Opinion ID: 176081
Heading Depth: 1
Heading Rank: 1

Heading: The ambiguity of the relevant language

Text: The problem posed by this case is how, after an arbitration between the parties has been initiated, to deal with a claim back by the respondent against the original claimant. In federal court, we call this type of claim a counterclaim. See Fed. R.Civ.P. 13. The parties advocate different solutions to the problem based upon different interpretations of the arbitration term in the contract: In case of failure to settle the mentioned disputes by means of negotiations they should be settled by means of arbitration at the defendant's side [site]. RAE Systems maintains that the word defendant refers to the initial respondent, the party against which the first claim is brought, such that any subsequent counterclaim can be brought in the same arbitration proceeding, even though that proceeding is not located at the site of the target of the counterclaim. Polimaster, on the other hand, contends that both the initial respondent and the counter-respondent are defendant[s] within the meaning of the contractual term, requiring the original respondent to initiate and pursue a separate arbitral proceeding at the site of the counter-respondent in order to pursue a counterclaim. The majority opinion accepts Polimaster's multiple-defendant, multiple-arbitration interpretation as the right one. It further decides that this interpretation is so clearly correct that the arbitration clause is not ambiguous. The majority does not satisfactorily explain, however, why RAE's alternative interpretation is not also a reasonable reading of the arbitration clause. [A] contract is ambiguous if reasonable people could find its terms susceptible to more than one interpretation. Doe 1 v. AOL LLC, 552 F.3d 1077, 1081 (9th Cir.2009) (internal quotation marks omitted). The arbitration clause is susceptible to more than one reasonable interpretation, as the arbitrator and the district court concluded. The language is ambiguous and should be recognized as such. The majority argues that its reading is the only reasonable one based on the notion that any party who defends against any dispute where another party seeks damages or some other form of relief against him is necessarily a defendant. Maj. op. at 837. But none of the sources the majority cites, at 838-39, establish as a matter of terminology that the term defendant must be used only as the majority supposes. [1] At least two of the cited sources actually support the opposite conclusion: that one might use the term defendant, especially with the definite article and without a preceding adjective, to distinguish the original defending party from the party initially on the offensive. For example, Moore's Federal Practice, upon which the majority relies, refers to the defendant in precisely this way. See Daniel Coquilette et al., eds., Moore's Federal Practice § 13.90[2] (3d ed. 2010) (especially the text following n. 9 and preceding n. 17) (using the plaintiff and the defendant to designate substantive sides in litigation, in contrast to the term defending party, which refers to either side whenever it defends against an affirmative claim). [2] The plaintiff, under this terminology, might later become a counterclaim defendant or a crossclaim defendant as well, but such additional designations, despite including the word defendant, would not transform that party into the defendant in the contemplated sensea shorthand for a particular side in the litigation. To the extent that any answer can be gleaned from the language used in the agreement, I think the language cuts slightly against the majority opinion's interpretation. Look carefully at the sentence in question: In case of failure to settle the mentioned disputes by means of negotiations they should be settled by means of arbitration at the defendant's side. The word disputes is plural, but the words defendant and side (or site) are singular. The parties anticipated that there could be multiple disagreements, yet the defendant's site refers to only one location. The arbitration clause does not say defendants' sites. Of course, I need not be as sure of this interpretation as the majority must be of its own, because I do not contend that only this reading is reasonable. To establish that the language is ambiguous, it is enough to demonstrate that a reasonable interpretation other than the majority's exists, and the language of the arbitration clause is more than adequate for that purpose. The reasoning provided by the arbitrator to support his conclusion that the existing arbitration should encompass counterclaims as well was logical. The arbitrator rejected the interpretation embraced by the majoritythat arbitration of a counterclaim must be conducted in a separate proceeding at the counter-respondent's sitebecause that would represent an inefficient way to resolve disputes. Parties contractually adopting arbitration as the method for resolving disputes commonly do so to achieve efficiency. It is logical to reason that such parties do not intend inefficient results. See Restatement (Second) of Contracts § 202(1) (1981) (Words and other conduct are interpreted in the light of all the circumstances.); id. cmt. b (The circumstances for this purpose include the entire situation, as it appeared to the parties.). In addition, the arbitrator recognized that it is not a novel or obscure practice to resolve all claims, including counterclaims, in a single proceeding that has already commenced. The arbitrator here specifically referenced the treatment of counterclaims in the Federal Rules of Civil Procedure, the California Rules of Civil Procedure, and the rules of the arbitration forum agreed upon by the parties, JAMS. The prosecution of counterclaims in the same proceeding is broadly recognized in international arbitration. Prominent international arbitration organizations address counterclaims explicitly in their rules. See, e.g., International Chamber of Commerce Rules of Arbitration art. 5; London Court of International Arbitration Rules art. 2.1(b); German Institute of Arbitration Rules § 10; United Nations Commission on International Trade Law Arbitration Rules art. 19. Considering the context in which the parties made their agreement does not improperly assume any conclusion or wrongly impute any particular motivation to the parties. It merely recognizes one good reason the parties may have intended to agree to something different from the interpretation of the arbitration clause that the majority espouses: because the majority's interpretation ignores both the common desire for efficiency and the widespread procedural practice of litigating counterclaims in the same proceeding. [3] Given this context, it is not so clear to me, let alone unambiguously clear from the words of the arbitration clause, that the parties agreed to require piecemeal litigation. The majority opinion does not persuasively explain why we should conclude that they did. The majority opinion's arguments are, in reality, circularthe arguments for its preferred reading of the arbitration clause assume the correctness of that reading. For example, the majority opinion asserts, at 16562, that the parties' clause was adequate to express their intent . . . to provide for separate arbitrations at the defendant's site. I agree that if the parties intended separate arbitrations at the sites of each defendant or counterclaim defendant, then that is how the agreement should be interpreted and applied. But the inference that the parties intended the interpretation favored by the majority rests on nothing other than the majority's own interpretation of the contractual language. Nothing else is cited by the majority opinion to support its assertion that the parties intended that result, nor is any persuasive explanation given to counter the reasoning of the arbitrator that reached a different conclusion. Similarly, the majority opinion asserts, at 16562, that this dissent rests on an assumption that counterclaims will be joined into an existing proceeding, and, at 16562, that the relevant language is clear because there was no reason to require the parties to include contractual language specifically defeating or negating the joinder of claims. But the parties obviously recognized the possibility of conflicting claims. The possibility of combining those claims into a single proceeding was by no means unknown. As noted above, that is the result suggested by both rules of courts and rules of international arbitration organizations. It is no less an assumption to conclude that, in the absence of a contractual agreement, multiple claims should be litigated piecemeal in separate arbitrations. In the end, the reasoning offered by the majority to demonstrate that the agreement unambiguously provided for piecemeal arbitrations rests on nothing more than the majority's own assumption that its interpretation of the arbitration clause is correct. In the face of contrary conclusions by the arbitrator, the district court, and this dissent, that is much too thin a reed to support the majority's conclusion that the relevant language is unambiguous.