Opinion
No. 3-99-CV-0900-M.
May 31, 2000.
MEMORANDUM OPINION AND ORDER
This case is before the court on cross-motions for summary judgment. For the reasons stated herein, both motions are denied.
All parties have consented to allow the magistrate judge to make final rulings on dispositive motions in accordance with 28 U.S.C. § 636 (c). (Jt. Status Rep. ¶ 6).
I.
Plaintiff Ericsson, Inc. is a leading supplier of wireless telecommunications products and services worldwide. One such product is a low-tier telecommunications system known as the SuperCordless. (Plf. App. at 600 ¶ 4; Def. App. at 5 ¶ 4). During the summer of 1996, Ericsson and the ComScape defendants entered into negotiations regarding the development and implementation of the SuperCordless system in the Charleston, West Virginia market. (Plf. App. at 601 ¶ 5). These negotiations culminated in the execution of a Memorandum of Understanding on July 12, 1996. This Memorandum outlines in general terms various agreements related to the delivery and financing of SuperCordless products. The parties agreed that "specific terms and conditions will be contained in a General Purchase Agreement (GPA) which will be part of the final contract." (Plf. App. at 47-48). A letter agreement confirming "the general conditions upon which [Ericsson] can provide ComScape Telecommunications, Inc. with vendor financing for the purchase of certain SuperCordless equipment" was executed on August 2, 1996. ( Id. at 135-36). Both the Memorandum of Understanding and Letter agreement were signed by Ghanshyam Patel on behalf of "ComScape." ( Id. at 48, 136).Ericsson and ComScape Holding, Inc. ultimately signed a General Purchase Agreement on August 5, 1996. The relationship of the parties, as stated in the Agreement, is as follows:
Materials and/or Services are hereby offered for sale by Seller and may be purchased by Buyer in accordance with the terms and conditions stated herein. The Services offered by Seller include Engineering and Installation Services. Material, Engineering Services and/or Installation Services may be ordered separately or in combination.
( Id. at 194 ¶ 1.1). The Agreement also contains an arbitration clause, which provides in relevant part:
All disputes arising out of or in connection with this Agreement or any transaction hereunder shall be finally settled under the Commercial Arbitration Rules of the American Arbitration Association then in effect, by three arbitrators appointed in accordance with such rules. The arbitrators' award shall be final and binding.
( Id. at 229 ¶ 11.7). Only Ericsson and ComScape Holding are signatories to the GPA. ( Id. at 232). However, the term "Buyer" is defined as "ComScape Holding, Inc. and its Affiliated Parties that are authorized to place Orders pursuant to this Agreement, as shown in Appendix B." ( Id. at 195 ¶ 1.3.5). An "Affiliated Party" includes "a partner, subsidiary, parent, or sister subsidiary either directly or indirectly controlled by a Party hereto or directly or indirectly controlled by a common parent of the affiliate and the Party." ( Id. at 194 ¶ 1.3.2).
The GPA provides for the purchase of material and services by written "Order." ( Id. at 198 ¶ 2.1). Two such orders were placed by ComScape. However, only the first order is relevant to the present motions. On or about August 2, 1996, an unspecified ComScape entity ordered certain products and services for the SuperCordless Network. ( Id. at 235, 601 ¶¶ 6-7). The purchase order states, in relevant part:
A second order was placed by ComScape-Charleston on October 2, 1996. (Def. App. at 69-70).
This Statement of Work is hereby made a part of the General Purchase Agreement between ComScape Telecommunications Inc. ("Buyer") and Ericsson, Inc., acting through its Network Systems Division ("Seller"), dated July 26, 1996 ("the General Purchase Agreement").
( Id. at 235-36). The order was signed approved by Ghanshyam Patel on behalf of "ComScape." ( Id. at 236).
On October 17, 1996, ComScape Holding assigned its rights under the General Purchase Agreement to ComScape Telecommunications of Charleston. (Def. App. at 64). Ericsson and ComScape-Charleston later finalized a Loan Agreement for the financing of goods and services sold under the GPA. (Plf. App. at 330-446). ComScape Telecommunications pledged its stock in ComScape-Charleston as security for the loan and executed a guaranty for payment. ( Id. at 423, 499, 440, 498, 595-96).
Relations between the parties began to deteriorate in the spring and summer of 1997 over a dispute involving the delivery of equipment and services. (Def. App. at 8 ¶ 21; Plf. App. at 601 ¶ 9). On September 4, 1997, Ericsson notified ComScape that it had decided to cancel the SuperCordless product. (Def. App. at 9 ¶ 21). The parties attempted to resolve their differences, but negotiations reached an impasse in early 1999. (Plf. App. at 601 ¶ 9; Def. App. at 9 ¶ 22). This prompted ComScape to advise Ericsson that "it is no longer limited by the . . . arbitration provision of the General Purchase Agreement." (Plf. First Am. Complaint, Exh. J). Ericsson then filed a complaint in federal district court and a demand for arbitration with the American Arbitration Association.
ComScape Telecommunications filed a parallel lawsuit against Ericsson in state district court alleging breach of contract, promissory estoppel, fraud, and negligent misrepresentation. (Plf. App. at 322-33). The state court proceeding has been abated pending a resolution of the arbitration issue by this Court. (Plf. App. at 464).
Ericsson and ComScape Telecommunications now move for summary judgment on the issue of arbitrability. Ericsson argues that ComScape is subject to the arbitration clause of the General Purchase Agreement because: (1) it is a "Buyer" under the GPA; (2) it placed an order for equipment and services which was incorporated by reference into the GPA; (3) it is equitably estopped from denying its obligation to arbitrate; (4) it is a third-party beneficiary to the GPA; and (5) ComScape Telecommunications is the alter ego of its subsidiary, ComScape-Charleston, for purposes of the GPA. ComScape Telecommunications seeks judgment as a matter of law because it is not a party to the arbitration agreement and the claims at issue do not "arise out of" the GPA. The issues have been filly briefed and both motions are ripe for determination.
ComScape Holding and ComScape-Charleston have agreed to arbitrate any disputes with Ericsson arising out of the General Purchase Agreement. All claims against these defendants have been stayed in favor of arbitration. See Ericsson, Inc. v. ComScape Holding, Inc., et al., 1999 WL 689473 at *2 (N.D. Tex. Sept. 1, 1999).
Ericsson also seeks summary judgment on the ground that the Memorandum of Understanding dated July 12, 1996 and the letter agreement dated August 2, 1996 are not binding contracts. (Plf. Brief at 22-25). The parties have agreed to postpone briefing on this portion of the motion until the arbitration issue is resolved. See STIPULATION AND AGREED ORDER, 2/28/00.
II.
Summary judgment is proper when there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A dispute is "genuine" if the issue could be resolved in favor of either party. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Thurman v. Sears, Roebuck Co., 952 F.2d 128, 131 (5th Cir.), cert. denied, 113 S.Ct. 136 (1992). A fact is "material" if it might reasonably affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Matter of Gleasman, 933 F.2d 1277, 1281 (5th Cir. 1991).This case is before the Court on cross-motions for summary judgment. Consequently, each party has the burden of producing evidence to support its motion. Dutmer v. City of San Antonio, 937 F. Supp. 587, 589-90 (W.D.Tex. 1996). The movant has the initial burden of showing the absence of a genuine fact issue. Duffy v. Leading Edge Products, Inc., 44 F.3d 308, 312 (5th Cir. 1995); Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th Cir. 1995). The burden then shifts to the nonmovant to show that summary judgment is not proper. Duckett v. City of Cedar Park, 950 F.2d 272, 276 (5th Cir. 1992). Either party may satisfy this burden by tendering depositions, affidavits, and other competent evidence. Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir), cert. denied, 113 S.Ct. 82 (1992). All the evidence must be viewed in the light most favorable to the party opposing the motion. Rosado v. Deters, 5 F.3d 119, 122 (5th Cir. 1993). However, conclusory statements and testimony based merely on conjecture or subjective belief are not competent summary judgment evidence. Topalian, 954 F.2d at 1131.
A case may not be appropriate for summary disposition even if the parties have filed cross-motions for summary judgment. See, e.g. Bricklayers, Masons and Plasterers International Union of America v. Stuart Plastering Co., 512 F.2d 1017, 1023 (5th Cir. 1975); Dutmer v. City of San Antonio, Texas, 937 F. Supp. 587, 589 (W.D. Tex. 1996). The Court must still examine the record to determine whether there are genuine issues of material fact for trial. John v. State of Louisiana Board of Trustees for State Colleges and Universities, 757 F.2d 698, 705 (5th Cir. 1985); Schlytter v. Baker, 580 F.2d 848, 849 (5th Cir. 1978).
III.
It is well-settled that arbitration is strictly a matter of contract. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 1924, 131 L.Ed.2d 985 (1995). Ordinarily, a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." Air Line Pilots Association v. Miller, 523 U.S. 866, 118 S.Ct. 1761, 1767, 140 L.Ed.2d 1070 (1998), quoting United Steelworkers of America v. Warrior Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960). Ericsson acknowledges that ComScape Telecommunications is not a party to the General Purchase Agreement. Nevertheless, it offers five reasons why this defendant should be ordered to arbitration. The Court will address each argument in turn.
A.
Ericsson first contends that ComScape Telecommunications is a "Buyer" as defined in the GPA because it was authorized to place orders for equipment and services. (Plf. App. at 195 ¶ 1.3.5). In fact, there is some evidence that ComScape Telecommunications placed such an order on August 2, 1996. ( Id. at 235, 601 ¶¶ 6-7). George P. Fraley, Regional Sales Manager for Ericsson, testified that he and another salesman "drafted equipment orders for ComScape Telecommunications as the `Buyer' in five separate Basic Trading Areas . . ." ( Id. at 601 ¶ 6). The final order, signed by Ghanshyam Patel on behalf of "ComScape," provides:
This Statement of Work is hereby made a part of the General Purchase Agreement between ComScape Telecommunications Inc. ("Buyer") and Ericsson, Inc., acting through its Network Systems Division ("Seller"), dated July 26, 1996 ("the General Purchase Agreement").
( Id. at 235) (emphasis added).
ComScape Telecommunications accuses Ericsson of "muddying the water" to create the false impression that it placed an order for equipment under the General Purchase Agreement. (Def. Response at 7). ComScape Telecommunications notes that it was never designated as an authorized "Buyer" under the procedures established by the GPA. Moreover, Patel asserts in his sworn declaration that he executed the order on behalf of ComScape Holding, not ComScape Telecommunications. (Def. App. at 7 ¶¶ 14-15). Although this evidence cannot be ignored, it does no more than create a fact issue as to which ComScape entity actually ordered equipment and services from Ericsson. Any party authorized to place orders under the GPA is a "Buyer" that is subject to the arbitration provisions of the Agreement. The record fails to establish whether or not ComScape Telecommunications was a "Buyer." Accordingly, neither party is entitled to summary judgment on this ground.
ComScape Telecommunications was not identified as an "Affiliated Part[y] that [is] authorized to place Orders pursuant to [the General Purchase Agreement], as shown in Appendix B." (Plf. App. at 195 ¶ 1.3.5). However, neither was ComScape-Charleston at the time it placed an order under the GPA.
B.
Even absent an agreement to arbitrate, Ericsson contends that ComScape Telecommunications is bound by the arbitration clause of the GPA. Courts have recognized a number of theories under which a non-signatory may be bound to arbitrate a dispute. See Thomson — CSF, S.A. v. American Arbitration Association, 64 F.3d 773, 776 (2d Cir. 1995). Four of these theories are implicated by Ericsson's motion for summary judgment — incorporation by reference, equitable estoppel, third-party beneficiary, and alter ego.
1.
The doctrines of incorporation by reference and equitable estoppel operate only when a non-signatory to the arbitration agreement seeks to bind a signatory. Id. at 777, 779. In such cases, the courts have found that it would be inequitable to allow one party who has already agreed to arbitrate its disputes with another party to avoid arbitration of intimately related matters simply because a closely related entity did not sign the arbitration agreement. Id. at 779; see also Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th Cir. 2000).
Here, the situation is inverse. Ericsson, a signatory to the arbitration agreement, attempts to bind ComScape Telecommunications, a non-signatory. This distinction is not irrelevant because the arbitrability of disputes is strictly a matter of contract — if the parties have not agreed to arbitrate, the courts have no authority to mandate that they do so. Thomson — CSF, 64 F.3d at 779, citing United Steelworkers, 80 S.Ct. at 1352-53. If ComScape Telecommunications is not a party to the arbitration agreement, no amount of equity can be invoked to circumvent its right to trial before a judge or jury.
In an earlier opinion, this Court suggested that it might be proper to order ComScape Telecommunications to arbitration because its subsidiary, ComScape-Charleston, was a party to the arbitration agreement. Ericsson, 1999 WL 689473 at *3. As authority for this proposition, the Court relied on J.J. Ryan Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 320 (5th Cir. 1988). However, a more careful reading of J.J. Ryan does not support such a result. That case involved a situation where a non-signatory to an arbitration agreement sought to compel arbitration against a signatory. Id. at 316, 320. Here, a signatory to the arbitration agreement wants to compel a non-signatory to arbitrate a dispute. There is no authority that binds a non-signatory to arbitration under these circumstances.
2.
Ericsson further contends that ComScape Telecommunications is a third-party beneficiary to the General Purchase Agreement and should be ordered to arbitration on that basis. The Court initially observes that this doctrine applies only where a non-signatory attempts to bind a signatory to an arbitration agreement. See Cricchio v. Dyckman, 82 F. Supp.2d 626, 629 (E.D. Tex. 2000). In any event, it is not helpful to Ericsson. There is a presumption against third-party beneficiary contracts under Texas law. See MCI Telecommunications Corp. v. Texas Utilities Electric Co., 995 S.W.2d 647, 652 (Tex. 1999). In order to overcome this presumption, Ericsson must show that the contracting parties clearly spelled out their intention to confer a direct benefit on ComScape Telecommunications. Id. at 651. No such reference is found anywhere in the GPA. Ericsson attempts to avoid this requirement by arguing that ComScape Telecommunications "projected multi-millions in revenues from the relationship arising out of the GPA." (Plf. Brief at 19). However, such indirect benefits are insufficient to make ComScape a third-party beneficiary to the contract. MCI Telecommunications, 995 S.W.2d at 652.3.
Finally, Ericsson argues that ComScape Telecommunications should be ordered to arbitration under the alter ego doctrine. In general, the mere existence of a corporate relationship is insufficient to compel a non-signatory to arbitrate. Id. at 777. "[C]ourts will pierce the corporate veil `in two broad situations: to prevent fraud or other wrong, or where a parent dominates and controls a subsidiary.'" Id., quoting Matter of Arbitration Between Keystone Shipping Co. and Texport Oil Co., 782 F. Supp. 28, 30-31 (S.D.N.Y. 1992). Ericsson makes no allegation of fraud. Instead, it relies on the fact that all three ComScape entities have the same officers, directors, and employees and use consolidated balance sheets and financial statements. (Plf. App. at 1-2, 3-21). Ericsson also points out that ComScape Telecommunications guaranteed the loan made to ComScape-Charleston and has made payments on the loan from its own account. ( Id. at 423-39, 440-46, 447-48).
None of these facts come anywhere close to establishing the type of domination over internal, day-to-day business affairs required to pierce the corporate veil. See Baker v. Raymond International, Inc., 656 F.2d 173, 181 (5th Cir. 1981), cert. denied, 102 S.Ct. 2256 (1982). Although all three ComScape companies are closely related, there is no evidence that they failed to maintain themselves as separate and distinct legal entities. See Western Horizontal Drilling, Inc. v. Jonnet Energy Corp., 11 F.3d 65, 69 (5th Cir. 1994). Moreover, the Court notes that it was Ericsson who required ComScape Telecommunications to create ComScape-Charleston as a separate entity to hold the license and enter into purchase agreements for the West Virginia market. (Def. App. at 6 ¶ 10, 345-46). It defies logic and common sense to pierce the corporate veil under these circumstances.
CONCLUSION
The Court finds that there are genuine issues of material fact which preclude summary judgment in favor of either party. Specifically, the summary judgment evidence does not conclusively establish whether ComScape Telecommunications was a "Buyer" under the General Purchase Agreement. If ComScape Telecommunications was an "Affiliated Party" authorized to place orders pursuant to the GPA, it is required to arbitrate "[a]ll disputes arising out of or in connection with [the] Agreement . . ." This issue must be resolved at trial. Accordingly, the cross-motions for summary judgment are denied.
SO ORDERED.