Enterprise Information Management, Inc. et al v. SuperLetter.com, Inc.
Filing
14
MEMORANDUM OPINION. Signed by Chief Judge Deborah K. Chasanow on 11/7/13. (sat, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
ENTERPRISE INFORMATION
MANAGEMENT, INC., et al.
:
v.
:
Civil Action No. DKC 13-2131
:
SUPERLETTER.COM, INC.
:
MEMORANDUM OPINION
Presently pending and ready for review in this breach of
contract action is Defendant’s motion to dismiss, or in the
alternative,
for
summary
judgment.
(ECF
No.
8).
For
the
following reasons, an evidentiary hearing will be held on the
issue
of
whether
Attachment
A
is
part
of
of
a
contract
the
Subcontract
Agreement.
I.
Background
This
case
arises
out
dispute
between
Plaintiffs, Enterprise Information Management, Inc. (“EIM”) and
Enterprise
Information
Management
Europe
Limited,
Inc.
(“EIM
Europe Limited”) with SuperLetter.com, Inc. (“SuperLetter” or
“Defendant”).
EIM is a Virginia corporation with its principal
place of business in Arlington, Virginia.
EIM Europe Limited is
EIM’s wholly-owned subsidiary and a United Kingdom corporation
with
its
Virginia.
principal
place
of
business
also
in
Arlington,
EIM and its subsidiary, EIM Europe Limited, deliver
information
technology
consulting,
design,
implementation services for organizations.
planning,
and
(ECF No. 2 ¶¶ 8-9).
SuperLetter, a commercial hybrid mail service that links distant
locations
around
the
globe
with
an
overnight/next
day
mail
service, is a Florida corporation with its principal place of
(Id. ¶¶ 1-3, 7).1
business in Ormond Beach, Florida.
On
February
28,
2012,
SuperLetter
entered
into
a
Subcontract Agreement with EIM Europe Limited “to develop an
application and perform services as directed in the relevant
Statement(s)
of
Work
(SOW)
in
support
of
Defendant’s
Prime
Contract with the UK Ministry of Defense – British Forces Post
(Id. ¶ 10).2
Office (“BFPO” [or “Authority”]).”
Contract
between
SuperLetter
and
BFPO
was
This Prime
designed
to
allow
SuperLetter’s mail services to reach British military personnel
serving
in
locations
around
the
globe.
The
Subcontract
Agreement between EIM Europe Limited and SuperLetter, designed
to provide services to support the Prime Contract, was “accepted
and agreed to” by Roy Walker, the Chief Executive Officer of
1
SuperLetter links independent agents such as print and
mail companies and local postal administrations, allowing “users
anywhere in the world to compose letters online and send them to
participating locations around the globe where the letters are
downloaded, printed, and mailed via the local postal system.”
(ECF No. 8-2 ¶ 4).
2
Although the Subcontract Agreement was signed on February
28, 2012, the contract itself provides that “[t]he Agreement
shall commence on 9th August 2011.” (ECF No. 2-1, at 3).
2
SuperLetter.Com,
and
Chloe
A.
the
contract
on
Vice
President,
(ECF No. 2-1, at 12).3
Business Support of EIM Inc.
signed
Maxent,
behalf
of
EIM,
but
the
Global
Ms. Maxent
Subcontract
Agreement identifies “EIM Europe Limited” and “SuperLetter” as
the only parties to the contract.
The Subcontract Agreement
provides that it shall last for “a period of 8 years, 7 months
and 22 days, i.e., until 31st March 2020 subject to [BFPO’s]
right
of
earlier
Contract.”
termination
under
other
Conditions
of
(Id., at 3).
The following terms in the Subcontract Agreement are also
relevant here.
Section 1.6 provides that “General terms and
conditions provisions of the UK Ministry of Defence are attached
as exhibit: CTT DOC 24 SCHED 2 TERMS AND CONDITIONS.
with
these
terms
Subcontractor.”
and
conditions
(Id. at 4).
is
Compliance
required
by
the
This referenced document, which is
Attachment A, includes “general and special” contract terms and
conditions
from
Specifically,
multiple
it
DEFCONS,
Defendant’s
includes
which
is
a
a
Prime
Contract
table
of
term
used
3
contents
for
UK
with
BFPO.
enumerating
Ministry
of
During the relevant time period, Chloe Maxent was also an
officer of EIM Europe Limited. (See ECF No. 11-1 ¶ 8, Bittonti
Affidavit).
3
Defence
Conditions.4
DEFCON
529
clause and choice-of-law provision.
includes
a
forum-selection
It states:
1.
The Contract shall be considered as a
contract made in England and subject to
English Law.
2. Subject to DEFCON 530 and without
prejudice to the dispute resolution process
set out in that Condition, each party hereby
irrevocably
submits
and
agrees
to
the
exclusive jurisdiction of the Courts of
England to resolve, and the laws of England
to
govern,
any
actions,
proceedings,
controversy or claim of whatever nature
arising out of or relating to the Contract
or breach thereof.
3. Other jurisdictions may apply solely for
the purpose of giving effect to this
Condition and for the enforcement of any
judgment, order or award given under English
law.
(ECF No. 8-5).
DEFCON 530 includes an arbitration provision and
states as follows:
1. The parties will attempt in good faith
to resolve any dispute or claim arising out
of or relating to this Contract through
negotiations
between
the
respective
representatives
of
the
parties
having
authority
to
settle
the
matter,
which
attempts
may
include
the
use
of
any
Alternative
Dispute
Resolution
(ADR)
procedure on which the parties may agree.
2. In the event that the dispute or claim is
not resolved by negotiation, or where the
parties have agreed to use an ADR procedure,
4
The Subcontract Agreement defines “DEFCON” as “published
terms and conditions of the Authority that are incorporated in
this Agreement by reference only.” (ECF No. 2-1, at 2).
4
by the use of such procedure, the dispute
shall . . . be referred to arbitration.
(ECF No. 8-6).
This dispute arose out of Defendant’s early termination of
the contract because Plaintiffs closed their London office and
continued operations in the United States.
15-17).
Specifically,
Plaintiffs
allege
(See ECF No. 2 ¶¶
that
“[EIM
Europe
Limited] closed its London office . . . on January 31, 2013,”
(ECF No. 2 ¶ 15), but continued to perform its obligations under
the
contract.
terminated
Plaintiffs
the
Contract
Limited]
was
in
breach
office.”
(Id. ¶ 17).
assert
citing
of
that
that
contract
“Defendant
Plaintiff
for
closing
wrongfully
[EIM
Europe
its
London
Section 11.1 of the Subcontract Agreement
provides that “Subcontractor will obtain the prior agreement of
Contractor and the Authority to store or process such personal
data at sites outside the United Kingdom.”
The
parties
disagree
about
whether
the
(ECF No. 2-1, at 7).
Subcontract
Agreement
required EIM Europe Limited to maintain a London office as a
condition of the contract.
Plaintiffs filed a breach of contract action in the Circuit
Court for Montgomery County in Maryland on June 26, 2013.
No. 1 ¶ 1).
(ECF
In their five-count complaint, Plaintiffs seek
judgment of approximately $1,085,641.86 based on a breach of
contract theory.
Specifically, Plaintiffs assert that Defendant
5
breached the Subcontract Agreement “when the Defendant withheld
10%
of
support
the
final
payments
Contract
as
invoice,
required
by
the
terminated
Contract,
maintenance
and
withheld
payments for the margin on software revenue as required by the
Contract.”
(ECF No. 2 ¶ 19).
Furthermore, Plaintiffs state
that Defendant breached the Subcontract Agreement by failing to
notify
their
designated
representative
regarding
Defendant’s
termination of the Contract, (id. ¶ 43), and by recruiting and
hiring
two
of
EIM
Europe
Limited’s
former
employees
without
obtaining the company’s prior consent “in accordance with the
one (1) year waiting period requirement post termination of such
employee’s employment contract with Plaintiff” (id. ¶¶ 48-49).
On July 23, 2013, Defendant removed the action to this
court on the basis of diversity jurisdiction.
(ECF No. 1).
Three days later, on July 26, 2013, Defendant filed the instant
motion to dismiss, or in the alternative, for summary judgment.
(ECF No. 8).
(1)
lack
Subcontract
of
Defendant raises several grounds for dismissal:
standing
Agreement;
because
(2)
EIM
improper
is
not
venue;
a
party
(3)
to
the
forum
non
conveniens; and (4) binding arbitration provision incorporated
into the Subcontract Agreement.
Plaintiffs filed an opposition
on August 12, 2013 (ECF No. 11), and Defendant replied on August
29, 2013 (ECF No. 13).
6
II.
Standard of Review5
Although
no
Federal
Rule
of
Civil
Procedure
expressly
addresses motions to dismiss or stay pending arbitration, the
United States Supreme Court has described arbitration clauses as
“a specialized kind of forum-selection clause that posits not
only the situs of suit but also the procedure to be used in
resolving the dispute.”
Scherk v. Alberto-Culver Co., 417 U.S.
5
Defendant asserts multiple arguments in favor of
dismissal, including improper venue pursuant to Rule 12(b)(3)
due to a forum selection clause in DEFCON 529. As stated above,
Defendant removed this action from the Circuit Court for
Montgomery County in Maryland.
When an action is removed from
state court to federal court, venue is governed exclusively by
the federal removal statute, 28 U.S.C. § 1441(a). As explained
by the United States Supreme Court, “Section 1441(a) expressly
provides that the proper venue of a removed action is ‘the
district court of the United States for the district and
division embracing the place where such action is pending.’”
Polizzi v. Cowles Magazines, Inc., 345 U.S. 663, 666 (1953)
(quoting 28 U.S.C. § 1441(a)); see also Hollis v. Fla. State
Univ., 259 F.3d 1295, 1299 (11th Cir. 2001) (“by requiring
removal to the district court for the district in which the
state action is pending,” Section 1441(a) “properly fixes the
federal venue in that district”).
Because, under Polizzi,
federal venue is proper when a case has been removed to federal
court in accordance with Section 1441(a), a defendant’s postremoval Rule 12(b)(3) motion to dismiss for improper venue must
be denied, including where the motion is premised on a
contractual forum selection clause.
See MTB Servs., Inc. v.
Tuckman-Barbee Constr. Co., No. RDB-12-2109, 2013 WL 1224484, at
*4 n.7 (D.Md. Mar. 26, 2013)(denying a Rule 12(b)(3) motion
based on a forum selection clause following the defendant’s
voluntary and proper removal).
Removal by Defendant, however,
did not waive its right to raise the arbitration provision as a
bar to litigation. In re Mercury Constr. Co., 656 F.2d 933, 940
(4th Cir. 1981), aff’d, Moses H. Cone Memorial Hosp. v. Mercury
Constr. Co., 460 U.S. 1 (1983).
The forum non conveniens
argument will be addressed if the arbitration provision is found
to be inapplicable.
7
506, 519 (1974).
In Sucampo Pharmaceuticals, Inc. v. Astellas
Pharma, Inc., 471 F.3d 544 (4th Cir. 2006), the United States
Court of Appeals for the Fourth Circuit held that a motion to
dismiss based on a forum-selection clause should be treated as a
motion to dismiss for improper venue under Federal Rule of Civil
Procedure 12(b)(3).
Id. at 550.
The Fourth Circuit has since
cited Sucampo with approval in considering under Rule 12(b)(3) a
motion
to
dismiss
based
on
an
arbitration
provision.
See
Aggarao v. MOL Ship Mgmt. Co., 675 F.3d 355, 365-66 & n.9 (4th
Cir. 2012).
Under Rule 12(b)(3), “a court is free to look at
matters outside of the pleadings, however, the court still must
draw all reasonable inferences in the light most favorable to
the plaintiff.”
Costar Realty Information, Inc. v. Field, 612
F.Supp.2d 660, 672 (D.Md. 2009).
As Judge Hollander recently
discussed in Whiting-Turner Contracting Co. v. Liberty Mut. Ins.
Co., 912 F.Supp.2d 321, 332 (D.Md. 2012):
[A] motion to dismiss for improper venue,
filed under Rule 12(b)(3), “allows the court
to freely consider evidence outside the
pleadings, unlike under a 12(b)(6) motion.”
Sucampo, supra, 471 F.3d at 550; accord
Aggarao, supra, 675 F.3d at 365–66. However,
unless an evidentiary hearing is held with
respect to the motion, the plaintiff is
obliged “to make only a prima facie showing
of proper venue in order to survive a motion
to dismiss.” Aggarao, 675 F.3d at 366. In
assessing a Rule 12(b)(3) motion on the
basis of the papers, the court must “view
the facts in the light most favorable to the
plaintiff.” Id.; see Estate of Myhra v.
8
Royal Caribbean Cruises, Ltd., 695 F.3d
1233,
1239
(11th
Cir.2012)
(“When
the
parties submit conflicting affidavits, the
court, in the absence of an evidentiary
hearing” on a Rule 12(b)(3) motion, must “
‘give greater weight to the plaintiff's
version of the jurisdictional facts and ...
construe such facts in the light most
favorable to the plaintiff.’”) (emphasis
added)
(citation
omitted);
Murphy
v.
Schneider Nat'l, Inc., 362 F.3d 1133, 1140
(9th
Cir.
2004)
(“Upon
holding
an
evidentiary hearing to resolve material
disputed facts, the district court may weigh
evidence,
assess
credibility,
and
make
findings of fact that are dispositive on the
Rule 12(b)(3) motion.”); accord Continental
Cas. Co. v. Am. Nat'l Ins. Co., 417 F.3d
727, 733 (7th Cir. 2005); Gulf Ins. Co. v.
Glasbrenner,
417
F.3d
353,
355
(2d
Cir.2005).
III. Analysis
The parties’ assent to the Subcontract Agreement itself is
not in dispute here.
agree
to
DEFCON
arbitration
properly
530
“was
not
incorporated
Rather, Plaintiffs argue that they did not
under
the
included
by
Subcontract
in
reference,
the
was
Agreement
Subcontract,
because
not
not
in
the
included
was
exhibit to the Subcontract, and was not provided to EIM at the
time that the Subcontract was executed.”
(ECF No. 11, at 9).
Alternatively, Plaintiffs argue that the arbitration provision
only
applies
to
disputes
between
Defendant
and
the
United
Kingdom because the arbitration provision is included in the
Prime Contract.
Plaintiffs further argue that Defendant cannot
now seek to enforce the arbitration provision because it failed
9
to engage in good-faith negotiations, which Plaintiffs assert is
a
condition
precedent
to
arbitration.
Finally,
Plaintiffs
contend that the instant litigation should be stayed rather than
dismissed.
A.
Incorporation By Reference
“[A]rbitration is a matter of contract and a party cannot
be required to submit to arbitration any dispute which he has
not
agreed
so
Communications
(quoting
to
submit.”
Workers
United
of
AT
&
America,
Steelworkers
of
T
Technologies,
475
U.S.
America
v.
643,
Inc.
648
Warrior
v.
(1986)
&
Gulf
Navigation Co., 363 U.S. 574, 582 (1960)); see also Mattingly v.
Hughes Electronics Corp., 147 Md.App. 624, 632 (2002) (“Whether
there is an agreement to arbitrate the parties’ dispute is a
legal question of contract interpretation.”).
As the Fourth
Circuit recently noted, “[t]he Supreme Court has directed that
[courts] ‘apply ordinary state-law principles that govern the
formation
of
contracts’
when
assessing
agreed to arbitrate a matter.”
whether
the
parties
Noohi v. Toll Bros., Inc., 708
F.3d 599, 607 (4th Cir. 2013) (citing First Options of Chicago,
Inc. v. Kaplan, 514 U.S. 938, 944 (1995)); see also Rota-McLarty
v. Santander Consumer USA, Inc., 700 F.3d 690, 699 (4th Cir.
2012)
(“The
question
of
whether
an
enforceable
arbitration
agreement exists . . . is a matter of contract interpretation
governed by state law”).
“Thus state law determines questions
10
“concerning
the
validity,
revocability,
or
enforceability
of
contracts generally,” Perry v. Thomas, 482 U.S. 483, 493 n.9
(1985), but the Federal Arbitration Act, 9 U.S.C. § 2 (1994) . .
. ‘create a body of federal substantive law of arbitrability,
applicable to any arbitration agreement within the coverage of
the Act.’ Moses H. Cone Mem’l Hosp., 460 U.S. at 24.”
Intern.
Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d
411, 417 n.4 (4th Cir. 2000).6
6
Plaintiffs state in a footnote in the opposition that
Virginia law applies to the Subcontract “based on EIM’s signing
of the agreement within the Commonwealth of Virginia” (ECF No.
11, at 9 n.1).
Plaintiffs also later state that “the
Subcontract is arguably subject to the law of the United
Kingdom.”
(Id. at 16).
Defendant does not argue which law
applies, although it cites federal law and English law in
propounding arguments in favor of arbitration.
In a federal
diversity case, as the instant case, the court must apply the
choice of law rules of the forum state, Maryland.
See Klaxon
Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941); see also
Allstate Ins. Co. v. Hart, 327 Md. 526 (1992) (noting that
Maryland courts follow the principle of lex loci contracus in
determining which law to apply in interpreting contracts). The
parties have not identified a material divergence between
potentially applicable law on any of the issues, making it
unnecessary to resolve any choice of law issue. See Iraq Middle
Market Development Foundation v. Al Harmoosh, 769 F.Supp.2d 838,
840 n.1 (D.Md. 2011) (the court concluded that because the
claims at issue would be subject to arbitration regardless, it
need not to decide which law governed contract interpretation in
a case where the parties disputed whether Maryland or Iraqi
contract law applied); see also Central Telephone Co. of Va. v.
Sprint Communications Co. of VA, Inc., 759 F.Supp.2d 789, 798
n.4 (E.D.Va. 2011) (“Virginia law and federal Fourth Circuit
common law are representative of other states’ law and other
circuits’ law on contract interpretation.”).
11
The burden of proving an agreement to arbitrate rests upon
the party seeking arbitration.
F.2d at 939.
In re Mercury Constr. Co., 656
A duty to arbitrate can be based on the doctrine
of incorporation.
Maxum Foundations, Inc. v. Salus Corp., 779
F.2d 974, 978 (4th Cir. 1985).
held
that
“[i]t
Arbitration
Act,
is
an
well
In fact, the Fourth Circuit has
settled
agreement
to
that
under
arbitrate
may
the
Federal
be
validly
incorporated into a subcontract by reference to an arbitration
provision in a general contract.”
F.2d at 978.
Maxum Foundations, Inc., 779
Here, Plaintiffs’ primary contention is that they
should not be bound by the arbitration provision in DEFCON 530
because it was not properly incorporated by reference in the
Subcontract Agreement.
where
the
underlying
“Incorporation by reference is proper
contract
makes
clear
reference
to
a
separate document, the identity of the separate document may be
ascertained, and incorporation of the document will not result
in surprise or hardship.”
Logan & Kanawha Coal Co., LLC v.
Detherage Coal Sales, LLC, No. 12-1128, 2013 WL 1150490, at *2
(4th Cir. Mar. 21, 2013) (applying West Virginia law and citing
Standard Bent Glass Corp. v. Glassrobots Oy, 333 F.3d 440, 447
(3d Cir. 2003)); see also Hertz Corp. v. Zurich Amer. Ins. Co.,
496 F.Supp.2d 668, 675 (E.D.Va. 2007) (“[i]t is axiomatic in the
law
of
contracts
that,
in
order
to
incorporate
a
secondary
document into a primary document, the identity of the secondary
12
document must be readily ascertainable.”).
“The law does not
set a particularly high threshold for incorporation of extrinsic
documents.”
Central
Telephone
Co.
of
Va.
v.
Spring
Communications Co. of Va., Inc., 759 F.Supp.2d 789, 799 (E.D.Va.
2011).
A
restricted
broadly
to
the
worded
arbitration
immediate
parties
clause
may
which
be
is
not
effectively
incorporated by reference into another agreement.
See Ibeto
Petrochemical Indus. Ltd. v. M/T Beffen, 475 F.3d 56, 63 (2d Cir.
2007).
Furthermore
“it
is
not
necessary
that
the
primary
document provide explicitly that it ‘incorporates’ the secondary
document.”
Central Telephone Co., 759 F.Supp.2d at 800; see
also Bd. of Trs., Sheet Metal Workers’ National Pension Fund v.
DCI Signs & Awnings, Inc., No. 1:08cv15, 2008 WL 640252, at *3
(E.D.Va. Mar. 5, 2008) (stating that the exact language used is
not important provided that the primary document plainly refers
to another document).
Here, Attachment A appears to list some, but maybe not all,
of the DEFCON provisions.
If it is part of the contract, the
requirements of incorporation by reference would be satisfied.
The
Subcontract
Agreement
plainly
refers
to
other
including CTT DOC 24 SCHED 2 TERMS AND CONDITIONS.
documents,
First, the
Subcontract Agreement defines “DEFCON” as “published terms and
conditions
of
the
Authority
Agreement by reference only.”
that
are
incorporated
(ECF No. 2-1, at 2).
13
in
this
It further
references the Internet website that contains DEFCON abstracts.
(Id.).7
Plaintiffs argue that this definition of “DEFCON” in the
Subcontract Agreement “does [not] provide any indication as to
which terms and conditions might later be incorporated; rather,
it merely defines the term DEFCON to mean only those terms that
may be identified and incorporated elsewhere.”
10).
(ECF No. 11, at
Plaintiffs may be right that introductory language on the
cover
page
in
the
Subcontract
Agreement
referencing
DEFCON
provisions alone may not be enough properly to incorporate the
arbitration
provision
from
the
Prime
Contract.
See,
e.g.,
Wilson v. Towers, 55 F.2d 199, 200 (4th Cir. 1932) (courts may
look to introductory language to resolve ambiguity, but not to
create it).
But in several places, the Subcontract Agreement
references the separate document, CTT DOC 24 SCHED 2 TERMS AND
CONDITIONS,
provision.
which
identifies,
See, e.g.,
inter
alia,
the
arbitration
U.S. on Behalf of Dep’t of Labor v. Ins.
Co. of North America, 131 F.3d 1037, 1042 (D.C.Cir. 1997) (“When
a
contract
incorporates
a
regulation
7
by
reference,
that
Specifically, the Subcontract Agreement provides that
DEFCON
abstracts
may
be
found
at
http://www.metasums.co.uk/uploads/asset_file/MOD%20Defence%20Con
ditions%20Guide.pdf.
(ECF No. 2-1, at 2) (last visited on
November 1, 2013).
This link includes an abstract of DEFCON
530, labeled Dispute Resolution (English Law), and provides that
“[w]here a dispute cannot be resolved by negotiation or
Alternative Dispute Resolution, this DEFCON requires that the
dispute be referred to arbitration except where the dispute is
referred to the Review Board for Government Contracts.”
14
regulation becomes a part of the contract for the indicated
purposes as if the words of that regulation were set out in full
in the contract”).
Section
1.6
of
the
Subcontract
Agreement
provides
that
“General terms and conditions provisions of the UK Ministry of
Defence are attached as exhibit: CTT DOC 24 SCHED 2 TERMS AND
CONDITIONS.
Compliance
with
these
terms
and
conditions
is
(Id. at 4) (emphasis added).8
required by the Subcontractor.”
Next, Section 4 of the Subcontract Agreement references CTT DOC
24
SCHED
2
TERMS
AND
CONDITIONS,
providing
that
“[i]nvoices
submitted to Contractor must be in accordance with the terms and
conditions
of
Attachment
A
(CTT
CONDITIONS) to this Agreement.”
DOC
24
(Id.).
SCHED
2
TERMS
AND
CTT DOC 24 SCHED 2
TERMS AND CONDITIONS lists “general and special conditions” of
the contract.
the
Included in the “general terms and conditions” is
arbitration
provision
in
question,
DEFCON
530,
which
provides, in relevant part:
2. In the event that the dispute or claim is
not resolved by negotiation, or where the
parties have agreed to use an ADR procedure,
by the use of such procedure, the dispute
shall . . . be referred to arbitration.
8
The Subcontract Agreement defines EIM Europe Limited as
the Subcontractor.
The opening paragraph of the Subcontract
Agreement also refers to SuperLetter and EIM Europe Limited as
“the Parties” to the contract.
15
(ECF No. 8-6) (emphasis added).
of
the
Subcontract
Agreement
By its plain terms, Section 1.6
requires
the
Subcontractor,
EIM
Europe Limited, to comply with the terms of CTT DOC 24 SCHED 2
TERMS AND CONDITIONS, as contained in Attachment A, including
the arbitration provision in DEFCON 530.
“When
a
writing
refers
to
another
document,
that
other
document, or the portion to which reference is made, becomes
constructively a part of the writing, and in that respect the
two form a single instrument . . . [t]he incorporated matter is
to be interpreted as part of the writing.”
Contracts, § 30:25 (4th ed. updated 2013).
11 Williston on
Here, the explicit
references to CTT DOC 24 SCHED 2 TERMS AND CONDITIONS throughout
the
Subcontract
Agreement
made
this
document
part
of
the
Subcontract Agreement and bound the Subcontractor, EIM Europe
Limited, to the terms of this document.9
See Sinclair Broadcast
Group, Inc. v. Interep National Radio Sales, Inc., No. CCB-05326, 2005 WL 1000086, at *3 (D.Md. Apr. 28, 2005) (“In this
case, the letter agreement explicitly refers to the forthcoming
station contracts numerous times.
Based on this language, the
court finds that the parties did not consider the letter to be a
complete and integrated agreement, but rather that the station
9
Although Defendant argues that EIM lacks standing because
it is not a party to the Subcontract Agreement (notwithstanding
Chloe Maxent’s signature on behalf of EIM), the court need not
reach this issue because both Plaintiffs rely on the Subcontract
Agreement as the basis for a cause of action.
16
contracts would complete the transaction.
may
be
interpreted
together,
thereby
Thus, the documents
reading
the
arbitration
provision in the station contracts into the letter agreement.”).
Plaintiffs
contend,
however,
that
unlike
the
other
attachments referenced in the Subcontract Agreement (e.g., CTT
DOC 25 SCHED 2 ANNEX A CAPEX PRICING, a document Plaintiffs
include as an exhibit to the complaint), CTT DOC 24 SCHED 2
TERMS
AND
CONDITIONS
Subcontract
Agreement
was
as
not
included
indicated
in
as
an
exhibit
Sections
1.6
to
and
the
4.
Plaintiffs thus conclude that they are not bound by the terms of
CTT DOC 24 SCHED 2 TERMS AND CONDITIONS, which identifies DEFCON
530 “Dispute Resolution (English).”
“[I]n order to uphold the
validity of terms incorporated by reference, it must be clear
that the parties to the agreement had knowledge of and assented
to the incorporated terms.”
11 Williston on Contracts, § 30:25
(4th ed. updated 2013).
The complete text of the applicable DEFCONS may not have
had to be attached in order to be incorporated, as courts have
held in other contexts, such as when interpreting construction
contracts.
In a case involving a breach of a written contract
to build a house, the Maryland Court of Appeals reversed the
lower court, stating:
The
lower
court
seemingly
attached
significance to the fact that the plans and
specifications were not physically fastened
17
to the contract document which was executed,
although it specifically and explicitly
referred to both.
In this situation
physical attachment has not the significance
so attributed to it.
It is settled that
where a writing refers to another document
that other document, or so much of it as
referred to, is to be interpreted as part of
the writing . . . ‘The annexation of the
copy (of the) specifications was not a
condition on which the validity of the
agreement
depended.
If
annexed
the
identification
might
have
been
more
satisfactory, but without that, the contents
of the plans and specifications, so far as
referred to in the agreement executed,
became constructively a part of it, and in
that respect made one instrument.’
Ray
v.
Eurice,
201
Md.
115,
128
(1952);
see
also
Central
Telephone Co., 759 F.Supp.2d at 800 (finding that under Virginia
law,
the
text
of
an
interconnection
agreement
incorporated
tariffs and access rates that were part of a separate document
not
attached
to
the
agreement).
Accordingly,
the
party
challenging incorporation need not have actually received the
incorporated terms in order to be bound by them, especially when
both
parties
are
sophisticated
business
entities.
See
11
Williston on Contracts § 30:25 (4th ed. updated 2013); see also
Standard Bent Glass, 333 F.3d at 447 n.10.
Thus, although Plaintiffs need not have received a copy of
the
pertinent
Plaintiffs
DEFCONS
need
to
in
order
know
to
which
be
bound
DEFCON
by
their
provisions
terms,
were
incorporated. Then, if the contents of the separate document
18
could have been ascertained, and incorporation of the document
would not result in surprise or hardship, Plaintiffs would be
bound.
This case is somewhat similar to the problem in Silkworm
Screen Printers, Inc. v. Abrams, No. 91-1631, 1992 WL 317187 (4th
Cir. 1992).
There, the Fourth Circuit vacated a district court
ruling denying a motion to dismiss because the parties disputed
whether
the
incorporated
contract
containing
clause was presented to Plaintiff.
parties
in
Silkworm,
however,
the
arbitration
The contract between the
explicitly
made
providing
incorporated contract a condition of the contract.
the
Id. at *1
(“The Eastern Commodities-Silkworm contract provided ‘sellers to
present original contract with PRC Mfgrs. which forms a part of
this contract.’”).
The Fourth Circuit reasoned that presenting
the
Silkworm
contract
to
was
a
condition
precedent
to
incorporation of the contract and directed the district court to
conduct an evidentiary hearing on the issue.
The
current
record
establishes
that
Plaintiffs
were
on
notice that provisions from the DEFCONS were incorporated into
their Subcontract Agreement, but there is some dispute about
how, or whether, they knew precisely which provisions were so
incorporated.
Under
efficient
to
way
the
circumstances,
resolve
the
evidentiary hearing.
19
problem
the
is
most
direct
and
to
conduct
an
B.
Applicability of DEFCON 530 to Disputes Between the
Parties
If it is found that Attachment A is part of the Subcontract
Agreement, Plaintiffs’ position that DEFCON 530 does not apply
to
disputes
between
Plaintiffs
and
SuperLetter,
but
only
to
disputes between SuperLetter and BFPO because the arbitration
provision was originally included in the Prime Contract between
the two latter entities, will be rejected.
(See ECF No. 11, at
12-13).
to
As
incorporate
Williston
contractual
explains,
terms
“parties
by
reference
a
contract
to
a
may
separate,
noncontemporaneous document, including a separate agreement to
which they are not parties.”
See 11 Williston on Contracts, §§
30:25 (4th ed. updated 2013) (emphasis added); see also Ronan
Assocs.,
Inc.
v.
Local
94-94A-94B,
Int’l
Union
of
Operating
Eng’rs, AFL-CIO, 24 F.3d 447, 449 (2nd Cir. 1994) (“[t]he fact
that
neither
Ronan
nor
101
Sixth
entered
into
a
bargaining agreement with Local 94 is not material.
collective
Parties to
a contract are plainly free to incorporate by reference, and
bind themselves inter sese to, terms that may be found in other
agreements to which they are not party.”).
Subcontract
Agreement
between
In this case, the
Plaintiffs
and
SuperLetter
explicitly refers to CTT DOC 24 SCHED 2 TERMS AND CONDITIONS in
numerous
places.
The
fact
that
the
terms
and
conditions,
including the arbitration provision found in DEFCON 530, are
20
contained in the Prime Contract between SuperLetter and BFPO
does
not
agreed
detract
to
from
comply
the
with
requirement
them
by
that
Plaintiffs
executing
Agreement and are therefore bound by them.
the
have
Subcontract
See Drews Distrib.,
Inc. v. Silicon Gaming, Inc., 245 F.3d 347, 350 (4th Cir. 2001)
(“the reach of an arbitration clause is not restricted to those
causes
clause,
of
action
unless
brought
the
parties
under
draft
the
a
contract
clause
so
containing
the
restricted
in
scope.”); see also Kvaerner ASA v. Bank of Tokyo-Mitsubishi,
Ltd., 210 F.3d 262, 265 (4th Cir. 2000) (dispute growing out of
contract with no arbitration clause, but which stated parties
had
“rights
and
remedies”
under
another
contract
with
such
clause, is arbitrable).
C.
Condition Precedent to Arbitration
Plaintiffs also argue that the dispute cannot be submitted
to arbitration because SuperLetter did not comply with the precondition contained in DEFCON 530 which provides that before
arbitration, the parties engage in good faith negotiations, or
where the parties have agreed to use an ADR procedure, by the
use of such procedure.10
Specifically, DEFCON 530 provides that:
10
Defendant first argues in its reply brief – by reference
to an affidavit from its Chairman and several email exchanges
with Plaintiffs – that the parties did indeed negotiate, albeit
to no avail.
“The ordinary rule in federal courts is that an
argument raised for the first time in a reply brief or
memorandum will not be considered.”
Clawson v. FedEx Ground
21
2. In the event that the dispute or claim is
not resolved by negotiation, or where the
parties have agreed to use an ADR procedure,
by the use of such procedure, the dispute
shall, unless it is a question to be
referred to the Review Board for Government
Contracts pursuant to DEFCON 650 or DEFCON
650A, be referred to arbitration.
An essential question presented by Plaintiffs’ argument and not
addressed
in
either
party’s
brief,
however,
is
whether
SuperLetter’s satisfaction of a condition precedent would be a
“gateway”
matter
arbitrator.
79,
84
judicial
to
be
decided
by
the
court
rather
than
an
See Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
(2002).
Under
determination
federal
raises
“a
law,
a
gateway
question
of
dispute
for
arbitrability,”
such as “whether the parties are bound by a given arbitration
clause”
or
“whether
an
arbitration
clause
in
a
concededly
binding contract applies to a particular type of controversy.”
Id.
All
other
issues
are
presumptively
reserved
for
arbitration, as explained by the United States Supreme Court:
[T]he Court has found the phrase “question
of arbitrability” not applicable in other
kinds of general circumstance where parties
would likely expect that an arbitrator would
decide
the
gateway
matter.
Thus
“‘procedural’ questions which grow out of
the
dispute
and
bear
on
its
final
disposition” are presumptively not for the
judge, but for an arbitrator, to decide.
Package Sys., Inc., 451 F.Supp.2d 731, 734 (D.Md. 2006). In any
event, as will be seen, an arbitrator should decide whether any
conditions precedent to arbitration have been met.
22
John Wiley [& Sons, Inc. v. Livingston, 376
U.S. 543,] 557 [(1964)] (holding that an
arbitrator should decide whether the first
two steps of a grievance procedure were
completed,
where
these
steps
are
prerequisites to arbitration). So, too, the
presumption is that the arbitrator should
decide “allegation[s] of waiver, delay, or a
like defense to arbitrability.”
Moses H.
Cone Memorial Hospital [v. Mercury Const.
Corp., 460 U.S. 1,] 24-25 [(1983)]. Indeed,
the Revised Uniform Arbitration Act of 2000
(RUAA), seeking to “incorporate the holdings
of the vast majority of state courts and the
law that has developed under the [Federal
Arbitration
Act],”
states
that
an
“arbitrator shall decide whether a condition
precedent
to
arbitrability
has
been
fulfilled.” RUAA § 6(c), and comment 2, 7,
U.L.A. 12-13 (Supp. 2002).
Id. at 84-85 (emphasis in original).
The Supreme Court thus
held that, “in the absence of an agreement to the contrary . . .
issues of procedural arbitrability, i.e., whether prerequisites
such
as
time
limits,
notice,
laches,
estoppel,
and
other
conditions precedent to an obligation to arbitrate have been
met, are for arbitrators to decide.”
Id. at 85.
A federal appellate court’s analysis of an issue similar to
the one presented in this case is instructive.
See Dialysis
Access Center, LLC v. RMS Lifeline, Inc., 638 F.3d 367 (1st Cir.
2011).
In Dialysis, the written agreement contained a dispute
resolution/arbitration provision stating that the parties “shall
use good faith negotiation to resolve any dispute that may arise
under this Agreement.
In the event [the parties] cannot reach
23
agreement on any issue, such issue will be settled by binding
arbitration.”
Id. at 371.
the
contained
that
provision
had
not
been
a
The court addressed arguments that
condition
satisfied,
but
precedent
concluded
to
that
arbitration
the
party
resisting arbitration had “not rebutted the presumption that the
arbitrator should decide whether the parties complied with such
a procedural pre-requisite to arbitration.”
Id. at 383 (citing
Hawsam, 537 U.S. at 84).
The
same
conclusion
is
appropriate
here:
an
arbitrator
should decide whether the parties have satisfied any procedural
preconditions to arbitration of this dispute.11
11
See John Wiley &
Plaintiffs also attempt to argue the merits of the
lawsuit concerning Defendant’s alleged wrongful termination of
the contract. Plaintiffs assert that because Defendant breached
certain provisions of the Subcontract Agreement, it should be
prohibited from attempting to enforce other contractual terms,
including the arbitration provision. The merits of Plaintiffs’
breach of contract claims, however, are irrelevant to the
validity and enforceability of the broad arbitration provision
in DEFCON 530, which covers “any dispute or claim arising out of
or relating to this [c]ontract.”
(ECF No. 8-6 ¶ 1).
Furthermore, the court in U.S. ex rel Alamo Envt. Inc. v. Cape
Env. Mgt. Inc. held that an arbitrator should decide whether a
precondition was met where plaintiff’s arguments in opposition
to arbitration “also bear on the merits of the parties’
dispute.”
No. CIV-11-482-D, 2012 WL 6726571, at *8 (W.D.Okla.
Dec. 27, 2012).
Similarly, Plaintiffs here allege that
SuperLetter
engaged
in
conduct
that
failed
to
satisfy
contractual obligations.
The court in Alamo further reasoned
that an arbitrator should decide the “condition precedent” issue
because “the specific condition on which [plaintiff] relies to
avoid arbitration – good faith negotiation – is a phrase subject
to interpretation and application of relevant facts determined
by a fact-finder.” Id.
24
Sons,
Inc.,
376
U.S.
at
557-59
(holding
that
an
arbitrator
should decide whether the first steps of a grievance procedure
were
completed,
where
these
steps
are
pre-requisites
to
arbitration).
D.
Dismissal or Stay of the Litigation
Plaintiffs argue that even if the arbitration provision in
DEFCON 530 is applicable, the court should stay, rather than
dismiss, this action.
“proper
course
arbitration
of
clause
(See ECF No. 11, at 16).
action
is
when
to
a
stay
party
the
Ordinarily, the
seeks
to
invoke
proceedings
arbitration rather than to dismiss outright.”
an
pending
Aggarao, 675 F.3d
at 376 n. 18 (citing Cont’l Cas. Co. v. Am. Nat’l Ins. Co., 417
F.3d 727, 732 n.7 (7th Cir. 2005)(emphasis in original)).
Fourth
Circuit case law, however, indicates that dismissal, rather than
a stay, may be “a proper remedy when all of the issues presented
in a lawsuit are arbitrable.”
Choice Hotels Int’l, Inc. v. BSR
Tropicana Resort, Inc., 252 F.3d 707, 709-10 (4th Cir. 2001); see
also Seney v. Rent-A-Center, Inc., 909 F.Supp.2d 444, 454-55
(D.Md.
2012)
(dismissing
action
where
presented in the case were arbitrable).
all
of
the
issues
Here, the arbitration
provision applies to “any dispute or claim arising out of or
relating to [the] Contract.”
(ECF No. 8-6).
The resolution of
all of Plaintiffs’ claims turns on whether Defendant wrongfully
terminated
the
Subcontract
Agreement
25
or
violated
several
provisions thereof -- this clearly fits within the ambit of the
arbitration provision in DEFCON 530.
falls squarely in line with
Accordingly, this case
Choice Hotels
and would warrant
dismissal.12
IV.
Conclusion
For the foregoing reasons, it is necessary to convene an
evidentiary
hearing
to
resolve
the
factual
dispute
as
to
Plaintiffs’ knowledge of the list of DEFCONS to be incorporated
12
Plaintiffs contend that arbitration is not required to be
held in the United Kingdom. (See ECF No. 11 at 16). Although
DEFCON 530 does not specify an arbitration forum, it provides
that “[u]nless otherwise agreed in writing by the parties, the
arbitration and this Condition shall be governed by the
provisions of the Arbitration Act 1996.”
(ECF No. 8-5).
Furthermore, DEFCON 529 includes a forum-selection clause and
provides that “[s]ubject to DEFCON 530 and without prejudice to
the dispute resolution process set out in that Condition, each
party hereby irrevocably submit and agrees to the exclusive
jurisdiction of the Courts of England to resolve, and the laws
of England to govern, any actions, proceedings, controversy or
claim of whatever nature arising out of or relating to the
Contract or breach thereof.” (ECF No. 8-6).
Under the FAA, “[w]hen a valid agreement to arbitrate
exists between the parties and covers the matter in dispute, the
FAA commands the federal courts to stay any ongoing judicial
proceedings, 9 U.S.C. § 3, and to compel arbitration.” Hooters
of America, Inc. v. Phillips, 173 F.3d 933, 937 (4th Cir. 1999).
Section 4 of the FAA, however, states that “[t]he hearings and
proceedings, under such agreement, shall be within the district
in which the petition for an order directing such arbitration is
filed.” 9 U.S.C. § 4. This has been interpreted to mean that a
federal district court may not compel arbitration outside its
own district. See M.C. Const., Corp. v. Gray Co., 17 F.Supp.2d
541, 548 (W.D.Va. 1998).
As Defendant points out, “[a]s a
practical matter, because the proper forum for this dispute is
before an arbitration panel, that panel may be best suited for
determining the venue for that proceeding.” (ECF No. 13, at 17
n.12). The court agrees.
26
into the Subcontract Agreement.
A telephone conference will be
held to schedule the evidentiary hearing.
A separate order will
follow.
/s/
DEBORAH K. CHASANOW
United States District Judge
27
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