Opinion
CIVIL ACTION NO. 01-2777 SECTION "C"(2)
May 14, 2002
ORDER AND REASONS
Marnie Zien, a third-year student at Tulane Law School, assisted in the researching and drafting of this Order and Reasons.
Before the Court is a Motion to Stay and Compel Arbitration, filed by Defendant Diebold, Inc. ("Diebold"), pursuant to Fed.R.Civ.P. 7(b) and the Federal Arbitration Act ("FAA"), 9 U.S.C. § et seq. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332. Considering the record, the memoranda filed by the parties, and the applicable law, the Court hereby GRANTS Diebold's Motion To Stay Action and Compel Arbitration for the reasons set forth below.
I. Introduction
This litigation arises from several contracts between plaintiff, Automated Technology Machines, Inc. ("ATMi"), and Diebold for goods and services related to automated teller machines ("ATMs"). ATMi is an owner and operator of and service provider for ATMs. See Def.'s Mem. in Supp. of Mot. to Stay Action and Compel Arbitration at 1. Diebold manufactures ATMs, ATM software and ATM hardware, provides cash handling, technical and other services for ATM machines, and owns and operates ATMs across the country. See id. In May 1997, ATMi executed a master Lease/Purchase Agreement with Diebold for the iq 1/Link system ("1/Link system"), which contained hardware and software to operate its ATMs and included a two-phase implementation of the system by Diebold. See Def.'s Supplemental Mem. in Supp. of Mot. to Stay Action and Compel Arbitration ("Def.'s Supplemental Mem.") at 4. Plaintiff alleges that implementation was to be completed by April 15, 1998. See First Am. and Supplemental Compl. and Demand for Jury Trial ("Am. Complaint") at ¶ 19. Because ATMi could not pay the approximately $1 million purchase price up front, Diebold alleges, Defendant Diebold Credit Corp. ("Diebold Credit") agreed to finance this transaction and retain ownership until this debt was satisfied. See Def.'s Supplemental Mem. at 4. Finally, ATMi alleges, in April 1999, the parties entered into a Cash Replenishment Agreement, in which Diebold agreed to transport, place, settle, and replenish vault cash in ATMi's machines. See ATMi Resp. at 3. According to ATMi, Diebold did not timely implement the 1/Link system, nor did it ever successfully complete implementation. See Am. Compl. at ¶¶ 19-28. ATMi also claims that Diebold engaged in wrongful billing of ATMi, as well as withholding of services due under the Maintenance and Cash Replenishment Agreements.See id. at ¶¶ 32, 53.
On April 30, 2001, ATMi filed suit in Civil District Court for the Parish of Orleans, State of Louisiana, for damages against Diebold, alleging fraudulent inducement, continuing fraud, and redhibition. See Pl.'s Pet. and Demand for Jury Trial. On September 11, 2001, Diebold timely removed the case. ATMi subsequently amended its complaint, alleging violations of the Louisiana Unfair Trade Practices Act ("LUTPA"), La. R.S. § 51:1401, et seq., the Sherman Act, 15 U.S.C. § 1, et seq., Louisiana antitrust laws, La. R.S. § 51:121, et seq., and breach of the covenant of good faith. See Am. Compl. Diebold now moves this Court to compel arbitration in Stark County, Ohio, the arbitration forum set forth in the arbitration clauses contained in the Master Lease/Purchase Agreement and the Program Product License Agreement. Diebold also moves this Court to stay these proceedings until arbitration is completed. ATMi opposes these motions for the following reasons: 1) this Court does not have jurisdiction to compel arbitration in a forum outside its district; 2) several claims alleged by ATMi do not fall within the scope of the arbitration clause, and thus are non-arbitrable; and 3) ATMi's antitrust claims, for public policy reasons, are not subject to arbitration.
II. Analysis
This Court's power to compel arbitration in a foreign forum
Section 2 of the FAA provides, in relevant part, "a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable . . . ." 9 U.S.C. § 2. There is a strong presumption in favor of arbitration for arbitrable disputes. See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983); Bhatia v. Johnson, 818 F.2d 418, 421 (5th Cir. 1987) (citingMitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985)). Under the FAA, a district court in which a suit with arbitrable issues is pending shall stay the action until arbitration has been had according to the arbitration agreement. See 9 U.S.C. § 3. Under the plain language of this statute, this Court has the power to stay the instant matter until the parties have undergone arbitration.
Section 3 of the FAA is entitled "Stay of proceedings where issue therein referable to arbitration" and states as follows:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.
(emphasis added).
Nevertheless, ATMi contends that this Court lacks the power to compel arbitration in the selected arbitration forum, Stark County, Ohio, as set forth in the Lease/Purchase Agreement and Product Program License Agreement. Section 4 of the FAA allows a party to petition a district court for an order compelling arbitration according to the arbitration agreement. But § 4 further provides that "the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such agreement is filed." Citing Sixth and Seventh Circuit caselaw, ATMi claims that this Court lacks the power to compel arbitration in Stark County, Ohio, because, according to those courts' interpretations of § 4, a court may order arbitration to take place only within its own district. See Mgmt. Recruiters Int'l v. Bloor, 129 F.3d 851 (6th Cir. 1997); Merrill Lynch, Pierce, Fenner Smith, Inc. v. Lauer, 49 F.3d 323, 328 (7th Cir. 1995); Snyder v. Smith, 736 F.2d 409 (7th Cir.), cert. denied, 469 U.S. 1037 (1984).
The Fifth Circuit, however, has stated that:
where a party seeking to avoid arbitration brings a suit for injunctive relief in a district other than that in which arbitration is to take place under the contract, the party seeking arbitration may assert its Section 4 right to have the arbitration agreement performed in accordance with the agreement.Dupuy-Busching Gen. Agency, Inc. v. Ambassador Ins. Co., 524 F.2d 1275, 1278 (5th Cir. 1975).
The Fifth Circuit has since confirmed its rejection of a "literal" application of Section 4 that would prohibit a district court from ordering arbitration to proceed outside its own district. Nat'l Iranian Oil Co. v. Ashland Oil, Inc., 817 F.2d 326, 331 (5th Cir.), cert. denied, 484 U.S. 943 (1987) (rejecting the Seventh Circuit's interpretation of § 4 in Snyder). Rather, the National Iranian Oil court adopted a more expansive interpretation regarding a district court's power under § 4, stating, "Dupuy-Busching suggests that the language of § 4 need not be applied literally, that there may be some cases in which district courts are empowered to compel arbitration notwithstanding the parties' contractually established forum or outside of the district in which the courts sit." Id. (emphasis added).
Dupuy-Busching is particularly applicable here. In that case, the plaintiff filed suit in the Southern District of Mississippi, although the forum selection clause at issue provided for arbitration in New Jersey.See 524 F.2d at 1276. The Fifth Circuit affirmed the district court's order to arbitrate in New Jersey, where the party seeking to avoid arbitration filed the action, and the arbitration order was in conformity with the forum selection clause. See id. at 1278. The Fifth Circuit noted that its purpose in affirming the order was to prevent parties from attempting to avoid arbitration by luring their opponents into the "procedural trap" of appearing in a court in a district outside the arbitration forum, thereby leaving the latter unable to seek an order compelling arbitration in that court and thus potentially waiving the right to compel arbitration. Id. at 1277. Similarly, ATMi filed suit in the Eastern District of Louisiana, despite arbitration clauses in valid contracts which require arbitration to be held in Stark County, Ohio, and now seeks to avoid arbitration. Thus, it is consistent with the Fifth Circuit's interpretation of § 4 to compel arbitration in Stark County, Ohio, in accordance with the provisions of the arbitration agreements.
Arbitrability of ATMi's claims
Although this Court has the power co stay the instant action and compel arbitration, it must also determine whether the claims asserted are arbitrable. A well-settled two-prong inquiry guides the Court here. See Mitsubishi Motors, 473 U.S. at 626; Pennzoil Exploration Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1065 (5th Cir. 1998); Webb v. Investacorp, Inc., 89 F.3d 252, 257-58 (5th Cir.) reh'g denied (1996). The first prong requires a court to determine "whether the parties agreed to arbitrate the dispute in question." Id. at 258. This prong involves two issues: 1) whether there is a valid arbitration agreement between the parties and 2) "whether the dispute in question falls within the scope of that arbitration agreement." Id. Once a court determines that the parties have satisfied the first prong, a court must then determine, under the second prong, "'whether legal constraints external to the parties' agreement foreclosed the arbitration of those claims.'" Id. at 258 (quoting Mitsubishi Motors, 473 U.S. at 628).
Regarding the first prong of the arbitrability test, this Court need only address the second issue — whether ATMi's claims fall within the scope of the arbitration clauses contained in the contracts between ATMi and Diebold. At issue here are the following contracts executed by the parties: (1) a master Lease/Purchase Agreement ("Lease/Purchase Agreement"), setting forth the terms of the purchase, lease and implementation support (provided by Diebold) in connection with the 1/Link software system, see Def.'s Supplemental Mem. at Ex. 3 ("Master Lease/Purchase Agreement Number 10077"); (2) an Assignment and Delegation of Rights, see Def.'s Supplemental Mem. at Ex. 5; (3) a Systems Support Agreement, see Def.'s Supplemental Mem. at Ex. 6; (4) a Systems Support Agreement and Consent, see Def.'s Supplemental Mem. at Ex. 7; (5) two Maintenance Agreements, which state that Diebold was responsible for servicing ATMi's ATMs, including inspecting, cleaning and diagnosing any problems with these machines, see Def.'s Supplemental Mem. at Exs. 8, 9.; (6) a Cash Replenishment Agreement, whereby Diebold agreed to transport, place, settle, and replenish the vault cash in ATMi's machines; and (7) at least one Program Product License Agreement, see Def.'s Mot. to Stay Action and Compel Arbitration at Ex. 4. The Lease/Purchase Agreement and the Program Product License Agreement contain clauses mandating arbitration in Stark County, Ohio. The Lease/Purchase Agreement contains an arbitration clause that reads as follows: "At Lessor's election, the parties shall submit any matter arising out of this transaction, including any claim, counterclaim, setoff, or defense, to binding arbitration by the American Arbitration Association in Stark County, Ohio or any other site mutually agreed upon." See Def.'s Supplemental Mem. at Ex. 3, ¶ 17(b) (emphasis added). The Program Product License Agreement also contains an arbitration clause. Entitled "Governing Law and Arbitration," it states, in pertinent part:
The parties do not dispute the validity of the arbitration agreements themselves.
This document is dated May 23, 1997, and was executed by ATMi, Diebold and Diebold Credit. See id.
This agreement is dated May 23, 1997, and was executed by ATMi and Diebold. See id.
This agreement is dated November 30, 1998, and was executed by ATMi, Diebold and Diebold Credit. See id.
The first Maintenance Agreement is dated December 16, 1997, and the second contract, dated March 1, 1999, is a renewal of the 1997 Maintenance Agreement. See id.
Its Supplemental Memorandum, Diebold contends that paragraph 16 of the Master Lease/Purchase Agreement — which provides that "[l]essee hereby waives any right to demand a jury trial . . . in connection with this lease" — is part of the arbitration agreement. As the Court finds that arbitration is provided for elsewhere in the Master Lease/Purchase Agreement, it is unnecessary to determine the impact of paragraph 16 upon the arbitrability of the claims here.
Diebold and Customer agree that any actions, except actions for injunctive relief, arising out of this Agreement or out of a refusal to perform the whole or any part thereof, shall be settled by arbitration. Any arbitration pursuant to this provision shall be conducted by an arbitrator having expertise in the field of computer software in Stark County, Ohio . . . .See Def.'s Supplemental Mem. at Ex. 4, Part 14.
The issue here is whether ATMi's claims fall within the scope of these arbitration clauses. As noted above, ATMi has asserted the following seven causes of action: fraudulent inducement; continuing fraud; redhibition; LUTPA violations; Sherman Act violations; Louisiana anti-trust law violations; and breach of the covenant of good faith. See Pl.'s Pet. and Demand for Jury Trial and Am. Compl.
In order to decide which claims are subject to arbitration, the Court must first determine whether the arbitration clauses are "narrow" or "broad." "Narrow" clauses include the language "arising out of this agreement," while "broad" clauses often contain the term "arising out of or relating to or in connection with this agreement." See Pennzoil, 139 F.3d at 1067; In re Hornbeck Offshore Corp., 981 F.2d 752, 754-55 (5th Cir. 1993). Unlike "narrow" clauses, which are limited to claims literally arising under the contract, "broad" clauses encompass all disputes which have a significant relationship to the contract, or even "touch" the contract. See Pennzoil, 139 F.3d at 1067-68; see also Tracer Research Corp. v. Nat'l Envtl. Servs. Co., 42 F.3d 1292, 1295 (9th Cir. 1994), cert. dismissed, 515 U.S. 1187 (1995) ("narrow" clause covers only those disputes "relating to the interpretation and performance of the contract itself") "[W]henever the scope of an arbitration clause is fairly debatable or reasonably in doubt, the court should decide the question of construction in favor of arbitration." Hornbeck, 981 F.2d at 755 (quoting Mar-Len of La., Inc. v. Parsons-Gilbane, 773 F.2d 633, 635 (5th Cir. 1985)). See also Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir. 1996). "Arbitration should not be denied 'unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation that would cover the dispute at issue.'" Pennzoil, 139 F.3d at 1067 (quoting Neal v. Hardee's Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990)).
The Lease/Purchase Agreement provides that "any matter arising out of this transaction" is subject to arbitration. Diebold argues that the term "this transaction," rather than "this agreement," warrants classifying this clause as "broad." The Court agrees. The use of the term "transaction," instead of the word "agreement," indicates the clause is not limited to that particular contract, but rather contemplates the subject matter and activity connected with the contract.
The Court does not need to determine the scope of the Program Product License Agreement arbitration clause because ATMi's claims do not, in any manner, relate to that Agreement.
Overall, the May 23, 1997, Lease/Purchase Agreement is very broad in scope. The arbitration clause, as noted, is broad. Given the Court's mandate to resolve any ambiguities as to the scope of an arbitration clause in favor of arbitration, the Court concludes that all of Plaintiff's claims flow from the Lease/Purchase Agreement. The subsequent contracts that Plaintiff seeks to distinguish are related enough to the Lease/Purchase Agreement to be likewise covered.
Turning to the second prong of the inquiry — whether "legal constraints external to the parties' agreement" foreclose arbitration, ATMi contends that its statutory claims are not subject to arbitration because "external legal constraints" exist that require it to remain in federal court. ATMi raises statutory claims under LUTPA, Louisiana antitrust law, and the Sherman Act. ATMi first argues generally that statutory claims do not fall within the scope of arbitration clauses, unless expressly provided for the language of the clause. Secondly, ATMi argues that antitrust claims, due to their complex nature and public policy interests, are inherently inarbitrable.
The Supreme Court has held that arbitration clauses may encompass federal statutory claims, and the party opposing arbitration has the burden of demonstrating that Congress intended to prohibit waiver of a judicial forum for the statutory rights. See Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 227 (1987). See also Mitsubishi Motors, 473 U.S. at 628-640 (defendant's Sherman Act claims arbitrable under international arbitration agreement); McMahon, 482 U.S. at 227-242 (respondents' claims under antifraud provisions of Securities Exchange Act, 15 U.S.C. § 78j(b), and treble-damage claims under Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c), arbitrable); Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 485 (1989) (petitioners' claims under § 12(2) of the Securities Act of 1933, 15 U.S.C. § 771(2), arbitrable). ATMi has not pointed this Court to any statutory language that would preclude Sherman Act claims from arbitration. ATMi also raises state statutory claims under LUTPA and Louisiana antitrust law. As is the case with its Sherman Act claims, ATMi has not directed this Court to either statutory language or case law that would preclude arbitration of these claims. Additionally, other courts in the Fifth Circuit have ordered unfair trade practice claims to undergo arbitration. See Defreitas v. Am. Gen. Fin., Inc., No. 01-2756, 2001 U.S. Dist. LEXIS 18076 (E.D. La. Oct. 24, 2001) (ordering arbitration of LUTPA claims); Commerce Park v. Mardian Constr. Co., 729 F.2d 334, 338 (5th Cir. 1984) (ordering claims under the Texas Deceptive Trade Practices Act (DTPA) to undergo arbitration, despite a DTPA provision prohibiting waiver of litigation, on the ground that enforcing this provision would violate the Supremacy Clause). ATMi's claims under the Sherman Act, state antitrust law and LUTPA are not barred from arbitration merely because they are statutory claims.
Finally, ATMi argues that antitrust claims are "inherently non-arbitrable." This Court acknowledges that at one time, several circuits, including the Fifth Circuit, adhered to the doctrine first set forth in Am. Safety Equip. Corp. v. J.P. Maguire Co., 391 F.2d 821, 826 (2nd Cir. 1968), which held antitrust claims to be inarbitrable for the public policy reasons of public interest in the enforcement of antitrust claims, the complex nature of antitrust laws, and a perceived inadequacy of arbitral tribunals. See Cobb v. Lewis, 488 F.2d 41, 47 (5th Cir. 1974).
However, since the spread of the American Safety doctrine, the Supreme Court has held, as noted above, that antitrust claims are subject to arbitration in the international context. See Mitsubishi Motors, 473 U.S. at 629 (1985). While the Mitsubishi Motors court limited its holding to antitrust claims arising out of international transactions, that court nonetheless rejected the three policy justifications which have buttressed the American Safety doctrine. See id. at 632-34 (rejecting as "unjustified" the justifications of protecting against adhesion contracts, the perceived complex nature of anti-trust claims, and the public interest in limiting enforcement of antitrust claims to judicial tribunals). The Fifth Circuit has acknowledged this rejection, stating that "[a]lthough the Supreme Court did not explicitly overrule American Safety in the domestic context, Mitsubishi rejected so much of American Safety's reasoning it is difficult to say what is left of the opinion to rely on." Majaya, Inc. v. Bodkin, 803 F.2d 157, 162 (5th Cir. 1986) (determining whether Securities Exchange Act and RICO claims were arbitrable). Furthermore, since Mitsubishi Motors, the Supreme Court has set forth the following framework to govern analyses of the applicability of the FAA to statutory claims, thereby casting doubt on the viability of the American Safety doctrine regarding antitrust claims:
The Arbitration Act; standing alone, . . . . mandates enforcement of agreements to arbitrate statutory claims. Like any statutory directive, the Arbitration Act's mandate may be overridden by a contrary congressional command. The burden is on the party opposing arbitration, however, to show that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue. If Congress did intend to limit or prohibit waiver of a judicial forum for a particular claim, such an intent will be deducible from (the statute's] text or legislative history or from an inherent conflict between arbitration and the statute's underlying purposes.McMahon, 482 U.S. at 226-27 (citations and internal quotations omitted). ATMi has not demonstrated that the Sherman Act contains any express prohibitions against arbitration.
Furthermore, since Mitsubishi Motors and McMahon, several circuits have expressly rejected the American Safety doctrine. Relying on Mitsubishi Motors and McMahon, the Eleventh Circuit has expressly overruled Cobb v. Lewis, the old Fifth Circuit's adoption of the American Safety rule. See Kotam Elecs., Inc., v. JBL Consumer Prods., Inc., 93 F.3d 724, 728 (11th Cir. 1996) (en banc), cert. denied, 519 U.S. 1110 (1997). The First and Ninth Circuits have also rejected American Safety. See Seacoast Motors of Salisbury, Inc. v. DaimlerChrysler Motors Corp., 271 F.3d 6, 11 (1st Cir. 2001); Nghiem v. NEC Elec., Inc., 25 F.3d 1437, 1441 (9th Cir.),cert. denied, 513 U.S. 1044 (1994). In light of Mitsubishi Motors, McMahon, the strong federal presumption in favor of arbitration, and ATMi's failure to demonstrate contrary Congressional intent, this Court holds that ATMi's antitrust claims must be sent to arbitration.
III. Conclusion
For the reasons specified above, IT IS ORDERED that:
Diebold's Motion to Stay Action and Compel Arbitration is hereby GRANTED.