Opinion ID: 1855835
Heading Depth: 1
Heading Rank: 6

Heading: Contractual Nexus

Text: After analyzing the governing principles surrounding the determination of whether a particular claim is subject to arbitration, and keeping in mind the general policy favoring arbitration, we believe it is fair to presume that not every dispute that arises between contracting parties should be subject to arbitration. As the prevailing case law illustrates, even in contracts containing broad arbitration provisions, the determination of whether a particular claim must be submitted to arbitration necessarily depends on the existence of some nexus between the dispute and the contract containing the arbitration clause. Disputes arise in many and varied contexts and the mere coincidence that the parties in dispute have a contractual relationship will ordinarily not be enough to mandate arbitration of the dispute. In other words, the mere fact that the dispute would not have arisen but for the existence of the contract and consequent relationship between the parties is insufficient by itself to transform a dispute into one arising out of or relating to the agreement. See Armada Coal Export, Inc. v. Interbulk, Ltd., 726 F.2d 1566, 1568 (11th Cir.1984); Necchi S. p. A. v. Necchi Sewing Machine Sales Corp., 348 F.2d 693, 698 (2d Cir. 1965); Hersman, Inc. v. Fleming Cos., Inc., 19 F.Supp.2d 1282, 1287 (M.D.Ala. 1998), aff'd, 180 F.3d 271 (11th Cir.1999). These cases hold that for a tort claim to be considered arising out of or relating to an agreement, it must, at a minimum, raise some issue the resolution of which requires reference to or construction of some portion of the contract itself. See Hersman, 19 F.Supp.2d at 1286-87; see also Koullas v. Ramsey, 683 So.2d 415, 417 (Ala.1996); Dusold v. Porta-John Corp., 167 Ariz. 358, 807 P.2d 526, 530 (Ct.App.1990). In Hersman, for example, the plaintiff, Hersman, Inc. (Hersman), owned and operated a Piggly Wiggly Supermarket. Acting upon representations by representatives of Fleming Companies, Inc. (Fleming), a wholesale supplier for Hersman, Hersman agreed to build a new store and shopping center if Fleming provided its expertise and oversight for the project. Based on Fleming's representations, Hersman contracted with an architect for the services to the shopping center development project. The standard contract provided the general duties and obligations between the owner (Hersman) and the architect. The contract also provided that Fleming, rather than Hersman, would pay the total contract amount of $27,000. All parties, including Fleming and Hersman, signed the contract. In addition to the above, the contract also contained an arbitration clause whereby claims, disputes or other matters in question between the parties to this Agreement arising out of or relating to this Agreement or breach thereof shall be subject to ... arbitration. Hersman subsequently filed a complaint against Fleming alleging acts of negligence and misrepresentation by Fleming concerning Hersman's shopping center project. The district court denied Fleming's motion to compel arbitration, holding that the tort claims were not subject to arbitration. The court reasoned that [t]he key element in determining whether tort claims are subject to an arbitration provision is the relationship between the claims asserted and the underlying contractual obligations. 19 F.Supp.2d at 1285. After considering the contractual relationship between the parties, the court found that none of Hersman's claims against Fleming implicated Fleming's duties under the contract. Indeed, the complaint did not even refer to the contract. Accordingly, the court concluded that because Hersman did not need to inquire into the architect's contract to prove its claims, and the claims did not depend on the relationship between Fleming and Hersman as set out in the contract with the architect, the tort claims against Fleming existed wholly apart from that contract and thus were not subject to its arbitration clause. Id. at 1286. Similarly, in a setting more akin to that involved herein, the Arizona Court of Appeals in Dusold v. Porta-John Corp., 167 Ariz. 358, 807 P.2d 526 (Ct.App.1990), held that certain tort claims were not subject to arbitration, and explained: The question whether a tort claim arising between parties who have a contractual relationship requiring that a claim arising out of or relating to an agreement or a breach of an agreement be subjected to arbitration is not without difficulty.... . . . . ... [T]he better-reasoned cases start with the premise that, in order for the dispute to be characterized as arising out of or related to the subject matter of the contract, and thus subject to arbitration, it must, at the very least, raise some issue the resolution of which requires a reference to or construction of some portion of the contract itself. [ Old Dutch Farms, Inc. v. Milk Drivers & Dairy Employees Local Union No. 584, 359 F.2d 598 (2d Cir.1966) ]. The relationship between the dispute and the contract is not satisfied simply because the dispute would not have arisen absent the existence of a contract between the parties. Armada Coal Export, Inc. v. Interbulk, Ltd., 726 F.2d 1566 (11th Cir. 1984). See also McMahon v. RMS Electronics, Inc., 618 F.Supp. 189 (S.D.N.Y. 1985) (where tort claim does not require an interpretation of the underlying contract, no arbitration of that claim is required); Popper [v. Monroe ], 673 F.Supp. 1228] at 1228 [S.D.N.Y.1987] (if defamatory statements have no material relationship to contractual relationship, no arbitration required). If such a connection to the contract is not present, tort claims between the parties could not reasonably be intended to have been subject to arbitration within the meaning of an arbitration clause requiring this method of resolution only for claims arising out of or related to the contract. ... If the contract places the parties in a unique relationship that creates new duties not otherwise imposed by law, then a dispute regarding a breach of a contractually-imposed duty is one that arises from the contract. Barmat [v. John and Jane Doe Partners A-D ], 155 Ariz. [519] at 523, 747 P.2d [1218] at 1222 [1989]. Analogously, such a claim would be one arising from the contract terms and therefore subject to arbitration where the contract required it. If, on the other hand, the duty alleged to be breached is one imposed by law in recognition of public policy and is generally owed to others besides the contracting parties, then a dispute regarding such a breach is not one arising from the contract, but sounds in tort. Id. Therefore, a contractually-imposed arbitration requirement... would not apply to such a claim. Dusold, 807 P.2d at 529-31 (emphasis supplied).