothy Morgan

United States District Judge

A28

APPENDIX D

79-3157

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

PADUCAH ASSOCIATES, LTD.,

Plaintiff-Appellant,

INDIANA INSURANCE COMPANY and ALL PRIDE

DEVELOPMENT CORPORATION,

Defendants-Appellees.

ORDER

(Filed December 15, 1980)

Before: LIVELY and ENGEL, Circuit Judges and PECK,

Senior Circuit Judge

Appellant having filed a petition for rehearing with

this court, and this court having considered said petition

and being duly advised in the premises,

IT IS ORDERED that the petition for rehearing be and

it is hereby denied.

ENTERED BY ORDER OF THE COURT

/s/ John P. Hehman

Clerk

A29

APPENDIX E

STATUTORY PROVISIONS AND RULE OF CIVIL

PROCEDURE INVOLVED

9 U.S.C.

§ 3. Stay of Proceedings where issue therein referable

to arbitration

If any suit or proceeding be brought in any of the

courts of the United States upon any issue referable to

arbitration under an agreement in writing for such

arbitration, the court in which such suit is pending,

upon being satisfied that the issue involved in such

suit or proceeding is referable to arbitration under

such an agreement, shall on application of one of the

parties stay the trial of the action until such arbitration

has been had in accordance with the terms of the

agreement, providing the applicant for the stay is not

in default in proceeding with such arbitration.

$ 9. Award of arbitrators; confirmation; jurisdiction:

procedure

If the parties in their agreement have agreed that

a judgment of the court shall be entered upon the

award made pursuant to the arbitration, and shall spec-

ify the court, then at any time within one year after

the award is made any party to the arbitration may

apply to the court so specified for an order confirming

the award, and thereupon the court must grant such

an order unless the award is vacated, modified, or

corrected as prescribed in sections 10 and 11 of this

title. If no court is specified in the agreement of the

parties, then such application may be made to the

United States court in and for the district within

A30

which such award was made. Notice of the applica-

tion shall be served upon the adverse party, and there-

upon the court shall have jurisdiction of such party as

though he had appeared generally in the proceeding.

If the adverse party is a resident of the district with-

in which the award was made, such service shall be

made upon the adverse party or his attorney as pre-

scribed by law for service of notice of motion in an

action in the same court. If the adverse party shall

be a nonresident, then the notice of the application

shall be served by the marshal of any district within

which the adverse party may be found in like manner

as other process of the court.

§ 10. Same; vacation; grounds; rehearing

In either of the following cases the United States

court in and for the district wherein the award was

made may make an order vacating the award upon

the application of any party to the arbitration—

(a) Where the award was procured by corrup-

tion, fraud, or undue means.

(b) Where there was evident partiality or cor-

ruption in the arbitrators, or either of them.

duct in refusing to postpone the hearing, upon suf-

ficient cause shown, or in refusing to hear evidence

pertinent and material to the controversy; or of any

other misbehavior by which the rights of any party

have been prejudiced.

(d) Where the arbitrators exceeded their powers,

or so imperfectly executed them that a mutual, final,

and definite award upon the subject matter submitted

was not made.

Bk at

A31

(e) Where an award is vacated and the time with-

in which the agreement required the award to be made

has not expired the court may, in its discretion, direct

a rehearing by the arbitrators.

§ 11. Same; modification or correction; grounds; order

In either of the following cases the United States

court in and for the district wherein the award was

made may make an order modifying or correcting the

award upon the application of any party to the arbitra-

tion—

(a) Where there was an evident material mis-

calculation of figures or an evident material mistake

in the description of any person, thing, or property

referred to in the award.

(b) Where the arbitrators have awarded upon a

matter not submitted to them, unless it is a matter not

affecting the merits of the decision upon the matter

submitted.

form not affecting the merits of the controversy.

The order may modify and correct the award, so

as to effect the intent thereof and promote justice be-

tween the parties.

Federal Rules of Civil Procedure

Rule 56. Summary Judgment

(a) For Claimant. A party seeking to recover

upon a claim, counterclaim, or cross-claim or to ob-

tain a declaratory judgment may, at any time after

the expiration of 20 days from the commencement of

the action or after service of a motion for summary

judgment by the adverse party, move with or without

A32

supporting affidavits for a summary judgment in his

favor upon all or any part thereof.

(b) For Defending Party. A party against whom

a claim, counterclaim, or cross-claim is asserted or a

declaratory judgment is sought may, at any time, move

with or without supporting affidavits for a summary

judgment in his favor as to all or any part thereof.

tion shall be served at least 10 days before the time

fixed for the hearing. The adverse party prior to

the day of hearing may serve opposing affidavits.

The judgment sought shall be rendered forthwith if

the pleadings, depositions, answers to interrogatories,

and admissions on file, together with the affidavits, if

any, show that there is no genuine issue as to any ma-

terial fact and that the moving party is entitled to a

judgment as a matter of law. A summary judgment,

interlocutory in character, may be rendered on the

issue of liability alone although there is a genuine

issue as to the amount of damages.

(d) Case Not Fully Adjudicated on Motion. If

on motion under this rule judgment is not rendered

upon the whole case or for all the relief asked and a

trial is necessary, the court at the hearing of the motion,

by examining the pleadings and the evidence before

it and by interrogating counsel, shall if practicable as-

certain what material facts exist without substantial

controversy and what material facts are actually and

in good faith controverted. It shall thereupon make

an order specifying the facts that appear without sub-

stantial controversy, including the extent to which the

amount of damages or other relief is not in controversy,

and directing such further proceedings in the action

A33

as are just. Upon the trial of the action the facts so

specified shall be deemed established, and the trial

shall be conducted accordingly.

(e) Form of Affidavits; Further Testimony; De-

fense Required. Supporting and opposing affidavits

shall be made on personal knowledge, shall set forth

such facts as would be admissible in evidence, and shall

show affirmatively that the affiant is competent to tes-

tify to the matters stated therein. Sworn or certified

copies of all papers or parts thereof referred to in an

affidavit shall be attached thereto or served therewith.

The court may permit affidavits to be supplemented or

opposed by depositions, answers to interrogatories, or

further affidavits. When a motion for summary judg-

ment is made and supported as provided in this rule, an

adverse party may not rest upon the mere allega-

tions or denials of his pleading, but his response, by

affidavits or as otherwise provided in this rule, must

set forth specific facts showing that there is a genuine

issue for trial. If he does not so respond, summary

judgment, if appropriate, shall be entered against him.

(f) When Affidavits are Unavaiiable. Should it

appear from the affidavits of a party opposing the

motion that he cannot for reasons stated present by

affidavits facts essential to justify his opposition, the

court may refuse the application for judgment or may

order a continuance to permit affidavits to be ob-

tained or depositions to be taken or discovery to be

had or may make such other order as is just.

(g) Affidavits Made in Bad Faith. Should it ap-

pear to the satisfaction of the court at any time that

any of the affidavits presented pursuant to this rule

are presented in bad faith or solely for the purpose of

—

A34

delay, the court shall forthwith order the party em-

ploying them to pay to the other party the amount of

the reasonable expenses which the filing of the affi-

davits caused him to incur, including reasonable at-

torney’s fees, and any offending party or attorney may

be adjudged guilty of contempt.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.