Opinion ID: 758402
Heading Depth: 2
Heading Rank: 2

Heading: Existence and scope of an agreement to arbitrate

Text: 38 The district court determined that the arbitration clause in the Manufacturing Agreement no longer held any force or effect in the face of the Settlement Agreement. The court relied on two rationales, first that the mutual release clause in the Settlement Agreement exonerated Riley from any duty with respect to binding arbitration of disputes arising out of or relating to the Manufacturing Agreement, and second that the merger clause in the Settlement Agreement canceled the arbitration provisions of the Manufacturing Agreement. We disagree on both issues. 39 Under the federal common law of arbitrability, an arbitration provision in a contract is presumed to survive the expiration of that contract unless there is some express or implied evidence that the parties intend to override this presumption: In short, where the dispute is over a provision of the expired agreement, the presumptions favoring arbitrability must be negated expressly or by clear implication. Nolde Bros., Inc. v. Local No. 358, Bakery & Confectionery Workers Union, 430 U.S. 243, 255, 97 S.Ct. 1067, 51 L.Ed.2d 300 (1977). Thus, when a dispute arises under an expired contract that contained a broad arbitration provision, courts must presume that the parties intended to arbitrate their dispute. This is so even if the facts of the dispute occurred after the contract expired. See id. (holding that claims for severance pay by workers who were discharged after their collective bargaining agreement expired were subject to the continuing force of the prior arbitration clause). The presumption in favor of continuing arbitrability, however, disappears in either of two situations: first, if the parties express or clearly imply an intent to repudiate post-expiration arbitrability, and second, if the dispute cannot be said to arise under the previous contract. See id. at 254-55, 97 S.Ct. 1067; United Food & Commercial Workers Int'l Union v. Gold Star Sausage Co., 897 F.2d 1022, 1026 (10th Cir.1990); see also Primex Int'l Corp. v. Wal-Mart Stores, Inc., 89 N.Y.2d 594, 657 N.Y.S.2d 385, 679 N.E.2d 624, 626 (1997) (holding that commercial disputes relating to two expired contracts were arbitrable, but any portion of the disputes relating to the last contract between the parties, which lacked an arbitration clause, was not arbitrable). In United Food, we defined the concept of whether a dispute arises under a previous contract as follows: a dispute must either involve rights which to some degree have vested or accrued during the life of the contract and merely ripened after termination, or relate to events which have occurred at least in part while the agreement was still in effect. United Food, 897 F.2d at 1024-25 (quotation omitted). 40 The lesson we take from these cases is that absent some evidence that Riley and Anchor Glass intended to revoke the arbitration clause in their Manufacturing Agreement, that agreement to arbitrate disputes continues to exist and to apply to certain disputes between Anchor Glass and Riley. However, the arbitration clause in the Manufacturing Agreement only applies to disputes that arise under that Manufacturing Agreement and its successor agreements. The obligation to arbitrate cannot apply to claims or defenses that relate to matters that do not arise under the Manufacturing Agreement. With this understanding in mind, we now turn to the evidence that Riley and the district court found demonstrates an intent to revoke the arbitration clause in the Manufacturing Agreement.A. Effect of the 1995 mutual release clause 41 The core rationale for the district court's decision was its conclusion that the mutual release clause in the Settlement Agreement eliminated all of Riley's duties under the Manufacturing Agreement. If this conclusion were correct, we would agree that the claims herein asserted could not arise under the Manufacturing Agreement and hence would not be arbitrable. However, the view that the Settlement Agreement terminated all of Riley's duties fails to account for the precisely limited nature of the release provisions in the Settlement Agreement. 42 After wading through the boilerplate in p 5.3 of the Settlement Agreement, it becomes clear that Anchor Glass released Riley from only five discrete matters, none of which included Riley's obligation under the Manufacturing Agreement to arbitrate matters which arise under the Manufacturing Agreement and are not settled in the Settlement Agreement. Thus, Riley was released from: 43 (1) Anchor's claims or defenses raised in Riley's first threatened copyright litigation in 1995; 44 (2) Anchor's claims upon Riley's indebtedness evidenced by the Manufacturing Agreement and the promissory note and security agreement executed contemporaneously thereto, which claims are described in p 3.2 of the Settlement Agreement; 6 45 (3) Anchor's claim for the unfilled portion of an order of approximately 5 million tumblers to be produced by Riley; 46 (4) Anchor's claim that Riley pay for advertising related to the Waukama order; and 47 (5) Anchor's claim for an allegedly short shipment of seconds delivered to Anchor by Riley at Columbus, Ohio. 48 In light of these limited releases, we conclude that p 5.3 of the Settlement Agreement does not destroy all of Anchor Glass' rights to demand arbitration for disputes with Riley. Instead, the specific releases in p 5.3 only go so far as to waive Anchor Glass' right to demand arbitration on the five topics explicitly listed (together, of course, with a waiver of Anchor Glass' underlying claim on the merits pertaining to those five topics, no matter what forum might be used to assert such rights). Thus, under the Settlement Agreement, Anchor Glass continues to possess the right to demand arbitration on disputes unrelated to the five topics listed in p 5.3. 49 B. Effect of the merger clause in the Settlement Agreement 50 Although we believe that the waiver and release provisions of p 5.3 leave untouched certain of Anchor Glass' claims and the right to demand arbitration on such claims, we must still address the district court's alternative conclusion that the merger clause in p 8.2 of the Settlement Agreement cancels, terminates and supersedes the entirety of the Manufacturing Agreement. However, on this point too, we conclude that the district court construed the Settlement Agreement too broadly. 51 Paragraph 8.2 in the Settlement Agreement reads as follows: This Agreement constitutes the entire agreement of the parties hereto and cancels, terminates and supersedes any and all prior representations and agreements relating to the subject matter hereof. Anchor Glass argued below that the subject matter of the Settlement Agreement was limited solely to Riley's threatened copyright suit. The district court characterized this argument as myopic, and we agree that the subject matter of the Settlement Agreement is not so severely limited. Indeed, if the subject matter of the Settlement Agreement related only to the copyright dispute, then there would have been no basis for releasing Riley's commercial debts or other specific claims listed in p 5.3 and discussed in the preceding section of this opinion. 52 On the other hand, we reject Riley's equally extreme position that the subject matter specified in p 8.2 is the entire business relationship between Riley and Anchor Glass, including the entire Manufacturing Agreement. If the Settlement Agreement had intended to extinguish the entire Manufacturing Agreement, it would be expected that it would have said so explicitly. But there is no such explicit statement in the Settlement Agreement. Indeed, if the Manufacturing Agreement were null and void as a result of the merger clause in the Settlement Agreement, Riley would have lost some very important protections provided to it by the Manufacturing Agreement. For example, § 18 of the Manufacturing Agreement specifies that Anchor Glass will not have the power to contest the validity or ownership of the Riley trademark during or after the term of this Agreement. This is a valuable right for Riley, and we think it unlikely that Riley intended to give up this right sub silentio when it listed other rights it was giving up with specificity in p 5.1. This is especially so when there are no references whatsoever to the trademark rights or the incontestability of Riley's marks in the Settlement Agreement. 53 Instead of Riley's contention that the Settlement Agreement superseded all of the Manufacturing Agreement, we conclude that the merger clause in the Settlement Agreement cancels only those provisions of the Manufacturing Agreement that related to the specific subject matter of the Settlement Agreement. Therefore, in order to determine the scope of the merger clause in p 8.2, we must identify the subject matter of the Settlement Agreement. 54 First, the initial whereas clauses of the Settlement Agreement make it clear that the subject matter of the Settlement Agreement includes the copyright litigation that Riley had threatened against Anchor Glass. However, it would not be accurate to say that the Settlement Agreement pertains to any and all copyright disputes between Riley and Anchor Glass, even future disputes. Rather, the copyright issues raised in the Settlement Agreement relate to Riley's infringement claims against Anchor Glass for four specific ornamental designs. The only other provision relating to copyright rights in the Settlement Agreement involves Anchor Glass' promise in p 2.6 to return to Riley all copies of the Riley-copyrighted designs that Anchor Glass had been using in its production of sun tea jars. This provision appears to touch, at least peripherally, on the language in the Manufacturing Agreement specifying that Riley will reacquire its copyright rights over its decorative designs when the Manufacturing Agreement expires. Thus, the subject matter of the Settlement Agreement appears to involve both the specific copyrighted designs at issue in Riley's first threatened lawsuit as well as Anchor Glass' continuing use of Riley's copyrighted designs. 55 Second, pp 2.4 and 2.5 of the Settlement Agreement also make very specific references to Anchor Glass' future use of Riley's injection molds. The Settlement Agreement spells out that Anchor Glass would be allowed to use Riley's injection molds for the 1995 season but would be expected to develop its own molds for the 1996 season. Furthermore, if Anchor Glass used Riley's molds in 1996, Anchor Glass would be required to pay Riley a royalty of 5 cents for each plastic part made from the molds. These provisions in the Settlement Agreement directly conflict with, and therefore supersede, the language in the termination clause of the Manufacturing Agreement, which specifies that Anchor shall not have the right to use ... Riley's injection molds. Thus, the subject matter of the 1995 contract also includes Anchor Glass' continuing use of Riley's injection molds. 56 Third, the Settlement Agreement in p 4.2 reestablishes a production-distribution relationship between Riley and Anchor Glass in which Anchor Glass guaranteed that it would order at least 43 truckloads of Riley's sun tea containers for both the 1996 and 1997 seasons. This portion of the Settlement Agreement also established a new pricing schedule for Riley's products. Thus, the subject matter of the Settlement Agreement also includes the essential business relationship between Riley and Anchor Glass for the 1996 and 1997 sun tea seasons. 57 Fourth, p 3.1 of the Settlement Agreement reallocates the financial relationship between Riley and Anchor Glass, with Anchor Glass agreeing to forgive Riley's debts under their prior contracts and to make additional payments to Riley. Thus, the subject matter of the 1995 contract includes how the parties intend to resolve their financial obligations stemming from the 1991 contract. 58 Finally, p 3.4 of the Settlement Agreement includes a mutual promise from the parties that they will refrain from unlawful economic reprisals or retribution against each other. The contract does not specify what is meant by reprisal and retribution. Nevertheless, this provision makes clear that the subject matter of the 1995 contract included how the parties henceforth were to deal with each other. 59 The merger clause in the Settlement Agreement revoked the prior right of the parties to demand arbitration on these specific topics. 7 However, nowhere does the Settlement Agreement affect the right of the parties to demand arbitration on topics unrelated to the enumerated subject matter of the Settlement Agreement. The parties also continue to retain a right to demand arbitration on any legal defenses that arise solely from the provisions of the Manufacturing Agreement and not released by the Settlement Agreement. 60 C. Anchor Glass' limited right to demand arbitration 61 In light of our discussion above on the subject matter of the Settlement Agreement, we conclude that Anchor Glass retains a limited right to demand arbitration on those claims in Riley's federal lawsuit that arise under the Manufacturing Agreement but which are not addressed in the Settlement Agreement. With some of Riley's claims, we have no hesitation in resolving whether or not they are subject to arbitration. Others of Riley's claims, however, are not so clear and we cannot discern with confidence whether they either arise under the Manufacturing Agreement or are addressed in the Settlement Agreement, and thus are removed from the arbitration provision. As a result, we must remand this case to the district court for further proceedings to determine whether there is any implicit evidence in the record indicating that these claims relate to the 1995 contract. 62 For example, as for Riley's copyright claim in Count I of the suit, there can be no question that this claim is not subject to arbitration. Riley's pleadings indicate that this claim involves three of the four copyrighted designs that were the subject of Anchor Glass' release in the 1995 Settlement Agreement. (Compare Aplt.App. at 18, p 52 with id. at 68 (First whereas clause).) As a result, Count I of Riley's suit clearly relates to the subject matter of the 1995 contract. The district court did not err in refusing to stay Riley's case pending arbitration of this claim. 63 On the other hand, it appears that at least a portion of Riley's breach of contract claim, (Anchor used Riley's molds as a template to make its molds in breach of the Manufacturing Agreement ..., see p 58 of the Complaint), may still be subject to arbitration since that claim, specifically limited to the Manufacturing Agreement, does not appear to have been released or otherwise affected by the Settlement Agreement. 64 As for Riley's other counts in this case, though, we have no way of determining from the record before us whether the factual support for these claims arises under the Manufacturing Agreement and whether they relate to the subject matter of the Settlement Agreement. The parties have not briefed which specific claims would be subject to arbitration in light of our interpretation of the subject matter of the Settlement Agreement. Thus, on remand, the district court should review Riley's pleadings and the positions of the parties to determine which of those claims in Riley's suit are related to the subject matter of the Settlement Agreement and therefore are not eligible for arbitration under the Manufacturing Agreement. In conducting this review, the district court must bear in mind the rule that any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. See Moses H. Cone, 460 U.S. at 24-25, 103 S.Ct. 927. 65 After conducting this review of Riley's claims, the district court also should make an additional determination of whether a resolution of Riley's arbitrable claims will have a preclusive effect on the nonarbitrable claims that remain subject to litigation. If there will be such a preclusive effect, especially if the arbitrable claims predominate over the nonarbitrable claims, then the district court should consider whether to stay the federal-court litigation of the nonarbitrable claims pending the arbitration outcome on the arbitrable claims. See Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 856 (2d Cir.1987) (holding that [b]road stay orders are particularly appropriate if the arbitrable claims predominate the lawsuit and the nonarbitrable claims are of questionable merit). On the other hand, the mere fact that piecemeal litigation results from the combination of arbitrable and nonarbitrable issues is not reason enough to stay Riley's entire case. See Coors Brewing Co. v. Molson Breweries, 51 F.3d 1511, 1517 (10th Cir.1995) (holding that litigation must proceed in a 'piecemeal' fashion if the parties intended that some matters, but not others, be arbitrated).