Opinion
4:20CV3027
2020-11-11
JOHNSON RECYCLING SOLUTIONS LLC, Plaintiff, v. Lars Bo LAURETZIN, Kim Vanbaek, Kristian Skannerup, Mil-Tek USA Recycling and Waste Solutions, Inc., and MT Americas, Inc., Defendants.
Brian J. Fahey, Fraser, Stryker Law Firm, Omaha, NE, for Plaintiff. A. Victor Rawl, Jr., Gordon, Rees Law Firm, Charleston, SC, Earl G. Greene, III, Gordon, Reese Law Firm, Omaha, NE, for Defendants.
Brian J. Fahey, Fraser, Stryker Law Firm, Omaha, NE, for Plaintiff.
A. Victor Rawl, Jr., Gordon, Rees Law Firm, Charleston, SC, Earl G. Greene, III, Gordon, Reese Law Firm, Omaha, NE, for Defendants.
FINDINGS AND RECOMMENDATION
SUSAN M. BAZIS, United States Magistrate Judge
This matter is before the Court on the Motion to Compel Arbitration (Filing No. 11) filed by Defendants Mil-Tek USA Recycling and Waste Solutions, Inc., ("Mil-Tek USA"), MT Americas, Inc., Lars Bo Lauretzin, and Kim Vandbaek (collectively, "Defendants"). For the reasons explained below, the undersigned will recommend that the motion be granted and that this action be stayed pending arbitration.
DISCUSSION
In this a action, Plaintiff maintains that Defendants breached a Distribution Agreement ("Agreement") that was executed between Plaintiff and Defendant Mil-Tek USA. The Agreement contains the following arbitration provision:
22. ARBITRATION
22.1 Provided the Parties are not able to agree upon an amicable settlement within a reasonable time and no later than thirty calendar days after initiation of settlement discussions, the dispute, controversy or claim arising out of or in relation to this Agreement (whether contractually or in tort), and including disputes regarding the validity of this Article concerning venue, shall be resolved through the procedures of the American Arbitration Association (AAA).
(Filing No. 12-1.) Defendants now seek to compel Plaintiff to arbitrate pursuant to the arbitration provision.
The parties do not dispute that an arbitration agreement exists or that this matter is governed by the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1, et. seq. Under the FAA, "[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition ... for an order directing that such arbitration proceed in the manner provided for in such agreement." 9 U.S.C. § 4. The FAA evinces a "liberal federal policy favoring arbitration agreements." Moses H. Cone Memorial Hospital v. Mercury Construction Corporation , 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). "[A]ny 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." Id. at 24-25, 103 S.Ct. 927. Nevertheless, "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." Howsam v. Dean Witter Reynolds, Inc. , 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (quoting Steelworkers v. Warrior & Gulf Nav. Co. , 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960) ).
When reviewing a motion to compel arbitration, courts consider "(1) whether the parties entered a valid arbitration agreement, and, (2) if so, whether the parties’ particular dispute falls within the scope of the arbitration agreement." Parm v. Bluestem Brands, Inc. , 898 F.3d 869, 873 (8th Cir. 2018) (quotation omitted). "Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator." AT&T Technologies, Inc. v. Communications Workers , 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). Where an arbitration agreement provides that the question of arbitrability itself should be arbitrated, a court must enforce the arbitration contract according to its terms. Henry Schein, Inc. v. Archer & White Sales, Inc. , ––– U.S. ––––, 139 S. Ct. 524, 529-30, 202 L.Ed.2d 480 (2019) ("Just as a court may not decide a merits question that the parties have delegated to an arbitrator, a court may not decide an arbitrability question that the parties have delegated to an arbitrator.").
Plaintiff argues Defendants defaulted on their right to arbitrate under the FAA because they acted inconsistently with this right by (1) filing suit in Virginia state court; (2) removing this case to federal court without submitting a parallel request to arbitrate; and (3) delaying the motion to compel arbitration. (Filing No. 14.) See Kelly v. Golden , 352 F.3d 344, 349 (8th Cir. 2003) (stating that waiver is established under the FAA when the party seeking arbitration (1) knew of an existing right to arbitrate; (2) acted inconsistently with that right; and (3) prejudiced the other party by these inconsistent acts). Plaintiff further maintains that the arbitration provision is unenforceable because it has alleged a basis for unenforceability of the Agreement as a whole. Defendants dispute that they have acted inconsistently with the arbitration provision. Moreover, Defendants contend that because the parties incorporated the American Arbitration Association ("AAA") rules into the arbitration provision, the question of arbitrability must be decided by the arbitrator.
Plaintiff has not argued that the defendants who did not sign the Agreement cannot enforce the arbitration provision because they are non-signatories. However, even if such argument had been made, the undersigned would find it unpersuasive. In this case, Plaintiff alleges that the non-signatory defendants entered into and breached the Agreement. Plaintiff's allegations show that the dispute in this case arises directly out of the Agreement and the non-signatory moving defendants bear a close relationship to Mil-Tek USA. See PRM Energy Sys., Inc. v. Primenergy, LLC , 592 F.3d 830, 834 (8th Cir. 2010) (stating that non-signatories can enforce an arbitration provision (1) when the relationship of the non-signatory with a signatory is so close that failing to order arbitration would "eviscerate the arbitration agreement;" and (2) where the claims against the non-signatory are "so intertwined with the agreement containing the arbitration clause that it would be unfair to allow the signatory to rely on the agreement" for the basis of its claims but disallow arbitration of disputes arising under the same agreement).
The arbitration provision at issue states that "disputes regarding the validity of this Article concerning venue, shall be resolved through the procedures of the [AAA]." (Filing No. 12-1.) The Commercial Arbitration Rules ("Commercial Rules") provide that parties shall be deemed to have made the Commercial Rules "a part of their arbitration agreement whenever they have provided for arbitration by the [AAA] under its Commercial Arbitration Rules or for arbitration by the AAA of a domestic commercial dispute without specifying particular rules." American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures, R-1 (2016), available at https://www.adr.org. Here, the arbitration provision only provides that AAA procedures apply. It does not specify other, specific rules governing arbitration disputes. Therefore, the Commercial Rules are the procedures of the AAA applicable to this dispute. The Commercial Rules (Filing No. 18-1) provide that arbitrators have the following jurisdiction and authority:
R-7. Jurisdiction
(a) The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.
(b) The arbitrator shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a part. Such an arbitration clause shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitrator that the contract is null and void shall not for that reason alone render invalid the arbitration clause.
American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures, R-7 (2016), available at https://www.adr.org.
"[A]n arbitration provision's incorporation of the AAA Rules—or other rules giving arbitrators the authority to determine their own jurisdiction—is a clear and unmistakable expression of the parties’ intent to reserve the question of arbitrability for the arbitrator and not the court." Fallo v. High-Tech Institute , 559 F.3d 874, 878 (8th Cir. 2009). See also Brennan v. Opus Bank , 796 F.3d 1125, 1130 (9th Cir. 2015) (stating that "[v]irtually every circuit to have considered the issue has determined that incorporation of the [AAA] arbitration rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability"). Here, the arbitration provision's incorporation of the AAA procedures demonstrates that the parties intended to arbitrate questions of arbitrability.
When questions of arbitrability are directed to the arbitrator, the Court may only address challenges to the actual arbitration provision. See Rent-a-Center W. Inc. v. Jackson , 561 U.S. 63, 72, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010). There has been no such challenge here. Instead, Plaintiff opposes arbitration because it has alleged a basis for unenforceability of the Agreement as a whole. An argument concerning the validity of the entire Agreement is not a challenge to the validity of the arbitration provision itself. Buckeye v. Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 445-46, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). See also Schreiner v. Credit Advisors, Inc. , No. 8:07CV78, 2007 WL 2904098, at *5 (D. Neb. Oct. 2, 2007) ("Unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance.").
Defendants ask the Court to dismiss this matter pending arbitration or, alternatively, stay these proceedings. "The FAA generally requires a federal district court to stay an action pending an arbitration, rather than to dismiss it." Green v. SuperShuttle Int'l, Inc. , 653 F.3d 766, 769 (8th Cir. 2011) (citing 9 U.S.C. § 3 ). Applying this general rule, the undersigned will recommend that this action be stayed pending arbitration.
Accordingly,
IT IS HEREBY RECOMMENDED to Chief United States District Court Judge John Gerrard that the Motion to Compel Arbitration (Filing No. 11) be granted and that this action be stayed pending arbitration.
IT IS FURTHER RECOMMENDED that Defendants’ Motion to Supplement the Record (Filing No. 19) be denied as moot.
A party may object to a magistrate judge's order by filing an objection within fourteen (14) days after being served with a copy of the findings and recommendation. Failure to timely object may constitute a waiver of any objection.