Opinion ID: 419680
Heading Depth: 2
Heading Rank: 2

Heading: Interpretation of the Arbitration Clause

Text: 22 A determination of the arbitrability of a dispute, like the interpretation of any contractual provision, is subject to de novo review. See In re Bubble Up Delaware, Inc., 684 F.2d 1259, 1264 (9th Cir.1982) (de novo standard for contractual interpretation); Drake Bakeries, Inc. v. Local 50, American Bakery & Confectionery Workers International, 370 U.S. 254, 256, 82 S.Ct. 1346, 1348, 8 L.Ed.2d 474, 476-77 (1962) (issue of arbitrability a question for the courts). 23 The district court's order followed Ssangyong's motion to stay brought pursuant to 9 U.S.C. Sec. 4, a section of the Federal Arbitration Act (Act), 9 U.S.C. Sec. 1 et seq. (1976). The district court correctly found that the written arbitration provision is part of a 'contract evidencing a transaction involving commerce' within the meaning of [9 U.S.C. Sec. 2 (1976) ]. An action brought under the Act is properly characterized as arising under the body of federal law regulating interstate commerce. See generally Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967); Grand Bahama Petroleum Co. v. Asiatic Petroleum Corp., 550 F.2d 1320 (2d Cir.1977). Federal law therefore applies to our determination of the scope of this arbitration agreement. 4 ATSA of California, Inc. v. Continental Insurance Co., 702 F.2d 172, 174-75 (9th Cir.1983); Tullis v. Kohlmeyer & Co., 551 F.2d 632, 638 n. 8 (5th Cir.1977); Zell v. Jacoby-Bender, Inc., 542 F.2d 34, 37 (7th Cir.1976).
24 The parties cite strong policies in support of their respective positions. Ssangyong argues that federal policy favors the enforcement of arbitration agreements, especially in international business transactions, citing Scherk v. Alberto-Culver Co., 417 U.S. 506, 516-17, 94 S.Ct. 2449, 2455-56, 41 L.Ed.2d 270, 279-80 (1974). MEI does not dispute the existence of such a federal policy, but counters by arguing that arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed to submit, quoting United Steel Workers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409, 1417 (1960). Both statements are sound, and are not at all unreconcilable. Ultimately, the issue of arbitrability is to be determined by the contract entered into by the parties. Drake Bakeries, 370 U.S. at 256, 82 S.Ct. at 1348, 8 L.Ed.2d at 476; accord West Coast Telephone Co. v. Local Union No. 77, International Brotherhood of Electrical Workers, 431 F.2d 1219, 1221 (9th Cir.1970). The task before this court remains one of contractual interpretation. 25
26 Ssangyong argues that the arbitration clause was designed to cover 'any' disputes between the parties. MEI argues that the phrase arising hereunder means arising under the contract itself and was not intended to cover matters or claims independent of the contract or collateral thereto. Neither side points to, and additional research has not uncovered, cases in this circuit which define arising hereunder in the context of an arbitration agreement. However, we are persuaded by a line of cases from the Second Circuit that MEI's interpretation is the more reasonable one. 5 27 We interpret arising hereunder as synonymous with arising under the Agreement. The phrase arising under has been called relatively narrow as arbitration clauses go. Sinva, Inc. v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 253 F.Supp. 359, 364 (S.D.N.Y.1966). In In re Kinoshita & Co., 287 F.2d 951, 953 (2d Cir.1961), Judge Medina concluded that when an arbitration clause refers to disputes or controversies 'under' or 'arising out of' the contract, arbitration is restricted to disputes and controversies relating to the interpretation of the contract and matters of performance. Judge Medina reasoned that the phrase arising under is narrower in scope than the phrase arising out of or relating to, the standard language recommended by the American Arbitration Association. Id. 28 In a recent case, a district court amplified Judge Medina's reasoning. In Michele Amoruso e Figli v. Fisheries Development Corp., 499 F.Supp. 1074, 1080 (S.D.N.Y.1980), the court discussed the Supreme Court's interpretation of an arbitration clause, noting that arising out of or relating to this agreement had been labelled a broad arbitration clause. Id. (quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 398, 87 S.Ct. 1801, 1803, 18 L.Ed.2d 1270, 1274 (1967)). The court went on to say that in the case before it, the clause is limited to differences or disputes 'arising out of this Agreement'; notably, it omits reference to disputes 'relating to' the agreements. The omission is significant in the Second Circuit. Michele Amoruso e Figli, 499 F.Supp. at 1080. 29 The omission should be significant in this circuit as well. The standard clause suggested in the U.S.--Korean Commercial Arbitration Agreement contains the phrase, out of or in relation to or in connection with this contract, or for the breach thereof. We have no difficulty finding that arising hereunder is intended to cover a much narrower scope of disputes, i.e., only those relating to the interpretation and performance of the contract itself.
30 In light of our interpretation of the arbitration clause in the Agreement, we must next decide whether the district court properly sent the issues raised by counts 1, 2 and 4 to arbitration. This entails examining MEI's complaint to determine the extent to which the counts against Ssangyong refer to disputes or controversies relating to the interpretation and performance of the contract itself. 31 Counts 1, 2 and 4, alleging breach of the Agreement and breach of the fiduciary duty created by the Agreement, clearly fall within the scope of the arbitration clause and are thus proper subjects for arbitration. However, counts 7, 8 and 9 appear to raise issues that are either primarily or wholly outside the scope of the arbitration clause. 32 Count 7 alleges that Ssangyong induced and conspired to induce breach of the Trac Agency Agreement, a separate and distinct contract. Ssangyong's alleged conduct appears to relate only peripherally to the MEI-Ssangyong Agreement, and could have been accomplished even if the Agreement did not exist. Count 7 therefore alleges activity and raises issues which are predominantly unrelated to the central conflict over the interpretation and performance of the Agreement. 33 Count 8 sets forth a claim in quantum meruit, which by its own terms rests on the theory that services were performed and accepted pursuant to an implied contract or quasi-contract. An action does not lie on an implied contract where there exists between the parties a valid express contract which covers the identical subject matter. Swanson v. Levy, 509 F.2d 859, 861 (9th Cir.1975). Thus, by definition, count 8 does not directly relate to the interpretation and performance of the Agreement itself. 34 Count 9 alleges that Ssangyong converted to its own use and benefit certain prequalification documents delivered by MEI. The Agreement provides only that each of the parties would bear his own costs at the prequalification stage. MEI's claim that Ssangyong misappropriated these documents appears to raise issues largely distinct from the central conflict over the interpretation and performance of the Agreement itself. 35 By sending the issues raised by counts 1, 2 and 4 to arbitration, the district court authorized the arbitrator, in accordance with the expressed intention of the parties, to decide those issues relating to the interpretation and performance of the Agreement. Counts 1, 2 and 4 appear to be completely arbitrable. By deciding those issues necessary to resolve counts 1, 2 and 4, the arbitrator might well decide issues which bear in some way on the court's ultimate disposition of counts 7, 8 and 9. Nothing in the district court's order, or in this opinion, would bar such a result. The arbitrator's award, if it clearly exceeds the scope of his authority by deciding a matter not within the ambit of the arbitration clause, will not be given effect by the court. See Los Angeles Paper Bag Co. v. Printing Specialities and Paper Products Union, 345 F.2d 757, 760 (9th Cir.1965); Lundgren v. Freeman, 307 F.2d 104, 109-10 (9th Cir.1962). See also Davis v. Chevy Chase Financial Ltd., 667 F.2d 160, 165 (D.C.Cir.1981). After the district court receives the results of the arbitration, it should proceed to adjudicate those issues which fall outside the scope of the arbitration clause. 36