PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

CARA'S NOTIONS, INCORPORATED,

d/b/a Cara's Hallmark,

Plaintiff-Appellee,

v. No. 97-1696

HALLMARK CARDS, INCORPORATED;

HALLMARK MARKETING CORPORATION,

Defendants-Appellants.

Appeal from the United States District Court

for the Western District of North Carolina, at Charlotte.

Robert D. Potter, Senior District Judge.

(CA-97-18-3-P)

Argued: January 28, 1998

Decided: March 31, 1998

Before MURNAGHAN, NIEMEYER, and MOTZ, Circuit Judges.

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Reversed by published opinion. Judge Murnaghan wrote the opinion,

in which Judge Niemeyer and Judge Motz joined.

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COUNSEL

ARGUED: Thomas Dean Myrick, SMITH, HELMS, MULLISS &

MOORE, L.L.P., Charlotte, North Carolina, for Appellants. Charles

Henry Rabon, Jr., KILPATRICK STOCKTON, L.L.P., Charlotte,

North Carolina, for Appellee. ON BRIEF: Jackson N. Steele, KILPATRICK STOCKTON, L.L.P., Charlotte, North Carolina, for

Appellee.
OPINION

MURNAGHAN, Circuit Judge:

Cara's Notions, Inc., operates two Hallmark stores. The first store

is the subject of a "Trademark License Agreement" between Hallmark

Cards, Inc., and Betty and Jerald Gibson, the owners and officers of

Cara's Notions. The second store is the subject of an "Account Agreement" between Hallmark Cards, Inc. and Hallmark Marketing Corporation (collectively "Hallmark"), and Cara's Notions, Inc., itself. We

are called upon in this case to determine whether a broad arbitration

clause in the Account Agreement mandates arbitration of a dispute

between Cara's Notions, as plaintiff, and Hallmark, as defendant,

regarding the first store.

The district court denied Hallmark's motion to compel arbitration

because there was no arbitration clause in the first contract. In so

doing, the district court failed to recognize that the parties to the two

contracts differ, neglected to consider the actual language of the arbitration clause when interpreting the contracts and declined to defer to

the strong federal policy favoring arbitration of disputes. We reverse.

I.

In 1984, Roberta Gibson was given permission by Hallmark to

become a Hallmark retailer. In November of 1984, Roberta Gibson

opened Cara's Hallmark Shop at Town Center Shopping Center in

Charlotte, North Carolina ("Store I").

In 1990, Betty Gibson and her husband Jerald Gibson ("the Gibsons"), bought Store I from Roberta Gibson. Hallmark approved the

Gibsons as the new owners of Store I. Hallmark Cards, Inc. signed a

"Trademark License Agreement" with the Gibsons ("Contract I").

Contract I provided that Betty and Jerald Gibson could use the "Hallmark" trademark without paying royalties and that the Gibsons would

abide by certain guidelines for the trademark use. The contract made

no mention of arbitration of any disputes.

At some point in the next few years, the Gibsons incorporated

Cara's Notions, Inc., the plaintiff. The Gibsons jointly owned Cara's

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Notions; Betty served as president and Jerald as secretary and treasurer. The record does not reflect when Cara's Notions was incorporated or whether there was any novation substituting Cara's Notions

for the Gibsons as parties to Contract I.

In 1994, the Gibsons wanted to purchase a second Hallmark shop,

in Concord, North Carolina ("Store II"). The Gibsons completed an

application on behalf of Cara's Notions, Inc. In May of 1994, Hallmark and Cara's Notions entered into a "Hallmark Account Agreement" ("Contract II"), permitting Cara's Notions to operate the second

Hallmark store in Concord. Contract II detailed Hallmark's and

Cara's Notions' responsibilities regarding the sale and display of

Hallmark products. Contract II also contained an arbitration clause

which provided:

Any controversy or claim arising out of or relating to this

Agreement, or the breach thereof, or any aspects of the relationship between Hallmark and Retailer,1 or the termination

thereof, shall be settled by binding arbitration under the

United States Arbitration Act in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award may be entered in any

court having jurisdiction thereof.

Since then Cara's Notions, Inc., has operated both Store I and Store

II.

In early 1995, the landlord at Store I notified the Gibsons that they

would have to move the store because a grocery store in the shopping

center intended to expand into its space. The Gibsons claim that Hallmark promised that it would help them find a new location for their

Store I. The Gibsons further claim that they suggested a new location

to Hallmark, in a shopping center called "The Village at University

Place." According to the Gibsons, Hallmark representatives inspected

the center and decided it was a favorable location for a Hallmark

store, but instead of helping the Gibsons get a lease at that location

as it had promised, Hallmark negotiated a lease at the Village at University Place for itself.

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1 The "Retailer" was defined as Cara's Notions, Inc.

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In December of 1996, Cara's Notions filed a complaint in state

court against Hallmark, alleging that Hallmark's taking of the new

location for itself breached the duty of good faith and fair dealing,

was an unfair and deceptive trade practice, usurped an opportunity of

the principal and was an illegal misrepresentation. Cara's Notions

sought actual and punitive damages against Hallmark. Hallmark

removed the case to federal court and moved to compel arbitration,

asserting that the arbitration agreement in Contract II covered this dispute between the parties.

Believing that matters regarding Store I were governed only by

Contract I and that matters regarding Store II were governed only by

Contract II, the district court denied the motion to compel arbitration.

The court held that "[b]ecause Contract I does not contain an arbitration clause, this matter regarding Store I is not subject to arbitration."

The district court held that the arbitration clause in Contract II did not

modify the relationship created by Contract I because it believed that

the first contract's merger clause required any modification to be "in

writing with a specific reference to Store I." It further held that the

arbitration clause in Contract II did not apply directly to matters

regarding Store I because "the boilerplate contract [II], in its introduction, specifically states that the contract is in reference to Store II,"

and because the merger clause in Contract II uses the singular term

"a Hallmark account" instead of a plural term such as "accounts," thus

"specifically limit[ing] its scope to Store II." Significantly, the district

court did not address the language of the arbitration clause itself in

denying its effect in this case.

Hallmark has appealed the dismissal of its Motion to Compel Arbitration and its Motion to Dismiss or in the Alternative to Stay Proceeding Pending Arbitration.

II.

A.

The Arbitration Act requires a federal court to grant a motion to

stay a proceeding pending the arbitration of "any issue referable to

arbitration under an agreement in writing for such arbitration." 9

U.S.C. § 3. Because the examination of the scope of an arbitration

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agreement is primarily a task of contract interpretation, we review a

district court's determination of the arbitrability of a dispute de novo.

See Summer Rain v. Donning Co./Publishers, Inc., 964 F.2d 1455,

1459-60 (4th Cir. 1992). However, "in applying general state-law

principles of contract interpretation to the interpretation of an arbitration agreement within the scope of the [Arbitration] Act, due regard

must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of

arbitration." Volt Info. Sciences, Inc. v. Board of Trustees of Leland

Stanford Jr. Univ., 489 U.S. 468, 475-76 (1989) (quoted in Summer

Rain, 964 F.2d at 1460).

B.

A straightforward examination of the two contracts reveals that the

district court erred in refusing to compel arbitration of this dispute.

The plaintiff in the case is Cara's Notions, not the Gibsons. The only

contract between Cara's Notions and Hallmark is Contract II, which

contains an extremely broad arbitration clause:"Any controversy or

claim arising out of or relating to . . . any aspects of the relationship

between Hallmark and Retailer . . . shall be settled by binding arbitration . . . ." The "Retailer" is defined in the contract as Cara's Notions.

The instant conflict certainly relates to an aspect of the relationship

between Hallmark and Cara's Notions. Therefore Contract II mandates arbitration of this dispute.

C.

The district court concluded otherwise, however. In defense of the

district court's decision, Cara's Notions asserts that Contract II was

intended to apply only to claims or controversies regarding Store II,

not those regarding Store I. Cara's Notions further asserts that the

instant conflict arose solely out of the relationship between Hallmark

and Store I, and therefore is governed by Contract I (which contains

no arbitration clause).2 Cara's Notions points out that a court may not

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2 This claim might not help Cara's Notions, however; because Cara's

Notions was not a party to Contract I, it may have no standing to pursue

the Gibsons' claim. The district court appears not to have noticed the dif-

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require a party to "submit to arbitration any dispute which he has not

agreed so to submit," AT&T Technologies, Inc. v. Communications

Workers of America, 475 U.S. 643, 648 (1986) (quoting United Steelworkers of America v. Warrior & Gulf Navigation Co. , 363 U.S. 574,

582 (1960)) (internal quotation marks omitted), and argues that

because Hallmark chose to deal with each of its stores separately and

assigned them each a different account number, it may not "bootstrap"

the requirement to arbitrate found in Contract II into the present dispute, arising from Contract I.

In determining "whether the arbitration clause in Contract II

applies to matters regarding Contract I," the district court exhaustively analyzed numerous parts of the two contracts, but did not

address the language of the arbitration clause itself. First the district

court analyzed the merger clause found in Contract I. That clause provides that:

This agreement supersedes all prior oral or written representations and constitutes the entire understanding between

Licensee and Hallmark with respect to the use of the HALLMARK trademark; [sic] in connection with licensee's operation of the shop and may be modified only in writing.

The district court claimed that this clause "specifically provide[s] that

any modification of the agreement concerning Store I must be in writing with a specific reference to Store I." Cara's Notions also argues

that Contract I "can only be modified in a writing making specific reference to that shop [Store I]." Those arguments are baseless. It is

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ference in parties between Contract I and Contract II. Perhaps it was

presented with some evidence of a novation, but no such evidence

appears in our record nor was either attorney at oral argument aware of

any such evidence.

To avoid a dismissal on this basis, the Plaintiff/Appellee's attorney

asserted at oral argument that at some point (he did not know when)

Cara's Notions obtained the license rights to Store I from the Gibsons.

On remand, the district court should first determine whether Cara's

Notions even has standing to assert the underlying claims before proceeding to the merits of the case.

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clear that Contract I can only be modified in writing, but Contract II

is in writing. Nothing in the merger clause or anywhere else in either

contract provides any support for the assertion that that writing must

specifically refer to Store I.

Second, the district court observed that the introduction to Contract

II specifically refers only to Store II. Contract II begins with a series

of "whereas" clauses, one of which identifies the location of the store

premises where Cara's Notions desired to open Store II. None mentions the location (or even existence) of Store I. This does suggest that

Contract II focuses on Store II. It does not mean, however, that no

term of Contract II can have altered the general relationship between

Cara's Notions and Hallmark. It is possible that, even though Contract

II focuses on Store II, the parties intended certain terms of the contract to apply to all of the dealings between the parties.

Third, the district court argued that the merger clause in Contract

II, by use of the singular term "account" instead of the plural term

"accounts," suggests that Contract II was only meant to apply to Store

II. The merger clause in Contract II provides:

This agreement supersedes all prior oral or written representations and constitutes the entire understanding between

Retailer and Hallmark with respect to Retailer's status as a

Hallmark Account and may only be modified by written

agreement of Hallmark and Retailer.

The district court concluded that the "reference to an account in the

singular, as opposed to the plural, can only mean that [Contract II]

referred to the specific account number that was the subject of the

contract [Store II]." Had the parties intended the contract to apply to

both stores, the district court observed, they could have used the plural term "accounts."

It may be true that the use of the singular "account" further suggests that Contract II was focused on Store II. 3 On the other hand, the

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3 In fact, the very existence of a merger clause claiming that the agreement supersedes all earlier representations and constitutes the entire

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clause's reference to the "Retailer's status as a Hallmark account"

could have been meant to encompass the retailer's ownership of one

or many accounts. Of course, the merger clause could also have been

written to refer to the "Retailer's status as an owner of Hallmark

accounts." Such speculation does not get us very far.

Fourth, the district court noted that no one from Hallmark told the

Gibsons that Contract II would have anything to do with Store I, and

Cara's Notions argues that, partially for this reason, it would be unfair

now to hold that a conflict regarding Store I must be arbitrated. Betty

Gibson complained in her affidavit that no one from Hallmark went

over with her any provisions of the forms that she and her husband

signed in order to be considered as a Hallmark retailer in Store II. No

one from Hallmark attempted to point out any differences between

these forms and the earlier forms they had signed regarding Store I

or ever stated that the forms were intended to affect any part of the

relationship between the Gibsons and Hallmark regarding the first

store.

We are unmoved. The Gibsons are sophisticated business people

and Cara's Notions, Inc., dealt with Hallmark at arm's length. Both

parties to such a commercial contract have a duty to read the contract

carefully and are presumed to understand it.4 See Sanger v. Yellow

Cab Co., 486 S.W.2d 477, 481 (Mo. 1972) (en banc); Harris v.

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understanding between the retailer and Hallmark can be understood as

supporting the district court's view that Contract II was not intended to

refer to both stores, but only to refer to Store II. After all, neither party

believes that Contract II abrogated Contract I, which would be the logical

conclusion if Contract II's merger clause were given broad and literal

effect. However, the force of this argument is substantially undermined

by the fact that Contracts I and II were between different parties. It is

perfectly consistent to say that Contract II represents the entire understanding between Hallmark and Cara's Notions and that Contract I represents the entire understanding between Hallmark and the Gibsons.

4 The very last line of Contract II before the signatures read, in all capital letters, "THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES

(PARA. 10)."

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Bingham, 97 S.E.2d 453, 454 (N.C. 1957).5 A corporation desirous of

running multiple businesses ought to consult with an attorney if its

president and secretary/treasurer cannot understand the contracts into

which it intends to enter. Unsurprisingly, Cara's Notions cites no

legal authority for the proposition that a corporation may avoid its

contractual obligations if it misunderstood them or did not read them

carefully enough.6

The arguments made by Cara's Notions and by the district court to

support the judgment that the underlying claim need not be submitted

to arbitration suffer from one common flaw: none of them addresses

the language of the arbitration clause itself. That language was conspicuously noted and is very broad. The arbitration clause in Contract

II applies to "[a]ny controversy or claim" relating to "any aspects of

the relationship" between Hallmark and Cara's Notions. We will not

interpret the phrase "any aspects of the relationship" to mean "only

those aspects involving one store." The breadth of the language

clearly establishes that the arbitration clause was intended to apply to

all conflicts between the parties and not only to conflicts regarding

Contract II in particular. Cf. CB Commercial Real Estate Group, Inc.

v. Equity Partnerships Corp., 917 S.W.2d 641, 646 (Mo. Ct. App.

1996) ("When the language is unambiguous, the intent of the parties

is reflected within the language of the contract and the court will

determine the parties' intent from the four corners of the document

itself."); Walton v. City of Raleigh, 467 S.E.2d 410, 411 (N.C. 1996)

(same). Because the parties to Contract II are the litigants, the arbitration clause in Contract II applies to this suit between those parties.

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5 The contracts specify that they are to be interpreted in accordance

with Missouri law, where Hallmark Cards, Inc., is incorporated. The

stores are located, and Cara's Notions is incorporated, in North Carolina.

Because the applicable contract law is the same under either Missouri or

North Carolina law, we need not decide which state's law must be

applied to this case.

6 Cara's Notions also argues that"Hallmark's present effort to creatively utilize the May 18, 1994 Hallmark Account Agreement [Contract

II] to avoid the requirement that the 1990 account agreement [Contract

I] for the University City store [Store I] can only be modified in writing

is barred by the parol evidence rule" and that there was no consideration

in Contract II to support an application of the arbitration clause to conflicts arising from Store I. Both arguments are meritless.

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D.

Finally, even if the arbitration clause had been ambiguous as to its

scope, our decision would be guided by the strong federal policy

favoring arbitrability, based on the Arbitration Act and repeatedly recognized by the Supreme Court and this Circuit. In AT&T Technologies, Inc., the Supreme Court explained that presumption favoring

arbitrability in the context of a labor dispute:

Finally, it has been established that where the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that "[a]n order to arbitrate the particular

grievance should not be denied unless it may be said with

positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.

Doubts should be resolved in favor of coverage."

475 U.S. at 650 (quoting United Steelworkers of America v. Warrior

& Gulf Navigation Co., 363 U.S. 574, 582-83 (1960)).

This policy is not limited to labor contracts. In Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), the

Supreme Court explained that when determining whether parties have

agreed to arbitrate a dispute, a court is to apply the "federal substantive law of arbitrability, applicable to any arbitration agreement

within the coverage of the Act," id. at 626 (quoting Moses H. Cone

Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)) (internal quotation marks omitted). The Supreme Court explained that:

[T]hat body of law counsels "that questions of arbitrability

must be addressed with a healthy regard for the federal policy favoring arbitration. . . . The Arbitration Act establishes

that, as a matter of federal law, any 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."

Id. (quoting Moses H. Cone Mem'l Hosp. , 460 U.S. at 24-25) (omission in original). "Thus, as with any other contract, the parties' inten-

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tions control, but those intentions are generously construed as to

issues of arbitrability." Id.; Summer Rain v. Donning Co./Publishers,

Inc., 964 F.2d 1455, 1460 (4th Cir. 1992). These principles direct us

to order arbitration here.

III.

The Appellee, Cara's Notions, argues that its claims should not be

submitted to arbitration despite Mitsubishi's command. Cara's

Notions may have the luxury of disagreeing with the Supreme Court,

but that is a luxury denied to us. The district court should either have

dismissed the case for lack of standing or granted Hallmark's Motion

to Compel Arbitration and Motion for Stay of Proceeding Pending

Arbitration. The district court's decision otherwise is hereby reversed,

and the case is remanded for further proceedings not inconsistent with

this opinion.

REVERSED

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