Upper Lakes Towing, Co. v. ZF Padova SpA

Filing 77

OPINION ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)

UNITED STATES DISTRICT COURT F O R THE WESTERN DISTRICT OF MICHIGAN N O R T H E R N DIVISION

U P P E R LAKES TOWING CO., P l a in tif f , F ile No. 2:08-CV-63 v. H O N . ROBERT HOLMES BELL Z F PADOVA SPA, D e f e n d a n t. / OPINION T h is is a product liability action brought by Plaintiff Upper Lakes Towing Co. (" U p p e r Lakes"), a U.S. entity, against Defendant ZF Padova SpA ("ZF"), an Italian entity. B e f o re the Court is a motion by Defendant ZF to dismiss the case for lack of subject matter ju ris d ic tio n or, in the alternative, to compel arbitration. (Dkt. No. 52.) The Court heard oral arg u m en t on the motion on November 3, 2009. For the reasons that follow, Defendant's m o tio n will be denied. I . Factual Background O n or about June 30, 2005, Plaintiff Upper Lakes entered into a contract with MaK A m e ric a s, Inc. ("MaK") for the purchase of two diesel engines, two generators, and a pitch p rop eller for Plaintiff's tug-and-barge, the Joseph H. Thompson Jr. (the "MaK Contract"). A f ter the purchase of the equipment, a third party installed the equipment at a shipyard in P e n n s ylv a n ia . Plaintiff contends that when the propeller was put into use, it started leaking

f lu id into the hull of the ship and caused excessive vibration, both of which damaged P la in tif f 's vessel. Defendant ZF designed and manufactured the pitch propeller. Plaintiff f ile d suit on March 3, 2008, alleging (1) negligence in the design and manufacture of the p itc h propeller, and/or negligence in providing instructions or warnings regarding the p ro p e lle r, and (2) strict liability for selling a defective pitch propeller. Plaintiff's complaint a lle g e s admiralty and diversity jurisdiction as the bases for subject matter jurisdiction. D e f en d a n t argues that this case should be dismissed for lack of subject matter ju ris d ic tio n because the dispute is subject to mandatory arbitration. The MaK Contract re q u ire s that disputes related to the agreement be resolved exclusively through arbitration: A ll disputes arising between both Parties in connection with the present contract shall b e settled through friendly consultations between both Parties. In case no agreement c a n be achieved through consultations, it shall exclusively be submitted to arbitration f o r settlement under the Rules of Arbitration of the International Chamber of C o m m e r c e by three (3) arbitrators appointed in accordance with said rules. (D k t. No. 52, Def.'s Mot. to Dismiss, Ex. A, MaK Contract § 17). Defendant is not a party to the MaK Contract. However, MaK entered into a purchase agreement in July 2005 with its affiliate, Caterpiller Motoren GmbH & Co. ("Caterpiller Agreement") that is virtually id e n tic a l to the MaK Contract, including the arbitration provision. (Ex. B.) MaK also e n te re d into a "basis for consortium agreement" in September 2005 with Caterpiller, under w h ic h MaK agreed to be the lead for an "undisclosed consortium" to fulfill the terms of the M a K Contract with Plaintiff ("Consortium Agreement"). (Ex. D.) Defendant contends that C a te rp ille r "passed on" or assigned to Defendant the part of the Consortium Agreement

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re la te d to the pitch propeller by a "transfer of order" dated October 6, 2005. (Ex. E.) To s u m m a riz e , Plaintiff entered into a purchase agreement with MaK (the MaK Contract), MaK e n te re d into a purchase agreement and consortium agreement with Caterpiller, and C a ter p ille r passed on its obligations with respect to the pitch propeller to Defendant. II . Analysis A r b itra tio n agreements are regulated by the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. The FAA provides that, for any suit that is referable to arbitration, the Court will s ta y proceedings while the matter is resolved. 9 U.S.C. § 3. However, the parties agree that th e MaK Contract also falls under the Convention on the Recognition and Enforcement of F o r e ig n Arbitral Awards (the "Convention"), ratified at 9 U.S.C. § 202 et seq. Generally, th e Convention applies to arbitration agreements between citizens of the United States and c itiz e n s of other countries. Id. Where such an agreement requires arbitration, the Court has th e power to refer it to arbitration. 9 U.S.C. § 206. As between the FAA and the

C o n v e n tio n , the Convention takes precedence and the FAA applies to the extent that it does n o t conflict with the terms of the Convention. See 9 U.S.C. § 208 ("Chapter 1 [of Title 9, th e FAA] applies to actions and proceedings brought under this chapter to the extent that c h a p te r is not in conflict with this chapter or the Convention as ratified by the United S t a te s . " ) . In evaluating a motion to compel arbitration, the first step is to determine whether the d is p u te is arbitrable, "`meaning that a valid agreement to arbitrate exists between the parties

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a n d that the specific dispute falls within the substantive scope of the agreement.'" Nestle W a te rs N. Am., Inc. v. Bollman, 505 F.3d 498, 502 (6th Cir. 2007) (quoting Javitch v. First U n io n Sec., Inc., 315 F.3d 619, 624 (6th Cir. 2003)). In the instant case, the issue is whether th e scope of the arbitration provision in the MaK Contract includes a dispute between P la in tif f and a non- party to the agreement. Arbitration language is to be interpreted "in light o f the strong federal policy favoring arbitration, resolving any doubts as to the parties' in te n tio n s in favor of arbitration." Id. at 503. However, a party cannot be compelled to a rb itr a te a dispute which it has not agreed to submit to arbitration. Id. at 504. W h ile ambiguities in the language of the agreement should be resolved in favor of a rb itra ti o n , we do not override the clear intent of the parties, or reach a result in c o n sis te n t with the plain text of the contract, simply because the policy favoring a rb itra tio n is implicated. E E O C v. Waffle House, Inc., 534 U.S. 279, 294 (2002) (citations omitted). The arbitration provision in the MaK Contract is limited to "disputes arising between b o th Parties . . . ." (MaK Contract § 17) (emphasis added). It does not say "all disputes" w ith o u t qualification or even "all disputes arising in connection with the contract." "Courts h a v e consistently drawn a distinction between arbitration clauses specifically identifying the p a rtie s to which it applies, and a broader form of arbitration clause which does not restrict th e parties." In re Southwind Shipping Co., 709 F. Supp. 79, 82 (S.D.N.Y. 1989); see In re C o n tin e n ta l UK Ltd. v. Anagel Confidence Compania Naviera, S.A., 658 F. Supp. 809, 810 (S .D .N .Y . 1987) (denying a motion to compel arbitration by a non-signatory cargo owner and h o ld e r of bill of lading in a dispute with a non-signatory vessel owner where the provision 4

a p p lied to disputes between "owners" and "charterers"); Parkway Dodge, Inc. v. Yarbrough, 7 7 9 So.2d 1205, 1209-10 (Ala. 2000) (preventing a non-signatory manufacturer from en fo rcing an arbitration provision that applied to disputes between "dealer" and "purchaser"). T h e arbitration provision in the MaK Contract is not the "broader form" of arbitration clause. T h e Court notes that the MaK Contract abounds with references to "Vendor" (MaK) and " B u ye r " (Plaintiff). The arbitration provision itself is limited to disputes between the " P a rtie s," which is expressly defined in the agreement as the combination of "Buyer" and " V e n d o r." Defendant is not a "party" to the MaK Contract in the generic sense, nor is it a " P a rty" as that term is defined in the agreement. Accordingly, the plain text of the agreement in d ic a te s that disputes between Plaintiff and Defendant are not included within the scope of th e arbitration clause. The Court must enforce the agreement according to its plain meaning.1 S e e EEOC, 534 U.S. at 294. D e f en d a n t cites cases in which courts appear to have allowed an arbitration agreement to be enforced by or against a non-signatory even though that agreement was limited by its te rm s to disputes between the parties to the agreement. See Contec Corp. v. Remote Solution C o ., Ltd., 398 F.3d 205, 208 (2d Cir. 2005) (examining arbitration provision governing d isp u tes that "both parties" or "the parties" cannot resolve); Shaw Group, Inc. v. Triplefine In t'l Corp., 322 F.3d 115, 120 (2d Cir. 2003) (examining arbitration provision governing

The MaK Contract contains a choice-of-law provision indicating that the agreement is governed by the laws of Switzerland. (MaK Contract § 17.) However, neither party cites Swiss law on this issue or asserts that Swiss law would require a different interpretation of the arbitration clause. 5

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d is p u te s between "you" and "us"). However, in both of the foregoing cases, the nonsig n a to rie s stood in the shoes of the original parties to the agreement, either as successors in in te re s t or by assumption. See Shaw Group, 322 F.3d at 120 n.2 (noting that the nonsig n a to ry succeeded to the rights and obligations of the signatory); Contec Corp., 398 F.3d a t 207 (noting that one signatory changed its name and the other signatory changed its c o rp o ra te form without altering its ownership or its business relationship with the other s ig n a to ry). Defendant argues that it can enforce the arbitration provision because it stands in the shoes of MaK, but this argument is unsupported. Defendant contends that the o b lig a tio n s of MaK with respect to the MaK Contract were "passed on" or assigned to ZF b y virtue of the Consortium Agreement between MaK and Caterpiller and the transfer order b e tw e e n Caterpiller and Defendant. However, even if MaK delegated to Defendant certain o b lig a tio n s under the MaK Contract, there is no indication that Defendant assumed any of M a K ' s rights under that agreement, such as the right to enforce the arbitration clause. Defendant also argues that, even if the MaK Contract does not include Defendant as a party, the contract references Defendant2 and contemplates Defendant as a third-party b e n e fic ia ry of the agreement. Defendant argues that because Plaintiff was aware that D e f en d a n t would be supplying parts pursuant to the MaK Contract, Plaintiff should be re q u ire d to arbitrate a dispute with Defendant that is arguably related to that contract. H o w e v e r, this argument cuts against Defendant. The fact that the parties to the MaK
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The specifications attached to and incorporated as part of the agreement refer to "ZF Marine Propulsion Systems." (MaK Contract, App'x 1 § 19.1.4.) 6

C o n tra c t were aware of Defendant's role when they entered into the agreement suggests that th e arbitration provision, as drafted, was intended to exclude Defendant. Rather than agree to a provision applying broadly to all disputes arising in connection with the agreement, in c lu d i n g disputes involving the members of MaK's consortium or disputes involving the m a n u f ac tu re r or original supplier of the purchased parts, the parties to the MaK Contract a g re e d to an arbitration clause that is expressly limited to disputes between the "Buyer" and t h e "Vendor." To allow Defendant to enforce this provision against Plaintiff would be i n c o n s i s te n t with the plain meaning of the text and would "override the clear intent of the p a rtie s[ .]" EEOC, 534 U.S. at 294. For the foregoing reasons, therefore, the Court concludes th a t the arbitration provision is limited to disputes between Plaintiff and MaK; it does not c o v e r the instant dispute between Plaintiff and Defendant. Defendant raises two additional arguments in its reply brief. (Dkt. No. 61.) First, it a rg u e s that, because the arbitration provision in the MaK Contract references the Rules of A rb itra tio n of the International Chamber of Commerce, the parties to the MaK Contract a g re e d to have issues regarding the arbitrability of disputes referred to an arbitrator, citing A p o llo Computer, Inc. v. Berg, 886 F.2d. 469, 473 (1st Cir. 1989) ("By contracting to have a ll disputes resolved according to the Rules of the ICC . . . Apollo agreed to be bound by A r ti c le s 8.3 and 8.4. These provisions clearly and unmistakably allow the arbitrator to d e t e rm in e her own jurisdiction when, as here, there exists a prima facie agreement to arb itrate whose continued existence and validity is being questioned."). Defendant's

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a rg u m e n t is not persuasive. At issue in Apollo Computer was whether the non-signatory c o u ld enforce an arbitration clause in an agreement that had terminated and that, according to the signatory, had been invalidly assigned to the non-signatory seeking to enforce it. Id. a t 472. The court held that this issue should be decided by the ICC arbitrator rather than the c o u rt. Id. Unlike Apollo Computer, however, Defendant has not shown that it was assigned a n y rights under the MaK Contract. Thus, Defendant has not made a prima facie showing th a t there exists an agreement between Plaintiff and Defendant to arbitrate this dispute. M o re o v e r, the arbitration provision at issue in Apollo Computer was a broad form of p ro v is io n covering all disputes related to the contract; it was not limited to disputes between t h e parties the agreement. Id. at 474. Thus, when the arbitration provision in the MaK C o n tra c t is read in its entirety, it does not "clearly and unmistakably" evince an intent to refer to an arbitrator the issue of whether it applies to a dispute between Plaintiff and a non-party to the agreement. See AT&T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649 (1 9 8 6 ) ("Unless the parties clearly and unmistakably provide otherwise, the question of w h ethe r the parties agreed to arbitrate is to be decided by the court, not the arbitrator."). F in a lly, Defendant suggests that the Consortium Agreement requires Plaintiff to a rb itra te this dispute. Though Plaintiff is not a party to that agreement, Defendant contends t h a t Plaintiff should be estopped from refusing to arbitrate, citing Int'l Paper Co. v. S c h w a b e d is s e n Maschinen & Anlagen GMBH, 206 F.3d 411 (4th Cir. 2000). In that case, th e court noted that a non-signatory could be estopped from refusing to comply with an

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a g re e m e n t to arbitrate where it received a "direct benefit" from the contract or where it has " c o n sis ten tly maintained that other provisions of the same contract should be enforced to b e n e fit him." Id. at 418. The non-signatory plaintiff in International Paper alleged that the d e f en d a n t failed to honor the warranties in the agreement, and the court determined that the p l a in t if f should be estopped from refusing to arbitrate because the plaintiff's "entire case h in g e [ d ]" on its asserted rights under that contract. Id. In contrast to International Paper, th e re is no indication that Plaintiff relies on or seeks to enforce any asserted rights in the C o n s o rtiu m Agreement. The complaint does not reference the Consortium Agreement and th e re is no indication that Plaintiff's product-liability claims hinge on any rights in that a g re e m e n t. Thus, Defendant has not shown that Plaintiff should be estopped from refusing to arbitrate under the Consortium Agreement. F o r the foregoing reasons, therefore, Defendant has not shown that this matter should b e dismissed or referred to arbitration. I I I . Conclusion B e c au s e the arbitration provision in the MaK Contract is, by its own terms, limited to disputes between the parties to that agreement, and because Defendant has not shown that it has a right to compel Plaintiff to arbitrate under any other agreement, the Court will deny D e f en d a n t's motion. The Court is not unreceptive to Defendant's concern that Plaintiff filed a product-liability action against Defendant which may be better suited as an action against M a K for breach of the MaK Contract. Nevertheless, Plaintiff is the master of its complaint

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w ith respect to the claims pleaded and the parties sued. By its own admission, Plaintiff has " lim ite d its claims against ZF to those arising outside the bounds of its contract with MaK." (D k t. No. 53, Pl.'s Resp. in Opp'n to Mot. to Dismiss 17.) The Court has not been asked to re v ie w the merits of Plaintiff's claims against Defendant. If those claims are insufficient u n d e r the facts of this case, Plaintiff must live with the consequences of its choices, just as D e f en d a n t must live with the consequences of its choice of contractual rights and remedies f o r this type of dispute. Unfortunately (for Defendant), it appears that those rights do not in c lu d e the right to compel Plaintiff to arbitrate this dispute. An order will be entered that is consistent with this opinion.

Dated: December 4, 2009

/s/ Robert Holmes Bell ROBERT HOLMES BELL UNITED STATES DISTRICT JUDGE

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