Court Opinion

ID: 8682334
Source: CourtListenerOpinion
Date Created: 2022-11-25 05:51:33.138819+00
Date Added: 2024-06-11T16:57:31.377860
License: Public Domain

KAREN NELSON MOORE, Circuit Judge,
dissenting.
I disagree with the majority that the half-draw claim raised by Willacy was subject to arbitration. Although federal policy favors broad construction of a general arbitration clause, when the parties limit the scope of arbitration to a narrow set of issues, we are required to enforce the contract as written and exclude claims not contemplated by the agreement. Because I believe that Willacy’s half-draw claim is separate from the “method and de[ jtails of liquidating the partnership business,” I respectfully dissent.
In his motion to modify and correct the arbitral award or, in the alternative, vacate the award, Willacy argued that the arbitrator made material miscalculations, including by miscalculating the withheld half-draw payments. R. 27 (Mot. to Modify & Correct/Vacate at 13-15) (Page ID #364-66); Appellant’s Br. at 18. On appeal, Wil-lacy argues that the district court erred in denying this motion because the award “ignored unambiguous and clearly applicable specific terms of the parties’ partnership agreement.” Appellant’s Br. at 34-36.
When we apply the correct standard, it is clear that the issues addressed by the arbitrator exceeded the scope of the narrow arbitration clause. We review de novo a district court’s arbitrability decision. Simon v. Pfizer Inc., 398 F.3d 765, 772 (6th Cir. 2005). Although it is generally true that “[djoubts should be resolved in favor of coverage,” United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960), “the FAA’s presumption of arbitrability regarding the merits of a dispute does not apply with equal force to narrow arbitration agreements,” Turi v. Main St. Adoption Servs., LLP, 633 F.3d 496, 507 (6th Cir. 2011); see also Simon, 398 F.3d at 775 (“[a] longstanding principle of this Circuit is that no matter how strong the federal policy favors arbitration, ‘arbitration is a matter of contract between the parties, and one cannot be required to submit to arbitration a dispute which it has not agreed to submit to arbitration’”) (citation omitted). “The more narrow the arbitration clause in question, *479the more likely that the provision does not even ‘arguably’ apply to the dispute at issue.” Turi, 633 F.3d at 507.
We have distinguished between broad arbitration clauses that submit to arbitration “[a]ny controversy arising out of or relating to” an agreement, Fazio v. Lehman Bros., Inc., 340 F.3d 386, 392 (6th Cir. 2003), and narrow arbitration clauses that limit the scope of arbitration to a fixed set of issues. Simon, 398 F.3d at 775. In interpreting the former, the presumption favoring arbitration applies. Id. We have therefore recognized that when construing a general arbitration clause, “[a] proper method of analysis ... is to ask if an action could be maintained without reference to the contract or relationship at issue.” Fazio, 340 F.3d at 395.
In contrast, when interpreting a narrow arbitration clause, the fact that two claims have the same factual underpinnings is not dispositive. Simon, 398 F.3d at 776. We have therefore held narrow arbitration clauses inapplicable to claims that rely on different legal standards or require proof of additional elements even when the claims rely on the same set of facts. See, e.g., Turi, 633 F.3d at 511 (holding that plaintiffs’ state tort and RICO claims were not covered by an arbitration clause covering disputes “regarding fees”); Simon, 398 F.3d at 777 (holding that plaintiffs claims were not covered where the claims “require consideration of some factual issues that are subject to arbitration, but ... have independent legal bases,” including establishing “termination for gross misconduct” as opposed to “termination for Just Cause”). More importantly, under this strict approach, we may determine that a claim is beyond the scope of a narrow arbitration clause even when resolution of the claim requires reference to the arbitra-ble dispute. Bratt Enters., Inc. v. Noble Int’l Ltd., 338 F.3d 609, 613 (6th Cir. 2003).
Our holding in Bratt is particularly instructive. There we considered whether a claim regarding the liability limit in a business purchase agreement was covered by a narrow clause that subjected to arbitration “disagree[ments] with any of the amounts included in the Closing Balance Sheet.” Id. at 612. Plaintiff disputed its obligation to pay any amount exceeding the liability limit, and argued that this claim was related to a balance sheet dispute. We disagreed, and held that although the liability limit would have controlled the amount of recovery under the balance sheet, the dispute did “not itself involve a ‘disagree[ment] with any of the amounts included in the Closing Balance Sheet,’” and therefore was beyond the scope of the arbitration clause. Id. at 613. Contrary to the lead opinion’s assertion, our conclusion in Bratt did not depend upon two disputes that did not overlap. In holding that the arbitration clause did not cover the liability limit, we held that a strict and narrow reading was required even where the claim regarding the limit “would obviously require reference to the closing balance sheet to determine matters of valuation.” Id. Even where two claims relate, “[t]he federal policy that favors arbitration is not so broad that it compels the arbitration of issues beyond those agreed to by the parties.” Id.
Here, the partnership did not contain a general arbitration clause. The parties committed to arbitration only disputes about the “method and de[ jtails of liquidating the partnership business.” R. 28-2 (Law Partnership Agreement at 7) (Page ID #386). The half-draw claim is clearly outside the scope of this clause. The claim relates to a separate contractual arrangement regarding compensation of retiring partners, and relies on completely different legal standards that are in no way “substantially identical” to the question of how to liquidate a partnership. Simon, 398 *480F.3d at 776. Indeed, payment of half-draws contemplates the continued existence of the partnership, and is therefore clearly distinct from dissolution. As was the case in Bratt, resolution of the half-draw claim, though significant to liquidation, did not itself involve a determination of the method and details of liquidation. See Bratt, 338 F.3d at 613 (noting that the key inquiry underlying the liability limit related to mutual mistake, not the amount in the closing balance sheet). Moreover, the arbitration clause was contained in the specific section of the Partnership Agreement dealing with termination of the partnership. R. 28-2 (Law Partnership Agreement at 7) (Page ID #386). Separate sections dealing with the withdrawal of a partner, id. at 5-6 (Page ID #384-85), and subsequent amendments that provide for payment of half-draws, R. 1-i (2010 Amendment at 1-2) (Page ID #34-35), make no mention of arbitration. See Simon, 398 F.3d at 775-76 (noting that the scope of arbitration provisions is confined to the scope of the two sections that provide for arbitration).
Finally, the half-draw claim at issue here arose before dissolution. Appellant’s Br. at 27. The lead opinion argues that the time at which the claim arose is of no relevance, because “the partners had a zero-sum pot of partnership assets to distribute.” Under the strict analysis in Bratt, however, that determination is insufficient to end the inquiry. A dispute is not covered by an arbitration clause merely because its resolution bears directly on the arbitrable issue. Simon, 398 F.3d at 777. Nor can we construe that clause broadly in order to “avoid piecemeal litigation.” Id. Whether the half-draw claim affects the amount subject to liquidation is a separate matter. In construing a narrow arbitration clause, we must instead ask whether resolution of the claim at issue involves the object of the clause itself. Where, as here, resolution of the claim does not by itself involve consideration of the issues that were submitted to arbitration, the clause is not ambiguous, and cannot be interpreted to cover that claim. Because the half-draw claim is not a dispute about the “method and de[ ]tails of liquidating the partnership business,” resolution of that claim should not have been submitted to arbitration.
When parties agree to arbitrate only a limited set of issues, federal courts may not submit to arbitration disputes outside the scope of a narrow arbitration clause. Here, the arbitrator incorrectly resolved Willacy’s half-draw claim, which was not. a dispute about the “method and de[ ]tails of liquidating the partnership business.” R. 28-2 (Law Partnership Agreement at 7) (Page ID #386). Because I disagree that the half-draw claim was arbitrable, I respectfully dissent.