Opinion ID: 1907602
Heading Depth: 1
Heading Rank: 5

Heading: Did the parties enter into a valid arbitration agreement?

Text: ¶ 17. There is a dispute as to whether the arbitration agreement is valid because the language of the arbitration agreement does not foreclose or preclude litigation. Specifically, the arbitration clause in the APA states that [a]ny dispute under this agreement, prior to litigation, shall be submitted to arbitration in Hattiesburg, Mississippi, pursuant to the rules of the American Arbitration Association. (emphasis added). The chancery court denied the motion to compel arbitration because the court determined that the clause is not either expressly nor impliedly binding arbitration, it is not the kind of arbitration that precludes litigation, but rather seeks to apply only as a precursor to litigation. ¶ 18. This type of arbitration clause presents an issue of first impression for this Court. However, several other states and circuits have dealt with arbitration clauses similar to the one in the case sub judice. The Superior Court of Connecticut views such arbitration clauses as condition precedents to judicial action. Hartford Acc. & Indem. Co. v. Ace Am. Reins. Co., 2003 WL 22245421, at  5 (Conn.Super.Ct.2003). They went further and held that an agreement by the parties to arbitrate their disputes prior to seeking any judicial relief is binding and a court should not countenance the filing of a lawsuit if arbitration proceedings have not first been brought. Id. Whether an agreement makes arbitration a condition precedent to an action in court depends on the language of the arbitration clause. Id. (quoting Multi-Service Contractors, Inc. v. Town of Vernon, 181 Conn. 445, 447, 435 A.2d 983 (1980)). Connecticut, when faced with such a clause, dismisses the action so that the parties can pursue the resolution of their dispute through arbitration. Id. at  6. West Virginia also concludes that such clauses, if the language of the agreement makes arbitration a condition precedent to any right of action, must be complied with before any judicial suit can be maintained. Pettus v. Olga Coal Co., 137 W.Va. 492, 72 S.E.2d 881, 885-86 (1952). ¶ 19. In Colorado, the issue was whether such an arbitration clause called for a binding award or whether the award was non-binding when the parties subsequently filed a judicial suit. Ringwelski v. Pederson, 919 P.2d 957 (Colo.Ct.App.1996). The court there concluded that such a clause requiring arbitration as a condition precedent called for a binding arbitration award and that such award was a condition to any further `legal action' either to modify, correct, or vacate the award pursuant to the Uniform Arbitration Act of 1975. Id. at 959. The court reasoned that this interpretation of such a clause supports the public policy favoring the use of arbitration to resolve disputes. Id. The Colorado court went further and stated that our interpretation of the clause is also consistent with decisions of courts from other jurisdiction which have rejected claims that similar `condition precedent' language evidenced an intent for non-binding arbitration. Id. In determining that its interpretation was consistent with other courts, the court cited Kelleher v. Cersosimo, 2 Mass.App.Ct. 904, 320 N.E.2d 840 (1974), in which the Appeals Court of Massachusetts construed an arbitration clause similar to the one in their case. The Massachusetts court, in rejecting the argument that the arbitration award was non-binding, noted that the condition precedent language was a historical carryover from a time when arbitration agreements were viewed with disfavor as an attempt to oust courts of jurisdiction. Kelleher, 320 N.E.2d at 841. The Colorado court in Ringwelski held that the agreement provided for binding arbitration and that the trial court was precluded from addressing the merits of plaintiffs' complaint. 919 P.2d at 959. ¶ 20. Similarly, the Fourth Circuit dealt with the issue of whether the parties agreed to arbitration as a binding process, one that would bar litigation, or whether the agreement to arbitrate was simply a dispute settlement process that was a condition precedent to litigation. Rainwater v. Nat'l Home Ins. Co., 944 F.2d 190 (4th Cir.1991). It stated that this determination was critical because the Federal Arbitration Act provides that a court has jurisdiction to confirm an award only if the parties have agreed that the award is final. Id. at 192. That court concluded that reference to the American Arbitration Association rules is enough to make arbitration binding. Id. at 193. In coming to this conclusion, the Fourth Circuit cited Commonwealth Edison Co. v. Gulf Oil Corp., 541 F.2d 1263, 1272-73 (7th Cir.1976) and Varley v. Tarrytown Assocs., Inc., 477 F.2d 208, 210 (2d Cir.1973), which also held that if the clause makes reference to the American Arbitration Association rules then the arbitration is binding. 944 F.2d at 193. The Fourth Circuit held that the arbitration was final and binding. Id. at 194. ¶ 21. Likewise, the Fifth Circuit has also dealt with whether such an arbitration clause calls for binding arbitration. In McKee v. Home Buyers Warranty Corp., 45 F.3d 981, 983 (5th Cir.1995), the Fifth Circuit, citing the above mentioned circuits, also held that arbitration is binding where the rules under which the arbitration is conducted call for binding arbitration. In McKee, the court pointed out that it was undisputed that the agreement provided that the American Arbitration Association rules would govern if the dispute was submitted to arbitration. Id. at 983. The Fifth Circuit agreed with the Fourth Circuit's treatment of this issue in Rainwater. Id. at 984. In citing Rainwater, the Fifth Circuit concluded that such an arbitration clause does not undermine the binding nature of arbitration, but instead applies to the confirmation process permitted by 9 U.S.C. § 9. Id. The Fifth Circuit held that because the Kilpatricks submitted the dispute to arbitration under AAA rules that required binding arbitration unless the warranty provided for non-binding arbitration, and the warranty did not provide for non-binding arbitration, the district court was correct in determining that the arbitration was binding. Id. ¶ 22. Here, the arbitration clause specifically makes arbitration a condition precedent to any judicial action. Thus, this Court finds that the clause is valid and that no judicial action can be maintained until arbitration has been pursued. Furthermore, the arbitration clause in question also states that the dispute shall be submitted to arbitration pursuant to the rules of the American Arbitration Association. Pursuant to the above circuits, including the Fifth Circuit, this Court holds that arbitration is binding and final since the arbitration clause in question references the American Arbitration Association rules. Therefore, the arbitration clause in question is valid and binding on the parties. Is the parties' dispute within the scope of the arbitration agreement? ¶ 23. The ICA and the LA do not contain an arbitration clause but the APA does contain an arbitration clause. REP argues that because the LA and ICA do not contain an arbitration clause, any claims under those agreements are not subject to arbitration. ¶ 24. In Personal Security & Safety Systems, Inc. v. Motorola, Inc., 297 F.3d 388, 390-91 (5th Cir.2002), PSSI and Motorola executed three agreements in connection with their investment: a Stock Purchase Agreement, a Shareholders Agreement and a Product Development and License Agreement. The Product Development and License Agreement contained an arbitration clause, and the court held that the licensing agreement's arbitration provision governs claims arising out of the stock purchase agreement because the agreement were executed together as part of the same overall transaction and therefore are properly construed together. Id. at 390. Furthermore, in Neal v. Hardee's Food Systems, Inc., 918 F.2d 34, 36 (5th Cir.1990), Hardee's and Neal entered into a Purchase Agreement which expressly provided that Neal would contemporaneously enter into License Agreements with Hardee's. The License Agreements contained an arbitration clause, and Neal filed a complaint against Hardee's for claims arising under the Purchase Agreement, which did not contain an arbitration clause. Id. The court, however, held that [a]lthough the parties used multiple agreements to delineate their relationship, each agreement was dependant upon the entire transaction.... The individual agreements were integral and interrelated parts of the one deal. Id. ¶ 25. Likewise, in Russell v. Performance Toyota, Inc., 826 So.2d 719, 723 (Miss.2002), there were two contracts: a Retail Buyer's Order and a Purchaser's Agreement Concerning Trade In. The Retail Buyer's Order contained an arbitration clause, and Russell argued that since his claims concerned the other agreement, which did not have an arbitration clause, any claims that involved the trade in agreement were not subject to arbitration. Id. However, this Court noted that the Retail Buyer's Order specifically stated: The attached Purchaser's Agreement Concerning Trade In hereby is incorporated into this contract. Id. This Court affirmed the trial court's referral of the case to arbitration. Id. This Court again held in Sullivan v. Mounger, 882 So.2d 129, 134-35 (Miss.2004), that all of the individual agreements entered into were integral and interrelated parts of a single, global settlement transaction and as such all three documents were construed together. ¶ 26. Here, the APA specifically incorporates the LA and the ICA. The APA states that Purchaser will enter into an employment contract with the Sellers principal shareholder, Barry C. Doleac, the terms of which shall be incorporated herein and made a part of this agreement. Furthermore, the APA also stated that Purchaser agrees to lease from Seller that certain property and improvements thereon located at 6606 U.S. Highway 98 West, Hattiesburg, MS 39402, pursuant to that LA, the terms of which are incorporated herein and made a part of this agreement. The APA went even further and stated that [t]his agreement and the other agreements contemplated hereby set forth the entire understanding of the parties.... As was the case in Neal, Russell, and Sullivan, there is no question in the case sub judice that all the individual documents were integral and interrelated parts of a single transaction. The Court in Neal stated that under general principles of contract law, separate agreements executed contemporaneously by the same parties, for the same purposes, and as part of the same transaction, are to be construed together. Neal, 918 F.2d at 37. Since the three separate agreements were executed at the same time, by the same parties, as part of the same transaction, they are to be construed as one instrument. Furthermore, as was the case in Russell, the APA specifically incorporates the other two agreements. Therefore, the claims under all three agreements are subject to the arbitration clause contained in the APA. ¶ 27. REP also argues that the arbitration clause in question is narrow and does not include tort claims. However, when the scope of an arbitration clause is in question, the court should construe the clause in favor of arbitration because the FAA 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. City of Meridian, Miss. v. Algernon Blair, Inc., 721 F.2d 525, 527-28 (5th Cir.1983) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941-42, 74 L.Ed.2d 765 (1983)). REP's tort claims relate to the LA and whether Doleac had the right to lock REP out of the building and demand money under the APA in order to unlock the building. The arbitration clause specifically states any dispute under this agreement. Since the tort claims arise under the agreements and all three agreements are subject to the arbitration clause, all claims brought by REP are to be referred to arbitration pursuant to the arbitration clause.