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Rose v. Volvo Construction Equipment North America

United States District Court, N.D. Ohio, Eastern Division
Mar 20, 2007
Case No.: 1:05 CV 168 (N.D. Ohio Mar. 20, 2007)

Opinion

Case No.: 1:05 CV 168.

March 20, 2007


ORDER


Plaintiffs Isaac Rose, Peggy Knox, Joseph Henderson, Wilbert Whitt, Opal Whitt, Andrew Bergant, Jr., A.C. Wade, and Metro Burtyk, along with International Union, and the United Automobile, Aerospace, and Agricultural Implement Workers of America ("UAW") (together, "Plaintiffs") filed the above-captioned action against Defendant Volvo Construction Equipment North America, Inc. ("VCENA") on February 1, 2005, alleging that VCENA breached the Collective Bargaining Agreement and violated an ERISA plan. VCENA subsequently filed a Third-Party Complaint against Euclid-Hitachi Heavy Equipment, Inc. ("EHHE") and Hitachi Construction Machinery ("HCM") for declaratory judgment and damages. (ECF No. 17.) On April 24, 2006, VCENA moved to amend its third-party complaint to assert additional claims and add Euclid-Hitachi Heavy Equipment, Ltd. ("EHHE Ltd."), Hitachi Construction Manufacturing Ltd. ("HTM"), and Deer-Hitachi Construction Machinery Corp. ("Deere-Hitachi") as additional third-party defendants. That motion was granted on June 7, 2006. ( See Order, ECF No. 123.)

In VCENA's Amended Third Party Complaint EHHE Ltd. and HTM are named as two separate parties. VCENA later agreed that EHHE Ltd. and HTM are in fact one in the same. Effective January 1, 2004, EHHE Ltd. changed its name to Hitachi Construction Truck Manufacturing, Ltd., which shall be referred to as "HTM" throughout this Order.

Now pending before the court are: (1) HCM's Motions to Stay Proceedings on the Third-Party Complaint and to Compel Arbitration (ECF No. 58); (2) EHHE's Motion to Stay and Compel Arbitration (ECF No. 90); (3) HTM's Motion to Stay Proceedings on the Third-Party Complaint and to Compel Arbitration (ECF No. 157); and (4) Deer-Hitachi's Motion to Stay the Amended Third Party Complaint (ECF No. 158). For the reasons stated below, all four Motions are granted.

HCM's Motions to Stay Proceedings on the Third-Party Complaint and to Compel Arbitration (ECF No. 58) was filed prior to the court granting VCENA leave to file its Amended Third-Party Complaint, however, HCM's Reply (ECF No. 116) addresses the claims against it in VCENA's Amended Third-Party Complaint.

I. BACKGROUND A. Facts

In 1984, Defendant VCENA, operating under the name of Clark Michigan Company ("Clark"), purchased the assets of the facilities in Euclid, Ohio, involved with heavy truck manufacturing, engineering, and testing (hereinafter, the "Euclid Facility"). In 1994, Defendant VCENA, then operating under the name of "VME Americas Inc." ("VME"), entered a joint venture agreement with HCM to create EHHE and EHHE's wholly-owned Canadian subsidiary HTM. EHHE was to operate the Euclid Facility. Between 1994 and 2000, VCENA transferred its interest in EHHE to HCM until EHHE became a wholly-owned subsidiary of HCM in 2000. Sometime after 2001, the Euclid Facility was controlled by HTM, which operated the facility through one of its branches or divisions called the Euclid-Hitachi Technical Center ("EHTC").

While operating under the name of Clark, Plaintiffs allege that VCENA was bound by a collective bargaining agreement with the Union, effective 1983 to 1986 (the "1983 CBA"). ( See Second Amended Complaint ("SAC"), Ex. 1, ECF No. 40.) The 1983 CBA allegedly contained a section entitled, "Pension Plan, Insurance Program and Supplemental Unemployment Benefit Plan" which stated that the terms of the healthcare and life insurance benefits were contained in a series of Supplemental Agreements. ( See SAC, Ex. 1 at 144.) The Supplemental Agreements provided for an insurance program that guaranteed retirees and their spouses, surviving spouses, and eligible dependents fully paid healthcare benefits for life. ( See SAC, Ex. 2 at 22-24-B, 96-B, and 97-98-B.) Plaintiffs maintain that all subsequent collective bargaining agreements with HTM and its predecessors, including VCENA operating as Clark and VME, guarantee retirees, their spouses and dependents the same coverage that they received under the 1983 CBA.

In a letter dated January 12, 2005, all retirees and their spouses, surviving spouses, and dependents were informed that their benefits would be cancelled as of February 28, 2005. ( See SAC, Ex. 9 (January 12, 2005 Form Letter).) The letter stated that EHHE was going out of business and the current retiree life and healthcare benefits would terminate on February 28, 2005. ( Id.) Plaintiffs allege that VCENA was obligated to provide them with "vested lifetime retiree health care and life insurance benefits" and that VCENA has breached this obligation. ( See SAC ¶¶ 34, 40.)

B. The Agreements

On November 17, 1993, VCENA, then operating as VME, and HCM entered into a Joint Venture Agreement ("JV Agreement"), to establish a joint venture entity consisting of EHHE and its wholly-owned subsidiary HTM, for the purpose of manufacturing and selling rigid hauler trucks and mining equipment. ( See JV Agreement, EHHE's Mot. to Stay, Ex. A at 1, ECF No. 90-3.)

The JV Agreement was followed by the Asset Contribution Agreement, executed pursuant to the JV Agreement as an express condition precedent to the consummation of the JV Agreement. ( See JV Agreement ¶ 10.2(f).) The Asset Contribution Agreement, dated November 30, 1993, was executed between VCENA and EHHE. In the Asset Contribution Agreement, VCENA agreed to transfer the Euclid Division Assets to EHHE in exchange for shares of capital stock in EHHE and the assumption of the Euclid Division Liabilities by EHHE, including the assumption of "costs and expenses with respect to the Employees and Former Employees (including their dependents and beneficiaries) under all `Employee Welfare Benefit Plans(s)' . . . and all other benefit and compensation plans. . . ." ( See Asset Contribution Agreement at 1 and ¶ 7.04.) The Asset Contribution Agreement also provided for the indemnification of VCENA and stated,

See Asset Contribution Agreement, Third-Party Compl., Ex. A, ECF No. 17-2.

VCENA was then operating as VME and is referred to throughout the Asset Contribution Agreement as VMEA.

Throughout the Asset Contribution Agreement, EHHE is referred to as JVCO.

[EHHE] will indemnify, defend and hold [VCENA] and its subsidiaries and affiliates . . . harmless from and against any and all liabilities, damages, losses, claims, costs and expenses (including attorneys' fees) arising out of or resulting from (a) [EHHE's] failure to pay or satisfy or cause to be paid or satisfied any of the Euclid Division Liabilities or the Section 2.08 contract Liabilities when due and payable; or (b) nonperformance by [EHHE] of any obligations to be performed on the part of [EHHE] under this Agreement.

( See Asset Contribution Agreement, ¶ 5.01.)

On or about October 2, 1998, HCM entered into another agreement with VCENA, entitled Amended and Restated Joint Venture Agreement ("Restated JV Agreement"). ( See Restated JV Agreement, Third-Party Compl. Ex. B, ECF No. 17-3.) As part of the Restated JV Agreement, the parties agreed that, as between HCM and VCENA, HCM would be responsible "directly or indirectly" for providing the financing necessary for the business of EHHE. ( See Restated JV Agreement § 4.1.) The parties also agreed to indemnify each other from liabilities resulting from "any misrepresentation or breach of warranty or covenant" in the agreement or from nonperformance of the agreement. ( See id. §§ 10.1, 10.2.) Finally, the parties agreed to submit "any dispute arising from or in connection with" the Restated JV Agreement to "final and binding" arbitration. ( See id. at § 11.12.)

On December 20, 2000, HCM and VCENA modified the Restated JV Agreement with an agreement, entitled Termination Agreement. ( See Termination Agreement, Third-Party Compl., Ex. C, ECF No. 17-4.) Under the Termination Agreement, VCENA sold its ownership interest in EHHE to HCM and the parties terminated all but fifteen provisions of the Restated JV Agreement. ( See id. at 1-2.) The indemnification and arbitration provisions of the Restated JV Agreement were among the surviving provisions. ( See Termination Agreement, § 1.)

C. Relationship of Deere-Hitachi to the Parties

Deere-Hitachi is a Delaware corporation based in North Carolina. According to Deere-Hitachi, HCM owns fifty percent of Deere-Hitachi's stock. Deere Company owns the other fifty percent. Deere-Hitachi's primary business is marketing and distribution of construction equipment in North America. As it relates to this dispute, Deere-Hitachi states that its involvement consists of taking over EHHE's sales and marketing functions and contemporaneously hiring several former EHHE sales and marketing employees in 2000. It is Deere-Hitachi's position that it received no assets from EHHE. ( See Deere-Hitachi Mot. to Stay at 2, ECF No. 158.)

D. Nature of the Claims

On February 1, 2005, Plaintiffs filed this action under Section 301 of the Labor Management Relations Act ("LMRA"), 29 U.S.C. § 185, and Section 502 of the Employee Retirement Income Security Act ("ERISA"), 2 U.S.C. § 1132, in order to secure their entitlement to lifetime, vested retiree healthcare and life insurance benefits. Plaintiffs allege that VCENA and/or various other corporate entities operated the Euclid Facility.

On April 29, 2005, VCENA filed its Third-Party Complaint against HCM and EHHE, alleging that it is entitled to indemnification from EHHE, and HCM under an alter ego theory, because, "HCM agreed to indemnify and hold VCENA harmless from any liability due to HCM's failure to provide financing for EHHE's obligations to pay all debts, liabilities, obligations and claims relating to employee benefit plans and arrangements previously existing or thereafter in effect for Plaintiffs and all other individuals employed by EHHE." ( See Third-Party Compl. ¶¶ 11, 14.)

HCM states that EHHE is a wholly-owned domestic subsidiary of HCM. ( See Mot. to Stay and Compel Arbitration at p. 3, ECF No. 58-2.)

On June 7, 2006, this court granted VCENA's Motion to File its Amended Third-Party Complaint. ( See Order, ECF No. 132; see also Am. Third-Party Compl., ECF No. 95.) The claims in VCENA's Amended Third-Party Complaint are against EHHE and HCM, and new Third-Party Defendants HTM and Deere-Hitachi. VCENA asserts the following claims:

(1) Indemnification and Contribution against EHHE;
(2) Indemnification and Contribution against HCM;
(3) Alter Ego Liability against HTM and HCM;
(4) Compensation to Surety against EHHE, HCM, and HTM;
(5) Subrogation against EHHE, HCM, and HTM;
(6) Fraudulent Inducement against HCM;
(7) Negligent Misrepresentation against HCM and EHHE;
(8) Fraudulent Transfers against EHHE, HCM, and HTM;
(9) Tortious Interference with Contract against EHHE, HCM, HTM, and Deere-Hitachi;
(10) Tortious Interference with Business Relations against EHHE, HCM, HTM, and Deere-Hitachi;
(11) Aiding and Abetting Tortious Conduct against HCM, HTM, and Deere-Hitachi; and
(12) Civil Conspiracy against HCM, EHHE, HTM, and Deere-Hitachi.

The claims in VCENA's Amended Third-Party Complaint are discussed more thoroughly infra.

II. LAW AND ANALYSIS

The Third-Party Defendants request that this court stay all proceedings against them and compel arbitration of VCENA's claims against HCM, EHHE, and HTM in accordance with the arbitration provisions in the joint venture agreements between HCM and VCENA, pursuant to Section 3 of the Federal Arbitration Act. See 9 U.S.C. § 3.

The Federal Arbitration Act ("FAA") states:

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.
9 U.S.C. § 3 (emphasis added).

Federal law requires that courts "rigorously enforce agreements to arbitrate." See Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987) (declaring a federal policy favoring arbitration) (internal citation omitted). Courts are to examine the language of the contract in light of the strong federal policy in favor of arbitration. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 626 (1985); Arnold v. Arnold, 920 F.2d 1269, 1281 (6th Cir. 1990). The Sixth Circuit applies a four-part test to determine whether to grant motions to stay and compel arbitration:

[F]irst, it must determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be non-arbitrable; and fourth, if the court concludes that some, but not all, of the claims in the action are subject to arbitration, it must determine whether to stay the remainder of the proceedings pending arbitration.
Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000) (emphasis added). Additionally, any ambiguities in the contract or doubts as to the parties' intentions should be resolved in favor of arbitration. See Soler Chrysler-Plymouth, 473 U.S. at 626.

A. Agreement to Arbitrate

In the instant case, VCENA agrees that there is a valid agreement to arbitrate in the surviving provisions of the Restated JV Agreement. The Restated JV Agreement states, in part, that "[VCENA] and [HCM] agree that any dispute arising from or in connection with this Agreement shall be determined by arbitration. . . ." ( See Restated JV Agreement, § 11.12.) However, VCENA maintains that only Counts Two and Four as asserted against HCM of the Amended Third-Party Complaint should be arbitrated and that the remainder of Count Four as asserted against EHHE and HTM, as well as the remaining eleven claims, are not subject to the arbitration clause. ( See Opp'n. to Mot. to Stay and Compel Arbitration at 1, ECF No. 105.)

B. Scope of the Arbitration Agreement

Next, this court must determine the scope of the arbitration agreement. See Stout, 228 F.3d at 714. VCENA agreed to arbitrate "any dispute arising from or in connection with" the Restated Joint Venture Agreement. ( See Restated JV Agreement, § 11.12(a).) As the arbitration agreement at issue provides for the arbitration of any dispute, it is broad in scope.

Recently, in Solvay Pharms. v. Duramed Pharms., Inc., the Sixth Circuit held that,

[w]hen faced with a broad arbitration clause, such as one covering any dispute arising out of an agreement, a court should follow the presumption of arbitration and resolve doubts in favor of arbitration. . . . Indeed, in such a case, only an express provision excluding a specific dispute, or the most forceful evidence of a purpose to exclude the claim from arbitration, will remove the dispute from consideration by the arbitrators.
442 F.3d 471, 482 (6th Cir. 2006) (internal quotation marks and citation omitted); see also Simon v. Pfizer, Inc., 398 F.3d 765, 773 n. 12 (6th Cir. 2005) (stating "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. . . . If the matter at issue can be construed as within the scope of the arbitration agreement, it should be so construed unless the matter is expressly exempted from arbitration by the contract terms.") (citations omitted)). Moreover, claims that "`hav[e] their origin or genesis'" in a contract containing a broad arbitration clause "arise out of" that contract "`whether or not they implicate interpretation or performance of the contract per se.'" Highlands Wellmont Health Network, Inc. v. John Deere Health Plan, Inc., 350 F.3d 568, 578 (6th Cir. 2003) (quoting Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Int'l, Ltd., 1 F.3d 639, 641-42 (7th Cir. 1993)).

District courts have the authority to decide, as a threshold matter, whether an issue is within the scope of an arbitration agreement. See Stout, 228 F.3d at 714. A claim falls outside of the scope of the arbitration agreement only if it could be maintained without reference to the contract or transaction subject to the agreement. See Fazio v. Lehman Bros., Inc., 340 F.3d 386, 395 (6th Cir. 2003) (citing Ford v. NYLCare Health Plans of Gulf Coast, Inc., 141 F.3d 243, 250-51 (5th Cir. 1998)). However, the determination that a claim requires reference to an arbitrable issue or factual dispute is not determinative. See Simon, 398 F.3d at 776 (6th Cir. 2005) (citing Bratt Enters., Inc., v. Noble Int'l Ltd., 338 F.3d 609, 613 (6th Cir. 2003).

1. Count One — Indemnification and Contribution against EHHE

Count One of the Amended Third-Party Complaint alleges breach of contract on the part of EHHE. ( See Am. Third-Party Compl., ¶¶ 9-12.) VCENA has pled its claim against EHHE as being based upon the Asset Contribution Agreement. However, VCENA's claim against EHHE also arises from and is in connection with the Restated JV Agreement, which, by its own terms, supersedes all other joint venture agreements and understandings. ( See Restated JV Agreement at ¶ 11.15.) The Asset Contribution Agreement was executed pursuant to the JV Agreement as an express condition precedent to the consummation of the JV Agreement and, thus, of the entire joint venture. ( See JV Agreement ¶ 10.2(f).) Therefore, VCENA's claim against EHHE is fundamentally a joint-venture dispute. As such, Count One is within the scope of the arbitration agreement.

a. EHHE and HTM as a Third-Party Beneficiaries

EHHE and HTM argue that they are intended third-party beneficiaries of the Restated JV Agreement. A non-signatory, third-party beneficiary to an arbitration agreement may invoke the arbitration agreement. See, e.g., Comer v. Micor, Inc., 436 F.3d 1098, 1101 (9th Cir. 2006) (citing E.I. Dupont de Nemours Co. v. Rhone Poulenc Fiber Resin Intermediates, S.A.S., 269 F.3d 187, 195 (3d Cir. 2001) ("[W]hether seeking to avoid or compel arbitration, a third party beneficiary has been bound by contract terms where its claim arises out of the underlying contract to which it was an intended third party beneficiary.")); Zurich Am. Ins. Co. v. Watts Indus., Inc., 417 F.3d 682, 688 (7th Cir. 2005) (stating that a third-party beneficiary can compel arbitration); John Hancock Life Ins. Co. v. Wilson, 254 F.3d 48, 59-61 (2d Cir. 2001) (finding that a member of NASD which was bound by its membership to arbitrate disputes, was properly compelled to arbitrate by third-party beneficiary of that agreement).

In the Sixth Circuit, not only can a third-party beneficiary enforce the arbitration agreement against a signatory to the arbitration agreement, but in certain circumstances, a signatory to the arbitration agreement may enforce the arbitration agreement against a non-signatory third-party beneficiary. See Javitch v. First Union Securities, Inc., 315 F.3d 619, 629 (6th Cir. 2003) (listing five recognized theories for binding non-signatories to arbitration agreements).

Section 302 of the Restatement (Second) of Contracts provides that a third-party is an intended beneficiary to an agreement if:

recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either (a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

Restatement (Second) of Contracts § 302 (1981). The Restated JV Agreement shows that VCENA and HCM intended to give the joint venture company, i.e., EHHE and HTM, the benefit of the specific rights created and the performance called for therein. ( See Restated JV Agreement ¶¶ 7.4(a) 7.4(b).) For example, the Restated JV Agreement states in part that:

• "Volvo shall . . . cancel its distribution agreement with EHHE" ( id. ¶ 3.2(a));
• "The JV shall continue to distribute Mining Products in Western Europe" ( id. ¶ 3.2(b));
• "VCE shall . . . implement such transfer if . . . in the best interest of the JV" ( Id. ¶ 3.2(c));
• ". . . [The] parties shall exchange information . . . with the JV. . . . VCE and Volvo shall provide . . . the JV . . . marketing information" ( id. ¶ 3.2(d));
• ". . . [N]one of Hitachi, its Affiliates and the JV shall be responsible for repurchase of parts owned by VCEA . . ." ( id. ¶ 3.4(b));
• ". . . the JV shall assume and discharge Volvo and/or VCE's obligations under" certain warranties. ( id. ¶ 3.6);
• "EHHE shall endeavor to obtain loans on the basis of its own credit standing . . . Volvo and Hitachi shall . . . issue letters of guarantee [on EHHE's behalf] . . ." ( id. ¶ 4.4);
• "all technology, patents, know-how and other proprietary information owned by the JV shall remain with the JV. . . ." ( id. ¶ 7.4(a)).

See Joint Venture Agreement at 3 (defining "Joint Venture" as "Euclid Inc. [EHHE], the Canadian Subsidiary, and any entities, subsidiaries, branches or divisions, which Euclid Inc. or the Canadian Subsidiary have established or may hereafter establish."); see also Restated Joint Venture Agreement at 3 (defining "Canadian Subsidiary" as "Euclid Hitachi Heavy Equipment, Ltd., [a.k.a. HTM] a wholly owned subsidiary of EHHE.").

The Restated JV Agreement shows that VCENA and HCM intended for EHHE and HTM to have specific rights and obligations. As such, EHHE and HTM are intended third-party beneficiaries to the Restated JV Agreement. Therefore, EHHE and HTM may enforce the Restated JV Agreement's broad arbitration provision against VCENA.

b. Waiver

VCENA argues that EHHE has waived its right to insist upon arbitration and relies on General Star Nat'l Ins. Co. v. Administratia Asigurarilor De Stat, 289 F.3d 434 (6th Cir. 2002). ( See Opp'n to Mot. to Stay and Compel Arbitration, ECF No. 96 at 2-5.)

An agreement to arbitrate may be waived if the actions of a party are completely inconsistent with any reliance on an agreement to arbitrate or if a party delays "its assertion [of the right to arbitrate] to such an extent that the opposing party incurs actual prejudice." Gen. Star Nat'l Ins. Co., 289 F.3d at 438 (citing Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126, 131 (2d Cir. 1997)). A waiver of the right to arbitration is "not to be lightly inferred." Id. (citing MicroStrategy, Inc. v. Lauricia, 268 F.3d 244, 249 (4th Cir. 2001)). In the Sixth Circuit, "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." Javitch, 315 F.3d at 624 (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)).

In Gen. Star Nat'l Ins. Co., the party seeking to arbitrate did not assert its purported right to arbitrate until after the district court had entered a default judgment against it. The opposing party had filed the suit seventeen months earlier and had incurred costs associated with the action. The Sixth Circuit found that under such circumstances, the party seeking arbitration had waived its right to arbitrate. Id. Unlike the party in Gen. Star Nat'l Ins. Co. who failed to assert its right to arbitrate until after a default judgment had been entered against it, in the instant case, EHHE requested that this court stay the proceedings against it and compel arbitration less than five months after VCENA filed its Third-Party Complaint naming EHHE as a third-party defendant. ( See Mot. to Dismiss or to Stay and Compel Arbitration, ECF No. 58.) During that time period, EHHE's participation in this lawsuit was limited to: (1) filing an answer; (2) participating in two status conferences; (3) responding to Plaintiffs' discovery requests and motion to compel responses to same; (4) responding to VCENA's discovery requests regarding issues other than the merits of VCENA's pending third-party claims; and (5) seeking to postpone and limit discovery on the merits through stipulations with VCENA and a motion to stay discovery. EHHE's limited participation does not justify a finding of waiver. Furthermore, this court does not find VCENA would be prejudiced, as VCENA has been on notice of EHHE's intent to seek arbitration since September 20, 2005, when HCM, EHHE's parent company filed its Motion to Compel Arbitration. ( See ECF No. 58.) Accordingly, EHHE has not waived its right to seek arbitration.

As this court has determined that Count One against EHHE is within the scope of the arbitration agreement, that EHHE and HTM are both third-party beneficiaries of the Restated JV Agreement, and that EHHE has not waived its right to seek arbitration, this court will compel arbitration on Count One.

2. Count Two — Indemnification and Contribution Against HCM

VCENA agrees that Count Two against HCM for Indemnification and Contribution is within the scope of the arbitration agreement and should be arbitrated. ( See Opp'n to Mot. to Stay and Compel Arbitration at 1; Am. Third-Party Compl. ¶¶ 13-15.) The court finds that Count Two is within the scope of the arbitration agreement and therefore grants HCM's Motion to Compel Arbitration on Count Two.

3. Count Three — Alter Ego Liability Against HCM and HTM

Count Three alleges that HTM and HCM are "each one and the same with EHHE and are each alter egos of EHHE" and that VCENA is entitled to indemnification and contribution from HCM and HTM for any amounts which VCENA is found to be liable to Plaintiffs. (Am. Third-Party Compl. ¶¶ 17-18.) VCENA argues that Count Three is not arbitrable because "all relevant provisions in [the Restated JV Agreement] that purported to set forth the manner in which the parties were to deal with EHHE were expressly terminated by the Termination Agreement, which became effective on December 20, 2000." ( See VCENA's Opp'n at 6, ECF No. 105.)

HCM argues that VCENA takes contradictory positions with regard to the scope of the joint venture agreements. VCENA first argues that HCM has a continuing duty to fund EHHE because of alleged promises contained in the Restated JV Agreement and the Termination Agreement, and VCENA admits that its claim in Count Two, based upon that continuing duty, must be arbitrated. However, VCENA then argues that its claim alleging that HCM and EHHE are alter egos is nonarbitrable because, after December 20, 2000, the joint venture agreements (specifically, the Restated JV Agreement) no longer governed how the parties were to relate to EHHE. HCM argues that VCENA should be estopped from arguing that the joint venture agreements no longer govern how the parties are "to deal with EHHE" since VCENA pled twice that the joint venture agreements impose a continuing duty upon HCM to fund EHHE. This court agrees with HCM that VCENA cannot have it both ways.

In Count Two for Indemnification and Contribution against HCM, VCENA states that "[p]ursuant to the [Restated Joint Venture Agreements and Termination Agreement] . . . HCM agreed to indemnify and hold VCENA harmless from any liability due to HCM's failure to provide financing for EHHE's Obligations to pay all debts, liabilities, obligations and claims relating to employee benefit plans and arrangements previously existing or thereafter in effect for Plaintiffs and all other individuals employed by EHHE." (Am. Third-Party Compl. ¶ 14.)

See Counts Two and Four.

Moreover, HCM argues VCENA should not be permitted to litigate alter ego liability for an underlying claim that is arbitrable. HCM argues that the alter ego claim in Count Three must be arbitrated because the contractual indemnification claim in Count One against EHHE, that VCENA seeks to hold HCM liable for in Count Three, is arbitrable as it is arises from or in connection with the Restated JV Agreement. This court has already concluded that Count One must be arbitrated. Therefore, VCENA's alter ego claim also arises from and in connection with the parties' joint venture agreements and must be arbitrated when considering that a party must arbitrate all claims that are even "arguably cover[ed]" by the arbitration clause. Consequently, Count Three against HCM and HTM must be arbitrated. See Highlands Wellmont Health Network, 350 F.3d at 578.; Simon, 398 F.3d at 774 n. 15.

This court has previously concluded that HTM, as third-party beneficiaries to the Restated JV Agreement, may invoke the arbitration agreement.

4. Count Four — Compensation to Surety against EHHE, HCM and HTM

VCENA agrees that Count Four for compensation to surety as alleged against HCM is within the scope of the arbitration agreement. ( See Opp'n to Mot. to Stay and Compel Arbitration at 1; Am. Third-Party Compl. ¶¶ 19-21.) The court finds that Count Four is within the scope of the arbitration agreement and therefore grants HCM's Motion to Compel Arbitration on Count Four, insofar as it presents a claim against HCM.

EHHE and HTM, as third-party beneficiaries to the Restated JV Agreement, may invoke the arbitration agreement. Thus, it must be determined whether Count Four, as alleged against EHHE and HTM, is within the scope of the arbitration agreement.

VCENA claims that in the event that it "is found to be liable to the Plaintiffs on account of its alleged status as a surety . . . such suretyship arose from the [Asset Contribution Agreement, Restated JV Agreement and Termination Agreement]." (Am. Third-Party Compl. ¶ 20.) A suretyship is a " contractual relation whereby one person, the surety, agrees to answer for the debt, default or miscarriage of another, the principal, with the surety generally being primarily and jointly liable with the principal." McWane, Inc. v. Fid. Deposit Co., 372 F.3d 798, 802 (6th Cir. 2004) (citations omitted) (emphasis added). VCENA's status as a surety depends entirely upon VCENA's claimed right to indemnification from EHHE under the Asset Contribution Agreement, which is merely an implementation of the joint venture agreements. Without the alleged contractual right of indemnification from EHHE, VCENA has no basis for contending that a principal obligor/secondary obligor relationship exists. Accordingly, Count Four against EHHE and HTM cannot be maintained without reference to the Restated JV Agreement. See Fazio, 340 F.3d at 395 (citing Ford, 141 F.3d at 250-51). Thus, Count Four is within the scope of the arbitration agreement. As such, this court will compel arbitration on Count Four as alleged against EHHE and HTM.

5. Count Five — Subrogation Against EHHE, HCM and HTM

Count Five alleges that in the event VCENA is required to pay any sum to the Plaintiffs, it will become equitably subrogated to Plaintiffs' rights to enforce and collect upon the obligations of EHHE, HCM and HTM to the Plaintiffs. ( See Am. Third-Party Compl. ¶¶ 22-25.) VCENA argues that it is entitled to litigate its subrogation claim, which it bases upon HCM's alter ego relationship with EHHE, because "Plaintiff's rights vis-à-vis [HCM] were never governed by the 1998 Restated JV Agreement." ( See VCENA's Opp'n at 7, ECF No. 105.) As HCM contends, while Plaintiffs' rights against HCM, EHHE and HTM are not governed by the joint venture agreements, VCENA's alleged right to stand in Plaintiffs' shoes and the very "principal obligor"/"secondary obligor" relationship with HCM upon which that alleged right exists, depends entirely upon VCENA's claimed rights arising under the joint venture agreements. Therefore, Count Five, like Count Four, has its origins in the joint venture agreements and is consequently within the scope of the broad arbitration agreement. Thus, the court will compel arbitration of Count Five against EHHE, HCM, and HTM.

6. Count Six — Fraudulent Inducement Against HCM and Count Seven — Negligent Misrepresentation against HCM and EHHE

In Count Six, VCENA claims that:

During the course of the negotiations for the [Termination Agreement], and in the agreements themselves, HCM falsely and fraudulently represented to VCENA that HCM and EHHE would continue to pay and provide financing for all debts, liabilities, obligations and claims relating to employee benefit plans and arrangements previously existing or thereafter in effect for Plaintiffs and all other individuals employed by EHHE, and that HCM and EHHE would indemnify and hold VCENA harmless from any liability due to any failure by HCM or EHHE to make such payments and financing. These representations were false, known to be false by HCM, and made with the intent and purpose of inducing VCENA's reliance thereupon so that VCENA would enter into that agreement.

(Am. Third-Party Compl. ¶ 27, emphasis added.) In Count Seven, VCENA alleges that, during the course of negotiations for the Termination Agreement, HCM and EHHE made negligent misrepresentations when agreeing to continue to pay and provide financing for all debts, liabilities, obligations, and claims relating to employee benefit plans. ( See Am. Third-Party Compl. ¶¶ 30-33.)

VCENA argues that these claims are not arbitrable because the Termination Agreement does not contain its own arbitration clause covering disputes relating to the Termination Agreement. ( See Opp'n. to Mot. to Stay and Compel Arbitration at 8.) This argument is not well-taken. The Termination Agreement preserves the parties' agreement to arbitrate. VCENA and HCM agreed to arbitrate "any dispute arising from or in connection with" the Restated JV Agreement. ( See Joint Venture Agreement, § 11.12(a).) Additionally, Count Six arises out of the alleged representations made prior to the execution of the Termination Agreement. VCENA's reliance on Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395 (1967) is misplaced. Prima Paint held that a claim of fraud in the inducement of the arbitration clause itself is not arbitrable. Id. at 403-404. A claim of fraud in the inducement of a contract containing an arbitration clause is an arbitrable claim. Id. at 404. Consequently, this court finds that Count Six, alleging fraudulent inducement against HCM, is within the scope of the arbitration agreement and must be arbitrated.

Regarding Count Seven for Negligent Misrepresentation against HCM and EHHE, this court notes that there is no evidence of a purpose to exclude a negligent misrepresentation claim from arbitration. As the Sixth Circuit recognized in Solvay Pharms., when an arbitration agreement is broad, "a court should follow the presumption of arbitration and resolve doubts in favor of arbitration . . . only an express provision excluding a specific dispute, or the most forceful evidence of a purpose to exclude the claim from arbitration, will remove the dispute from consideration by the arbitrators." Solvay Pharms., 442 F.3d at 482 (citation and internal quotations omitted). Therefore, this court finds Count Seven at least arguably covered by the arbitration clause preserved by the Termination Agreement. Considering the strong federal policy in favor of arbitration, this court will compel arbitration on Count Seven against HCM and EHHE for negligent misrepresentation.

7. Counts Eight, Nine, Ten, Eleven, and Twelve

Count Eight alleges that EHHE, HCM, and HTM engaged in fraudulent transfers of EHHE's assets after the Termination Agreement took effect. ( See Am. Third-Party Compl., ¶¶ 34-49.) Counts Nine and Ten allege that EHHE, HCM, HTM, and Deere-Hitachi tortiously interfered with the performance of the Asset Contribution Agreement, and with the business relationship between VCENA and HCM and EHHE, but that they engaged in this interference after the Termination Agreement took effect. ( Id. ¶¶ 52, 57-58.) Count Eleven alleges that HCM, HTM and Deer-Hitachi aided and abetted EHHE and HCM's tortious conduct. ( Id. ¶¶ 64, 65.) Count Twelve alleges that HCM, EHHE, HTM, and Deere-Hitachi engaged in a civil conspiracy to cause injury and damage to VCENA. ( Id. ¶ 69.)

EHHE, HCM and HTM move to compel arbitration of Counts Eight through Twelve as asserted against them. Deere-Hitachi moves to stay Counts Eight through Twelve pending arbitration. VCENA argues that, by their very definition, Counts Eight through Twelve are rooted in facts that have no relation or relevance to the 1998 Restated JV Agreement because all provisions of the Restated JV Agreement that purported to affect HCM's ongoing relationship with EHHE, and HCM's alleged rights to manipulate the assets and liabilities of EHHE, were extinguished by the Termination Agreement. ( See VCENA's Opp'n at 9.) VCENA maintains that no claim could ever "aris[e] from or in connection with" the Restated JV Agreement when the claim is based on conduct that only occurred after the Restated JV Agreement in question had been terminated and cites USW v. Mead Corp., Fine Paper Div., 21 F.3d 128, 131 (6th Cir. 1994) in support of its conclusion that the Restated JV Agreement is not susceptible of an interpretation that covers Counts Eight through Twelve. ( See Opp'n to Mot. to Stay and Compel Arbitration at 13.)

Deere-Hitachi acknowledges that it is not a party or third-party beneficiary to any contract with VCENA containing an agreement to arbitrate. Deere-Hitachi's arguments in favor of staying the claims against it shall be addressed infra.

USW is discussed infra.

VCENA's conclusion is erroneous for three reasons. First, the Termination Agreement is not a complete novation of the Restated JV Agreement. The Termination Agreement does not extinguish all of the parties' joint venture rights and obligations relating to how VCENA and HCM are to deal with EHHE vis-à-vis each other.

Second, simply because the alleged conduct forming the factual basis for VCENA's claims occurred after the Termination Agreement was entered into by the parties does not mean that the claims are not in regard to a dispute "arising from or in connection with" the Restated JV Agreement. ( See Restated JV Agreement, § 11.12(a).) To decide whether an arbitration agreement encompasses a dispute, a court must determine whether the factual allegations underlying the claim are within the scope of the arbitration clause, regardless of the legal label assigned to the claim. J.J. Ryan Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 319 (4th Cir. 1988) (citing Soler Chrysler-Plymouth, Inc., 473 U.S. at 622 n. 9). A party "cannot avoid arbitration simply by renaming its claims so that they appear facially outside the scope of the arbitration agreement." Simon, 398 F.3d at 776 (citation omitted).

Counts Eight through Twelve are all predicated upon EHHE's alleged obligation to indemnify VCENA which arises out of the Asset Contribution Agreement and Restated JV Agreement. Count Eight alleging fraudulent transfer is predicated upon VCENA's allegation that it is a creditor of EHHE's. ( See Am. Third-Party Compl. ¶ 35.) VCENA's alleged status as a creditor has no basis apart from EHHE's alleged contractual duty to indemnify VCENA. Counts Nine, Ten, and Eleven, alleging tortious interference with contract and business relations, and aiding and abetting tortious conduct, are also predicated upon and have no basis apart from rights and obligations of EHHE that arose from the Asset Contribution Agreement and Restated JV Agreement. ( See id. ¶¶ 51-52, 57-58.) VCENA alleges that EHHE, with others, intentionally procured the breach of the Asset Contribution Agreement by "disabl[ing] themselves so as to make performance of their obligations under [the Asset Contribution Agreement] impossible." (Am. Third-Party Compl. ¶ 52.) Therefore, these claims are "in connection with" the Asset Contribution Agreement and Restated JV Agreement. Likewise, without the alleged rights and obligations of EHHE that arose from the Asset Contribution Agreement and Restated JV Agreement, there would be no basis for the alleged torts and breaches of contract VCENA alleges EHHE and others conspired to commit in Count Twelve, alleging civil conspiracy. ( See id. ¶¶ 69-70.)

The fact that VCENA "alleges a conspiracy to harm" it "does not remove the dispute from the scope of arbitration" when the dispute regarding the alleged acts arose in connection with the agreement containing a broad arbitration clause. See J.J. Ryan Sons, Inc., 863 F.2d at 321 (citing Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (holding that a claim for damages resulting from a conspiracy to violate the Sherman Act was arbitrable)).

Third, although VCENA's cites the Sixth Circuit's opinion in USW v. Mead Corp., that case only discusses the standard for applying the presumption of arbitrability and does not actually support VCENA's position. USW, 21 F.3d at 131. In fact, in USW, the district court found the union's grievance not subject to arbitration and the Sixth Circuit reversed, reasoning that,

where the agreement contains an arbitration clause, the court should apply a presumption of arbitrability, resolve any doubts in favor of arbitration, and should not deny an order to arbitrate "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Moreover, in cases involving broad arbitration clauses the Court has found the presumption of arbitrability "particularly applicable," and only an express provision excluding a particular grievance from arbitration or "the most forceful evidence of a purpose to exclude the claim from arbitration can prevail."
Id. (citation omitted).

As in USW, the Restated JV Agreement contains a broad arbitration clause. Thus, this court must apply a presumption of arbitrability, just as the Sixth Circuit did in USW. See id. Furthermore, it may not be said "with positive assurance that the arbitration clause is not susceptible of an interpretation that covers" VCENA's claims as alleged in Counts Eight through Twelve, as each of those claims is predicated upon EHHE's alleged obligation to indemnify VCENA. See id. Finally, no express provision excludes claims like Counts Eight through Twelve from arbitration and VCENA has not provided this court with evidence of a purpose to exclude these claims from arbitration. See id.

For the above-stated reasons, this court will compel arbitration on Counts Eight, Nine, Ten, Eleven, and Twelve as asserted against EHHE, HCM, and HTM.

C. No Federal Statutory Claims at Issue

The Sixth Circuit's third step in determining whether to grant motions to compel arbitration involves determining "if federal statutory claims are asserted" and if so, then the court "must consider whether Congress intended those claims to be non-arbitrable." Stout, 228 F.3d at 714. There are no federal statutory claims at issue in the instant case.

D. Stay

The fourth and last step of the Sixth Circuit's four-step test is to determine whether to stay the remainder of the proceedings pending arbitration. See Stout, 228 F.3d at 714. The Federal Arbitration Act requires that a court, upon being satisfied that the issues involved in the suit are referable to arbitration, "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. . . ." 9 U.S.C. § 3; see also ATAC Corp. v. Arthur Treacher's, Inc., 280 F.3d 1091, 1094-1095 (6th Cir. 2002). This court has determined that all of VCENA's claims against HCM, EHHE, and HTM are arbitrable. Therefore, this court shall stay the above-mentioned claims pending arbitration.

Deere-Hitachi argues that it is entitled to a stay of the claims against it until VCENA's claims against HCM, EHHE, and HTM are arbitrated because the non-arbitrable claims against it are predicated upon the outcome of VCENA's claims against HCM, EHHE, and HTM. The Supreme Court has made it clear that "[i]n some cases . . . it may be advisable to stay litigation among the nonarbitrating parties pending the outcome of the arbitration. That decision is one left to the district court . . . as a matter of its discretion. . . ." Moses H. Cone Mem'l Hosp., 460 U.S. at 21 n. 23 (citation omitted). An important consideration in determining whether or not to stay non-arbitrable claims "is whether [the] arbitrable claims predominate or whether the outcome of the nonarbitrable claims will depend upon the arbitrator's decision." Klay v. Pacificare Health Sys., Inc., 389 F.3d 1191, 1204 (11th Cir. 2004) (citing Genesco, Inc. v. T. Kakiuchi Co., Ltd., 815 F.2d 840, 856 (2d Cir. 1987)). In the instant case, it is clear that the arbitrable claims against HCM, EHHE, and HTD dominate. Moreover, the outcome of all of the nonarbitrable claims against Deere-Hitachi will depend on the arbitrator's resolution of some of the arbitrable claims against HCM, EHHE, and HTM.

The non-arbitrable claims as asserted against Deere-Hitachi are Count Nine, alleging tortious interference with contract, Count Ten alleging, tortuous interference with business relations, Count Eleven, alleging aiding and abetting tortious conduct, and Count Twelve, alleging civil conspiracy.

For example, Counts Nine and Ten against Deere-Hitachi, alleging tortious interference with contract and business relationships cannot be maintained unless the arbitration of Count One against EHHE alleging indemnification and contribution, or Count Two against HCM, alleging indemnification and contribution, are decided in VCENA's favor. If arbitration results in a determination that neither EHHE nor HCM has a continuing contractual duty to fund the retiree benefits at issue or to indemnify VCENA, VCENA has no basis upon which to contend that Deere-Hitachi has tortiously interfered with its alleged contract rights or business relations relating to the funding of retiree benefits, or indemnification, from EHHE and HCM.

Additionally, Counts Eleven and Twelve against Deere-Hitachi, alleging aiding and abetting tortious conduct and civil conspiracy also depend on the resolution of arbitrable claims. The bases of these two non-arbitrable claims is found in Count Six, alleging fraudulent inducement, Count Seven, alleging negligent misrepresentation, Count Eight, alleging fraudulent transfer, Count Nine, alleging tortious interference with contract, and Count Ten, alleging tortious interference with business relations. This court has already determined these claims as asserted against HCM, EHHE, and HTM must be arbitrated. Consequently, Counts Eleven and Twelve, as asserted against Deere-Hitachi, depend upon factual findings and determinations that are in the purview of the arbitrator. If the arbitrator decides in favor of HCM, EHHE, and HTM on these issues, Deere-Hitachi cannot be held liable for aiding and abetting tortious conduct or for civil conspiracy. Accordingly, this court shall stay VCENA's claims against Deere-Hitachi until the arbitration of VCENA's claims against HCM, EHHE, and HTM has been completed.

III. CONCLUSION

For the foregoing reasons, all of VCENA's claims against HCM, EHHE, and HTD shall be arbitrated. VCENA's claims against Deere-Hitachi shall be stayed, pending arbitration. HCM's Motions to Stay Proceedings on the Third-Party Complaint and to Compel Arbitration (ECF No. 58) is granted. EHHE's Motion to Stay and Compel Arbitration (ECF No. 90) is granted. HTM's Motion to Stay Proceedings on the Third-Party Complaint and to Compel Arbitration (ECF No. 157) is granted. Finally, Deer-Hitachi's Motion to Stay the Amended Third-Party Complaint (ECF No. 158) is likewise granted.

Plaintiffs claims against VCENA are not stayed. Plaintiffs' Amended Motion for Class Certification (ECF No. 139) and the parties cross motions for summary judgment, filed by Plaintiffs and VCENA (ECF Nos. 155 and 156), are currently under consideration by the court.

IT IS SO ORDERED.


Summaries of

Rose v. Volvo Construction Equipment North America

United States District Court, N.D. Ohio, Eastern Division
Mar 20, 2007
Case No.: 1:05 CV 168 (N.D. Ohio Mar. 20, 2007)
Case details for

Rose v. Volvo Construction Equipment North America

Case Details

Full title:ISAAC ROSE, et al., Plaintiffs v. VOLVO CONSTRUCTION EQUIPMENT NORTH…

Court:United States District Court, N.D. Ohio, Eastern Division

Date published: Mar 20, 2007

Citations

Case No.: 1:05 CV 168 (N.D. Ohio Mar. 20, 2007)