Court Opinion

ID: 2981780
Source: CourtListenerOpinion
Date Created: 2015-09-22 19:50:16.74864+00
Date Added: 2024-06-11T15:44:37.888785
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                               File Name: 13a0313n.06

                                            No. 12-1008                                 FILED
                                                                                     Mar 28, 2013
                            UNITED STATES COURT OF APPEALS
                                                                                DEBORAH S. HUNT, Clerk
                                 FOR THE SIXTH CIRCUIT

DENTAL ASSOCIATES, P.C., d/b/a
REDWOOD DENTAL GROUP

          Plaintiff-Appellee,
                                                                   ON APPEAL FROM THE
v.                                                                 UNITED STATES DISTRICT
                                                                   COURT FOR THE EASTERN
AMERICAN DENTAL PARTNERS OF                                        DISTRICT OF MICHIGAN
MICHIGAN, LLC and AMERICAN DENTAL
PARTNERS, INC.

          Defendants-Appellants.

                                                              /

Before:          CLAY, COOK, and ROTH,* Circuit Judges.

          JANE R. ROTH, Circuit Judge.

          American Dental Partners of Michigan, LLC, (ADPM) and American Dental Partners, Inc.,

(ADPI) (collectively, ADP) appeal the district court’s denial of their motion to dismiss and compel

arbitration. For the following reasons, we will affirm the district court’s order.

I. BACKGROUND

          Dental Associates P.C. (Associates) is a professional corporation owned by a number of

dentists who are licensed to practice dentistry in Michigan. Associates employs approximately

twenty dentists in the Detroit metropolitan area. ADPI provides assets, personnel, and non-clinical

*
 The Honorable Jane R. Roth, Senior Circuit Judge for the United States Court of Appeals for the
Third Circuit, sitting by designation.
No. 12-1008
Dental Associates v. American Dental Partners, et al
Page 2

services to dentists throughout the United States. On May 1, 2003, ADPI’s wholly-owned

subsidiary, ADPM, entered into the following agreements with Associates: (1) an Asset Purchase

Agreement (APA) through which ADPI purchased a large portion of the assets used in the operation

of Associates’ dental practices, and (2) a Service Agreement under which ADPM provided

administrative and other non-clinical services to Associates. As required under the Service

Agreement, Associates also entered into Employment Agreements with Drs. Bouchillon, Woehrlen,

and Yoffee, dentists employed by Associates. ADPM and ADPI are not parties to the Employment

Agreements but are referred to as third-party beneficiaries.

       The APA and Employment Agreements both contain arbitration clauses in their “Remedies”

sections requiring that “all disagreements and controversies arising with respect to this Agreement

. . . be settled by binding arbitration.” The Service Agreement, however, does not contain a similar

arbitration clause in its “Remedies” section; rather, the Service Agreement mentions arbitration only

with respect to the negotiation of a new compensation arrangement should “regulatory matters”

require changes to the existing compensation arrangement.

       The APA and the Service Agreement both contain the following integration clause that

incorporates the other agreements by reference: “[t]his document (including its exhibits and all other

documents referred to herein, all of which are incorporated herein by reference) contains the entire

agreement . . ..” The Employment Agreements do not incorporate the other agreements by

reference. Rather, each Employment Agreement explicitly states: “[t]his Agreement contains the

entire agreement between the parties and supersedes all other agreements and understandings

between the Parties with respect to the subject matter of the Agreement.”
No. 12-1008
Dental Associates v. American Dental Partners, et al
Page 3

       Associates brought this action against ADP alleging claims of breach of fiduciary duty,

breach of contract, tortious interference with contract and/or prospective economic advantage, and

unjust enrichment. ADP filed a motion to dismiss and compel arbitration, arguing that the dispute

should be arbitrated under the arbitration clauses of the APA and Employment Agreements. The

district court denied the motion on December 9, 2011, finding that the parties’ dispute could be

resolved without reference to the APA or the Employment Agreements and therefore was not subject

to arbitration. ADP appealed.

II. DISCUSSION1

       We review a district court’s denial of a motion to dismiss and compel arbitration de novo.

Nestle Waters N. Am., Inc. v. Bollman, 505 F.3d 498, 501–02 (6th Cir. 2007).

       Under the Federal Arbitration Act, arbitration clauses in commercial contracts “shall be

valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the

revocation of any contract.” 9 U.S.C. § 2. “[Q]uestions of arbitrability must be addressed with a

healthy regard for the federal policy favoring arbitration.” Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985) (quoting Moses H. Cone Mem. Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 24 (1983)); see also Mazera v. Varsity Ford Mgmt. Servs., 565 F.3d 997,

1001 (6th Cir. 2009) (recognizing a “strong policy preference in favor of arbitration”).

       However, “a court may order arbitration of a particular dispute only where the court is

satisfied that the parties agreed to arbitrate that dispute.” Granite Rock Co. v. Int’l Bhd. of

Teamsters, --- U.S. —, 130 S. Ct. 2847, 2856 (2010). Specifically, a court must find that “a valid

1
 The district court had subject matter jurisdiction over this action under 28 U.S.C. § 1332, and we
have appellate jurisdiction under 9 U.S.C. § 16(a).
No. 12-1008
Dental Associates v. American Dental Partners, et al
Page 4

agreement to arbitrate exists between the parties and that the specific dispute falls within the

substantive scope of that agreement.” Watson Wyatt & Co. v. SBC Holdings, Inc., 513 F.3d 646,

649 (6th Cir. 2008) (citations and internal quotation marks omitted). A dispute falls outside the

scope of an agreement if the “action could be maintained without reference to the contract or

relationship at issue.” Fazio v. Lehman Bros., Inc., 340 F.3d 386, 395 (6th Cir. 2003). Where there

are multiple contracts between the parties, “this court has adopted a more narrow test of arbitrability,

examining which agreement determines the scope of the contested obligations” and has “rejected

the view that a dispute is arbitrable merely because it touches on matters covered by the arbitration

clause.” Nestle Waters N. Am., Inc. v. Bollman, 505 F.3d 498, 504 (6th Cir. 2007) (citations and

internal quotation marks omitted).

        Here, the district court correctly held that the dispute is not arbitrable. On appeal, ADP

argues that the district court erred in denying its motion to dismiss and compel arbitration because

the claims are arbitrable pursuant to the APA and the Employment Agreements. We will affirm the

district court’s order because (1) the claims arise under the Service Agreement and thus are not

arbitrable pursuant to the APA or the Employment Agreements and (2) the parties did not intend to

arbitrate disputes arising under the Service Agreement.

        A. Claims Arise Under the Service Agreement

        The critical inquiry in determining whether a dispute falls under an arbitration clause is

whether the action can be maintained without reference to the agreement containing the arbitration

clause. Fazio, 340 F.3d at 395. Where there are multiple contracts between the parties, a dispute

is arbitrable pursuant to the arbitration clause in a related contract if “the arbitration clause is part

of the umbrella agreement governing the parties’ overall relationship.” Nestle Waters, 505 F.3d at
No. 12-1008
Dental Associates v. American Dental Partners, et al
Page 5

506; see also Panepucci v. Honigman Miller Schwartz & Cohn LLP, 281 F. App’x 482, 488 (6th Cir.

2008) (“We have held that an arbitration clause in a master or ‘umbrella’ agreement that creates an

ongoing relationship encompasses a dispute over the terms of a later contract that was entered into

as part of the relationship, even if the later contract itself lacks an arbitration clause.”) (citation

omitted). However, even in cases involving umbrella agreements, the key question is still whether

the action can be maintained without reference to the agreement containing the arbitration clause.

See Nestle Waters, 505 F.3d at 505 (citing Fazio, 340 F.3d at 395).

       ADP argues that the APA is an umbrella agreement governing the parties’ relationship and

thus that the dispute is arbitrable pursuant to the APA. To support this argument, ADP asserts that

the APA created the relationship between the parties and that the APA incorporates the Service

Agreement and Employment Agreements by reference. We agree with the district court that the

APA is not an umbrella agreement. The APA did not create the relationship between the parties;

rather, the APA only governs the one-time purchase and transfer of assets, and the Service

Agreement defines the ongoing business relationship between the parties. Additionally, the fact that

the APA incorporates the Service Agreement and Employment Agreements by reference is not

dispositive because the Service Agreement also incorporates the APA and Employment Agreements

by reference. Based on this evidence, we conclude that the APA is not an umbrella agreement.

       Moreover, this dispute can be maintained without reference to the APA. Associates’ claim

of breach of fiduciary duty arises under the Service Agreement: the Service Agreement created the

fiduciary duty by making ADPM an agent and granting ADPM power of attorney to act as

Associates’ attorney-in-fact regarding Associates’ finances. Associates’ breach of contract claim
No. 12-1008
Dental Associates v. American Dental Partners, et al
Page 6

also relates solely to the breach of the Service Agreement. Furthermore, the Service Agreement

contains its own section of definitions and can be interpreted without reference to the APA.

          ADP, however, points to three portions of the complaint that it believes require reference to

the APA. They do not. The first appears in the factual background section and does not relate to

Associates’ grounds for relief. The other two instances concern Associates’ request for the court

to oversee the transition process upon the termination of the Service Agreement and its request for

a constructive trust and accounting. ADP argues that the district court would have to refer to the

APA in overseeing the transition process and ordering an accounting. However, what is at issue

here is the termination of and an accounting under the Service Agreement, not the APA. For these

reasons, under the Fazio standard, this dispute is outside the scope of the APA and its arbitration

clause.

          This dispute also can be maintained without reference to the Employment Agreements and

thus is not arbitrable under the arbitration clauses in those agreements. The only mention of the

Employment Agreements in the complaint is in paragraph 45 of the factual background section,

which states: “[d]efendants . . . have indicated an intent that, regardless of whether [Associates]

enforces the non-competes, ADP of Michigan can enforce the non-competes and thereby control the

practice of dentistry in violation of law and public policy.” This section of the complaint does not

relate to any of Associates’ grounds for relief; rather, the counts set forth in the complaint are based

solely on the Service Agreement. Thus, as the district court correctly found, the dispute at issue here

can be resolved without reference to the Employment Agreements.

          For these reasons, we conclude that the dispute arises under the Service Agreement and is

not arbitrable pursuant to the APA or the Employment Agreements.
No. 12-1008
Dental Associates v. American Dental Partners, et al
Page 7

       B. Intent of the Parties

       Additionally, we find that the parties did not intend to arbitrate disputes concerning the

Service Agreement. “Arbitration is strictly a matter of consent, . . . and thus is a way to resolve

those disputes—but only those disputes—that the parties have agreed to submit to arbitration.”

Granite Rock, 130 S. Ct. at 2857; see also Simon v. Pfizer, Inc., 398 F.3d 765, 775 (6th Cir. 2005)

(“[N]o matter how strong the federal policy favors arbitration, arbitration is a matter of consent

between the parties, and one cannot be required to submit to arbitration a dispute which it has not

agreed to submit to arbitration.”) (citation and internal quotation marks omitted).

       Here, the Service Agreement, unlike the APA and Employment Agreements, does not

contain a broad arbitration clause in its “Remedies” section; rather, the Service Agreement

contemplates arbitration only of disputes regarding the narrow issue of a new compensation

arrangement in the event of certain regulatory changes. If the parties intended to arbitrate all

disputes arising out of the Service Agreement, they could have easily included the same broad

arbitration provision in that agreement. See Alticor, Inc. v. National Union Fire Ins. Co., 411 F.3d
669, 672 (6th Cir. 2005) (holding that a dispute arising out of an insurance policy was not covered

by the arbitration provision in the parties’ separate premium payment agreement because if the party

“had intended to subject this dispute to the arbitration provision, it could easily, clearly and

unequivocally have done so, either by including an arbitration provision in the insurance policy

itself, or by adding to the above arbitration provision . . ..”). Although we rejected a similar

argument in Nestle Waters, where we found that a dispute arising out of a deed was covered under

the arbitration clause in the parties’ Purchase and Sale Agreement, which required execution of the
No. 12-1008
Dental Associates v. American Dental Partners, et al
Page 8

deed and other contracts, that case is distinguishable because a deed does not usually contain an

arbitration clause. 505 F.3d at 506–07. As the district court rightly held in this case, “[i]t cannot

be said that a Service Agreement is of the type that would not typically contain an arbitration

clause.” Dental Assocs., P.C. v. Am. Dental Partners of Mich., LLC, No. 11-cv-11624, 2011 WL
6122779, at *4 (E.D. Mich. Dec. 9, 2011).

        Moreover, the inclusion of a termination provision requiring final judicial resolution of

specific disputes, including whether ADPM has breached its fiduciary duty, in the Service

Agreement further indicates that the parties did not intend to arbitrate all disputes arising out of that

agreement.2 Likewise, the express limitation in the arbitration provisions in the APA and the

Employment Agreements to “disagreements and controversies arising with respect to this

Agreement” demonstrates that the parties intended these provisions to apply to the agreements in

which they appear and not the Service Agreement. Based on this evidence, we hold that the parties

did not intend to arbitrate disputes under the Service Agreement. Thus the dispute is not arbitrable.

III. CONCLUSION

2
  ADP asserts that this provision does not indicate an intent not to arbitrate disputes under the
Service Agreement because a court makes a “final determination” when it affirms an arbitration
award. ADP cites to a similar case between ADP and another dentistry practice in which the district
court held that a judicial confirmation of an arbitrator’s determination gave effect to a nearly
identical termination provision for support. Elias, Elliott, Lampasi, Fehn, Harris & Nguyen, a
Dental Practice, Inc. v. American Dental Partners of Cal., No. EDCV 11-1565-JST(ex), Slip Op.
at 7 (C.D. Cal. Nov. 28, 2011). The service agreement at issue in that case, however, contained an
arbitration clause like that in the instant APA and Employment Agreements. Thus, the court in Elias
held that “the reading that gives effect to both the Arbitration Clause and the Termination Provision
is that the Termination Provision contemplates a judicial confirmation of an arbitrator’s
determination that ADP of California breached its fiduciary duty to the Dental Practice.” Id. Here,
there is no competing arbitration provision in the Service Agreement. Thus, this termination
provision, in the absence of such an arbitration provision, does constitute further proof that the
parties contemplated judicial resolution of claims under the Service Agreement.
No. 12-1008
Dental Associates v. American Dental Partners, et al
Page 9

       For the foregoing reasons, we will affirm the district court’s order.