Dodson International Parts, Inc. v. Williams International Co. LLC
Filing
19
MEMORANDUM AND ORDER granting 10 Motion to Compel Arbitration. IT IS FURTHER ORDERED that this action is stayed pending arbitration.IT IS FURTHER ORDERED that Plaintiff Dodson and Defendant Williams are toproceed with arbitration in accordance wit h the provisions of the arbitration clause. IT IS FURTHER ORDERED that if this case is still pending on June 1, 2017, the parties shall file a joint status report on June 1, 2017 apprising the Court of the status of the proceedings. Signed by District Judge Julie A. Robinson on 1/31/2017. (ydm)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
DODSON INTERNATIONAL PARTS, INC.,
Plaintiff,
Case No. 16-CV-2212-JAR
v.
WILLIAMS INTERNATIONAL CO., LLC,
Defendant.
MEMORANDUM AND ORDER
Plaintiff Dodson International Parts, Inc. (“Dodson”) filed this suit against Williams
International Co., LLC (“Williams”) alleging state law claims for intentional misrepresentation,
breach of bailment and conversion, and tortious interference with prospective economic
advantage and contract, and declaratory judgment, and federal claims for violation of the
Sherman Act1 and the Clayton Act.2 These claims stem from an aircraft purchase, including two
engines manufactured by Williams, and a subsequent contract for Williams to inspect and repair
the engines for Dodson. Plaintiff alleges that Williams wrongfully refused to repair the two jet
engines and authorize them for future use as Dodson intended to resell them. This matter is
before the Court on Williams’s Motion to Stay Litigation and Motion to Compel Arbitration
(Doc. 10). The motion is fully briefed, and the Court is prepared to rule. For the reasons set
forth below, the Court grants Williams’s motion to compel arbitration.
1
15 U.S.C. §§ 1–2.
2
15 U.S.C. § 3.
1
I.
Legal Standard
It is undisputed that this case is governed by the Federal Arbitration Act (“FAA”).
Section 2 of the FAA, which is the primary substantive provision,3 provides in pertinent part that
[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 . . . shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation
of any contract.4
The Supreme Court has described § 2 as reflecting “both a liberal federal policy favoring
arbitration and the fundamental principle that arbitration is a matter of contract.”5 The FAA
reversed a longstanding judicial hostility to arbitration, favoring a presumption of arbitrability if
an agreement requires arbitration.6 “If a contract contains an arbitration clause, a presumption of
arbitrability arises, particularly if the clause in question contains . . . broad and sweeping
language.”7 Any doubts concerning arbitrability of a dispute should be resolved in favor of
arbitration.8
However, the presumption of arbitrability disappears when the parties dispute whether
there is a valid and enforceable arbitration agreement in the first place.9 Whether a party agreed
to arbitration is a contract issue, which means that arbitration clauses are only valid if the parties
3
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).
4
9 U.S.C. § 2.
5
AT & T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (citations and internal quotation marks
omitted).
6
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991).
7
ARW Expl. Corp. v. Aguirre, 45 F.3d 1455, 1462 (10th Cir. 1995); see also Bellman v. i3Carbon, LLC,
563 F. App’x 608, 613 (10th Cir. 2014).
8
LDS, Inc. v. Metro Can. Logistics, Inc., 28 F. Supp. 2d 1297, 1299 (D. Kan. 1998).
9
Bellman, 563 F. App’x at 613 (citing Dumais v. Am. Golf Corp., 299 F.3d 1216, 1220 (10th Cir. 2002);
Riley Mfg. Co. v. Anchor Glass Container Corp., 157 F.3d 775, 779 (10th Cir.1998)).
2
intended to arbitrate.10 No party can be compelled to submit a dispute to arbitration without
having previously agreed to so submit.11 Courts apply state-law principles in deciding whether
parties agreed to arbitrate.12 Here, neither party disputes that Kansas contract law applies.13
“Summary-judgment-like motions practice may be a permissible and expedient way to
resolve arbitrability questions when it’s clear no material disputes of fact exist and only legal
questions remain.”14 The Court will “decide the arbitration question as a matter of law through
motions practice and viewing the facts in the light most favorable to the party opposing
arbitration.”15 “There is no genuine issue of material fact unless the evidence, construed in the
light most favorable to the nonmoving party, is such that a reasonable jury could return a verdict
for the nonmoving party.”16 A fact is “material” if, under the applicable substantive law, it is
“essential to the proper disposition of the claim.”17 An issue of fact is “genuine” if “the evidence
is such that a reasonable jury could return a verdict for the non-moving party.”18
10
Ragab v. Howard, No. 15-1444, 2016 WL 6832870, at *2 (10th Cir. Nov. 21, 2016) (citing United
Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960)).
11
Id.
12
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
13
See Doc. 14 at 9; Doc. 18 at 1.
14
Howard v. Ferrellgas Partners, L.P., 748 F.3d 975, 984 (10th Cir. 2014).
15
Id. at 978 (citation omitted); see also Patrick Higgins & Co. v. Brooke Corp., No. 06-4111-JAR, 2007
WL 2317123, at *1 n.2 (D. Kan. Aug. 9, 2007) (citing In re Universal Serv. Fund Tel. Billing Practices Litig., 300
F. Supp. 2d 1107, 1116 (D. Kan. 2003) (stating that in the context of motions to compel arbitration, courts should
apply a standard similar to that applicable in a summary judgment motion)).
16
Bones v. Honeywell Int’l, Inc., 366 F.3d 869, 875 (10th Cir. 2004).
17
Wright ex rel. Trust Co. of Kan. v. Abbott Labs., Inc., 259 F.3d 1226, 1231–32 (10th Cir. 2001) (citing
Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998)).
18
Thomas v. Metro. Life Ins. Co., 631 F.3d 1153, 1160 (10th Cir. 2011) (quoting Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986)).
3
II.
Facts
Both parties submitted comprehensive recitations of the facts. Many of the facts
submitted relate to the underlying claims rather than this motion.19 The Court includes only the
facts relevant to the motion to compel arbitration.
Dodson was formed in 1984 and is engaged in the business of purchasing airworthy or
unairworthy aircraft, aircraft engines, and parts for operation, restoration, repairs, disassembly,
inspection, and resale. Such purchases and resales take place throughout the world. Williams
has manufactured and sold FJ44 engines for more than twenty years. Since that time, Williams
has maintained FAA-approved maintenance, repair and overhaul manuals for the several series
of FJ44 engines.
In October 2013, Dodson purchased a Cessna jet with two engines manufactured by
Williams following a landing accident in Brazil.20 Dodson intended to sell the jet once repaired.
On February 19, 2014, Dodson contacted Williams to request a determination as to airworthiness
for the two engines and for an estimate of the cost of returning the engines to service. Dodson
contacted Williams only because Williams wholly owned FAA Certified Part 145 Repair Station
is the only repair facility with Williams-supplied technical information necessary to perform the
test cell runs, engine disassembly if necessary, parts inspection and reassembly.21 Williams
19
The Court sustains Williams’s objection to the transcript of the FAA presentation as inadmissible hearsay
that is not subject to any exception. Fed. R. Evid. 801. The FAA presentation was not considered by the Court in
deciding this motion. Also, many of Williams’s objections to the declarations submitted by Dodson were facts not
relevant to deciding this motion. Doc. 18 at 3 n.2. The Court did not consider Dodson’s declaration ¶¶ 5, 7, 30, so it
does not rule on these objections. Also, the Court did not consider Cann’s declaration ¶ 2, so it does not rule on this
objection either.
20
The engines have serial numbers ESN 141386 and 141387.
21
Doc. 14-1 ¶ 15. The Court overrules Williams’s objection that this is an impermissible legal conclusion
that J.R. Dodson, the sole owner and chief operating officer of Dodson, is not competent to assert. Mr. Dodson was
a chief decision maker in the business and is testifying from his personal knowledge why Williams was approached
to make the repairs.
4
quoted Dodson $9525 per engine for inspection and to provide an estimate of repair costs to
return them to an airworthy condition.
Dodson signed two contracts authorizing the evaluation and repair estimates on the
engines on March 7, 2014. Both contracts contained identical arbitration and venue provisions.
The clauses read:
All disputes arising from or in connection with maintenance performed by
Williams International shall be submitted to binding arbitration held in the County
of Oakland, State of Michigan, U.S.A., in the English language in accordance
with the rules of the American Arbitration Association. Williams International
will designate the arbitration site.22
On April 3, 2014, Williams completed the evaluation and repair estimates for each
engine. It estimated the repair for both engines at about $640,000. Williams emailed Dodson
the estimate for each engine. On May 20, 2014, Dodson elected not to have Williams perform
work on either engine per the estimate, and Dodson directed Williams to return the engines in a
disassembled state. Williams stated it would not return the engines in a disassembled state, and
it would only return them after they were reassembled as unairworthy to ensure that the parts
were never installed on an aircraft.
During August 2014, Dodson advised Williams that it was reconsidering the repair and
return to service of the engines pursuant to the April 2014 estimate. Dodson inquired about
using serviceable parts for one engine to repair the other. On December 3, 2014, Williams told
Dodson that it would be possible to use parts for one engine to repair the other. On January 9,
2015, Williams provided a new repair estimate for the one engine taking parts from the other,
which was estimated at $248,805.99.
22
Doc. 10-1 at 8, 10.
5
On February 10, 2015, Williams informed Dodson that the full authority digital engine
controls (“FADECs”) were exposed to unknown forces during the crash and were not repairable.
The required additional hardware to make the engine airworthy added cost of more than
$500,000. In March 2015, Williams determined the engines were not flightworthy and could not
be returned to service at any cost. Williams told Dodson it would red tag the parts as
unairworthy and return them to Dodson.
Williams shipped one of the engines to a third party outside of this matter. Dodson
allegedly has failed to pay $3000 to Williams, so the other engine remains at Williams’s facility
in Michigan. Williams still has the FADECs from both engines. Williams has never produced
any parts evaluation criteria or reports concerning the precise condition that it claims renders the
parts for the engine unserviceable. Williams claims that it possesses the instructions for
continued airworthiness (“ICA”), but it has not made the information available to Dodson.
III.
Discussion
A.
Validity and Enforceability of the Contracts
Dodson’s first argument against compelling arbitration is that the contracts containing the
arbitration clause are not enforceable based on contract defenses. The final phrase of § 2 of the
FAA permits arbitration agreements to be declared unenforceable “upon such grounds as exists
at law or in equity for the revocation of any contract.”23 This savings clause permits agreements
to arbitrate to be invalidated by “generally applicable contract defense, such as fraud, duress, or
unconscionability.”24 Specifically, Dodson argues that it was fraudulently induced to enter into
23
9 U.S.C. § 2.
24
AT & T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (citations and internal quotation marks
omitted).
6
the contracts, and the contracts are unconscionable. The Court will address each argument in
turn.
1.
Fraud in the Inducement
Dodson argues that it was fraudulently induced to enter into the contracts containing the
arbitration clauses, and at a minimum, it was induced by “fraud by silence.” Specifically,
Dodson argues that it would not have signed the contract if (1) Williams advised Dodson that it
would be required to comply with service bulletins, (2) serviceability of parts would be
determined without making criteria and reports available to Dodson, and (3) component parts of
the engines, whether serviceable or unserviceable, would not be returned to Dodson if it did not
authorize further work on the engines. As the Court understands it, Dodson is asserting that the
entire contract, not just the arbitration clause, was fraudulently induced and invalid.
In response, Williams argues that fraudulent inducement may not be considered by this
Court, and the Court must submit any claim of fraudulent inducement to arbitration. Dodson
contends that the contract does not contain language that the question of arbitrability is to be
determined by an arbitrator, so the issue should be decided by this Court.
Challenges to the validity of arbitration agreements “upon such grounds as exist at law or
in equity” for the revocation of the contract come in two types. The first challenges the validity
of the agreement to arbitrate.25 The second challenges “the contract as a whole, either on the
ground that directly affects the entire agreement, or on the ground that the illegality of one of the
contract’s provision renders the whole contract invalid.”26
25
See, e.g., Southland Corp. v. Keating, 465 U.S. 1, 4–5 (1984) (challenging the agreement to arbitrate as
void under California law insofar as it purported to cover claims brought under the state Franchise Investment Law).
26
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006).
7
As a matter of substantive federal arbitration law, an arbitration provision is severable
from the remainder of the contract.27 The Supreme Court announced in Prima Paint Corp. v.
Flood & Conklin Manufacturing Co.28 that a claim of fraud in the inducement that goes to the
validity of the entire contract should be decided by the arbitrator.29 Courts should only decide
the issue if the defense goes to the arbitration clause alone.30 “A plaintiff seeking to avoid a
choice provision on a fraud theory must, within the confines of Fed.R.Civ.P. 9(b) and 11, plead
fraud going to the specific provision.”31
Here, Plaintiff’s challenge to the validity of the arbitration agreement is of the second
type—the contract as a whole was fraudulently induced. Plaintiff does not specifically allege it
was fraudulently induced to enter the clause stating “[a]ll disputes arising from or in connection
with maintenance performed by Williams International shall be submitted to binding arbitration.”
Plaintiff does not plead that the arbitration clause was induced by fraud.32 Plaintiff does state
27
Id.
28
388 U.S. 395 (1967)
29
Id. at 403–04 (holding under § 4 of the FAA that “if the claim is fraud in the inducement of the
arbitration clause itself—an issue which goes to the making of the agreement to arbitrate—the federal court may
proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in
the inducement of the contract generally” (internal quotation marks and footnote omitted)); Buckeye Check Cashing,
Inc., 546 U.S. at 448–49 (“[R]egardless of whether the challenge is brought in federal or state court, a challenge to
the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator”);
Locke-O’Dell v. Global Client Sols., LLC, No. 12-2009, 2012 WL 1033624, at *4 (D. Kan. Mar. 27, 2012).
30
Prima Paint Corp., 388 U.S. at 403–04; see also Buckeye Check Cashing, Inc., 546 U.S. at 445–46
(“[U]nless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the
arbitrator in the first instance”); Brooke Credit Corp. v. Buckeye Ins. Ctr., 563 F. Supp. 2d 1205, 1208 (D. Kan.
2008).
31
Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 960 (10th Cir. 1992).
32
The Court notes that Dodson’s Complaint alleges intentional misrepresentation that led to entry into the
contract. However, the allegations are about the contract generally. Dodson never pleaded that the specific
arbitration provision was obtained by fraud. See Doc. 1 ¶ 54 (“In reasonable reliance upon the false representations,
a [Dodson] employee, not authorized to enter into substantive contracts for [Dodson], signed the boilerplate
Williams International quotation form, caused the two engines to be shipped to Michigan for teardown and
inspection and caused the advance teardown/inspection fee to be paid.”).
8
that “[a]t minimum, the arbitration provision was induced by ‘fraud by silence.’”33 However,
directly following that statement, Plaintiff proceeded to list reasons that the contract as a whole is
invalid for fraud by silence, including failing to advise Plaintiff that it would be required to
comply with service bulletins, that serviceability of parts would be determined without criteria
and reports, and that component parts of the engine would not be returned. Plaintiff has
produced no evidence tending to show that the arbitration provision alone was the product of
fraud. Instead, Plaintiff alleges it would not have entered into the contract, in its entirety, had it
known about the above claims.
Next, the Court must address Dodson’s argument that the issue of arbitrability was not
delegated to an arbitrator. Many contracts containing an arbitration clause also contain a clause
that delegates disputes of arbitrability to arbitrators.34 The Supreme Court has held that “[c]ourts
should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and
unmistakabl[e]’ evidence that they did so.”35 However, the Supreme Court has clarified that the
“clear and unmistakable” requirement pertains to the parties’ manifestation of intent, not the
agreement’s validity.36 Thus, 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.37 The validity of the agreement to arbitrate (i.e. whether it was fraudulently induced)
33
Doc. 14 at 14 (emphasis added).
34
See, e.g., Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 65 (2010) (containing a clause stating “[t]he
Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute
relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited
to any claim that all or any part of this Agreement is void or voidable.”).
35
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
36
Rent-A-Center, West, Inc., 561 U.S. at 69 n.1.
37
Id.; see also Spahr v. Secco, 330 F.3d 1266, 1270 (10th Cir. 2003) (“On this authority, this court has held
that broad provisions to arbitrate all disputes arising out of or relating to the overall contract, like the one at issue
here, do not provide the requisite clear and unmistakable evidence ‘within the four corners of the . . . [a]greement
that the parties intended to submit the question of whether an agreement to arbitrate exists to an arbitrator.’”)
9
is governed by § 2 of the FAA, which provides that it shall be valid save upon grounds as exist at
law or equity for the revocation of any contract.38 Those grounds do not include that the lack of
validity must be “clear and unmistakable,” and “they are not grounds that First Options added
for agreements to arbitrate gateway issues; § 2 applies to all written agreements to arbitrate.”39
Here, there was no clause containing delegation of arbitrability to the arbitrator. There is
no “clear and unmistakable” language that the gateway issue of arbitrability is to go to an
arbitrator. Thus, the Court properly considers whether the claims at issue should be decided by
the arbitrator. However, the issue of whether the agreement is invalid because it was
fraudulently induced is not subject to the “clear and unmistakable” language standard provided
by the Supreme Court. Therefore, the presumption of arbitrability applies—any doubts
concerning arbitrability of a dispute should be resolved in favor of arbitration.40 As will be
discussed more fully below, the arbitration clause at issue is broad with the language “arising
from or in connection with” the maintenance performed under the agreements. The Court finds
that the arbitration clause is broad enough in scope to encompass Plaintiff’s claim that the
contract for maintenance of the engines was induced by fraud. Therefore, this Court does not
reach a decision on the merits of Plaintiff’s fraudulent inducement claim as it must be decided by
the arbitrator.
2.
Unconscionability
Alternatively, Dodson argues that the contracts including the arbitration clauses are
unenforceable because they are unconscionable under the Kansas Supreme Court standards, the
Kansas Consumer Protection Act (“KCPA”), and the Kansas Unfair Trade Practices Act
38
Rent-A-Center, West, Inc., 561 U.S. at 69 n.1.
39
Id.
40
LDS, Inc. v. Metro Can. Logistics, Inc., 28 F. Supp. 2d 1297, 1299 (D. Kan. 1998).
10
(“KUTPA”).41 Specifically, Dodson contends there was no negotiation between the parties and
Williams refused to provide services until the contracts were signed.
While it is unclear whether Plaintiff’s unconscionability argument relates to the
arbitration clause alone or the contract as a whole, in an abundance of caution, the Court finds
that the argument can be construed as relating only to the arbitration clause being
unconscionable.42 Thus, under the rule articulated by the Supreme Court in Prima Paint, a claim
relating to the arbitration clause alone must be resolved by the Court. The Court must apply
Kansas substantive law on the unconscionability of the arbitration clauses in the agreements
between the parties.
First, the unconscionability provision that applies to the KCPA is inapplicable. This
provision states: “[n]o supplier shall engage in any unconscionable act or practice in connection
with a consumer transaction.”43 Consumer is defined within the KCPA as “an individual,
husband and wife, sole proprietor, or family partnership who seeks or acquires property or
services for person, family, household, business or agricultural purposes.”44 Dodson is a
“corporation organized for profit under the Laws of Kansas.”45 Thus, because Dodson is a
corporation, this provision is inapplicable.
Next, the Court finds that the arbitration provisions in the agreements are not
unconscionable under the standards announced by the Kansas Supreme Court. It is the policy of
Kansas law to permit “mentally competent parties to arrange their own contracts and fashion
41
K.S.A. § 50-623, et seq.
42
Doc. 14 at 11 (“An additional reason that the arbitration provisions are un-enforceable is that they are
unconscionable under the standards of the Kansas Supreme Court . . . and under the standards of the KUTPA and
KCPA.” (emphasis added)).
43
K.S.A. § 50-627(a).
44
K.S.A. § 50-624(b).
45
Doc. 1 ¶ 4.
11
their own remedies where no fraud or overreaching is practiced.”46 “Contracts freely arrived at
and fairly made are favorites of the law.”47 The Court will uphold contracts provided they are
neither “illegal nor contrary to public policy, and that in the absence of fraud, mistake or duress a
party who fairly and voluntarily entered into such a contract is bound thereby notwithstanding it
was unwise or disadvantageous to the complaining party.”48
Unconscionability is a doctrine under which a contract may be denied enforcement
because of “procedural abuses arising out of the contract formation, or because of substantive
abuses relating to the terms of the contract, such as terms which violate reasonable expectations
of parties or which involve gross disparities in price.”49 The burden of establishing
unconscionability is on the party attacking the contract.50 That party must show
unconscionability “at the inception of the contract rather than in the light of subsequent
events.”51
The leading case on unconscionability in Kansas is Willie v. Southwestern Bell Telephone
Co.52 In Willie, the Kansas Supreme Court found the following factors relevant to whether a
contract was unconscionable:
(1) The use of printed form or boilerplate contracts drawn skillfully by the party
in the strongest economic position, which establish industry wide standards
offered on a take it or leave it basis to the party in a weaker economic position;
(2) a significant cost-price disparity or excessive price; (3) a denial of basic rights
46
Estate of Bryant v. All Temperature Insulation, Inc., et. al ., 916 P.2d 1294, 1298 (Kan. Ct. App.1996)
(quoting Kansas City Structural Steel Co. v. L.G. Barcus & Sons, Inc., 535 P.2d 419, 424 (Kan. 1975)).
47
Id. (quoting Kansas City Structural Steel Co., 535 P.2d at 424).
48
Knopke v. Ford Motors Co., No. 14-2225, 2014 WL 5817326, at *4 (D. Kan. Nov. 10, 2014) (quoting
Willie v. Sw. Bell Tele. Co., 549 P.2d 903, 905 (Kan. 1976)).
49
Wilson v. Mike Stevens Motors, Inc., 111 P.3d 1076, 1076 (Kan. Ct. App. 2005) (quoting Remco Enters.
Inc., v. Houston, 677 P.2d 567, 572 (Kan. 1984)).
50
Santana v. Olguin, 208 P.3d 328, 332 (Kan. Ct. App. 2009).
51
Knopke, 2014 WL 5817326, at *4.
52
549 P.2d 903 (Kan. 1976).
12
and remedies to a buyer of consumer goods; (4) the inclusion of penalty clauses;
(5) the circumstances surrounding the execution of the contract, including its
commercial setting, its purpose and actual effect; (6) the hiding of clauses which
are disadvantageous to one party in a mass of fine print trivia or in places which
are inconspicuous to the party signing the contract; (7) phrasing clauses in
language that is incomprehensible to a layman or that divert his attention from the
problems raised by them or the rights given up through them; (8) an overall
imbalance in the obligations and rights imposed by the bargain; (9) exploitation of
the underprivileged, unsophisticated, uneducated and the illiterate; and (10)
inequality of bargaining or economic power.53
Further, there must be additional factors such as deceptive bargaining conduct as well as unequal
bargaining power to render the contract unconscionable.54
Here, Plaintiff argues that factors 1, 5, 8, and 10 weigh in favor of finding
unconscionability of the arbitration provisions. Plaintiff offers that there was no negotiation,
Defendant prepared the authorizations including the arbitration provision, and Plaintiff never
signed either authorization. Plaintiff states that Defendant simply emailed the document to
Plaintiff in Kansas and indicated that no work would be commenced until the authorizations
were signed and invoices prepaid. Plaintiff claims that the only available option for obtaining an
airworthiness determination for the engines was to sign the authorizations.
The Court does not find that Plaintiff has met its burden to show that the arbitration
provisions are unconscionable. Plaintiff is a corporation that has been engaged in the aircraft
purchase business for more than thirty years. Plaintiff is much more sophisticated than a
consumer, which is where unconscionability of a contract is normally found.55 The arbitration
provision at issue is displayed on the front of the quotation where Plaintiff’s representative
53
Id. at 906–07 (citations omitted).
54
Id. at 907.
55
See, e.g., Ed Bozarth Chevrolet, Inc. v. Black, 96 P.3d 272, 279 (Kan. Ct. App. 2003) (“An adhesion
contract is a ‘[s]tandardized contract form offered to consumers of goods and services on an essentially ‘take it or
leave it’ basis without affording consumer realistic opportunity to bargain and under such conditions that consumer
cannot obtain desired product or services except by acquiescing in form contract.” (quoting Anderson v. Union Pac.
R.R. Co., 790 P.2d 438 (Kan. Ct. App. 1990)).
13
signed.56 It is listed as one of only nine terms and conditions of the quotation. It is not hidden or
in fine print. The phrasing of the clause is comprehensible, and it would certainly be
comprehensible to a representative of a sophisticated corporate entity. There is no evidence in
the record that Plaintiff objected to, inquired about, or attempted to negotiate the arbitration
provision. Both parties are established businesses in the aircraft industry, so the Court does not
find it persuasive that there is a large inequality in bargaining or economic power between the
parties such that the arbitration provisions should be found unconscionable.
Further, the arbitration provisions are not unduly one-sided. Arbitration provisions,
particularly in business-to-business contracts, are relatively common. There is nothing unusual
about the arbitration provisions in the contracts between these parties. The arbitration provision
requires that any dispute with the maintenance provided be submitted to a neutral arbitrator in
the location Defendant provides. Simply because Defendant provides the location of arbitration
does not make this provision unduly one-sided. Based on the aforementioned reasoning, the
Court finds that Plaintiff has not met its burden to present evidence that the arbitration clauses
are unconscionable.
Although the Court is cognizant of Plaintiff’s argument that it had no choice on whether
to use Defendant to evaluate and repair the engines and in turn, sign the contracts, the Court does
not believe this implicates the validity of the arbitration provisions. Regardless of whether the
contract itself is unconscionable, standard arbitration provisions are to be expected in businessto-business transactions. While the Court does not find unconscionability as to the arbitration
provisions, Plaintiff may submit the unconscionability of the contracts as a whole to arbitration
56
Doc. 10-1 at 8, 10.
14
under the standard announced in Prima Paint. The Court makes no findings as to the
unconscionability of the agreements as a whole.
B.
Scope of the Arbitration Clauses
Dodson’s second argument against compelling arbitration is that even if the Court finds
that the contracts are enforceable, these are narrow arbitration clauses and the claims alleged fall
outside of its scope. To determine whether a dispute falls within the scope of an agreement’s
arbitration clause, the Tenth Circuit has adopted a three-part inquiry.57
First, recognizing there is some range in the breadth of arbitration clauses, a court
should classify the particular clause as either broad or narrow. Next, if reviewing
a narrow clause, the court must determine whether the dispute is over an issue that
is on its face within the purview of the clause, or over a collateral issue that is
somehow connected to the main agreement that contains the arbitration clause.
Where the arbitration clause is narrow, a collateral matter will generally be ruled
beyond its purview. Where the arbitration clause is broad, there arises a
presumption of arbitrability and arbitration of even a collateral matter will be
ordered if the claim alleged implicates issues of contract construction or the
parties’ rights and obligations under it.58
Applying the first step, the Court agrees with Williams that this is a broad arbitration
clause. Many courts, including the Tenth Circuit, have concluded that an arbitration clause
applying to disputes “arising under” or “in connection with” the agreement constitute broad
arbitration clauses.59 Therefore, there is a presumption of arbitrability and even collateral
57
Cummings v. FedEx Ground Package Sys., Inc., 404 F.3d 1258, 1261 (10th Cir. 2005) (citing Louis
Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d 218, 224 (2d Cir. 2001)).
58
Sanchez v. Nitro-Lift Techs., LLC, 762 F.3d 1139, 1146 (10th Cir. 2014) (citing Cummings, 404 F.3d at
1261).
59
See, e.g., Brown v. Coleman Co., 220 F.3d 1180, 1184 (10th Cir. 2000) (explaining that arbitration clause
stating “all disputes or controversies arising under or in connection with this Agreement . . . will be settled
exclusively by arbitration” was “the very definition of a broad arbitration clause” (omission in original)); P & P
Indus., Inc. v. Sutter Corp., 179 F.3d 861, 871 (10th Cir. 1999) (stating that arbitration clause covering “[a]ny
controversy, claim, or breach arising out of or relating to this Agreement . . . is a ‘broad’ one”); Louis Dreyfus, 252
F.3d at 225–27 (noting that phrase “[a]ny dispute arising from the making, performance or termination of this
[agreement],” while containing limiting language, was “a broad arbitration clause”); Collins & Aikman Prods. Co. v.
Bldg. Sys., Inc., 58 F.3d 16, 20 (2d Cir.1995) (explaining that phrase “ ‘[a]ny claim or controversy arising out of or
relating to th[e] agreement,’ is the paradigm of a broad clause”); Himark Biogas, Inc. v. W. Plains Energy LLC, No.
14-1070, 2014 WL 3519092, at *5(D. Kan. July 16, 2014) (“The court’s conclusion that these claims come within
15
matters may be swept in the clauses’ purview. The arbitration clause at issue in this case reads
that “[a]ll disputes arising from or in connection with maintenance performed by Williams
International shall be submitted to binding arbitration.”60 The language “arising from” or “in
connection with,” indicates that it is a broad arbitration clause.
Upon concluding this is a broad arbitration clause, the Court presumes arbitrability even
as to collateral matters related to maintenance performed by Williams. The Court finds that all
counts alleged in the Complaint fall within the sweep of the arbitration clause. Count I is for
intentional misrepresentation relating to Williams’s representations regarding the evaluation of
the engines and the cost of repair and return to service, which clearly relates to the maintenance
performed. Count II is for breach of bailment and conversion relating to Williams keeping the
engines and component parts when the engines could not be repaired. This is directly related to
the contracts at issue.
Count III is a federal antitrust claim of an unlawful “tying” arrangement relating to
owners of Williams’s engines being required to service and repair the engines through Williams.
This is collateral to the maintenance herein disputed, but it is the exact conduct Dodson
complains caused Williams to fail to repair its engines in this case. Although this claim expands
beyond conduct between these two parties, it relates directly to the business practices Dodson
complains happened in its experience with Williams.61 Count IV is another federal antitrust
claim relating to William’s monopoly over replacement parts, engine repairs, and engine
the scope of the arbitration clause is consistent with the Tenth Circuit’s holding that the phrase, ‘arising out of or
relating to,’ such as is found in the Licensing Agreement, is a broad arbitration clause.”).
60
Doc. 10-1 at 8, 10.
61
In re Cox Enters., Inc. Set-Top Cable Television Box Antitrust Litig., 835 F.3d 1195, 1201–02 (10th Cir.
2016) (holding that antitrust claim fell within scope of arbitration agreement, even though claims arose from events
prior to the arbitration agreement, because arbitration agreement stated that parties agreed to arbitrate “any and all
claims or disputes” that “arise out of or in any way relate to” agreement, services, products or bills).
16
overhauls making repairable parts unserviceable. Again, although it is a collateral matter, it
relates to the conduct Dodson complains caused Williams to fail to fix its engines.
Count V and Count VI are for tortious interference with prospective economic advance
and tortious interference with contract relating to Plaintiff’s plan to sell the engines following
repair to a third party, which was prevented when Williams could not repair the engines. This is
directly related to the maintenance, or in this case lack of maintenance, provided by Williams.
Count VII is for declaratory judgment for Dodson to seek access to Williams’s proprietary
technical data to presumably allow Dodson to repair the engines Williams refused to repair. This
is collateral to the contracts at issue as Williams has the information Dodson seeks based on the
evaluation and repair conducted pursuant to the contract. Further, as discussed above, fraud in
the inducement of the maintenance contract would be a matter collateral to the maintenance
contract.
The Court agrees with Williams that Counts I, II, V, and VI are directly related to the
maintenance agreements in dispute, and Counts III, IV, and VII are collateral to the maintenance
agreement but still “arising from or in connection with” the maintenance performed (or in this
case, allegedly failed to be performed) by Williams. Further, the Court finds that the fraud in the
inducement claim relating to the creation of the agreement falls within the scope of the
arbitration clause. While Plaintiff has requested that Counts II–VII be bifurcated from
arbitration as collateral, the Court denies this request because this is a broad arbitration clause
that covers such collateral matters. Therefore, the Court concludes that the arbitration provisions
are properly enforced and the claims should be submitted to arbitration.
IT IS THEREFORE ORDERED BY THE COURT that Defendant Williams’ Motion
to Compel Arbitration (Doc. 10) is granted.
17
IT IS FURTHER ORDERED that this action is stayed pending arbitration.
IT IS FURTHER ORDERED that Plaintiff Dodson and Defendant Williams are to
proceed with arbitration in accordance with the provisions of the arbitration clause.
IT IS FURTHER ORDERED that if this case is still pending on June 1, 2017, the
parties shall file a joint status report on June 1, 2017 apprising the Court of the status of the
proceedings.
IT IS SO ORDERED.
Dated: January 31, 2017
S/ Julie A. Robinson
JULIE A. ROBINSON
UNITED STATES DISTRICT JUDGE
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