Court Opinion

ID: 9950557
Source: CourtListenerOpinion
Date Created: 2024-03-14 15:02:05.018347+00
Date Added: 2024-06-11T14:37:23.401531
License: Public Domain

United States Court of Appeals
                           For the Eighth Circuit
                       ___________________________

                               No. 23-1820
                       ___________________________

               Anhui Powerguard Technology Company, Limited

                                     Plaintiff - Appellee

                                       v.

                           DRE Health Corporation

                                  Defendant - Appellant
                                ____________

                    Appeal from United States District Court
               for the Western District of Missouri - Kansas City
                                ____________

                          Submitted: January 9, 2024
                            Filed: March 14, 2024
                                ____________

Before SMITH, Chief Judge, 1 GRUENDER and SHEPHERD, Circuit Judges.
                               ____________

SHEPHERD, Circuit Judge.

      Anhui Powerguard Technology Company, Limited, filed a breach-of-contract
action alleging that DRE Health Corporation failed to remit payment for over $9

      1
      Judge Smith completed his term as chief judge of the circuit on March 10,
2024. See 28 U.S.C. § 45(a)(3)(A).
million in purchase orders that Anhui had fulfilled. The district court 2 denied DRE
Health’s motion to stay litigation and compel arbitration under the Federal
Arbitration Act (FAA). DRE Health appeals that order. Having jurisdiction under
9 U.S.C. § 16(a)(1)(B), we find that the parties did not agree to submit their dispute
to arbitration and accordingly affirm.

                                          I.

        Anhui is a Chinese manufacturer that produces personal protective equipment
(PPE), including disposable gloves.3 DRE Health, a PPE wholesaler, contracted
with Anhui in December 2020 to import bulk shipments of disposable gloves with
the intention of reselling the goods in the United States. By March 2021, Anhui had
fulfilled four purchase orders totaling more than $9 million, but DRE Health was
unable to pay down its debt. The parties subsequently executed a novation in which
Anhui agreed to reduce the amount DRE Health owed by approximately $3.1 million
in exchange for DRE Health’s promise to purchase additional shipments of gloves.
The agreement set forth an installment schedule for the remaining $5.9 million
balance pursuant to which DRE Health was required to remit $1.97 million within
five business days of June 23, 2021, $1.965 million before July 21, 2021, and an
additional $1.965 million before August 21, 2021. The agreement also provided:

      AFTER THE INITIAL PAYMENT OF $1,970,000.00 USD AND IN
      CONSIDERATION OF FUTURE PAYMENT COMMITMENTS,
      ANHUI POWERGUARD AGREES TO RELEASE DRE Health
      FROM ALL LEGAL CLAIMS (GRANTED DRE COMPLETES

      2
        The Honorable Gary A. Fenner, United States District Judge for the Western
District of Missouri.
      3
        The district court did not engage in factfinding relating to the merits of the
parties’ dispute; we thus recite and accept as true the facts as they are alleged in the
complaint. Koch v. Compucredit Corp., 543 F.3d 460, 463 (8th Cir. 2008)
(“Because the district court’s decision was based on the complaint alone, and did not
involve any determination of disputed factual issues, we review this decision de
novo, accepting as true the allegations in the complaint.”).
                                          -2-
      INSTALLMENT PAYMENTS), AGREE THAT THE VENUE FOR
      ANY FUTURE DISPUTES SHALL BE BINDING ARBITRATION
      WITH HONG KONG INTERNATIONAL ARBITRATION CENTRE
      (HKIAC) UNDER THE TERMS OF ORIGINAL PO, AND AGREE
      TO DELIVER NITRILE GLOVES TO DRE Health . . .

       In June 2022, Anhui filed a diversity action in federal court alleging that DRE
Health breached the agreement by remitting only a single $1 million payment on
September 11, 2021. DRE Health responded with a motion to stay litigation and
compel arbitration pursuant to the agreement’s arbitration clause. The district court
denied the motion upon finding that the prefatory phrase, “AFTER THE INITIAL
PAYMENT OF $1,970,000.00 USD,” served as a condition precedent to the three
obligations enumerated in the agreement, including Anhui’s agreement to submit
any future disputes to binding arbitration. Because DRE Health did not complete
the initial $1.97 million installment payment, there consequently was no contract
between the parties to arbitrate. The district court also found that the inclusion of
the prefatory phrase in the agreement vitiated any “clear and unmistakable” evidence
that the parties intended to submit the threshold issue of arbitrability to an arbitrator.
DRE Health now appeals.

                                           II.

       “On appeal, we review de novo the denial of a motion to compel arbitration.”
Duncan v. Int’l Mkts. Live, Inc., 20 F.4th 400, 402 (8th Cir. 2021) (per curiam).
“Arbitration agreements are favored by federal law and will be enforced as long as
a valid agreement exists ‘and the dispute falls within the scope of that agreement.’”
Shockley v. PrimeLending, 929 F.3d 1012, 1017 (8th Cir. 2019) (citation omitted).
“But despite arbitration’s ‘favored status,’” Duncan, 20 F.4th at 402 (citation
omitted), “a party cannot be required to submit to arbitration any dispute which he
has not agreed so to submit,” Parm v. Bluestem Brands, Inc., 898 F.3d 869, 873 (8th
Cir. 2018) (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002)).
The threshold inquiry, therefore, is whether the parties contractually agreed to
arbitrate their dispute. Shockley, 929 F.3d at 1017. DRE Health, as the party
                                           -3-
seeking to compel arbitration, bears the burden of proving that such an agreement
exists and is enforceable. Id. Further, “state contract law governs the threshold
question of whether an enforceable arbitration agreement exists between litigants; if
an enforceable agreement exists, the federal substantive law of arbitrability governs
whether the litigants’ dispute falls within the scope of the arbitration agreement.”
Donaldson Co. v. Burroughs Diesel, Inc., 581 F.3d 726, 731 (8th Cir. 2009). Anhui
and DRE Health agree that Missouri law applies.

                                          A.

       “The FAA places arbitration agreements on an equal footing with other
contracts, and courts will examine arbitration agreements in the same light as they
would examine any contractual agreement.” Triarch Indus., Inc. v. Crabtree, 158
S.W.3d 772, 776 (Mo. 2005) (en banc). Thus, “in determining whether the parties
have entered into a valid agreement to arbitrate,” Missouri courts apply “the usual
rules of state contract law and canons of contract interpretation.” Id. The parties
here do not dispute that the prefatory phrase in the agreement, “AFTER THE
INITIAL PAYMENT OF $1,970,000.00 USD,” is a condition precedent. See
Lowery v. Air Support Int’l, Inc., 982 S.W.2d 326, 329 (Mo. Ct. App. 1998) (“A
condition precedent is a condition which must be fulfilled before the duty to perform
an existing contract arises. . . . ‘[N]o promise based upon a condition can be enforced
as such until the contingency upon which it depends has happened.’” (citation
omitted) (alteration in original)). Their disagreement, rather, centers on the reach of
the prefatory phrase to the three distinct obligations that the agreement imposes:
(1) Anhui agrees to release DRE Health from all legal claims provided that DRE
Health remits the three installment payments; (2) Anhui agrees to submit any future
dispute to arbitration; and (3) Anhui agrees to deliver additional shipments of gloves
to DRE Health.

      DRE Health contends that the prefatory phrase functions as a condition
precedent only to Anhui’s obligation to release all legal claims. That is, the parties
intended to create alternative methods of dispute resolution, such that the failure of
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DRE Health to complete the initial $1.97 million installment payment would relieve
Anhui of its duty to release DRE Health from its legal obligations but would not
impact the parties’ independent agreement to arbitrate. Anhui, on the other hand,
submits that the prefatory phrase extends to all three obligations, and DRE Health’s
failure to remit the initial installment payment relieves Anhui of its duty to submit
the dispute to arbitration. We find that Anhui’s interpretation accords with the
logical and most natural reading of the agreement.

       The series-qualifier canon guides our analysis. See generally Antonin Scalia
& Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 147 (2012). It
instructs: “When there is a straightforward, parallel construction that involves all
nouns or verbs in a series, a prepositive . . . modifier normally applies to the entire
series.” State v. Champagne, 561 S.W.3d 869, 873 (Mo. Ct. App. 2018) (citation
omitted); see also United States v. Loyd, 886 F.3d 686, 688 (8th Cir. 2018) (“The
series-qualifier canon ‘requires a modifier to apply to all items in a series when such
an application would represent a natural construction.’” (citation omitted)). The
Supreme Court has found that the canon “generally reflects the most natural reading
of a sentence,” Facebook, Inc. v. Duguid, 141 S. Ct. 1163, 1169 (2021), and this
Court has noted that it can “reinforce[]” plain meaning, United States v. Wilkins, 25
F.4th 596, 600 (8th Cir. 2022).

       Here, the verbs “agrees” or “agree” precede all three obligations in the
contract, which indicates a parallel construction. See Parallel, Meriam-Webster’s
Collegiate Dictionary (11th ed. 2020) (defining “parallel” as “similar, analogous,”
“readily compared,” “having identical syntactical elements in corresponding
positions”). Moreover, the three obligations form a series because they pertain to a
common subject matter: the business relationship between the parties. Cf. Jama v.
Immig. & Customs Enf’t, 543 U.S. 335, 344 n.4 (2005) (using “receives, possesses,
or transports” to illustrate the concept of an “integrated list” (citation omitted));
Lockhart v. United States, 577 U.S. 347, 352 (2016) (“A reader intuitively applies
‘of the United States’ to ‘the laws,’ ‘the treaties’ and ‘the constitution’ because
(among other things) laws, treaties, and the Constitution are often cited together,
                                         -5-
because readers are used to seeing ‘of the United States’ modify each of them, and
because the listed items are simple and parallel without unexpected internal
modifiers or structure.”).

       The agreement also contains other syntactical elements that counsel in favor
of Anhui’s interpretation. First, a comma separates each obligation rather than a
period or semicolon; while the latter two punctuation marks could suggest that each
item within the series should be construed separately, the use of commas implies the
opposite. Alpern v. Ferebee, 949 F.3d 546, 550 (10th Cir. 2020) (holding that the
terms “along roads or trailsides” modified the entire series of activities enumerated
in a statute, including “parking” and “picnicking,” as “[e]ach element is separated
only by a comma, and no words or punctuation interrupt the series’ nouns . . . [and]
[n]o odd punctuation breaks up the series’ flow.”); cf. Facebook, 141 S. Ct. at 1170
(“[A] qualifying phrase separated from antecedents by a comma is evidence that the
qualifier is supposed to apply to all the antecedents instead of only to the
immediately preceding one.”). Second, the word “and” precedes the final obligation
in the agreement requiring Anhui to deliver additional shipments of gloves to DRE
Health, the “most natural reading of” which “is conjunctive—‘along with or together
with.’” United States v. Pulsifer, 39 F.4th 1018, 1021 (8th Cir. 2022) (citation
omitted), cert. granted, 143 S. Ct. 978 (2023); see also United States v. Garcon, 54
F.4th 1274, 1278 (11th Cir. 2022) (en banc) (“[W]hen ‘and’ is used to connect a list
of requirements, the word ordinarily has a ‘conjunctive’ sense, meaning that all the
requirements must be met.”).

       In sum, we conclude that the three obligations in the agreement should be
construed as a whole and thus are all modified by the prefatory phrase, “AFTER
THE INITIAL PAYMENT OF $1,970,000.00 USD.” To be sure, while canons of
construction are “useful tools” of interpretation, they do not serve as “inflexible
rules.” Facebook, 141 S. Ct. at 1175 (Alito, J., concurring). Further, the series-
qualifier canon is “highly sensitive to context.” Id. at 1174. But the circumstances
of the parties’ contractual relationship, together with the structure of the agreement’s
language, renders the canon an apposite interpretative tool to determine the reach of
                                          -6-
the prefatory phrase. To this end, DRE Health points to no alternative canon or
grammatical guidepost to support its strained, unintuitive reading of the agreement.

                                          B.

        DRE Health additionally argues that construing the prefatory phrase as a
condition precedent to arbitration would “greatly limit to the point of absurdity the
scope of arbitrable issues.” We are unconvinced. By contending that there would
be no reason to arbitrate if it were required to remit the initial $1.97 million
installment payment, DRE Health ignores the remaining obligations in the
agreement; namely, that DRE Health must make two further payments, and that
Anhui must deliver additional orders of gloves. The failure of the parties to fulfill
the respective ends of their bargain could give rise to future arbitrable disputes.
Equally unpersuasive is DRE Health’s argument that applying the prefatory phrase
to all three obligations would “require Anhui to release DRE [Health] from all legal
claims before any issue is arbitrable.” The language used in the agreement includes
the qualification, “(GRANTED DRE COMPLETES INSTALLMENT
PAYMENTS),” indicating that the parties created a conditional release. Put
differently, Anhui’s promise to release DRE Health from its legal claims is
conditioned upon DRE Health’s completion of the three installment payments.
Thus, the legal release would be without effect if DRE Health failed to adhere to the
installment schedule, and the parties could arbitrate their dispute regarding the
outstanding balance.

       While DRE Health is correct that Missouri law disfavors conditions
precedent, courts must so construe a contract provision if “required to do so by plain,
unambiguous language or by necessary implication.” Kan. City S. Ry. Co. v. St.
Louis-S.F. Ry. Co., 509 S.W.2d 457, 460 (Mo. 1974). Pursuant to the conventional
rules of grammar and the intention of the parties as discerned from the structure of
the agreement, and accepting as true the allegation that DRE Health failed to remit
the initial $1.97 million installment payment, Anhui accordingly had no obligation
to submit its breach-of-contract claim to arbitration.
                                         -7-
                                         III.

        DRE Health next asserts that the district court erred by determining the
threshold issue of arbitrability. By making this argument, however, DRE Health
“puts the cart before the horse, as it presumes the arbitration provision formed part
of the contract at issue.” Neb. Mach. Co. v. Cargotec Sols., LLC, 762 F.3d 737, 741
n.2 (8th Cir. 2014). As discussed previously, DRE Health’s failure to remit the
initial $1.97 million installment payment relieved Anhui of its duty to arbitrate; the
absence of an agreement to arbitrate necessarily forecloses any argument that the
parties delegated the issue of arbitrability to an arbitrator. See Koch, 543 F.3d at
463 (“To decide questions of arbitrability, we must determine whether a valid
arbitration agreement exists between the parties . . . .”). The district court did not
err by deciding the issue.

                                         IV.

      For the foregoing reasons, we affirm the judgment of the district court.
                      ______________________________

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