# Appendix — Distajo v. Doctor's Associates, Inc.

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_1511%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1996
- **Citation:** 517 U.S. 1120

## Text

TABLE OF CONTENTS FOR APPENDIX

Second Circuit Opinion, Order and
Judgment of September 12, 1995

September 28, 1995 Amendment to
the Second Circuit Opinion

Second Circuit’s Order of
November 1, 1995 denying the
Petition for Rehearing in
one of the appeais .....

Second Circuit’s November 14,
1995 order denying the
Petition for Rehearing in
the remaining appeal .......

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UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

Nos. 1724, 1725, 1726, 1988—August Term, 1994
(Argued: June 7, 1995 Decided: September 12, 1995)
Docket Nos. 94-9207, 94-9293, 94-9209, 95-7183

DOCTOR’S ASSOCIATES, INC.,
Plaintiff-Appellee,

om am

EMILY DISTAJO, RENATO DISTAJO, CONSTANTINO
LAMANDO, MILO LAMANDO, JOSE ALBERTO BRENES,
ALVARO GUERRERO, MARIA T. GUERRERO, WESAM
S. YOUMARAN, LINDA YOUMARAN, JULIE SHINO,
JOHNSON SHINO, ALBERT YONAN, LEYLAH YONAN,
LOUIS LOENNEKE, MARY ANN BOOKOUT, MICHAEL
JOHNSON, DEBORAH A. KANE, GREGORY F. KANE,
BRUNO GIANINNI, RONALD ROTHMUND, PATRICIA
ROTHMUND, JOHN S. PAPALEO, JOHN A. MCCRARY,
JOHN GILLON, SONYA SMITH, PAUL RIISE, MELISSA
RIISE, and RHONDA BENTON,

Defendants-Appellants.

—and—

7123 2a

DOCTOR'S ASSOCIATES, INC.,
Plaintiff-Appellee,

— ee

RAYMOND BICKEL and SANDRA BICKEL,
Defendants-Appellants.

Before:

MINER, LEVAL and CABRANES,
Circuit Judges.

Appeal from several orders of the United States Dis-
trict Court for the District of Connecticut (Peter C.
Dorsey, Chief Judge), denying certain appellants’
motions to dismiss, granting appellee’s petitions to com-
pel arbitration, and entering a preliminary injunction
barring appellants from pursuing parallel state litigation.
Appellants contend that (1) the district court lacked sub-
ject matter jurisdiction; (2) the district court should have
accorded preclusive effect to judgments entered in state
courts against DAI; (3) the arbitration clause is void for
“lack of mutuality”; (4) DAI waived its right to compel
arbitration by initiating litigation through a shell cor-
poration; and (5) the district court should have decided
whether the appellants were fraudulently induced to
enter the arbitration agreement, rather than leaving that
question for the arbitrators.

Reversed in part and affirmed in part.

7124 3a

DAVID M. DUREE, Reinert, Duree & Crane,
St. Louis, Missouri, for Defendants-
Appellants Emily Distajo, Renato Dis-
tajo, Constantino Lamando, Milo
Lamando, Jose Brenes, Alvaro Guerrero,
Maria Guerrero, Wesam Youmaran,
Linda Youmaran, Julie Shino, Johnson
Shino, Albert Yonan, Leylah Yonan,
Louis Loenneke, Mary Ann Bookout,
Michael Johnson, Deborah A. Kane,
Gregory F. Kane, Bruno Gianinni,
Ronald Rothmund, Patricia Rothmund,
John S. Papaleo, Raymond Bickel and
Sandra Bickel.

Edward E. Angwin, Birmingham, Alabama,
for Defendants-Appellants John A.
McCrary, John Gillon, Sonya Smith,
Paul Riise, Melissa Riise, and Rhonda
Benton.

Nicholas Wocl, Tooher, Puzzuoli & Wocl,
Stamford, Connecticut, for all Defen-
dants-Appellants.

EDWARD WOOD DUNHAM, Wiggin & Dana,
New Haven, Connecticut, for Plaintiff-
Appellee.

JOSE A. CABRANES, Circuit Judge:

This case is about forum-shopping, by one and all.
Doctor’s Associates, Inc. (“DAI”) is the national fran-
chisor of Subway sandwich shops. DAI and its fran-
chisees entered into standard franchise agreements,

7125 4a

which required them to arbitrate all contractual disputes
in Bridgeport, Connecticut, under Connecticut law.
When problems did arise, however, neither side invoked
the arbitration clause. First, DAI directed its wholly
owned real-estate leasing companies to bring summary
eviction proceedings against the franchisees in local
State courts.! The franchisees, in turn, scrambled to
obtain judgments against DAI in local state courts.

When DAI found itself faced with state court claims
around the country, it sought shelter in the arbitration
clause of its franchise agreements. Accordingly, it peti-
tioned the federal district court in Connecticut to com-
pel arbitration under the Federal Arbitration Act. Before
the district court could act, some of the franchisees won
state court judgments against DAI. But DAI eventually
convinced the district court to enjoin the franchisees
from pursuing their state actions—even from enforcing
judgments already entered—and to send the parties to
Bridgeport to resolve their disputes around the arbitral
table.

' DAI and other franchisees have been involved in similar litigation
around the country. See, e.g., Kroll v. Doctor's Assocs., Inc., 3 F.3d 1167
(7th Cir. 1993); Mosca v. Doctors Assocs., Inc., 852 F. Supp. 152
(E.D.N.Y. 1993); Wilson v. Subway Sandwiches Shops, Inc., 823 F. Supp.
194 (S.D.N.Y. 1993); In re Sims, 1991 U.S. Dist. LEXIS 13664 (E.D. La.
1991); Yates v. Doctor's Assocs., Inc., 193 Ill. App. 3d 431, 549 N.E.2d
1010 (Sth Dist. 1990); Cox v. Doctor’s Assocs., Inc., 245 Ill. App. 3d
186, 613 N.E.2d 1306 (Sth Dist.), appeal denied, 152 Ill.2d 556 (1993),
cert. denied, 114 S. Ct. 1069 (1994); Casarotto v. Lombardi, 268 Mont.
369, 886 P.2d 931 (1994), vacated and remanded, 115 S. Ct. 2552
(1995).

The relationship between DAI and the Bickels’ landlord has also been
the subject of litigation. Jannotta v. Subway Sandwich Shops, Inc., 1995
U.S. Dist. LEXIS 7586 (N.D. Ill. 1995).

7126 5a

On appeal, we are presented with several questions
relating to the Federal Arbitration Act: (1) whether a dis-
trict court has subject matter jurisdiction over a petition
to compel arbitration where there is complete diversity
among all the parties to the arbitration agreement (all of
whom are joined as parties in the petition), but where
other, nondiverse parties have been joined as defendants
in a parallel state action involving the same underlying
dispute; (2) whether the district court should have
accorded preclusive effect to various state court judg-
ments entered in Alabama, Illinois, and North Carolina
courts; (3) whether an arbitration clause is void for “lack
of mutuality” under Connecticut law if it requires only
one party to submit disputes to arbitration; (4) whether
a party to an arbitration agreement waives its right to
compel arbitration when it litigates substantial issues
through an alter ego; and (5) whether a district court or
an arbitrator should decide whether a party was fraudu-
lently induced to assent to an arbitration agreement.

The district court found complete diversity, refused to
accord preclusive effect to the state court judgments,
found that the arbitration clause did not lack mutuality,
held that DAI had not waived its right to arbitrate
regardless of whether its leasing affiliates, which
brought the court proceedings, were its alter egos, and
left the question of fraudulent inducement to the arbi-
trators. As discussed below, we affirm in part and
reverse in part.

I. FACTS

Doctor’s Associates, Inc. (“DAI”), a Florida corpo-
ration, 1s the national franchisor of “Subway” sandwich
shops. DAI entered into identical franchise agreements

7127 6a

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with each of the defendant franchisees (the “Fran-
chisees”).2 Each agreement contains an identical arbi-
tration clause, which provides that any claim arising out
of or relating to the franchise agreement must be arb:-
trated in Bridgeport, Connecticut, under the Commercial
Arbitration Rules of the American Arbitration Associa-
tion. According to the arbitration clause, no party may
take legal action against the other in connection with the
franchise agreement without first attempting to arbitrate
the dispute.?

: For convenience, we shall refer to the franchisees individually

according to the following case numbers, or collectively according to the
state in which they brought suit, e.g., the “Alabama franchisees.” We list
the district court docket number, as well as the state of each group of
franchisees whose cases were consolidated under the heading of Doctor's
Associates, Inc. v. Distajo:

Case #1: 3:94-CV-349 Doctor's Associates, Inc. v. Distajo (IL)
Case #2: 3:94-CV-511 Doctor's Associates, Inc. v. Brenes (IL)
Case #3: 3:94-CV-514 Doctor's Associates, Inc. v. Guerrero (IL)
Case #4: 3:94-CV-515 Doctor's Associates, Inc. v. Youmaran (IL)
Case #5: 3:94-CV-516 Doctor's Associates, Inc. v. Shino (IL)

Case #6: 3:94-CV-517 Doctor's Associates, Inc. v. Loenneke (IL)
Case #7: 3:94-CV-803 Doctor's Associates, Inc. v. Johnson (NC)
Case #8: 3:94-CV-354 Doctor's Associates, Inc. v. McCrary (AL)
Case #9: 3:94-CV-369 Doctor's Associates, Inc. v. Gillon (AL)
Case #10: 3:94-CV-370 Doctor's Associates, Inc. v. Smith (AL)
Case #11: 3:94-CV-371 Doctor's Associates, Inc. v. Risse (AL)
Case #12: 3:94-CV-372 Doctor's Associates, Inc. v. Benton (AL)
Case #13: 3:94-CV-948 Doctor's Associates, Inc. v. Kane (MA)
Case #14: 3:94-CV-1108 Doctor's Associates, Inc. v. Giannini (PA)
Case #15: 3:94-CV-1456 Doctor's Associates, Inc. v. Rothmund (IL)
Case #16: 3:94-CV-1457 Doctor's Associates, Inc. v. Papaleo (IL)

Although DAI v. Bickel was not consolidated with the other sixteen
cases before the district court, it was consolidated for purposes of oral
argument before this court.

3‘ The arbitration clause provides as follows:

Any controversy or claim arising out of or relating to this contract
or the breach thereof shall be settled by Arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association at a hearing to be held in Bridgeport, Connecticut and

aaa

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DAI requires each franchisee to sublease its premises
from one of several real-estate leasing companies that
are wholly owned by DAI. Each sublease contains a
“cross-default” provision, whereby any breach of the
franchise agreement by the franchisee constitutes a
breach of the sublease.‘ According to the deposition tes-
timony of one of its own officers, DAI wanted its leas-
ing affiliate to be the franchisees’ sublessor to obtain
greater leverage over them in the event of a dispute.

A. The District Court Proceedings in Doctor’s
Associates, Inc. v. Distajo (Nos. 94-9207, 94-9209,
94-9293)

From 1991 through 1993, various disputes arose
between DAI and the several franchisees. DAI never
filed any demands for arbitration, despite its claims that
the franchisees had breached the franchise agreements.
Instead, DAI directed its leasing companies to invoke
the cross-default provisions of the subleases, and to
institute eviction proceedings in state courts against each
franchisee.

In response to these eviction proceedings, each of the
franchisees filed a state court action claiming, inter alia,

judgment upon an award rendered by the Arbitrator(s) may_be entered
in any court having jurisdiction thereof. The commencement of arbi-
tration proceedings by an aggrieved party to settle disputes arising out
of or relating to this contract is a condition precedent to the com-
mencement of legal action by either party. The cost of such a pro-
ceeding will be borne equally by the parties.

The cross-default provision reads in relevant part as follows:

If at any time during the term of this Sublease, Sublessee shal! default
in the performance of any of the terms, covenants or conditions of the
aforesaid Franchise Agreement. . . Sublessor, at its option, may ter-
minate this lease. . . and upon such termination, Sublessee shall quit
and surrender the leased premises to Sublessor. . . .

7129 Sa

fraud and breach of contract by DAI, its leasing com-
panies, and several of DAI’s officers and agents.

According to the franchisees, DAI uses this subleasing
arrangement to circumvent the arbitration clause in the
franchise agreements. They argue that the leasing com-
panies are mere shells, or alter egos, of DAI. It is undis-
puted that the leasing companies are wholly owned by
DAI, that they have no assets or net income, and that
DAI decides when the leasing companies will file evic-
tion proceedings. Pursuant to the sublease, the fran-
chisee must pay rent directly to the actual landlord; no
rent is paid to the leasing company. According to the
franchisees, DAI has taken the position that the arbi-
tration clause in the franchise agreement is not binding
on its leasing companies, because they are not parties to
that agreement. The franchisees claim also that the leas-
ing companies have asserted the right to proceed with
eviction lawsuits against the franchisees even if the fran-
chisees file arbitration demands against DAI. Thus, DAI
allegedly brought eviction lawsuits through its leasing
companies to pressure its franchisees into resolving dis-
putes, but invokes the arbitration clause to protect itself
against litigation initiated by the franchisees.

DAI responded to each state lawsuit brought by the
franchisees by serving a demand for arbitration pursuant
to the franchise agreement. When the franchisees refused
to arbitrate their disputes, DAI filed petitions to compel
arbitration, pursuant to the Federal Arbitration Act,
9 U.S.C. § 4, in the United States District Court for the
District of Connecticut. All sixteen cases were eventu-
ally consolidated before Chief Judge Peter C. Dorsey.
Before the district court ruled on DAI’s petitions, the
state courts in Alabama, Illinois, and North Carolina

7130 9a

entered judgments in favor of the franchisees in Cases |-
12 and 15-16.

In the district court, DAI contended that the fran-
chisees were bound by the franchise agreement to submit
any disputes with DAI to arbitration in Bridgeport, Con-
necticut, before instituting judicial proceedings. The
franchisees responded by seeking dismissal of DAI’s
petitions on several grounds, including, inter alia:
(1) lack of subject matter jurisdiction, due to incomplete
diversity of the parties; and (2) collateral estoppel, based
on the intervening state court judgments. The district
court rejected each of these contentions in a ruling dated
September 29, 1994. The district court simultaneously
rejected DAI’s motion to enjoin the franchisees from
pursuing parallel] state court proceedings, on the grounds
that the requested injunction did not fall within any of
the narrow exceptions to .he Anti-Injunction Act, 28
U.S.C. § 2283.

On November 10, 1994, the district court granted
DAI’s petitions to compel arbitration. In doing so, the
court rejected several defenses raised by the franchisees,
including the following: (1) that the arbitration clause
was void for lack of mutuality; (2) that DAI had waived
arbitration by virtue of its leasing companies’ prosecu-
tion of eviction lawsuits; and (3) that DAI had fraudu-
lently misrepresented the scope of the arbitration clause
in the franchise agreement. The court held that the arbi-
trators, not the court, should determine whether the leas-
ing companies were “alter egos” of DAI, and then
address the question whether DAI had fraudulently mis-
represented the scope of the arbitration agreement.

When the franchisees continued to pursue their state
court actions, DAI obtained a temporary restraining

7131 10a

order from the district court on November 22, 1994, pre-
venting them from participating in the parallel state pro-
ceedings. On December 14, 1994, the district court
entered a preliminary injunction, barring the Distajo
franchisees from seeking enforcement of their Illinois
judgment. Doctor's Assocs., Inc. v. Distajo, 870 F. Supp.
34 (D. Conn. 1994). The court concluded that injunctive
relief was “not inappropriate” under the Anti-Injunction
Act, 28 U.S.C. § 2283, because continued state litigation
would “impair the integrity of the order of arbitration.”
In granting DAI’s motion, the court rejected the fran-
chisees’ argument that an intervening judgment entered
in favor of the Distajo franchisees by an Illinois state
court on October 24, 1994, was “final” for res judi-
cata purposes and would preclude entry of the injunction
under the full faith and credit statute, 28 U.S.C. § 1738.

All of the franchisees filed timely appeals from the
district court’s order of September 29, 1994, denying
their motions to dismiss, and the order of November 10,
1994, compelling arbitration. All of the franchisees
except those from Alabama (Cases 8-12) also appeal
from the court’s December 9, 1994, order entering the
preliminary injunction.

B. The District Court Proceedings in Doctor’s
Associates, Inc. v. Bickel (No. 95-7183)

The proceedings in the Bickel case differ somewhat
from those cases consolidated under the Distajo rubric.
On December 16, 1994, the Bickels filed a complaint
in Illinois state court against DAI, its leasing company,
its development agent, and three DAI officers. DAI
responded by filing a petition to compel arbitration in
the United States District Court for the District of Con-
necticut on January 20, 1995, and moved to enjoin the

7132 lla

Bickels from prosecuting their state court action. On
February 7, 1995, the Illinois court entered a default
judgment against DAI. On February 13, 1995, Chief
Judge Dorsey granted both DAI’s petition to compe!
arbitration and its motion for a preliminary injunction,
while permitting DAI to move the Illinois court to vacate
the default judgment on the basis of defective service
of process. The district court entered a written order
embodying the Bickel injunction on May 9, 1995, but did
not order DAI to post a bond.

The Bickels appeal from the court’s order of May 9,
1995, granting DAI’s petition to compel arbitration and
entering the preliminary injunction.

I. DISCUSSION

“When reviewing a district court’s determination of its
subject matter jurisdiction, we review factual findings
for clear error and legal conclusions de novo.” Jn re
Vogel Van & Storage, Inc., 59 F.3d 9, 11 (2d Cir. 1995).
We also review de novo the district court’s decision to
compel arbitration. Collins & Aikman Prods. Co. v.
Building Systems, Inc., 58 F.3d 16, 19 (2d Cir. 1995).

A. Subject Matter Jurisdiction

Section 4 of the Federal Arbitration Act (“FAA”),
9 U.S.C. §§ 1-16, confers jurisdiction on district courts
to hear petitions to enforce arbitration agreements, but
only to the extent that the court would otherwise have
jurisdiction over the dispute. The statute provides as
follows:

A party aggrieved by the alleged . . . refusal of
another to arbitrate under a written agreement for

7133 12a

arbitration may petition any United States district
court which, save for such agreement, would have
jurisdiction under Title 28, in acivil action. . . of
the subject matter of a suit arising out of the con-
troversy between the parties, for an order directing
that such arbitration proceed in the manner provided
for in such agreement.

9 U.S.C. § 4 (emphasis added). As the Supreme Court
has explained,

[t]he Arbitration Act is something of an anomaly in
the field of federal-court jurisdiction. It creates a
body of federal substantive law establishing and
regulating the duty to honor an agreement to arbi-
trate, yet it does not create any independent federal-
question jurisdiction under 28 U.S.C. § 1331 (1976
ed., Supp. V) or otherwise. Section 4 provides for
an order compelling arbitration only when the fed-
eral district court would have jurisdiction over a suit
on the underlying dispute; hence, there must be
diversity of citizenship or some other independent
basis for federal jurisdiction before the order can
issue.

Moses H. Cone Memorial Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 25 n.32 (1983).

The parties seem to agree that the only possible basis
for federal subject matter jurisdiction in this case would
be diversity of citizenship. 28 U.S.C. § 1332. It is a
long-settled rule that in order to invoke diversity juris-
diction, the petitioner must show “complete diversity” —
that is, that it does not share citizenship with any
defendant. C. 7. Carden v. Arkoma Assocs., 494 U.S.
185, 187 (1990); Strawbridge v. Curtiss, 7 U.S. (3
Cranch) 267, 267 (1806), overruled on other grounds, 43

7134 3a

U.S. (2 How.) 497, 555 (1844); Curley v. Brignoli, Cur-
ley & Roberts Assocs., 915 F.2d 81, 84 (2d Cir. 1990),
cert. denied, 499 U.S. 955 (1991). DAI is a Florida
corporation with its principal place of business in
Florida. The franchisees are residents of Alabama, II1i-
nois, Massachusetts, North Carolina, and Pennsylvania.

The franchisees argue that there is not complete diver-
_ sity of citizenship here. According to the franchisees, the
“controvers[ies] between the parties” to which the FAA
refers involve not only DAI, but also DAI’s development
agents—some of whom share the same citizenship with
certain franchisees. None of those agents was a party to
the franchise agreement; none has been joined as a party
in the present proceeding. These local DAI agents, the
franchisees contend, are “indispensable parties” to
the present federal action, as evidenced by the fact that
the affiliates are named defendants in the franchisees’
State actions. In other words, the franchisees argue that
their state court actions are the “suit[s] arising out of the
controversy between the parties” hypothesized by
the FAA. If so, then the citizenship of all the parties in
the state actions determines whether there is complete
diversity in the federal action to compe! arbitration.
Because these agents cannot be joined without destroy-
ing diversity, the franchisees argue that the district court
should have dismissed the petitions to compel.

DAI responds that the “suit arising out of the contro-
versy between the parties” is DAI’s action to compel
arbitration—not the parallel state action—and that DAI’s
affiliates are not “indispensable parties” to the federal
action. Accordingly, DAI argues that we should look at
the citizenship only of the parties named in the petition
to compel, when determining whether there is diversity
jurisdiction. Prudential-Bache Sec., Inc. v. Fitch, 966

1

F.2d 981, 988 (Sth Cir. 1992) (“jurisdiction for a petition
to compel arbitration [must] be determined from the face
of the petition”). DAI offers a textual argument and a
policy argument to support its position. First, it notes
that the FAA asks whether the district court would have
jurisdiction over a suit arising out of a controversy
“between the parties.” The phrase “the parties” most
sensibly refers to those persons who are parties to the
arbitration agreement—and who therefore can be named
in the petition to compel arbitration. Second, DAI argues
that the FAA would be fatally undermined if “the par-
ties” described in § 4 could be expanded to include per-
sons who had not signed the arbitration clause but who
allegedly were involved in the “underlying controversy.”
If such a rule were adopted, a party resisting arbitration
could defeat federal jurisdiction simply by suing some-
one from the same state, plus the party seeking to com-
pel arbitration, in a separate state lawsuit. Diversity
would be destroyed simply by claiming that the local
defendants in the parallel action were “indispensable
parties” to the petition to compel.

We agree with DAI. The “parties” to which § 4 of
the FAA refers are the parties to the petition to compel.
As with any federal action, diversity of citizenship is
determined by reference to the parties named in the pro-
ceeding before the district court, as well as any indis-
pensable parties who must be joined pursuant to Rule 19
of the Federal Rules of Civil Procedure. Where joinder
of a party would destroy subject matter jurisdiction, the
court must dismiss the action if that party is “indis-
pensable” to the litigation. Fed. R. Civ. P. 19(b)5; Fluent

5 Rule 19(b) provides:

Determination by Court Whenever Joinder not Feasible. If a per-
son as described in subdivision (a)(1)-(2) hereof cannot be made a

7136 15a

v. Salamanca Indian Lease Auth., 928 F.2d 542, 548 (2d
Cir.) (finding dismissal proper where indispensable party
was Indian tribe that enjoyed sovereign immunity from
suit), cert. denied, 502 U.S. 818 (1991). But individuals
who are not parties to the arbitration agreement cannot
be “indispensable” parties under Rule 19(b) if they do
not meet either of the threshold tests of Rule 19(a).¢ That
provision only requires joinder of a party if (1) the court
cannot afford “complete relief” to those already joined,
in the absence of that party, and (2) the unjoined party
has an interest in the litigation and his absence may
either impede his ability to protect that interest or
subject the already-joined parties to a risk of inconsis-
tent obligations—which often means the risk of piece-
meal litigation. Neither condition is satisfied in the
present case. First, the district court can grant all the

party, the court shall determine whether in equity and good con-
science the action should proceed among the parties before it, or
should be dismissed, the absent person being thus regarded as indis-
pensable. The factors to be considered by the court include: first, to
what extent a judgment rendered in the person's absence might be
prejudicial to the person or those already parties; second, the extent
to which, by protective provisions in the judgment, by the shaping of
relief, or other measures, the prejudice can be lessened or avoided:
third, whether a judgment rendered in the person's absence will be
adequate; fourth, whether the plaintiff will have an adequate remedy
if the action is dismissed for nonjoinder.

© Rule 19(a) provides that

A person who is subject to service of process and whose joinder will
not deprive the court of jurisdiction over the subject matter of the
action shall be joined as a party in the action if (1) in the person's
absence complete relief cannot be accorded among those already par-
ties, or (2) the person claims an interest relating to the subject of the
action and is so situated that the disposition of the action in the per-
son's absence may (i) as a practical matter impair or impede the per-
son's ability to protect that interest or (ii) leave any of the persons
already parties subject to a substantial risk of incurring double, mul-
tiple, or otherwise inconsistent obligations by reason of the claimed
interest.

7137 16a

relief sought by DAI in this case—an order compelling
arbitration—regardless of whether DAI’s development
agents (nonparties to the arbitration agreement) are pre-
sent. Second, the other consideration set forth in Rule
19(a)—possible prejudice resulting from piecemeal
litigation—is overcome in this context by the FAA’s
strong bias in favor of arbitration. Indeed, the Supreme
Court has categorically stated that the FAA requires
courts to enforce an arbitration agreement “notwith-
standing the presence of other persons who are parties to
the underlying dispute but not to the arbitration agree-
ment.” Moses H. Cone, 460 U.S. at 20. A district court
should not consider the citizenship of strangers to the
arbitration contract, since they are not “parties” the suit
arising out of the controversy within the meaning of the
FAA.

Accordingly, we hold that the district court was cor-
rect in looking only to the citizenship of the parties in
the action before it—that is, DAI and the franchisees,
who signed the arbitration agreement—to determine
whether there was complete diversity. (JA 643) Because
the parties conceded at oral argument that DAI and the
franchisees are completely diverse, we affirm the district
court’s finding that it possessed subject matter juris-
diction pursuant to 28 U.S.C. § 1332 and 9 U.S.C. § 4.

B. Preclusive Effect of State Court Judgments

The franchisees claim that the district court should
have accorded full faith and credit to the various state
court judgments that found the arbitration clause unen-
forceable in cases involving DAI and various of the
defendant franchisees.

The full faith and credit Statute, 28 U.S.C. § 1738,
provides that “[state] judicial proceedings . . . shail
have the same full faith and credit in every court within
the United States. . . as they have by law or usage in
the courts of such State. . . from which they are taken.”
Accordingly, a federal court must “give preclusive effect
to state-court judgments whenever the courts of the State
from which the judgments emerged would do so.” Allen
v. McCurry, 449 U.S. 90, 96 (1980); Valley Disposal,
Inc. v. Central Vermont Solid Waste Management Dist.,
31 F.3d 89, 98 (2d Cir. 1994).

The parties agree that the question, therefore, is
whether the various state court judgments (one in
Alabama, eight in Illinois, and one in North Carolina)
would be accorded preclusive effect under Alabama, IIli-
nois, or North Carolina law, respectively. We address
each state’s law in turn.

1. The Alabama Judgment (Case # 8)

During October 1993, DAI’s real-estate leasing com-
pany and its equipment leasing company filed suit
against franchisee John McCrary in the Circuit Court
of Talladega County, Alabama. In December 1993,
McCrary filed a counterclaim against those DAI affili-
ates, and added DAI and its Alabama development
agents as cross-claim defendants. On January 25, 1994,
DAI and its affiliates filed a motion to dismiss the
counterclaims and cross-claims or, in the alternative,
to stay the Alabama case pending arbitration. DAI
claims that it withdrew that motion after filing its peti-
tion to compel arbitration in the district court in Con-
necticut on March 8, 1994. On June 28, 1994, McCrary
filed in the Alabama court a “Motion to Determine Non-
Arbitrability of Issues.”

On July 7, 1994, the Alabama Circuit Court ruled that
the arbitration clause was void and unenforceable “for
any of the following independent reasons”: (1) lack of
mutuality; (2) fraudulent inducement; (3) waiver by DAI
of the right to invoke the arbitration clause; and (4) inva-
lidity of the clause under Alabama law prohibiting all
arbitration agreements, since the agreement lacked a suf-
ficient “interstate nexus” to permit application of the
FAA (which preempts state laws invalidating arbitration
clauses affecting interstate commerce). The court also
held that the issues raised in McCrary’s counterclaim fell
outside the scope of the arbitration clause. The Alabama
court then expressly found “no just reason for delay” and
accordingly directed that final judgment be entered in
favor of McCrary.

DAI subsequently filed a motion for reconsideration,
which the Alabama court denied on September 28, 1994.
McCrary represents to this court that DAI subsequently
appealed these orders to the Alabama Supreme Court.
(The parties have been barred from proceeding with that
appeal pursuant to the preliminary injunction entered by
the district court on December 9, 1994.)

In an order entered September 29, 1994, denying
McCrary’s motion to dismiss, the district court declined
‘to give preclusive effect to this Alabama judgment. The
court reasoned that because a motion to reconsider the
judgment was still pending in state court, there was not
yet a final judgment on the merits. Thus, principles of
res judicata and collateral estoppel would not apply.

On appeal, DAI concedes that the Alabama ruling was
indeed “final” for the purposes of preclusion. Under
Alabama law, an order entered upon less than all of the
claims presented in an action is a final, appealable order

7140 19a

if “the judge makes an express determination that there
is no just reason for delay. . . .” Goza vy. Everett, 365
So. 2d 658, 659 (Ala. 1978). “Alabama courts, like fed-
eral courts, generally apply the same test of finality for
purposes of preclusion as they do for appealability.”
Stone v. Williams, 970 F.2d 1043, 1055 (2d Cir. 1992),
cert. denied, 113 S. Ct. 233] (1993); see also First Ala.
Bank of Montgomery, N.A. v. Parsons Steel, Inc., 825
F.2d 1475, 1480 (11th Cir. 1987) (interpreting Alabama
law), cert. denied sub nom. McGregor v. First Ala. Bank
of Montgomery, 484 U.S. 1060 (1988). Because the Cir-
cuit Court of Talladega County expressly found that its
decision was final and that there was no reason for
delay, its July 7, 1994, order was immediately appeal-
able and thus would be accorded preclusive effect under
Alabama law as of that date.

DAI urges this court nevertheless to disregard the
Alabama judgment, for three reasons. First, DAI argues
that the Supreme Court’s decision in Allied-Bruce
Terminix Cos. v. Dobson, 115 S. Ct. 834 (1995), over-
turned the interstate commerce analysis that provided the
A'abama court’s fourth rationale for voiding the arbi-
tration clause. The Supreme Court’s decision, DAI
contends, constitutes an “intervening change in the
applicable legal context,” Staten Island Rapid Transit
Operating Auth. v. ICC, 718 F.2d 533, 543 (2d Cir.
1983), that requires a federal court not to accord preclu-
Sive effect to the Alabama decision. See RESTATEMENT
(SECOND) OF JUDGMENTS § 28(2) (1980). Even if
Allied-Bruce did undermine one rationale supporting the
Alabama court’s judgment, however, the Supreme
Court’s decision did not affect the alternate grounds set
forth by the court for voiding the arbitration clause.

714] 20a

Because the legal context has not shifted at all in these
other areas, we cannot reexamine the Alabama judgment.

Second, DAI contends that it was not afforded a “full
and fair opportunity to litigate” the arbitration claims in
the Alabama court. See Milltex Indus. Corp. v. Jacquard
Lace Co., 922 F.2d 164, 168 (2d Cir. 1991); Stone, 970
F.2d at 1056. DAI assigns error to three aspects of the
procedure followed in the Alabama court, each of which
we reject. (1) DAI complains that it was not afforded the
right to file a brief in response to McCrary’s “Motion to
Determine the Non-Arbitrability of the Issues.” But as
DAI conceded at oral argument before this court, noth-
ing in the record indicates that it ever sought to file such
a brief, much less that the Alabama court prevented it
from filing one. Absent any evidence to the contrary, we
accept the statement in the written order of the Alabama
court that “[bJoth sides have thoroughly briefed the
issues and provided factual evidence in support of their
respective positions.” (2) DAI also claims that it was not
afforded “meaningful oral argument.” Because DAI does
not claim that oral argument was completely denied, we
dismiss the argument out of hand. This court has held
that “[ojral argument is not a necessary component of
due process in all circumstances.” Zaluski v. INS, 37
F.3d 72, 73 (2d Cir. 1994); see also FCC v. WJR, The
Goodwill Station, Inc., 337 U.S. 265, 276 (1949) (“Cer-
tainly the Constitution does not require oral argument in
all cases where only insubstantial or frivolous questions
of law, or indeed even substantial ones, are raised.”).
Courts have broad discretion to determine how much, if
any, oral argument is appropriate in a given case. We
will not second-guess the Aiabama court’s allocation of
its time. (3) Finally, DAI argues that the Alabama court
drastically misapplied the law. This argument is nothing

7142 = 2la

more than an invitation for this court to revisit the mer-
its of the Alabama court’s judgment—precisely what the
full faith and credit statute tells us not to do. See Charles
Koen & Assocs. v. City of Cairo, 909 F.2d 992, 1000 n.8
(7th Cir. 1990) (“The full faith and credit statute does
not permit federal courts to reassess the merits of state
court judgments.”). “Lower federal courts are not supe-
rior to state courts.” Lion Bonding & Sur. Co. v. Karatz,
262 U.S. 77, 90 (1923); see also District of Columbia
Court of Appeals v. Feldman, 460 U.S. 462, 482 (1983)
(“[A] United States District Court has no authority to
review final judgments of a state court in judicial pro-
ceedings.”). If DAI is dissatisfied with the judgment of
the Alabama trial court, it should take an appeal.

Third, DAI argues that there was no motion properly
before the Alabama court that would permit it to decide
the arbitrability issue. That is, DAI claims that it had
already withdrawn its own motion to compel arbitration
under § 3 of the FAA, and that McCrary’s own “Motion
to Determine the Non-Arbitrability of the Issues” was
unauthorized, considering that McCrary had never
sought a declaratory judgment in his complaint. Accord-
ing to DAI, the Alabama opinion is therefore purely
“advisory,” and is not entitled to preclusive effect under
State law. This argument fails for two reasons. First, the
Alabama court clearly believed that DAI’s motion to
dismiss had been submitted for decision, since it denied
that motion on the merits. Second, Stamps v. Jefferson
County Board of Education, 642 So. 2d 941, 944 (Ala.
1994), which DAI cites, does not support the proposition
that a declaratory judgment is merely “advisory” if such
relief was not specifically requested in the complaint.
All the Alabama Supreme Court stated in Stamps was
that “[a]ctions or opinions are denominated ‘advisory,’

7143 22a

. where the judgment sought would not constitute
specific relief to a litigant. . . .” 642 So. 2d at 944
(quoting EDWIN M. BORCHARD, DECLARATORY JUDG-
MENTS 34 (1934)) (emphasis deleted). In that case, a
group of teachers had sued their employer and sought a
judicial declaration that their work duties subjected them
to prosecution by a state agency. The court held that
such a declaratory judgment would be purely advisory
because the prosecutorial agency had not been joined
as a party, and thus would not be bound by the decision.
Id. But DAI is a party in the Alabama action, and is
bound by the state court judgment. Because the declara-
tory judgment finding the arbitration clause to be
unenforceable provides “specific relief’ to McCrary
against DAI, as required by Stamps, it cannot be brushed
aside as an “advisory” opinion.

For these reasons, we hold that the district court
should have accorded full faith and credit to the
Alabama judgment. Accordingly, we reverse the district
court orders denying McCrary’s motion to dismiss and
compelling him to pursue arbitration. On remand, we
direct the district court to dismiss DAI’s petition to com-
pel McCrary to arbitrate. Although McCrary did not
appeal from the December 9, 1994 order entering the
preliminary injunction, we nevertheless exercise our
pendent appellate jurisdiction in the interests of judicial
economy to vacate the injunction. See Golino v. City of
New Haven, 950 F.2d 864, 868 (2d Cir. 1991) (“[W]here
we have jurisdiction to consider some questions on
appeal, we may exercise our discretion to take pendent
jurisdiction over related questions.”), cert. denied sub
nom. Lillis v. Golino, 112 S. Ct. 3032 (1992).

7144 23a

2. The Illinois Judgments (Cases ## 1-6, 15-16,
DAI v. Bickel)

Eight groups of Illinois franchisees’ filed complaints
against DAI, its leasing companies, and DAI’s two co-
Owners, and their cases were eventually consolidated
before the Circuit Court of Madison County, Illinois. On
October 24, 1994, the Illinois court granted the fran-
chisees’ motion for summary judgment, declaring the
arbitration clause void and unenforceable on several
grounds. The court stated that its decision was a “final
and appealable order and judgment under Illinois
Supreme Court Rule 304(a) in that there is no just reason
for delaying either the enforcement of or the appeal from
this judgment and order.”

DAI represented to the district court that it had filed a
motion for reconsideration in the Illinois court, and that
the possibility of appeal remained open. Reasoning that
a judgment subject to appeal was not final under Illinois
law, the district court refused to accord preclusive effect
to the Illinois court’s decision. The district court relied
on Pelon v. Wall, 262 Ill. App. 3d 131, 135 (2d Dist.
1994), which held that “[f]or res judicata purposes, a
judgment is not final until the possibility of appellate
review has been exhausted.”

The Bickels also filed a complaint against DAI and
others in the Circuit Court of Madison County, on
December 16, 1994. DAI failed to enter an appearance
in Madison County within the prescribed time, so the
Illinois court entered a default judgment in favor of
the Bickels on February 7, 1994. In its judgment, the
I]linois court declared the arbitration clause void and

7 Cases 1, 2,3, 4, 5, 6, 15, 16, and DAI v. Bickel. See supra note 2 for
the list of franchisees involved in each case listed here.

1145 44,

unenforceable, and scheduled a hearing on damages for
April 4, 1995. On February 13, 1995, however, the dis-
trict court ruled that for the purposes of issue preclusion,
the Illinois judgment obtained by the Bickels was no
more final than the judgment obtained by the other fran-
chisees in Madison County. Accordingly, the district
court granted DAI’s petition to compel arbitration and
enjoined the Bickels from continuing their Illinois liti-
gation. The injunction contained an exception, however,
which permitted DAI to move the Illinois court to set
aside its default judgment.

EL OS Ee este are ry’

The Illinois Supreme Court has held that an Illinois
judgment is not final, and thus not entitled to preclusive
effect, until the time for appeal has expired. Bellweg v.
City of Springfield, 114 Ill. 2d 107, 113 (1986) (“For
purposes of applying the doctrine of collateral estoppel,
finality requires that the potential for appellate review
must have been exhausted.”); Relph v. Board of Educ.,
84 Ill. 2d 436, 442 (1981) (holding that an appellate
court’s mandate to remand with instructions for further
proceedings establishes the law of the case, but does not
constitute a final judgment entitled to res judicata
effect—partially because the trial court’s further pro-
ceedings are subject to subsequent appeal, and partially
because the appellate court’s mandate is subject to
review by the Illinots Supreme Court); see also People
v. Condon, 246 Ill. App. 3d 74, 76 (2d Dist. 1993) (hold-
ing that judgment is not final for purposes of preclusion
until the potential for appellate review has been
exhausted).

The franchisees respond by citing Illinois Founders
| Insurance Co. v. Guidish, 248 Ill. App. 3d 116, 120 (1st
Dist. 1993), where it was said that

7146 25a

lee

[t]he pendency of an appeal has no effect on the
finality of the order appealed from. Under certain
circumstances, the pendency of an appeal can affect
the enforceability of a judgment. . . but not its
finality. More to the point, a final judgment can
serve as the basis to apply the doctrines of res judi-
cata and collateral estoppel even though the judg-
ment is being appealed.

The Illinois Appellate Court’s Statement in Guidish is
clearly at odds with the Illinois Supreme Court’s cate-
gorical statements in Bellweg and Relph. See Prymer v.
Ogden, 29 F.3d 1208, 1213 n.2 (7th Cir.) (discussing, but
declining to resolve, conflict in authority), cert. denied,
115 S. Ct. 665 (1994). Despite the best efforts of the
franchisees to distinguish Bellweg and Relph, we must
follow the rulings of the Illinois Supreme Court.®

We hold that the district court correctly refused to
accord preclusive effect to the Illinois judgments.

3. North Carolina (Case #7)

In April 1993, Michael Johnson filed a complaint
against DAI and several affiliated individuals in the
General Court of Justice, Superior Court Division, in
Gaston County, North Carolina. Johnson alleged, inter
alia, fraud, breach of contract, and conversion. DAI
replied by filing two motions. First, it moved to Stay the
lawsuit pending arbitration. Second, it moved to dismiss
Johnson’s complaint, on the grounds that he had waived

§ We note that many of the franchisees’ arguments were espoused in a
dissenting opinion by a judge on the Illinois Appellate Court, who
directly criticized the holding of Bellweg for deviating from the Restate-
ment (Second) of Judgments § 13. Southeastern Ill. Elec. Coop., Inc. v.
Illinois Human Rights Comm'n, 162 Il. App. 3d 806, 814 (Sth Dist.
1987) (Karns, J., dissenting), appeal denied, 119 Ill. 2d 575 (1988).

7147 26a

his right to challenge the arbitration agreement by
previously participating in arbitration proceedings with
DAI. Johnson, in turn, claimed that the arbitration clause
was unenforceable on several grounds, including (1) that
it lacked mutuality and (2) that he had been fraudulently
induced into executing the arbitration agreement.

On May 3, 1994, the North Carolina court denied both
of DAI’s motions. In its written order, the court explic-
itly addressed only the issues raised in DAI’s motion to
dismiss: it held that Johnson’s “limited participation in
the arbitration proceedings did not constitute a waiver of
his right to challenge the enforceability of the arbitration
clause.” With respect to DAI’s first motion, however, the
court did not explain why it denied the stay, nor did it
make any findings of fact or conclusions of law regard-
ing the arbitration clause.

Johnson argues that the North Carolina court must
have relied on one of the rationales offered by Johnson
(lack of mutuality or fraudulent inducement) even
though the court did not specify which one. In North
Carolina, however, collateral estoppel only precludes the
relitigation of issues that were actually and necessarily
decided in the earlier action. King v. Grindstaff, 200
S.E.2d 799, 805 (N.C. 1973). The party invoking the
benefit of collateral estoppel (here, Johnson) bears
the burden of establishing what was in fact determined
by the prior judgment. Thomas M. McInnis & ASsocs.,
Inc. v. Hall, 349 S.E.2d 552, 557 (N.C. 1986). Even if
one of the issues raised by Johnson—mutuality or fraud-
ulent inducement—was necessarily decided by the state
judge, it is impossible to ascertain which issue was actu-
ally decided. We therefore hold that the judgment of the
Gaston County court would not be accorded preclusive

7148 27a

aici

effect under North Carolina law with respect to the
validity of the arbitration clause.

Accordingly, we affirm the district court’s decision not
to accord full faith and credit to the judgment against
DAI obtained by Johnson in the North Carolina court.?

C. The Franchisees’ Challenges to the Arbitration
Clause

1. Mutuality

The franchisees argue that the arbitration Clause is
void for lack of mutuality, in that it requires a franchisee
to submit all controversies to arbitration but reserves to
DAI (through its leasing companies) the right to seek
Summary eviction against the franchisees. The district
court rejected this argument, finding no lack of mutu-
ality: If the leasing companies were separable entities,
then “the arbitration clause will be enforceable only as
to DAI and the [franchisees], obliging them to arbitrate,
thus establishing mutuality.” If, on the other hand, the
leasing companies were indistinguishable from DAI,
then they too would be bound to arbitrate. Either way,
the court reasoned, mutuality was not an issue.

We agree that mutuality is not an issue, but for dif-
ferent reasons. Preliminarily, we note that the parties
have not offered any reason why we should not apply the
choice-of-law clause in the franchise agreements, which

9 The district court refused to give full faith and credit to the North
Carolina judgment on the grounds that it was subject to appeal, and thus
did not constitute a final order entitled to preclusive effect. On appeal
before this court, DAI concedes and we agree that the North Carolina
judgment is a “final” order for the Purposes of North Carolina preclusion
law. Sims v. Ritter Constr., Inc., 62 N.C. App. 52, 55, 302 S.E.2d 293,
295 (1983) (holding that interlocutory order affecting a substantial right
is final and appealable, and entitled to res judicata effect under North
Carolina law).

7149 28a

indicates that Connecticut law applies. Connecticut
courts, however, have not addressed the precise question
whether an arbitration clause may be void for “lack of
mutuality.”

The term “mutuality” can refer to several different
concepts in contract law. Although it is unclear whether
the franchisees are referring to “mutuality of obligation”
or “mutuality of remedy,” both doctrines are largely
dead letters. The doctrine of “mutuality of obligation”
requires a valid contract to be based on an exchange of
reciprocal promises. 1A ARTHUR L. CORBIN, CORBIN
ON CONTRACTS § 152, at 3 (1963). As applied to arbi-
tration clauses, that rule has been restated to mean that
“the consideration exchanged for one party’s promise to
arbitrate must be the other party’s promise to arbitrate.”
Hull v. Norcom, Inc., 750 F.2d 1547, 1550 (11th Cir.
1985) (interpreting New York law). But “mutuality of
obligation” has been largely rejected as a general prin-
ciple in contract law, as well as in the arbitration con-
text. The latest Restatement of Contracts provides that
“(i}f the requirement of consideration is met, there is no
additional requirement of . . . ‘mutuality of obliga-
tion.’ RESTATEMENT (SECOND) OF CONTRACTS § 79
(1979). Option contracts, for example, are unquestion-
ably valid under this modern rule despite their lack of
“mutuality of obligation.” That is, one party’s promise to
honor a future offer to purchase an item is valid if sup-
ported by the other party’s present payment of a sum of
money. The promise to accept the offer need not be sup-
ported by a reciprocal promise to make that offer. The
New York Court of Appeals essentially adopted the Sec-
ond Restatement position in a case involving a challenge
to an arbitration clause which bound only one of the par-
ties to arbitrate. In Sablosky v. Edward S. Gordon Co.,

7150 29a

73 N.Y.2d 133, 137, 538 N.Y.S.2d 513, 516 (1989), the
court held that

[i]f there is consideration for the entire agreement
that is sufficient; the consideration supports the
arbitration option, as it does every other obligation
in the agreement. . . . Since it is settled that the
validity of an arbitration agreement is to be deter-
mined by the law applicable to contracts generally
. . . there is no reason for a different mutuality rule
in arbitration cases.

Most courts facing this issue have arrived at the same
conclusion. See, e.g., Wilson Elec. Contractors, Inc. v.
Minnotte Contracting Corp., 878 F.2d 167, 168 (6th Cir.
1989); Becker Autoradio U.S.A., Inc. y. Becker Auto-
radiowerk GmbH, 585 F.2d 39, 47 (3d Cir. 1978); WL.
Jorden & Co. v. Blythe Indus., 702 F. Supp. 282, 284
(N.D. Ga. 1988); Willis Flooring, Inc. v. Howard S.
Lease Constr. Co. & Assocs., 656 P.2d 1184, 1185
(Alaska 1983) (“As one clause in a larger contract, the
[arbitration] clause is binding to the same extent that the
contract as a whole is binding.”); LaBonte Precision,
Inc. v. LPI Indus. Corp., 507 So. 24 1202, 1203 (Fla.
Dist. Ct. App. 1987); Kalman Floor Co. v. Jos. L. Mus-
carelle, Inc., 196 N.J. Super. 16, 481 A.2d 553 (1984),
aff'd for reasons stated below, 98 N_J. 266, 486 A.2d
334 (1985). Contra Stevens/Leinweber/Sullens. Inc. v.
Holm Dev. & Management, Inc., 795 P.2d 1308, 1313
(Ariz. Ct. App. 1990); R.W. Roberts Constr Co. v. St.
Johns River Water Management Dist., 423 So. 2d 630,
633 (Fla. Dist. Ct. App. 1982).

It has been argued that, according to the Supreme
Court’s decision in Prima Paint Corp. v. Flood & Con-
klin Manufacturing Co., 388 U.S. 395, 403-04 (1967), an
arbitration clause is separable from its underlying con-

7151

tract, and therefore must be supported by separate
consideration. Stevens, 795 P.2d at 1312-13. In Prima
Paint, the Court held that a claim of fraud in the induce-
ment of an underlying contract must be left to the arbi-
trators, but that a claim of fraud in the inducement of the
arbitration clause should be decided by the court. Prima
Paint, 388 U.S. at 403-04. In reaching this conclusion,
the Court endorsed the result reached by our court in
Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271
F.2d 402 (2d Cir. 1959) (Medina, J.), cert. granted, 362
U.S. 909, cert. dismissed for mootness, 364 U.S. 801
(1960).'° In Robert Lawrence, we described the FAA as
distinguishing between “the entire contract between the
parties on the one hand and the arbitration clause of the
contract on the other,” 271 F.2d at 409—the latter being
described as a “separable part of the contract.” Jd. at
410. At one point in Robert Lawrence, we speculated
that

we would suppose that generally where the arbi-
tration provision of the contract is sufficiently broad
to encompass the issue of fraud, the mutual
promises to arbitrate would form the guid pro quo
of. one another and constitute a separable and
enforceable part of the agreement. We do not decide
this point, however, as it is not necessarily before
us.

Id. at 411. This passage, one might argue, indicates that
an arbitration clause must be treated as a contract sup-
ported by independent consideration. For the following
reasons, however, we reject this characterization.

10 Prima Paint, 388 U.S. at 400 (“We agree [with the result reached in
Robert Lawrence), albeit for somewhat different reasons. . . .”)

7152 31a

el

First, of course, we clearly labelled our statement in
Robert Lawrence as dicta. Second, though we suggested
that mutual promises to arbitrate could constitute suffi-
cient consideration to support an arbitration agreement,
we did not exclude the possibility that other considera-
tion could support the agreement. Third, we indicated
only that arbitration clauses are “separable” from void or
voidable provisions of a contract—not that they are inde-
pendent contracts. Although we consider an arbitration
clause separately for the limited Purpose of evaluating a
claim of fraudulent inducement, we do not do so for all
purposes. For example, when determining the parties’
intent in the arbitration clause, we must read the contract
as a whole. Mastrobuono v. Shearson Lehman Hutton,
Inc., 115 S. Ct. 1212, 1217 (1995) (quoting RESTATE-
MENT (SECOND) OF CONTRACTS. § 202(2) (1979)).
State law generally governs the determination of whether
the parties agreed to arbitrate a certain matter, First
Options of Chicago, Inc. v. Kaplan, 115 S. Ct. 1920,
1924 (1995), and Connecticut courts “construe the con-
tract as a whole” and consider “all relevant provisions

. . when determining the intent of the parties.” White
v. Kampner, 641 A.2d 1381, 1385 (Conn. 1994).

Wilson Electrical Contractors, Inc. v. Minnotte Con-
tracting Corp., 878 F.2d 167, 169 (6th Cir. 1989),
rejected the contention that under Prima Paint, “an arbi-
tration clause is an independent contract that is separa-
ble from the main contract in which it is found and
therefore must have all of the essential elements of a
contract, including consideration.” As the Wilson court
pointed out, more recent decisions of the Supreme Court
have consistently emphasized that the FAA is grounded
in a strong federal policy favoring arbitration. Jd. at 169.
A doctrine that required separate consideration for arbi-

tration clauses might risk running afoul of that policy. In
any event, because the franchisees make no claim that
the underlying contract was the result of fraud, we have
no occasion to consider the arbitration clause in isolation
from the larger contract. Accordingly, we need not
decide whether the arbitration clause must be supported
by independent consideration.

The doctrine of “mutuality of remedy” affords no
“greater relief for the franchisees. That rule, which pro-
vides generally that a “plaintiff shall not get specific
enforcement unless the defendant could also have
obtained it,” SA ARTHUR L. CORBIN, CORBIN ON CON-
TRACTS § 1181, at 336 (1964), is also defunct. See, e.g.,
Sablosky, 73 N.Y.2d at 137 (“Mutuality of remedy is not
required in arbitration contracts.”). As explained in the
latest Restatement, —

the law does not require that the parties have simi-
lar remedies in case of breach, and the fact that spe-
cific performance or an injunction is not available
to one party is not a sufficient reason for refusing it
to the other party. The rationale of the supposed
requirement of “mutuality of remedy” is to make
sure that the party in breach will not be compelled
to perform without being assured that he will
receive any remaining part of the agreed exchange
from the injured party. It is therefore enough if ade-
quate security can be furnished.

RESTATEMENT (SECOND) OF CONTRACTS § 363 cmt. c
(1979).

In view of Connecticut’s strong policies favoring arbi-
tration, see, e.g., White v. Kampner, 229 Conn. 465, 471,
641 A.2d 1381, 1384 (1994); Garrity v. McCaskey, 223
Conn. 1, 7, 612 A.2d 742, 746 (1992), we believe that

7154 33a

ee

the Connecticut courts would conclude that “where the
agreement to arbitrate is integrated into a larger unitary
contract, the consideration for the contract as a whole
covers the arbitration clause as well.” W.L. Jorden &
Co., 702 F. Supp. at 284. The franchisees do not contest
that the franchise agreement as a whole is supported by
consideration. Absent a failure of consideration, in this
instance, we cannot invalidate the agreement in whole or
in part.

2. Waiver of Right to Pursue Arbitration

The district court held that regardless of whether the
leasing companies were DAI’s alter egos, DAI had not
waived its right to compel arbitration under the franchise
agreement. On the one hand, if the leasing companies
were not DAI’s alter egos, then their pursuit of eviction
proceedings against the franchisees could not be imputed
to DAI. On the other hand, even if the leasing companies
were DAI’s alter egos, DAI nevertheless invoked its
arbitration rights as soon as it was named a party in the
various state court actions commenced by the fran-
chisees. Somewhat opaquely, the court held that DAI
“cannot be held to have waived a right of arbitration by
an after-the-fact holding that it is the alter ego of the
leasing companies.” We disagree.

There is no authority to support the notion that a party
is liable for acts of its alter ego only if a court has pre-
viotsly found that an alter-ego relationship exists. As we
have explained in the context of contractual liability, “it
is clear that the consequence of applying the alter ego
doctrine is that the corporation and those who have con-
trolled it without regard to its separate entity are treated
as but one entity, and. . . the acts of one are the acts of
all.” Fisser v. International Bank, 282 F.2d 231, 234 (2d

Cir. 1960) (holding parent corporation bound to arbi-
trate, where its alter-ego instrumentality signed arbi-
tration agreement); see also Interocean Shipping Co. v.
National Shipping & Trading Corp., 523 F.2d 527, 539
(2d Cir. 1975) (holding that company may be compelled
to arbitrate even if not party to agreement containing
arbitration clause, where company is alter ego of another
party that clearly is subject to arbitration), cert. denied,
423 U.S. 1054 (1976). We believe that this principle
applies with equal force in the present context. If DAI
and its leasing companies should be treated as one and
the same, then the initiation of eviction proceedings by
the leasing companies must be imputed to DAI.

There remain two further questions: (1) whether the
district court or the arbitrators should determine the
waiver issue, and (2) what standard should be used by
the appropriate decistonmaker. As to the first question,
we note that the defense of waiver is generally referable
to the arbitrators in cases involving petitions to compel
under § 4 of the FAA—with one important exception
which we shall shortly explain. In World Brilliance
Corp. v. Bethlehem Steel Co., 342 F.2d 362 (2d Cir.
1965), we squarely held that issues of waiver, like issues
of fraud in the inducement of the entire contract, were
properly resolved by the arbitrators, not the district
court. Jd. at 364-65. In reaching this conclusion, we
pointed out that § 2 of the FAA makes an arbitration
agreement enforceable “ ‘save upon such grounds as
exist at law or in equity for the revocation of any con-
‘tract.’ ” Id. at 364 (quoting 9 U.S.C. § 2). Waiver, we
explained, does not constitute a ground for “revocation”
of a contract within the meahing of § 2, and thus is not a
basis for invalidating an arbitration contract. Jd. Like-
wise, we explained that under § 4, a court is required to

7156 35a

grant a petition to compel arbitration except where a
question of fact exists as to (1) “the making of the arbi-
tration agreement” or (2) the “failure, neglect, or refusal
Of another [i.e., the respondent to the § 4 petition] to
arbitrate.” Jd. at 364-65 (quoting 9 U.S.C. § 4 (emphasis
added)). Because acts by the petitioner constituting
waiver of the right to arbitrate did not fall within either
of these enumerated Categories, a district court cannot
refuse to order arbitration under §4 on a theory of
waiver. Id. at 365. We reaffirmed this restrictive inter-
pretation of §4 in Trafalgar Shipping Co. v. Inter-
national Milling Co., 401 F.2d 568, 571 (2d Cir. 1968),
where we held that most questions regarding the defense
of laches should be decided “by the arbitrators, not the
courts.” In that case, we repeated that “[t]he only issues
which the court is authorized to consider on a motion to
compel arbitration are ones which pertain to ‘the making
of the arbitration agreement or the failure, neglect, or
refusal to perform the same,’ ” id. at 571, and that the
latter phrase referred to the failure of the respondent in
a § 4 action to submit to arbitration, id. at 572.

Our decision in World Brilliance did not call into
question, however, a parallel line of cases that considers
waiver to be an equitable defense to a Stay application
under § 3 of the FAA, which a court is empowered to
consider. Section 3 authorizes a court to Stay proceed-
ings pending arbitration, “providing the applicant for the
Stay is not in default in proceeding with such arbitra-
tion.” 9 U.S.C. § 3. For example, in Kulukundis Shipping
Co. v. Amtorg Trading Corp., 126 F.2d 978 (2d Cir.
1942), a defendant sought to amend his answer nine
months into the litigation and two months before trial,
raising for the first time the defense that the case was
arbitrable. Jd. at 986. We construed the defendant's

7157 36a

motion to amend as an application for a §3 stay of
proceedings. Jd. at 986 n.29. We explained that the
proy'so in § 3—that a stay shall be granted “providing
the applicant for the stay is not in default in proceeding
with such arbitration”—referred to a party “who, when
requested, has refused to go to arbitration or who has
refused to proceed with the hearing before the arbitrators
once it has commenced.” /d. at 989. We also noted with
approval that, in other courts,

[a) plaintiff who brought suit on a contract, without
seeking to avail himself of its arbitration clause, has
been held to have waived his rights thereunder, so
that he could not subsequently, after a long delay,
ask the court, under Section 3, to stay the action
pending arbitration.

Id. We also indicated.our agreement with a Fourth Cir-
cuit decision finding waiver of the right to arbitrate by
a counterclaim defendant who participated at length in
litigation, but on the eve of trial moved for a stay under
§ 3 of the FAA. Id. (describing Radiator Specialty Co. v.
Cannon Mills, Inc., 97 F.2d 318 (4th Cir. 1938)). The
defendant in Kulukundis did not waive its right to arbi-
trate, we held, because it had not pursued litigation as
extensively as had the parties in these other cases. 126
F.2d at 989.

We again equated a waiver of the right to arbitrate
with a “default in proceeding with such arbitration”
under § 3 in Robert Lawrence, 271 F.2d at 412; see Car-
cich v. Rederi A/B Nordie, 389 F.2d 692, 696 (2d Cir.
1968) (deciding waiver issue where defendant moved for
stay). The Court of Appeals for the District of Columbia
Circuit apparently took the same view, when it explained
that

7158 = 37a

[t}he right to arbitration, like any other contract
right, can be waived. A party waives his right to
arbitrate when he actively participates in a lawsuit
or takes other action inconsistent with that right.
Once having waived the right to arbitrate, that party
is necessarily “in default in | proceeding with such
arbitration.”

Cornell & Co. v. Barber & Ross Co., 360 F.2d 512, 513
(D.C. Cir. 1966) (per curiam).

Yet some of our cases have also recognized that a
court may consider a waiver defense to § 4 actions to
compel arbitration as well as to § 3 stay applications—
seemingly in derogation of our holding in World Bril-
liance. For example, in Chatham Shipping Co. v. Fertex
Steamship Corp., 352 F.2d 291, 293-94 (2d Cir. 1965),
the petitioner had filed a complaint alleging breach of a
contract but then filed a § 4 petition and moved to dis-
miss the first complaint, before the defendant had even
filed an answer. We rejected the respondent’s defense of
waiver on the merits, even though World Brilliance had
been decided only seven months earlier. In Demsey &
Associates, Inc. v. §.S. Sea Star, 461 F.2d 1009, 1017 (2d
Cir. 1972), where a defendant in a contract action
pleaded arbitration “as an affirmative defense” after trial
had been completed, we did not construe it as seeking
either a § 3 stay or a § 4 order compelling arbitration. We
held that the defendant’s failure to raise the arbitration
issue until after filing cross-claims, participating in dis-
covery, and going to trial on the merits constituted
waiver of its right to arbitrate. Jd. The court did not dis-
cuss its authority for reaching the waiver issue—possi-
bly because the defendant had neither sought a stay
under § 3, nor petitioned the court to compel arbitration
under § 4. Jd. Yet in all of the cases cited in Demsey,

7159 38a

except Chatham, the court decided the waiver issue only
where a defendant, deep into the litigation, sought a stay
of judicial proceedings under §3 of the FAA. 7d. at
1017-18."

Any distinction between § 3 and § 4 actions—never
fully explicated—submerged even more deeply by the
time this court decided Sweater Bee by Banff, Ltd. v.
Manhattan Industries, Inc., 754 F.2d 457 (2d Cir.), cert.
denied, 474 U.S. 819 (1985). That case involved a defen-
dant who, only after obtaining an adverse ruling on a
motion to dismiss pursuant to Rule 12(b)(6) of the Fed-
eral Rules of Civil Procedure, sought both a § 3 stay and
a § 4 order compelling arbitration. 754 F.2d at 459.
Citing Demsey, we stated that “[t])he rule of this circuit

. . is that the litigation of substantial issues going to
the merits may constitute a waiver of arbitration,” id. at
461, and proceeded to decide the waiver issue. Shortly
thereafter, we faced a similar case involving a defendant
who sought to sever certain claims from ongoing liti-
gation and petitioned the court to compel arbitration of
those claims under § 4 of the FAA. Rush v. Oppenheimer
& Co., 779 F.2d 885, 886 (2d Cir. 1985). We made it
clear that “waiver of the right to compel arbitration due
to participation in litigation may be found only when

11 Demsey cited the following cases: Carcich v. Rederi A/B Nordie, 389

F.2d 692 (2d Cir. 1968) (holding no waiver where defendant moved for
§ 3 stay after participating in discovery and pretrial conferences); Robert
Lawrence, 271 F.2d 402 (holding no waiver where defendant moved for
§ 3 stay in the answer); Reynolds Jamaica Mines, Lid. v. La Societe
Navale Caennaise, 239 F.2d 689 (4th Cir. 1956) (in what was arguably
a § 3 action, finding no waiver and dismissing federal lawsuit because
dispute was arbitrable—but not ordering arbitration); Hilti, Inc. v.
Oldach, 392 F.2d 368 (ist Cir. 1968) (holding no waiver where defen-
dant moved for § 3 stay eight months after raising arbitrability as a
defense in answer); Mason v. Stevensville Golf & Country Club, Inc., 292

F. Supp. 348 (S.D.N.Y. 1968) (Pollack, J.) (finding no waiver where
defendant sought § 3 stay after failing to object to scheduling of trial).

7160 39a

prejudice to the other party is demonstrated,” id. at 887,
and again decided ihe waiver issue. Finally, in Kramer v.
Hammond, 943 F.2d 176 (2d Cir. 1991), we held that a
party bringing a petition to compel under § 4 had waived
his right to arbitration by engaging in prior litigation in
State courts, not in the district court.'? Jd. at 180. Again,
the parties did not raise and we did not discuss why this
issue was for the courts rather than the arbitrators to
resolve.

It would appear that the waiver defense has slowly
been transformed from a statutorily mandated inquiry in
§ 3 cases—whether the “applicant for the stay is. . . in
default in proceeding with such arbitration”—into a
broader equitable defense in § 4 cases. This trend has its

12

Prior to our decision in Kramer, all of the cases in which we reached
the issue of waiver involved substantial litigation on the merits in the
district court which was asked to grant the § 3 stay, not in other state or
federal courts. Our decisions to rule on the waiver issue, rather than to
refer the question to the arbitrators, could have been explained as exer-
cises of the federal courts’ inherent power to deal with abusive litigation
practices in their courtrooms. See, e.g., Chambers v. Nasco, 501 U.S. 32,
44-45 (1991) (“A primary aspect of [a court’s} discretion {to exercise its
inherent powers) is the ability to fashion an appropriate sanction for con-
duct which abuses the judicial process.”); Link v. Wabash R.R., 370 U.S.
626, 629 (1962) (“The authority of a federal trial court to dismiss a
plaintiff's action with prejudice because of his failure to prosecute can-
not seriously be doubted.”); Landis v. North Am. Co., 9 U.S. 248, 254
(1936) (“[T]he power to stay proceedings is incidental to the power
inherent in every court to control the disposition of the causes on its
docket with economy of time and effort for itself, for counsel, and for lit-
igants.”); United States v. Hudson, 7 Cranch 32, 34 (1812) (holding that
the inherent powers of federal courts are those which “are necessary to
the exercise of all others.”). In Kramer, however, we reached the ques-
tion of waiver even though the petitioner had not engaged in prior liti-
gation in the district court. Our precedent therefore teaches that a court's
ability to reach the question of waiver as a defense to arbitration is not
grounded solely in its ability to control litigation practices before it. In
light of Kramer, we are bound to hold that a district court may reach the
question of waiver whenever a party seeking arbitration has engaged in
any prior litigation.

7161 40a

limits, however, and another of our decisions suggests
how the equitable waiver defense may be reconciled
with our holdings in World Brilliance. In Prudential
Lines, Inc. v. Exxon Corp., 704 F.2d 59 (2d Cir. 1983),
we reaffirmed the holdings of World Brilliance and
Trafalgar that a waiver defense, like a laches defense,
was “an arbitrable issue.” /d. at 67. We noted that in the
cases where the court itself decided the issue of waiver,
the “party had previously participated in court pro-
ceedings to litigate the same dispute.” Jd. at 67 n.8. We
therefore distinguished between cases where the waiver
defense was based on prior litigation by the party seek-
ing arbitration—when the court should decide the issue
of waiver—and those when the defense was based on
other actions. It may be that the modern evolution of our
waiver doctrine does not correspond precisely to our
understanding of the FAA thirty years ago. Yet we are
bound to abide by our most recent precedent. Cf. Com-
modity Futures Trading Commission v. Dunn, 58 F.3d 50,
54 (2d Cir. 1995) (holding that a panel of Court of
Appeals may not “disregard the reasoning of a decision
_ [of a prior panel] because an entirely different line of
reasoning was available”).

Clearly, the present case falls squarely within the
parameters of Kramer v. Hammond, where the party
invoking arbitration (DAI) was allegedly involved in
prior litigation in state courts. Pursuant to the distinction
we drew in Prudential Lines, and consistent with
Kramer, we hold that the issue of DAI’s waiver of arbi-
tration is for the district court to resolve on remand. To
do so, the court must evaluate the franchisees’ factual
contentions, including whether the leasing companies
were mere alter egos of DAI. If DAI was responsible for
the eviction proceedings, the court must then determine

whether prosecution of those eviction actions constituted
litigation of “substantial issues going to the merits,”
Sweater Bee, 754 F.2d at 461. This inquiry will require
a determination of whether, in fact, the particular evic-
tion proceedings were based on the cross-default pro-
visions of the subleases. If the alleged violations of the
subleases were premised on violations of the franchise
agreement (which DAI was contractually bound to
resolve through arbitration) then DAI did litigate sub-
stantial issues going to the merits, and the only remain-
ing question will be whether the franchisees suffered
prejudice from the eviction proceedings. See, e.g., Cot-
ton v. Slone, 4 F.3d 176 (2d Cir. 1993) (finding prejudice
where defendant failed to pursue interlocutory appeal
from denial of motion to compel, and instead fully liti-
gated arbitrable issues on the merits in the district
court); Com-Tech Assocs. v. Computer Assocs. Int'l, Inc.,

938 F.2d 1574, 1576-77 (2d Cir. 1991) (finding prejudice —

where defendant’s extensive litigation before raising
issue of arbitration forced plaintiffs to litigate arbitrable
claims, and caused considerable expense and delay).

Accordingly, we reverse the district court’s order
rejecting the franchisees’ waiver argument, and remand
for further proceedings.

3. Fraudulent Misrepresentation

The franchisees argue that DAI fraudulently misrep-
resented to them that arbitration was a condition prece-
dent to the institution of legal action by either party to
the franchise agreement. They argue that DAI had, in
reality, reserved the right to bring summary eviction
actions against the franchisees through its leasing com-
panies. The franchisees aiso claim that DAI failed to dis-
close that it had a custom and practice of bringing

1S ne

summary eviction proceedings and other legal proceed-
ings for alleged violations of the franchise agreement.
The district court held that these allegations would be
pertinent only if the leasing companies!’ were indeed
DAI’s alter egos. Both the alter-ego and fraudulent-
inducement issues, the court concluded, should properly
be left to the arbitrators. This was error.

In Prima Paint, 388 U.S. at 403-04, the Supreme
Court stated that “if the claim is fraud in the inducement
of the arbitration clause itself—an issue which goes to
the ‘making’ of the agreement to arbitrate—the federal
court may proceed to adjudicate it.” See also Scherk v.
Alberto-Culver Co., 417 U.S. 506, 519 n.14 (1974) (cit-
ing Prima Paint for the proposition that “an arbitration
or forum-selection clause in a contract is not enforceable
if the inclusion of that clause in the contract was the
product of fraud or coercion”). As this court has
explained, if the “arbitration clause was induced by
fraud, there can be no arbitration; and if the party charg-
ing this fraud shows there is substance to his charge,
there must be a judicial trial of that question before a
stay can issue.” Robert Lawrence, 271 F.2d at 411.

The franchisees allege that they were fraudulently
induced to assent to the arbitration clause—not to the
rest of the contract. Accordingly, under Prima Paint, the
district court had to reach the fraudulent inducement
issue before deciding whether to compel arbitration.
Resolution of the fraud issue, in turn, will require an
answer to the antecedent question of whether the leasing
companies were DAI’s alter egos.

13 Although the district court actually referred to the “development
agents” as being possible alter egos of DAI, it seems to have meant the
“leasing companies.” The franchisees do not allege that DAI's various
development agents (who engaged in some negotiations on behalf of
DAI with the franchisees) were DAI's alter egos.

7164
43a

We therefore reverse the district court’s determination
that the arbitrators rather than the court should decide
the alter-ego and fraudulent-inducement questions. On
remand, the district court must resolve these issues.

III. CONCLUSION

To summarize: '4

1. We affirm the district court’s decision that it had
subject matter jurisdiction over all of DAI’s petitions to
compel arbitration, because there was complete diversity
between the parties to the arbitration clause.

2. We reverse the district court’s holding that the
Alabama court’s judgment in the McCrary case (Case
#8) was not entitled to full faith and credit. That judg-
ment had preclusive effect under Alabama law, and thus
barred DAI from seeking to enforce its arbitration agree-
ment with McCrary. We therefore reverse the district
court’s denial of franchisee McCrary’s motion to dismiss
DAI’s motion to compel and its order granting DAI’s
petition to compel McCrary to arbitrate. In the exercise
of our pendent appellate jurisdiction, we vacate the pre-
liminary injunction barring McCrary from pursuing his
Alabama state court claims against DAI. We direct the
district court, on remand, to dismiss with prejudice
DAI’s motion to compel McCrary to arbitrate.

3. We affirm the district court’s holding that the
Illinois courts’ judgments in Cases ## 1-6, 15-16, and
DAI v. Bickel were still subject to appeal, and thus under
Illinois law were not entitled to preclusive effect. We

'¢ For the list of cases affected by our ruling, see supra note 2.

165 gg

therefore affirm the district court’s denial of those fran-
chisees’ motions to dismiss.

4. We affirm the district court’s holding that the North
Carolina judgment in the Johnson case (Case # 7) was
not entitled to full faith and credit. That judgment would
not be accorded preclusive effect under North Carolina
law, because the court’s written order does not indicate
what issues were actually decided. We therefore affirm
the district court’s denial of the Johnson franchisees’
motion to dismiss.

5. We affirm the district court’s holding that “mutu-
ality” was not at issue, but on different grounds. We hold
that where consideration supports a contract as a whole,
an arbitration clause in that contract is not void for Jack
of consideration.

6. We reverse the district court’s holding that DAI did
not waive its right to petition to compel arbitration, and
remand for further proceedings. We hold that if the leas-
ing companies were mere alter egos of DAI, their pursuit
of eviction proceedings based on violations of the fran-
chise agreements could constitute waiver of DAI’s right
to demand arbitration.

7. We reverse the district court’s decision to defer to
the arbitrators on the question of whether DAI fraudu-
lently induced the franchisees to enter into the arbitra-
tion agreement. On remand, the district court must
decide this issue. |

8. Because the district court should have decided the
alter-ego, waiver and fraudulent-inducement issues, we
reverse its order granting DAI’s motion to compel arbi-
tration in all cases and remand for further proceedings.
We also reverse its entry of preliminary injunctions

7166 45a

against all of the franchisees—including, in the exercise
of our pendent appellate jurisdiction and in the interests
of judicial economy, the Alabama franchisees.

9. Finally, because we reverse the district court’s
orders entering the preliminary injunctions, we need not
address the franchisees’ contention that those orders vio-
lated the Anti-Injunction Act.

7167 46a

September 28, 1995

ORDER
IT IS HEREBY ORDERED that the opinion

filed on September 12, 1995, be amended as
follows:

Slip op. at 7162, line 30 from top:
Insert footnote 13 after "remand."

Slip op. at 7162, bottom of page: Insert
"By so holding, we do not purport to reach
the question of how the district court should
resolve this issue. The defendants’ jury
demands should be considered by the district
court in the first instance."

Slip op. at 7162, lines 30-31 from top:
Delete "To do so, the court must evaluate the
franchiees" and insert "The"

Slip op. at 7162, line 32 from top:
Delete ", including" and insert "to be
resolved include"

Slip op. at 7162, line 34 from top:
Delete "the court must then determine" and
insert “it must then be determined"

Slip op. at 7164, line 4 from top:
Change footnote number from 13 to 14.

Slip op. at 7164, bottom of page: Change
footnote number from 13 to 14.

Slip op. at 7165, line 3 from top:
Insert footnote 15 after "questions."

Slip op. at 7165, bottom of page: Insert
"See cupra note 13."

47a

Slip op. at 7165, line 6 from top:
Change footnote number from 14 to 16.

Slip op. at 7165, bottom of page: Change
footnote number from 14 to 16.

IT IS SO ORDERED:
FOR THE COURT.

GEORGE LANGE III, Clerk

48a

November 1, 1995

Appesi No. 95-7183

A petition for rehearing containing a
suggestion that the action be reheard in banc
having been filed herein by the appellant
Raymond and Sandra Bickel.

Upon consideration by the panel that
decided the appeal, it is Ordered
that said petition for rehearing is
DENIED.

It is further noted that the suggestion for
hearing in banc has been transmitted to the
judges for the court in regular active service
and to any other judge that heard the appeal
and that no such judge has requested that a
vote be taken thereon.

FOR THE COURT

GEORGE LANGE III, Clerk

By:

Beth J. Meador

49a

November 14, 1995
Appeal No. 94-9207

A petition for rehearing containing a
suggestion that the action be reheard in banc
having been filed herein by the appellant
Emily Distajo, et al.

Upon consideration by the panel that
decided the appeal, it is Ordered
that said petition for rehearing is
DENIED.

It is further noted that the suggestion for
rehearing in banc has been transmitted to the
judges for the court in regular active service
and to any other judge that heard the appeal
and that no such judge has requested that a
vote be taken thereon.

FOR THE COURT

GEORGE LANGE III, Clerk

By:

Beth J. Meador
Administrative Atty.

50a

9 U.8.C. § 3

Stay of proceedings where issued 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 U.8.C. § 4

Failure to arbitrate under agreement; petition
to United States court having jurisdiction for
order to compel arbitration; notice and
service thereof; hearing and determination

A party aggrieved by the alleged failure,
neglect, or refusal of another to arbitrate
under a written agreement for arbitration may
petition any United States district court
which, save for such agreement, would have
jurisdiction under Title 28, in a civil action
or in admiralty of the subject matter of a
suit arising out of the controversy between
the parties, for an order directing that such
arbitration proceed in the manner provided for
in such agreement. Five days’ notice in
writing of such application shall be served
upon the party in default. Service thereof
shall be made in the manner provided by the
Federal Rules of Civil Procedure. The court
shall hear the parties, and upon being

51a

satisfied that the making of the agreement for
arbitration or the failure to comply therewith
is not in issue, the court shall make an order
directing the parties to proceed to
arbitration in accordance with the terms of
the agreement. The hearing and proceedings,
under such agreement, shall be within the
district in which the petition for an order
directing such arbitration is filed. If the
making of the arbitration agreement or the
failure, neglect or refusal to perform the
same be in issue, the court shall proceed
summarily to the trial thereof. If no jury
trial be demanded by the party alleged to be
in default, or if the matter in dispute is
within admiralty jurisdiction, the court shall
hear and determine such issue. Where such an
issue is raised, the party alleged to be in
default may, except in cases of admiralty, on
or before the return day of the notice of
application, demand a jury trial of such issue
and upon such demand the court shall make an
order referring the issue or issues to a jury
in the manner provided by the Federal Rules of
Civil Procedure, or may specially call a jury
for that purpose. If the jury find that no
agreement in writing for arbitration was made
or that there is no default in proceeding
thereunder, the proceeding shall be dismissed.
If the jury find that an agreement for
arbitration was made in writing and that there
is a default in proceeding thereunder, the
court shall make an order summarily directing
the parties to proceed with the arbitration in
accordance with the terms thereof.

28 U.8.C. § 1738

State and Territorial statutes and
judicial proceedings; full faith and credit

The Acts of the legislature of any State,

52a

Territory, or Possession of the United States,
or copies thereof, shall be authenticated by
affixing the seal of such State, Territory or
Possession thereto.

The records and judicial proceedings of
any court of any such State, Territory or
Possession, or copies thereof, shall be proved
or admitted in other courts within the United
States and its Territories and Possessions by
the attestation of the clerk and seal of the
court annexed, if a seal exists, together with
a certificate of a judge of the court that the
said attestation is in proper forn.

Such Acts, records and judicial
proceedings or copies thereof, so
authenticated, shall have the same full faith
and credit in every court within the United
States and its Territories and Possessions as
they have by law or usage in the courts of
such State, Territory or Possession from which
they are taken.

735 ILCS 5/2-619(a)(3) and (b)
Involuntary dismissal based upon certain
defects or defenses

§ 2-619. Involuntary dismissal based upon
certain defects or defenses.

(a) Defendant may, within the time for
pleading, file a motion for dismissal of the
action or for other appropriate relief upon
any of the following grounds. If the grounds
do not appear on the face of the pleading
attacked the motion shall be supported by
affidavit:

ch: =

(3) That there is another action pending
between the same parties for the same cause.

53a

(b) A similar motion may be made by any
other party against whom a claim is asserted.

ILLINOIS SUPREME COURT RULE 20(a) and (b)

Rule 20. Certification of Questions of state
Law from Certain Federal Courts

(a) Certification. When it.shall appear
to the Supreme Court of the United States, or
to the United States Court of Appeals for the
Seventh Circuit, that there are involved in
any proceeding before it questions as to the
law of this State, which may be determinative
of the said cause, and there are no
controlling precedents in the decisions of

.- this court, such court may certify such
questions of the laws of this State to this
court for instructions concerning such
questions of State law, which certificate this
court, by written opinion, may answer.

(b) Contents of Certification Order. A
certification order shall contain:

(1) the questions of law to be
answered; and

(2) a statement of all facts
relevant to the questions certified and

showing fully the nature of the
controversy in which the questions arose.

ILLINOIS SUPREME COURT RULE 272
Rule 272. When Judgment is Entered.
If at the time of announcing final

judgment the judge requires the submission of
a form of written judgment to be signed by the

54a

judge or if a circuit court rule requires the
prevailing party to submit a draft order, the
clerk shall make a notation to that effect and
the judgment becomes final only when the
signed judgment is filed. If no such signed
written judgment is to be filed, the judge or
clerk shall forthwith make a notation of
judgment and enter the judgment of record
promptly, and the judgment is entered at the
time it is entered of record.

ILLINOIS SUPREME COURT RULE 304 (a)

Rule 304. Appeals from Final Judgments
That Do Not Dispose of an Entire Proceeding

(a) Judgments As to Fewer Than All
Parties or Claims ~-- Necessity for Special
Finding. If multiple parties or multiple
claims for relief-are involved in an action,
an appeal may be taken from a final judgment
as to one or more but fewer than all of the
parties or claims only if the trial court has
made an express written finding that there is
no just reason for delaying either enforcement
or appeal or both. Such a finding may be made
at the time of the entry of the judgment or
thereafter on the court’s own motion or on
motion of any party. The time for filing a
notice of appeal, the entry of the required
finding shall be treated as the date of the
entry of final judgment. In the absence of
such a finding, any judgment that adjudicates
fewer than all the claims or the rights and
liabilities of fewer than all the parties is
not enforceable or appealable and is subject
to revision at any time before the entry of a
judgment adjudicating all the claims, rights,
and liabilities of all the parties.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_1511%3A2. Public record. Not legal advice.