Opinion
CIVIL ACTION NO: 03-3000 SECTION: "A" (2)
April 29, 2004
MINUTE ENTRY
Before this Court is defendant Dinli, L.P.'s Motion to Compel Arbitration and Stay Proceedings (Rec. Doc. 3). This motion, which is opposed by plaintiff Cycle Shop, is set for hearing on April 7, 2004, on the briefs. For the reasons that follow, this motion is GRANTED.
Background
On October 1, 2002, Dinli entered into a dealer agreement with Cycle Shop for the St. Tammany Parish territory. This agreement contains an arbitration clause which reads as follows:
The Agreement stated " Dinli and dealer (Cycle Sport) agree that dealer's area of primary responsibility for the sale and service of Dinli's product shall be 30 miles radius of Dealer's business location."
10. Disputes. Any claim, dispute or controversy arising out of or in connection with or relating to this Agreement or the breach or alleged breach thereof shall be submitted by the parties to binding arbitration in the City of Dallas, State of Texas, United States of America, before a single arbitrator agreeable to both parties. If the parties cannot agree on a designee within six (6) weeks after the arbitration is requested in writing by either of them, the arbitration shall proceed in Dallas, Texas, United States of America, before a single arbitrator appointed by the American Arbitration Association and under the rules then obtaining of that Association. The award shall be rendered in such form that judgment may be entered thereon in any court having jurisdiction.
In October of 2003, Cycle Shop filed this action for damages alleging that Dinli had violated Louisiana Revised Statute 32:771 et seq and the Louisiana Unfair Trade Practices and Consumer Protection Law, Louisiana Revised Statute 51:1401 et seq. It is alleged that by August 2003, Dinli was supplying motorcycles to other dealers in the Cycle Shop's "area of responsibility." In addition to this pending litigation, Cycle Shop also filed a complaint in December of 2003 with the State of Louisiana Used Motor Vehicle and Parts Commission. The Commission rendered a judgment on this complaint on February 27, 2004.
"Area of responsibility" means a geographical area assigned by zip code, parish, or mile radius in a franchise, sales, or contractual agreement existing between a manufacturer, distributor, wholesaler, distributor branch, or factory branch and a marine, motorcycle, or all-terrain vehicle dealer. La.R.S. 32:771(2)(a).
Parties' Contentions
Defendant requests that this Court compel arbitration, pursuant to 9 U.S.C. § 4, as to all claims asserted by plaintiff Cycle Shop and stay all proceedings in this matter while the binding arbitration is pending. In the alternative, defendant requests that this Court stay the proceedings in this case until the resolution of the ongoing state administrative action. Because the judgment has already been rendered in the state action, this Court shall only address the issue of compelling the arbitration and staying the proceedings in that respect.
The plaintiff asserts that its claims against Dinli do not stem from their franchise agreement which contains the arbitration clause but rather Dinli's violation of Louisiana law. Cycle Shop asserts that these violations occurred because a contract existed, but did not arise out of the contract, and therefore are not subject to the mandatory arbitration clause. The plaintiff has also asserted that the defendant has waived mandatory arbitration by its involvement in this litigation and the state administrative action. The plaintiff also contends that the State's consideration of its complaint some how serves as a "legal constraint, external to the parties' agreement that forecloses arbitration." The plaintiff also assets that if this Court was to compel arbitration in this case that the proper venue for such arbitration in this case is in Louisiana, rather than Texas.
Analysis
The first step in evaluating a motion to compel arbitration is to determine whether the parties agreed to arbitrate. Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002). This determination depends on two considerations: (1) whether there is a valid agreement to arbitrate between the parties, and (2) whether the dispute in question falls within the scope of the arbitration agreement. Id. ( citing Webb v. Invocator, 89 F.3d 252, 258 (5th Cir. 1996)). Ambiguities or uncertainties as to whether a particular dispute falls within the scope of an arbitration agreement are resolved in favor of arbitration. Id. ( citing Volt Info Sciences, Inc. v. Board of Trustees, 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989)).
Ordinary contract principles apply to the determination of whether a valid agreement to arbitrate exists between the parties. Id. ( citing Daisy Mfg. Co. v. NCR Corp., 29 F.3d 389 (8th Cir. 1984)). Thus, the strong federal policy favoring arbitration is triggered only after the Court determines that a binding arbitration agreement exists. See id.
The plaintiff concedes in his opposition that the dealer agreement between Cycle Shop and Dinli contains an arbitration clause which the Fifth Circuit would consider broadly written. The plaintiff instead asserts that this dispute is not covered by that broad arbitration clause.
In Snap-on Tools Corporation v. Mason, 18 F.3d 1261 (5th Cir. 1994), the Court interpreted a similar arbitration clause contained in a Dealer Agreement. The plaintiff filed a motion to compel arbitration which was denied by the district court and reversed by the Fifth Circuit. In that case, the defendant Mason was asserting various tort claims against the plaintiff Snap-On Tools in Texas state court. Id. at 1263. The Court found that because all of the tort claims arose out of the business relationship between the Masons and Snap-On Tools they were subject to the arbitration agreement.Id. at 1265. The facts of this case are very similar to the facts of the litigation currently before this Court. Both cases arise out of conflicts and claims relating to a "Dealer Agreement." Both "Dealer Agreements" contain broad arbitration clauses. Even though the claims asserted sound in tort, it does change the nature of the conflicts and the relationship between the parties.
In the state court complaint, the Masons allege fraudulent inducement into the dealership contract, fraud during the executory time of the contract, breach of fiduciary duty, and negligent and intentional infliction of emotional distress.
In Ford v. Nylcare Health Plans of The Gulf Coast, 141 F.3d 243 (5th 1998), the Fifth Circuit promulgated the test for whether or not a tort claim is sufficiently related to an agreement to be arbitrable. The Court stated:
The test focuses on the factual allegations in the complaint instead of the legal labels attached to the causes of action. It does so, however, not to identify whether the facts in support of the action will implicate the agreement as an item of evidence, but to uncover whether an action formally labeled a tort is in essence a breach of contract claim or based on a breach of contract . . . Basing the arbitrability of an action merely on the legal label attached to it would allow artful pleading to dodge arbitration of a dispute otherwise "arising out of or relating to" (or legally dependent on) the underlying contract. To avoid this contrivance, courts look at the facts giving rise to the action and to whether the action "could be maintained without reference to the contract,"
Id. at 250-51 ( citing X.L. INs. Co. v. Hartford Accident and Indemnity Co., 918 S.W. 687, 689 (Tex App. 1996); Valero Energy Corp. v. Wagner Brown, 777 S.W. 564, 566 (Tex App. 1989). In the Dinli/ Cycle Shop dealer agreement, a choice of law clause is contained in Article 11, which designates Texas law as the law governing the relationships between the parties.
Cycle Shop's claims arise directly from its dealer agreement with Dinli. They are therefore subject to the arbitration agreement.
Cycle Shop also asserts that Dinli has waived its right to invoke arbitration, Although the Fifth Circuit recognizes that the right to compel arbitration is waivable, waiver of arbitration is not a favored finding, and there is a presumption against it. Williams v. Cigna Financial Advisors, Inc., 56 F.3d 656, 661 (5th Cir. 1995) ( citing Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494 (5th Cir. 1986)). The party claiming waiver has a heavy burden but waiver will be found where the party seeking arbitration substantially invokes the judicial process to the detriment of the other party. Frye v. Paine, Webber, Jackson Curtis, Inc., 877 F.2d 396, 398 (5th Cir. 1989) ( citing Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156 (5th Cir. 1986)). The plaintiff has not come close to defeating this presumption.
While the defendant has participated in the state administrative hearing, this act alone cannot serve as a waiver of its right to arbitrate the dispute, nor can the defendant's participation in this current litigation which has been minimal. The plaintiff has invoked all of this litigation and the Court does not find that Cycle Shop has been prejudiced in any way by Dinli's conduct. This Court finds that defendant has not waived its right to arbitration.
The plaintiff contends that any arbitration in this matter should be conducted in Louisiana rather than Texas. The arbitration clause in the dealer agreement states clearly that any arbitration is to occur in Dallas, Texas. It is a clause of the contract and the contract is the law between the parties. The federal policy behind the Federal Arbitration Act "is simply to ensure the enforceabilty, according to their terms, of private agreements to arbitrate." Volt Info Sciences, Inc., 489 U.S. at 476. There is no question from the unambiguous language of the contract that the parties intended to arbitrate any matters related to the contract in Texas.
ACCORDINGLY;
IT IS ORDERED that defendant Dinli, L.P.'s Motion to Compel Arbitration and Stay Proceedings (Rec. Doc. 3) is GRANTED. This matter is STAYED pending arbitration. The Clerk shall CLOSE this matter ADMINISTRATIVELY pending further orders of the Court.