Burnham Enterprises, LLC v. DACC Co. Ltd. et al
MEMORANDUM OPINION and ORDER directing that: (1) Defendants' motions to compel arbitration and stay proceedings (Docs. # 34 , 40 ) are GRANTED, and Plaintiff is ORDERED to submit this dispute to arbitration in the manner provided for in the ar bitration clause; (2) This action is STAYED pending arbitration. Plaintiff shall file a jointly prepared report regarding the status of arbitration proceedings on or before March 1, 2013, and every ninety (90) days thereafter, until this matter is re solved; (3) All other pending motions (Docs. # 10 , 20 , 33 , 39 ) are DENIED as moot, without prejudice. The parties may renew any motions that remain relevant after the stay is lifted. Signed by Chief Judge William Keith Watkins on 1/7/13. (scn, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
BURNHAM ENTERPRISES, LLC, )
DACC CO. LTD., et al.,
CASE NO. 2:12-CV-111-WKW
MEMORANDUM OPINION AND ORDER
This case is before the court on two motions to compel arbitration and stay
proceedings. Defendant DACC Co., LTD., filed the first motion (Doc. # 34), and
Defendants DACC-Aerospace Co. Ltd. and Honam Petrochemical Corporation filed
the second (Doc. # 40). For the reasons that follow, the motions are due to be granted.
Subject matter jurisdiction is exercised pursuant to 28 U.S.C. § 1332. Personal
jurisdiction is contested, but this opinion does not address that issue.
Carbon preform products are used in a number of civilian and military
applications. The Republic of South Korea, for instance, uses carbon preform disc
brakes in its fighter jets – some of which were manufactured in Alabama by American
Structural Needling Company (“ASNC”), a division of Plaintiff Burnham Enterprises,
Before ASNC’s brakes could reach South Korean fighter jets, they flowed in
the stream of commerce through several intermediaries, including Defendant DACC
Co., LTD. (“DACC”). DACC is a South Korean company that does business around
The relationship between ASNC and DACC officially commenced in 2002
when they executed a long-term purchase agreement for the sale and purchase of
preform material.1 Although that agreement contained a confidentiality clause, the
parties also signed a separate confidentiality agreement shortly after executing the
long-term agreement. The long-term agreement contained an arbitration clause. The
confidentiality agreement did not.
After seven years of harmony, DACC began purchasing fewer and fewer
products from ASNC. Eventually, orders ceased altogether, ostensibly due to
DACC’s “business shrinkage.” (Doc. # 1 ¶ 34.) The long-term agreement was never
A third company, Pointe International Inc., was also involved. Pointe International is
not a party to this action.
ASNC grew suspicious when DACC stopped placing orders and asked its
attorney to investigate. That investigation led ASNC to believe that DACC had
misappropriated ASNC’s trade secrets and proprietary information. According to
ASNC, DACC was using that information, along with Defendants Honam
Petrochemical Corporation (“Honam”) and DACC-Aerospace Co. Ltd. (“DACCAerospace”), to commercialize its own carbon preform products instead of continuing
to purchase them from ASNC.
ASNC filed suit in this court against DACC, DACC-Aerospace, and Honam,
claiming breach of contract, violations of trade secret law, fraud, interference with
contractual and business relations, and conspiracy. ASNC’s complaint seeks at least
$7.5 million in damages, along with declaratory and injunctive relief. Defendants
responded with four motions to dismiss (Docs. # 10, 20, 33, 39)2 and two motions to
compel arbitration (Docs. # 34, 40). Only DACC filed an answer. (Doc. # 35.)
III. STANDARD OF REVIEW
Pursuant to the Federal Arbitration Act (“FAA”), a written arbitration provision
in a “contract evidencing a transaction involving commerce” is “valid, irrevocable,
and enforceable, save upon such grounds as exist at law or in equity for the revocation
Because the motions to compel arbitration dispose of the matter at this juncture, this
opinion will not address the arguments raised in the motions to dismiss, which include
challenges to personal jurisdiction. See Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574 (1999)
(holding there is no mandatory sequencing of non-merits issues).
of any contract.” 9 U.S.C. § 2. The FAA evinces a “liberal federal policy favoring
arbitration agreements.” Hill v. Rent-A-Center, Inc., 398 F.3d 1286, 1288 (11th Cir.
2005) (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24 (1983)); see also Picard v. Credit Solutions, Inc., 564 F.3d 1249, 1253 (11th Cir.
2009) (“The FAA creates a strong federal policy in favor of arbitration.”). “[A]ny
doubts concerning the scope of arbitrable issues should be resolved in favor of
arbitration.” Moses H. Cone, 460 U.S. at 24-25. Accordingly, the courts “rigorously
enforce” arbitration agreements. Klay v. All Defendants, 389 F.3d 1191, 1200 (11th
Cir. 2004). The FAA provides that “upon any issue referable to arbitration under an
agreement in writing for such arbitration,” and “upon being satisfied that the issue
involved in such suit or proceeding is referable to arbitration under such an
agreement,” the court “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.
Further, the United States Supreme Court has consistently recognized “the
emphatic policy” favoring arbitration applies with “special force in the field of
international commerce.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 631 (1985). This policy is based upon the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (the “New York
Convention”), which is incorporated and enforced through the provisions of the FAA
at 9 U.S.C. § 201 et seq.
Under the “very limited inquiry” contemplated by the New York Convention,
a district court must compel arbitration if four conditions are met:
there is an agreement in writing within the meaning of the
the agreement provides for arbitration in the territory of a
signatory of the Convention;
the agreement arises out of a legal relationship, whether
contractual or not, which is considered commercial; and
a party to the agreement is not an American citizen, or that the
commercial relationship has some reasonable relation with one or
more foreign states.
Bautista v. Star Cruises, 396 F.3d 1289, 1294 n.7 (11th Cir. 2005).
According to DACC, the arbitration clause in the long-term agreement meets
all four factors, so the court is obligated to compel arbitration. ASNC disputes that
conclusion, arguing that the arbitration clause in the long-term agreement does not
apply to this dispute, which arises solely under the confidentiality agreement. Further,
to the extent the long-term agreement’s arbitration clause would otherwise apply,
ASNC argues the confidentiality agreement’s dispute-resolution clause relieves it of
any obligation to arbitrate this dispute.
DACC-Aerospace and Honam argue that they are also entitled to invoke the
long-term agreement’s arbitration clause under the nonsignatory doctrine. ASNC,
however, urges that even if the arbitration agreement applies to DACC, it does not
cover the claims against DACC-Aerospace and Honam, both non-signatories to the
But as the following discussion will show, the terms of the two agreements,
considered in light of the presumption favoring arbitration of international disputes,
require ASNC to submit its dispute with DACC to arbitration. Moreover, because
ASNC’s claims against DACC-Aerospace and Honam are intimately founded in and
intertwined with the claims against ASNC, the nonsignatory doctrine requires
arbitration of those disputes as well.
ASNC must arbitrate its claims against DACC.
With regard to ASNC’s claims against DACC, the only real dispute involves
a simple question of contractual interpretation: Did the parties agree to submit this
dispute to arbitration? If they did, a second question arises: Did the parties revoke
or modify their agreement to arbitrate?
1. DACC and ASNC agreed to arbitrate this dispute.
As with any question of contractual interpretation, the first place to look is the
language of the contract itself. The relevant portion of the arbitration clause in the
long-term agreement between ASNC and DACC reads as follows:
Buyer and Seller/Supplier agree that any controversy or claim arising out
of or in connection with this contract, or its interpretation, shall be settled
by arbitration in Seoul, the Republic of Korea . . . .
(Doc. # 34-1, at 15.) Under the plain meaning of that clause, ASNC must submit to
arbitration its claims against DACC if they arise out of or are in connection with the
long-term purchase agreement.
The most compelling argument to that effect comes from ASNC’s own
characterization of the facts: According to the complaint, DACC told ASNC that
“DACC would not be able to purchase ASNC’s product without first having the
carbon preform material and engineering specifications; . . . without providing
ASNC’s proprietary information and specifications to the South Korean government,
DACC would not be able to purchase carbon preforms from ASNC.” (Doc. # 1 ¶ 14.)
ASNC goes on to claim that those representations were false when they were made,
but those allegations nonetheless show that ASNC entered into the purchasing
agreement with the understanding that exchange of proprietary information was part
of the arrangement.
Now ASNC argues this lawsuit is “based solely on – and arise[s] only from –
the confidentiality agreement” it executed with DACC shortly after the long-term
agreement. To that end, ASNC urges that “[b]ut for the Confidentiality Agreement,
ASNC would not have shared its information and trade secrets with DACC.” (Doc.
# 42, at 4.) That may be true, but the complaint indicates that but for ASNC’s promise
to share proprietary information, DACC would not have entered into the long-term
agreement. Logically, then, the very existence of the confidentiality agreement was
necessitated by the long-term agreement. Only by ignoring the chain of events alleged
in the complaint could one consider this case as a dispute related exclusively to the
Other provisions of the long-term agreement show that the claims ASNC now
asserts against DACC fall comfortably within the category of claims “arising out of
or in connection with” that agreement. For instance, the quality assurance provision
of the long-term agreement specifically gives DACC the right to “inspect and audit
those areas of [ASNC’s] facilities where manufacturing actives [sic] are in process,
[along with] technical documentation control and relevant records.” (Doc. # 34-1, at
11.) Another provision gives DACC “access to any and all areas that are related to
the purchasing items, including those subcontracted, where work is being done or
scheduled to be performed” under the long-term agreement. (Doc. # 34-1, at 11.) The
long-term agreement also expressly provides for the exchange of engineering data and
test reports (Doc. # 34-1, at 9–10, 13), and contemplates the exchange of confidential
proprietary information (Doc. # 34-1, at 6). Finally, the confidentiality clause of the
long-term agreement illustrates the parties’ acknowledgment that their relationship
would involve sharing “proprietary or confidential information.” (Doc. # 34-1, at 7.)
At any rate, ASNC’s arguments focus on the idea that this lawsuit does not arise
out of the long-term purchasing agreement. But ASNC has not attempted to argue this
lawsuit does not qualify as a “controversy or claim . . . in connection with” the longterm agreement. However far one stretches ASNC’s reasoning, its arguments do not
lead one to conclude this controversy is unconnected with the long-term agreement.
As the Eleventh Circuit has noted, “[w]hether a claim falls within the scope of an
arbitration agreement turns on the factual allegations in the complaint rather than the
legal causes of action asserted.” Gregory v. Electro-Mechanical Corp., 83 F.3d 382,
384 (11th Cir. 1996). The factual allegations in ASNC’s complaint are rife with
references to the long-term agreement; any attempt now to deny this case’s connection
with that agreement is not credible.
Finally, two policy considerations eliminate any lingering doubts that might
favor denying DACC’s motion to compel arbitration: First, there is an emphatic
presumption favoring arbitration, which applies with special force in the international
context. See Moses H. Cone, 460 U.S. at 24-25. That presumption requires the court
to resolve any questions concerning the scope of arbitrable issues in favor of
arbitration “unless . . . it may be said with positive assurance that the arbitration clause
is not susceptible of an interpretation that covers the asserted dispute.” AT&T Tech.
Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 651 (1986). Therefore, the court
cannot deny DACC’s motion to compel arbitration if any interpretation of the longterm agreement’s arbitration clause covers this dispute. Because the court cannot
conclude with “positive assurance” the long-term agreement’s arbitration clause does
not cover this dispute, the law requires an interpretation favoring arbitration.
Second, the agreement expressly provides that questions of its own
interpretation “shall be settled by arbitration . . . in accordance with the rules of
Conciliation and Arbitration of the International Chamber of Commerce.” (Doc. # 341, at 11.) According to those rules, “any decision as to the jurisdiction of the arbitral
tribunal . . . shall then be taken by the arbitral tribunal itself.” (Doc. # 47, at 15
(quoting International Chamber of Commerce, Rules of Arbitration, Article 6(5) (Jan.
When there is clear and
unmistakeable evidence that the parties to a contract agreed to arbitrate not only their
underlying dispute, but also preliminary questions of arbitrability, courts must respect
that agreement. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
Here the language of the arbitration agreement, coupled with the rules it adopts by
reference, provide clear and unmistakable evidence that ASNC and DACC agreed to
have questions of arbitrability settled in arbitration, not in court. See, e.g., Terminix
Int’l Co. v. Palmer Ranch Ltd. P’ship, 432 F.3d 1327, 1332-33 (11th Cir. 2005)
(finding clear and unmistakable evidence that parties agreed to arbitrate questions of
arbitrability based on rules incorporated by reference to the contract). Because of that
agreement, it is for the arbitrator to decide whether ASNC’s dispute with DACC falls
within the scope of the long-term agreement’s arbitration clause.
2. DACC and ASNC did not revoke their arbitration agreement.
The long-term agreement is not, however, the only contract at issue here.
ASNC’s claims also implicate the confidentiality agreement it executed with DACC.
The confidentiality agreement contains its own dispute-resolution clause – one that
makes no mention of arbitration. According to ASNC, that provision served to
modify and delete any agreement to arbitrate this dispute found in the long-term
As ASNC points out, the confidentiality agreement does mention litigation as
a possibility in the event a dispute arises. But before either party resorts to litigation
to solve any dispute under that agreement, it is required to schedule a mandatory
meeting and make a good-faith attempt to resolve the dispute. If the meeting is a
failure, then “each party obtains applicable remedies under law or equity.” (Doc.
# 34-2, at 4.) Basically, then, the confidentiality agreement sets the mandatory
meeting as a necessary condition that must be satisfied before either party can litigate.
That agreement does not, however, establish the mandatory meeting as a
sufficient condition that triggers a right to litigate. Rather, it provides only that failure
to settle a dispute at the mandatory meeting entitles the parties to “applicable remedies
under law or equity.” (Doc. # 34-2.) In other words, after the mandatory meeting, the
parties may pursue whatever remedies are available to them. Because of the
arbitration clause in the long-term agreement, though, litigation is not an applicable
remedy. ASNC and DACC agreed in advance they would not settle this dispute in
court, so arbitration is the only applicable remedy under the confidentiality agreement.
ASNC insists, however, that the confidentiality agreement modified and deleted
any agreement to arbitrate found in the long-term agreement. (Doc. # 45, at 6–7.) As
support for that conclusion, ASNC cites cases that show “parties are free to modify
agreements, and if the terms of a subsequent agreement contradict the earlier
agreement, the terms of the later agreement prevail.” See Cavalier Mfg., Inc. v.
Clarke, 862 So. 2d 634, 641 (Ala. 2003). That principle is not in dispute. As it
happens, the long-term agreement specifically allows for its own modification, so long
as the modification is made in the form of a signed writing. (Doc. # 34-1, at 11.) But
even though ASNC’s premises are sound, its conclusion is flawed – the confidentiality
agreement neither expressly modifies the long-term agreement nor supersedes the
arbitration clause through inconsistency.
A review of the confidentiality agreement reveals no evidence that the parties
intended to expressly modify the long-term agreement’s arbitration clause. Indeed,
that agreement makes no reference to the long-term agreement whatsoever. And as
ASNC candidly admits, “[n]owhere does the Confidentiality Agreement mention
arbitration.” (Doc. # 42, at 5.)
Nor does the confidentiality agreement’s dispute-resolution clause supersede
the long-term agreement’s arbitration clause through inconsistency. Although both
agreements address aspects of dispute resolution, neither clearly conflicts with the
other. It is true that the confidentiality agreement does mention litigation, but it does
so only to set a procedure the parties must follow “before [they] resort to litigation.”
(Doc. # 34-2, at 4 (emphasis added).) As to what follows, the confidentiality
agreement only says the parties “obtain applicable remedies under law or equity”
(Doc. # 34-2, at 4), not that the parties have a guaranteed right to litigate their dispute
in court. In other words, the confidentiality agreement does not clearly show an
agreement that litigation is an option; it only specifies that litigation is not an option
before the mandatory meeting is held. The long-term agreement, on the other hand,
affirmatively provides that the parties agreed to settle this dispute through arbitration,
not litigation. Because the confidentiality agreement does not clearly provide that the
parties have the right to litigate their dispute on the merits, it does not supersede the
long-term agreement’s arbitration clause.
That is not to say that the parties completely disclaimed their right to relief in
this court. The confidentiality agreement expressly provides that, “either party may
seek injunctive relief in any court of competent jurisdiction against improper use or
disclosure of proprietary information.” (Doc. # 34-2, at 4.) That provision is fully
consistent with the interim relief specifically allowed by the International Chamber
of Commerce’s Rules of Arbitration, which are incorporated into the long-term
agreement’s arbitration clause. See International Chamber of Commerce, Rules of
Arbitration, Article 28 (January 1, 2012) (“Before the file is transmitted to the arbitral
tribunal, and in appropriate circumstances even thereafter, the parties may apply to
any competent judicial authority for interim or conservatory measures.”).
Accordingly, although ASNC must submit the merits of its dispute with DACC to
arbitration, it may nonetheless apply to this court for appropriate injunctive relief
pending the arbitrator’s decision on the merits. See Am. Express Fin. Advisors, Inc.
v. Makarewicz, 122 F.3d 936, 940 (11th Cir. 1997) (recognizing availability of
injunctive relief when arbitration agreement specifically provided for such relief in
court of competent jurisdiction).
ASNC must arbitrate its claims against DACC-Aerospace and Honam
According to the nonsignatory doctrine, a party may invoke an arbitration
agreement he did not sign “if the relevant state contract law allows him to enforce the
agreement.” Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 632 (2009). Honam and
DACC-Aerospace rely on that doctrine, coupled with the state-law doctrine of
equitable estoppel, to argue they are entitled to arbitration on the claims against them.
Under Alabama law, equitable estoppel allows a nonsignatory to compel
arbitration if (1) the claims against the nonsignatory are “intimately founded in and
intertwined with the claims made by the party resisting arbitration against an entity
that is a party to the contract,” and (2) the arbitration agreement itself does not
preclude arbitration by the party seeking it. Ex parte Stamey, 776 So. 2d 85, 89 (Ala.
2000) (quotations omitted). ASNC does not dispute that the second requirement is
met, so the only question is whether ASNC’s claims against DACC-Aerospace and
Honam are “intimately founded in and intertwined with” with its claims against
Three counts of the complaint easily meet that standard: Counts II (violations
of trade secret law), V (conspiracy), and VI (declaratory and injunctive relief) name
all three Defendants and allege the same wrongful conduct. In those counts, the
claims against DACC are not only “intimately founded in and intertwined with” those
against DACC-Aerospace and Honam; they are, in essence, identical. See Kenworth
of Mobile, Inc. v. Dolphin Line, Inc., 988 So. 2d 534, 543 (Ala. 2008) (finding claims
were intimately founded in and intertwined with one another when they arose from
the same set of facts and made no distinction between any of the defendants).
ASNC’s brief notes that the Alabama cases on point “show a pattern of relationships
between the signatories and non-signatories such that the claims asserted against the
non-signatories are essentially the same claims asserted against the signatory.” (Doc.
# 45, at 12.) ASNC has not, however, explained why Counts II, V, and VI of the
complaint do not meet that standard when they bring identical claims against DACCAerospace and Honam (the non-signatories) as DACC (the signatory).
Further, Count IV – the only other count naming DACC-Aerospace or Honam
– alleges intentional interference with “among other things, ASNC’s contractual and
business relations, including its Confidentiality Agreement and purchasing
relationship with DACC.” (Doc. # 1 ¶ 71 (emphasis added).) ASNC somehow argues
that its claims “are not based on, or related to, DACC’s performance under the [longterm agreement].” (Doc. # 45, at 12.) ASNC does not explain, however, how a claim
alleging intentional interference with a contractual and business relationship is
anything but intimately founded in and intertwined with the underlying contractual
and business relationship. ASNC has cited no authority to support such a conclusion,
and the court is aware of none.
Accordingly, ASNC’s claim for intentional
interference, like its other claims against DACC-aerospace and Honam, is intimately
founded in and intertwined with its claims against DACC.
ASNC urges a contrary result by attempting to recast the doctrine of
intertwining as an inquiry that focuses on the relationship between parties, not claims.
According to ASNC, “[e]quitable estoppel is based upon the premise that the nonsignatories were present and somehow involved in the transaction between the
signatories to the contract and believed that they were covered by the arbitration
clause.” True, that argument finds some support in a phrase from Ex parte Stamey
that summarized the legal standard by saying equitable estoppel applies when an
arbitration agreement is so broad “the nonsignatory believed he had the right to have
the claims against him submitted to arbitration, and, therefore, that he saw no need to
enter into a second arbitration agreement.” 776 So. 2d at 89. Whatever the import of
that language, it has never been cited to deny a finding of equitable estoppel when the
two-part test from Ex parte Stamey was satisfied. Because both parts of that test are
met, ASNC is estopped from bringing its claims against DACC-Aero and Honam in
this litigation. Those claims are subject to arbitration.
Accordingly, it is ORDERED that
Defendants’ motions to compel arbitration and stay proceedings (Docs.
# 34, 40) are GRANTED, and Plaintiff is ORDERED to submit this
dispute to arbitration in the manner provided for in the arbitration clause.
This action is STAYED pending arbitration. Plaintiff shall file a jointly
prepared report regarding the status of arbitration proceedings on or
before March 1, 2013, and every ninety (90) days thereafter, until this
matter is resolved.
All other pending motions (Docs. # 10, 20, 33, 39) are DENIED as moot,
without prejudice. The parties may renew any motions that remain
relevant after the stay is lifted.
DONE this 7th day of January, 2013.
/s/ W. Keith Watkins
CHIEF UNITED STATES DISTRICT JUDGE
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