Court Opinion

ID: 2681567
Source: CourtListenerOpinion
Date Created: 2014-07-01 17:00:16.076165+00
Date Added: 2024-06-11T09:41:22.530804
License: Public Domain

NOT PRECEDENTIAL

                  UNITED STATES COURT OF APPEALS
                       FOR THE THIRD CIRCUIT
                            ___________

                                 No. 12-4359
                                 ___________

                       ROSS DRESS FOR LESS, INC.

                                      v.

                        VIWY, L.P.; VIWY PP, LLC,

                                                   Appellants

                On Appeal from the United States District Court
                   for the Eastern District of Pennsylvania
                         (D.C. Civ. No. 2-12-cv-00131)
                  District Judge: Honorable Juan R. Sánchez

                  Submitted under Third Circuit LAR 34.1(a)
                            on November 5, 2013

     Before: GREENAWAY, JR., VANASKIE and ROTH, Circuit Judges

                         (Opinion filed: July 1, 2014)

                                 OPINION

GREENAWAY, JR., Circuit Judge:
         VIWY, L.P., and VIWY PP, LLC (collectively, “VIWY”),1 appeal the District

Court’s November 5, 2012, Order denying VIWY’s motion to dismiss the complaint of

Ross Dress for Less, Inc. (“Ross”) for lack of subject-matter jurisdiction and ordering

that arbitration of their dispute be stayed. For the reasons set forth below, we will vacate

and remand with instructions that the District Court enforce the arbitration clause as to

both the overpayment and offset issues and order that the case be arbitrated.

I.       Background

         In June 2007, Ross leased commercial retail space in the Lycoming Crossing

Shopping Center in Lycoming County, Pennsylvania, from VIWY. According to the

terms of the lease, Ross was required to pay VIWY “Minimum Rent” in the monthly

amount of $29,166.66, unless VIWY failed to entice enough “Required Co-Tenants” to

open stores in the Shopping Center. More specifically, VIWY was responsible for

ensuring either that certain specific retailers were operational in the Shopping Center

throughout the course of the lease or that a specified number of other, national retailers

were operational in stores that met minimum square footage requirements. If at any time

during the lease VIWY was unable to meet this obligation, the lease permitted Ross to

pay a reduced “Substitute Rent,” a figure that was tied to Ross’s gross sales for a

particular month. This case involves Ross’s contention, disputed by VIWY, that there

were insufficient Required Co-Tenants operating in the Shopping Center during the term

of the lease.

1
    VIWY PP, LLC, is the general partner of VIWY, L.P.
                                             2
       Ross paid Minimum Rent from June 2007 through March 2011, but then

determined that it had overpaid because VIWY had not met the Required Co-Tenant

provision. In total, Ross believed it had overpaid $573,789.10 in rent to VIWY over the

course of two years. Ross made a written demand that VIWY reimburse this amount.

VIWY refused, contending that the Required Co-Tenant provision was satisfied. In

response, Ross unilaterally determined that it owed only Substitute Rent in March 2011,

and offset its alleged overpayment from its rent payments through September 2011. By

the time VIWY terminated the lease in August 2011, Ross had offset a total of

$77,507.77. Ross’s complaint in this case, in its demand for relief, did not include the

amount it had offset, and Ross did not ask the District Court to determine whether these

offsets were authorized by the lease.

       The crux of this appeal is VIWY’s contention that this dispute must be arbitrated.

The lease contains a provision that determines how the parties are to resolve “any

controversy or dispute” that “shall arise under” the lease. Pursuant to Section 20.2.1 of

the lease, “[a]ll Disputes, the monetary value of which is Fifty Thousand Dollars

($50,000) or less shall be settled by Arbitration,” which is governed by Section 20.2.3.

(App. 72.) On the other hand, “[a]ll Disputes, the monetary value of which exceeds Fifty

Thousand Dollars ($50,000) . . . shall first require the utilization of Mediation as provided

in Section 20.2.2.” (Id.) Section 20.2.2, in turn, provides that if any dispute has not been

resolved by mediation, or “if a party fails to participate in Mediation, then at the option of

either party by written notice, the Dispute shall be determined by suit or action in court,

unless it is a matter for Arbitration as described in Section 20.2.1 above.” (Id.)

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       A separate provision of the lease, Section 20.1.1(e), governs VIWY’s remedies for

an improper offset. Under that provision, Ross’s “withholding of any disputed amount of

Rent . . . shall not constitute a default under this Lease by Tenant unless and until . . . an

arbitrator per Section 20.2.3 shall determine by means of a final award that such right to

offset . . . has been exercised improperly by Tenant.” (App. 70.)

       VIWY attempted to initiate mediation proceedings on August 29, 2011, but Ross

declined to participate. Instead, Ross filed its complaint in this action on January 11,

2012. VIWY appeals the District Court’s November 5, 2012, Order denying VIWY’s

motion to dismiss Ross’s complaint and staying any arbitration on Ross’s offsets “until

that issue is ripe for adjudication.” (App. 4.)

II.    Discussion

       “We exercise plenary review over questions regarding the validity and

enforceability of an agreement to arbitrate,” Puleo v. Chase Bank USA, N.A., 605 F.3d
172, 177 (3d Cir. 2010), and we apply the same standard the District Court should have

applied in reviewing the arbitration award, see Guidotti v. Legal Helpers Debt

Resolution, L.L.C., 716 F.3d 764, 772 (3d Cir. 2013).

       The sole issue on appeal is whether the District Court erred in concluding that the

scope of the arbitration clause in the lease did not cover Ross’s claim that it had overpaid

rent between 2009 and 2011. We will vacate and remand with instructions that the

                                               4
District Court enforce the arbitration clause as to the parties’ overpayment and offset

issues and order that the entire case be arbitrated.2

       For a court to compel arbitration, it must determine that the dispute is within the

scope of a valid agreement to arbitrate. Century Indem. Co. v. Certain Underwriters at

Lloyd’s, London, 584 F.3d 515, 523 (3d Cir. 2009). In making this determination, “there

is a presumption of arbitrability” that “an order to arbitrate the particular grievance

should not be denied unless it may be said with positive assurance that the arbitration

clause is not susceptible of an interpretation that covers the asserted dispute.” AT&T

Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650 (1986) (internal citation and

quotation marks omitted).

       There are two central issues in this case, namely whether Ross overpaid rent

between 2009 and 2011 and whether Ross’s offset of rent for a period of months in 2011

was proper. The same question of fact—whether VIWY had three anchor tenants

between 2009 and 2011, such that the Required Co-Tenancy provision3 of the lease was

2
  The District Court had jurisdiction over this case pursuant to 28 U.S.C. § 1332 because
Ross is a Virginia corporation with its principal place of business in California, neither
defendant is a resident of either Virginia or California, and the amount in controversy
exceeds $75,000. We have appellate jurisdiction to consider appeals from a District
Court’s denial of a motion to compel arbitration. 9 U.S.C. § 16(a)(1); Quilloin v. Tenet
HealthSystem Phila., Inc., 673 F.3d 221, 227 (3d Cir. 2012).
3
  See Compl. Ex. A, at § 1.7 (setting forth specific retailers (Target and Kohl’s), or a
specified number of retailers, that must be operational, and the minimum square footage
they must occupy).
                                               5
satisfied—resolves and is dispositive of both issues.4 Thus, the two issues are not wholly

distinct but, to the contrary, are inextricably linked.

       Section 20.2.1 of the lease indicates that a dispute involving an amount greater

than $50,000—such as the parties’ dispute regarding overpayment—should be resolved

in litigation. Section 20.1.1(e) of the lease states that a dispute regarding the propriety of

a rent offset should be resolved in arbitration.5 However, the lease fails to state the forum

in which the parties should resolve a dispute implicating both of these provisions—

namely where, as here, the dispute involves an amount greater than $50,000 and involves

offset and overpayment issues.

       Given the conflicting lease provisions (and concomitant lack of clarity as to the

parties’ ex ante intentions), and the fact that offset (which the parties agree is arbitrable)

and overpayment are inextricably linked issues, the presumption of arbitrability militates

in favor of resolving both in arbitration. See, e.g., Brayman Const. Corp. v. Home Ins.

Co., 319 F.3d 622, 626 (3d Cir. 2003) (stating that all claims that “touch matters covered

by” an arbitration clause “must be arbitrated, whatever the legal labels attached to them”)

(internal citation and quotation marks omitted).

4
  Specifically, if the Required Co-Tenancy provision was satisfied, the lease would have
required Ross to pay the Minimum Rent amount. If the Required Co-Tenancy provision
was not satisfied, a Reduced Occupancy Period would have occurred and the lease would
permit Ross to pay the Substitute Rent amount.
5
  Both parties agree that a dispute over Ross’s right to offset rent falls within the scope of
mandatory arbitration.
                                               6
III.   Conclusion

       For the foregoing reasons, we will vacate and remand with instructions that the

District Court enforce the arbitration clause as to both the overpayment and offset issues

and order that the case be arbitrated.

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