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In this diversity action, the Ninth Circuit reversed the district court order staying the plaintiff insured's domestic contract dispute against the defendant insurer pending resolution of arbitration proceedings in England. The Ninth Circuit held the district court abused its discretion and remanded for further proceedings.
Dependable Highway Express, Inc. ("Dependable") operated a warehouse in Los Angeles and a fleet of trucks to service warehouse customers. As a result of two cargo thefts in 1999 and 2001, Dependable incurred losses occasioned by third-party payments to aggrieved customers and defense costs. Dependable submitted a claim to its insurer, Navigators Insurance Company ("Navigators"). Navigators refused to reimburse Dependable and Dependable filed suit in California superior court, alleging breach of contract.
Shortly thereafter, Navigators commenced proceedings in the High Court of Justice, Queen's Bench Division, Commercial Court, in London, England purportedly pursuant to a provision in the Dependable policy designating English arbitration as a means for resolving disputes between the parties. This provision was included in the general terms and standard conditions contained in the "Columbus Wording" document, which Navigators asserted was part of Dependable's policy.
Dependable never appeared in England. After hearing ex parte testimony from Navigators' English lawyers, The English court granted an injunction and assessed court fees of approximately $23,000 against Dependable.
Around the same time, Navigators removed the California state case to federal court and answered Dependable's complaint. Navigators raised the English arbitration provision as an affirmative defense.
Navigators subsequently filed a motion to dismiss or stay the federal action in light of the English proceedings. Dependable opposed the motion, claiming the Columbus Wording (which included the English arbitration provision) was not part of its insurance policy. The district court granted Navigators' motion for stay in a brief minute order that acknowledged the English court's injunction and stayed the federal proceedings "pending the resolution of the London proceedings, including arbitration."
On appeal, the Ninth Circuit first considered whether it had jurisdiction to review the district court's stay since it was an interlocutory order. Although interlocutory orders are generally not immediately appealable, certain interlocutory orders may be deemed "final" for jurisdictional purposes and are immediately appealable. Specifically, an interlocutory order is immediately appealable if it puts a party "effectively out of court" under Moses H. Cone Memorial Hospital v. Mercury Construction Corp. (1983) 460 U.S. 1, 9 and Idlewild Bon Voyage Liquor Corp. v. Epstein (1962) 370 U.S. 713, 715 fn. 2.
In Moses H. Cone, the U.S. Supreme Court relied on its earlier decision in Idlewild and held that a district court's stay order allowing the parties to resolve an arbitrability issue in a concurrent state action was appealable because there would be "no further litigation in the federal forum." Additionally, the state's decision would be res judicata, leaving the defendant "effectively out of court."
The Ninth Circuit concluded the stay in the present case presented a "strong likelihood" that the English proceedings will leave one of the parties "effectively out of court." If the English arbitrators find in Navigators' favor, Dependable would have little recourse back in the district court. If Dependable were to prevail in England, its domestic suit would be mooted.
Having decided it had jurisdiction to review the district court's stay, the Ninth Circuit proceeded to review the district court's stay order for abuse of discretion, meaning, whether the district court's ruling was based on "an erroneous view of the law or on a clearly erroneous assessment of the evidence." The Ninth Circuit concluded the district court's state grounds for issuing the stay was erroneous.
The Ninth Circuit was critical of the district court's "extremely terse" stay order, which relied on two cases, Landis v. North American Co. (1936) 299 U.S. 248, 254-255 and Leyva v. Certified Grocers of California, Ltd. (9th Cir. 1997) 593 F.3d 857, 863-864. These cases establish the general principle that a district court possesses the inherent power to control its docket and promote efficient use of judicial resources.
While the Ninth Circuit agreed with this general principle, the court noted that case management alone is "not necessarily a sufficient ground to stay proceedings." Indeed, the Landis court also cautioned against a stay if "there is even a fair possibility that the stay … [would] work damage to some one else." If so, the stay may be inappropriate absent a showing by the moving party of "hardship or inequity." The Landis court further cautioned that a stay would be inappropriate if it would result in undue delay.
Applying Landis, the Ninth Circuit concluded there was more than a "fair possibility" that the stay would "work damage" to Dependable. The stay would require Dependable to arbitrate in a foreign country when it was unclear whether Dependable even agreed to do so and where the foreign court had already levied legal and equitable penalties against it. Navigators failed to establish a sufficient case of hardship.
Additionally, the district court's order staying Dependable's action did not specify a deadline for when the stay would be terminated. Generally, a stay should not be indefinite in nature. Accordingly, the Ninth Circuit held the district court committed an error of law.
Having determined the district court abused its discretion in issuing the stay order, the Ninth Circuit considered whether the stay should nevertheless be upheld under principles of international comity. Comity is "the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation." There are limitations to the application of comity, however. "No nation is under an unremitting obligation to enforce foreign interests which are fundamentally prejudicial to those of the domestic forum."
The Ninth Circuit cited to two cases, Laker Airways Ltd. v. Sabena Belgian World Airlines (D.C. Cir. 1984) 731 F.2d 909 and E.&J. Gallo Winery v. Andina Licores S.A. (9th Cir. 2006) 446 F.3d 984, as examples of circumstances when a U.S. court should not be bound by international comity. Laker Airways involved an anti-suit injunction filed in British court as a means to bar an earlier-filed domestic action. There, the district court cautioned domestic courts should be wary of enforcing foreign injunctions where the "clear thrust of the requested relief was the termination of the United States … claim."
In E.&J. Gallo Winery, Andina filed suit in Ecuador after a series of contractual disputes with Gallo. Gallo then filed suit in a California superior court pursuant to the contract's forum selection clause. After Andina removed the California action to federal court, the district court denied Gallo's request for a preliminary injunction restraining Andina's action in Ecuador, relying heavily on comity considerations. The Ninth Circuit held the district court abused its discretion. Even though Andina filed suit, respecting the Ecuadorian proceedings would frustrate the strong U.S. policy favoring enforcement of forum selection clauses, as well as the parties' agreement to litigate their disputes in California.
In light of the "inadequate record" before the court, the Ninth Circuit concluded invoking the international comity doctrine would be inappropriate. The clear thrust of Navigators' English action was to halt Dependable's domestic proceeding, a tactic frowned upon in Laker Airways. On the other hand, it was unclear whether the parties agreed to foreign arbitration because the terms of the policy were in dispute. Because the district court never addressed the contested arbitration clause, the Ninth Circuit declined Navigators' request to defer to the English anti-suit injunction.
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