Sunu M. Pillai | Construction Industry Counselor | May 3, 2018
The abstention doctrine allows a federal district court to stay or dismiss a case properly before it for reasons of “wise judicial administration.” The US District Court for the District of Rhode Island recently applied this doctrine, and elected to abstain from ruling on a Petition to Confirm an arbitration award, in a dispute involving the construction of three boats. See Wendella Sightseeing Co. v. Blount Boats, Inc., No. CV 17-368 WES, 2018 WL 1620925 (D.R.I. Mar. 30, 2018). A Petition to Vacate the arbitration award had been filed in state court four days before the Petition to Confirm was filed in federal court.
Blount, a Rhode Island based boat builder, built three boats between 2006 and 2012 for Wendella, an Illinois based boat tour operator, pursuant to three separate but similar construction contracts. Wendella considered the boats defective, and filed an arbitration claim against Blount alleging fraudulent inducement, breach of contract and breach of express warranties. After the arbitration panel awarded Blount more than $800,000, Wendella filed a Petition to Vacate the award, pursuant to the Rhode Island Arbitration Act (“RIAA”), in state court in Rhode Island. Four days later, Blount filed a Petition to Confirm the award in federal court, and removed Wendella’s Petition to Vacate. Wendella then filed a motion to remand the Petition to Vacate to state court, and moved to dismiss the Petition to Confirm on abstention grounds.
The Court first decided to remand the Petition to Vacate to state court. It noted that the Federal Arbitration Act (FAA) applies to this case, as opposed to the RIAA, as the contract involved interstate commerce. The contracts’ choice-of-law provisions requiring that their terms “be determined under Rhode Island law” was not specific enough to displace the FAA. Noting that the FAA bestows no federal jurisdiction, it found that there is no federal question jurisdiction over Wendella’s Petition to Vacate. It further found that the “federal ingredient doctrine,” which permits removal to federal court of a claim based on state law that requires resolution of a substantial question of federal law, also does not apply. The Court noted that there is no admiralty jurisdiction either for two reasons – i) contracts for the sales (as opposed to hiring) of vessels, are not subject to admiralty jurisdiction; and ii) the alleged tort (fraudulent inducement) was not based on an injury that occurred on navigable waters.
The Court then decided to abstain from, and to dismiss, the Petition to Confirm the arbitration award. It noted that the state court was the first to obtain jurisdiction over the parties, the state court is capable of protecting the parties’ interests, and that allowing the state court to proceed out of the shadow of a parallel federal case will avoid piecemeal litigation. Hence the court, “giving regard to conservation of judicial resources and comprehensive disposition of litigation,” elected to abstain. It also observed that such post award motions in separate courts would result in arbitration losing “some of its virtue as a speedy method of dispute resolution.”
This case underlines the importance of filing a Petition to Confirm an arbitral award as soon as possible. The order in which forums obtain jurisdiction is a major factor in a federal court’s decision to abstain.