Source: https://law.justia.com/cases/federal/appellate-courts/F3/299/657/521722/
Timestamp: 2019-09-19 04:16:16
Document Index: 562775216

Matched Legal Cases: ['§ 1327', '§ 1', '§ 15', '§ 15', 'art. 1', '§ 21', 'art. 1']

Michael H. Rosenblum, Plaintiff-appellant, v. Travelbyus.com Limited, a Foreign Corporation, Travelbyus Incorporated, a Foreign Corporation, and Bill Kerby, a Foreign Citizen, Defendants-appellees, 299 F.3d 657 (7th Cir. 2002) :: Justia
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Michael H. Rosenblum, Plaintiff-appellant, v. Travelbyus.com Limited, a Foreign Corporation, Travelbyus Incorporated, a Foreign Corporation, and Bill Kerby, a Foreign Citizen, Defendants-appellees, 299 F.3d 657 (7th Cir. 2002)
US Court of Appeals for the Seventh Circuit - 299 F.3d 657 (7th Cir. 2002)
COPYRIGHT MATERIAL OMITTED Kenneth J. Merlino (argued), Power, Rogers & Smith, Chicago, IL, for Plaintiff-Appellant.
Michael H. Rosenblum sold his travel publication business to Travelbyus.com in July 2000. Under the terms of an employment agreement executed at the time of the sale, Mr. Rosenblum continued to work at his former company. The agreement governing the sale required that a payment be made in December 2000. When that payment was not made, Mr. Rosenblum brought this action against Travelbyus.com, Ltd., Travelbyus.com, Inc. and Bill Kerby (collectively "Travelbyus")1 for breach of contract and fraud. The district court determined that this dispute was governed by an arbitration clause in the employment agreement and granted Travelbyus' Rule 12(b) (6) motion to dismiss. Mr. Rosenblum now appeals from that dismissal. He submits that the arbitration clause in the employment agreement does not govern this dispute because the disagreement arose solely under the acquisition agreement governing the purchase and sale of Mr. Rosenblum's business. For the reasons set forth in the following opinion, we reverse the judgment of the district court and remand this case for proceedings consistent with this opinion.
Mr. Rosenblum's complaint alleged that Travelbyus breached the Acquisition Agreement and engaged in a pattern of fraudulent conduct designed to acquire Muffin's business relationship with Mobile Media Entertainment. The Acquisition Agreement was attached to the complaint. Travelbyus responded with a Rule 12(b) (6) motion to dismiss the complaint for failure to state a claim upon which relief can be granted. Travelbyus attached the Employment Agreement to its motion and submitted that the Employment Agreement's arbitration clause barred Mr. Rosenblum's action. Travelbyus sought dismissal of the case or, in the alternative, a stay of proceedings pending the outcome of arbitration.
The district court granted Travelbyus' motion and dismissed the action. The court held that "the employment agreement is incorporated by reference into the acquisition agreement, the two agreements are clearly interrelated and are explicitly part of the `entire agreement.'" R.17, Dist. Ct. Op. at 1. The court further concluded that " [t]he arbitration provision here is a broad one: it covers all matters relating to the employment agreement." Id. Thus the court found that the dispute at issue here was covered by the arbitration provision and dismissed Mr. Rosenblum's complaint.
Mr. Rosenblum advances two interrelated procedural arguments that must be addressed before we consider the principal issue in this appeal. He contends that the district court erred in considering the Employment Agreement at all. He submits that, because the Employment Agreement was not referenced in his complaint, the court should not have considered it on a Rule 12(b) (6) motion. Mr. Rosenblum further contends that, once the district court decided to include the Employment Agreement in its deliberations, it should have converted Travelbyus' Rule 12(b) (6) motion to a motion for summary judgment. Had it done so, Mr. Rosenblum continues, the court should have denied the motion because of Travelbyus' failure to comply with Local Rule 56.1 and because Mr. Rosenblum's uncontested Rule 56.1 statement of facts created genuine issues for trial.
As a general rule, on a Rule 12(b) (6) motion, the court may consider only the plaintiff's complaint. Rule 10(c) provides, however, " [a] copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes." Fed. R. Civ. P. 10(c). This court's precedent makes clear that this rule includes a limited class of attachments to Rule 12(b) (6) motions. " [D]ocuments attached to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his claim. Such documents may be considered by a district court in ruling on the motion to dismiss." Wright v. Assoc. Ins. Cos. Inc., 29 F.3d 1244, 1248 (7th Cir. 1994). This exception is "aimed at cases interpreting, for example, a contract." Levenstein v. Salafsky, 164 F.3d 345, 347 (7th Cir. 1998). "The court is not bound to accept the pleader's allegations as to the effect of the exhibit, but can independently examine the document and form its own conclusions as to the proper construction and meaning to be given the material." 5 Wright & Miller, Federal Practice & Procedure: Civil 2d, § 1327 at 766 (1990).
Although Mr. Rosenblum did not refer explicitly to the Employment Agreement in his complaint, that agreement nevertheless falls within the exception. From Travelbyus' point of view, the contract under review is the combination of the Acquisition Agreement and the Employment Agreement. In moving to dismiss on the ground that the contract, read in this matter, requires that the parties resort to arbitration, Travelbyus is entitled to take the position that Mr. Rosenblum has appended only a part of the relevant instrument and to append what it contends is the remainder. It would have been impossible for the district court or for this court to evaluate the disagreement between the parties without having all of the documentation. It is impossible to render the necessary adjudication without reference to the Employment Agreement. See Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993).
We turn now to the central controversy in this appeal: whether the Employment Agreement's arbitration clause governs this action for breach of the Acquisition Agreement. The district court concluded that this arbitration clause did govern a dispute under the Acquisition Agreement and dismissed the case in favor of arbitration. Mr. Rosenblum submits that, although the Employment Agreement was a condition precedent to the Acquisition Agreement and the two agreements were executed on the same day, they cover different subject matter; neither agreement is incorporated into the other. Travelbyus, however, contends that the broad language of the Employment Agreement's arbitration clause, and the strong federal policy favoring arbitration, require that the district court's decision be affirmed. We review the district court's grant of a Rule 12(b) (6) motion de novo. See Help at Home, Inc. v. Med. Capital, L.L.C., 260 F.3d 748, 752 (7th Cir. 2001).
There is a strong federal policy favoring arbitration embodied in the Federal Arbitration Act. See 9 U.S.C. §§ 1 et seq.; Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625, 105 S. Ct. 3346, 87 L. Ed. 2d 444 (1985). Nevertheless, arbitration is a matter of contract between the relevant parties; no party can be required to arbitrate absent an agreement to do so. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1995). To determine whether a contract's arbitration clause applies to a given dispute, federal courts apply state-law principles of contract formation.2 See id. at 944, 115 S. Ct. 1920. The Supreme Court of Illinois has written recently that: "The parties to an agreement are bound to arbitrate only those issues they have agreed to arbitrate, as shown by the clear language of the agreement and their intentions expressed in that language. An arbitration agreement will not be extended by construction or implication." Salsitz v. Kreiss, 198 Ill. 2d 1, 260 Ill.Dec. 541, 761 N.E.2d 724, 731 (2001) (citations omitted).
The arbitration clause is contained in Section 15 of the Employment Agreement. That section provides two mechanisms for the resolution of disputes. Section 15(a) states, in part, that " [e]ither party may at any time notify the other party of an intention to discuss or dispute any matter connected with this Agreement. Within five days of receiving such notification, the parties shall each appoint a representative ... [who] shall meet within the following five days in an attempt to settle the matter at issue." R.12, Ex.B § 15(a). Section 15(b) describes the process of binding arbitration to which the parties must submit if the informal mediation of Section 15(a) fails. The scope of the arbitration clause is defined as well by Section 15: "Except for any matters for which this Agreement expressly provides otherwise, any matter in dispute under or relating to this Agreement shall, unless settled in the manner provided by subsection 15(a), be finally resolved by binding arbitration." R.12, Ex.B § 15.
Finally, we explore whether the Acquisition Agreement incorporates the Employment Agreement or its arbitration clause. "Generally, one instrument may incorporate another instrument by reference." Turner Constr. Co. v. Midwest Curtainwalls, Inc., 187 Ill.App.3d 417, 135 Ill.Dec. 14, 543 N.E.2d 249, 251 (1989). "The contract must show an intent to incorporate the other document and make it part of the contract itself." Id. "When determining under Illinois law whether something is incorporated into a contract, we limit our inquiry to the four corners of the contract." Atl. Mut. Ins. Co. v. Metron Eng'g & Constr. Co., 83 F.3d 897, 901 (7th Cir. 1996).
None of the three provisions relied upon by the district court incorporates the Employment Agreement by reference. There is no doubt that the Acquisition Agreement refers to the Employment Agreement, but there is no "intention to incorporate the document and make it a part of the contract" on the face of the Acquisition Agreement itself. Arneson v. Bd. of Tr., McKendree Coll., 210 Ill.App.3d 844, 155 Ill.Dec. 252, 569 N.E.2d 252, 256 (1991). Indeed, Article 1.4 is not an incorporation clause at all; rather, it is a merger clause.3 A merger clause does not incorporate other contracts by reference, rather, a merger clause negates the impact of earlier negotiations and contract drafts, and states that the written contract is the complete expression of the parties' agreement. See Bock, 257 F.3d at 707. " [T]he presence of a merger clause is strong evidence that the parties intended the writing to be the complete and exclusive agreement between them." L.S. Heath & Son, Inc. v. AT & T Info. Sys., Inc., 9 F.3d 561, 569 (7th Cir. 1993). A merger clause, in effect, assures the parties that their entire agreement is memorialized in the written contract, and permits either party to invoke the parol evidence rule to exclude evidence of additional contractual terms not included in the written agreement.4
By their terms, the contracts are governed by the laws of Canada and of the Province of Ontario See R.3, Ex.A art. 1.5; R.12, Ex.B § 21. Neither party has argued that Canadian or Ontario law differs materially from Illinois law on this issue, and both parties have argued Illinois law to the district court and on appeal. We therefore shall apply the law of Illinois. See Brunswick Leasing Corp. v. Wisc. Cent., Ltd., 136 F.3d 521, 525-26 (7th Cir. 1998).
See, e.g., Bock v. Computer Assocs. Int'l, 257 F.3d 700, 706-07 (7th Cir. 2001) (discussing the meaning and effect of a merger clause); ECHO, Inc. v. Whitson Co., Inc., 52 F.3d 702, 707 (7th Cir. 1995) (discussing purpose of merger clause); Betaco v. Cessna Aircraft Co., 32 F.3d 1126, 1132-33 (7th Cir. 1994) (same); Barille v. Sears Roebuck & Co., 289 Ill.App.3d 171, 224 Ill.Dec. 557, 682 N.E.2d 118, 122-23 (1997) (same); J & B Steel Contractors, Inc. v. C. Iber & Sons, Inc., 162 Ill. 2d 265, 205 Ill.Dec. 98, 642 N.E.2d 1215, 1220 (1994) (same).
Article 1.9 of the Acquisition Agreement does incorporate a series of schedules as "integral part [s]" of the Agreement, but that list does not include the Employment Agreement. R.3, Ex.A art. 1.9