Court Opinion

ID: 18326
Source: CourtListenerOpinion
Date Created: 2010-04-25 07:13:26+00
Date Added: 2024-06-11T09:08:25.302564
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                       FOR THE FIFTH CIRCUIT

                          _____________________

                               No. 98-10815
                          _____________________

STINNETT ENTERPRISES, INC.,

                                                       Plaintiff-Appellee,

                                   versus

DRAGON TEXTILE MILLS, INC.,

                                             Defendant-Appellant.
_________________________________________________________________

      Appeal from the United States District Court for the
               Northern District of Texas, Lubbock
                          (5:98-CV-32-C)
_________________________________________________________________
                         August 13, 1999

Before JOLLY and SMITH, Circuit Judges, and STAGG,* District Judge.

E. GRADY JOLLY, Circuit Judge:**

     Stinnett Enterprises, Inc. (“Stinnett”) and Dragon Textile

Mills, Inc. (“Dragon”) entered into a contract under which Stinnett

would ship cotton to Dragon.       The parties failed to comply with the

agreement after the first shipment and Dragon sought to arbitrate

the dispute    pursuant   to   a   clause   in   the   contract   compelling

arbitration.   Stinnett filed a complaint seeking declaratory and

injunctive relief barring Dragon from arbitrating the dispute and

Dragon filed a motion to compel arbitration.            The district court

held that the arbitration clause was limited to disputes arising

    *
     District Judge of the Western District of Louisiana, sitting
by designation.
     **
      Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
out of the force majeure provision of the contract and granted a

preliminary injunction in Stinnett’s favor.        Because we find that

the arbitration clause does not unambiguously limit arbitration to

force majeure disputes, we reverse.

      Stinnett through its agent, P.T. Worldwide, Inc. (“P.T.”),

entered into a contract with Dragon under which Stinnett would

provide 800 metric tons of cotton to Dragon in three separate

shipments.    The contract, which was prepared by Stinnett, includes

the following sentence on the front of the one-page contract where

the specific terms of the agreement appear:

      Friendly or Liverpool arbitration Liverpool rules as
      mentioned under No. 8 of our general conditions.

The underlined words are typed in.        The other words are a part of

the   form   contract   that   embodies   the   specific   terms   of   the

agreement.    The general conditions, which are also part of the

form, were printed on the back of the one-page contract.           No. 8 of

the general conditions reads as follows:

      8. Force Majeure: Sellers are not liable for temporary
      delays caused by conditions beyond their control. Buyers
      agree to extend letters of credit upon request.

      Should fulfillment of this contract be rendered
      impossible in any part and/or in any respect by reason of
      acts of God, including but not limited to fires, floods,
      earthquakes or accidents, acts of war, blockades,
      embargo, strikes, riots, rebellions or other restraints
      of rulers or organized acts, or any other emergency
      beyond the control of the new buyer and seller, both
      parties shall decide by mutual agreement how the contract
      shall be fulfilled, or canceled at the market difference.
      In the event the parties are unable to arrive at a
      mutually satisfactory agreement, then the matter shall be
      referred to Arbitration.

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Stinnett apparently believed that the contract language limits

arbitration to disputes arising out the force majeure clause.

Dragon, on the other hand, apparently regarded the sentence on the

front of the contract as providing for arbitration of all disputes

arising out of the contract.

     After delivering its first shipment approximately three months

later   than    it   should,   Stinnett       refused    to   make    any   further

deliveries, claiming that Dragon had breached the contract. Dragon

sought to arbitrate the dispute in England, and Stinnett responded

by seeking injunctive relief in Texas state court.                    The case was

removed    to   federal   court    and       Stinnett    sought   a    preliminary

injunction.     The district court granted relief after holding an

evidentiary hearing.      Dragon filed a motion to stay or dismiss the

proceeding pending arbitration or, in the alternative, to compel

arbitration (“motion to compel arbitration”).                 The district court

denied the motion and Dragon filed a notice of interlocutory

appeal. The district court sua sponte stayed the proceedings below

pending appeal.

     We review the denial of a motion to compel arbitration de

novo. Webb v. Investacorp, Inc., 89 F.3d 252, 257 (5th Cir. 1996).

We review the district court’s determination of whether a contract

is ambiguous de novo, but, to the extent that determination rests

on extrinsic evidence of usage of trade, the issue may involve a

question   of   fact   requiring    review       under    a   clearly    erroneous

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standard. Bloom v. Hearst Entertainment, Inc., 33 F.3d 518, 522-23

(5th Cir. 1994).

     Dragon contends that the contract compels arbitration of all

disputes.      Dragon     further   contends   that,      even    if    the    more

restrictive reading of the contract urged by Stinnett is adopted,

the dispute at issue here should still be subject to arbitration.

Because we agree with Dragon that the arbitration clause compels

arbitration of all claims arising out of the contract, we do not

address Dragon’s second argument.

     Dragon argues that the contract provided for arbitration with

respect to all disputes arising out of the contract.               According to

Dragon, the term “Liverpool Arbitration” as used in the industry

implies that disputes in the contract will be resolved through

arbitration.    Stinnett argues that because the complete clause

reads    “Friendly   or   Liverpool    arbitration     Liverpool        rules      as

mentioned under No. 8 of our general conditions,” the contract

limits arbitration to disputes related to general provision No. 8--

the force majeure provision.          Dragon responds that the term “as

mentioned” means citing, noting or referring to No. 8.                 It does not

mean, “as restricted to the circumstances described in No. 8" or

“as limited by No. 8.”           At best, Dragon argues, the term is

ambiguous, in which case the term should be construed in Dragon’s

favor.

     We find that Dragon has the better argument.                Federal policy

favors    arbitration     and   “ambiguities   as    to   the     scope       of   an

                                      4
arbitration     clause    itself   must   be   resolved      in    favor   of

arbitration.”      Volt   Information     Sciences,   Inc.    v.   Board   of

Trustees, 489 U.S. 468, 476 (1989); see also Moses H. Cone Memorial

Hospital v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983) (issues

of contract language construction should be resolved in the favor

of arbitration).    Second, because Stinnett drafted the contract,

the language of the agreement is subject to “the common-law rule of

contract interpretation that a court should construe ambiguous

language against the interest of the party that drafted it.”

Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62-63

(1995).

     Although the parties could have intended the arbitration

clause on the front of the contract to be limited to the force

majeure provision, the placement of the clause (as a separate

clause from the force majeure provision) and the use of the term

“as mentioned” make the clause at least ambiguous.            We therefore

must accept Dragon’s reading of the clause.

     We admit that this reading is troublesome in that, if the

arbitration clause were meant to be applied to the entire contract,

there would appear to be no need for the additional verbiage “as

mentioned under No. 8 of our general conditions.”         It is horn-book

law that the terms of a contract should not be read in such a way

as to render them devoid of meaning.1       In this case, however, even

     1
      Section 203 of the Restatement 2d provides in part that:
     In the interpretation of a promise or agreement or a term
     thereof, the following standards of preference are

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if the words were utterly meaningless, our reading of the words “as

mentioned” does not lead to a meaningless term but instead renders

a phrase contained in one of the contract terms meaningless.

However, it is not implausible that the words mean that Liverpool

rules apply to arbitration under paragraph 8, as well as to the

agreement reflected in the specific terms that appear on the front

of the contract.

     Finally, we should point out that, if we interpreted the

clause as being limited to general provision No. 8, we would

effectively   be   rendering   the       term   “friendly”   redundant   or

meaningless inasmuch as provision No. 8 states that the parties may

by mutual agreement resolve any issues between them arising under

that provision.

     In short, we are confronted with an ambiguous clause.               We

therefore conclude that the arbitration clause should be read in

favor of requiring arbitration of all disputes arising out of the

contract.   On that basis, we reverse the district court’s ruling.

     For the foregoing reasons, the rulings and orders of the

district court are REVERSED and the case is REMANDED for further

proceedings not inconsistent with this opinion.

                                                   REVERSED and REMANDED.

     generally applicable:
     (a) an interpretation which gives a reasonable, lawful,
     and effective meaning to all the terms is preferred to an
     interpretation which leaves a part unreasonable,
     unlawful, or of no effect.

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