Reply Brief — Standard Fruit Co. v. Republic of Nicaragua

— =...

Supreme Court, U.S.

FILED

FEB 28 1992

No. 91-1154 OFFICE OF THE Clink

In THE

Supreme Court of the Anited States

OCTOBER TERM, 1991

STANDARD FRUIT COMPANY,

STANDARD FRUIT AND STEAMSHIP COMPANY,

and CASTLE & COOKE, INC.

Petitioners,

Vv.

REPUBLIC OF NICARAGUA,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Ninth Circuit

REPLY BRIEF FOR PETITIONERS

STEVEN M. SCHNEEBAUM

Counsel of Record

CHARLES E. TALISMAN

BENJAMIN G. CHEW

G. KENDRICK MACDOWELL

PaTToNn, Boccs & BLow

2550 M Street, N.W.

Washington, D.C. 20037

(202) 457-6000

Attorneys for Petitioners

a ee

PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES 00......cccccccccccccceccecccceeeeeen. il

INES -seeitsiith cissniscaatesasaheniemksskniedeemmiiintatiteseensia.: 1

I. Nicaragua Fails to Reconcile the Circuit Split

Created by the Ninth Circuit’s Improper De

Novo Review of Factual Findings ............... 2

II. Nicaragua Perpetuates the Ninth Circuit’s

Misreading of This Court’s Precedents .......

TI RINNIE ashinccassvaneaantlnncyavenntcenbiiesncetaciienccccs 10

il

TABLE OF AUTHORITIES

CASES: Page

AT&T Technologies, Inc. v. Communications Work-

ore, 473 U.S. GOS CROW ececcencnes 4,8,10

Eddy v. Prudence Bonds Corp., 165 F.2d 157 (2d

Cir. 1947), cert. denied, 333 U.S. 845 (1948) . 4

Genesco, Inc. v.. T. Kakiuchi and Co., 815 F.2d 840

(Ba Cir. BIBT) nevnccislsssiancaicacea ts eee 6

Interocean Shipping Co. v. National Shipping and

Trading Corp., 523 F.2d 527 (2d Cir. 1975),

cert. denied, 423 U.S. 1054 (1976) ............ccccees 2,3,8

Interpetrol Bermuda, Ltd. v. Kaiser Aluminium

Int’l Corp., 719 F.2d 997 (9th Cir. 1984) ...... 4

Marshall v. Green Giant Co., 942 F.2d 539 (8th Cir.

ROGUE) snxsinnesnssvicinreveviceuatchasiniietontonecuaiielea ieee nanan 2

Moses H. Cone Memorial Hospital v. Mercury Con-

struction Corp., 460 U.S. 1 (19838) ................. 10

Network Publishing Corp. v. Shapiro, 895 F.2d 97

COS GIR. FOOD cccexisemsechessiaignmanan 4

Nordin v. Nutri/System, Inc., 897 F.2d 339 (8th Cir.

RDG. sknixsssnisnncncaeinasnseinneteueielasaniatleaianalaaaapiuion 2,3,4

Par-Kmit Mills, Inc. v. Stockbridge Fabrics Co., 636

P.G Gl GR Cie. GO ccsceneees 2,3,4,9

Perry v. Thomas, 482 U.S. 483 (1987) ...............0.. 10

Pollux Marine Agencies, Inc. v. Louis Dreyfus Corp.,

455 F. Supp. 211, 217 (S.D.N.Y. 1978) ..........

Prima Paint v. Flood & Conklin Mfg. Co., 388 U.S.

Ne CRIED escasevnsnsiiibecctnncsimnamatabadmmancaiances 2,7,8,9,10

Seaboard Coast Line R.R. Co. v. Trailer Train Co.,

690 F.2d 1343 (11th Cir. 1982) ........................ 2,3,4

Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d

S36 GE CO. BOE) cmseiticcanaangdooo 6

Teledyne, Inc. v. Kone Corp., 892 F.2d 1404 (9th

CARP. SIIOD sicsncuntsixvasnicheuhientccsaapecaaianeimame acai 7,8

cence |

Table of Authorities Continued

Page

Three Valleys Municipal Water Dist. v. E.F’. Hutton

and Co., 925 F.2d 1136 (9th Cir. 1991) ......... 8

United States v. City of Twin Falls, 806 F.2d 862

(9th Cir. 1986), cert. denied, 482 U.S. 914

Ee Claas ticsescpaeesnsncsnwsenscnsssbsesbixasesbosavenias 3,4

STATUTES:

IN THE

Supreme Court of the United States

OCTOBER TERM, 1991

— —_—_

No. 91-1154

STANDARD FRUIT COMPANY,

STANDARD FRUIT AND STEAMSHIP COMPANY,

and CASTLE & COOKE, INC.

Petitioners,

v.

REPUBLIC OF NICARAGUA,

Respondent.

On Petition for Writ of Certiorari to the United

States Court of Appeals for the Ninth Circuit

REPLY BRIEF FOR PETITIONERS

Petitioners Standard Fruit Company (‘Standard

Fruit’), Standard Fruit & Steamship Company

(‘Steamship’), and Castle & Cooke, Incorporated

(“Castle & Cooke’’),! herein reply to the arguments

of Respondent Republic of Nicaragua (‘Nicaragua’)

set out in its Brief in Opposition to the Petition for

Writ of Certiorari (‘‘Nic. Br.”’).

Nicaragua’s efforts to minimize the Ninth Circuit’s

radical departure from precedent in this Court, and

its divergence from the holdings of other circuit

' Pursuant to Supreme Court Rule 29.1, Petitioners reference

the currently accurate corporate information contained in the

original Petition for Certiorari at p.5, n.1.

2

courts, are unavailing. The Ninth Circuit’s de novo

review of factual findings by the district court, and

its misinterpretation of Prima Paint v. Flood & Conk-

lin Mfg. Co., 388 U.S. 395 (1967), warrant certiorari

and reversal.

I. Nicaragua Fails to Reconcile the Circuit Split Cre- |

ated by the Ninth Circuit’s Improper De Novo Review

of Factual Findings

Under the Federal Arbitration Act, 9 U.S.C. § 4,

any doubt as to ‘“‘the making of [an] arbitration agree-

ment” is resolved as an issue of fact. This comports

with the statutory provision by which the party al-

leging that there was no such agreement may ‘“‘de-

mand a jury trial of such issue.” Jd. Here, Petitioners

did not ask for a jury, and so the factual question

whether there was “‘an agreement to arbitrate’ was

resolved by the district judge.

Not surprisingly, at least four circuit courts that

have addressed this point have interpreted 9 U.S.C.

§ 4 to mean precisely what it says. The Third Circuit

in Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636

F.2d 51, 54 (8d Cir. 1980), the Second Circuit in

Interocean Shipping Co. v. National Shipping & Trad-

ing Corp., 523 F.2d 527 (2d Cir. 1975), cert. den.,

423 U.S. 1054 (1976), the Eighth Circuit in Nordin

v. Nutri/System, Inc., 897 F.2d 339 (8th Cir. 1990),?

and the Eleventh Circuit in Seaboard Coast Line R.R.

Co. v. Trailer Train Co., 690 F.2d 1348 (11th Cir.

1982), all have held that factual determinations made

by a trial court in the course of reaching a decision

2 See also Marshall v. Green Giant Co., 942 F.2d 539, 548 (8th

Cir. 1991) (‘“‘when reviewing the district court’s factual findings

[disposing of a motion to stay pending arbitration], we apply the

same clearly erroneous standard that is applied when reviewing

the court’s findings after a bench trial’’).

about arbitrability are to be reviewed only for clear

error, and not de novo.

Nicaragua makes only a half-hearted effort to rec-

oncile these cases with the panel’s decision. Its at-

tempt to distinguish Par-Knit, for example, is limited

to the following: ‘In [Par-Knit], appellants argued

that the individual executing the contracts at issue

lacked the authority to bind the corporation.” Nic.

Br. at 28. But this is a factual distinction without a

difference. Nicaragua never addresses the Par-Knit

holding that “‘{i]f there is doubt about whether such

an agreement [to arbitrate] exists, the matter ...

should be submitted to a jury.” 636 F.2d at 54.

Nicaragua also never even mentions Nordin or Sea-

board. It is therefore somewhat disingenuous for Nic-

aragua to describe Interocean as ‘‘[t]he only case cited

by Petitioners as purportedly representing” a split

between the circuits. Nic. Br. at 15 n.9. And even

Interocean is inadequately distinguished. The Second

Circuit held there that a dispute over ‘‘whether there

was a meeting of the minds’ on essential terms of

a contract apparently containing an arbitration clause

is a question of fact, subject to the ‘‘clearly erro-

neous” standard of review. 523 F.2d at 534. The Sec-

ond Circuit did not apply the clear-error standard

because of the absence of signatures on documents,

as Nicaragua implies, but instead, as here, because

the district court properly entered factual findings on

whether there had ever been a meeting of the minds.

Thus the Circuits aligned with Petitioners’ position

on the proper standard of review of determinations

of arbitrability under 9 U.S.C. § 4 include the Second,

the Third, the Eighth, the Eleventh, ... and the

Ninth. The Ninth Circuit in United States v. City of

Twin Falls, 806 F.2d 862 (9th Cir. 1986), cert. den.,

482 U.S. 914 (1987), another case never addressed by

Nicaragua, expressly held that a trial court’s factual

findings about what parties mean by ambiguous con-

tract language are not to be overturned on appeal

unless clearly erroneous. 806 F.2d at 869. As with

Par-Knit, Nordin, and Seaboard, Nicaragua makes no

effort to distinguish or to explain Twin Falls, or the

case upon which it relies, Interpetrol Bermuda, Ltd.

v. Kaiser Aluminum Int’l Corp., 719 F.2d 992 (9th

Cir. 1984).

There is, therefore, a split between the circuits—

and even within the Ninth Circuit—if the panel de-

cision is allowed to stand, which would cause trou-

blesome and costly disputes in future cases. Nor can

Nicaragua rely on “‘the presumption this Court has

established in favor of arbitration,’”’ Nic. Br. at 15,

to avoid the clear teaching of the Court that ‘‘a party

cannot be required to submit [to arbitration] any dis-

pute which he has not agreed so to submit.’”’ AT&T

Technologies, Inc. v. Communications Workers, 475

U.S. 648, 648 (1986).*

In some parts of its Brief, Respondent appears to

argue that the appellate panel did not really review

the district court’s factual findings de novo, but merely

exercised its “‘untrammelled power to interpret writ-

ten documents.” Eddy v. Prudence Bonds Corp., 165

F.2d 157, 163 (2d Cir. 1947), cert. den., 333 U.S. 845

(1948).* But it is clear that this is not what happened.

3 AT&T is yet another case not so much as cited in Nicaragua’s

Brief.

‘ Nicaragua refers the Court to Judge Learned Hand’s words

in Eddy embedded in a reference to Network Pubiishing Corp.

v. Shapiro, 895 F.2d 97, 99 (2d Cir. 1990). Nicaragua neglects,

however, to reproduce the next sentence of the Network opinion:

“On the other hand, the district court’s findings regarding ex-

trinsic evidence and credibility determinations are in the nature

The district court, having found the language of the

Memorandm of Intent to be ambiguous (a conclusion

endorsed by the circuit, see 937 F.2d at 473, 476,

Petition for Certiorari (‘‘Pet.’’) at 9a, 16a), had to

rely upon extrinsic evidence to guide its construction.

The court did what the statute commanded: it held

an evidentiary hearing, listened to (and observed) wit-

nesses, and reviewed documentary evidence. It then

opined on the credibility of the witnesses it heard and

on the meaning of the documents it considered. And

it resolved disputes as to all of those matters in favor

of Petitioners.

The Ninth Circuit did not camouflage its de novo

review: it openly disagreed with the trial judge about

the relevance and meaning of exhibits, the credibility

of witnesses, and the significance of the parties’ be-

havior after the Memorandum was signed and after

the dispute underlying this lawsuit began.°

None of the cases string-cited by Nicaragua, Nic.

Br. at 14-15, stands for the proposition that a trial

court’s factual determinations of whether an agree-

of findings of fact ... and therefore subject to ‘clear error’

review under Federal Rule of Civil Procedure 52(a).”’ Jd. (citation

omitted).

‘For example, the trial judge found that Nicaragua’s failure

for four years to seek arbitration was evidence of its belief that

no arbitration clause existed. Findings of Fact ¢ 67; Pet. at 42a.

The panel disagreed. 937 F.2d at 479; Pet. at 22a. The judge

credited the testimony of the Memorandum’s draftsman (and his

Nicaraguan counterpart) as to what was intended by ambiguous

provisions. Findings of Fact 44 57, 69; Pet. at 39a, 42a. Again,

the panel substituted its own view. 937 F.2d at 473, 476; Pet.

at 10a, 16a. The panel accused the district court of “‘disre-

gard{ing]”’ the evidentiary value of a letter that was an exhibit

at trial. 973 F.2d at 473; Pet. at 10a. The list goes on: the

panel opinion is repiete with such appellate judgments of the

witnesses and evidence.

ment exists are subject to such de novo review. In

Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d

114, 121 (2d Cir. 1991), for example, the parties

agreed that their binding contract contained a valid

arbitration clause. The matter reviewed de novo by

the court of appeals was the. scope of the clause:

whether Shearson was required to arbitrate a claim

that it argued was not covered by its language. But

scope was not the principal issue before the Ninth

Circuit in this case.

Wagoner relies upon Genesco, Inc. v. T. Kakiuchi

and Co., 815 F.2d 840, 844 (2d Cir. 1987), for the

proposition that the scope of an arbitration agreement

is only one of four matters a court must determine

in ruling on a motion to compel arbitration. The first

is ‘“‘whether the parties agreed to arbitrate.”’ Jd. In

Genesco, the trial court found that the parties had so

agreed, and the Second Circuit found ‘‘no reason to

disturb this factual finding.” 815 F.2d at 845 (em-

phasis added). Thus, Genesco too supports Petitioners’

view.

Petitioners’ argument in the district court was iden-

tical to the contention in Genesco: both denied that

they agreed to arbitrate anything. The trial court,

after reviewing exhibits and taking testimony, agreed:

‘the Memorandum of Intent does not contain a pres-

ent agreement among the signatories to submit to

arbitration, but rather contains a provision declaring

the expectations of the parties that contracts to be

negotiated later would include agreements to arbi-

trate.”’ Findings of Fact ¢ 65; Pet. at 41a. This find-

ing was factual,® just as the finding in Genesco that

the parties had agreed was factual.

® The trial court additionally concluded that Paragraph IV of

the Memorandum did not “‘evidence{ ] a present agreement to

Nicaragua’s theory, conflating all grounds for or-

dering or denying arbitrability into legal questions of

interpretation, would write 9 U.S.C. § 4 out of the

statute book. In contravention of the statutory man-

date, and in contradiction to the holdings of other

circuits, the Ninth Circuit has accepted that theory.

For these reasons, the decision below should be

reviewed and reversed on the question of standard

of review.

II. Nicaragua Perpetuates the Ninth Circuit’s Misread-

ing of This Court’s Precedents.

The Ninth Circuit correctly cited Prima Paint for

the proposition that “‘courts may not consider chal-

lenges to a contract’s validity or enforceability as de-

fenses against arbitration.” 937 F.2d at 476; Pet. at

15a. But Judge Vukasin did not violate that stricture.

He did not opine that a contract was invalid or unen-

forceable. Rather, he held that there was no contract

at all—that the parties never intended to be bound.

That factual determination, derived from all of the

evidence, is not foreclosed by Prima Paint.

The panel’s error is most evident in this sentence,

which appears in the context of discussing a case,

Teledyne, Inc. v. Kone Corp., 892 F.2d 1404, 1410

(9th Cir. 1990), said to be in “accord” with Prima

Paint:

[W]here the parties admit to signing a doc-

ument that contains an arbitration provision,

as here and in Teledyne, all questions re-

garding breach of the agreement must be re-

ferred to arbitration.

arbitrate certain disputes,” Findings { 64, Pet. at 41a, and more-

over that, even if there was an agreement, this dispute was

outside its scope. Findings q 68, Pet. at 42a.

937 F.2d at 477; Pet. at 18a (emphasis added).

But ‘‘a document’’—even a “‘signed’’ document—is

not the same as an “agreement.’’? Whether a docu-

ment in fact codifies or enshrines an agreement is a

question of fact that must be resolved before any

dispute under it can be referred to arbitration.®

Invoking ‘“‘severability’’ as the sole canon of con-

tract interpretation is not a mandate of the Prima

Paint Court. Prima Paint does not require that a

court sitting pursuant to 9 U.S.C. § 4 decline to hear

anything but evidence of how the word “‘arbitration”’

came to be included in the signed document before

it. Rather, the trial court must, under 9 U.S.C. § 4,

determine whether ‘‘an agreement for arbitration was

made.’’ Without this threshold decision, denying ju-

dicial resolution of the dispute would violate what this

Court called in AT&T “‘first principle’ of arbitration.®

’ As noted in Interocean, even when there is a signed docu-

ment, ‘[w]hether there was a meeting of the minds is a question

of fact.’’ 523 F.2d at 534.

*In any event, Teledyne’s narrow holding concerns waiver of

the right to arbitrate, an issue that has never been advanced

in this case. In Teledyne, the party seeking arbitration denied

the validity of the contract, and the party resisting arbitration

asserted that such an attack waived the right to seek arbitration

under the contract. The Ninth Circuit quite properly construed

Prima Paint as designed to avoid the ‘‘absurd result” of seeking

judicial relief under a contract which, if valid, contained a valid

arbitration clause that would deprive the federal court of juris-

diction. 892 F.2d at 1410. No such absurdity infects judicial

resolution of the dispositive issue in this case. Here, as in Three

Valleys Municipal Water District v. E.F. Hutton and Co., 925

F.2d 1136 (9th Cir. 1991), Petitioners ‘‘deny the existence of the

contracts containing the arbitration provisions,” and thus the

existence of any arbitration agreement. Jd. at 1142 (emphasis

added).

° See p. 4, supra.

“The mere execution of a document ... does not

negate the factual assertion that such a signature was

not intended to represent a contractual undertaking.”’

Par-Knit, 636 F.2d at 54-55. Petitioners, before the

trial court, made such a factual assertion, and the

judge credited it. The doctrine of ‘‘severability’’ can-

not mean that the factual inquiry directed by Par-

Knit must be limited to locating ‘“‘a contractual un-

dertaking’” only to arbitrate. As one district court

phrased the point, “something can be severed only

from something else that exists.’ Pollux Marine

Agencies, Inc. v. Louis Dreyfus Corp., 455 F. Supp.

211, 217 (S.D.N.Y. 1978). Whether there was a con-

tract at all is a legitimate inquiry, and it differs in

principle from the question, addressed in Prima Paint,

whether the contract was valid.

Nicaragua repeatedly suggests that Petitioners

urged or that the district court held that the Mem-

orandum of Intent was ‘‘invalid.’”” They mischaracter-

ize Petitioners’ argument as contending that “‘the

district court was required to determine the validity

of the Memorandum,” see, e.g., Nic. Br. at 22, a po-

sition they consider foreclosed by Prima Paznt. But

that is not what Petitioners urged, and it is not what

the district court did after its evidentiary hearing.

The court found—as a fact—that ‘‘the Memorandum

reflected a mere agreement to agree. The Memoran-

dum of Intent was not a contract under which dis-

putes must be submitted to arbitration.”” Findings of

Fact, ¢ 63, Pet. at 41a.

| That is, the district court found that there was

| never a contract and hence no agreement to arbitrate.

The court carried out loyally its responsibility under

9 U.S.C. §4, and it did so without exceeding the

limits imposed by this Court in Prima Paint. It was

the Ninth Circuit panel which erred in its reading of

|

10

that decision, rendering it virtually inevitable that any

document, however preliminary or tentative, that uses

the word ‘‘arbitration’’ will be held to bind parties to

arbitrate, no matter what their intent, and no matter

how clearly they expressed it.

Conclusion

Petitioners acknowledge the “‘liberal federal policy

favoring arbitration agreements.’’ Moses H. Cone

Memorial Hospital v. Mercury Construction Corp., 460

U.S. 1, 24 (1983). But that policy must have outer

limits. This Court has recognized in AT&T and other

cases’ that arbitration is ultimately a matter of con-

tractual choice. Here, the trial court sitting as a finder

of fact found that there was no contract and hence

no agreement to arbitrate. That factual finding was

not clearly erroneous, nor did it exceed the limits laid

down in Prima Paint.

Since the decision of the Ninth Circuit conflicts with

numerous opinions of other circuits, and deviates from

binding precedents of this Court, it should be re-

viewed by writ of certiorari, and reversed.

10 F.g., Perry v. Thomas, 482 U.S. 483, 489 (1987), cited by

the panel, 937 F.2d at 475, Pet. at 13a, which notes that ar-

bitration cannot be required if “the agreement to arbitrate is

not part of a contract evidencing interstate commerce.”

Dated: February 28, 1992

Respectfully submitted,

STEVEN M. SCHNEEBAUM

Counsel of Record

CHARLES E. TALISMAN

BENJAMIN G. CHEW

G. KENDRICK MACDOWELL

PATTON, Boccs & BLOW

2550 M Street, N.W.

Washington D.C. 20037

(202) 457-6000

Attorneys for Petitioners