Baltimore Contractors v. Bodinger/Opinion of the Court

The question in this case is whether an appeal may be taken to a court of appeals from a district court order refusing to stay an action for an accounting pending arbitration.

This equitable action was brought in a state court for an accounting of the profits of a joint venture in construction under the National Housing Act, 12 U.S.C.A. § 1701 et seq., and was removed to a federal district court on the basis of diversity of citizenship. Under the joint venture agreement, Baltimore Contractors agreed to pay the respondent twenty-five percent of the net profits on its construction contracts. The provision under which arbitration was sought reads as follows:

'In the event of any dispute in the calculation of the net     profits under this Paragraph, Frenkil shall select either      Wooden and Benson or Haskins and Sells or an accountant or      auditor named by either of them whose determination of all      such disputes shall be final and binding upon all parties to      the dispute.'

The complaint alleged a number of improper practices on the part of Contractors: the use of 'dummy' corporations to inflate costs; charges for machinery and material purchases without credits for value or surpluses after completion of the job; receipt of undisclosed rebates; excessive charges and rental for equipment; padded insurance costs, etc.

The petitioner moved for a stay of the action pursuant to § 3 of the United States Arbitration Act, 9 U.S.C. § 3, 9 U.S.C.A. § 3, which authorizes a stay by a federal court when an issue is 'referable to arbitration under an agreement in writing for such arbitration'. The District Court refused the stay on the ground that the agreement between the parties did not constitute an agreement to arbitrate. The court apparently construed the quoted provision as limited to mathematical disputes. Petitioner appealed to the Court of Appeals for the Second Circuit. 216 F.2d 192. On respondent's motion the Court of Appeals dismissed the appeal, citing City of Morgantown v. Royal Ins. Co., 337 U.S. 254, 69 S.Ct. 1067, 93 L.Ed. 1347. Certiorari was sought on the following question:

'Whether in an action for an accounting an interlocutory     order denying a stay under Section 3 of the United States      Arbitration Act should be regarded as a denial of an      injunction from which an appeal lies.' In view of the conflict between the decision below and Hudson Lumber Co. v. United States Plywood Corp., 9 Cir., 181 F.2d 929, we granted the petition, 347 U.S. 942, 74 S.Ct. 640.

Congress has long expressed a policy against piecemeal appeals. The reasons for such a policy were stated as follows:

'From the very foundation of our judicial system the object     and policy of the acts of congress in relation to appeals and      writs of error, (with the single exception of a provision in      the act of 1875 in relation to cases of removal, which was      repealed by the act of 1887) have been to save the expense      and delays of repeated appeals in the same suit, and to have      the whole case and every matter in controversy in it decided      in a single appeal.' McLish v. Roff, 141 U.S. 661, 665-666,      12 S.Ct. 118, 120, 35 L.Ed. 893.

Section 22 of the Judiciary Act of 1789, 1 Stat. 73, 84, provided that appeals in civil actions could be taken to the circuit courts only from final decrees and judgments.

That requirement of finality has remained a part of our law ever since, and now appears as § 1291 of the Judicial Code.

The trial court's interpretation of the quoted contract clause and its order denying a stay could not be called a final decision under § 1291. It was as surely an interlocutory order as the District Court's order in Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 293 U.S. 449, 451, 55 S.Ct. 313, 314, 79 L.Ed. 583. The question here presented involves the interpretation of 28 U.S.C. § 1292(1), 28 U.S.C.A. § 1292(1), which makes an exception to the requirement of finality, permitting appeals from 'interlocutory orders * *  * granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions, except where a direct review may be had in the Supreme Court'. Appealability here turns on whether the District Court's refusal to stay this trial for arbitration was the refusal of an 'injunction' under § 1292.

The provision for interlocutory appeals was first introduced in 1891 when the circuit courts of appeals were established as intermediate appellate courts. 26 Stat. 826. Section 7 of that Act allowed appeals from interlocutory orders in equity 'granting or continuing' injunctions, but from those only. Additions to the class of appealable interlocutory orders were made from time to time until the enactment of § 1292 in its present form. No discussion of the underlying reasons for modifying the rule of finality appears in the legislative history, authough the changes seem plainly to spring from a developing need to permit litigants to effectually challenge interlocutory orders of serious, perhaps irreparable consequence. When the pressure rises to a point that influences Congress, legislative remedies are enacted. The Congress is in a position to weigh the competing interests of the dockets of the trial and appellate courts, to consider the practicability of savings in time and expense, and to give proper weight to the effect on litigants. When countervailing considerations arise, interested parties and organizations become active in efforts to modify the appellate jurisdiction. This Court, however, is not authorized to approve or declare judicial modification. It is the responsibility of all courts to see that no unauthorized extension or reduction of jurisdiction, direct or indirect, occurs in the federal system. Shanferoke Coal & Supply Corp. of Delaware v. Westchester Service Corp., 293 U.S. 449, 451, 55 S.Ct. 313, 79 L.Ed. 583. Any such ad hoc decisions disorganize practice by encouraging attempts to secure or oppose appeals with a consequent waste of time and money. The choices fall in the legislative domain. They are enlargement of the allowable list of appealable interlocutory orders; abandonment of fragmentary appeals; or a general allowance of such appeals in the discretion of the trial judge upon findings of need, with or without the consent or approval of the appellate court.

A series of decisions of this Court has developed the rationale for determining the appealability of such an interlocutory order as this under § 1292 and its predecessors. The appealability of routine interlocutory injunctive orders raised few questions. See George v. Victor Talking Machine Co., 293 U.S. 377, 55 S.Ct. 229, 79 L.Ed. 439. There the statute was clear. It was when stays of proceedings, in distinction to injunctions, were appealed that the issue of jurisdiction became sharp. In Enelow v. New York Life Ins. Co., 293 U.S. 379, 55 S.Ct. 310, 79 L.Ed. 440, a case arising when federal courts had actions at law and proceedings in equity, a complaint at common law on a life insurance policy was met by an answer alleging fraud in the policy's procurement with a prayer for its cancellation and a motion to try the equitable issue first. The motion was granted, and jurisdiction on appeal from that order was approved on this reasoning:

'The power to stay proceedings in another court appertains     distinctively to equity in the enforcement of equitable      principles, and the grant or refusal of such a stay by a      court of equity of proceedings at law is a grant or refusal      of an injunction within the meaning of § 129 (§ 1292). And,     in this aspect, it makes no difference that the two cases,      the suit in equity for an injunction and the action at law in      which proceedings are stayed, are both pending in the same      court, in view of the established distinction between      'proceedings at law and proceedings in equity in the national courts and between the powers of those courts when      sitting as courts of law and when sitting as courts of      equity.' Per Van Devanter, J., in Griesa v. Mutual Life Ins. Co., (of New York), 8 Cir., 165 F. 48, 50, 51.' 293 U.S. at     page 382, 55 S.Ct. at page 311.

After the adoption of the one form of action by the Fed.Rules Civ.Proc., rule 2, we reiterated this ruling in a like case. Ettelson v. Metropolitan Ins. Co., 317 U.S. 188, 63 S.Ct. 163, 164, 87 L.Ed. 176. We said a stay of the complaint until disposition of the fraud issue 'is as effective * *  * as an injunction *  *  *. The statute looks to the substantial effect of the order made.'

The point was made in the Enelow case that power to stay mere steps within the framework of the litigation before a court differs as to appealability from an injunction prohibiting proceedings in another court. This distinction was applied in City of Morgantown v. Royal Ins. Co., 337 U.S. 254, 69 S.Ct. 1067, 93 L.Ed. 1347. There the insurance company brought a suit for reformation of the contract. The insured counterclaimed, seeking to enforce the contract as written, and demanded a jury trial; the company moved to strike the demand; the court granted the motion and set the case for trial to the court without a jury. The insured appealed and the Court of Appeals dismissed the appeal. We affirmed, holding that the Enelow rule did not apply; that since this was an equitable proceeding with a counter claim to enforce the policy, the decision to hear the reformation issue first without a jury was only a decision as to how to try the case, and therefore was not an interlocutory order in the nature of an injunction. To the argument that the importance of a jury trial justified treating the order of trial as an interlocutory injunction, we answered:

'Many interlocutory orders are equally important, and may     determine the outcome of the litigation, but they are not for      that reason converted into injunctions.' 337 U.S., at page      258, 69 S.Ct. at page 1069.

The Morgantown case controls here. Whether the District Court was right or wrong in its ruling that the contract provision did not require arbitration proceedings, it was simply a ruling in the only suit pending, actual or fictional. It was a mere order and not an injunction as that word is understood through the Enelow and the Ettleson cases as a stay through equitable principles of a common-law action. This present case is to be distinguished from the Shanfroke case, supra, note 5, in the same way. There in a common-law action a motion for an interlocutory injunction on an equitable defense was refused. The order was appealable under Judicial Code, § 129. This Court said:

'For the reasons stated in Enelow v. New York Life Ins. Co.,     293 U.S. 379, 55 S.Ct. 310, 79 L.Ed. 440, an order granting     or denying a stay based on an equitable defense or cross-bill      interposed in an action at law under § 274b *  *  * is      appealable under § 129.' 293 U.S. at page 452, 55 S.Ct. at     page 314.

The reliance on the analogy of equity power to enjoin proceedings in other courts has elements of fiction in this day of one form of action. The incongruity of taking jurisdiction from a stay in a law type and denying jurisdiction in an equity type proceeding springs from the persistence of outmoded procedural differentiations. Some simplification would follow from an assumption or denial of jurisdiction in both. The distinction has been applied for years, however, and we conclude that it is better judicial practice to follow the precedents which limit appealability of interlocutory orders, leaving Congress to make such amendments as it may find proper.

It is difficult to generalize as to whether interlocutory appeals are or are not advantageous to an efficient administration of justice. A compromise has been worked out by Congress through § 1292. But that compromise does not authorize appeals to simplify litigation. This ruling was a step in controlling the litigation before the trial court, not the refusal of an interlocutory injunction.

Affirmed.