Opinion
Civil Action No. 3:04-CV-0150-L.
October 19, 2004
MEMORANDUM ORDER AND OPINION
Before the court are its sua sponte request for the parties to submit briefs on the matter of venue, as ordered on February 11, 2004; Plaintiff SB Engineers and Constructors, Ltd.'s ("SB") Brief on (1) the Propriety of Venue in this District and (2) the "First to File" Rule, filed on March 2, 2004; Respondent Alstom Power, Inc.'s ("Alstom") Memorandum of Law Regarding Venue, filed March 2, 2004; SB's Response to Alstom's Memorandum of Law Regarding Venue, filed March 9, 2004; and Alstom's Reply Memorandum of Law Regarding Venue, filed March 9, 2004. After careful consideration of the briefs, response, reply, and the applicable authority, the court determines that venue is appropriate in this district and that this action shall be tried in the Northern District of Texas, Dallas Division.
I. Background
This is an action to vacate an arbitration award brought pursuant to the Federal Arbitration Act ("FAA" or "Act"), 9 U.S.C. § 6. The underlying dispute stems from the performance of a subcontract agreement ("Agreement") between Alstom and SB for the installation and erection of mechanical and piping components at the Midlothian Extension Project, located in Midlothian, Texas. Alstom served as the general contractor, and SB served as one of its subcontractors on this project.
During the project, a contract dispute arose between the parties, and on November 9, 2001, SB initiated an arbitration under Article 48(b) of the parties' Agreement by filing a Demand for Arbitration with the American Arbitration Association. The arbitration was conducted in Washington, D.C. during the weeks of June 2, June 9, and June 16, 2003, before a three-member panel of arbitrators. On October 30, 2003, the panel issued its Award of Arbitrators ("Award"), providing for a net principal payment to SB in the amount of $1,364,405.
On January 27, 2004, SB filed this action to vacate the arbitration award, pursuant to 9 U.S.C. §§ 6 and 10, in the United States District Court, Northern District of Texas, Dallas Division ("Northern District of Texas"). Two days later, on January 29, 2004, Alstom filed an Application to Confirm Arbitration Award ("Virginia action") in the United States District Court for the Eastern District of Virginia, Alexandria Division ("Virginia court"). On February 6, 2004, SB filed an Application for Preliminary Injunction, seeking to enjoin Alstom from proceeding any further in the Virginia action pending resolution of SB's motion to vacate the arbitration award in this action.
On February 11, 2004, the court issued an order denying SB's Application for Preliminary Injunction on mootness grounds, as the Virginia court had issued a stay order on February 9, 2004. This court also questioned sua sponte whether venue was proper in this district in light of certain language contained in the parties' Agreement, and directed the parties to brief the issue. II. Analysis
The ultimate question that this court must decide is whether this action and the companion action in Virginia should be heard and decided by this court or whether this action should be transferred to the Virginia court and heard there.
A. The First-to-File Rule
In deciding the venue question, the court must first determine the applicability of the first-to-file rule. The court in which an action is first-filed is the appropriate court to determine whether subsequently-filed cases involving substantially similar issues should proceed. Save Power Ltd. v. Syntek Finance Corp., 121 F.3d 947, 950 (5th Cir. 1997). Parallel litigation of factually related cases in separate fora is inefficient. The first-to-file rule is a by-product of the well-established axiom that:
[t]he federal courts long have recognized that the principle of comity requires federal district courts — courts of coordinate jurisdiction and equal rank — to exercise care to avoid interference with each other's affairs. [citations omitted] . . . The concern manifestly is to avoid the waste of duplication, to avoid rulings which may trench upon the authority of sister courts, and to avoid piecemeal resolution of issues that call for a uniform result. [citations omitted] . . . To avoid these ills, a district court may dismiss an action where the issues presented can be resolved in an earlier-filed action pending in another district court.West Gulf Maritime Ass'n v. ILA Deep Sea Local 24, 751 F.2d 721, 728-29 (5th Cir. 1985). Under the first-to-file rule in this circuit, when related cases are pending before two federal courts, the court in which a case was last filed may refuse to hear it if the issues raised by the cases substantially overlap. Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 602 (5th Cir. 1999).
SB contends that the subject matter of the two cases is the same, the first-to-file rule applies, and this court obtained jurisdiction first. Alstom, on the other hand, contends that the first-to-file rule is inapplicable, as the Agreement's forum selection clause designates the Virginia court as the "mandatory" forum. Further, Alstom maintains that by treating this as a miscellaneous case, and by treating the physical act of service of process as akin to filing an action in court, the Eastern District of Virginia was the first federal court to obtain jurisdiction. The court is not persuaded by Alstom's contentions.
On January 27, 2004, SB initiated this action to vacate the arbitration award pursuant to 9 U.S.C. §§ 6 and 10. Two days later, on January 29, 2004, Alstom filed an Application to Confirm Arbitration Award in the Virginia court. Contrary to Alstom's assertions, the Virginia court did not obtain jurisdiction first, as the Virginia action was filed subsequent to the complaint in this case, and the first-to-file rule looks only to the sequence of filing events, not service of process, as the relevant metric for determining which court obtained jurisdiction first. As the court will discuss later in detail, it does not agree with Alstom's position that the forum selection clause designates a mandatory forum. Both this court and the Virginia court agree that the parties' competing motion to vacate and motion to confirm the arbitration award should be litigated together in a single court, as the issues substantially overlap. This is because a ruling on the motion to vacate would necessarily dispose of the motion to confirm, and vice-versa. Based on these facts, the court determines that the first-to-file rule applies, this court received the first filing, and it should be the court to decide whether venue is proper in this district for deciding the parties' post-arbitration disputes.
B. Proper venue under the Federal Arbitration Act
The court now addresses whether the Northern District of Texas is a proper venue to resolve the controversy surrounding an award. Under the FAA, a federal court sitting in the district where the award was made may consider and rule upon a motion to vacate an award. 9 U.S.C. § 10. Section 10 of the Act is, however, permissive, and proper venue for a motion to vacate an award also includes a judicial district where the arbitration was conducted or any of the districts where venue would be proper under the general federal venue statute. Cortez v. Byrd Chips, Inc. v. Bill Harbert Const. Co., 529 U.S. 193, 195 (2000); see also, Sutter Corporation v. PP Industries, Inc., 125 F.3d 914, 920 (5th Cir. 1997) (venue provisions of §§ 9 and 10 are permissive). As neither party requests this action to be transferred or heard in the District Court of Washington, D.C., the court need not discuss the judicial district where the arbitration was conducted. Pursuant to the general federal venue statute, a civil action wherein jurisdiction is founded only on diversity of citizenship may be brought in "a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred." 28 U.S.C. § 1391(a)(2). Here, a substantial part of the events or omissions giving rise to the parties' claims occurred in the Northern District of Texas at the Midlothian Extension Project, City of Midlothian, Ellis County, Texas. The court hereby determines that venue would be proper in the Northern District of Texas under the FAA and general federal venue statute.
C. Proper venue under the Agreement
1. Applicability of Paragraph 48
The court now addresses whether, pursuant to the Agreement's forum selection provision, the parties may litigate post-arbitration disputes arising from the Agreement in this district. The forum selection clause ("Paragraph 48") in this case provides, in pertinent part:
This Agreement to arbitrate shall be enforceable in the Courts of the Commonwealth of Virginia. Unless otherwise agreed upon by the Parties it is agreed that the arbitration proceedings shall take place in the Commonwealth of Virginia at such location as is determined by the AAA, regardless of the location of the Jobsite or Contractor's principal place of business.
Agreement ¶ 48(b). The clause, from its plain meaning, pertains only to the enforceability of the Agreement to arbitrate, that is, any dispute that might arise regarding the parties' obligation to arbitrate. Arbitration has taken place, and the enforceability of the Agreement is not in issue. A post-arbitration motion or action relates not to the enforceability of the Agreement to arbitrate, but to whether the Award should be vacated or confirmed. Therefore, Paragraph 48 does not even apply to post-arbitration matters.
2. Permissive or Mandatory Venue
In the event that Paragraph 48 is applicable, the resolution of the venue issue turns on whether venue is permissive or mandatory. Alstom contends that the provision specifically designates Virginia as the exclusive forum for resolving any disputes arising out of the Agreement. SB, however, asserts that the Agreement does not designate Virginia as the mandatory venue to the exclusion of all others, and venue is proper in this district.
Strongly implicit in the venue dispute is the question of whether the contract terms are ambiguous. A contract is ambiguous if it is susceptible to multiple reasonable meanings after the application of established rules of construction. See DeWitt County Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 100 (Tex. 1999). This issue is governed by Texas law. Whether a contract is ambiguous is a question of law for the court to decide. National Union Fire Ins. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995); Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983). This determination is made by looking at the contract as a whole in light of the circumstances present when the parties entered the contract. National Union, 907 S.W.2d at 520. If a contract is worded in such a manner that it can be given a definite or certain legal meaning, then it is not ambiguous. National Union, 907 S.W.2d at 520; Coker, 650 S.W.2d at 393. Ambiguity does not arise simply because the parties advance conflicting interpretations of the contract; rather, for an ambiguity to exist, both interpretations must be reasonable. Lopez v. Munoz, Hockema Reed, L.L.P., 22 S.W.3d 857, 861 (Tex. 2000); see also Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996); National Union, 907 S.W.2d at 520.
The parties entered into a construction subcontract agreement which stipulated that their Agreement be construed under the laws of the State of Texas. In pertinent part, the Agreement states: "This Agreement and any resulting agreement shall be construed according to and be governed and interpreted by and in accordance with the applicable law of the State of Texas." Agreement ¶ 49. Accordingly, this court will interpret the parties' Agreement, whenever applicable, in accordance with Texas contract law.
The meaning of the forum selection clause agreed to by the parties and whether venue in this district is proper under the Agreement are questions governed by federal law. See Haynsworth v. The Corporation, 121 F.3d 956, 962 (5th Cir. 1997), reh'g denied, 129 F.3d 614 (5th Cir. 1997), cert. denied, 523 U.S. 1072 (1998) ( citing International Software Systems, Inc. v. Amplicon, Inc., 77 F.3d 112, 114-15 (5th Cir. 1996)) (federal law provides rule of decision on issues related to enforceability of forum selection clause). The question of which district court is the appropriate court to decide post-arbitration motions under a forum selection clause turns on whether venue is permissive or mandatory. When an agreement contains clear language showing that jurisdiction is appropriate only in a designated forum, the clause is mandatory. See, e.g. First National of North America, LLC v. Peavy, 2002 WL 449582 at *1 (N.D.Tex. Mar.21, 2002) (parties agreed that "all claims shall be litigated only in Collin County, Texas"). By contrast, permissive forum selection clauses authorize jurisdiction in a designated forum, "but do not `prohibit litigation elsewhere.'" Excell, Inc. v. Sterling Boiler Mechanical, Inc., 106 F.3d 318, 321 (10th Cir. 1997) (citation omitted). See, e.g., Keaty v. Freeport Indonesia, Inc., 503 F.2d 955, 956 (5th Cir. 1974) (Language stating "[t]his agreement shall be construed and enforced according to the law of the State of New York and the parties submit to jurisdiction of the courts of New York" was construed by the court as not waiving the right to sue elsewhere.). Alstom maintains that the forum selection clause in this case is mandatory and relies on the phrase in the Agreement that "arbitration proceedings shall take place in the Commonwealth of Virginia" as indicative of the parties' intention to resolve any collateral litigation in Virginia. The court is not convinced.
In Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 F.2d 75 (9th Cir. 1987), the Ninth Circuit construed a forum selection clause that provided:
. . . Buyer and Seller expressly agree that the laws of the State of California shall govern the validity, construction, interpretation and effect of this contract. The courts of California, County of Orange, shall have jurisdiction over the parties in any action at law relating to the subject matter or the interpretation of this contract.Id. at 76. In holding that this language was permissive rather than mandatory, the court stated:
Here, the plain meaning of the language is that the Orange County courts shall have jurisdiction over this action. The language says nothing about the Orange County courts having exclusive jurisdiction. The effect of the language is merely that the parties consent to the jurisdiction of the Orange County courts. Although the word "shall" is a mandatory term, here it mandates nothing more than that the Orange County courts have jurisdiction.Id. at 77, cited with approval in Caldas Sons, Inc. v. Willingham, 17 F.3d 123, 127-28 (5th Cir. 1994). The language of the forum selection clause in this case is similar to that construed by the courts in Hunt and Caldas Sons. Although the parties set forth in their Agreement that the "Agreement to arbitrate shall be enforceable in the Courts of the Commonwealth of Virginia," nothing in the Agreement indicates that litigation is precluded elsewhere. The court therefore determines that the forum selection clause is permissive rather than mandatory, and it does not bar Plaintiff from filing its Motion to Vacate Arbitration Award in this district. For the reasons discussed and the authority cited herein, the court determines that Altom's interpretation is not reasonable. The forum selection clause therefore is not susceptible to multiple meanings, and the language is not ambiguous.
D. Virginia action
Now the court determines whether the Virginia Action should be dismissed, stayed, or transferred. The first-to-file rule not only determines which court may decide the merits of substantially similar cases, but also establishes which court may decide whether the second suit filed must be dismissed, stayed, or transferred and consolidated. Sutter Corporation, Inc., 125 F.3d at 920. Alstom has not contested that substantial overlap exists between the Texas and Virginia actions. The court determines, for the reasons previously stated, that Alstom's motion to confirm in Virginia, and SB's motion to vacate in Texas both present identical or virtually identical issues. As venue is proper in the Northern District of Texas, and this action was first-filed in this court, the Virginia action should be transferred to this district and consolidated with the Texas action.
III. Conclusion
For the reasons herein stated, the court determines that venue is appropriate in this district, and this action shall be tried in the Northern District of Texas, Dallas Division. The court also determines that this action and the Virginia action involve common questions of law and fact. The court further recognizes that this action and that in the Eastern District of Virginia should be litigated in the same forum, as the issues to be tried in both actions are the same or substantially overlap. The action in the Eastern District of Virginia should be transferred to this district, and the court will be in contact with the court in the Eastern District of Virginia to effect the transfer.
It is so ordered.