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Coastal Steel Corp. v. Ltd.

decided: May 17, 1983.



Gibbons, Hunter and Rosenn, Circuit Judges. Rosenn, Circuit Judge, concurring.

Author: Gibbons


GIBBONS, Circuit Judge.

Wheelabrator-Frye, Inc. (Wheelabrator) and Tilghman Wheelabrator Limited (Tilghman) seek appellate review of orders of the district court in a proceeding under 28 U.S.C. § 1334(b) (Supp. V 1981), which is in effect during the transition period under the Bankruptcy Code. Pub. L. No. 95-598, tit. IV, § 405, 92 Stat. 2686 (printed in note preceding 28 U.S.C. § 1471 (Supp. V 1981)). Wheelabrator seeks review of an order denying it leave to appeal from an order of the bankruptcy court. Tilghman seeks review of an order affirming the order of the bankruptcy court, which denied its motion to dismiss a civil proceeding against it related to a case under Title 11. See 28 U.S.C. § 1471(b) (Supp. V 1981), which is in effect during the transition period under the Bankruptcy Code. Pub. L. No. 95-598, tit. IV, § 405, 92 Stat. 2686 (printed in note preceding 28 U.S.C. § 1471 (Supp. V 1981)). Tilghman's motion asserted (1) that the contract on which its liability, if any, is predicated contains a forum selection clause which should be enforced, and (2) that the bankruptcy court is an inconvenient forum. The plaintiff in the section 1471(b) action is the debtor, Coastal Steel Corporation (Coastal). It contends that we lack jurisdiction to review either order, but should such jurisdiction exist, both orders should be affirmed. Assuming we have jurisdiction to review either order under any of the statutory provisions defining our reviewing authority, we must also consider whether in light of the decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S. Ct. 2858, 73 L. Ed. 2d 598 (1982), there is subject matter jurisdiction over the dispute in any federal court.


On November 9, 1976 Coastal, a steel fabricator with its principal place of business in New Jersey, contracted with Sir James Farmer Norton & Co., Ltd. (Farmer Norton), a British corporation, for an in-line steel working plant in turn-key condition ready for commercial production of cold-drawn steel bar in accordance with contract specifications. The Coastal-Farmer Norton contract contained a provision that any dispute between the parties would be settled by arbitration "where the property in contest is located." The plant was to be erected in New Jersey.

One component of the plant was a bar cleaning machine or blast unit. The contract did not specify the supplier of the blast unit, but prior to the execution of the agreement Coastal had suggested to Farmer Norton that it investigate such a unit manufactured by a British firm called St. Georges Engineers, Ltd. (St. Georges). In June of 1976 St. Georges submitted to Farmer Norton a quotation on a blast unit. Shortly after St. Georges submitted the quotation, it was acquired by Tilghman, a British corporation and a subsidiary of Wheelabrator-Frye, Inc. On November 26, 1976, several weeks after the execution of the Coastal-Farmer Norton contract, Tilghman informed Farmer Norton that St. Georges had seriously miscalculated the cost of the blast unit on which it quoted. Tilghman and Farmer Norton then contracted for a Tilghman blast unit at a price of $176,000, which was higher than St. Georges' original quotation but lower than Tilghman's revised cost estimate. The Tilghman-Farmer Norton contract provided that the blast unit would be built in England and delivered there to Farmer Norton. It also provided:

15. These conditions shall be construed in accordance with English law. In the event of any dispute arising the same shall be determined by the English Courts of Law.

Although delivery was made to Farmer Norton in England, Tilghman undertook to supervise the commissioning of the blast unit after its installation in Coastal's New Jersey plant. Tilghman arranged for its American parent company, Wheelabrator of Mishawaku, Indiana, to supervise the commissioning. In late 1979 Tilghman also sent a representative to New Jersey to make modifications on the blast unit.

On April 11, 1980, Coastal filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. In July of 1980 the debtor filed in the bankruptcy court a complaint against Farmer Norton, Tilghman, Wheelabrator, and Charterhouse Japhet Export Finance Company (Charterhouse), an English firm which financed Coastal's purchase from Farmer Norton. Farmer Norton never appeared and has gone bankrupt. Coastal settled with and dismissed its complaint against Charterhouse. Against Tilghman and Wheelabrator its complaint seeks recovery of over $4 million in consequential damages resulting from alleged defects in the Tilghman supplied blast unit.

Tilghman and Wheelabrator appeared and filed answers denying the material allegations of the complaint. They also moved to dismiss. The bankruptcy court denied the motion to dismiss without prejudice to its renewal after further discovery. After fairly extensive discovery, including depositions initiated by Coastal of various witnesses in England, Tilghman again moved to dismiss, relying both on the forum selection clause in the Tilghman-Farmer Norton contract and on the forum non conveniens doctrine. Wheelabrator joined in the motion in a reply brief. The bankruptcy court denied the Tilghman motion by an order dated November 9, 1981.

Both Tilghman and Wheelabrator applied to the district court, pursuant to 28 U.S.C. § 1334(b), for leave to appeal. The court granted such leave on January 27, 1982, but only as to Tilghman. On May 27, 1982 the district court granted Coastal's motion to dismiss Wheelabrator as an appellant and affirmed the order denying Tilghman's motions, for reasons which we address in Part IV.B infra. Tilghman and Wheelabrator moved the district court to certify, pursuant to 28 U.S.C. § 1292(b) (1976), that its order involved a controlling question of law as to which there is a substantial ground for a difference of opinion and that an immediate appeal might materially advance the ultimate termination of the litigation. The district court denied that motion. Tilghman and Wheelabrator have both appealed.


Tilghman and Wheelabrator originally relied for appellate jurisdiction, on 28 U.S.C. § 1291. The parties and this court recognized, however, that the less than clear provisions of Pub. L. No. 95-598, §§ 236-41, 405, 92 Stat. 2667-71, 2685 (1978), respecting appealability of orders in civil proceedings related to cases under Title 11, require this court to consider all possible sources of its authority to review the orders in question. Coastal contends that they are entirely unreviewable, while Tilghman and Wheelabrator urge that Congress could not have intended to foreclose review of orders denying enforcement of forum selection clauses or compelling litigation in inconvenient forums. The Northern Pipeline decision presents a further complication, for it is now clear that the bankruptcy court, the order of which the district court affirmed, does not have jurisdiction over Coastal's action against Tilghman and Wheelabrator. If the district court has such jurisdiction, as Local Rule 47(C)(3) of the District Court for the District of New Jersey appears to assume, we must consider whether our jurisdiction under 28 U.S.C. §§ 1651, 1291 or 1292 applies, or whether 28 U.S.C. § 1293 or 28 U.S.C. § 1471(d) governs. The problem is not a simple one.


If the case had been before the district court as a section 1332 federal question or a section 1331 diversity case, we would have jurisdiction under section 1292(a)(1). A motion to dismiss an action in order to give effect to a forum selection clause is in practical effect an application for specific performance of that contractual provision. It is analytically indistinguishable from a motion to stay an action at law pending arbitration. Grants or denials of such orders are reviewable under section 1292(a)(1). Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 293 U.S. 449, 79 L. Ed. 583, 55 S. Ct. 313 (1935); Gavlik Construction Co. v. H.F. Campbell Co., 526 F.2d 777 (3d Cir. 1975); Merritt-Chapman & Scott Corp. v. Pennsylvania Turnpike Comm., 387 F.2d 768 (3d Cir. 1967). Deferrals to non-arbitral tribunals have been treated similarly. In re Unterweser Reederei G.M.B. H., 428 F.2d 888 (5th Cir. 1970), aff'd en banc, 446 F.2d 907 (5th Cir. 1971), vacated on other grounds sub nom. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 32 L. Ed. 2d 513, 92 S. Ct. 1907 (1972); Alberto-Culver Company v. Scherk, 484 F.2d 611 (7th Cir. 1973), rev'd on other grounds, Scherk v. Alberto-Culver Co., 417 U.S. 506, 41 L. Ed. 2d 270, 94 S. Ct. 2449 (1974). The Bremen and Scherk are the Supreme Court's definitive modern pronouncements on the enforceability of contractual forum selection clauses. In each case the Supreme Court's appellate jurisdiction was, under 28 U.S. C. § 1254, derivative of the jurisdiction of the court of appeals, and in each case that jurisdiction was predicated on section 1292(a)(1).

Coastal contends that because some of the relief requested was equitable rather than legal, the Enelow-Ettelson*fn1 rule does not apply. We note that in The Bremen the underlying suit was in admiralty and that in Scherk both legal and equitable relief was requested. Thus it may well be that for purposes of reviewing interlocutory decisions on enforceability of forum selection clauses pursuant to section 1292(a)(1), the Supreme Court no longer recognizes the artificial Enelow-Ettelson distinction. But see Cotler v. Inter-County Orthopaedic Ass'n, 526 F.2d 537, 540-41 (3d Cir. 1975); Rodgers v. United States Steel Corp., 508 F.2d 152, 160 (3d Cir.), cert. denied, 423 U.S. 832, 46 L. Ed. 2d 50, 96 S. Ct. 54 (1975). In any event, we have examined the pleadings, and we conclude that whether on a contract or a tort theory, what Coastal seeks is money damages for the alleged malfunctioning of a machine. This is classic legal relief. Thus the appeal falls within the classic Enelow-Ettelson formulation, assuming section 1292(a)(1) applies to proceedings relating to bankruptcy.


Tilghman and Wheelabrator also urge that the orders are in any event appealable under section 1291 as collaterally final. Appellate jurisdiction, even in a section 1331 or section 1332 case, is on this theory more problematical. Section 1291 permits review of "all final decisions of the district courts," and Fed. R. Civ. P. 54(b) provides that "any order or other form of decision, however designated, which adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties shall not terminate the action . . . and . . . is subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties." The orders here in question fit literally within Rule 54(b). The Supreme Court has, however, recognized that some orders which fall literally within Rule 54(b) are nevertheless final for purposes of appellate review. The task of the lower federal courts in identifying such orders has not been aided by the Court's propensity to treat as interchangeable cases arising from state courts under section 1257 and from district courts under section 1291.*fn2 Its most recent effort, on the federal side, to instruct as to what orders are reviewable under section 1291 despite Rule 54(b) is Moses H. Cone Memorial Hospital v. Mercury Construction Corporation, 460 U.S. 1, 103 S. Ct. 927, 935, 74 L. Ed. 2d 765 (1983), which reiterated the test for collateral finality announced in Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 57 L. Ed. 2d 351, 98 S. Ct. 2454 (1978):

To come within the "small class" of decisions excepted from the final judgment rule by Cohen [v. Beneficial Loan Corporation, 337 U.S. 541, 93 L. Ed. 1528, 69 S. Ct. 1221 (1949)], the order must conclusively determine the disputed question, resolve an important issue completely separate from the merits of the action, and be effectively unreviewable on appeal from a final judgment.

For purposes of our analysis we perceive Tilghman and Wheelabrator to be similarly situated, in that the denial of leave to appeal deprived the latter of the opportunity to pursue the two issues -- enforceability of the forum selection clause and forum non conveniens -- which Tilghman raised in its section 1334(b) appeal. Thus we will address those two issues.


The forum non conveniens contention does not fit comfortably within the three-part Coopers & Lybrand formulation. The district court's affirmance established the rejection of the forum non conveniens contention as law of the case, and thus satisfied the first criterion -- conclusive determination of the disputed question. A forum non conveniens determination cannot easily be made, however, without reference to the merits of the case. As the Supreme Court observed in Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508, 91 L. Ed. 1055, 67 S. Ct. 839 (1947), considerations relevant to a forum non conveniens ruling include:

the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; possibility of view of premises, if view would be appropriate to the action; and all other practical problems that make trial of a case easy, expeditious and inexpensive.

These are considerations going to the merits of the case and requiring assessment of the substantive issues in the litigation. Moreover, even when a trial court misjudges a forum non conveniens claim, a reviewing court can, after final judgment, ascertain the degree of prejudice and reverse. See United States v. MacDonald, 435 U.S. 850, 859, 56 L. Ed. 2d 18, 98 S. Ct. 1547 (1978) (discussing post-trial review of speedy trial claim). Thus we do not believe that the rejection of a forum non conveniens claim is reviewable as a collaterally final order under section 1291.


The refusal to enforce the contractual forum selection clause, however, presents a different set of considerations. As with the forum non conveniens motion, the district court's affirmance has established that rejection as law of the case. Thus the first Coopers & Lybrand factor is satisfied. Moreover, the forum selection clause is far less obviously related to the substantive merits of the underlying dispute than is the forum non conveniens contention. We recognize, of course, that in determining whether or not to enforce such a clause the forum court may, as a matter of forum policy, look to factors similar to those bearing on the grant or denial of a forum non conveniens motion. See Copperweld Steel Co. v. Demag-Mannesmann-Bohler, 578 F.2d 953, 965 n.18 (3d Cir. 1978). Nevertheless a contractual clause selecting either a judicial or an arbitral forum for the resolution of disputes establishes a legal right which is analytically distinct from the rights being asserted in the dispute to which it is addressed. It is a right somewhat analogous to those recognized in Abney v. United States, 431 U.S. 651, 52 L. Ed. 2d 651, 97 S. Ct. 2034 (1977) (denial of motion to dismiss on double jeopardy grounds appealable under section 1291), and Helstoski v. Meanor, 442 U.S. 500, 61 L. Ed. 2d 30, 99 S. Ct. 2445 (1979) (denial of motion to dismiss on speech and debate clause grounds appealable under section 1291).

The more difficult question is whether the third Coopers & Lybrand factor is satisfied. In the Abney and Helstoski cases it was, because those cases involved claims of absolute immunity from participation in the legal proceedings in question, which could never be vindicated after final judgment. See also Forsyth v. Kleindienst, 599 F.2d 1203 (3d Cir. 1979), cert. denied, 453 U.S. 913, 101 S. Ct. 3147, 69 L. Ed. 2d 997 (1981) (claim of absolute official immunity). The right to specific performance of a forum selection clause is not absolute. Under the Supreme Court's formulation a court having subject matter jurisdiction must weigh competing considerations in deciding on enforceability of such a clause.

If the party asserting the applicability of the forum selection clause prevails on the merits of the underlying dispute, however, an erroneous denial of its specific performance will obviously escape review after final judgment. Moreover, if that party should lose on the merits of the underlying dispute, it is not at all clear that the forum selection clause would be an available ground for a post-final judgment reversal. The trial would ordinarily have been held in a court having jurisdiction, and a federal statute provides:

There shall be no reversal in the Supreme Court or a court of appeals for error in ruling upon matters in abatement which do not involve jurisdiction.

28 U.S.C. § 2105 (1976). This statute originated in section 22 of the Judiciary Act of 1789 as a qualification to the appellate jurisdiction of both the circuit courts and the Supreme Court over "final decrees and judgments in civil actions . . . upon a writ of error. . . ." 1 Stat. 73, 84. Thus it has never had any application to criminal cases, which under the 1789 Act were not appealable after final judgment,*fn3 or in appeals from state courts.*fn4 Moreover, since under the 1789 Act there was no equivalent of section 1292(a) or (b), the qualification should have no application to those subsequently enacted provisions. And since the 1789 Act in section 14, 1 Stat. 73, 81, provided separately for the exercise of discretionary review by common-law writs other than writs of error with no similar qualification, section 2105 can have no application to the discretionary interlocutory review provided for in the present equivalent of section 14, 28 U.S.C. § 1651 (1976). Finally, when section 2105 was enacted there was no Cohen doctrine. Thus we think that the section was originally intended to apply only to writs of error after a full trial, and to prevent post-trial consideration of non-jurisdictional pleas in abatement. Consistent with that purpose, it should not be held to be applicable to those collateral matters not going to the merits of the underlying dispute which are appealable to the courts of appeal by virtue of the Cohen doctrine. The only instance in which section 2105 can properly apply is in an appeal from a final judgment after a trial on the merits.

In that context the statute may well apply to an erroneous rejection of a claim that a forum selection clause should have been enforced. Nineteenth century lawyers were obviously better versed in the meaning of pleas in abatement than are we, since Fed. R. Civ. P. 7(c) has abolished them in favor of motions. What is now included, we suppose, are those non-jurisdictional motions which, if granted, would result in the dismissal of an action without prejudice to its reconsideration when refiled in another forum or in another pleading. See Bowles v. Wilke, 175 F.2d 35, 37-38 (7th Cir.), cert. denied, 338 U.S. 861, 94 L. Ed. 528, 70 S. Ct. 104 (1949). A motion for specific enforcement of a forum selection clause would seem to fit that mold. Such a motion is non-jurisdictional and has no direct bearing on the merits of the underlying dispute.

If, as appears, section 2105 would apply to a forum selection clause motion in a post-trial appeal, a ruling denying a motion would appear to satisfy all three of the criteria for review under the Cohen doctrine announced in Coopers & Lybrand. Thus entirely apart from the Enelow-Ettelson rule discussed in Part II. A. above, we hold that an order denying a pre-trial motion to enforce a forum selection clause is reviewable as a collaterally final order under section 1291. We hold, moreover, that since section 2105 was intended to protect the interest of the parties and the federal courts in fully completed trials, it does not apply to a Cohen appeal on a collateral order. Thus assuming section 1291 applies to proceedings relating to bankruptcy it would be a basis for jurisdiction to review the order denying the motion to enforce the forum selection clause.


Sections 1291 and 1292(a)(1) afford appeals of right. In addition, 28 U.S.C. § 1651 (1976), vests in the courts of appeals authority to issue writs in aid of their potential appellate jurisdiction. Unlike appeals under Section 1291 and 1292(a)(1), however, the relief available under section 1651 is not a matter of right. It involves the exercise of discretion in the appellate court in determining the appropriateness of interlocutory review of the order in question. There is no time limit for the filing of a petition for the relief available under section 1651, and thus there is no reason why this court may not treat an attempted appeal as such a review. We have on occasion done so. Cheney State College v. Hufstedler, 703 F.2d 732 (3d Cir. 1983); Hackett v. General Host Corp., 455 F.2d 618, 626 (3d Cir.), cert. denied, 407 U.S. 925, 32 L. Ed. 2d 812, 92 S. Ct. 2460 (1972). See 9 Moore's Federal Practice para. 110.28, at 316 (1982). Thus we clearly have the power under section 1651 to review both the forum non conveniens ruling and the forum selection clause ruling, assuming section 1651 applies to proceedings relating to bankruptcy. The question is whether, under the discretionary rules which have been developed under that section, that power should be exercised in given instances. 16 C. A. Wright, A. R. Miller, E. H. Cooper & E. Gressman, Federal Practice and Procedure § 3932, at 206 (1977); see generally Berger, The Mandamus Power of the United States Courts of Appeals: A Complex and Confused Means of Appellate Control, 31 Buffalo L. Rev. 37 (1982). No authority has been called to our attention which would preclude the exercise of discretion in favor of pretrial review of either a forum non conveniens issue or a forum selection clause issue. In a case where the trial court's error is on either issue egregious and the likely harm from delayed review serious we should exercise such review. Obviously, then, the appropriateness of section 1651 interlocutory review to some extent involves consideration of the merits of the challenged ruling. But we hold that if section 1651 applies to proceedings relating to bankruptcy we have discretionary power under that section to review both challenged rulings.


Coastal contends that the jurisdictional provisions of the Bankruptcy Act of 1978 (Bankruptcy Code) preclude the exercise of this court's reviewing authority over either the forum non conveniens issue or the forum selection clause issue. Those provisions, Coastal contends, preempt sections 1291, 1292 and 1651. In its view, the Bankruptcy Code intended to place all pendente lite rulings of a bankruptcy court beyond the reach of the courts of appeals and the Supreme Court. Since the federal appellate courts have had the remedial powers conferred by section 1651 since 1789, and those conferred in section 1292(a)(1) since 1891, Coastal's proposition is that the Bankruptcy Code placed the bankruptcy courts in a position in which their pendente lite rulings are to be more insulated from appellate review than those of any civil federal court in history. On its face the proposition seems extreme. Yet Coastal's argument from the text of the statute is plausible.

Original jurisdiction over Coastal's lawsuit depends on 28 U.S.C. § 1471(b), which authorizes the district courts to exercise jurisdiction over "all civil proceedings arising under title 11 or arising in or related to cases under title 11." Coastal's claims depend on state law, and its complaint does not allege complete diversity, but article III of the Constitution permits the exercise of a protective federal jurisdiction as broad as section 1471(b). Schumacher v. Beeler, 293 U.S. 367, 79 L. Ed. 433, 55 S. Ct. 230 (1934). However, the rulings in this instance were not made initially by an article III judge, but by a judge appointed under 28 U.S.C. § 153 (Supp. V 1981). In light of Northern Pipeline, that judge can no longer proceed with the trial. That judge also may have lacked power to make the challenged rulings, since they are of a type ordinarily requiring judicial ...

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