Opinion
CIVIL ACTION NO. 3:03-CV-0093-G.
June 13, 2003.
MEMORANDUM ORDER
Before the court are the following motions: (1) the motion of the plaintiff Ariba, Inc. ("Ariba") to compel arbitration; and (2) the motion of the defendant Michael E. Faulks ("Faulks") to transfer venue to the Northern District of California. For the reason discussed below, Ariba's motion to compel arbitration is denied and Faulks' motion to transfer venue is denied as moot.
Ariba commenced this case with a pleading styled Complaint/Petition for Order Compelling Arbitration. Section 6 of the Federal Arbitration Act provides, however, that "[a]ny application to the court hereunder shall be made and heard in the manner provided by law for the making and hearing of motions. . . ." 9 U.S.C. § 6. Accordingly, the court has considered Ariba's complaint as a motion to compel arbitration.
I. BACKGROUND
Faulks worked for Ariba from December of 1999 to March of 2002. Complaint/Petition for Order Compelling Arbitration ("Motion") at 2. From December of 1999 to October of 2001, Faulks' terms of employment were governed by three successive compensation policies ("prior policies"). See Defendant's Appendix in Support of Answer/Response to Complaint/Petition to Compel Arbitration ("Faulks Appendix") at 38-51 (the Fiscal Year 2000 Sales Compensation Plan); Faulks Appendix at 52-68 (the Fiscal Year 2000 Revised Sales Compensation Plan); and Appendix to Petitioner's Reply Brief in Support of Petition for Order Compelling Arbitration ("Reply Appendix") at 22-39 (the Fiscal Year 2001 Sales Compensation Policy). The prior policies contain identical arbitration clauses that require the parties to submit any disputes arising under them to binding arbitration under California law in Santa Clara County, California. See Faulks Appendix at 50, 62; Reply Appendix at 33. Beginning in October of 2001 and continuing through to March of 2002, Faulks' employment was governed by Ariba's Fiscal Year 2002 Sales Compensation Policy (the "2002 policy"). Exhibit A at 3, attached to Motion. The 2002 policy modified the prior policies' arbitration provisions by requiring "binding arbitration in the county in which [Faulks] was most recently employed with Ariba." Compare Faulks Appendix at 50, 62 and Reply Appendix at 33, with Exhibit A at 12, attached to Motion. Faulks worked in Dallas County, Texas until he ceased employment with Ariba. Motion at 2.
On November 4, 2002, Adam Brenner ("Brenner") and Faulks filed a complaint against Ariba in a California state court. Exhibit B at ¶¶ 1-5, attached to Motion. Faulks and Brenner filed an amended complaint on January 23, 2003. Faulks Appendix at 1-31. Faulks seeks recovery of allegedly unpaid compensation related to two transactions. Id. at 3-4, 89. Ariba now seeks to compel arbitration of Faulks' claims solely under the 2002 policy's arbitration provision.
II. ANALYSIS A. Applicable Law
In considering whether a dispute is subject to binding arbitration, the first step a court must take "is to determine whether the parties agreed to arbitrate that dispute." Mitsubishi Motors Corporation v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985). In general, this determination is made by "applying the federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [Federal Arbitration] Act." Id. (quoting Moses H. Cone Memorial Hospital v. Mercury Construction Corporation, 460 U.S. 1, 24 (1983)) (internal citations omitted). Here, the court sees no reason not to apply federal law in its analysis of whether this case is subject to arbitration. Neither party has argued that the Federal Arbitration Act ("FAA") does not apply to this dispute and the case appears to come within the FAA's purview. See 9 U.S.C. § 1 et seq. However, the FAA is not an independent source of federal jurisdiction and the party seeking relief under the FAA must demonstrate the existence of federal question or diversity jurisdiction. Rio Grande Underwriters, Inc. v. Pitts Farms, Inc., 276 F.3d 683, 685 (5th Cir. 2001). In this case, because the parties are citizens of different states, the basis of federal jurisdiction is diversity of citizenship. See 28 U.S.C. § 1332.
Federal law strongly favors arbitration. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 56 (1995) (the FAA "declared a national policy favoring arbitration.") (quoting Southland Corporation v. Keating, 465 U.S. 1, 10 (1984)); Moses H. Cone Memorial Hospital, 460 U.S. at 24-25 ("The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability."). Consequently, the FAA, by its terms, "leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218 (1985) (emphasis in original).
To decide whether parties should be compelled to arbitrate their dispute, the Fifth Circuit has developed a two-prong inquiry. OPE International LP v. Chet Morrison Contractors, Inc., 258 F.3d 443, 445-46 (5th Cir. 2001). The first prong requires the court to determine whether "the parties agreed to arbitrate their dispute." Id. at 445. Two considerations guide the court in making this determination: (1) whether a valid agreement to arbitrate exists between the parties; and (2) whether the dispute in question is within the scope of the arbitration agreement. Id. Under the second prong, the court must ensure that no legal restraints external to the agreement have foreclosed arbitration. Id. at 446. If the court finds that this two-prong inquiry is satisfied, arbitration is mandatory. Mitsubishi Motors, 473 U.S. at 628. Here, the court's analysis need only reach the first prong.
B. Agreement to Arbitrate their Dispute?
The narrow question presented in Ariba's motion to compel arbitration is whether Faulks' claims fall solely within the scope of the 2002 policy's arbitration provision. Motion at 6; Petitioner's Reply Brief in Support of Petition for Order Compelling Arbitration ("Reply") at 6. Arguing in the affirmative, Ariba cites the 2002 policy's integration clause and concludes that because the 2002 policy superseded and replaced the prior policies, Faulks should be compelled to arbitrate all his claims according to the 2002 policy' arbitration provision. Motion at 3-7; see also Exhibit A at 3, attached to Motion. On the other hand, Faulks argues that because the two transactions that serve as the bases of his claims occurred before the 2002 policy became effective, his claims necessarily fall outside the scope of the 2002 policy's arbitration provision. Defendant's Brief in Support of Answer/Response to Complaint/Petition to Compel Arbitration ("Response") at 6-7. Furthermore, Faulks asserts that the general language of the 2002 policy's integration clause cannot alter contractual rights that vested in 2000 and the arbitration provision in the 2002 policy "only governs disputes about compensation earned [and] arising under the 2002 plan." Response at 6 (emphasis in original). Therefore, the determinative issue is whether the 2002 policy's integration clause works to sweep all of Faulks' claims into arbitration under the 2002 policy's arbitration provision.
An integration clause, by triggering the parol evidence rule, precludes the enforcement of prior unincorporated agreements in the finalized contract and signals to the court that the contract is the entire agreement between the parties. Drews Distributing, Incorporated v. Silicon Gaming, Incorporated, 245 F.3d 347, 351 (4th Cir. 2001) (stating that the purpose of an integration clause "is to clarify that the contract in which it is contained is the parties' entire agreement"); Coal Resources, Inc. v. Gulf Western Industries, Inc., 756 F.2d 443, 447 (6th Cir. 1985) (noting that an integration clause "prevent[s] either party from relying upon statements or representations made during negotiations that were not included in the final agreement"); Coffman v. Provost * Umphrey Law Firm, LLP, 161 F. Supp.2d 720, 728 (E.D. Tex. 2001) (stating that an integration clause "precludes the enforcement of inconsistent or prior agreements in a finalized contract"), aff'd, ___ F.3d ___ (5th Cir.) (table), cert. denied, ___ U.S. ___, 123 S.Ct. 89 (2002); Boy Scouts of America v. Responsive Terminal Systems, Inc., 790 S.W.2d 738, 744-45 (Tex.App.-Dallas 1990, writ den'd) (stating that an integration clause "prevent[s] enforcement of prior or contemporaneous agreements which are inconsistent with the integrated agreement").
Here, the integration clause states that the 2002 policy "supersede[s] all prior representations, agreements, policies or plans regarding the matters described in the [2002 policy]." Exhibit A at 3, attached to Motion. Although this broad language evinces the parties' intent to prevent the enforcement of prior agreements pertaining to matters described in the 2002 policy, it cannot be said to evince the parties' intent to subject claims arising from the prior policies to the arbitration clause of the 2002 policy. See Smith v. Smith, 794 S.W.2d 823, 828 (Tex.App.-Dallas 1990, pet. withdrawn) ("A written agreement is not superseded or invalidated by a subsequent integration relating to the same subject matter if the agreement is such that [it] might naturally be made as a separate agreement."); see also Coffman, 161 F. Supp.2d at 728. Indeed, the 2002 policy contains no language that indicates the parties intended to retroactively renegotiate the arbitration provisions of the prior policies and, absent clear intent to the contrary, an integration clause does not extinguish "a party's right to litigate under prior contracts." Coffman, 161 F. Supp.2d at 729; see also Security Watch, Inc. v. Sentinel Systems, Inc., 176 F.3d 369, 372-73 (6th Cir. 1999), cert. denied, 528 U.S. 1181 (2000); Howell Crude Oil Company v. Tana Oil Gas Corporation, 860 S.W.2d 634, 638 (Tex.App.-Corpus Christi 1993, no pet.); Smith, 794 S.W.2d at 828. Therefore, because the 2002 policy's integration clause may not be stretched beyond the scope intended by the parties, see Equal Employment Opportunity Commission v. Waffle House, Inc., 534 U.S. 279, 294 (2002), the court concludes that Ariba cannot compel Faulks to arbitrate his claims solely under the 2002 policy's arbitration clause.
III. CONCLUSION
For the reasons discussed above, Ariba's motion to compel arbitration in Dallas County is DENIED. This case is DISMISSED without prejudice to Ariba petitioning the United States District Court for the Northern District of California to compel the arbitration of Faulks' claims pursuant to the arbitration provisions of the prior policies. Faulks' motion to transfer venue is DENIED as moot.