Adam Joseph Resources (M) Sdn. Bhd. v. CNA Metals Limited

Filing 18

MEMORANDUM AND ORDER. It is ORDERED that Defendant CNA Metals Limited's Motion to Compel Arbitration and Stay Proceedings (Document No. 9 ) is GRANTED, andit is therefore ORDERED that Plaintiff Adam Joseph Resources (M) Sdn. Bhd. shall proceed to arbitration with Defendant CNA Metals Limited in Fort Bend County, Texas, in accordance with the terms of their November 11, 2010 "Ad[d]endum Agreement." In light of this impending arbitration, it is further ORDERED that all proceedings in this action are STAYED pending the outcome of the arbitration. Within thirty (30) days after a final award in arbitration has been rendered in the Fort Bend County, Texas arbitration, any party to this action may move to lift this STAY by filing a motion accompanied by a copy of this Order and evidence that the arbitration has been concluded. (Signed by Judge Ewing Werlein, Jr) Parties notified.(gkelner, 4)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
ADAM JOSEPH RESOURCES (M) SDN.
BHD.,

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§
§
§
§
§
§

Plaintiff,
v.

CNA METALS LIMITED
Defendant.

CIVIL ACTION NO. H-14-1801

MEMORANDUM AND ORDER
Pending is Defendant CNA Metals Limited's Motion to Compel
Arbi tration and

to

Stay Proceedings

carefully considering the motion

l

(Document

response

l

No.9).

After

and applicable law

the

l

Court concludes as follows.

I. Background
Plaintiff Adam Joseph Resources (M) Sdn. Bhd. ("Plaintiff
a Malaysian business engaged in recycling scrap metal
purchases in bulk from various suppliers.l
Limited ("CNN

I

Purchase Order for

1

Document No. 1

2

Id.

~~

2

)

is

which it

Defendant CNA Metals

is a Texas corporation which buys and resells scrap

)

metal to recyclers such as Plaintiff.2
signed a

l

ll

I

6.

~~

11

the

In August 2010

sale of

2 1400

5 (Orig. Compl.).

1

the parties

metric

tons

of

insulated

copper

wire

from

Defendant

to

Plaintiff.3

After

Plaintiff had made some payments and Defendant had delivered some
of the copper wire, a dispute arose about the parties' respective
obligations and the payment schedule. 4

On November 11, 2010, the

parties signed an "Adendum [sic] Agreement"

(the "Addendum")

"to

prevent future disputes arising from misunderstanding and different
interpretations on the terms of payment of [the Purchase Order] .,,5
Paragraph 9 of

the Addendum

(the

"Arbitration Agreement")

provides:
It is the intention of Parties to settle amicably any
dispute or difference between the parties arising out of
or relating to [the Purchase Order] or this Agreement,
including the formation, performance, interpretation,
nullification,
termination or invalidation of this
Agreement, by conference and negotiations. In the event
that the parties are unable to resolve any disagreement
or difference of opinion arising out of this Agreement
the parties[] agree to dispose of the matter thus:
a) The person in-charge of [Plaintiff] and [Defendant]
shall meet to attempt resolution.
Should they not meet
and resolve the matter within seven days of the time at
which either of the managers convenes a meeting to
resolve the matter, then
b) The matter shall be promptly referred for resolution
to the Chief Executive Officer of [Plaintiff] and a
person of equivalent standing nominated by [Defendant].

3 Document No.9, ex. A. Plaintiff agrees that this document
is a copy of the original Purchase Order but disputes that the
handwritten additions to the payment terms were part of the
contract.
See Document No. 14 at 1.
~~

4

See Document No. 1

5

9-14i Document No.9 at 3-4.

Document No.9, ex. B.
2

If they are not able to resolve the matter within seven
days of the referral under this Clause, then
c) The matter shall be referred to arbitration in Fort
Bend County, Texas in accordance with the rules of
American Arbitration Association. 6
After signing the Addendum,

the parties proceeded to make

further payments and deliveries,

but eventually reached another

impasse,

with Plaintiff

refusing

to make

further

Defendant refusing to make further deliveries. 7
Plaintiff filed this suit,

payments

and

In June 2014,

alleging that Defendant breached its

contract and committed fraud when it retained Plaintiff's deposit
money, unilaterally changed the terms of payment, and diverted to
third parties some of the containers of wire to which Plaintiff was
entitled. 8
are

within

Defendant answered, asserting that Plaintiff's claims
the

scope

of

an arbitration agreement

between

the

parties and that the case should be stayed pending arbitration. 9
Defendant simultaneously counterclaimed for breach of contract,
alleging that Plaintiff had not made its required payments and that
Defendant's losses from being forced to sell the copper elsewhere
Defendant now moves

exceeded Plaintiff's deposits. 10

ex. Bat 2.

6

Id.,

7

See Document No. 1

8

Document No.1.

9

Document No. 7

10

Id.

to compel

~~

~

~~

17-32; Document No.9 at 4-6.

62.

67-93.
3

Plaintiff

to

submit

its

claims

to

arbitration

based

on

the

Arbitration Agreement and to stay or dismiss the proceedings in
this Court.11
II. Legal Standard
Under

the

Federal

Arbitration Act

("FAA"),

"[a]

two-step

inquiry governs whether parties should be compelled to arbitrate a
dispute.

First,

the

court must determine whether the parties

agreed to arbitrate the dispute.

Once the court finds that the

parties agreed to arbitrate, it must consider whether any federal
statute or policy renders the claims non-arbitrable."
Acceptance

Corp.

v.

Hill,

367

F.3d

426,

(quotation marks and citation omitted) .
the

Court

to determine

whether

there

429

(5th

Banc One
Cir.

2004)

The first step requires
is

a

valid agreement

to

arbitrate between the parties and whether the dispute in question
falls within the scope of that arbitration agreement.
Webb v.

Investacorp

r

Inc.,

89

F. 3d 252,

258

Id.

(citing

(5th Cir.

1996)).

Although a strong federal policy favors arbitration,

the policy

does not apply to the initial question of whether there is a valid
agreement to arbitrate.

Id.

However,

"once a court determines

that an agreement to arbitrate exists, the court must pay careful

11 Document NO.9.
4

attention to the strong federal policy favoring arbitration and
must resolve all ambiguities in favor of arbitration."

Id.

"[A]ny

doubts concerning the scope of arbitrable issues should be resolved
in

favor

of

arbitration,

whether

the

problem

at

hand

is

the

construction of the contract language itself or an allegation of
waiver, delay, or a like defense to arbitrability."

Moses H. Cone

Mem'l Hosp. v. Mercury Const. Corp., 103 S. Ct. 927, 941 (1983).

III. Discussion

As an initial matter,

Plaintiff states in its Response that

"[Defendant] answered [Plaintiff's] suit and filed a counterclaim
against [Plaintiff] thereby indicating its intention to proceed in
this Court."12
has

waived

meritless.
court

To the extent that Plaintiff argues that Defendant

its

right

to

demand arbitration,

such argument

is

A defendant can waive arbitration by actions taken in

"if those actions are sufficiently inconsistent with the

right to arbitrate," but answering and filing counterclaims are not
inconsistent with the right to arbitrate.
New Orleans Gen. Agency,
(no

waiver

of

right

Gen. Guar. Ins. Co. v.

Inc., 427 F.2d 924, 929
to

arbitrate

where

(5th Cir. 1970)

defendant

answered

complaint, filed counterclaim which might have been compulsory, and
allowed plaintiff to take depositions before indicating any intent

12 Document No. 14 at 6.
5

to request arbitration); see also Texaco Exploration & Prod. Co. v.
AmClyde Engineered Products Co., 243 F.3d 906, 911 (5th Cir. 2001)
("There is a
thereabout

strong presumption against waiver,
must

be

resolved

in

favor

and any doubts

of

arbitration.") .

Defendant's Answer prominently stated--both on the first page and
as an affirmative defense--that Plaintiff's claims were within the
scope of a valid arbitration agreement,13 and Defendant moved to
compel

arbitration

less

than

one

month

after

answering. 14

Accordingly, Defendant has not waived its right to arbitrate.

See

Tenneco Resins, Inc. v. Davy Int'l, AG, 770 F.2d 416, 420 (5th Cir.
1985)

(defendant did not waive right to arbitrate when it "waited

almost

eight

months

before

moving

that

the

proceedings be stayed pending arbitration, and,
participated in discovery,"

where

its

district

court

in the meantime,

answer put

plaintiff

on

notice as to its desire to arbitrate) .
Plaintiff

does

not

dispute

that

it

signed

the

Addendum,

containing the Arbitration Agreement, 15 but contends that its claims
for

fraud and breach of contract are outside the scope of the

Arbi tration Agreement because they do not arise from the Addendum. 16
Plaintiff's argument that "[Plaintiff's] claims in this case do not

13

Document No. "7 at 1, 5 .

14

Document No. 9.

15

See Document No. 14 at

16

Id. at 8-9.

1.

6

in any way arise from or fall within the scope of the Addendum" 17
appears disingenuous given the fact that Plaintiff in its Original
Complaint in five separate paragraphs alleges multiple instances
when Defendant breached the Addendum. 18
The Arbitration Agreement in the Addendum states that" [i] t is
the

intention

difference

of

between

Parties
the

to

settle

arising out

parties

dispute

or

of or relating

to

amicably

any

[the Purchase Order] or this Agreement, including the formation,
performance, interpretation, nullification, termination or invalidation of this Agreement,

by conference and negotiations,

II

and

provides for arbitration "to resolve any disagreement or difference

of opinion arising out of this Agreement. 1119

Plaintiff's dispute

with Defendant arises out of Defendant's alleged breach of its
contractual obligations under the Purchase Order and the Addendum,
along with associated fraud. 2o

These claims fall within the broad

scope of the Arbitrat.ion Agreement.
Plaintiff further argues that because Defendant materially
breached both the Purchase Order and the Addendum, both contracts
were effectively revoked and the Arbitration Agreement is therefore

17

rd. at 9.

18

Document No. 1 ~~ 36-37, 40-42.

19

Document No. 9, ex. B at 2 (emphasis added) .

20

See Document No. 1.
7

no longer binding. 21

" [W] here parties have formed an agreement

which contains an arbitration clause, any attempt to dissolve that
agreement by having the entire agreement declared voidable or void
is for the arbitrator."

Will-Drill Res.

352 F.3d 211, 218 (5th Cir. 2003)

r

Inc. v. Samson Res. Co.,

(citing Primerica Life Ins. Co.

v. Brown, 304 F.3d 469 (5th Cir. 2002); Prima Paint Corp. v. Flood

& Conklin Mfg.

Co.,

87

S.

Ct.

1801

(1967)).

"Only

if

the

arbitration clause is attacked on an independent basis can the
court

decide

the

dispute;

otherwise,

agreement are for the arbitrator."

general

attacks

on

the

Id.

Plaintiff does not dispute that it agreed to the Arbitration
Agreement when it signed the Addendum.

Plaintiff's claim that

Defendant's breach of other provisions in the Purchase Order and
Addendum

renders

the

Arbitration Agreement

unenforceable

is

a

general attack on the enforceability of Plaintiff's obligations in
the

Addendum. 22

Accordingly,

Plaintiff's

arbitrator, not this Court, to consider.

argument

See

is

for

the

id. at 218-19 ("That

one of the parties later disputes the enforceability of

[their

agreement] does not change the fact that at some point in time, the
parties

21

reached an agreement,

and that

agreement

included the

Document No. 14 at 7 -12.

Document No. 14 at 8 ("If a contract is revoked as a
result of a material breach, it effectively no longer exists.")
(quoting Tri-Star Petroleum Co. v. Tipperary Corp., 107 S.W.3d 607,
614 (Tex. App.-El Paso 2003)).
22

See

8

decision to arbitrate disputes arising out of the agreement.

The

existence

the

of

this

agreement

provides

the

arbitrator

with

authority required to decide whether the agreement will continue to
exist.

Even if the arbitrator concludes that the agreement was

void, and the parties are returned to their pre-agreement positions
as i f the agreement never existed,

the

agreement existed long

enough to give the arbitrator the power to decide the dispute.")
(emphasis in original) .
Because Plaintiff's claims fall within the broad scope of the
Arbitration Agreement to which it agreed,
Compel

Arbitration will

be

granted,

Defendant's Motion to

together

with Defendant's

motion to stay these proceedings pending arbitration.
§

See 9 U.S.C.

3 ("If any suit or proceeding be brought in any of the courts of

the United States upon any issue referable to arbitration under an
agreement in writing for such arbitration, the court in which such
suit is pending, upon being satisfied that the issue involved in
such suit or proceeding is referable to arbitration under such an
agreement,
trial

of

shall on application of one of the parties stay the
the

action

until

such

arbitration

has

been

had

in

accordance with the terms of the agreement, providing the applicant
for

the

stay

is

not

in

default

arbitration.") .

9

in

proceeding

with

such

IV.

Order

Accordingly, it is
ORDERED that Defendant CNA Metals Limited's Motion to Compel
Arbitration and Stay Proceedings (Document No.9) is GRANTED, and
it is therefore ORDERED that Plaintiff Adam Joseph Resources

(M)

Sdn. Bhd. shall proceed to arbitration with Defendant CNA Metals
Limited in Fort Bend County, Texas, in accordance with the terms of
their November 11, 2010 "Ad[d]endum Agreement."

In light of this

impending arbitration, it is further
ORDERED that all proceedings in this action are STAYED pending
the outcome of the arbitration.
final

Within thirty (30) days after a

award in arbitration has been rendered in the Fort Bend

County,

Texas arbitration,

any party to this action may move to

lift this STAY by filing a motion accompanied by a copy of this
Order and evidence that the arbitration has been concluded.
The Clerk shall notify all parties and provide them with a
true copy of this Order.
SIGNED at Houston, Texas, on this

~y

of November, 2014.

NG WERLEIN, JR.
ATES DISTRICT JUDGE

10