Orbital ATK, Inc. et al v. Heckler & Koch GmbH
ORDER granting in part and denying in part 27 Motion to Dismiss/General; denying 27 Motion to Stay; granting in part and denying in part 27 Motion to Compel(Written Opinion) Signed by Senior Judge David S. Doty on 09/08/2017. (ACB)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 17-250(DSD/FLN)
Orbital ATK, Inc. and
Alliant Techsystems Operations LLC,
Heckler & Koch GmbH,
Daniel Gilbert Morris, Esq., Erin Brooke Sheppard, Esq.,
William T. O’Brien, Esq., and Dentons US LLP, 1900 K Street
NW, Washington, DC 20006; Michael A. Rosow, Esq., Thomas H.
Boyd, Esq., and Winthrop and Weinstine, PA, 225 South 6th
Street, Suite 3500, Minneapolis, Minnesota, 55402, counsel
David Jacob Ginsberg, Esq., George David Ruttinger, Esq.,
and Crowell & Moring LLP, 1001 Pennsylvania Avenue NW,
Washington, DC 20004; Mark P. Hodkinson, Esq. and Heley,
Duncan & Melander, PLLP, 8500 Normandale Lake Boulevard,
Suite 2100, Minneapolis, Minnesota 55437, counsel for
This matter is before the court upon defendant Heckler & Koch
proceedings herein, and for the following reasons, the court grants
the motion in part.
This contract dispute arises out of Heckler & Koch’s (H&K)
alleged failure to deliver twenty XM25 weapons systems and certain
intellectual property to plaintiff Orbital ATK, Inc. (ATK).1
and ATK entered into a cooperation agreement on October 8, 1994,
under which both parties agreed to cooperate in pursuing a contract
with the United States Army for the XM25 weapons program.
Subsequently, ATK entered into several prime contracts with
the Army for work on the XM25 weapons systems.
Id. ¶ 17.
to the cooperation agreement, ATK entered into subcontracts with
H&K to assist with ATK’s obligations under the prime contracts.
Id. ¶ 18.
On September 29, 2005, ATK and H&K entered into a teaming
agreement for the OICW Weapons System (Teaming Agreement), which
superseded the cooperation agreement.2
Id. ¶ 20; See O’Brien Decl.
The parties agreed, among other things, that if the Army
would award ATK a prime contract for work on the XM25 weapons
program, ATK would award a subcontract to H&K.
Compl. ¶ 22.
The Teaming Agreement contains an arbitration provision that
states in relevant part: “Any controversy or claim arising out of
specifically excluding Subcontract Disputes ... shall be determined
by arbitration administered by the International Centre for Dispute
ATK is the sole member of plaintiff Alliant Techsystems Inc.
Unless otherwise noted, the court will refer to plaintiffs
collectively as ATK.
The XM25 program was also known as the Objective Individual
Combat Weapon Program (OICW). Compl. ¶ 16.
Resolution in accordance with its International Arbitration Rules.”
O’Brien Decl. Ex. A § 8.05.
The parties further agreed that:
controversies or disputes concerning the performance, validity or
enforceability of any Subcontract negotiated under the Agreement
shall be resolved in accordance with the applicable disputes
provision of such Subcontract.”
Id. § 8.04.
Teaming Agreement provides that the agreement could be terminated
by the non-defaulting party if the defaulting party fails to cure,
within thirty-days of written notice, a material breach of the
Teaming Agreement or a subcontract.
Id. Art. 5 h, i.
terminated the Teaming Agreement, H&K was required to grant ATK a
non-exclusive license for intellectual property owned by H&K to
“enable ATK independently to perform or have performed by others
all Subcontract requirements that [H&K] was obligated to perform
under the Subcontract.”
Id. § 7.06a.
On March 24, 2011, the Army awarded a prime contract to ATK
to begin the engineering and manufacturing development phase of the
XM25 weapons program.
Compl. ¶ 25.
In anticipation of being
awarded a government contract, on February 1, 2011, pursuant to the
Teaming Agreement, ATK awarded H&K a subcontract under which H&K
agreed to deliver twenty-five final design XM25 weapon systems to
Id. ¶¶ 26, 31-32; see O’Brien Decl. Ex. B.
The subcontract incorporated general terms and conditions that
mediation but not arbitration.
Ex. C § 1.7.
See O’Brien Decl. Ex. B at 8; id.
The subcontract further provided to ATK a property
interest in all technical work product, inventions, and works of
authorship developed by H&K in its work under the subcontract and
required H&K to deliver, disclose, or assign such property to ATK.
Id. Ex. C. § 1.14.
ATK alleges that H&K failed to deliver the XM25 weapons
mediation failed, and, on December 2, 2016, ATK terminated the
subcontract due to H&K’s alleged default.
Compl. ¶¶ 46-50.
December 8, 2016, ATK, pursuant to the terms of the Teaming
Agreement, sent a thirty-day cure notice to H&K.
Id. ¶ 51.
Because H&K allegedly failed to cure the breach within thirty days,
ATK terminated the Teaming Agreement on January 26, 2017.
On January 26, 2017, ATK filed suit against H&K alleging that
H&K breached the subcontract by failing to deliver the XM25 weapon
systems and failing to participate in a formal mediation process.
Additionally, ATK claims H&K breached the subcontract and Teaming
Agreement by failing to transfer intellectual property to ATK. ATK
also seeks a declaratory judgment that (1) the Teaming Agreement
requires that H&K grant ATK a non-exclusive license in H&K’s
intellectual property and (2) the subcontract requires that H&K
immediately deliver technical work product and inventions related
to the XM25 program.
H&K now moves to compel arbitration, arguing
that the dispute is subject to the Teaming Agreement’s arbitration
Standard of Review
In a motion to compel arbitration, the court must determine
whether (1) a valid agreement to arbitrate exists between the
parties3 and (2) the specific dispute is within the scope of that
Pro Tech Indus., Inc. v. URS Corp., 377 F.3d 868, 871
(8th Cir. 2004).
In determining whether a particular dispute is
within the scope of the arbitration agreement the court does not
examine merits of the underlying claim.
F.3d 972, 975 (8th Cir. 2005).
Medcam, Inc. v. MCNC, 414
“The scope of an arbitration
agreement is given a liberal interpretation, with any doubts
resolved in favor of arbitration.”
An order to compel
arbitration should be granted “‘unless it may be said with positive
assurance that the arbitration clause is not susceptible to an
interpretation that covers the asserted dispute.’”
Lyster v. Ryan's Family Steak Houses, Inc., 239 F.3d 943, 945 (8th
However, parties cannot be forced to arbitrate a
There is no dispute that
subcontract are valid agreements.
dispute that the parties have not agreed to submit to arbitration,
because “arbitration is a matter of consent, not of coercion.”
Keymer v. Mgmt. Recruiters Int'l, Inc., 169 F.3d 501, 504 (8th Cir.
Motion to Compel
Scope of Arbitration Clause
In deciding whether a dispute is subject to arbitration, the
court must first determine whether the clause is broad or narrow.
Unison Co. v. Juhl Energy Dev., Inc., 789 F.3d 816, 818 (8th Cir.
If the clause is broad, the presumption in favor of
arbitration applies, and the court is required to send the claim to
arbitration “as long as the underlying factual allegations simply
touch matters covered by the arbitration provision.”
quotation marks and citation omitted).
If the clause is narrow,
“the presumption of arbitrability is lessened.” Twin City Monorail,
Inc. v. Robbins & Myers, Inc., 728 F.2d 1069, 1073 (8th Cir. 1984).
Here, the arbitration clause in the Teaming Agreement covers
“[a]ny controversy or claim arising out of or relating to this
The clause is broad, because the clause
covers a wide variety of disputes except for subcontract disputes a comparatively narrow set of claims.
Indeed, the Eighth Circuit
has held that the use of the phrase “arising out of or relating to”
renders the clause broad.
See Fleet Tire Serv. of N. Little Rock
v. Oliver Rubber Co., 118 F.3d 619, 621 (8th Cir. 1997) (holding
that the arbitration clause was broad, because it covered claims
“arising from” and “relating to” the agreement); see also Unison
Co., 789 F.3d at 818 (holding same).4
The narrow exclusion of
subcontract disputes does not change this conclusion because “the
exclusion of some areas from possible dispute from the scope of an
arbitration clause does not serve to restrict the reach of an
otherwise broad clause in the areas in which it was intended to
operate.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 625 n.13 (1985).
Because the arbitration clause is broad, there is a presumption
in favor of arbitration.
But this “presumption may be overcome by
arbitration or by persuasive evidence of a purpose to exclude the
claim from arbitration.”
Local 38N Graphic Commc’ns Conference/IBT
v. St. Louis Post-Dispatch, LLC, 638 F.3d 824, 826 (8th Cir. 2011).
Such an express exclusion, concerning subcontract disputes, applies
Therefore, the court must determine whether the disputes at
issue are subcontract disputes.5
If the court cannot conclude with
Plaintiffs do not directly dispute that the clause is broad.
Instead, they claim that it is irrelevant whether the clause is
broad or narrow.
But, as explained above, such an analysis is
required and legally relevant. See Unison Co., 789 F.3d at 818.
The court rejects H&K’s argument that subcontract disputes
are still subject to arbitration insofar as they touch upon matters
relating to the arbitration clause. Because the Teaming Agreement
and subcontract were entered into pursuant to the same business
“positive assurance” that the exclusion applies, the court must send
the dispute to arbitration.
Lyster, 239 F.3d at 945.
In determining whether a dispute is subject to arbitration, the
court must “look past the labels the parties attach to their claims
to the underlying factual allegations.” 3M Co. v. Amtex Sec., Inc.,
542 F.3d 1193, 1199 (8th Cir. 2008).
Although the complaint only
asserts two counts, there are four disputes.
Namely, the parties
dispute whether H&K: (1) breached the subcontract by failing to
deliver twenty weapons systems; (2) breached the subcontract by
failing to deliver intellectual property as; (3) breached the
subcontract by refusing to participate in a formal mediation; and
(4) breached the Teaming Agreement by failing to grant a nonexclusive license to ATK.
The court must examine each of these disputes independently.
See KPMG LLP v. Cocchi, 565 U.S. 18, 22 (2011) (“[C]ourts must
examine a complaint with care to assess whether any individual claim
must be arbitrated.”); see also Granite Rock Co. v. Int’l Bhd. of
Teamsters, 561 U.S. 287, 297 (2010) (emphasis in original) (“[A]
court may order arbitration of a particular dispute only where the
enterprise, disputes under either agreement will necessarily touch
upon the same general subject matter. Where an express exclusion
is in the arbitration clause, the question is not merely whether
the dispute touches upon the Teaming Agreement; rather, it is
whether the exclusion applies. See Local 38N, 638 F.3d at 826.
court is satisfied that the parties agreed to arbitrate that
dispute.”). Further, “when a complaint contains both arbitrable and
arbitrable claims, “even where the result would be the possibly
Cocchi, 565 U.S. at 22 (internal quotation marks and
Failure to Deliver Weapons Systems
ATK’s claim that H&K failed to timely deliver weapons systems
falls squarely under the subcontract.
Indeed, it is the only
contract that gives rise to H&K’s obligation to deliver the weapons
systems; the Teaming Agreement imposes no such obligation.
H&K’s obligation to deliver the weapons systems arises under the
subcontract, its alleged failure to do so is a subcontract dispute.
The court therefore concludes that this claim is expressly excluded
the arbitration clause still applies because the
subcontract incorporated the terms of the Teaming Agreement by
The court is not persuaded.
First, the subcontract
generally incorporates “any written Agreements, Representations, and
Certifications” only “where applicable.”
at 8; id. Ex. C § 1.2.
See O’Brien Decl. Ex. B,
It is far from clear what the parties
subcontracts are not subject to the Teaming Agreement’s dispute
See O’Brien Ex. A §§ 1.06, 8.04, 8.05.6
result, the court denies H&K’s motion to compel arbitration as to
Failure to Deliver Intellectual Property Pursuant to
ATK seeks both a declaratory judgment and damages for breach
intellectual property as required by § 1.14 of the subcontract’s
general terms and conditions. Section 1.14 of the general terms and
conditions obligates H&K to deliver or assign to ATK all technical
work product, inventions, and works of authorship developed by H&K
in its work under the subcontract.
O’Brien Decl. Ex. C. § 1.14.
Because H&K’s obligation to deliver or assign to ATK arises solely
under the subcontract, its alleged failure to do so is a subcontract
dispute and therefore not subject to arbitration.
Given the express intention of the parties to exclude
subcontract disputes from the arbitration clause, the court
likewise rejects H&K’s argument that the arbitration provision must
control, even over subcontract disputes, in order to “give full
effect to all provisions.”
Johnson Bros. Corp v. Rapidan
Redevelopment Ltd. P’ship, 423 N.W.2d 725, 729 (Minn. Ct. App.
1988). The most natural reading of the agreements is that disputes
arising and relating to the Teaming Agreement are subject to
arbitration, but disputes under the subcontract are not. H&K’s
construction, requiring that the arbitration clause control over
the subcontract’s dispute resolution process is unconvincing.
court also denies H&K’s motion as to this claim.
Failure to Participate in Formal Mediation
ATK seeks damages for breach of contract due to H&K’s alleged
failure to pursue formal mediation under the subcontract.
the parties’ obligation to pursue formal mediation arises solely
under the subcontract; there is no similar provision in the Teaming
Therefore, this claim arises under the subcontract and
is not subject to arbitration.
As a result, the court denies H&K’s
motion as to this claim.
Failure to Deliver Intellectual Property Pursuant to
ATK also seeks declaratory relief and damages arising under
H&K’s alleged failure to deliver intellectual property pursuant to
the Teaming Agreement.
The Teaming Agreement provides that if ATK
terminates the Teaming Agreement, H&K is required to grant ATK a
non-exclusive license for intellectual property owned by H&K so that
ATK can perform H&K’s unfulfilled obligations.
Ex. A § 7.06a.
See O’Brien Decl.
No such provision was agreed to in the subcontract.
Because the dispute arises from H&K’s alleged failure to abide by
the terms of the Teaming Agreement, it is subject to the arbitration
ATK responds that the non-exclusive license dispute is excluded
from arbitration because the default of a subcontract is a condition
precedent to the remedy available under the Teaming Agreement.
other words, argues ATK, this dispute is excluded from arbitration
because it arises from and is related to the subcontract dispute.
The court is not persuaded.
First, although a default is a condition precedent to the
obligation to provide a non-exclusive license, H&K’s alleged failure
to do so is a breach of the Teaming Agreement - not the subcontract.
Indeed, even if ATK proved that H&K defaulted on the subcontract,
whether H&K additionally failed to grant a non-exclusive license is
a separate factual and legal question, the scope of which involves
Second, to the extent that the non-exclusive license dispute relates
to the subcontract dispute, it renders the arbitration clause
When obligations under the Teaming Agreement, which
contains an arbitration clause, are related to obligations under the
subcontract, which contains no such clause, the court cannot say
with positive assurance that the express exclusion applies.
result, the court grants H&K’s motion as to this claim, and it is
dismissed without prejudice.7
The court declines to stay the nonarbitrable claims because
it is convinced that the non-exclusive license claim is unnecessary
to the resolution of the remaining subcontract claims.
Accordingly, based on the above, IT IS HEREBY ORDERED that
defendant’s motion to compel arbitration [ECF No. 27] is granted in
part as set forth above.
Dated: September 8, 2017
s/David S. Doty
David S. Doty, Judge
United States District Court
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