General Electric Company v. Deutz Ag

OPINION OF THE COURT

In this breach of contract suit, the District Court found that the defendant, a German guarantor, had sufficient contacts with Pennsylvania to be subject to personal jurisdiction. After a jury determination, the Court also found that the defendant was not entitled to invoke the arbitration clause in the underlying contract signed by its subsidiary. We will affirm these rulings. The Court also enjoined the defendant from applying to the English courts to enforce the alleged right to arbitration. *149 We will reverse the grant of that injunction principally on the grounds of comity.

In June 1993, plaintiff General Electric, a New York corporation with manufacturing facilities in western Pennsylvania, entered into a contract with Moteren-Werke Mannheim AG, a German corporation with headquarters in Mannheim, Germany. Essentially, the agreement provided that Moteren-Werke would design, and General Electric would manufacture, high horsepower diesel engines for locomotives. The contract also included a section in which Deutz AG, 1 the parent company of Moteren-Werke, guaranteed the obligations of its subsidiary.

By late 1997, the joint venture was encountering difficulties, and General Electric eventually called upon Deutz to provide the additional funding necessary for the work to continue. The parties held extended discussions, but were unable to resolve their differences. In December 1998, General Electric filed suit in the United States District Court for the Western District of Pennsylvania, asserting breach of contract claims against Deutz. The complaint sought damages as a result of lost sales and diversion of resources toward tasks that were the contractual responsibility of Moteren-Werke.

Deutz moved to dismiss for lack of personal jurisdiction or, alternatively, to compel international arbitration as it alleged the contract required. In July 1999, while these matters were proceeding in the District Court, Deutz sought arbitration before a panel of the International Arbitration Association in London.

The District Court issued an Opinion and Order on December 29, 1999, holding that Deutz’s contacts with the forum state, made in the course of pre-contract negotiations and post-contract visits by Deutz executives in an effort to resolve the parties’ dispute, provided sufficient evidence to support a finding of specific jurisdiction. The Court also ruled that the language of the contract did not unambiguously include Deutz within the scope of its arbitration provisions. The issue was submitted to a jury, which found that Deutz was not entitled to arbitration.

In April 2000, before the arbitration panel issued a decision, Deutz petitioned the High Court in London to enjoin General Electric from further proceedings in the Western District of Pennsylvania. The High Court declined to issue an injunction.

On July 31, 2000, the District Court enjoined Deutz from resorting to the High Court in the future. It was not until November 14, 2000, that the arbitration Panel held that General Electric and Deutz had not agreed to arbitrate their contractual disputes. Deutz has appealed all of the orders of the District Court.

I.

We first address our appellate jurisdiction. Generally speaking, an order finding personal jurisdiction is interlocutory and non-appealable. In this case, however, we have jurisdiction over the appeal from the injunction. 28 U.S.C. § 1292(a)(1). Interlocutory orders that are “inextricably bound” to an injunction may also be considered in the same appeal. Kerskner v. MazurKiewicz, 670 F.2d 440, 449 (3d Cir.1982) (en banc); see also Marshak v. Treadwell, 240 F.3d 184, 190 (3d Cir.2001) (“When we have jurisdiction to review an order relating to an injunction *150 under § 1292(a)(1), our jurisdiction extends to matters inextricably linked to the appealable order.”).

The order finding personal jurisdiction is essential to the validity of the injunction in this case. If jurisdiction does not exist, then the District Court necessarily lacked the power to issue the injunction. Accordingly, the personal jurisdiction matter is properly before us.

The ruling finding the arbitration clause inapplicable to Deutz is appealable under 9 U.S.C. § 16(a)(1). Again, there is an unmistakable overlap of issues between the injunction and the legitimacy of the order denying arbitration. We therefore have appellate jurisdiction over the orders presented in this appeal.

II.

PERSONAL JURISDICTION

Due process shields persons from the judgments of a forum with which they have established no substantial ties or relationship. In order to be subject to personal jurisdiction, a defendant’s conduct in connection with the forum state must be such that he may “reasonably anticipate being haled into court there.” WorldWide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980).

Once it is challenged, the burden rests upon the plaintiff to establish personal jurisdiction. Mellon Bank (East) PSFS, Nat’l Ass’n v. Farino, 960 F.2d 1217, 1223 (3d Cir.1992). A nexus between the defendant, the forum and the litigation is the essential foundation of in personam jurisdiction.

Personal jurisdiction may be either general or specific. A defendant is subject to general jurisdiction when it has continuous and systematic contacts with the forum state. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-16, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984).

Specific jurisdiction is established when a non-resident defendant has “purposefully directed” his activities at a resident of the forum and the injury arises from or is related to those activities. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985); see also Dollar Sav. Bank v. First Sec. Bank of Utah, N.A., 746 F.2d 208 (3d Cir.1984) (discussing personal jurisdiction).

Questions of specific jurisdiction are properly tied to the particular claims asserted. In contract cases, courts should inquire whether the defendant’s contacts with the forum were instrumental in either the formation of the contract or its breach. Phillips Exeter Acad. v. Howard Phillips Fund, Inc., 196 F.3d 284, 289 (1st Cir.1999). Parties who “reach out beyond [their] state and create continuing relationships and obligations with citizens of another state” are subject to the regulations of their activity in that undertaking. Burger King, 471 U.S. at 473, 105 S.Ct. 2174 (quotations omitted). Courts are not reluctant to find personal jurisdiction in such instances. “[Mjodern transportation and communications have made it much less burdensome for a party sued to defend himself in a State where he engages in economic activity....” Id. at 474, 105 S.Ct. 2174.

Specific jurisdiction frequently depends on physical contacts with the forum. Actual presence during pre-contractual negotiations, performance, and resolution of post-contract difficulties is generally factored into the jurisdictional determination. Remick v. Manfredy, 238 F.3d 248, 255-56 (3d Cir.2001); Farino, 960 F.2d at 1223-24. In modern commercial business arrangements, however, communication by *151 electronic facilities, rather than physical presence, is the rule. Where these types of long-term relationships have been established, actual territorial presence becomes less determinative. Burger King, 471 U.S. at 476, 105 S.Ct. 2174.

It is not significant that one or the other party initiated the relationship. Carteret Sav. Bank, FA v. Shushan, 954 F.2d 141, 150 (3d Cir.1992). In the commercial milieu, the intention to establish a common venture extending over a substantial period of time is a more important consideration.

The record here demonstrates both physical contacts and a deliberate assumption of long-term obligations. In 1993, when it began negotiations with General Electric, Moteren-Werke was one of several subsidiaries of Deutz. Both companies retained the same law firm in Philadelphia, Pennsylvania to represent their interests. After Moteren-Werke had reached an agreement with General Electric on most of the contract’s terms, the document was reviewed by Dr. Gunther Wagner, Executive Vice-President of Deutz and a member of its Board of Directors.

Moteren-Werke began performing its contractual obligations in Pennsylvania shortly after the agreement was signed on June 15, 1993. The following year, Dr. Wagner, who was not only a Deutz executive but also a member of the Moteren-Werke management board responsible for its engine business, met with General Electric officials in Pennsylvania. The parties addressed Deutz’s financial stability as well as other matters related to performance of the contract.

In 1996, Anton Schneider, Chairman of Deutz’s Executive Board, joined Moteren-Werke officials in a tour of General Electric’s Erie and Grove City, Pennsylvania facilities. At that time, he discussed with General Electric officials such matters as the development status of the engines and the level of resources required to complete the venture.

In mid-1996, Deutz moved to curtail its subsidiaries’ losses and reduce the number of Moteren-Werke employees on the General Electric project. The following year, the parties held a conference in Erie, Pennsylvania; in attendance were Peter Stark, a member of Deutz’s management board and chairman of the management board of Moteren-Werke, three other Moteren-Werke employees, and several General Electric officials. Stark promised that Deutz would supply additional resources for the project. He returned to Erie in February 1998 to determine if a new engine was ready for marketing.

In mid-April 1998, Deutz announced its intention to completely take over the Mot-eren-Werke business. Dr. Leopold Mikulic, a vice president of Deutz, traveled to Erie on three separate occasions in June and July of 1998 for meetings with General Electric representatives. Deutz’s Chairman Schneider accompanied him on the last of these occasions. Neither these sessions nor extensive correspondence enabled the companies to resolve their dispute. Accordingly, on December 22, 1998, General Electric filed suit in the District Court against Deutz alone, alleging that it and Moteren-Werke had breached the contract. 2

Deutz’s motion for dismissal contended that the Court lacked personal jurisdiction because the Deutz officials who came from *152 Germany were acting solely on behalf of Moteren-Werke and did not represent its parent company. The District Court rejected that contention, and we do not find fault with its conclusion. The record reveals that Deutz failed to keep its presence or interests separate from those of Moteren-Werke. Deutz’s financial status, a matter critical to its obligations as guarantor, was a frequent subject at the conferences held by the companies. Deutz’s continued requests for additional financial contributions from General Electric were likewise intimately related to the guarantor’s liability.

The Deutz and Moteren-Werke entities made little effort to maintain their independence. The overlapping and interlocking committees and officials came close to creating a de facto alter ego arrangement. 3 The visits by Deutz officials were not casual or fortuitous events, but serious efforts aimed at furthering the joint commercial enterprise. Deutz’s status as a guarantor was not merely incidental, but was an important, perhaps indispensable, ingredient of the project, and the stakes were not minimal.

In sum, the behavior of Deutz and its officials clearly amounts to “purposeful direction” of business activity toward General Electric, a Pennsylvania resident. It is also beyond dispute that this suit arose out of Deutz’s contractual endeavors. Finally, Pennsylvania’s assertion of personal jurisdiction over Deutz is neither unfair nor unreasonable.

Unquestionably, it is less convenient for a German corporation to litigate in Pennsylvania, but Deutz had actively overseen the performance of the contract in that state for five years with no apparent difficulties in communication or travel. Given that the contract was performed primarily in Pennsylvania, General Electric has an obvious interest in conducting this litigation there. Deutz, moreover, has failed to present any persuasive reason why the matter should not proceed in that forum. See Travelers Health Ass’n v. Virginia, 339 U.S. 643, 648, 70 S.Ct. 927, 94 L.Ed. 1154. (1950) (discussing state’s interest that contractual obligations be observed).

Thus, we conclude that the District Court correctly determined that Deutz’s activities adequately supported a finding of specific jurisdiction.

III.

THE ARBITRATION AGREEMENT

As its alternate challenge to the District Court’s jurisdiction, Deutz insisted that as guarantor, it and General Electric were bound by the terms of the arbitration provisions in the Moteren-Werke contract. Deutz contended that the question of arbitrability was one for the arbiters to decide in the first instance. Because the arbitration clause did not clearly and unmistakably provide for ar-bitral determination of jurisdiction, however, the Court ruled that it must resolve the issue. See AT & T Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 651, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (“It is the court’s duty to interpret the agreement and to determine whether the parties intended to arbitrate grievances.... ”). As events developed, Deutz ultimately did obtain a decision by the arbitration panel on jurisdiction, though it was adverse. Be that as it may, we are not relieved of our responsi *153 bility to review the District Court’s ruling.

The contract is titled “Commercial Agreement dated June 15th, 1993 between Moteren-Werke Mannheim AG and General Electric Company,” indicating that the Agreement was between those two entities. Those companies initialed every page of the Agreement; Deutz did not.

Section 7.01 provides that “[a]ll disputes, controversies, and claims directly or indirectly arising out of or in relation to this Agreement” shall be submitted to arbitration. Elsewhere in Article 7, which establishes arbitration procedures, the contract states that General Electric and Moteren-Werke would nominate the arbiters and that General Electric and Moteren-Werke agree to certain conditions. Deutz is not mentioned in that section.

Deutz signed the contract in a separate signature block, specifying that it was a party “for purposes of the obligations set forth in Section 9.08 hereof and Sections 4.05, 4.06, and 4.07 hereof.” Section 9.08 contains the guaranty, and Sections 4.05 through 4.07 require the parties and their affiliates to maintain the confidentiality of design and other information. Section 9.04, the only other portion of the agreement that mentions Deutz, provides that a copy of any notice to Moteren-Werke should also be sent to its parent company.

General Electric argued that Deutz had only agreed to be bound to the specific portions of the contract listed in the signature block, and had not expressly or impliedly adopted the arbitration clause. Deutz responded that although it limited its participation to specific portions of the agreement, the framework of that document, including such provisions as notice, governing law, and dispute resolution, was intended to be part of its commitment.

Applying the forum’s conflicts of laws doctrine, the District Court concluded that Pennsylvania law should govern because that state had the greatest interest in the outcome of the dispute. That forum was the site of most of the contract’s performance, as well as the location of much of the pre-contract negotiations. Although the arbitration clause called for the application of Swiss law, that provision applied to the arbitration proceeding, not to the initial determination of whether there had been an agreement on who would decide arbitrability. In any event, there did not appear to be any substantial difference between Pennsylvania and Swiss law in this respect.

After giving due consideration to the language of the contract and the parties’ conflicting interpretations, the Court concluded that the arbitration clause was ambiguous. Accordingly, the matter was submitted to a jury as permitted by the Federal Arbitration Act. See 9 U.S.C. § 4. After two days of testimony from both parties’ negotiators, the jury returned a special verdict, finding that General Electric and Deutz had not agreed to arbitrate their disputes.

Deutz now contests the District Court’s determination that the arbitration clause was ambiguous. Having reviewed the contractual language, however, we are not persuaded that the District Court’s ruling was erroneous. In finding that the contentions of both parties were reasonable, the Court took an even-handed view of the dispute that cannot, we conclude, fairly be criticized.

Deutz points to landmark Supreme Court decisions in support of its position that federal policy favors arbitration for the resolution of international commercial disputes, see Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631, 105 S.Ct. 3346, 87 *154 L.Ed.2d 444 (1985), and that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Although we agree that providing for dispute resolution in a neutral forum by an acknowledged competent agency is highly desirable, the matter does not end there. A court may only compel a party to arbitrate where that party has entered into a written agreement to do so. E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 193 (3d Cir.2001) (quotations omitted).

The United States Courts certainly recognize international arbitration agreements. Our nation, like the United Kingdom, Germany and scores of other countries, has adopted the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“The New York Convention”), June 10, 1958, 21 U.S.T. 2517, T.I.A.S. No. 6997, reprinted in 9 U.S.C. § 201 note. The Federal Arbitration Act implements the United States’ accession to the Convention, see 9 U.S.C. §§ 201-08, and provides that it “shall be enforced in United States courts....” Id. § 201. The arbitration clause in the instant case falls within the ambit of the Convention and the Federal Arbitration Act.

As the Supreme Court observed in Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n. 15, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974), the goal of the Convention is to encourage the recognition and enforcement of commercial contracts and to unify the standards by which arbitration agreements are observed. We have commented that “[t]he policy of the Convention is best served by an approach which leads to upholding agreements to arbitrate.” Rhone Mediterranee Compagnia Frúncese di As- sicurazioni E Riassicurazoni v. Lauro, 712 F.2d 50, 54 (3d Cir.1983).

Federal law applies to the interpretation of arbitration agreements. Scherk, 417 U.S. at 519-20, 94 S.Ct. 2449; Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 43 (3d Cir.1978). If the parties have stipulated that certain disputes will be submitted to arbitration and that the law of a particular jurisdiction will govern the controversy, federal courts will enforce that agreement. Becker Autoradio, 585 F.2d at 43.

Thus, “whether a particular dispute is within the class of those disputes governed by the arbitration and choice of law clause is a matter of federal law.” Id. The court decides the arbitrability of a dispute. Id. at 44 n. 10. Although the issue of ambiguity per se is one of law, resolution of the uncertainty is one for the fact-finder. See Ram Constr. Co. v. Am. States Ins. Co., 749 F.2d 1049, 1052 (3d Cir.1984).

In general, then, federal rather than state law governs international arbitration agreements. It appears, however, that there is a limited exception to this rule where the question is whether the controversy is arbitrable.

The Supreme Court has explained that if the arbitration agreement does not provide that the question of arbitrability vel non is to be decided by the arbitrators, then a court determines the issue. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944-47, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). In so doing, a court should apply ordinary state law principles governing contract formation. Id. at 944, 115 S.Ct. 1920. “Courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.” Id. (internal quotations omitted). On the *155 contrary, "the law treats silence or ambiguity about the question who (primarily) should decide arbitrability differently from the way it treats silence or ambiguity about the question whether a particular merits-related dispute is arbitrable. . . Id. (internal quotations omitted).

In these situations, the law reverses the ordinary presumption of arbitrabiity. Id. at 944-45, 115 S.Ct. 1920. This approach reflects a reluctance to "force unwilling parties to arbitrate a matter they reasonably would have thought a judge ... would decide." Id. at 945, 115 S.Ct. 1920.

We recognize that First Options is a domestic arbitration case, but the international nature of the present litigation does not affect the application of First Options' principles. In any event, the question of whether federal or state law applies is not a determinative factor at this point. Neither party urges the application of federal law to the interpretation of the agreement; they have limited their choices to either Swiss or Pennsylvania law. In general, we respect the choice of law that parties agree upon to resolve their private disputes. See Assicurazioni Generali, S.P.A. v. Clover, 195 F.3d 161, 164-65 (3d Cir.1999); see also 19 Charles A. Wright, Arthur H. Miller, & Edward H. Cooper, Fed. Prac. & Proc. § 4514, at 135 (2d ed. Supp.2001) ("[T]he law ordinarily allows parties to a contract to structure their affairs by choosing to have their contract governed by the body of law that best suits their needs. . . ."). In addition, we doubt that the application of federal law would change the outcome of this litigation in any significant respect.

Deutz further contends that the special verdict slip given to the jurors misled them by asking whether General Electric and Deutz "both agreed to arbitrate difficulties with each other." Deutz's only objection to this language at trial was aimed at the use of the word "both;" as its attorney stated, "[w]e have two people, they either agreed or didn't agree [the word "both" is] not necessary." We find no reversible error in the text of the verdictS slip.

Deutz also asks us to find that the evidence indicating an agreement to arbitrate was so overwhelmingly favorable to it that we should grant judgment in its favor on this point. We are not persuaded that the record supports Deutz's optimistic evaluation of the strength of its case, nor that we should reverse the jury's factual finding. "[J]ury verdicts can be overturned only if the record fails to contain the minimum quantum of evidence from which the jury could have rationally reached a verdict." Duttom v. Wolpoff & Abramson, 5 F.3d 649, 653 (3d Cir.1993) (internal quotations omitted).

In sum, we find no error in the District Court's resolution on the issue of arbitra-bility. Moreover, although not controlling on us or the District Court, it is interesting that the ICC Panel, applying Swiss law, also held that Deutz was not entitled to arbitration. Focusing first on the provisions listed in Deutz's signature block and the fact that the article establishing arbitration procedures did not mention Deutz, the Panel found the contract ambiguous.

Swiss law required the Panel to look to the parties' pre-contract history and other relevant circumstances. After considering Deutz's active participation in the negotiations, its refusal to add a reference to Article 7 in the signature block in spite of the attention this portion of the contract received during the final two weeks of negotiations, and the fact that all parties were assisted by lawyers, the Panel held that there was no arbitration agreement between Deutz and General Electric. It also observed that the outcome would not *156 have been different had it adhered to one of the other possibly applicable national laws.

We also note in passing Deutz’s contention that it is inconsistent to suggest that the company approached the status of Moteren-Werke’s “alter ego” for the purposes of personal jurisdiction, but not in connection with the arbitration clause. This argument confuses two very different issues, the terms of the contract and Deutz’s presence in Pennsylvania.

The fact that many Moteren-Werke officials were also high-ranking officers of Deutz is relevant to the personal jurisdiction analysis because the personal contacts these officials had with the forum state were made on behalf of both the parent company and its subsidiary. It is not the alter ego arrangement that gave the District Court personal jurisdiction over Deutz. Rather, it is the fact that Deutz officials — in their own capacity as well as in that of managers of Moteren-Werke— made frequent contact with General Electric in Pennsylvania for the purpose of discussing issues pertaining to Deutz’s obligations under the contract.

On the other hand, the contract text distinguishes the obligations of Moteren-Werke and its parent company. The interrelationship of the Deutz and Moteren-Werke officers simply does not alter their contractual arrangement and the obligations to which each company agreed. 4

IV.

THE INJUNCTION

As noted earlier, while the parties were litigating in Pennsylvania, Deutz initiated an arbitration proceeding before the International Chamber of Commerce Court of Arbitration in July 1999. Despite General Electric’s objections, the ICC assembled a panel of arbitrators to consider the jurisdictional issue.

After the ICC Panel set a schedule for its proceedings, Deutz applied to the Queen’s Bench Division of the High Court in London for an order restraining General Electric from seeking an injunction in the District Court in Pennsylvania against Deutz proceeding before the ICC.

Justice Thomas of the High Court, in a judgment dated April 14, 2000, dismissed the request. He emphasized that in the posture of the matter before the Court that he was “not in any way finally deciding the point.” Nonetheless, it appeared that “the words by which Deutz became a party to the agreement [did] not establish a serious issue to be tried on the question of whether [it] became a party to the arbitration clause.”

The High Court also recognized that each party had been given a full opportuni *157 ty to produce evidence in the District Court, which had applied principles similar to those adhered to by the Queen’s Bench. Finally, Justice Thomas remarked that Deutz would be able to assert its contentions in the forthcoming District Court proceedings, particularly the argument that comity should inform the deference to be accorded the jurisdiction of the ICC Panel. In the meantime, the ICC Panel continued to receive memorials and expert opinions from the parties bearing on the jurisdictional question.

After argument and further briefing, the District Court, citing its authority to enjoin parties from pursuing parallel litigation in foreign as well as domestic courts, issued an order on July 31, 2000, “permanently enjoin[ing] Deutz from appealing the forthcoming jurisdictional order of the Arbitral Tribunal to the English courts or from taking any other action in furtherance of its prosecution of the ICC arbitration.” Because the parties had purportedly completed their submissions to the arbitration panel, and nothing remained but the issuance of a decision, the Court limited its order, enjoining Deutz from appealing the ICC ruling to the English courts or taking further steps in arbitration thereafter.

The District Court acknowledged that its injunctive power must be exercised sparingly; parallel proceedings are ordinarily permitted to proceed simultaneously, at least until one has reached the stage where its ruling becomes res judicata. Recognizing that an intercircuit split has developed over the degree of deference owed foreign courts, the District Court concluded that the better approach emphasizes international comity. Using this standard, it would issue an injunction only if res judicata applied, or if the foreign proceeding threatened the Court’s jurisdiction over the matter at hand or a strong public policy of the United States.

The District Court first considered whether its February 28, 2000 order incorporating the jury verdict that found the dispute non-arbitrable was sufficiently final to serve as the basis of res judicata. Relying on Towers, Perrin, Forster & Crosby, Inc. v. Brown, 732 F.2d 345 (3d Cir.1984), the Court concluded that: “[0]ur order is clearly final and conclusive in the sense that the issue will not be relitigated in this Court during the proceedings on the merits of [ ] General Electric’s breach of contract claim.”

Even if this were not the case, the Court concluded in the alternative that the ICC proceeding posed a threat to its jurisdiction, reasoning that “if the Tribunal were to decide that the parties did agree to arbitrate, it would in effect be declaring that it had jurisdiction and this Court does not.” Finally, the Court found that preserving the sanctity of the jury verdict was an important public policy of the United States, and was made vulnerable by a potential ICC finding that the case belonged in arbitration.

We are persuaded that none of the bases relied upon by the District Court supports the issuance of an injunction in this case, and will discuss each of them in turn.

First, res judicata or claim preclusion 5 is designed to avoid piecemeal *158 litigation of claims arising from the same events. The determination of whether two suits are based on the same cause of action turns on the essential similarity of the underlying events giving rise to the various legal claims. Generally speaking, claim preclusion or res judicata requires a final judgment on the merits in a prior suit involving the same parties or their privies, and a subsequent suit based on the same cause of action. Churchill v. Star Enters., 183 F.3d 184, 194 (3d Cir.1999); see also Gregory v. Chehi, 843 F.2d 111 (3d Cir.1988) (describing generally the principles of res judicata). The party seeking to take advantage of claim preclusion has the burden of establishing it. United States v. Athlone Indus., Inc., 746 F.2d 977, 983 (3d Cir.1984).

Res judicata is commonly, and properly, pleaded as an affirmative defense in a second suit arising out of the same injury. See Churchill, 183 F.3d at 189. Only in aggravated circumstances may the court presiding over the first case anticipate the second by entering an injunction against initiation of further proceedings; the tendency to issue such injunctions should almost always be avoided. The judicial consensus is ably summarized by Wright and Miller in their treatise:

“However tempting it may be for a court to conclude that it is in the best position to assess the preclusive effects of its own judgments, application of preclusion principles requires familiarity not only with the first judgment but also with the subsequent proceedings. The first court should not lightly usurp the jurisdiction of another court to dispose of pending litigation.”

18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Fed. Prac. & Proc. § 4405, at 41-42 (1981).

In the case before us, only the interlocutory orders finding personal jurisdiction and dismissing Deutz’s arbitration request have been entered. General Electric’s claims against Deutz for damages have not been resolved. Although the order denying arbitration was appealable, see 9 U.S.C. § 16(a); 28 U.S.C. § 1292(a)(1), Deutz had not yet taken an appeal at the time the District Court entered its injunction.

In Towers, defendants appealed the California trial court’s dismissal of their petition to compel arbitration. 732 F.2d at 346. Before the appeal was decided, they filed suit in federal court in Pennsylvania, seeking an order compelling arbitration over the same dispute. While the federal action was pending, the California appellate court affirmed the order denying arbitration. Despite that ruling, the federal district court granted the petition for arbitration and stayed the California proceedings.