Court Opinion

ID: 9497339
Source: CourtListenerOpinion
Date Created: 2023-08-05 16:49:04.147757+00
Date Added: 2024-06-11T17:58:08.425179
License: Public Domain

BOYCE F. MARTIN, JR., Circuit Judge,
dissenting.
This is not a simple case. At its core, it asks whether a state-court decision can trump the clear intent of the parties and bar access to a declaration of rights in federal court. Because I believe that Mas-co and Zurich did not agree to arbitrate this dispute, I respectfully dissent. When we compel arbitration, we should actualize the parties’ intent. I do not believe that is what the Court has done.
My principal difference with the Court, and the reason I cannot join the opinion, is that I believe the arbitration agreement, as applied to a dispute over uninsured/un-derinsured-motorist coverage, is not binding on the parties due to a mutual mistake. In other words, I believe the parties did not intend for this dispute to go arbitration. They did not intend for there to be uninsured/underinsured-motorist coverage at all.
The law is clear. “Before compelling an unwilling party to arbitrate, [a] court must engage in a limited review to determine whether the dispute is arbitrable; meaning that a valid agreement to arbitrate exists between the parties and the specific dispute falls within the substantive scope of that agreement.” Bratt Enters., Inc. v. Noble Intern., Ltd., 338 F.3d 609, 612 (6th Cir.2003). “An arbitration agreement may be invalidated for the same reasons for which any contract may be invalidated, including forgery, unconscionability, and lack of consideration.” Fazio v. Lehman Bros., Inc., 340 F.3d 386, 393 (6th Cir.2003). “ ‘[Ojrdinarily state-law principles that govern formation of contracts’ will apply to this analysis.” Id. at 394 (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)). One who challenges an arbitration clause must make an argument that is specific to the arbitration clause and does not challenge the contract as a whole. See Burden v. Check into Cash of Kentucky, LLC, 267 F.3d 483, 491 (6th Cir.2001).
There appears to be some dispute as to what state law governs the validity of the arbitration agreement. Zurich suggests that New York law applies. Masco is not willing to concede that New York law applies, but it does not offer a suggestion of what law applies, or which it would prefer to apply. The deductibles agreement contains a New York choice-of-law provision, and the District Court applied New York law. I need not reach the issue in my reasoning, however, as there is no conflict between Ohio and New York state law as to the relevant issue. Both Ohio and New York recognize that a defense of mutual *631mistake will generally support the rescission or reformation of a contract. See Reilley v. Richards, 69 Ohio St.3d 352, 352-53, 632 N.E.2d 507, 509 (1994), and Morris v. New York City Employees’ Ret. Sys., 129 F.Supp.2d 599, 605 (S.D.N.Y.2001).
Under Ohio law, a “mistake is material when it is a mistake as to a basic assumption on which the contract was made that has a material effect on the agreed upon exchange of promises.” R.J. Wildner Contracting Co., Inc. v. Ohio Tpk., 913 F.Supp. 1031, 1041 (N.D.Ohio 1996). “The mutual mistake must ... frustrate the intent of the parties.” Ibid. Similarly, “[kinder New York law a remedy for mistake is available only where a mistake of both parties at the time the contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performance.” Emergent Capital Inv. Mgmt., LLC v. Stonepath, 165 F.Supp.2d 615, 624 (S.D.N.Y.2001) (internal citations and quotations omitted). The mistake must speak “to the very nature of the subject sold ... for example, where what both parties believed to be barren cow turns out to be a calf.” Ibid.
I am convinced that under either Ohio law or New York law the parties’ mutual mistake as to their repudiation of uninsured/underinsured-motorist coverage was fundamental, and significantly affected their agreed upon exchange of promises. When Masco and Zurich agreed to arbitrate “any dispute” arising out of the deductibles agreement, they knew what the range of those disputes might be. They knew, because they had just negotiated the substantive terms of the contract. They both thought this contract was a barren cow, with uninsured/underinsured-motorist coverage expressly rejected, not a calf, with coverage aplenty. It is true that an Ohio Supreme Court case changed the coverage from a barren cow to a calf, but that does not change the nature of the mistake. Nor does it change the time of the mistake. The parties were mistaken as to a key fact — what was being sold — at the time they agreed to arbitrate “any dispute.” By submitting this case to arbitration, I believe the Court ignores a clear mutual mistake and judicially constructs intent to arbitrate when the facts at the time the parties signed the contract repudiate that construction.
Arbitration is a creature of consent. Inland Bulk Transfer v. Cummins Engine Co., 332 F.3d 1007, 1015 (2002). Consent, in turn, is a creature of intent. It is the parties’ intent and not ours that dictates whether a dispute should be arbitrated. See Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (2003). Here the parties were clear as to their intended coverage relationship, and derivatively clear, although in an implied way, as to the limited scope of the arbitration agreement. That the parties were mutually mistaken about the scope of their uninsured/underinsured-motorist coverage, or lack thereof, does not change their original limited intent as to arbitration. To do so by judicial fiat, it seems, would frustrate their original purpose.
Relatedly, I don’t find persuasive the Court’s reading of Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). See also Burden 267 F.3d at 491. The Prima Paint Court held that an argument that contests the applicability of an arbitration agreement must be specific to the arbitration agreement and not be a defense that invalidates the whole contract. Prima Paint, 388 U.S. at 404, 87 S.Ct. 1801. Stretched to an extreme, the Prima Paint Court’s instruction could bar a lower court from looking at the rest of a contract when analyzing the validity of an arbitration agreement. I do not believe *632that was the intent of the Prima Paint Court — especially in the context of a mutual-mistake defense. The reasons for not applying an arbitration agreement must be specific to the arbitration agreement, it is true, but the parties’ intent, as manifested in the whole agreement, certainly can inform our understanding of the parties’ intent as to the scope of the arbitration agreement. Here, Masco and Zurich’s specific exclusion of uninsured/underin-sured-motorist coverage from their limited relationship suggests that they did not intend their arbitration agreement to control claims based on uninsured/underinsured-motorist coverage, or had at least not expressly agreed to submit those claims to arbitration. It is our duty to give some effect to that repudiation.
My analysis is not premised on a question of forseeability. Instead, it gives effect to the parties’ contractual language. See Deputy v. Lehman Bros. Inc., 345 F.3d 494, 513 (7th Cir.2003). Put in abstract terms, arbitration agreements speak to the parties’ intent regarding how alleged breaches of duties are to be resolved. If, at the time they agree to arbitrate alleged breaches of duty A or B, parties to a contract expressly agree that there is no duty C, I believe it is a logical construction of the parties’ manifested intent not to arbitrate any later alleged breach of the expressly repudiated duty C.
The Court rejects my view, arguing that my understanding is a hidden ruling on the merits. I do not think it is. I concede, as I must, that Masco can, and likely will, assert a mutual-mistake defense in the substantive dispute. The facts alleged will be the same, but the legal analysis will be different. The arbitration analysis looks only at where the parties agreed to resolve a dispute. It is a question of contract law and contract interpretation. Unlike the Court, I suspect the resolution of the substantive issue will have very little to do with Ohio contract law. The parties expressly excluded uninsured/underinsured-motorist coverage from their contractual relationship. My hunch is that the parties will be tossing around arguments regarding: gratuitous payments, failure to join, implied indemnities, and the like. Consequently, the trier of the substantive issue will likely resolve a question of equity and fairness, not a question of contract law. Thus, I do not think my analysis is a ruling on the merits. The mutual mistake certainly defeats the claim that the parties should be compelled to resolve this dispute in arbitration, but it does not necessarily resolve the merits question. After reviewing the equities, the trier of the substantive issue may or may not find in favor of Zurich. Where to resolve the dispute and how to resolve the dispute are separate questions.1
I admit I am not without some sympathy for Zurich’s argument. The parties agreed that disputes arising out of the “interpretation, performance or alleged *633breach” of the deductibles agreement would be submitted to arbitration. The Court accepts this contention and believes this is a dispute about deductibles. I believe that view is too narrow. To reach the conclusion advanced, the Court has to read the deductibles agreement and the arbitration clause in a vacuum. This is actually a dispute about the deductibles agreement as it relates to uninsured/un-derinsured-motorist coverage — coverage that both parties thought at the time they agreed to arbitrate deductibles disputes had been expressly rejected. At best, Zurich can argue that the parties probably would have wanted to submit this type of claim to arbitration, but “probably” is not enough. Although there is a “liberal federal policy favoring arbitration agreements,” Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), and it is “a well established rule that any doubt regarding arbitrability should be resolved in favor of arbitration,” Fazio, 340 F.3d at 392, “[t]he duty to arbitrate a dispute derives from the parties’ agreement and a party cannot be required to submit to arbitration any dispute that the party has not agreed to submit.” Bratt Enters., 338 F.3d at 612. Evidence of what they might have done is different than evidence of what they did. That the arbitration agreement can be interpreted to cover Zurich’s claim is a product of both parties’ mistake, and by submitting this claim to arbitration, the Court extends the scope of the original agreement to an extent I do not believe the parties agreed to or intended.
Lastly, I disagree with the Court’s alternative holding that Masco waived the mutual-mistake argument. It is true that the Court in Rybarczyk v. TRW, Inc., 235 F.3d 975, 984 (6th Cir.2000), stated that “[failure to raise an issue on appeal would normally constitute a waiver.” But, in the very next sentence, the Court states: “[hjere, however, we have a pure question of law that cries out for resolution — and in such a situation we are not foreclosed from considering the issue.” Ibid.; see also Hutcherson v. Lauderdale Cty., 326 F.3d 747, 756 (6th Cir.2003) (holding an appellate court may reach legal issue not raised by the parties to affirm the lower court). While I think Masco sufficiently raised the mistake argument to survive a waiver challenge, even if it hadn’t, this is a purely legal issue that cries out for resolution.
I respectfully dissent.

. The Majority distinguishes Chastain v. The Robinson-Humphrey Co., Inc., 957 F.2d 851 (11th Cir.1992) in a footnote. I, in turn, disagree in a footnote. In the body of its opinion, the Majority argues that: "[t]he [Pri-ma Paint ] Court reasoned that a court may consider only claims considering the validity of the arbitration clause itself, as opposed to challenges to the validity of the contract as a whole, in determining whether a valid agreement exists.” Ante at 629. In Chastain, the Eleventh Circuit reasoned that the Supreme Court's holding in Prima Paint does not compel the arbitration of "a purported contract which indisputably lacks the formalities necessary to signal Chastain’s ex ante assent to the agreement as a whole.” Id. at 855. While I believe that Masco's mutual-mistake argument satisfies the Prima Paint doctrine, it is enough to note that the Eleventh Circuit believed that an argument, which potentially could invalidate the contract as a whole, could also defeat an attempt to compel arbitration. In essence, the question to ask is whether the purported invalidating cause can *633be asserted once or twice. If a party can only argue that the contract is invalid, then Prima Paint instructs that the case should be sent to arbitration. If the argument can be asserted twice — i.e., (1) the lack of a signature invalidates the arbitration clause, and (2) the lack of a signature also invalidates the contract as a whole — then Prima Paint’s separability doctrine is satisfied, and a district court is free to move on to hearing the merits of the case. I believe my argument is entirely consistent with this position. As I have explained, the mutual-mistake defense can be asserted twice.