United States Court of Appeals,

Eleventh Circuit.

No. 95-6271.

H.S. GREGORY, G.E. Benson, John C. Erber, Plaintiffs-Appellees,

v.

ELECTRO-MECHANICAL CORPORATION, a Virginia corporation,

Electrical Equipment, Inc., an Indiana corporation, DefendantsAppellants.

May 21, 1996.

Appeal from the United States District Court for the Northern

District of Alabama. (No. CV 94-L-3081-S), Seybourn H. Lynne,

Judge.

Before ANDERSON and COX, Circuit Judges, and RONEY, Senior Circuit

Judge.

RONEY, Senior Circuit Judge:

 The issue in this case is the meaning of the words "arising

hereunder" in the context of an arbitration provision contained in

a larger agreement.

Does that language only require the arbitration of breach of

contract claims, as the district court found, or does it require

the arbitration of other disputes that originate out of or have a

connection with that underlying agreement?

We hold that the agreement requires arbitration of all of the

claims asserted in the complaint in this case, and therefore

reverse the district court's decision restricting arbitration to

the breach of contract claims.

This dispute involves the sale of majority stock by the

plaintiff shareholders, the purchase price being based on the

income of the company for the five years following the closing.

The damage claim is based on the activities of the buyer in
 1

ARTICLE I RECITATIONS

ARTICLE II PURCHASE AND SALE OF SHARES 

ARTICLE III PURCHASE PRICE AND PAYMENT OF CERTAIN DEBT 

ARTICLE IV SHAREHOLDERS' REPRESENTATIONS AND WARRANTIES 

ARTICLE V THE BUYER'S REPRESENTATIONS AND WARRANTIES 

ARTICLE VI COVENANTS OF THE SHAREHOLDERS 

ARTICLE VII COVENANTS OF THE BUYER 

ARTICLE VIII CONDITIONS PRECEDENT TO BUYER'S

OBLIGATIONS 

ARTICLE IX CONDITIONS PRECEDENT TO SHAREHOLDERS'

OBLIGATIONS 

ARTICLE X CLOSING AND CLOSING DATE 

ARTICLE XI INDEMNIFICATION BY SHAREHOLDERS 

ARTICLE XII INDEMNIFICATION BY BUYER 

ARTICLE XIII BROKERAGE 

ARTICLE XIV MISCELLANEOUS 

connection with the generation of that income.

There is a detailed, 41-page Stock Purchase Agreement with

detailed headings as set forth below and seven Exhibits. 1

 The

agreement includes the following arbitration clause:

14.03 Arbitration. After the consummation of the purchase of the

Shares hereunder, any dispute between any of the Parties which

may arise hereunder or under any agreement referred to as an

exhibit herein, and which cannot be settled by mutual

agreement will be referred to arbitration under the Rules of

the American Arbitration Association. The place of

arbitration will be Bristol, Virginia, or such other place as

the parties to the arbitration may otherwise agree upon. The

arbitration award will be final and binding upon the parties

to such arbitration and may be entered in any court having

jurisdiction. The expense of such arbitration will be shared

equally by the parties thereto unless otherwise specified in

the award. Each such party will pay the fees and expenses so

its own witnesses and counsel.
Not referenced by the parties is the following paragraph that would

surely come into play as to issues concerning prior negotiations,

omissions, and representations:

1407. Final Writing. This writing and the documents

incorporated herein is intended by the Parties as the final

and binding expression of its contract and agreement and is a

complete and exclusive statement of the terms thereof, and

supercedes all prior negotiations, representations and

agreements. No representations, understandings or agreements

have been made or relied upon in making of this Agreement

other than those specifically set forth herein.

The plaintiffs argue that of the seven counts alleged in the

complaint, six are for causes of action other than breach of

contract, variously phrased in tort terms such as fraud, fraudulent

inducement, deceit, misrepresentation, conversion, breach of good

faith and fair dealing, and outrage. The issue is whether these

claims fall within the scope of the arbitration agreement.

 The law is clear that tort claims and claims other than

breach of contract are not automatically excluded from a

contractual arbitration clause. Mitsubishi Motors v. Soler

Chrysler-Plymouth, 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444

(1985) (claims arising under the Sherman Act held arbitrable);

Scherk v. Alberto-Culver Co., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.

270 (1974) (fraudulent representation of status of trademark sold

held arbitrable). Whether a claim falls within the scope of an

arbitration agreement turns on the factual allegations in the

complaint rather than the legal causes of action asserted. Sweet

Dreams Unlimited, Inc. v. Dial-A-Mattress Int'l, Ltd., 1 F.3d 639,

643 (7th Cir.1993) ("a party may not avoid a contractual

arbitration clause merely by casting its complaint in tort.")

(citation omitted); Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815
 2

(a) EMC would cause EEI to pay all debts that were properly

disclosed on EEI's balance sheet; (b) EMC would inject

sufficient funds into and cause EEI to repay Plaintiff Gregory

for the personal loans he had made to EEI because EEI's financial

strength was insufficient for it to repay that indebtedness on a

fixed repayment schedule; (c) EMC would operate EEI in the

utmost good faith and fairness in order to maximize EEI's profits

over the next five (5) years in order to share the maximum

profits possible with the selling shareholders whose payment for

their stock was contingent upon the profits of EEI; (d) EMC

would not increase EEI's general corporate overhead costs by more

than twenty percent (20%) without thirty (30) days prior written

notice to the selling shareholders so that the purchase price for

their stock which was based on profits to be earned by EEI over

the next five (5) years would not be diluted or lost altogether

F.2d 840, 846 (2d Cir.1987) ("If the allegations underlying the

claims "touch matters' covered by the sales agreements, then those

claims must be arbitrated, whatever the legal labels attached to

them.").

Although couched in various terms and theories of action,

every claim in this complaint targets the fact that the plaintiffs

did not receive the amount of money that they thought they should

have for their stock and that the defendant buyer caused that loss.

The structure of the complaint and the allegations of fact

reflect that these claims all arose under the agreement. There are

seven counts, and every count incorporates all of the facts alleged

in the count denominated as a breach of contract claim. Thus, the

complaint itself says that the facts constituting defaults under

the contract are a critical part of the so-called tort claims. If

the buyer had fully complied with the contract, as interpreted by

the plaintiffs, there would be no tort claims.

The plaintiffs' own analysis of the claims reflects that these

claims all arose under the contract. Their brief summarizes the

claims made as set forth in the footnote below.2

 It is apparent
by excessive overhead; (e) EMC would not transfer or relocate

EEI's products, product lines or assets to its other operating

companies and divisions without a full, fair and proper

accounting of such transfers which could otherwise cause the

purchase price to the selling shareholders of their stock of EEI

which was based on profits for the next five (5) years to be

diminished or lost altogether; and (f) EMC would not permit

intercompany transfers, charges and credits between EEI and EMC's

other operating companies to be handled in a manner so as to

depress the revenues and profits of EEI during the next five (5)

years which could result in a loss of the purchase price to be

paid to the selling shareholders of their stock in EEI. 

from reading these claims that the alleged misrepresentations

relate to what the EMC would do under the purchase contract. The

omissions counts allege largely that EMC failed to disclose that it

did not intend to comply with the contract. All of these claims

depend upon EMC's failure to fulfill its perceived obligations in

connection with the sale of stock.

We were told at oral argument that, although the district

court did not state the premise upon which its decision was made,

it relied upon an 11th Circuit case stressed by the plaintiffs to

support the view that only breach of contract claims are

arbitrable. Seaboard Coast Line R.R. v. Trailer Train Co., 690

F.2d 1343 (11th Cir.1982). In Seaboard, this Court affirmed a

denial of arbitration because there were two contracts, and the

dispute did not relate to the one with the arbitration clause. In

other words, if the parties performed the arbitrable contract

perfectly, fulfilling all expectations under that contract, there

would still be a cause of action for breach of the second contract

which was made after the arbitrable contract. Thus Seaboard does

not control this case.

The plaintiffs rely upon In re Kinoshita, 287 F.2d 951 (2d
Cir.1961). In that case, the Second Circuit dealt with an

arbitration clause requiring arbitration if "any dispute or

difference should arise under this agreement." The court, although

noting that "views more favorable to arbitration appear to be

making headway," 287 F.2d at 953, held that that language did not

include fraud in the inducement, apparently because the clause did

not include words such as "or relating to this contract" or "in

connection with" the agreement. As early as 1967, the Supreme

Court held that a claim of fraud that related to inducement of an

agreement generally is covered by an "arising out of or relating to

this agreement" arbitration clause. Prima Paint v. Flood & Conklin

Mfg., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967).

Yet, the Court in Scherk v. Alberto-Culver Co., 417 U.S. 506,

94 S.Ct. 2449, 41 L.Ed. 270 (1974), required no such additional

language to require arbitration of the kind of claims asserted

here. Scherk was a case regarding the purchase of three businesses

along with rights held by the enterprises to trademarks. The buyer

contended that the seller fraudulently misrepresented the status of

trademark rights. The Supreme Court held that arbitration was

required because the claim "arose out" of the contract.

To the extent that the cases binding on this Circuit may have

left Kinoshita intact, we now reject it simply as not being in

accord with present day notions of arbitration as a viable

alternative dispute resolution procedure. The Second Circuit

itself later recognized that the Kinoshita decision was

inconsistent with federal policy favoring arbitration but, although

obviously aware of the incorrectness of the decision, refused to
overrule the case only because lawyers in that circuit may have

"relied on the case in their formulation of an arbitration

provision." S.A. Mineracao Da Trindade-Samitri v. Utah Int'l, 745

F.2d 190, 194 (2d Cir.1984). Only the Ninth Circuit seems to have

followed the decision in Kinoshita. See Republic of Nicaragua v.

Standard Fruit Co., 937 F.2d 469, 479 (9th Cir.1991), cert. denied,

503 U.S. 919, 112 S.Ct. 1294, 117 L.Ed.2d 516 (1992);

Mediterranean Enterprises, Inc. v. Ssangyong Corp., 708 F.2d 1458,

1464 (9th Cir.1983).

Both the Seventh and Fifth Circuits have more willingly

followed the admonition of the Supreme Court that "[a]ny doubts

concerning the scope of arbitrable issues should be resolved in

favor of arbitration." Moses H. Cone Memorial Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d

765 (1983); Sweet Dreams Unlimited, 1 F.3d at 642; Mar-Len of

Louisiana, Inc. v. Parsons-Gilbane, 773 F.2d 633, 637 (5th

Cir.1985). See Seaboard Coast Line, 690 F.2d at 1348 ("This

federal policy requires that we construe arbitration clauses

generously, resolving all doubts in favor of arbitration.").

This Court has not drawn a distinction between the words

"arising under" and "arising out of." In Seaboard, the language

"[a]ny difference or dispute arising hereunder" was essentially the

same as in this contract. Id. at 1345. This Court said such an

"arbitration clause is broad" and went on to discuss cases with

language like "arising out of or in connection with," and "[a]ny

controversy or claim arising out of or relating to the breach"

without the careful distinctions in language which the plaintiffs
would have us make. Id. at 1349-50.

Judge Medina himself, the writing judge in Kinoshita, would

not have drawn a distinction. In dictum, he stated that he would

have limited the arbitration whether the agreement "refers to

disputes or controversies "under' or "arising out of' the

contract." In re Kinoshita & Co., 287 F.2d at 953. Interestingly,

later cases such as S.A. Mineracao fixed on the difference in the

terms, however, in order to avoid the Kinoshita result. See Sweet

Dreams Unlimited v. Dial-A-Mattress Int'l, 1 F.3d 639, 642 (7th

Cir.1993) ("We are not persuaded by Judge Medina's dicta in

Kinoshita that suggests an equation between "arising under' and

"arising out of.' "). The court had an "arising out of" contract,

required arbitration of rescission and other tort claims, and saw

no need to decide an "arising under" issue. The agreement did not

contain any other modifying words such as "in relation to" or "in

connection with."

Although the Court in Scherk v. Alberto-Culver Co., 417 U.S.

506, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974), had before it an

arbitration clause that referred to any controversy that "shall

arise out of this agreement or the breach thereof," the Court's

opinion seemed to use "arise out of" and "arise under"

interchangeably.

Because all of the claims alleged in the complaint fall within

the scope of the arbitration clause, this case is remanded to the

district court for entry of a stay of the proceedings pending

arbitration, and an order compelling arbitration, if that is deemed

appropriate by the court.
REVERSED and REMANDED.