Upper Lakes Towing, Co. v. ZF Padova SpA
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
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
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
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
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
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
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
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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