Court Opinion

ID: 156603
Source: CourtListenerOpinion
Date Created: 2010-08-14 04:42:12+00
Date Added: 2024-06-11T11:52:24.324533
License: Public Domain

F I L E D
                                                                           United States Court of Appeals
                                                                                   Tenth Circuit
                         UNITED STATES COURT OF APPEALS
                                                                                   JUL 15 1998
                                     TENTH CIRCUIT
                                                                              PATRICK FISHER
                                                                                        Clerk

 MALARKY ENTERPRISES, INC.,

           Plaintiff-Appellant,
 v.                                                            No. 97-3151
                                                         (D.C. No. 96-2254-GTV)
 HEALTHCARE TECHNOLOGY, LTD.,                              (District of Kansas)

           Defendant-Appellee.

                                  ORDER AND JUDGMENT*

Before TACHA, Circuit Judge, KELLY, Circuit Judge, and McWILLIAMS, Senior
Circuit Judge.

       On May 24, 1996, Malarky Enterprises, Inc. (“Malarky”), a Kansas corporation,

filed a breach of contract action in the United States District Court for the District of

Kansas against Healthcare Technology, Ltd. (“Healthcare”), a foreign corporation with

its principal place of business in the United Kingdom, and doing business, inter alia, in

the United States and the State of Kansas. Jurisdiction was based on 28 U.S.C. § 1332.

       As will subsequently be developed, there was, initially at least, some question as to

       *
         This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3
whether there ever was a contract or agreement between the parties. However, at the

present time both parties agree that there was a distributor agreement entered into in the

State of Kansas between the parties whereby Healthcare granted Malarky an exclusive

distributorship for Canada, the United States, and Mexico of certain exercise equipment

manufactured by Healthcare.

       In any event, by a First Amended Complaint, filed on June 5, 1996, Malarky

alleged that Healthcare on or about February 15, 1996, breached its contract with Malarky

by “refusing to ship product to the plaintiff, by refusing to honor purchase orders that had

been confirmed by defendant, by contracting directly with plaintiff’s customers in

Canada, and by refusing to supply reasonable warranty service on their products.” Based

on its breach of contract claim, Malarky also asserted claims for unjust enrichment and

tortious interference.

       Attached to the First Amended Complaint was a copy of the agreement between

the parties. Paragraphs 15 and 16 of that agreement read as follows:

              APPLICABLE LAW.
              15.  This agreement shall be governed by and construed in
                   accordance with the laws of England.
              ARBITRATION.
              16. Any dispute, controversy or claim arising out of or
                   relating to this agreement, shall be settled by
                   arbitration in England upon written notice of one to
                   the other in accordance with the Arbitration and
                   Conciliation Rules of the International Chamber of
                   Commerce. Each party shall pay its own expenses in
                   connection with the arbitration.

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       In response to the First Amended Complaint, Healthcare, on October 4, 1996, filed

a motion to dismiss under Fed. R. Civ. P. 12(b)(6), alleging therein that “assuming

plaintiff’s allegation that the parties made a valid contract is true, plaintiff fails to state a

claim for which relief can be granted,” because, under sections 15 and 16 of their

agreement, any dispute arising from the “alleged contract” must be decided through

arbitration in England.

       In its response, filed on November 27, 1996, to Healthcare’s motion to dismiss,

Malarky contended that, based on various letters sent by Healthcare’s managing director,

a Mr. Trevor S. Chatfield, to Malarky and its attorneys, copies of which were attached to

the response, Healthcare had repudiated the contract and waived its right to demand

arbitration. In this same general connection, Malarky further alleged in its response that

on or about September 20, 1996, its counsel and Healthcare’s counsel submitted a

“Report of Parties’ Planning Meeting” to the district court, which report indicated, inter

alia, that whether there was a contract between the parties was quite possibly in dispute.

       More specifically, in its response to Healthcare’s motion to dismiss, Malarky

attached a copy of a letter, dated February 15, 1996, sent to it by Trevor Chatfield, the

managing director of Healthcare, which read, in part, as follows:

                     Effective immediately we will not supply you any
               product. Your orders on this company are cancelled
               forthwith. I will immediately advise all USA companies that
               you do not represent Cardiosport in any way whatsoever.

       In its response to Healthcare’s motion to dismiss, Malarky also attached a copy of

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a letter from Trevor Chatfield to Malarky’s counsel, dated May 30, 1996, referring to

Malarky’s original complaint, in which Chatfield spoke as follows:

              “You refer to a Distributor Agreement as Exhibit “A” but it
              was not attached.

              You may not have attached it because there was no
              Distributor Agreement, since after many months of
              continuous objections to the agreement by Mr. Malarky no
              Agreement was signed by both parties.”

       Also attached to Malarky’s response to Healthcare’s motion to dismiss, was a

copy of still another letter from Chatfield to Malarky, dated June 18, 1996, in which

Chatfield stated, inter alia, “Page 2, Item 4 is incorrect since no Distributor Agreement

was finally signed.” In that same letter Chatfield went on to state “the Agreement was

not finalised because of your continued objections which are on file, your fax of 12th Jan.

endorses this position as do the many other fax’s not here referenced.”

       Finally, also attached to Malarky’s response to Healthcare’s motion to dismiss was

a “Report of the Parties’ Planning Meeting,” dated September 20, 1996. In that report

appeared, inter alia, the following:

                                       * * * * *

              “Discovery will be needed on the following subjects:
                    Whether a contract has been entered into
                    between the parties;

                                       * * * * *

       The aforementioned planning report also advised the district court that the case

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should be ready for trial by June 1, 1997 and would take approximately one week. The

report also provided for pretrial discovery, possible joinder of additional parties, the

exchange of witnesses’ names, settlement possibilities, and the like. No mention was

made of the arbitration clause set forth above.

       In a reply, filed on January 23, 1997, to Malarky’s response, Healthcare conceded

that its former managing director had written certain letters, copies of which had been

attached to Malarky’s response, but went on to state, for the first time, that “the current

management of Defendant now concede that Defendant entered into the Distributor

Agreement with Plaintiff.”

       On April 25, 1997, the district court, after denying a request for oral argument on

the motion to dismiss, granted Healthcare’s motion to dismiss, noting that Healthcare had

by then conceded that there was a distributor agreement between the parties and stating

that accordingly any protestations to the contrary by Chatfield in his letters to Malarky

and its attorneys were therefore “irrelevant.” The district court also held that there was

no waiver by Healthcare or its attorneys of the arbitration provision contained in the

agreement and that the arbitration provision was valid and enforceable. Accordingly, the

district court entered judgment dismissing the action. Malarky Enter. v. Healthcare

Tech., Ltd., 962 F.Supp. 1427 (D. Kan. 1997). Malarky appeals the judgment entered.

       The parties agree that a court may not grant a motion to dismiss under Fed. R. Civ.

P. 12(b)(6) unless it appears that the plaintiff can prove no set of facts that would entitle it

                                              -5-
to relief. Maez v. Mountain States Tel. and Tel., Inc., 54 F.3d 1488, 1496 (10th Cir.

1995); Jacobs, Visconsi & Jacobs Co. v. City of Lawrence, 927 F.2d 1111, 1115 (10th

Cir. 1991). And, further, that, in its consideration of a 12(b)(6) motion to dismiss, a

court should construe liberally the pleadings and indulge all favorable inferences in favor

of the plaintiff. Lafoy v. HMO Colorado, 988 F.2d 97, 98 (10th Cir. 1993); Williams v.

Meese, 926 F.2d 994, 997 (10th Cir. 1991).

       In the instant case, counsel for Healthcare initially indicated there might be some

question as to whether there was any agreement whatsoever between the parties. (Of

course, if there was no agreement, there would be nothing to arbitrate, and the question of

whether there was, or was not, an agreement would be decided in Kansas courts. See

Avedon Eng’g, Inc. v. Seatex, 126 F.3d 1279, 1286-87 (10th Cir. 1997); City of Wamego

v. L. R. Foy Constr. Co., 675 P.2d 912, 915 (Kan. 1984).) Be that as it may, in its reply to

Malarky’s response to its motion to dismiss, Healthcare specifically conceded, in so many

words, that there was a distributor contract between the two parties. So, the parties agree

they had a contract, the district court proceeded on that premise, and so do we.

       However, even though all now agree there was a distributor contract between

Malarky and Healthcare, which contract contained the arbitration clause set forth above,

such, of course, does not dispose of the matter. In this regard, it is Malarky’s further

position, as set forth in its response to Healthcare’s 12(b)(6) motion, that Healthcare

through its managing director, Chatfield, repudiated the agreement, and thereby waived

                                            -6-
the arbitration clause contained therein. In this same regard Malarky also relied on the

fact that Healthcare’s counsel participated in a Fed. R. Civ. P. 26(f) planning meeting

wherein arbitration was apparently never mentioned.

       In our view, the record before the district court does not permit the grant of

Healthcare’s 12(b)(6) motion. It should be emphasized that apparently there had been no

discovery before the district court granted the motion to dismiss. At least there are no

depositions or affidavits in the record before us. The only so-called “evidentiary matter”

in the record before us are the four “attachments” to Malarky’s response to Healthcare’s

motion to dismiss, i.e., copies of the three Chatfield letters and the “Report of the Parties’

Planning Meeting.” And those four documents certainly do not, in themselves, warrant a

dismissal of Malarky’s amended complaint for failure to state a claim for relief. For

example, Chatfield’s letter of February 15, 1996, is arguably a repudiation of any contract

between the parties. And his subsequent letters of May 30, 1996, and June 18, 1996,

arguably, go a step further than repudiation, by denying outright any contract.

       Also, the so-called “planning report” of September 20, 1996, arguably supports

Malarky’s claim that Heathcare’s counsel waived the arbitration provisions in the

contract. There was, so far as we can tell from the present record, nothing to indicate that

counsel asserted, at that time, that under the arbitration clause any and all disputes arising

out of the contract had to be arbitrated in England. There was simply no mention of

arbitration. Rather, counsel in their report to the court spoke of discovery, joinder of

                                             -7-
additional parties, exchange of names of witnesses, length of trial and the like, arguably

indicating a waiver of the arbitration clause in the contract or agreement. See in this

regard Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482, 1490 (10th Cir.

1994); Peterson v. Shearson/American Express, Inc., 849 F.2d 464, 468 (10th Cir. 1988);

D. M. Ward Constr. Co. v. Electric Corp., 803 P.2d 593, 598-600 (Kan. Ct. App. 1990).

       In short, the present record simply does not support the action taken by the district

court. On remand, discovery may well put the case in clearer focus. We are not holding

that Malarky has shown repudiation or waiver which might render the arbitration clause

inoperative. We are holding, as indicated, that the record does not support dismissal of

the action at this time.

       Judgment reversed and case remanded for further proceedings consistent with the

views herein expressed.

                                          ENTERED FOR THE COURT

                                          Robert H. McWilliams
                                          Senior Circuit Judge

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