Summary
holding that a dispute arising out of the parties' Support Services Agreement that lacked an arbitration clause was still subject to arbitration based on the broad language of an arbitration provision contained in the parties' related Software License Agreement
Summary of this case from Consolidated Brokers Ins. v. Pan-American AssurOpinion
CIVIL ACTION No. 00-2435-GTV.
June 11, 2001
MEMORANDUM AND ORDER
This case is before the court on Defendant Allenbrook, Inc.'s Motion to Dismiss Plaintiff's Complaint or in the Alternative to Stay Litigation Pending Arbitration (Doc. 11). Plaintiff filed this diversity action against Defendant alleging four claims, each of which arises from a service agreement between the parties. Defendant argues that an arbitration clause contained in a separate but related agreement requires Plaintiff to submit its claims to arbitration. For the reasons stated below, the court agrees with Defendant. All further proceedings in this case are stayed pending the outcome of arbitration.
I. Factual Background
Plaintiff is a Kansas corporation with its principal place of business in Leavenworth, Kansas. Plaintiff is in the business of providing insurance products and services to members of the United States military.
Defendant is a Maine corporation with its principal place of business in Portland, Maine. Defendant is in the business of developing and licensing computer software for insurance companies. One such software is referred to as "Phoenix."
In September of 1998, Plaintiff and Defendant entered into a "Software License Agreement," whereby Defendant licensed its Phoenix program to Plaintiff. The Software License Agreement included the following arbitration clause:
Excepting any action based upon equity or seeking specific performance, any irreconcilable dispute between the parties to this Agreement will be submitted for decision to a board of arbitration. . . .
In conjunction with the Software License Agreement, Plaintiff and Defendant entered into a "Support Services Agreement." That agreement provided essentially that Defendant would lend the necessary support services and technical training for Plaintiff to adapt the Phoenix program to its needs. The Support Services Agreement did not contain an arbitration clause.
The parties performed under the agreements for more than a year with little to no problem. In December of 1999, Plaintiff started to become dissatisfied with Defendant's performance under the Support Services Agreement. In September of 2000, Plaintiff filed the currently pending action in this court.
II. Discussion
The court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1332(a)(1), because the amount in controversy exceeds $75,000, and Plaintiff and Defendant are citizens of different States. The court has personal jurisdiction over Defendant, and venue is proper in the District of Kansas.
Plaintiff alleges four claims, each of which arises from the Support Services Agreement. Defendant seeks to compel arbitration of those claims based upon the arbitration clause contained in the Software License Agreement. Plaintiff argues that its claims are not subject to arbitration, because they arise solely from the Support Services Agreement, which contains no arbitration clause. The court determines that the arbitration clause contained in the Software License Agreement applies to Plaintiff's claims, and that Plaintiff, therefore, must submit its claims to arbitration.
Specifically, Plaintiff alleges (1) breach of the Support Services Agreement; (2) fraud in the inducement of the Support Services Agreement; (3) negligent misrepresentation of the costs associated with performance of the Support Services Agreement; and (4) breach of an implied duty of good faith and fair dealing with respect to the Support Services Agreement.
The Federal Arbitration Act, 9 U.S.C. § 1-16, "evinces a strong federal policy in favor of arbitration." ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1462 (10th Cir. 1995) (citing Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987)). If an agreement contains an arbitration clause, "a presumption of arbitrability arises." Id. (citing ATT Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 650 (1986)). The presumption may be overcome only if "it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." United Steelworkers of Am. v. Warrior Gulf Navigation Co., 363 U.S. 574, 582-83 (1960). Where the language is broad, and the agreement contains no express provision excluding an asserted dispute from arbitration, "only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail." Id. at 585.
Judge Earl E. O'Connor of this court addressed the issue in this case in LDS, Inc. v. Metro Can. Logistics, Inc., 28 F. Supp.2d 1297 (D.Kan. 1998). There, the parties had entered into a software license agreement and a software maintenance agreement. The license agreement contained an arbitration clause, but the maintenance agreement did not. The plaintiff sought damages resulting from the defendant's alleged breach of the maintenance agreement. The defendant moved to compel arbitration pursuant to the arbitration provision contained in the license agreement. The plaintiff resisted, arguing that its claim for damages was not subject to arbitration, because it pertained solely to the maintenance agreement, which contained no arbitration clause. The court held:
[T]he arbitration provision contained in the [license agreement] is clearly broad enough to encompass all matters in dispute, including those involving the [maintenance agreement]. The broad language of the [license agreement] mandates arbitration for "any controversy or claim arising out of or relating to this Agreement." As [the defendant] aptly notes, "[t]here would have been no software code to maintain had [the defendant] not licensed the software from [the plaintiff], who installed and trained [the defendant] pursuant to the [license agreement]." [The defendant's] Reply Brief at 11. . . . We conclude that any amounts due under the [maintenance agreement] are sufficiently related to the software sold, installed, and trained under the [license agreement] as to trigger application of the arbitration requirement to both agreements.
LDS, Inc., 28 F. Supp.2d at 1304. In reaching its decision, the LDS, Inc. court relied heavily on ARW Exploration Corp. v. Agguire, 45 F.3d 1455 (10th Cir. 1995).
In ARW Exploration Corp., the parties had entered into six joint venture agreements. Five of those six agreements contained arbitration clauses which provided that "[a]ny matter in dispute which is not provided for in this agreement shall be settled by arbitration." The sixth agreement, referred to as the IFA Agreement, did not contain an arbitration clause. The district court submitted all of the parties' claims to arbitration, including those claims relating to the IFA Agreement. In doing so, the district court reasoned:
While it is true that this agreement did not contain an arbitration clause, the IFA Agreement clearly relates to the on-going oil and gas ventures between the parties. Th[e] arbitration provision[s contained in the other five joint venture agreements are] clearly broad enough to encompass disputes with respect to the IFA Agreement.
Id. at 1462 (quoting district court Order at 5 (W.D.Okla. Dec. 10, 1993)) (quotation marks omitted). The Tenth Circuit affirmed the district court's decision. Noting that the other agreements contained broad arbitration provisions, and that the IFA Agreement related to the joint venture between the parties, the Tenth Circuit held that "[t]he arbitration clauses of the [five other] agreements clearly covered all matters in dispute, including those arising out of the IFA Agreement." Id.
In accord with LDS, Inc. and ARW Exploration Corp., the court determines that the arbitration clause contained in the Software License Agreement requires Plaintiff to submit its claims to arbitration. The clause states that "any irreconcilable dispute between the parties to this Agreement will be submitted for decision to a board of arbitration." The court interprets this broad language to mean, at a minimum, that Plaintiff and Defendant agree to submit to arbitration all disputes that arise from or sufficiently relate to the Software License Agreement. While Plaintiff's claims do not arise from the Software License Agreement, they certainly relate to the Software License Agreement. Absent the Software License Agreement, the Support Services Agreement would not exist.
Because the Software License Agreement contains no express provision excluding claims arising from the Support Services Agreement, Plaintiff may avoid arbitration of its claims only by presenting "the most forceful evidence of a purpose to exclude the claim[s] from arbitration." United Steelworkers of Am., 363 U.S. at 584-85. Plaintiff attempts to do this by proffering evidence indicating that, during negotiations, Defendant requested an arbitration provision in the Support Services Agreement, but Plaintiff refused.
The court determines that Plaintiff's evidence is insufficient to overcome the heavy presumption in favor of arbitration. Plaintiff's evidence may indicate that the parties, for whatever reason, declined to include an arbitration provision in the Support Services Agreement; however, Plaintiff's evidence does not indicate that the parties intended to specifically exclude claims arising under the Support Services Agreement from the broad arbitration provision contained in the Software License Agreement. See United Auto. Workers of Am. v. Cardwell Mfg. Co., 304 F.2d 801, 802 (10th Cir. 1962) (refusing to exclude claim from broad arbitration clause where the evidence showed that plaintiff had unsuccessfully sought a specific provision covering the claim, because the evidence "conceded no more than that precontract negotiations had been undertaken on the issue . . . [but that the agreement], as finally reached, was silent on the issue").
The court concludes that the arbitration clause contained in the Software License Agreement requires Plaintiff to submit its claims to arbitration. All proceedings in this case are stayed pending arbitration.
IT IS, THEREFORE, BY THE COURT ORDERED that Defendant's motion (Doc. 11) is granted; all further proceedings in this case are stayed pending arbitration.
IT IS SO ORDERED.