Opinion
Civil File No. 02-671 (MJD/JGL)
March 5, 2003.
Steven C. Eggiman and David T. Schach, Meagher Geer, L.L.P., for Plaintiff.
Vytas M. Rimas, Kinney Lange, P.A., for Defendants.
Vincent J. Heiny and Robert W. Eherenman, Haller Colving, P.C., of counsel for Defendants.
MEMORANDUM AND ORDER
I. INTRODUCTION
This matter is before the Court on motions by Plaintiff, General Marketing Services, Inc. ("GMS") and by Defendants, American Motorsports, Inc. ("AMI"), Innovation Management, Inc. ("IMI"), and David Zehr ("Zehr"). Plaintiff moves the Court for partial summary judgment on its account stated cause of action. Defendants move the Court to dismiss plaintiff's claims against AMI, IMI and Zehr, and in the alternative petition to compel arbitration and stay proceedings against the defendants. Defendants also move the Court for permission to file a sur-response in opposition to Plaintiff's motion for partial summary judgment. Zehr filed a separate motion for summary judgment.
For the reasons that follow, the Court grants defendants' petition to compel arbitration and stay the proceedings. Accordingly, the Court cannot rule on the remaining motions, as a ruling would require that the Court address the merits of this matter.
II. BACKGROUND
Plaintiff GMS is a Minnesota corporation. Defendants AMI and IMI are Indiana corporations. IMI is the parent corporation of AMI. Defendant Zehr is an Indiana resident and an investor in IMI.
In the fall of 1998, GMS, AMI and Mr. Zehr conducted a series of meetings that led to the formation of a business agreement. On May 6, 1999, GMS and AMI entered into a "Service Agreement" ("Agreement"), a contract for GMS to provide AMI with "development and maintenance of the initial database, credit card processing services, [maintenance of] a data center, initial fulfillment of membership kit to AMI members, and ongoing customer services." (Agreement at 2, § 2.) The Agreement was signed by Jim Thomson, then President of GMS, and by William O'Brien, then President of AMI. GMS and AMI are the only signatories to the Agreement. None of the parties contest the validity of the Agreement. The Agreement states in pertinent part:
D. Dispute Resolution
In the event that any dispute arises out of this Agreement which cannot be resolved by the parties, the parties shall make best efforts to mediate the dispute through a mutually agreeable mediator or service. Failing such efforts, all disputes shall then be decided by arbitration, under the rules of the American Arbitration Association.
(Agreement at 5, § 4.D.)
In May 1999, GMS and AMI began performance under the Agreement. Sometime thereafter AMI became displeased with the services being provided by GMS. The parties now dispute how frequently such displeasure was expressed and if AMI's concerns were ever resolved. In any event, GMS and AMI continued to do business. Between May 1999 and October 2000, GMS sent AMI invoices totaling $702,000.47. GMS was paid $385,598.28 of the amount invoiced by AMI. GMS now seeks to recover the remaining $317,111.19 from AMI, IMI and Zehr "jointly and severally."
III. DISCUSSION
The question this Court must first address is whether it must compel arbitration. See In re Sugar Beet Crop Ins. Litig., 228 F. Supp.2d 992, 994 (D.Minn. 2002). In deciding whether or not to compel arbitration there are two issues that the Court must address: 1) whether the Agreement involves commerce as required under the Federal Arbitration Act (FAA); and 2) whether the Agreement is enforceable. If the Court must compel arbitration, then the Court must consider whether it should stay all related proceedings in this matter, pending the outcome of arbitration.
a. Contract involving Commerce under the Federal Arbitration Act
A federal court should dismiss a claim brought before it and direct the parties to arbitrate when there is a contract involving commerce with a written provision to settle disputes arising out of that contract by arbitration, and none of the grounds for the revocation of a contract, at law or in equity, apply. See Johnson v. Hubbard, 940 F. Supp. 1447, 1454 (D.Minn. 1996) (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627 (1984)). For purposes of FAA, a contract involves commerce when a party of one state renders services to a party of another state. See Webb v. Rowland Co., Inc., 800 F.2d 803, 806-807 (8th Cir. 1986); Prima Paint Corp. v. Flood Conklin Mfg. Co., 360 F.2d 315, 317-318 (2d Cir. 1966), aff'd, 388 U.S. 395 (1967). When challenging the validity or enforceability of an arbitration agreement, at law or in equity, the governing state's law of contract applies. See Lyster v. Ryan's Family Steak Houses, Inc., 239 F.3d 943, 946 (8th Cir. 2001); Johnson, 940 F. Supp. at 1454 (In its evaluation of the arbitration agreement, the Court must apply ordinary principles of Minnesota contract law. (citations omitted)); Barker v. Golf U.S.A., Inc., 154 F.3d 788, 793 (8th Cir. 1998), cert. denied, 525 U.S. 1068 (1999).
In this case, GMS, a Minnesota corporation, and AMI, an Indiana Corporation, entered into a written Agreement on May 6, 1999. The Agreement itself is evidence that the contract involves commerce within the scope of the FAA. The parties contracted for GMS to provide services to AMI including database development, credit card processing services, kit fulfillment, and ongoing customer service. In any event, the parties do not dispute that the Agreement involves commerce within the scope of the FAA.
b. Enforceability of the Arbitration Agreement
Section 2 of the FAA governs the enforceability of arbitration agreements. It states:
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.9 U.S.C. § 2
Consistent with the FAA, federal courts uphold a liberal policy in favor of arbitration agreements. See Johnson, 940 F. Supp. at 1454 (citing Mitsubishi Motors Corp., 473 U.S. at 625-26 and 637-37). Where the parties have agreed to arbitration, their agreement is treated as a matter of contract upheld and enforced by the courts. See Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24 (1983); Johnson, 940 F. Supp. at 1454 (citations omitted); Lyster, 239 F.3d at 945-47. In Telectronics Pacing Systems, Inc. v. Guidant Corp., 143 F.3d 428 (8th Cir. 1998), the Eighth Circuit held that where "there is a valid agreement to arbitrate and the underlying dispute falls within the scope of that agreement" the matter must be submitted to arbitration. Telectronics, 143 F.3d at 433 (citing Houlihan v. Offerman Co., 31 F.3d 692, 694-95 (8th Cir. 1994)). In addition, there is generally "a presumption of arbitrability" that weighs heavily against the denial of arbitration where the agreement covers the dispute. Telectronics, 143 F.3d at 433 (quoting ATT Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 650 (1986)); Dean Witter Reynolds, Inc. v. Boyd, 470 U.S. 213, 218 (1985).
The Agreement between GMS and AMI includes a written provision by which the parties agree to settle disputes arising out of the Agreement by arbitration. None of the parties challenge the validity of the Agreement and there are no contract defenses raised to invalidate the Agreement. Thus, the Agreement between the parties is a valid and enforceable contact, and must be treated as such by this Court.
Plaintiff cites to several cases in support of its assertion that this matter should not be submitted to arbitration because it would "increase rather than decrease delay, complexity, and costs." Citing: Prestressed Concrete, Inc. v. Adolfson Peterson, Inc., 240 N.W.2d 551, 553 (Minn. 1976); see also St. Mary's Medical Center, Inc. v. Disco Aluminum Products Co., 969 F.2d 585 (7th Cir. 1992); Jefferson County v. Barton-Douglas Contractors, Inc., 282 N.W.2d 155 (Iowa 1979); Ford Motor Co. Ltd. v. M/S Maria Gorthon, 397 F. Supp. 1332, 1337 (D.Md. 1975). These cases are distinguishable from the matter before this Court. For example, in Prestressed Concrete the Court was deciding the enforceability of an arbitration agreement as to litigants who were not party to the arbitration agreement between the primary defendant and primary plaintiff. Prestressed Concrete, 240 N.W.2d at 552, 553. In this case, there is only one plaintiff, GMS, whose case raises a single claim, primarily against defendant AMI. The Agreement is between GMS and AMI. GMS does not challenge the validity of the arbitration clause or of the Agreement. The dispute over payment of fees for services provided is a disagreement arising out of the Agreement between GMS and AMI. Therefore, GMS and AMI are bound to submit this dispute to arbitration pursuant to the Agreement.
c. Stay of Proceedings
Pursuant to Section 3 of the FAA, Federal courts are instructed to order a stay of proceedings when the matter submitted to arbitration is material to the continuation of the proceedings:
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 proceedings 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 agreement9 U.S.C. § 3 (emphasis added).
Further, federal courts have the discretion to order a stay in multi-party litigation where the issue subject to arbitration is between the principle parties, common to all parties, and central to the resolution of all of the claims. See Contracting Northwest, Inc. v. City of Fredericksburg, Iowa, 713 F.2d 382, 387 (8th Cir. 1983); American Home Assur. Co. v. Vecco Concrete Const. Co. Inc., 629 F.2d 961, 964 (4th Cir. 1980); Landis v. North Am. Co., 229 U.S. 248, 254-255 (1936); Coastal (Bermuda) Ltd. v. E.W. Saybolt Co., Inc., 761 F.2d 198 (5th Cir. 1985). The district court has discretionary authority to grant a stay pending arbitration in "third party litigation [that] involves common questions of fact that are within the scope of the arbitration agreement." See AgGrow Oils, L.L.C. v. National Union Fire Ins. Co. of Pittsburgh, P.A., 242 F.3d 777, 782-82 (8th Cir. 2001) (quoting Contracting Northwest, 713 F.2d at 387); See also American Home Assur., 629 F.2d at 964; IDS Life Ins. Co. v. SunAmerica, Inc., 103 F.3d 524, 530 (7th Cir. 1996); Webb, 800 F.2d at 808. A discretionary stay also operates to further the strong federal policy in favor of arbitration. See AgGrow Oils, 242 F.3d at 782.
This Court possesses the discretionary authority to order a stay of the proceedings against AMI, IMI, and Zehr pending arbitration between AMI and IMI. Plaintiff's claims against IMI and Zehr rest upon a determination of the very claim that is required to be submitted to arbitration between AMI and GMS. This Court will not require IMI and Zehr to engage in arbitration because "[t]he Court can . . . only compel the arbitration of a dispute which the parties agreed to arbitrate," Johnson, 940 F. Supp. at 1455, and here GMS and AMI are the only parties to the arbitration clause and to the Agreement. Therefore, in order to give full effect to the arbitral proceedings and to avoid contrary judgments, this Court will stay the proceedings against AMI, IMI and Zehr.
IV. CONCLUSION
The Court grants defendants' petition to compel arbitration and stay the proceedings against AMI, IMI and Zehr. The Court will not address, at this juncture, the other motions brought by plaintiff and defendants. Consideration of those motions would involve an improper review of the merits of the claim within the scope of arbitration. See, e.g., Johnson, 940 F. Supp. at 1454 (citing ATT Tech., Inc., 475 U.S. at 648-50, 106 S.Ct. at 1418-1419).
Accordingly, based upon the files, records, and proceedings herein, IT IS HEREBY ORDERED that:
1. Defendant's Motion to Compel Arbitration and Stay the Proceedings is GRANTED.