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Econo-Car International Inc. v. Antilles Car Rentals Inc.

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT


decided: June 28, 1974.

ECONO-CAR INTERNATIONAL, INC.
v.
ANTILLES CAR RENTALS, INC., APPELLANT

ON APPEAL FROM THE DISTRICT COURT OF THE VIRGIN ISLANDS, DIVISION OF ST. CROIX (D.C. Civil No. 89/1973).

Aldisert, Adams and Garth, Circuit Judges.

Author: Adams

Opinion OF THE COURT

June 28, 1974

ADAMS, Circuit Judge

This appeal presents two questions relating to the Federal Arbitration Act.*fn1 First, we must decide whether the Act grants to the district court for the Virgin Islands the authority to enforce an agreement to arbitrate contractual disputes.*fn2 Second, if we should decide that the Act has the effect of conferring such authority, we must also determine whether the district court for the Virgin Islands has the statutory power, in light of section 4 of the Act, to order that the arbitration between the parties be conducted in New York City as the contract provides.

The controversy prompting this appeal centers upon a franchise agreement between Econo-Car International, Inc., the franchisor, and Antilles Car Rentals, Inc., the franchisee. On February 25, 1972, Antilles notified Econo-Car that it intended to terminate the franchise agreement. It appears that each party asserted, under the contract, certain adjustments, adjustments which the other party resisted. Econo-Car advised Antilles that it desired to submit the various disagreements to the process of arbitral resolution pursuant to paragraph 15 of the franchise agreement.*fn3 Antilles refused to submit the disputes to arbitration, and Econo-Car thereupon filed a petition in the district court for the Virgin Islands to compel arbitration. On November 21, 1973, the district court ordered Antilles to "enter into arbitration proceedings in the City of New York in accordance with the terms of the [franchise] agreement. . . ."

On this appeal, Antilles challenges the district court's order on several grounds. First, Antilles seeks to establish that section 4 of the Federal Arbitration Act,*fn4 by its terms, does not confer power on the district court for the Virgin Islands to compel arbitration. The term "United States district court" as used in section 4 has, according to Antilles, an historic meaning that does not include the district court for the Virgin Islands. Further, Antilles points out that the definition of "district court of the United States" contained in 28 U.S.C. ยง 451 does not comprehend the district court of the Virgin Islands.

Second, Antilles contends that infirmities in the district court's reasoning in its previous memorandum opinion in Sewer v. Paragon*fn5 undermine its reliance on that decision in the case at hand. The district court's determination that the strong federal policy favoring arbitration supported the application of the Act in toto to the Virgin Islands ignored, according to Antilles, the clear import of the Act's terms.*fn6 Antilles suggests that, on the basis of the use of the claimed inconsistent phrases relating to the courts covered in separate sections, it would be, at least, no less reasonable to conclude that the Act does not extend authority to enforce arbitration agreements to the district courts of the Virgin Islands as to conclude that it does. In addition, Antilles emphasizes that in Jos. L. Muscarelle, Inc. v. American Timber and Trading Company, Inc.,*fn7 The Fifth Circuit held that the Arbitration Act did not apply to the Canal Zone. The court in Muscarelle, according to Antilles, relied heavily on the fact that "the district court for the Canal Zone [like the district court for the Virgin Islands] is not a "constitutional court established by Chapter 5 of Title 28. . . ."*fn8 The district court in Sewer, Antilles suggests, was incorrect in failing to follow Muscarelle.

Third, Antilles contends that even if section 4 of the Act is held to apply to the district court for the Virgin Islands, the court's order in this case is at odds with the specific terms of that section. Section 4 requires that "the hearing and proceedings, under such [arbitration] agreement, shall be within the district in which the petition for an order directing such arbitration is filed. . . ." Hence, Antilles asserts the district court for the Virgin Islands lacked the authority to order that the arbitration take place in New York City.*fn9

Econo-Car, in essence, claims that the substantive concerns underpinning the Federal Arbitration Act do not support any distinction based upon the particular federally-created court in which an order to enforce arbitration is sought, despite any contrary inference that may be drawn from the ambiguous language. Further, Econo-Car contends that Supreme Court opinions do not clearly indicate that the term "United States district court" has the narrow scope that Antilles suggests.*fn10

None of the arguments of the parties concerning the precise meaning of the uncertain statutory language and the relative wisdom of arguably conflicting judicial precedents*fn11 offers a persuasive rationale for disposing of this appeal. The absence of legislative material relating to the applicability of the Act to the Virgin Islands suggests that Congress did not consider the precise issue presented by this appeal. With the issue of the applicability of the Act to the district court for the Virgin Islands in this inconclusive posture, it would appear that we should reach a decision reflecting the strong federal policy, evidenced by the Act itself, favoring the enforcement of arbitration agreements. No conflicting policy considerations of significance are apparent. Thus, we conclude that the Federal Arbitration Act extends to the district court for the Virgin Islands, thereby conferring upon it the power to direct arbitration in the present case.

The order compelling arbitration in this case, however, raises a different problem. Under the order's terms, the contemplated arbitration is to take place in New York City, as specifically provided in the agreement between the parties. Section 4 of the Act permits a party to request an order requiring arbitration "in the manner provided for in such agreement." But Section 4 also provides that the arbitration, "shall be within the district in which the petition for an order directing such arbitration is filed." In a case like the present, where the agreement provides for arbitration outside of the district in which the petition is filed, Section 4 can create a perplexing dilemma: a district court might not be able to order arbitration strictly in accordance with the terms of the agreement, as one portion of Section 4 seems to require, without contravening a second portion of Section 4.

While any directive in Section 4 that arbitration be conducted according to the terms of the agreement is implicit at best,*fn12 the requirement that arbitration take place in the district court where the petition is filed is clear and unequivocal. Certainly the saving of resources occasioned by the geographic concentration of all proceedings provides an appropriate legislative basis for this limitation on the district court's power. We recognize that if the statutory language referring to the terms of the arbitration agreement is also given a restrictive reading, a party who seeks arbitration in a district court properly having venue may well be unable to secure an arbitration order in such district court in circumstances like those presented by this case.*fn12a Despite the somewhat paradoxical situation thus possibly created, we are inclined to heed the unambiguous statutory language limiting the district court's power to order arbitration outside of the district. We hold, therefore, that the district court erred in ordering arbitration to take place in New York City.*fn13

Accordingly, the judgment of the district court will be reversed and the case dismissed.


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