Court Opinion

ID: 29265
Source: CourtListenerOpinion
Date Created: 2010-04-25 09:36:26+00
Date Added: 2024-06-11T12:39:48.805022
License: Public Domain

UNITED STATES COURT OF APPEALS
                              FIFTH CIRCUIT

                                 _________________

                                     No. 02-50400

                                 (Summary Calendar)
                                 _________________

            GOSS-REID & ASSOCIATES INC; TRACY GOSS; SHEILA
            REID,

                                        Plaintiffs - Appellees,

            versus

            TEKNIKO LICENSING CORPORATION; ET AL,

                                        Defendants,

            TEKNIKO LICENSING CORPORATION;                        LANDMARK
            EDUCATION CORPORATION,

                                        Defendants - Appellants.

                      Appeal from the United States District Court
                          For the Western District of Texas
                                No. A-01-CV-525-SS

                                   October 28, 2002

Before DAVIS, WIENER, and EMILIO M. GARZA, Circuit Judges.
PER CURIAM:*

       Defendants Tekniko Licensing Corporation and Landmark Education Corporation

(“Defendants”) appeal from the district court’s denial of their motion to compel arbitration.

Defendants argue that the district court erred in concluding that a 1991 agreement between a

purported predecessor-in-interest of defendant Tekniko Licensing Corporation (“Tekniko Licensing”)

and plaintiffs Goss-Reid & Associates, Inc., Tracy Goss, and Sheila Reid (“Plaintiffs”) extinguished

arbitration provisions contained in two prior agreements between Plaintiffs and other purported

predecessors-in-interest of Tekniko Licensing. We affirm.

       This appeal arises out of a dispute over the use and ownership of “The Winning Strategy,”

a consulting services “technology.” For present purposes, however, we focus on a series of

agreements between Plaintiffs and the apparent predecessors-in-interest of defendant Tekniko

Licensing. Transformational Technologies, Inc. (“TTI”) and the Rittenhaus-Tate Organization, a

business owned by plaintiffs Tracy Goss and Sheila Reid, entered into a Franchise Agreement under

which Goss and Reid became licensed franchisees of TTI and were given the use of certain TTI

intellectual property.1 Goss and Reid subsequently developed “The Winning Strategy” during the

term of the Franchise Agreement. Plaintiffs and Tekniko, Inc., the apparent successor-in-interest of

TTI, entered into a License Agreement, which gave Plaintiffs a non-exclusive license to use the same

intellectual property covered by the Franchise Agreement. Both agreements contained mandatory

       *
          Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
       1
         Defendants argue that the Franchise Agreement was voluntarily terminated in 1990.
However, the document cited in support of this contention does not purport to terminate the
Franchise Agreement, but rather a license agreement between the Plaintiffs and TTI dated July 17,
1985.

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arbitration provisions. Plaintiffs and Tekniko, Inc. then entered into a third agreement (“the Transfer

Agreement”), which permanently transferred t o Plaintiffs the non-exclusive right to use the

intellectual property that was the subject of the prior agreements in exchange for a percentage of

Plaintiffs’ adjusted gross profits for that year. The Transfer Agreement stated that it “constitute[s]

an amendment to the License Agreement . . . between you and this company (“TEKNIKO”),

supersedes all prior agreements between you and TEKNIKO and, except as provided below, will

terminate your rights and obligations and those of TEKNIKO under the License Agreement.” The

Transfer Agreement did not contain an arbitration provision, nor did it refer to or adopt the

arbitration provisions contained in either the License Agreement or the Franchise Agreement. The

Transfer Agreement did contain a choice of law provision stating that New York law would govern

the interpretation of the agreement.

       Plaintiffs filed suit alleging improper use of “The Winning Strategy” by the Defendants.

Defendants asserted ownership of “The Winning Strategy” based on the Franchise Agreement.

Defendants also moved to dismiss or to transfer venue and moved to compel arbitration on the basis

of the Franchise and License Agreements.2 The district court denied both motions. In regard to the

motion to compel arbitration, the district court found that, under New York law, the Transfer

Agreement constituted a novation and extinguished the arbitration provisions of the previous

agreements. Defendants moved for reconsideration, which was denied. Defendants now appeal.

       “We review the grant or denial of a motion to com pel arbitration de novo.” Webb v.

       2
         Defendants contend that they are the successors-in-interest of TTI and Tekniko, Inc. and
therefore retain the right to enforce the arbitration provisions of the Franchise and License
Agreements. Like the district court, we decline to resolve this issue because it is irrelevant due to
the unenforceability of the arbitration provisions.

                                                 -3-
Investacorp., Inc., 89 F.3d 252, 257 (5th Cir. 1996). “In adjudicating a motion to compel arbitration

under the Federal Arbitration Act, courts begin by determining whether the parties agreed to arbitrate

the dispute.” Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002); see also

Volt Info. Sciences v. Board of Trustees, 489 U.S. 468, 478 (1989) (“[T]he FAA does not require

parties to arbitrate when they have not agreed to do so . . . .”); Prima Paint Corp. v. Flood &

Conklin Mfg. Co., 388 U.S. 395, 404 n. 12 (1967) (“[T]he purpose of Congress in [enacting the

FAA] was to make arbitration agreements as enforceable as other contracts, not more so.”). “This

determination is generally made on the basis of ‘ordinary state law principles that govern the

formation of contracts.’” Fleetwood Enters., 280 F.3d at 1073 (quoting First Options of Chicago,

Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). Here, the issue is whether the arbitration provisions of

the Franchise and License Agreement s were superseded by the Transfer Agreement. Thus, the

question before us is one of contractual interpretation.

       The parties agree that New York law governs the interpretation of the Transfer Agreement.

Under New York law, a court construing a contract should strive to give effect to the intentions of

the parties as expressed in the terms of the contract. See Wallace v. 600 Partners Co., 658 N.E.2d

715, 717 (N.Y. 1995) (“It is axiomatic that a contract is to be interpreted so as to give effect to the

intention of the parties as expressed in the unequivocal language employed.”); Elletson v. Bonded

Insulation Co. Inc., 708 N.Y.S.2d 511, 513 (N.Y. App. Div. 2000) (“It is well settled that where

parties express their intent in a clear and complete contract, the writing must be enforced according

to its terms.”).3 The Transfer Agreement states that it “supersedes all prior agreements” between

       3
         The Defendants contend that an arbitrator, not a court, must decide whether this dispute is
subject to arbitration. Absent an agreement between the parties to that effect, however, the matter
was properly resolved by the district court. See AT&T Tech., Inc. v. Communications Workers, 475

                                                 -4-
Plaintiffs and the predecessor-in-interest of defendant Tekniko Licensing. This type of agreement

clearly constitutes a novation under New York law. In Citigifts, Inc. v. Pechnik, 492 N.Y.S.2d 752,

753 (N.Y. App. Div. 1985), aff’d, 491 N.E.2d 1100 (N.Y. 1986), the parties entered into a contract

which provided that “[t]his agreement supersedes any concurrent or previously signed documents.”

The court found that the agreement constituted a novation, which “[b]y its terms . . . superseded all

prior or currently existing agreements between the parties.” Id.; cf. Polar Entm’t Corp. v. Directors

Guild of Am., Inc., 592 N.Y.S.2d 728, 728 (N.Y. App. Div. 1993) (“Notwithstanding the strong

policy favoring arbitration of labor disputes, arbitration must be stayed where a prior agreement

providing for arbitration has expired and the superseding agreement does not contain a clear

agreement to arbitrate.”).

       Defendants rely extensively on Primex International Corp. v. Wal-Mart Stores, 679 N.E.2d

624 (N.Y. 1997), in which the New York Court of Appeals found that an arbitration clause survived

both the expiration of the agreement and the formation of a new agreement between the parties

without such a provision. The court’s decision in Primex was based on a finding that the general

merger clause in the new agreement, which stated that “[a]ll prior discussions, agreements,

understandings or arrangements . . . are merged herein and this document represents the entire

understanding between the part ies,” was not sufficiently specific to retroactively revoke the

arbitration clause. Id. at 625, 628. Here, however, the Transfer Agreement specifically provides that

it supersedes all prior agreements. Thus, the district court did not err in finding that there was no

enforceable arbitration provision. See Health-Chem Corp. v. Baker, 915 F.2d 805, 811 (2d Cir.

U.S. 643, 649 (1986) (“Unless the parties clearly and unmistakably provide otherwise, the question
of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.”).

                                                -5-
1990) (“When the parties to a contract enter into a new agreement that expressly supersedes the

previous agreement, the previous agreement is extinguished, thereby reducing the remedy for breach

to a suit on the new agreement.”).

       Defendants also point to the Plaintiffs’ actions and to subsequent agreements between the

parties as evidence that the Transfer Agreement was not intended to extinguish the Franchise and

License Agreements. The district court correctly refused to consider this evidence. Where, as here,

a written agreement is unambiguous on its face, extrinsic and parol evidence will not be considered.

See W.W.W. Assoc., Inc. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990) (“It is well settled that

‘extrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which

is complete and clear and unambiguous upon its face.’”) (quoting Intercontinental Planning v.

Daystrom, Inc., 248 N.E.2d 576, 580 (N.Y. 1969)). The only potential ambiguity raised by the

Defendants is that the Transfer Agreement refers to itself as an “amendment to the License

Agreement.” Read as a whole, however, the Transfer Agreement plainly manifests an intention to

supersede all prior agreements between the parties and, except as specifically provided, to terminate

all rights and obligations under the License Agreement. See Rentways, Inc. v. O’Neill Milk & Cream

Co., 126 N.E.2d 271, 273 (N.Y. 1955) (“A cardinal principle governing the construction of contracts

is that the entire contract must be considered and, as between possible interpretations of an

ambiguous term, that will be chosen which best accords with the sense of the remainder of the

contract.”). Thus, the district court correctly excluded the extrinsic evidence.

       AFFIRMED.

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