Court Opinion

ID: 773094
Source: CourtListenerOpinion
Date Created: 2012-04-18 11:22:25+00
Date Added: 2024-06-11T11:03:36.075746
License: Public Domain

248 F.3d 1109 (11th Cir. 2001)
TELECOM ITALIA, SPA, Plaintiff-Counter-Defendant,v.WHOLESALE TELECOM CORPORATION, Defendant-Counter-Claimant- Third-Party-Plaintiff-Appellee,TELEMEDIA INTERNATIONAL U.S.A., INC., Third-Party-Defendant-Appellant.
No. 00-10292
IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT
April 18, 2001

Appeal from the United States District Court for the Southern District of Florida
D.C. Docket No. 99-00834-CV-KMM
Before EDMONDSON, FAY and NEWMAN*, Circuit Judges.
JON O. NEWMAN, Circuit Judge:

1
This interlocutory appeal concerns the arbitrability of a tort claim alleged to  be related to a contract containing an arbitration clause. Telemedia  International U.S.A., Inc. appeals from the order of the District Court for the  Southern District of Florida (K. Michael Moore, District Judge), denying its  motion to dismiss or alternatively to stay proceedings pending arbitration. We  agree that arbitration was not required, and we therefore affirm.

Background
I. Facts

2
The three actors in this case are (1) Telecom Italia, SpA ("Telecom Italia"),  (2) Appellant Telemedia International U.S.A., Inc. ("TMI"), a Florida  corporation, which is a wholly- owned subsidiary of Telecom Italia, and (3)  Appellee Wholesale Telecom Corp. ("WTC"). Telecom Italia and TMI operate  telecommunications networks internationally and in the United States,  respectively; WTC is a reseller of telecommunications services.

3
WTC, the party asserting the tort claim at issue, alleged in a third-party  complaint the following facts, which we assume are true for purposes of this  appeal. Beginning in July 1998, Telecom Italia began routing calls on behalf of  WTC under an oral agreement. In September 1998, Telecom Italia and WTC discussed  an expanded, more formal arrangement, whereby WTC would pay market rates to  Telecom Italia to route calls through Telecom Italia's switch in Rome to any  place in the world, and WTC would invest in expensive switching equipment to  process more call volume from the United States. Telecom Italia was supposed to  draw up a contract based on a written contract Telecom Italia had executed with  another reseller. Instead, Telecom Italia sent WTC an agreement in October 1998  that was materially different in several respects from the template agreed to in  September. WTC objected to these differences and did not sign the altered  agreement.

4
Telecom Italia is not legally authorized to transport calls in the United  States, and during the September negotiations Telecom Italia pressured WTC to  lease circuits from TMI, the United States subsidiary of Telecom Italia, to get  the calls from the United States to Rome. In October 1998, TMI and WTC executed  a written lease of TMI's circuits for a substantial rental. The lease provides:  "In the event of any dispute arising out of or relating to this service  agreement, the dispute shall be submitted to and settled by arbitration in the  City of New York, in accordance with the rules of the American Arbitration  Association." Leases for additional circuits were signed in the next few months.

5
Meanwhile, notwithstanding the apparent absence of a formal, written agreement  between Telecom Italia and WTC, Telecom Italia continued to provide  telecommunications services to WTC from July 1998 to March 1999, and WTC made a  number of costly investments in equipment and marketing on the assumption that  Telecom Italia would honor the terms that were allegedly agreed to at the  September 1998 meeting. WTC further alleged that during this period, the quality  of service provided by Telecom Italia was seriously below the levels agreed to  at the September meeting.

6
Telecom Italia began sending invoices to WTC in January 1999. WTC claims that  these invoices were the opening salvo in a joint effort by TMI and Telecom  Italia to get rid of WTC. The first invoice arrived just after a meeting between  TMI and WTC, in which TMI allegedly urged WTC to terminate WTC's agreement with  Telecom Italia, so that TMI could replace WTC in marketing international long  distances services. Moreover, WTC alleged that the first invoice charged rates  that were grossly in excess of the rates agreed to in September 1998. Telecom  Italia eventually sent invoices seeking a total of more than $13 million from  the period July 1998 and March 1999. Acting on its theory that the rates were  grossly inflated, WTC paid only what it considered were the undisputed parts of  the invoices (several hundred thousand dollars, at most).

7
In February 1999, Telecom Italia responded by terminating WTC's use of two of  the three TMI circuits needed to route calls to Rome. In March, Telecom Italia  terminated WTC's use of the last TMI circuit, effectively shutting WTC down.  Telecom Italia had been WTC's sole provider of telephone services.

II. Procedural History

8
In March 1999, Telecom Italia filed a complaint against WTC in the District  Court, alleging breach of contract, based on WTC's failure to pay Telecom  Italia's $13 million worth of invoices for calls made between July 1998 and  March 1999. In August 1999, WTC answered Telecom Italia's complaint, and  counterclaimed against Telecom Italia. The counterclaim alleged the events  described above: the oral agreement in place in summer 1998, the September 1998  "agreement" that was never successfully executed, the large investments by WTC  in reliance on the September agreement, and finally the written, fully executed  leases with TMI, entered into at Telecom Italia's insistence. The counterclaim  alleged that Telecom Italia breached the price, quality, and prompt invoicing  terms of the September agreement. The counterclaim also alleged that Telecom  Italia caused TMI to increase the rate for use of its circuits, and that Telecom  Italia caused its subsidiary, TMI, to terminate WTC's access to the TMI circuits  in March 1999. The counterclaim alleged breach of contract, "fraud in the  inducement," and a "conspiracy" between Telecom Italia and TMI to put WTC out of  business.

9
In September 1999, WTC filed a third-party complaint against TMI, alleging two  causes of action--tortious interference with contract and civil conspiracy. The  third-party complaint alleges that TMI tortiously interfered with WTC's contract  with Telecom Italia. The basic accusation was that TMI and Telecom Italia had  colluded to blind-side WTC with demands for payments in unexpected amounts, so  as to induce WTC to abandon or breach its contract with Telecom Italia, and to  enable TMI to sell long- distance services directly to the market that WTC had  invested so much to develop. These unexpectedly onerous demands for payment were  included in the TMI-WTC contract itself, in conditions later added to the  contractual arrangement, and in Telecom Italia's grossly excessive and delayed  invoices to WTC. Specifically, TMI allegedly took the following actions with  Telecom Italia's knowledge and support, all in an attempt to drive WTC away from  its contract with Telecom Italia:

10
*Under the circuit lease, TMI charged grossly excessive rates for use of TMI  circuits, taking advantage of an earlier agreement between WTC and Telecom  Italia that allegedly permitted TMI to set its rates unilaterally.

11
*TMI demanded payment of an onerous security deposit to TMI after the first  circuit had already been activated. The intent of these excessive rate and  security deposit demands was "to make WTC's performance of its contract with  Telecom Italia expensive and burdensome, and with the intent to cause WTC to  be forced to withdraw from its contractual relationship with Telecom Italia."  It is unclear whether this security deposit is actually part of the express  terms of the circuit contract.

12
*"Telecom Italia, acting in concert with TMI, wrongfully terminated WTC's  access" to the TMI circuits in February and March 1999.

13
*TMI persuaded Telecom Italia to delay in the submission of invoices to WTC,  and to inflate those invoices, so as to shock WTC and persuade WTC to abandon  its contract with Telecom Italia. Telecom Italia allegedly sent its first  invoice to WTC immediately after a January 1999 meeting between TMI and WTC,  at which TMI urged WTC to withdraw from its contract with Telecom Italia, so  that TMI could take WTC's place.

14
TMI moved to dismiss the third-party complaint on the ground that WTC failed to  state a claim, or alternatively to stay proceedings pending arbitration because  the circuit lease contract between TMI and WTC required arbitration of all  disputes "arising out of or relating to this service agreement." The District  Court granted the motion to dismiss in part. Judge Moore ruled that the  third-party complaint failed to state a claim for civil conspiracy on which  relief could be granted, but upheld the sufficiency of the tortious interference  claim. He further ruled that the third-party complaint was not subject to the  arbitration clause in the TMI-WTC contract, because the allegations concerned  tortious interference with the Telecom Italia-WTC contract, which lacked an  arbitration clause:

15
On its face, the Third-Party Complaint would appear to arise from the contract  between TMI and WTC, thus potentially subjecting the claims for tortious  interference and conspiracy to arbitration under the [Federal Arbitration  Act]. However, as alleged, the claims set forth within the Third-Party  Complaint do not involve directly the contract between TMI and WTC. Rather,  the claims are based on allegations of tortious interference and conspiracy  relating to the disruption of a separate contract - specifically that between  WTC and Telecom Italia. WTC has not alleged a claim for breach of contract by  TMI.

16
Furthermore, because of the close relationship between the facts and claims at  issue in the litigation currently proceeding between Telecom Italia and WTC,  the interests of judicial economy would seem to be served best through the  adjudication of WTC's third-party complaint by this Court.

17
TMI filed a notice of appeal and has asserted interlocutory appellate  jurisdiction under the Federal Arbitration Act ("FAA"), 9 U.S.C.  16(a)(1)(A).  WTC moved to dismiss the appeal, contending that there was no appellate  jurisdiction. A panel of this Court ordered additional briefing on jurisdiction,  and referred the jurisdictional inquiry to this panel.

Discussion
I. Jurisdiction

18
Under 9 U.S.C.  16(a)(1)(A), an appeal may be taken from an order "refusing a  stay of any action under section 3 of this title." In turn, 9 U.S.C.  3  provides:

19
If any suit or proceeding be brought in any of the courts of the United States  upon any issue referable to arbitration . . . the court in which such suit is  pending, upon being satisfied that the issue involved in such suit or  proceeding is referable to arbitration under such an agreement, shall on  application of one of the parties stay the trial of the action until such  arbitration has been had.

20
In this case, TMI's motion in the District Court sought dismissal of the  complaint to allow arbitration to proceed, and alternatively sought a stay  pending arbitration. Denial of the alternative relief was appealable under  section 16(a)(1)(A). See Paladino v. Avnet Computer Technologies, Inc., 134 F.3d  1054, 1056 (11th Cir. 1998). WTC resists the assertion of appellate jurisdiction  on the ground that the District Court ruled that the arbitration clause of the  WTC-TMI contract was not applicable to WTC's tortious interference claim. That  argument is unavailing because it confuses the reason for the District Court's  ruling against arbitration with the appealability of the ruling. Whether or not  the District Court was correct in ruling against arbitration, its ruling denied  a requested stay of the action pending arbitration and was for that reason  appealable.

II. Merits of the Denial of Arbitration

21
Absent some violation of public policy, a federal court must refer to  arbitration any controversies covered by the provisions of an arbitration  clause. Chastain v. Robinson-Humphrey Co., 957 F.2d 851, 854 (11th Cir. 1992).  Whether a party has agreed to arbitrate an issue is a matter of contract  interpretation: "[A] party cannot be required to submit to arbitration any  dispute which he has not agreed so to submit." United Steelworkers of America v.  Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960).

22
The arbitration clause relied on by WTC calls for arbitration of "any disputes  arising out of or relating to" the lease between WTC and TMI. Although this  language is broad, it is not as broad as a clause requiring arbitration of "any  dispute between them or claim by either [party to the contract] against the  other." Brown v. ITT Consumer Financing Corp., 211 F.3d 1217, 1221 (11th Cir.  2000). The "arising out of or relating to" language has proved especially  problematic in cases like the pending one where the dispute concerns a tort  (TMI's alleged tortious interference with the contract between WTC and Telecom  Italia) alleged to be "related to" a contract with an arbitration clause (the  WTC-TMI lease). One commentator has noted:

23
The first bar to arbitrability is based on the notion that parties to an  arbitration agreement should be compelled to arbitrate only those torts  contemplated by the arbitration agreement. Unfortunately, the standard  arbitration clause found in most commercial contracts broadly states that "any  controversy or claim arising out of, or relating to this agreement, or the  breach thereof[,]" shall be settled by arbitration. If one party commits a  tort against the other, the inevitable question is whether this broad, general  language of the arbitration agreement is sufficient to encompass tort claims.  The longstanding rule is that where the arbitration clause is broad, the tort  claim will be arbitrable if the claim is either directly or indirectly related  to the subject matter of the contract.

24
Joseph T. McLaughlin, Arbitrability: Current Trends in the United States, 59  Alb. L. Rev. 905, 932 (1996) (emphasis added) (footnotes omitted). The question  remains: when is a dispute "related to" the "subject matter" of the contract?

25
The case law yields no clear answer. We have required arbitration where the tort  could not have occurred but for a breach of contract. In Gregory v.  Electro Mechanical Corp., 83 F.3d 382 (11th Cir. 1996), the plaintiff claimed  that the defendant induced the plaintiff to enter into a contract that the  defendant had no intention of honoring; we required arbitration of the fraud  tort claim as related to the contract on the theory that the tort claim would  never have arisen had the defendant honored the contract. In McBro Planning and  Development Co. v. Triangle Electrical Construction Co., 741 F.2d 342, 344 (11th  Cir. 1984), two contractors each had a contract with a hospital, but there was  no contract between the contractors themselves. Each hospital contract contained  an arbitration clause, and each mentioned that one contractor would supervise  the other contractor. The supervised contractor claimed that the supervising  contractor harassed him to such an extent that he could not fulfill his  contract. We held that this dispute was covered by the arbitration clause in  both contractors' agreements with the hospital, see id. at 344, on the theory  that the tort was "founded in and intertwined with" the obligations of the  hospital contracts. Id. at 344 (internal quotation marks omitted).

26
In other cases, however, we have rejected claims that an arbitration clause in a  contract covered a dispute concerning another contract claim or a tort claim,  each of which was claimed to be related to the contract requiring arbitration.  In Seaboard Coast Line Railroad Co. v. Trailer Train Co., 690 F.2d 1343 (11th  Cir. 1982), the parties had a contract to lease railcars and a contract to  license railcars; only the license contract had an arbitration clause. The  Plaintiff claimed that the defendant breached the lease contract by failing to  submit tax documents verifying certain leases. The defendant argued that any  "furnishing" of a railcar was covered by the license contract and its  arbitration clause. We rejected this broad reading of the license contract and  denied arbitration on the ground that the two contracts were "separate and  distinct." Id. at 1351. In Texaco, Inc. v. American Trading Transportation Co.,  644 F.2d 1152 (5th Cir. Unit A 1981), the contract with the arbitration clause  was a ship charter; negligent piloting and the ship's unseaworthiness allegedly  caused damage to the party chartering the ship. The Court rejected arbitration  of the ensuing tort claim on the ground that the "complaint at bar is not the  result of a difference or dispute arising out of the Charter." Id. at 1154.  However, in both Texaco and Seaboard, the arbitration clause had "arising out  of" or "arising under" language, but did not include "or related to" language.1

27
It is possible to harmonize the results in these four cases by focusing on  whether the tort or breach in question was an immediate, foreseeable result of  the performance of contractual duties. Disputes that are not related--with at  least some directness--to performance of duties specified by the contract do not  count as disputes "arising out of" the contract, and are not covered by the  standard arbitration clause. Thus in Texaco, Texaco had no right under its  charter with American Trading to obtain safe operation of the chartered vessel;  in Seaboard, Seaboard had no right under its license contract (the one with the  arbitration clause) to obtain the documentation it was demanding under the lease  contract (the one without the arbitration clause). However, where the dispute  occurs as a fairly direct result of the performance of contractual duties-- as  was the case with the supervisor's harassment of the other contractor in McBro,  or with the intentional failure to perform the contract in Gregory, then the  dispute can fairly be said to arise out of or relate to the contract in  question, and arbitration is required.

28
With this approach in mind, we conclude, in agreement with the District Court,  that WTC's tortious interference claim neither arises out of nor is related to  WTC's lease with TMI. WTC alleged that TMI pressured Telecom Italia to induce  Telecom Italia to use its rates and billing practices to destroy WTC. Even if  TMI can be shown at trial to have tortiously interfered with Telecom Italia's  contract with WTC, there is no claim that TMI's performance of its contract with  WTC was designed to, expected to, or likely to exert any pressure on Telecom  Italia, unlike the harassment in McBro, which occurred as a result of the  performance of a contractual duty. TMI's alleged pressure could have been  exerted on Telecom Italia even if TMI had no contractual relationship with WTC.

29
TMI contends that the requisite relationship between the interference tort and  the WTC-TMI contract is shown by the allegations of WTC's third-party complaint  that TMI charged WTC excessive lease rates, demanded unjustified security  deposits, and wrongfully terminated the circuit leases. Although these claims,  if alleged as causes of action, would plainly be arbitrable as "related to" the  WTC-TMI contract, their recitation in support of the claim that TMI interfered  with WTC's contract with Telecom Italia does not suffice to make the  interference claim arbitrable.

30
At most, TMI's allegedly unfair contract terms would show only that TMI was  hostile to WTC and perhaps had a motive to influence Telecom Italia to injure  WTC. But if a tort claim were arbitrable simply because terms in a contract with  an arbitration clause were sufficiently harsh to show one party's motive to  injure the other party, the scope of arbitration would extend far beyond the  reasonable expectation of the contracting parties. On this theory, for example,  an animus evidenced by harsh terms in a contract (with an arbitration clause)  between two parties would render arbitrable an antitrust claim by one  contracting party that the other party had joined with other companies in an  unreasonable agreement in restraint of trade to injure the claimant.  Arbitrability of the tortious interference claim is not required simply because  some of TMI's contract terms were unfavorable to WTC.

31
In affirming the District Court's judgment, we decline to endorse its suggestion  that arbitration is not appropriate in this case because it would inefficiently  result in bifurcated proceedings. If otherwise required, arbitration must be  ordered "even where the result would be the possibly inefficient maintenance of  separate proceedings in different forums." Dean Witter Reynolds v. Byrd, 470  U.S. 213, 217 (1985). We regard the District Court's comment about judicial  economy as an aside that was unnecessary to its correct ruling.

Conclusion

32
The order of the District Court denying arbitration is AFFIRMED.

NOTES:

*
 Honorable Jon O. Newman, U.S. Court of Appeals for the Second Circuit,  sitting by designation.

1
 Other circuits have grappled with the problem in the context of a joint venture  arrangement (with an "arising out of or related to" arbitration clause), which  one party circumvents by hiring away the other party's key employees; the  injured party claims tortious interference with the employment contracts, and  the defendant invokes the arbitration clause of the joint venture agreement.  Some courts rule that in such a situation the tortious interference claim arises  out of or is related to the joint venture agreement. See Kiefer Specialty  Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907, 910 (7th Cir. 1999) (contracts  related because the alleged tortfeasor had insisted that the employee in  question work on the joint venture as a prerequisite to entry into the joint  venture agreement); American Recovery v. Computerized Thermal Imaging, 96 F.3d  88, 94 (4th Cir. 1996) (employee in question had duties under the joint venture  agreement; interfering with his employment contract was therefore related to the  joint venture agreement); cf. Sweet Dreams Unlimited v. Dial-A-Mattress  International, 1 F.3d 639, 642 (7th Cir. 1993) (tortious interference with  plaintiff's other business relationships covered by arbitration clause, because  disputes had their "genesis" in the original licensing agreement). However, the  Second Circuit has rejected arbitration in these circumstances on the theory  that the employment contract and the joint venture agreement are distinct from  one another. See Collins & Aikman Products Co. v. Building Systems, Inc., 58  F.3d 16, 22 (2d Cir. 1995) (distribution agreement was not related to tortious  interference in employment contracts of key employees); Genesco, Inc. v. T.  Kakiuchi & Co., 815 F.2d 840, 856 (2d Cir. 1987) (tortious interference claim  based on bribe of executive of contracting party not arbitrable because not "on  its face" related to sales contract).