Opinion
Civil Action No. 03-3578 (FLW).
December 16, 2003
MEMORANDUM OPINION
This matter was opened to the Court by Defendants Philips Oral Healthcare, Inc. and Philips Oral Healthcare Worldwide Sales Corporation (collectively, "Philips"), seeking to dismiss Plaintiff's Phil Singer Associates' ("Singer's") complaint, or alternatively, to stay the complaint. According to Philips, this matter should be submitted to arbitration. Having held oral argument on October 23, 2003, and after reviewing the parties' submissions and applicable case law, the Court now grants Philips' motion.
BACKGROUND
Philips is the manufacturer and marketer of the Sonicare power toothbrush. Complaint ¶¶ 3, 8. From 1996 through 2003, Singer promoted the sale of this toothbrush, on behalf of Philips, to the United States Military. Id. at ¶ 9. Philips and Singer entered into agreements, for each of these years, that governed their relationship. For the year of 2002, the parties entered into an agreement that includes the following arbitration clause:
According to Philips' representation at oral argument, the agreements prior to 2000 were with Philips' predecessor in interest, Optiva Corporation.
Any controversy or dispute between the parties hereto arising out of or relating to this Agreement or the breach thereof shall be finally settled by arbitration in King County, Washington.
Declaration of Micheael A. Cheah ("Cheah Decl."), Exhibit ("Exh.") 2 at ¶ 16 (hereinafter "2002 Agreement"). While the agreement does not explicitly provide for its renewal or extension, it provides that "[Philips] reserves the right during this Agreement and any extension thereof to change the commissions in which case [Singer] may terminate at once if not agreeable." Id. at ¶ 10 (emphasis added). The agreement further provides that it "shall be effective from January 1, 2002 through December 31, 2002," id. at ¶ 11, and that "[Philips] may terminate this Agreement at any time for cause upon written notice to [Singer]." Id. Lastly, the agreement provides that it "shall not be modified or amended except by written agreement signed by both parties." Id. at ¶ 16.
By the end of 2002, the parties had not entered into a new agreement for 2003. Nonetheless, Singer continued to market Sonicare on behalf of Philips in January 2003. Complaint at ¶ 15. Singer contends that it was induced to continue to perform services for Philips, after the expiration of the 2002 Agreement, by an unidentified Philips' employee, who represented that Philips would enter into an agreement with Singer, under which, Singer would be paid on a commission basis as opposed to the flat-rate compensation system of the 2002 Agreement. Id. at 15-16. Whatever the arrangement was between Philips and Singer during this time period, Philips terminated their arrangement at the end of that January by mailing a thirty-day, written notice of termination to Singer. See id. at ¶ 26. This notice requested that Singer continue working for Philips through February 2003 under the terms and compensation structure set forth in the 2002 Agreement. Id. Singer refused to continue to work for Philips through February 2003 and, instead, ceased performing services for Philips upon receipt of the notice. Philips offered to pay Singer $5,000 for services rendered in 2003, id. at ¶ 29, but Singer rejected Philips' offer. See Plaintiff's Memorandum of Law Opposing Defendants' Motion to Dismiss, or Alternatively, to Stay the Complaint ("Pl. Opp.") at 3.
Singer then filed this suit, asserting several causes of action against Philips. The theories asserted include: breach of contract, breach of implied in fact agreement, unjust enrichment and quantum meruit, promissory estoppel, theft of services and conversion, and fraud. Philips now moves to dismiss each of these causes of action, arguing that Singer's claims are subject to the mandatory arbitration clause found in the 2002 Agreement and, therefore, must be submitted to arbitration. Alternatively, should this court conclude that at least one of the claims is arbitrable, Singer moves to stay this proceeding pending resolution of those claims in an arbitration forum.
DISCUSSION
Standard of Review
"[A] party aggrieved by the alleged . . . refusal of another to arbitrate under a written agreement for arbitration may petition [a] United States district court . . . for an order directing that such arbitration proceed in the manner provided for in such agreement." 9 U.S.C. § 4. Although Philips has framed its arbitration petition as a motion to dismiss, the proper standard of review for such petitions is the summary judgment standard.See Berkery v. Cross Country Bank, et al., 256 F. Supp.2d 359, 364 n. 3 (E.D.Pa. 2003). Accordingly, to prevail on its motion, Philips must meet the dictates of Federal Rule of Civil Procedure 56(c). See id.
This means that Philips must demonstrate that there is no genuine issue as to any material fact, and that it is entitled to judgment as a matter of law. See id. (citing Fed.R.Civ.P. 56(c)). In reviewing the motion, the court must also consider Singer's evidence, and must construe all reasonable inferences in its favor. See id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986) and Versarge v. Twp. of Clinton, N.J., 984 F.2d 1359 (3d Cir. 1993)). On a typical motion for summary judgment, the court may not resolve any disputed issues of fact. However, where, as here, there is a dispute over whether a contractual arbitration clause compels arbitration, the district court must resolve this disputed issue. See Medtronic Ave, Inc. v. Advanced Cardiovascular Sys., 247 F.3d 44, 54 (3d Cir. 2001) (citing Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503, 1509 (3d Cir. 1994)).
Governing Principles
In ascertaining whether an arbitration clause compels arbitration, district courts are guided by several legal principles. As an initial matter, the court must apply federal law, including general principles of contract law, even where its jurisdiction is based on diversity of citizenship. Id. (citations omitted). "[F]or a court to enter an order compelling arbitration there must be sufficient evidence that the parties consented to arbitration in an express agreement." Id. (citations omitted). If the court concludes that the parties consented to arbitration, it must then determine whether the issue in dispute falls within the scope of the agreement. See id. at 55.
The court must, further, be aware of its limited role in deciding these questions. As stated by the Third Circuit Court of Appeals,
While a court . . . must determine whether there is a valid agreement to arbitrate and, if so, whether the specific dispute falls within the substantive scope of that agreement, its function nevertheless is very limited when the parties have agreed to submit all questions of contract interpretation to the arbitrator. It is confined to ascertaining whether the party seeking arbitration is making a claim which on its face is governed by the contract.Id. at 54-55 (citing United Steelworkers of Am. v. American Mfg. Co., 363 U.S. 564, 567-68 (1960) and United Paperworks Int'l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 36-37 (1987)) (alterations in original). Should the court determine that: (a) there is an agreement to arbitrate; and (b) the issue in dispute falls within the scope of that agreement, the court must submit the matter to arbitration, and may not rule on the merits of the case. Id. at 55 (citing Beck v. Reliance Steel Prods. Co., 860 F.2d 576, 579 (3d Cir. 1988)).
Moreover, federal policy favors arbitration. See id. (citations omitted); Nat'l R.R. Passenger Corp. v. Boston and Maine Corp., 850 F.2d 756, 761 (D.C. Cir. 1988); Becker v. Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 44 (3d Cir. 1978); Berkery, supra at 365. Therefore, an order to arbitrate "should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Medtronic, 247 F.3d at 55 (citations omitted). The Third Circuit has made clear, however, that "positive assurance" does not mean absolute certainty. See Paine Webber, Inc. v. Hartmann, 921 F.2d 507, 512 (3d Cir. 1990). While "[g]enuine interpretive disputes should be resolved in favor of arbitrability, . . . a compelling case for nonarbitrability should not be trumped by a flicker of interpretive doubt." Id. at 513. Rather, the parties' intent in drafting the arbitration clause is the touchstone by which district courts should judge whether a matter is arbitrable. See id.
When a district court concludes that a matter is arbitrable, the court may either stay the action pending arbitration or dismiss the suit. See Berkery, 256 F. Supp.2d at 364 (citations omitted). Courts may enter a stay where the complaint alleges causes of action that are not subject to arbitration in addition to those that the court concludes must be arbitrated.See Central Jersey Freightliner, Inc. v. Freightliner Corp., 987 F. Supp. 289, 300 (D.N.J. 1997). But where all of the claims are arbitrable, courts will often dismiss the complaint. See Blair v. Scott Specialty Gases, 283 F.3d 595, 602 n. 1 (3d Cir. 2002). Whether to stay or dismiss an action is within the district court's discretion. Berkery, 256 F. Supp.2d at 370 (citing Seus v. John Nuveen Co., Inc., 146 F.3d 175 (3d Cir. 1998)).
The Arbitration Clause of the 2002 Agreement
Turning to the arbitration clause at issue in the instant matter, I find the Third Circuit's decision in Becker Autoradio, supra, instructive. In that case, a U.S. corporation, which had been the exclusive U.S. distributor of radios and accessories manufactured by a foreign company, sued the foreign company for allegedly breaching its promise to renew their exclusive distribution agreement. The parties in that case had entered into a written agreement during 1974, which provided that it would expire on June 30, 1976. Id. at 41. The agreement also provided for its renewal:
In the event that the parties to the agreement should wish to extend the collaboration beyond June 30, 1976, this shall be subject to negotiations not later than 6 months prior to the expiration of the agreement.Id. After extensive negotiations, the parties were not able to agree on terms, and the contract expired on June 30, 1976.See id. The U.S. corporation then sued the foreign corporation in federal court, alleging that a representative of the foreign corporation orally promised renewal of the exclusive distribution agreement and that, by not renewing the agreement, the foreign corporation breached that promise. Id. According to the U.S. corporation, the promised agreement was to be on the same terms as the 1974 Agreement. Id.
The foreign corporation moved to stay the action, pursuant to 9 U.S.C. § 3 and 206, arguing that the arbitration clause found in the 1974 Agreement mandated arbitration. Id. at 41-42. The arbitration clause provided: "The Arbitration Court domiciled in Karlsruhe (Federal Republic of Germany) shall have sole jurisdiction with regard to all disputes arising out of and about this agreement. . . ." Id. at 42. The district court, first presented with the stay request, ruled that the 1974 Agreement's arbitration clause was not implicated by the U.S. corporation's suit because its suit was based on alleged oral agreements separate and distinct from the 1974 Agreement. Id. Consistent with this ruling, the court held that the dispute was not arbitrable and denied the foreign corporation's request for a stay.
On appeal, the Third Circuit rejected the district court's reasoning, holding instead that the existence, scope, and breach of the alleged oral agreement was arbitrable. In reaching this conclusion, the Third Circuit found several facts to be important. It noted, first, that the alleged oral agreement had been made prior to the expiration of the 1974 Agreement and, therefore, that the agreement related to the renewal and expiration terms of the 1974 Agreement. Id. at 44. Second, the Court noted that the oral agreement was to include the same terms as the 1974 Agreement. Id. at 45. The only difference between the 1974 Agreement and the promised agreement would have been the respective expiration dates. See id. Because the 1974 Agreement provided for termination and renewal, and the oral agreement also touched upon these issues, the Court concluded that the dispute arose out of the 1974 Agreement, within the meaning of the arbitration clause.Id. at 46.
The facts of this case are strikingly similar to those ofBecker Autoradio. Like the clause at issue in that case, the arbitration clause found in the parties' 2002 Agreement is broad, extending to "[a]ny controversy or dispute between the parties hereto arising out of or relating to this Agreement. . . ." The 2002 Agreement further provides for renewal of the Agreement, albeit in less than explicit terms, by stating that "[Philips] reserves the right during this Agreement and any extension thereof to change the commissions in which case [Singer] may terminate at once if not agreeable." Additionally, the Agreement clearly provides for termination, stating that: (1) the agreement was to be in effect from January 1, 2002 through December 31, 2002; and (2) "[Philips] may terminate this Agreement at any time for cause upon written notice to [Singer]."
Also, similar to the circumstances alleged in Becker Autoradio, Singer alleges that Philips procured its continued services, after their agreement had expired, "under the pretext of a promised, supposedly forthcoming written . . . contract. . . ." Complaint at ¶ 1. As to the timing of the alleged oral representations, which led Singer to believe that a new agreement was forthcoming, it is not clear from the complaint whether these representations took place during the pendency of the 2002 Agreement. Common sense dictates, however, that the representations must have taken place during this time period. Unless the representations were made prior to the expiration of the contract on December 31, 2002, Singer could not have been induced to perform services for Philips after the agreement expired.
In light of the factual similarities between this case andBecker Autoradio, it follows that the analysis employed inBecker Autoradio is controlling. Applying that analysis here, I conclude that the promised agreement, based on the alleged oral representations made by one of Philips' employees, relates to the termination and renewal provisions of the 2002 Agreement.Accord Gaston Andrey of Framingham, Inc. v. Ferrari North America, 983 F. Supp. 18 (D.Mass. 1997) ("Whether the obligation to arbitrate endured as the parties continued their business relationship without a renewed written . . . agreement is a dispute `arising out of or in connection with' the last written agreement they had.") (citation omitted). And because each of Singer's causes of action are premised on the alleged oral representations, I hold that the causes of action fall within the ambit of the 2002 Agreement's arbitration clause.
To be sure, Singer's allegations depart from those in Becker Autoradio in one regard. Singer alleges that, under the promised agreement, it would have been paid on a commission basis rather than the flat-rate basis of the 2002 Agreement. However, that the promised agreement would have utilized a different compensation formula does not suggest that it fails to arise out of the expired agreement. The key factor for determining whether a subsequent agreement arises out of an expired one, according to the Becker Autoradio Court, is whether the subsequent agreement touches upon issues addressed by the expired written agreement. As explained above, the promised agreement relates to the termination and renewal provisions of the 2002 Agreement. Thus, although the promised agreement may have differed slightly from the 2002 Agreement, I conclude that the former, nevertheless, stemmed from the latter.
Contrary to my conclusion, Singer argues that the expired agreement does not provide for renewal or extension. In support of this notion, Singer relies on the following contractual language: "This Agreement shall not be modified or amended except by written agreement signed by both parties." This language, according to Singer, suggests that the 2002 Agreement could not be unilaterally extended by Philips. See Pl. Opp. at 3.
It is not clear to the court how this language supports Singer's position. The language provides that both parties can amend the agreement "by written agreement signed by both parties." Presumably, then, the parties could amend the agreement's termination date in such a manner, thereby extending the term of the agreement. Therefore, contrary to Singer's contention, this language further supports my conclusion that the 2002 Agreement provides for renewal. To the extent Singer argues that the existence of this language precludes a finding that the agreement was actually extended, because there was no written agreement signed by the parties here, Singer's argument misses the mark. On a motion to compel arbitration, pursuant to 9 U.S.C. § 4, I am not authorized to decide whether the agreement containing the arbitration clause was extended; I may decide only whether the plaintiff's allegations arise out of or relate to that agreement. See Becker Autoradio, supra at 46.
Finally, I note that my holding is buttressed by the federal policy favoring arbitration. See Medtronic, supra at 55. As explained by the Third Circuit in Medtronic, an order to arbitrate "should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Id. (citations omitted). Because the 2002 Agreement's arbitration clause is "susceptible of an interpretation that covers the asserted dispute," as explained supra, the federal policy favoring arbitration is aptly applied here. Cf. Berkery, supra at 369 ("[W]here a dispute is over a provision of an expired agreement, the presumptions favoring arbitrability must be negated expressly or by clear implication.") (quoting Nolde Bros., Inc. v. Local No. 358, Bakery Confectionery Workers Union, AFL-CIO, 430 U.S. 243, 255 (1977)) (alterations in original). Moreover, while plaintiff cites to cases outside of this circuit for the proposition that the presumption of arbitrability may be rebutted where the governing agreement contains an explicit termination date, such cases are inconsistent with the Third Circuit's holding in Becker Autoradio. See id. at 44 (noting that the issue in that case was whether the arbitration clause applied to acts that took place after the expiration of the agreement that included the clause).
These cases include Virginia Carolina Tools, Inc. v. Int'l Tool Supply, Inc., 793 F. Supp. 664 (W.D.N.C. 1992) and Liberty Univ., Inc. v. Kemper Securities Grp., Inc., et al., 758 F. Supp. 1148 (W.D.Va. 1991).
CONCLUSION
For the foregoing reasons, Philips' motion to dismiss Singer's complaint is granted.
ORDER
This matter was opened to the Court by Marc De Leeuw, Esq. of Sullivan Cromwell, L.L.P., counsel for defendants, seeking to dismiss plaintiff's complaint, or alternatively, to stay the complaint, pursuant to 9 U.S.C. § 4, and the Court having held oral argument on this matter on October 23, 2003, and the Court having considered the parties' submissions, and for the reasons stated in the Opinion of the Court of this date, and for good cause shown,IT IS on this 16th day of December, 2003,
ORDERED that defendants' motion to dismiss pursuant to 9 U.S.C. § 4 is hereby granted; and it is further
ORDERED that arbitration shall proceed in the manner provided for in the 2002 Agreement; and it is further
ORDERED that this case is closed.