Court Opinion

ID: 3028837
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:41:37.50476+00
Date Added: 2024-06-11T11:48:01.187668
License: Public Domain

United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                    ___________

                                    No. 01-1998
                                    No. 01-2000
                                    ___________

Arkcom Digital Corporation,              *
                                         *
      Plaintiff - Appellant/             *
      Cross Appellee,                    *
                                         * Appeals from the United States
      v.                                 * District Court for the
                                         * Eastern District of Arkansas.
Xerox Corporation,                       *
                                         *
      Defendant - Appellee/              *
      Cross Appellant.                   *
                                    ___________

                               Submitted: December 12, 2001

                                   Filed: May 10, 2002
                                    ___________

Before LOKEN and BYE, Circuit Judges, and BOGUE,* District Judge.
                              ___________

LOKEN, Circuit Judge.

      After Xerox Corporation terminated Arkcom Digital Corporation as an
authorized Xerox service agent, Arkcom filed suit in Arkansas state court alleging
breach of contract and violations of the Arkansas Franchise Practices Act, Ark. Code

      *
       The HONORABLE ANDREW W. BOGUE, United States District Judge for
the District of South Dakota, sitting by designation.
Ann. §§ 4-72-201 et seq (AFPA). Xerox removed the action and moved to compel
arbitration. The district court1 granted the motion and dismissed Arkcom’s complaint
without prejudice. Arkcom appeals. We have jurisdiction to review a final order
compelling arbitration. See 9 U.S.C. § 16(a)(3). Our task is to review the district
court’s decision to determine “whether there is a valid agreement to arbitrate and
whether the specific dispute at issue falls within the substantive scope of that
agreement.” Larry’s United Super, Inc. v. Werries, 253 F.3d 1083, 1085 (8th Cir.
2001). We conclude the dispute is arbitrable. As that is the only issue properly
before us, we affirm without deciding other issues raised by the parties on appeal.

        The parties’ Authorized Service Agent Agreement (the “Agreement”) defined
“Covered Disputes” to include those “arising out of or related to the . . . termination
of this Agreement” and provided that “a Covered Dispute . . . will be decided through
arbitration.” The arbitration provision prohibited the arbitrator from awarding any
remedy barred by the Agreement’s Limitation on Liability provision:

             Neither party . . . shall have any liability to the other for (1) any
      punitive damages; or (2) any lost profits based upon a timeframe of
      more than six months (with “lost profits” to be defined as 10% of the
      total amount paid by Xerox under this Agreement for the 6 month period
      preceding the claim) . . . or any other indirect, special, exemplary,
      incidental, or consequential damages.

       Arkcom’s complaint alleged that the Agreement created a franchise
relationship and sought relief expressly authorized by the AFPA -- actual damages,
attorney’s fees, and costs of suit. See Ark. Code Ann. § 4-72-208. In opposing
Xerox’s motion to compel arbitration, Arkcom argued: (1) Arkansas law applies,
even though the Agreement provides that Covered Disputes “shall be governed by the

      1
        The HONORABLE STEPHEN M. REASONER, United States District Judge
for the Eastern District of Arkansas.

                                          -2-
law of New York State;” (2) Arkcom is a franchisee entitled to AFPA remedies; and
therefore (3) the parties’ agreement to arbitrate is unenforceable because it prohibits
the arbitrator from awarding remedies expressly authorized by the AFPA. Xerox
countered by arguing (1) New York law applies, therefore the AFPA does not; (2)
even if Arkansas law applies, the Agreement did not create a franchise; and (3) even
if the AFPA applies, any conflict based on availability of remedies does not affect
arbitrability. Though the parties have argued all these issues on appeal, “a court
compelling arbitration should decide only such issues as are essential to defining the
nature of the forum in which a dispute will be decided.” Larry’s United Super, 253
F.3d at 1085.

       Because arbitration is a matter of contract, the first question is whether the
parties have agreed to arbitrate the dispute at issue. Arkcom concedes, as it must, that
this contract termination dispute falls within the scope of the Agreement’s arbitration
provision. The parties agreed to arbitrate all Covered Disputes, defined to include
those arising out of termination of the Agreement. This general agreement to
arbitrate also encompasses Arkcom’s claims under the AFPA. See Mitsubishi Motors
Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985) (the rule resolving
doubts in favor of arbitration applies “where a party bound by an arbitration
agreement raises claims founded on statutory rights”); Southland Corp. v. Keating,
465 U.S. 1 (1984) (compelling arbitration of claims brought under the California
Franchise Investment Law).

       Arkcom argues that the agreement to arbitrate is nonetheless unenforceable
because it frustrates the purposes of the AFPA by precluding the arbitrator from
awarding remedies expressly authorized by the AFPA -- actual damages in addition
to lost profits, attorney’s fees, costs of litigation, and treble damages in the case of
fraud. See Ark. Code Ann. §§ 4-72-207, -208(a), (b). Where the parties have agreed
to arbitrate a dispute, that agreement is enforceable “save upon such grounds as exist
at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.

                                          -3-
       The Supreme Court has repeatedly held that the FAA preempts (i) state laws
that “require a judicial forum for the resolution of claims which the contracting
parties agreed to resolve by arbitration,” Southland, 465 U.S. at 10; and (ii) state laws
that condition the enforceability of arbitration agreements on requirements “not
applicable to contracts generally,” Doctor’s Assocs. v. Casarotto, 517 U.S. 681, 687
(1996). See generally Perry v. Thomas, 482 U.S. 483 (1987). However, this case
raises a different issue. The AFPA does not purport to reject or condition arbitration
as a forum for the resolution of franchise termination disputes. Rather, Arkcom
alleges that this particular agreement to arbitrate is unenforceable because it
conflicts with essential rights and remedies conferred by the state statute.

       This issue has frequently been raised by parties seeking to avoid arbitration of
federal statutory claims that fell within the scope of their agreements to arbitrate. In
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), for example, the
Supreme Court rejected the contention that federal statutory age discrimination claims
are not arbitrable and enforced an agreement to arbitrate such a claim. However,
citing earlier decisions enforcing agreements to arbitrate statutory antitrust, RICO,
and securities laws claims, the Court cautioned:

      In these cases we recognized that “[b]y agreeing to arbitrate a statutory
      claim, a party does not forgo the substantive rights afforded by the
      statute; it only submits to their resolution in an arbitral, rather than a
      judicial, forum.”
500 U.S. at 26, quoting Mitsubishi Motors, 473 U.S. at 628. The Court also rejected
a contention that the arbitration remedies available in Gilmer were not broad enough
to further the purposes of the federal age discrimination statute, noting that the
applicable arbitration rules there did “not restrict the types of relief an arbitrator may
award.” Id. at 32.

                                           -4-
       The Supreme Court’s caution that an agreement to arbitrate federal statutory
claims may not abrogate substantive statutory rights places in sharper focus the
question Arkcom raises here -- whether contractual limitations on an arbitrator’s
remedial authority may be applied to override broader statutory remedies. The few
federal circuits to address the issue are divided as to its procedural consequences.
Arkcom relies on decisions holding that an arbitration agreement purporting to limit
the arbitrator to fewer remedies than the statute allows is unenforceable. See
Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1062 (11th Cir. 1998)
(arbitrability of Title VII claims “rests on the assumption that the arbitration clause
permits relief equivalent to court remedies”); Graham Oil Co. v. ARCO Prods. Co.,
43 F.3d 1244, 1248-49 (9th Cir.) (Petroleum Marketing Practices Act claim), cert.
denied, 516 U.S. 907 (1995). But this court expressly declined to follow Paladino
and Graham in Larry’s United Super, 253 F.3d at 1086. Agreeing with the Third
Circuit’s decision in Great Western Mtg. Corp. v. Peacock, 110 F.3d 222, 230 (3d
Cir.), cert. denied, 522 U.S. 915 (1997), we held that the extent of an arbitrator’s
remedial authority is an issue for the arbitrator:

      Whether a prospective waiver of punitive damages violates the public
      policy underlying RICO’s treble damages provision is a matter for the
      arbitrators in the first instance when fashioning an appropriate remedy
      if a RICO claim is proven to the arbitrators’ satisfaction, and we express
      no views on the issue at this time. We are limited to determining
      whether the matter is arbitrable. We hold that it is.

       This case involves a claim under a state statute, not a federal statute such as
RICO. But Great Western, a case involving the issue of whether arbitration would
frustrate the purposes of a state statutory claim, provides direct guidance. The Third
Circuit noted that, while the FAA preempts state laws limiting the selection of an
arbitral forum, it does not broadly preempt substantive state law rights. Thus, the
issue is not preemption, but whether the parties validly waived state law rights by

                                         -5-
entering into an arbitration provision that restricts the available remedies. That issue,
the court concluded -

      cannot be asserted to avoid the arbitration agreed to therein. Rather, the
      party challenging the validity of such waivers must present her
      challenge to the arbitrator . . . .
110 F.3d at 231 (emphasis in original).2

       Great Western -- followed by this court in Larry’s United Super -- resolves the
issue before us. Arkcom and Xerox agreed to arbitrate this dispute, including
Arkcom’s AFPA claim. Whether the Agreement validly limits the arbitrator’s
remedies for an AFPA violation does not affect the validity of the agreement to
arbitrate. Rather, issues of remedy go to the merits of the dispute and are for the
arbitrator to resolve in the first instance. Accord St. Paul Fire & Marine Ins. Co. v.
Courtney Ent., Inc., 270 F.3d 621, 625 (8th Cir. 2001).

       For the foregoing reasons, we conclude the dispute is arbitrable without regard
to other issues argued on appeal -- whether New York or Arkansas law governs, and
whether the Agreement created a franchise governed by the AFPA. Those issues are

      2
       Arkcom relies heavily on Powertel, Inc. v. Bexley, 743 So. 2d 570, 574 (Fla.
Dist. Ct. App. 1999), where the court refused to compel arbitration of a statutory
consumer protection claim under an arbitration clause that conferred more limited
remedial authority than the state statute. However, the court in Powertel relied
primarily upon a state law theory of unconscionability. Here, Arkcom does not argue
(and in our view could not argue) that its agreement to arbitrate was unconscionable
under Arkansas or New York law. To the extent the court in Powertel also relied on
Paladino, its decision does not reflect the law of this circuit.

                                           -6-
for the arbitrator in the first instance, not this court or the district court. Therefore,
to the extent a portion of the judgment could be construed as determining that New
York law governs the dispute to be arbitrated, that portion is vacated.

     The judgment of the district court compelling arbitration and dismissing
Arkcom’s claims without prejudice is affirmed.

      A true copy.

             Attest:

                 CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.

                                           -7-