Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_04-cv-02764/USCOURTS-azd-2_04-cv-02764-0/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 15:1 Antitrust Litigation

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

ART MARKETING GROUP, et. al., ) No. CV 04-2764 PHX RCB 

) 

Plaintiffs, ) O R D E R

)

vs. )

)

POOR & CO., et. al., )

)

Defendants. )

) )

On December 6, 2004, Plaintiffs filed a complaint against

Defendants alleging violations of the Sherman Act, the RobinsonPatman Act and the Clayton Act as well as asserting claims for

unfair competition, interference with contract and business

expectancy, conversion and breach of contract. Compl. (doc. # 1). 

On March 21, 2005, the Court granted in part and denied in part

Defendants' motion (doc. # 13) to dismiss and compel arbitration of

these claims and stayed the action pending arbitration. Currently

before the Court are Plaintiffs' Motion to Reassume Jurisdiction

Over Counts 7 Through 10 of the Civil Complaint as Against Entity

Defendant (doc. # 25), which the Court will construe as a motion to 

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remove the reference of those claims to arbitration, and Motion to

Stay Arbitration Hearing on Merits of Counts 7 Through 10 as

Against Entity Defendant (doc. # 26). Defendants filed their

responsive memoranda (doc. ## 27, 28) on March 27, 2006 and

Plaintiffs filed their reply memoranda (doc. ## 29, 30) on April 7,

2006. The Court finds the matter suitable for decision without

oral argument. See LRCiv 7.2(f). Having carefully reviewed the

record and considered the arguments raised, the Court now rules. 

I. Background

In 1997 Plaintiff Art Marketing Group ("AMG") began

distributing life-size figures in the retail art market. Compl.

(doc. # 1) ¶¶ 12-14. These life-size figures were manufactured by

Poor & Co. doing business as Life Formations ("Life Formations"). 

Id. After years of operating under a verbal agreement, under which

AMG asserts it had sole distributorship rights over Life

Formations' works in the retail art market, AMG and Life Formations

entered into a written contract on May 28, 2004 to resolve a

business dispute and provide for the continuation of their business

relationship. Id. ¶¶ 14, 28. Four provisions of this contract are

particularly relevant to the issues of arbitrability that are again

before this Court.

(1) Release Clause: "Both parties agree to waive any and 

all claims of any nature against the other party for all 

business and other transactions the parties have 

conducted since the beginning of their business 

relationship in 1997, to date." Mot. (doc. # 25), Ex. 1 

¶ 1. 

(2) Arbitration Clause: "In the event of a dispute over 

any interpretation or operation governed by this 

agreement the parties agree to submit said dispute to 

binding arbitration." Id. ¶ 6.

(3) Non-Exclusivity Clause: "No exclusive right to sell 

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Life Formations artworks shall accrue to the Arts 

Marketing Group." Id. ¶ 1.

(4) Non-Solicitation Clause: "Life Formations agrees not 

to solicit sales from AMG's previously identified Design 

Firms, Special Project Clients i.e...Advanstar, TBN, for 

the next 12 months. Life formations may solicit sales of

any gallery or gallery owner, at any time." Id. ¶ 2.

AMG asserts that, after this agreement was signed, Defendants

wrongfully converted proprietary information belonging to AMG,

began wholesaling directly to AMG's former customers by offering

deeply discounted prices and attractive credit terms, told dealers

AMG was no longer doing business with Life Formations, raised the

prices charged to AMG, refused to honor price quotes given to AMG,

and further undermined AMG's position in the market. See Compl.

(doc. # 1) ¶¶ 30-31.

On December 6, 2004, AMG filed a Complaint raising eleven

separate causes of action against Defendants including federal

anti-trust claims (Counts 1 through 6), a claim for breach of

contract (Count 11), and the following common-law tort claims:

unfair competition (Count 7), interference with contract (Count 8),

interference with prospective business advantage (Count 9), and

conversion of property (Count 10). Id. ¶¶ 37-90. 

A. Order Referring Counts 7 Through 11 to Arbitration

On December 29, 2004, Defendants moved to dismiss the

Complaint and to compel arbitration arguing all the claims to be

covered by the arbitration clause of the May 24, 2004 agreement. 

Mot. (doc. # 13). In determining the scope of the arbitration

clause, the Court noted that the contract language chosen by the

parties was virtually coextensive with the Ninth Circuit's

definition of narrowly drawn arbitration clauses. Order (doc. #

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23) at 5-6; compare Mot. (doc. # 25), Ex. 1 ¶ 6 ("In the event of a

dispute over any interpretation or operation governed by this

agreement the parties agree to submit said dispute to binding

arbitration.") with Mediterranean Enters., Inc. v. Ssangyong Corp.,

708 F.2d 1458, 1464 (9th Cir. 1983) (holding that a narrowly drawn

arbitration clause applies to disputes "relating to the

interpretation and performance of the contract itself"). On March

21, 2005, the Court issued an order (doc. # 23) granting in part

and denying in part Defendants' motion (doc. # 13).

Defendants' motion was granted only with respect to Counts 7

through 11 as against Defendant Life Formations. Id. In so

holding, the Court found the breach of contract claim (Count 11) to

be squarely within the scope of the arbitration provision as a

"dispute over any interpretation or operation governed by th[e]

agreement." Id. at 7. The common-law tort claims (Counts 7

through 10) were similarly held arbitrable in light of the contract

interpretation issues necessitated by ruling on those claims. Id.

at 8. In particular, the Court noted that Count 10 would require

interpretation of the release clause based on Life Formations'

contention that the conversion claim was largely extinguished by

the settlement and release negotiated in the May 28, 2004

agreement. Id. While release was not asserted as a defense to

Counts 7 through 9, see Mot. (doc. # 13) at 4, the Court found that

those claims would nevertheless turn on the interpretation of the

non-exclusivity and non-solicitation clauses. See Order (doc. #

23) at 8 (citing Mot. (doc. # 13) at 4). Accordingly, the Court

referred the claims asserted in Counts 7 through 11 against

Defendant Life Formations to arbitration pursuant to 9 U.S.C. § 4

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1

 Plaintiffs describe the claim for damage to AMG property as

the "art crate" claim, referring to an incident occurring on May 7,

2004 in which Defendants allegedly diverted crates of AMG display

materials and art objects from an art show in Philadelphia. Compl.

(doc. # 1) ¶¶ 26-27. Plaintiffs now concede that the May 28, 2004

agreement was intended to release that portion of Count 10 for

conversion relating to the "art crate" claim. Mot. (doc. # 25) at 8;

Compl. (doc. # 1) at 26-27, 82-85.

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and the action was stayed pending the outcome of arbitration. Id.

at 10-11.

B. Arbitration Proceedings

On February 9, 2006, the arbitrator issued a decision

addressing (1) whether the parties' May 28, 2004 agreement released

the claims contained in Counts 7 through 10 and (2) if not, whether

those claims are subject to arbitration pursuant to the May 28,

2004 agreement. Mot. (doc. # 25), Ex. 2.

On the issue of release, the arbitrator found that the May 28,

2004 agreement could only release claims dealing with "business and

other transactions the parties ha[d] conducted since the beginning

of their business relationship in 1997" through the date of the

agreement. Id. at 2. However, the arbitrator was also careful to

point out that the agreement related more specifically to a

"business dispute that arose during the period April 15, 2004

through May 18, 2004" concerning "outstanding accounts receivable,

damage to Art Marketing Group property1 and other matters

specifically addressed." Id. (internal quotations omitted).

On the issue of arbitrability, the arbitrator followed this

Court's March 21, 2005 order (doc. # 23) as the law of the case and

determined that the common-law tort claims (Counts 7 through 10)

would be heard on their merits in arbitration. Id. at 2-3.

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An arbitration hearing on the merits of Counts 7 through 11 is

set to commence on May 9, 2006. Resp. (doc. # 27), Ex. C at 1. 

The arbitrator has declined Plaintiffs' request to stay the

proceedings on Counts 7 through 10. Id. at 2. Discovery closes on

April 28, 2006 and a case management conference is currently set

for April 24, 2006. Id.

II. STANDARD OF REVIEW

Federal substantive law governs questions of arbitrability. 

Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24

(1983). The Federal Arbitration Act ("FAA") provides that [a]

party aggrieved by the alleged failure, neglect, or refusal of

another to arbitrate under a written agreement for arbitration may

petition any United States district court . . . for an order

directing that such arbitration proceed in the manner provided for

in such agreement." 9 U.S.C. § 4. The FAA leaves no place for

discretion, but mandates that district courts direct parties to

proceed to arbitration on issues as to which an arbitration

agreement has been signed. Simula, Inc. v. Autoliv, Inc., 174 F.3d

716, 719 (9th Cir. 1999) (citing Dean Whitter Reynolds v. Byrd, 470

U.S. 213, 218 (1985)). The Supreme Court has stated that "any

doubts concerning the scope of arbitrable issues should be resolved

in favor of arbitration." Moses H. Cone Mem'l Hosp., 460 U.S. at

24-25. Nevertheless, a party cannot be compelled to arbitrate any

matter or claim in the absence of having undertaken a contractual

obligation to do so. Marchese v. Schearson Hayden Stone, Inc., 734

F.2d 414, 419 (9th Cir. 1984). Finally, "a district court's order

to arbitrate, with or without a retention of jurisdiction, has an

ongoing effect, and the parties may return to the district court

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2

 Defendants characterize Plaintiffs' motion as an untimely

motion for reconsideration. Resp. (doc. # 27) at 4, 6. The Court

does not agree. Because the order (doc. # 23) referring this matter

to arbitration has an "ongoing effect," Plaintiffs are entitled to

seek interpretation or modification of that order. See PMS Distrib.

Co., 863 F.2d at 642.

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for interpretation or modification of the order." PMS Distrib. Co.

v. Huber & Suhner, A.G., 863 F.2d 639, 642 (9th Cir. 1988)

(internal quotations and citations omitted).

III. MOTION TO REMOVE REFERENCE TO ARBITRATION

Plaintiffs contend that the arbitrator's decision of February

9, 2006 on the issues of release and arbitrability satisfied what

they perceive as the limited purpose of this Court's reference of

the common-law tort claims to arbitration and, therefore, have

asked the Court to reassume jurisdiction over Counts 7 through 10

as asserted against Defendant Life Formations. See Mot. (doc. #

25) at 7-14. The Court construes this as a motion to remove the

reference of those claims to arbitration or, in the alternative, to

interpret or modify the order (doc. # 23) referring those claims to

arbitration.2

To understand the Court's determination of arbitrability as to

Counts 7 through 10, the parties will find it beneficial to review

the contract interpretation issues that necessitated the reference

as to each Count. The claims can be divided into two groups with

different bases for arbitrability-- (1) Counts 7 through 9, which

turn on interpretation and operation issues under the nonexclusivity and non-solicitation clauses of the May 28, 2004

agreement and (2) Count 10 for conversion, which the arbitrator has

found to have been partially extinguished under the release clause.

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A. Arbitrability of Counts 7 Through 9

In finding Counts 7 through 9 within the scope of the

arbitration clause, the Court noted that "Defendants also assert

defenses to the other common law claims which similarly require

interpretation of the contract." Order (doc. # 23) at 8. The

statement referenced the dispute raised by Counts 7 through 9 over

the interpretation of the non-exclusivity and non-solicitation

clauses of the May 28, 2004 agreement. See id. (citing Mot. (doc.

# 13) at 4). Although the non-exclusivity and non-solicitation

clauses have been repeatedly discussed as bases for arbitration in

Defendants' motion to compel arbitration (doc. # 13) as well as

their response (doc. # 27) to Plaintiffs' currently pending motion,

Plaintiffs have consistently ignored these arguments in both sets

of briefings (doc. ## 17, 29).

To clarify, the Court finds that the allegations of Counts 7

through 9 by necessity require interpretation of the parties'

relationship as defined in the May 28, 2004 agreement. Plaintiffs'

claims for unfair competition (Count 7), interference with contract

(Count 8), and interference with prospective business advantage

(Count 9) are all premised on Defendants' allegedly "unlawful" and

"improper" conduct. Compl. (doc. # 1) ¶¶ 28, 69, 73, 78.

The focus on the release clause in the arbitration proceedings

to date would seem to suggest that the May 28, 2004 agreement was

primarily an agreement relating to the parties' past conduct. It

is important to recall, however, that the agreement also served to

define the parties' business relationships going forward-- as

between themselves as well as among third parties such as the art

galleries. See Mot. (doc. # 25), Ex. 1 at 1 ("The parties agree

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continue [sic] to transact business together under the following

terms and conditions for a period of ONE YEAR."). Because AMG and

Life Formations took the care to define the nature of their

business relationships in the non-exclusivity and non-solicitation

clauses of their agreement, id. at 1-2, the allegations of

Defendants' "unlawful" and "improper" conduct underlying Counts 7

through 9 can only be evaluated by looking first to the operative

terms of the May 28, 2004 agreement.

The arbitration proceedings to date have examined the release

clause, but have not yet dealt with the non-exclusivity and nonsolicitation clauses. Therefore, the fact that the release clause

was found not to extinguish the claims in Counts 7 through 9 is

immaterial to their arbitrability. The arbitration hearing on the

merits of Counts 7 through 9 should proceed as scheduled.

B. Arbitrability of Count 10

The release clause was the sole basis argued by Defendants and

accepted by the Court for referring the conversion claim in Count

10 to arbitration. See Mot. (doc. # 13) at 4 ("The conversion

claim . . . turns in large part on conduct that occurred before the

parties signed the Settlement Agreement . . . ."); Order (doc. #

23) at 8 ("[R]uling on the conversion claim will necessitate

interpreting the release clause of the contract.").

On February 9, 2006, the arbitrator found the release clause

to extinguish only that portion of the conversion claim referred to

by Plaintiffs as the "art crate" claim. See Mot. (doc. # 25), Ex.

2 at 2; Compl. (doc. # 1) at 26-27, 82-85. Because no other issues

of contract interpretation were asserted as bases for compelling

arbitration of Count 10, the Court would be inclined to remove the

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reference to arbitration as to the remainder of Plaintiffs'

conversion claim. However, the discovery deadline has not yet

closed and it is not clear whether the balance of discovery will

produce any additional claims that the arbitrator would find barred

by the release clause. Although it may well be that the "art

crate" claim is the only portion of Count 10 that will be found to

have been released, the Court is reluctant to remove the reference

until the arbitrator has had an opportunity to interpret and apply

the release clause in light of all claims ultimately presented.

Therefore, Count 10 will remain under reference to arbitration

only for the limited purpose of determining to what extent

Plaintiffs' conversion claim was released by the May 28, 2004

agreement. The arbitrator's decision in this regard, made in

consideration of any conversion claims asserted after the close of

discovery, will be treated by the Court as the law of the case on

the issue of release.

Beyond the interpretation of the release clause, no portion of

Plaintiffs' conversion claim (Count 10) may proceed to an

arbitration hearing on the merits.

IV. MOTION TO STAY ARBITRATION HEARING

Contemplating the possibility that their motion to remove the

reference of Counts 7 through 10 to arbitration (doc. # 25) could

be rendered moot if not ruled upon prior to the commencement of the

arbitration hearings, Plaintiffs have requested an order staying

those hearings as to Counts 7 through 10. Mot. (doc. # 26) at 2-3. 

Because this contingency has not arisen, the motion to stay the

arbitration hearings is denied and dismissed as moot.

IT IS THEREFORE ORDERED that Plaintiffs' Motion to Reassume

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Jurisdiction Over Counts 7 Through 10 of the Civil Complaint as

Against Entity Defendant (doc. # 25) is construed as a motion to

remove the reference of those claims to arbitration and is DENIED. 

Those claims will remain under reference to arbitration pursuant to

9 U.S.C. § 4 in accordance with this order. This action will

remain stayed pending the outcome of arbitration in accordance with

the order (doc. # 23) issued on March 21, 2005.

IT IS FURTHER ORDERED that Plaintiffs' Motion to Stay

Arbitration Hearing on Merits of Counts 7 Through 10 as Against

Entity Defendant (doc. # 26) is DENIED and dismissed as moot.

DATED this 25th day of April, 2006.

Copies to counsel of record

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